G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON,MELECIO P. TUAZON, Spouses ANASTACIO andMARY T. BUENAVENTURA, Petitioners, vs.HEIRS OF BARTOLOME RAMOS, Respondents.

D E C I S I O N

PANGANIBAN, J.:

Stripped of nonessentials, the present caseinvolves the collection of a sum of money.Specifically, this case arose from the failure ofpetitioners to pay respondents’ predecessor-in-interest. This fact was shown by the non-encashment of checks issued by a third person, butindorsed by herein Petitioner Maria Tuazon in favorof the said predecessor. Under thesecircumstances, to enable respondents to collect onthe indebtedness, the check drawer need not beimpleaded in the Complaint. Thus, the suit isdirected, not against the drawer, but against thedebtor who indorsed the checks in payment of theobligation.

The Case

Before us is a Petition for Review1 under Rule 45 ofthe Rules of Court, challenging the July 31, 2002Decision2 of the Court of Appeals (CA) in CA-GR CVNo. 46535. The decretal portion of the assailedDecision reads:

"WHEREFORE, the appeal is DISMISSED and theappealed decision is AFFIRMED."

On the other hand, the affirmed Decision3 of Branch34 of the Regional Trial Court (RTC) of Gapan,Nueva Ecija, disposed as follows:

"WHEREFORE, judgment is hereby rendered infavor of the plaintiffs and against the defendants,ordering the defendants spouses Leonilo Tuazonand Maria Tuazon to pay the plaintiffs, as follows:

"1. The sum of P1,750,050.00, with interests fromthe 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 ofMay 2, 1988 and June 5, 1988, spouses Leonilo andMaria Tuazon purchased a total of 8,326 cavans ofrice from [the deceased Bartolome] Ramos[predecessor-in-interest of respondents]. That ofthis [quantity,] x x x only 4,437 cavans [have beenpaid for so far], leaving unpaid 3,889 cavansvalued at P1,211,919.00. In payment therefor, thespouses Tuazon issued x x x [several] Traders RoyalBank checks.

x x x x x x x x x

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

"[Respondents] averred that because spousesTuazon anticipated that they would be sued, theyconspired with the other [defendants] to defraudthem as creditors by executing x x x fictitious salesof their properties. They executed x x x simulatedsale[s] [of three lots] in favor of the x x x spousesBuenaventura x x x[,] as well as their residential lotand 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 LandTransportation Office of Cabanatuan City onSeptember 7, 1988. [Co-petitioner] Melecio Tuazon,

a son of spouses Tuazon, registered a fictitiousDeed of Sale on July 19, 1988 x x x over aresidential lot located at Nueva Ecija. Anothersimulated sale of a Toyota Willys was executed onJanuary 25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of thesaid sales, the titles of these properties issued inthe names of spouses Tuazon were cancelled andnew ones were issued in favor of the[co-]defendants spouses Buenaventura, AlejandroTuazon and Melecio Tuazon. Resultantly, by the saidante-dated and simulated sales and thecorresponding transfers there was no moreproperty left registered in the names of spousesTuazon answerable to creditors, to the damage andprejudice of [respondents].

"For their part, defendants denied havingpurchased x x x rice from [Bartolome] Ramos. Theyalleged that it was Magdalena Ramos, wife of saiddeceased, who owned and traded the merchandiseand Maria Tuazon was merely her agent. Theyargued that it was Evangeline Santos who was thebuyer of the rice and issued the checks to MariaTuazon as payments therefor. In good faith[,] thechecks were received [by petitioner] fromEvangeline Santos and turned over to Ramoswithout knowing that these were not funded. And itis for this reason that [petitioners] have beeninsisting on the inclusion of Evangeline Santos asan indispensable party, and her non-inclusion wasa fatal error. Refuting that the sale of severalproperties were fictitious or simulated, spousesTuazon contended that these were sold becausethey were then meeting financial difficulties but thedisposals were made for value and in good faithand done before the filing of the instant suit. Todispute the contention of plaintiffs that they werethe buyers of the rice, they argued that there wasno sales invoice, official receipts or like evidence toprove this. They assert that they were merelyagents and should not be held answerable."5

The corresponding civil and criminal cases werefiled by respondents against Spouses Tuazon.Those cases were later consolidated and amendedto include Spouses Anastacio and MaryBuenaventura, with Alejandro Tuazon and MelecioTuazon as additional defendants. Having passedaway before the pretrial, Bartolome Ramos wassubstituted by his heirs, herein respondents.

Contending that Evangeline Santos was anindispensable party in the case, petitioners movedto file a third-party complaint against her.Allegedly, she was primarily liable to respondents,because she was the one who had purchased themerchandise from their predecessor, as evidencedby the fact that the checks had been drawn in hername. The RTC, however, denied petitioners’Motion.

Since the trial court acquitted petitioners in allthree of the consolidated criminal cases, theyappealed only its decision finding them civilly liableto respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitionershad failed to prove the existence of an agencybetween respondents and Spouses Tuazon. Theappellate court disbelieved petitioners’ contentionthat Evangeline Santos should have beenimpleaded as an indispensable party. Inasmuch asall the checks had been indorsed by Maria Tuazon,who thereby became liable to subsequent holdersfor the amounts stated in those checks, there wasno need to implead Santos.

Hence, this Petition.6

Issues

Petitioners raise the following issues for ourconsideration:

"1. Whether or not the Honorable Court of Appealserred in ruling that petitioners are not agents of therespondents.

"2. Whether or not the Honorable Court of Appealserred in rendering judgment against the petitionersdespite x x x the failure of the respondents toinclude in their action Evangeline Santos, anindispensable party to the suit."7

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Agency

Well-entrenched is the rule that the SupremeCourt’s role in a petition under Rule 45 is limited toreviewing errors of law allegedly committed by theCourt of Appeals. Factual findings of the trial court,especially when affirmed by the CA, are conclusiveon the parties and this Court.8 Petitioners have notgiven us sufficient reasons to deviate from thisrule.

In a contract of agency, one binds oneself to rendersome service or to do something in representationor on behalf of another, with the latter’s consent orauthority.9 The following are the elements ofagency: (1) the parties’consent, express or implied,to establish the relationship; (2) the object, which isthe execution of a juridical act in relation to a thirdperson; (3) the representation, by which the onewho acts as an agent does so, not for oneself, butas a representative; (4) the limitation that theagent acts within the scope of his or herauthority.10 As the basis of agency isrepresentation, there must be, on the part of theprincipal, an actual intention to appoint, anintention naturally inferable from the principal’swords or actions. In the same manner, there mustbe an intention on the part of the agent to acceptthe appointment and act upon it. Absent suchmutual intent, there is generally no agency.11

This Court finds no reversible error in the findingsof the courts a quo that petitioners were the ricebuyers themselves; they were not mere agents ofrespondents in their rice dealership. The questionof whether a contract is one of sale or of agencydepends on the intention of the parties.12

The declarations of agents alone are generallyinsufficient to establish the fact or extent of theirauthority.13 The law makes no presumption ofagency; proving its existence, nature and extent isincumbent upon the person alleging it.14 In thepresent case, petitioners raise the fact of agency asan affirmative defense, yet fail to prove itsexistence.

The Court notes that petitioners, on their ownbehalf, sued Evangeline Santos for collection of the

amounts represented by the bounced checks, in aseparate civil case that they sought to beconsolidated with the current one. If, as they claim,they were mere agents of respondents, petitionersshould have brought the suit against Santos for andon behalf of their alleged principal, in accordancewith Section 2 of Rule 3 of the Rules on CivilProcedure.15 Their filing a suit against her in theirown names negates their claim that they acted asmere agents in selling the rice obtained fromBartolome Ramos.

Second Issue:

Indispensable Party

Petitioners argue that the lower courts erred in notallowing Evangeline Santos to be impleaded as anindispensable party. They insist that respondents’Complaint against them is based on the bouncingchecks she issued; hence, they point to her as theperson primarily liable for the obligation.

We hold that respondents’ cause of action is clearlyfounded on petitioners’ failure to pay the purchaseprice of the rice. The trial court held that PetitionerMaria Tuazon had indorsed the questioned checksin favor of respondents, in accordance withSections 31 and 63 of the Negotiable InstrumentsLaw.16 That Santos was the drawer of the checks isthus immaterial to the respondents’ cause ofaction.

As indorser, Petitioner Maria Tuazon warranted thatupon due presentment, the checks were to beaccepted or paid, or both, according to theirtenor; and that in case they were dishonored, shewould pay the corresponding amount.17 After aninstrument is dishonored by nonpayment, indorserscease to be merely secondarily liable; they becomeprincipal debtors whose liability becomes identicalto that of the original obligor. The holder of anegotiable instrument need not even proceedagainst the maker before suing theindorser.18 Clearly, Evangeline Santos -- as thedrawer of the checks -- is not an indispensableparty in an action against Maria Tuazon, theindorser of the checks.

Indispensable parties are defined as "parties ininterest without whom no final determination can

be had."19 The instant case was originally one forthe collection of the purchase price of the ricebought by Maria Tuazon from respondents’predecessor. In this case, it is clear that there is noprivity of contract between respondents andSantos. Hence, a final determination of the rightsand interest of the parties may be made withoutany need to implead her.

WHEREFORE, the Petition is DENIED and theassailed Decision AFFIRMED. Costs againstpetitioners.

SO ORDERED.

G.R. No. 117356 June 19, 2000

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

D E C I S I O N

QUISUMBING, J.:

Before us is a petition for review on certiorari underRule 45 of the Rules of Court assailing the decisionof the Court of Appeals dated February 24, 1994, inCA-G.R. CV No. 31717, as well as the respondentcourt's resolution of September 30, 1994 modifyingsaid decision. Both decision and resolutionamended the judgment dated February 13, 1991,of the Regional Trial Court of Makati City, Branch147, in Civil Case No. 90-118.

The facts of this case as found by both the trial andappellate courts are as follows:

St. Therese Merchandising (hereafter STM)regularly bought sugar from petitioner VictoriasMilling Co., Inc., (VMC). In the course of theirdealings, petitioner issued several ShippingList/Delivery Receipts (SLDRs) to STM as proof ofpurchases. Among these was SLDR No. 1214M,which gave rise to the instant case. Dated October16, 1989, SLDR No. 1214M covers 25,000 bags ofsugar. Each bag contained 50 kilograms and pricedat P638.00 per bag as "per sales order VMCMarketing No. 042 dated October 16, 1989."1 Thetransaction it covered was a "direct sale."2 TheSLDR also contains an additional note which reads:"subject for (sic) availability of a (sic) stock atNAWACO (warehouse)."3

On October 25, 1989, STM sold to privaterespondent Consolidated Sugar Corporation (CSC)its rights in SLDR No. 1214M for P 14,750,000.00.CSC issued one check dated October 25, 1989 andthree checks postdated November 13, 1989 inpayment. That same day, CSC wrote petitioner thatit had been authorized by STM to withdraw thesugar covered by SLDR No. 1214M. Enclosed in theletter were a copy of SLDR No. 1214M and a letter

of authority from STM authorizing CSC "to withdrawfor and in our behalf the refined sugar covered byShipping List/Delivery Receipt-Refined Sugar (SDR)No. 1214 dated October 16, 1989 in the totalquantity of 25,000 bags."4

On October 27, 1989, STM issued 16 checks in thetotal amount of P31,900,000.00 with petitioner aspayee. The latter, in turn, issued Official ReceiptNo. 33743 dated October 27, 1989 acknowledgingreceipt of the said checks in payment of 50,000bags. Aside from SLDR No. 1214M, said checks alsocovered SLDR No. 1213.

Private respondent CSC surrendered SLDR No.1214M to the petitioner's NAWACO warehouse andwas allowed to withdraw sugar. However, after2,000 bags had been released, petitioner refusedto allow further withdrawals of sugar against SLDRNo. 1214M. CSC then sent petitioner a letter datedJanuary 23, 1990 informing it that SLDR No. 1214Mhad been "sold and endorsed" to it but that it hadbeen refused further withdrawals of sugar frompetitioner's warehouse despite the fact that only2,000 bags had been withdrawn.5 CSC thusinquired when it would be allowed to withdraw theremaining 23,000 bags.

On January 31, 1990, petitioner replied that it couldnot allow any further withdrawals of sugar againstSLDR No. 1214M because STM had alreadydwithdrawn all the sugar covered by the clearedchecks.6

On March 2, 1990, CSC sent petitioner a letterdemanding the release of the balance of 23,000bags.

Seven days later, petitioner reiterated that all thesugar corresponding to the amount of STM'scleared checks had been fully withdrawn andhence, there would be no more deliveries of thecommodity to STM's account. Petitioner also notedthat CSC had represented itself to be STM's agentas it had withdrawn the 2,000 bags against SLDRNo. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specificperformance, docketed as Civil Case No. 90-1118.Defendants were Teresita Ng Sy (doing business

under the name of St. Therese Merchandising) andherein petitioner. Since the former could not beserved with summons, the case proceeded onlyagainst the latter. During the trial, it wasdiscovered that Teresita Ng Go who testified forCSC was the same Teresita Ng Sy who could not bereached through summons.7 CSC, however, did notbother to pursue its case against her, but insteadused her as its witness.

CSC's complaint alleged that STM had fully paidpetitioner for the sugar covered by SLDR No.1214M. Therefore, the latter had no justification forrefusing delivery of the sugar. CSC prayed thatpetitioner be ordered to deliver the 23,000 bagscovered by SLDR No. 1214M and sought the awardof P1,104,000.00 in unrealized profits,P3,000,000.00 as exemplary damages,P2,200,000.00 as attorney's fees and litigationexpenses.

Petitioner's primary defense a quo was that it wasan unpaid seller for the 23,000 bags.8 Since STMhad already drawn in full all the sugarcorresponding to the amount of its cleared checks,it could no longer authorize further delivery ofsugar to CSC. Petitioner also contended that it hadno privity of contract with CSC.

Petitioner explained that the SLDRs, which it hadissued, were not documents of title, but meredelivery receipts issued pursuant to a series oftransactions entered into between it and STM. TheSLDRs prescribed delivery of the sugar to the partyspecified therein and did not authorize the transferof said party's rights and interests.

Petitioner also alleged that CSC did not pay for theSLDR and was actually STM's co-conspirator todefraud it through a misrepresentation that CSCwas an innocent purchaser for value and in goodfaith. Petitioner then prayed that CSC be ordered topay it the following sums: P10,000,000.00 as moraldamages; P10,000,000.00 as exemplary damages;and P1,500,000.00 as attorney's fees. Petitioneralso prayed that cross-defendant STM be orderedto pay it P10,000,000.00 in exemplary damages,and P1,500,000.00 as attorney's fees.

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

As earlier stated, the trial court rendered itsjudgment favoring private respondent CSC, asfollows:

"WHEREFORE, in view of the foregoing, the Courthereby renders judgment in favor of the plaintiffand against defendant Victorias Milling Company:

"1) Ordering defendant Victorias MillingCompany to deliver to the plaintiff 23,000bags of refined sugar due under SLDR No.1214;

"2) Ordering defendant Victorias MillingCompany to pay the amount ofP920,000.00 as unrealized profits, theamount of P800,000.00 as exemplarydamages and the amount ofP1,357,000.00, which is 10% of theacquisition value of the undelivered bagsof refined sugar in the amount ofP13,570,000.00, as attorney's fees, plusthe costs.

"SO ORDERED."9

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita NgGo, that she had fully paid the purchase price ofP15,950,000.00 of the 25,000 bags of sugar boughtby her covered by SLDR No. 1214 as well as thepurchase price of P15,950,000.00 for the 25,000bags of sugar bought by her covered by SLDR No.1213 on the same date, October 16, 1989 (date ofthe two SLDRs) is duly supported by Exhibits C toC-15 inclusive which are post-dated checks datedOctober 27, 1989 issued by St. ThereseMerchandising in favor of Victorias Milling Companyat the time it purchased the 50,000 bags of sugarcovered by SLDR No. 1213 and 1214. Said checksappear to have been honored and duly credited tothe account of Victorias Milling Company becauseon October 27, 1989 Victorias Milling Companyissued official receipt no. 34734 in favor of St.Therese Merchandising for the amount ofP31,900,000.00 (Exhibits B and B-1). The testimonyof Teresita Ng Go is further supported by Exhibit F,

which is a computer printout of defendant VictoriasMilling Company showing the quantity and value ofthe purchases made by St. Therese Merchandising,the SLDR no. issued to cover the purchase, theofficial reciept no. and the status of payment. It isclear in Exhibit 'F' that with respect to the sugarcovered by SLDR No. 1214 the same has been fullypaid as indicated by the word 'cleared' appearingunder the column of 'status of payment.'

"On the other hand, the claim of defendantVictorias Milling Company that the purchase priceof the 25,000 bags of sugar purchased by St.Therese Merchandising covered by SLDR No. 1214has not been fully paid is supported only by thetestimony of Arnulfo Caintic, witness for defendantVictorias Milling Company. The Court notes that thetestimony of Arnulfo Caintic is merely a sweepingbarren assertion that the purchase price has notbeen fully paid and is not corroborated by anypositive evidence. There is an insinuation byArnulfo Caintic in his testimony that the postdatedchecks issued by the buyer in payment of thepurchased price were dishonored. However, saidwitness failed to present in Court any dishonoredcheck or any replacement check. Said witnesslikewise failed to present any bank record showingthat the checks issued by the buyer, Teresita NgGo, in payment of the purchase price of the sugarcovered by SLDR No. 1214 were dishonored."10

Petitioner appealed the trial court’s decision to theCourt of Appeals.

On appeal, petitioner averred that the dealingsbetween it and STM were part of a series oftransactions involving only one account or onegeneral contract of sale. Pursuant to this contract,STM or any of its authorized agents could withdrawbags of sugar only against cleared checks of STM.SLDR No. 21214M was only one of 22 SLDRs issuedto STM and since the latter had already withdrawnits full quota of sugar under the said SLDR, CSCwas already precluded from seeking delivery of the23,000 bags of sugar.

Private respondent CSC countered that the sugarpurchases involving SLDR No. 1214M wereseparate and independent transactions and thatthe details of the series of purchases werecontained in a single statement with a consolidatedsummary of cleared check payments and sugar

stock withdrawals because this a more convenientsystem than issuing separate statements for eachpurchase.

The appellate court considered the followingissues: (a) Whether or not the transaction betweenpetitioner and STM involving SLDR No. 1214M wasa separate, independent, and single transaction;(b) Whether or not CSC had the capacity to sue onits own on SLDR No. 1214M; and (c) Whether or notCSC as buyer from STM of the rights to 25,000 bagsof sugar covered by SLDR No. 1214M could compelpetitioner to deliver 23,000 bagsallegedlyunwithdrawn.

On February 24, 1994, the Court of Appealsrendered its decision modifying the trial court'sjudgment, to wit:

"WHEREFORE, the Court hereby MODIFIES theassailed judgment and orders defendant-appellantto:

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

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

"3) Pay the costs of suit.

"SO ORDERED."11

Both parties then seasonably filed separatemotions for reconsideration.

In its resolution dated September 30, 1994, theappellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies theassailed judgment and orders defendant-appellantto:

"(1) Deliver to plaintiff-appellee 23,000bags of refined sugar under SLDR No.1214M;

"(2) Pay costs of suit.

"SO ORDERED."12

The appellate court explained the rationale for themodification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit ‘F' We relied upon in fixing the number ofbags of sugar which remained undelivered as12,586 cannot be made the basis for such afinding. The rule is explicit that courts shouldconsider the evidence only for the purpose forwhich it was offered. (People v. Abalos, et al, 1CA Rep 783). The rationale for this is to afford theparty against whom the evidence is presented toobject thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument thatExhibit ‘F' which was offered to prove that checksin the total amount of P15,950,000.00 had beencleared. (Formal Offer of Evidence for Plaintiff,Records p. 58) cannot be used to prove theproposition that 12,586 bags of sugar remainedundelivered.

"Testimonial evidence (Testimonies of Teresita Ng[TSN, 10 October 1990, p. 33] and Marianito L.Santos [TSN, 17 October 1990, pp. 16, 18, and36]) presented by plaintiff-appellee was to theeffect that it had withdrawn only 2,000 bags ofsugar from SLDR after which it was not allowed towithdraw anymore. Documentary evidence (ExhibitI, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdrawthe remaining 23,000 bags of sugar from SLDR1214M. Defendant-appellant, on the other hand,alleged that sugar delivery to the STMcorresponded only to the value of cleared checks;and that all sugar corresponded to cleared checkshad been withdrawn. Defendant-appellant did notrebut plaintiff-appellee's assertions. It did notpresent evidence to show how many bags of sugarhad been withdrawn against SLDR No. 1214M,precisely because of its theory that all sales inquestion were a series of one single transactionand withdrawal of sugar depended on the clearingof checks paid therefor.

"After a second look at the evidence, We see noreason to overturn the findings of the trial court onthis point."13

Hence, the instant petition, positing the followingerrors as grounds for review:

"1. The Court of Appeals erred in notholding that STM's and privaterespondent's specially informing petitionerthat respondent was authorized by buyerSTM to withdraw sugar against SLDR No.1214M "for and in our (STM) behalf,"(emphasis in the original) privaterespondent's withdrawing 2,000 bags ofsugar for STM, and STM's empoweringother persons as its agents to withdrawsugar against the same SLDR No. 1214M,rendered respondent like the otherpersons, an agent of STM as held in Rallosv. Felix Go Chan & Realty Corp., 81 SCRA252, and precluded it from subsequentlyclaiming and proving being an assignee ofSLDR No. 1214M and from suing by itselffor its enforcement because it wasconclusively presumed to be an agent(Sec. 2, Rule 131, Rules of Court) andestopped from doing so. (Art. 1431, CivilCode).

"2. The Court of Appeals erred inmanifestly and arbitrarily ignoring anddisregarding certain relevant andundisputed facts which, had they beenconsidered, would have shown thatpetitioner was not liable, except for 69bags of sugar, and which would justifyreview of its conclusion of facts by thisHonorable Court.

"3. The Court of Appeals misapplied thelaw on compensation under Arts. 1279,1285 and 1626 of the Civil Code when itruled that compensation applied only tocredits from one SLDR or contract and notto those from two or more distinctcontracts between the same parties; anderred in denying petitioner's right to setoffall its credits arising prior to notice ofassignment from other sales or SLDRsagainst private respondent's claim asassignee under SLDR No. 1214M, so as to

extinguish or reduce its liability to 69bags, because the law oncompensation applies precisely to two ormore distinct contracts between the sameparties (emphasis in the original).

"4. The Court of Appeals erred inconcluding that the settlement orliquidation of accounts in Exh. ‘F’ betweenpetitioner and STM, respondent'sadmission of its balance, and STM'sacquiescence thereto by silence for almostone year did not render Exh. `F' anaccount stated and its balance binding.

"5. The Court of Appeals erred in notholding that the conditions of the assignedSLDR No. 1214, namely, (a) its subjectmatter being generic, and (b) the sale ofsugar being subject to its availability atthe Nawaco warehouse, made the saleconditional and prevented STM or privaterespondent from acquiring title to thesugar; and the non-availability of sugarfreed petitioner from further obligation.

"6. The Court of Appeals erred in notholding that the "clean hands" doctrineprecluded respondent from seekingjudicial reliefs (sic) from petitioner, its onlyremedy being against its assignor."14

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appealserred in not ruling that CSC was an agentof STM and hence, estopped to sue uponSLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appealserred in applying the law on compensationto the transaction under SLDR No. 1214Mso as to preclude petitioner from offsettingits credits on the other SLDRs.

(3)....Whether or not the Court of Appealserred in not ruling that the sale of sugarunder SLDR No. 1214M was a conditionalsale or a contract to sell and hence freedpetitioner from further obligations.

(4)....Whether or not the Court of Appealscommitted an error of law in not applyingthe "clean hands doctrine" to precludeCSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records thatpetitioner raised this issue for the first time onappeal.1avvphi1 It is settled that an issue whichwas not raised during the trial in the court belowcould not be raised for the first time on appeal asto do so would be offensive to the basic rules of fairplay, justice, and due process.15 Nonetheless, theCourt of Appeals opted to address this issue,hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter ofauthority allowing CSC to withdraw sugar againstSLDR No. 1214M to show that the latter was STM'sagent. The pertinent portion of said letter reads:

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

The Civil Code defines a contract of agency asfollows:

"Art. 1868. By the contract of agency a personbinds himself to render some service or to dosomething in representation or on behalf ofanother, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agencyis representation.17 On the part of the principal,there must be an actual intention to appoint18 or anintention naturally inferable from his words oractions;19 and on the part of the agent, there mustbe an intention to accept the appointment and acton it,20 and in the absence of such intent, there isgenerally no agency.21 One factor which mostclearly distinguishes agency from other legalconcepts is control; one person - the agent - agreesto act under the control or direction of another - theprincipal. Indeed, the very word "agency" has cometo connote control by the principal.22 The controlfactor, more than any other, has caused the courts

to put contracts between principal and agent in aseparate category.23 The Court of Appeals, infinding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation ofagency is dependent upon the acts of the parties,the law makes no presumption of agency, and it isalways a fact to be proved, with the burden of proofresting upon the persons alleging the agency, toshow not only the fact of its existence, but also itsnature and extent (Antonio vs. Enriquez[CA], 51O.G. 3536]. Here, defendant-appellant failed tosufficiently establish the existence of an agencyrelation between plaintiff-appellee and STM. Thefact alone that it (STM) had authorized withdrawalof sugar by plaintiff-appellee "for and in our (STM's)behalf" should not be eyed as pointing to theexistence of an agency relation ...It should beviewed in the context of all the circumstancesobtaining. Although it would seem STM representedplaintiff-appellee as being its agent by the use ofthe phrase "for and in our (STM's) behalf" thematter was cleared when on 23 January 1990,plaintiff-appellee informed defendant-appellantthat SLDFR No. 1214M had been "sold andendorsed" to it by STM (Exhibit I, Records, p. 78).Further, plaintiff-appellee has shown that the 25,000 bags of sugar covered by the SLDR No. 1214Mwere sold and transferred by STM to it ...Aconclusion that there was a valid sale and transferto plaintiff-appellee may, therefore, be made thuscapacitating plaintiff-appellee to sue in its ownname, without need of joining its imputed principalSTM as co-plaintiff."24

In the instant case, it appears plain to us thatprivate respondent CSC was a buyer of the SLDFRform, and not an agent of STM. Private respondentCSC was not subject to STM's control. The questionof whether a contract is one of sale or agencydepends on the intention of the parties as gatheredfrom the whole scope and effect of the languageemployed.25 That the authorization given to CSCcontained the phrase "for and in our(STM's) behalf" did not establish an agency.Ultimately, what is decisive is the intention of theparties.26 That no agency was meant to beestablished by the CSC and STM is clearly shown byCSC's communication to petitioner that SLDR No.1214M had been "sold and endorsed" to it.27 Theuse of the words "sold and endorsed" means thatSTM and CSC intended a contract of sale, and notan agency. Hence, on this score, no error was

committed by the respondent appellate court whenit held that CSC was not STM's agent and couldindependently sue petitioner.

On the second issue, proceeding from the theorythat the transactions entered into betweenpetitioner and STM are but serial parts of oneaccount, petitioner insists that its debt has beenoffset by its claim for STM's unpaid purchases,pursuant to Article 1279 of the CivilCode.28 However, the trial court found, and theCourt of Appeals concurred, that the purchase ofsugar covered by SLDR No. 1214M was a separateand independent transaction; it was not a serialpart of a single transaction or of one accountcontrary to petitioner's insistence. Evidence onrecord shows, without being rebutted, thatpetitioner had been paid for the sugar purchasedunder SLDR No. 1214M. Petitioner clearly had theobligation to deliver said commodity to STM or itsassignee. Since said sugar had been fully paid for,petitioner and CSC, as assignee of STM, were notmutually creditors and debtors of each other. Noreversible error could thereby be imputed torespondent appellate court when, it refused toapply Article 1279 of the Civil Code to the presentcase.

Regarding the third issue, petitioner contends thatthe sale of sugar under SLDR No. 1214M is aconditional sale or a contract to sell, with title tothe sugar still remaining with the vendor.Noteworthy, SLDR No. 1214M contains thefollowing terms and conditions:

"It is understood and agreed that by payment bybuyer/trader of refined sugar and/or receipt of thisdocument by the buyer/trader personally orthrough a representative, title to refined sugar istransferred to buyer/trader and delivery to him/it isdeemed effected and completed (stress supplied)and buyer/trader assumes full responsibilitytherefore…"29

The aforequoted terms and conditions clearly showthat petitioner transferred title to the sugar to thebuyer or his assignee upon payment of thepurchase price. Said terms clearly establish acontract of sale, not a contract to sell. Petitioner isnow estopped from alleging the contrary. Thecontract is the law between the contractingparties.30 And where the terms and conditions so

stipulated are not contrary to law, morals, goodcustoms, public policy or public order, the contractis valid and must be upheld.31 Having transferredtitle to the sugar in question, petitioner is nowobliged to deliver it to the purchaser or itsassignee.

As to the fourth issue, petitioner submits that STMand private respondent CSC have entered into aconspiracy to defraud it of its sugar. Thisconspiracy is allegedly evidenced by: (a) the factthat STM's selling price to CSC was below itspurchasing price; (b) CSC's refusal to pursue itscase against Teresita Ng Go; and (c) the authoritygiven by the latter to other persons to withdrawsugar against SLDR No. 1214M after she had soldher rights under said SLDR to CSC. Petitioner praysthat the doctrine of "clean hands" should beapplied to preclude CSC from seeking judicial relief.However, despite careful scrutiny, we find here therecords bare of convincing evidence whatsoever tosupport the petitioner's allegations of fraud. We arenow constrained to deem this matter purelyspeculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED forlack of merit. Costs against petitioner.

SO ORDERED.

G.R. No. 120465 September 9, 1999

WILLIAM UY and RODEL ROXAS, petitioners, vs.COURT OF APPEALS, HON. ROBERT BALAOand NATIONAL HOUSINGAUTHORITY, respondents.

KAPUNAN, J.:

Petitioners William Uy and Rodel Roxas are agentsauthorized to sell eight parcels of land by theowners thereof. By virtue of such authority,petitioners offered to sell the lands, located inTuba, Tadiangan, Benguet to respondent NationalHousing Authority (NHA) to be utilized anddeveloped as a housing project.

On February 14, 1989, the NHA Board passedResolution No. 1632 approving the acquisition ofsaid lands, with an area of 31.8231 hectares, at thecost of P23.867 million, pursuant to which theparties executed a series of Deeds of Absolute Salecovering the subject lands. Of the eight parcels ofland, however, only five were paid for by the NHAbecause of the report 1 it received from the LandGeosciences Bureau of the Department ofEnvironment and Natural Resources (DENR) thatthe remaining area is located at an active landslidearea and therefore, not suitable for developmentinto a housing project.

On 22 November 1991, the NHA issued ResolutionNo. 2352 cancelling the sale over the three parcelsof land. The NHA, through Resolution No. 2394,subsecguently offered the amount of P1.225 millionto the landowners as daños perjuicios.

On 9 March 1992, petitioners filed before theRegional Trial Court (RTC) of Quezon City aComplaint for Damages against NHA and itsGeneral Manager Robert Balao.

After trial, the RTC rendered a decision declaringthe cancellation of the contract to be justified. Thetrial court nevertheless awarded damages toplaintiffs in the sum of P1.255 million, the sameamount initially offered by NHA to petitioners asdamages.

Upon appeal by petitioners, the Court of Appealsreversed the decision of the trial court and entereda new one dismissing the complaint. It held thatsince there was "sufficient justifiable basis" incancelling the sale, "it saw no reason" for theaward of damages. The Court of Appeals also notedthat petitioners were mere attorneys-in-fact and,therefore, not the real parties-in-interest in theaction before the trial court.

. . . In paragraph 4 of thecomplaint, plaintiffsalleged themselves tobe "sellers' agents" forthe several owners ofthe 8 lots subject matterof the case. Obsviously,William Uy and RodelRoxas in filing this caseacted as attorneys-in-fact of the lot ownerswho are the real partiesin interest but who wereomitted to be pleadedas party-plaintiffs in thecase. This omission isfatal. Where the actionis brought by anattorney-in-fact of a landowner in his name, (asin our present action)and not in the name ofhis principal, the actionwas properly dismissed(Ferrer vs. Villamor, 60SCRA 406 [1974];Marcelo vs. de Leon, 105Phil. 1175) because therule is that every actionmust be prosecuted inthe name of the realparties-in-interest(Section 2, Rule 3, Rulesof Court).

When plaintiffs UY andRoxas sought paymentof damages in theirfavor in view of thepartial rescission ofResolution No. 1632 and

the Deed of AbsoluteSale covering TCT Nos.10998, 10999 and11292 (Prayercomplaint, page 5, RTCrecords), it becomesobviously indispensablethat the lot owners beincluded, mentioned andnamed as party-plaintiffs, being the realparty-in-interest. UY andRoxas, as attorneys-in-fact or apoderados,cannot by themselveslawfully commence thisaction, more so, whenthe supposed specialpower of attorney, intheir favor, was neverpresented as anevidence in this case.Besides, even if hereinplaintiffs Uy and Roxaswere authorized by thelot owners to commencethis action, the samemust still be filed in thename of the principal,(Filipino IndustrialCorporation vs. SanDiego, 23 SCRA 706[1968]). As suchindispensable party,their joinder in theaction is mandatory andthe complaint may bedismissed if not soimpleaded (NDC vs. CA,211 SCRA 422 [1992]). 2

Their motion for reconsideration having beendenied, petitioners seek relief from this Courtcontending that:

I. THE RESPONDENT CAERRED IN DECLARINGTHAT RESPONDENT NHAHAD ANY LEGAL BASISFOR RESCINDING THESALE INVOLVING THE

LAST THREE (3)PARCELS COVERED BYNHA RESOLUTION NO.1632.

II. GRANTINGARGUENDO THAT THERESPONDENT NHA HADLEGAL BASIS TORESCIND THE SUBJECTSALE, THE RESPONDENTCA NONETHELESSERRED IN DENYINGHEREIN PETITIONERS'CLAIM TO DAMAGES,CONTRARY TO THEPROVISIONS OF ART.1191 OF THE CIVILCODE.

III. THE RESPONDENT CAERRED IN DISMISSINGTHE SUBJECTCOMPLAINT FINDINGTHAT THE PETITIONERSFAILED TO JOIN ASINDISPENSABLE PARTYPLAINTIFF THE SELLINGLOT-OWNERS. 3

We first resolve the issue raised in the the thirdassignment of error.

Petitioners claim that they lodged the complaintnot in behalf of their principals but in their ownname as agents directly damaged by thetermination of the contract. The damages prayedfor were intended not for the benefit of theirprincipals but to indemnify petitioners for thelosses they themselves allegedly incurred as aresult of such termination. These damages consistmainly of "unearned income" andadvances. 4 Petitioners, thus, attempt to distinguishthe case at bar from those involving agentsor apoderedos instituting actions in their own namebut in behalf of their principals. 5 Petitioners in thiscase purportedly brought the action for damages intheir own name and in their own behalf.

We find this contention unmeritorious.

Sec. 2, Rule 3 of the Rules of Court requires thatevery action must be prosecuted and defended inthe name of the real party-in-interest. The realparty-in-interest is the party who stands to bebenefited or injured by the judgment or the partyentitled to the avails of the suit. "Interest, withinthe meaning of the rule, means material interest,an interest in the issue and to be affected by thedecree, as distinguished from mere interest in thequestion involved, or a mere incidentalinterest. 6 Cases construing the real party-in-interest provision can be more easily understood ifit is borne in mind that the true meaning of realparty-in-interest may be summarized as follows: Anaction shall be prosecuted in the name of the partywho, by the substantive law, has the right soughtto be enforced. 7

Do petitioners, under substantive law, possess theright they seek to enforce? We rule in the negative.

The applicable substantive law in this case isArticle 1311 of the Civil Code, which states:

Contracts take effectonly between theparties, their assigns,and heirs, except in casewhere the rights andobligations arising fromthe contract are nottransmissible by theirnature, or by stipulation,or by provision oflaw. . . .

If a contract shouldcontain some stipulationin favor of a thirdperson, he may demandits fulfillment providedhe communicated hisacceptance to theobligor before itsrevocation. A mereincidental benefit orinterest of a person isnot sufficient. Thecontracting parties musthave clearly anddeliberately conferred afavor upon a third

person. (Emphasissupplied.)

Petitioners are not parties to the contract of salebetween their principals and NHA. They are mereagents of the owners of the land subject of thesale. As agents, they only render some service ordo something in representation or on behalf of theirprincipals. 8 The rendering of such service did notmake them parties to the contracts of saleexecuted in behalf of the latter. Since a contractmay be violated only by the parties thereto asagainst each other, the real parties-in-interest,either as plaintiff or defendant, in an action uponthat contract must, generally, either be parties tosaid contract. 9

Neither has there been any allegation, much lessproof, that petitioners are the heirs of theirprincipals.

Are petitioners assignees to the rights under thecontract of sale? In McMicking vs. Banco Español-Filipino, 10 we held that the rule requiring everyaction to be prosecuted in the name of the realparty-in-interest.

. . . recognizes theassignments of rights ofaction and alsorecognizes that whenone has a right of actionassigned to him he isthen the real party ininterest and maymaintain an action uponsuch claim or right. Thepurpose of [this rule] isto require the plaintiff tobe the real party ininterest, or, in otherwords, he must be theperson to whom theproceeds of the actionshall belong, and toprevent actions bypersons who have nointerest in the result ofthe same. . . .

Thus, an agent, in his own behalf, may bring anaction founded on a contract made for his principal,

as an assignee of such contract. We find thefollowing declaration in Section 372 (1) of theRestatement of the Law on Agency (Second): 11

Sec. 372. Agent as Owner of Contract Right

(1) Unless otherwiseagreed, an agent whohas or who acquires aninterest in a contractwhich he makes onbehalf of his principalcan, although not apromisee, maintain suchaction thereon maintainsuch action thereon asmight a transfereehaving a similar interest.

The Comment on subsection (1) states:

a. Agent a transferee.One who has made acontract on behalf ofanother may become anassignee of the contractand bring suit againstthe other party to it, asany other transferee.The customs of businessor the course of conductbetween the principaland the agent mayindicate that an agentwho ordinarily hasmerely a securityinterest is a transfereeof the principals rightsunder the contract andas such is permitted tobring suit. If the agenthas settled with hisprincipal with theunderstanding that he isto collect the claimagainst the obligor byway of reimbursinghimself for his advancesand commissions, theagent is in the positionof an assignee who isthe beneficial owner of

the chose in action. Hehas an irrevocablepower to sue in hisprincipal's name. . . .And, under the statuteswhich permit the realparty in interest to sue,he can maintain anaction in his own name.This power to sue is notaffected by a settlementbetween the principaland the obligor if thelatter has notice of theagent's interest. . . .Even though the agenthas not settled with hisprincipal, he may, byagreement with theprincipal, have a right toreceive payment andout of the proceeds toreimburse himself foradvances andcommissions beforeturning the balance overto the principal. In sucha case, although there isno formal assignment,the agent is in theposition of a transfereeof the whole claim forsecurity; he has anirrevocable power to suein his principal's nameand, under statuteswhich permit the realparty in interest to sue,he can maintain anaction in his own name.

Petitioners, however, have not shown that they areassignees of their principals to the subjectcontracts. While they alleged that they madeadvances and that they suffered loss ofcommissions, they have not established anyagreement granting them "the right to receivepayment and out of the proceeds to reimburse[themselves] for advances and commissions beforeturning the balance over to the principal[s]."

Finally, it does not appear that petitioners arebeneficiaries of a stipulation pour autrui under the

second paragraph of Article 1311 of the Civil Code.Indeed, there is no stipulation in any of the Deedsof Absolute Sale "clearly and deliberately"conferring a favor to any third person.

That petitioners did not obtain their commissions orrecoup their advances because of the non-performance of the contract did not entitle them tofile the action below against respondent NHA.Section 372 (2) of the Restatement of the Law onAgency (Second) states:

(2) An agent does not have suchan interest in a contract as toentitle him to maintain an actionat law upon it in his own namemerely because he is entitled to aportion of the proceeds ascompensation for making it orbecause he is liable for itsbreach.

The following Comment on the abovesubsection is illuminating:

The fact that an agent whomakes a contract for his principalwill gain or suffer loss by theperformance or nonperformanceof the contract by the principal orby the other party thereto doesnot entitle him to maintain anaction on his own behalf againstthe other party for its breach. Anagent entitled to receive acommission from his principalupon the performance of acontract which he has made onhis principal's account does not,from this fact alone, have anyclaim against the other party forbreach of the contract, either inan action on the contract orotherwise. An agent who is not apromisee cannot maintain anaction at law against a purchasermerely because he is entitled tohave his compensation oradvances paid out of thepurchase price before payment tothe principal. . . .

Thus, in Hopkins vs. Ives, 12 the Supreme Court ofArkansas, citing Section 372 (2) above, denied theclaim of a real estate broker to recover his allegedcommission against the purchaser in an agreementto purchase property.

In Goduco vs. Court of appeals, 13 this Court heldthat:

. . . granting thatappellant had theauthority to sell theproperty, the same didnot make the buyerliable for thecommission sheclaimed. At most, theowner of the propertyand the one whopromised to give her acommission should bethe one liable to pay thesame and to whom theclaim should have beendirected. . . .

As petitioners are not parties, heirs, assignees, orbeneficiaries of a stipulation pour autrui under thecontracts of sale, they do not, under substantivelaw, possess the right they seek to enforce.Therefore, they are not the real parties-in-interestin this case.

Petitioners not being the real parties-in-interest,any decision rendered herein would be pointlesssince the same would not bind the real parties-in-interest. 14

Nevertheless, to forestall further litigation on thesubstantive aspects of this case, we shall proceedto rule on me merits. 15

Petitioners submit that respondent NHA had nolegal basis to "rescind" the sale of the subject threeparcels of land. The existence of such legal basis,notwithstanding, petitioners argue that they arestill entitled to an award of damages.

Petitioners confuse the cancellation of the contractby the NHA as a rescission of the contract underArticle 1191 of the Civil Code. The right of

rescission or, more accurately, resolution, of aparty to an obligation under Article 1191 ispredicated on a breach of faith by the other partythat violates the reciprocity between them. 16 Thepower to rescind, therefore, is given to the injuredparty. 17 Article 1191 states:

The power to rescind obligationsis implied in reciprocal ones, incase one of the obligors shouldnot comply with what isincumbent upon him.

The injured party may choosebetween the fulfillment and therescission of the obligation, withthe payment of damages ineither case. He may also seekrescission, even after he haschosen fulfillment, if the lattershould become impossible.

In this case, the NHA did not rescind the contract.Indeed, it did not have the right to do so for theother parties to the contract, the vendors, did notcommit any breach, much less a substantialbreach, 18 of their obligation. Their obligation wasmerely to deliver the parcels of land to the NHA, anobligation that they fulfilled. The NHA did not sufferany injury by the performance thereof.

The cancellation, therefore, was not a rescissionunder Article 1191. Rather, the cancellation wasbased on the negation of the cause arising from therealization that the lands, which were the object ofthe sale, were not suitable for housing.

Cause is the essential reason which moves thecontracting parties to enter into it. 19 In otherwords, the cause is the immediate, direct andproximate reason which justifies the creation of anobligation through the will of the contractingparties. 20 Cause, which is the essential reason forthe contract, should be distinguished from motive,which is the particular reason of a contracting partywhich does not affect the other party. 21

For example, in a contract of sale of a piece of land,such as in this case, the cause of the vendor(petitioners' principals) in entering into the contractis to obtain the price. For the vendee, NHA, it is the

acquisition of the land. 22 The motive of the NHA,on the other hand, is to use said lands for housing.This is apparent from the portion of the Deeds ofAbsolute Sale 23 stating:

WHEREAS, under the ExecutiveOrder No. 90 dated December 17,1986, the VENDEE is mandatedto focus and concentrate itsefforts and resources in providinghousing assistance to the lowestthirty percent (30%) of urbanincome earners, thru slumupgrading and development ofsites and services projects;

WHEREAS, Letters of InstructionsNos. 555 and 557 [as] amendedby Letter of Instruction No. 630,prescribed slum improvementand upgrading, as well as thedevelopment of sites andservices as the principal housingstrategy for dealing with slum,squatter and other blightedcommunities;

xxx xxx xxx

WHEREAS, the VENDEE, inpursuit of and in compliance withthe above-stated purposes offersto buy and the VENDORS, in agesture of their willing tocooperate with the above policyand commitments, agree to sellthe aforesaid property togetherwith all the existingimprovements there or belongingto the VENDORS;

NOW, THEREFORE, for and inconsideration of the foregoingpremises and the terms andconditions hereinbelowstipulated, the VENDORS hereby,sell, transfer, cede and conveyunto the VENDEE, its assigns, orsuccessors-in-interest, a parcel ofland located at Bo. Tadiangan,Tuba, Benguet containing a totalarea of FIFTY SIX THOUSAND

EIGHT HUNDRED NINETEEN(56,819) SQUARE METERS, moreor less . . . .

Ordinarily, a party's motives for entering into thecontract do not affect the contract. However, whenthe motive predetermines the cause, the motivemay be regarded as the cause. In Liguez vs. Courtof Appeals, 24 this Court, speaking through JusticeJ.B.L. REYES, HELD:

. . . it is well to note,however, that Manresahimself (Vol. 8, pp. 641-642), while maintainingthe distinction andupholding theinoperativeness of themotives of the parties todetermine the validity ofthe contract, expresslyexcepts from the rulethose contracts that areconditioned upon theattainment of themotives of either party.

The same view is heldby the Supreme Court ofSpain, in its decisions ofFebruary 4, 1941, andDecember 4, 1946,holding that the motivemay be regardedas causa when itpredetermines thepurpose of the contract.

In this case, it is clear, and petitioners do notdispute, that NHA would not have entered into thecontract were the lands not suitable for housing. Inother words, the quality of the land was an impliedcondition for the NHA to enter into the contract. Onthe part of the NHA, therefore, the motive was thecause for its being a party to the sale.

Were the lands indeed unsuitable for housing asNHA claimed?

We deem the findings contained in the report of theLand Geosciences Bureau dated 15 July 1991

sufficient basis for the cancellation of the sale,thus:

In Tadiangan, Tuba, thehousing site is situatedin an area of moderatetopography. There [are]more areas of lesssloping groundapparently habitable.The site is underlain by .. . thick slide deposits(4-45m) consisting ofhuge conglomerateboulders (see Photo No.2) mix[ed] with silty claymaterials. These clayparticles when saturatedhave some swellingcharacteristics which isdangerous for any civilstructures especiallymass housingdevelopment. 25

Petitioners contend that the report was merely"preliminary," and not conclusive, as indicated inits title:

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands GeologyDivision

FROM: ARISTOTLE A.RILLON

Geologist II

SUBJECT: PreliminaryAssessment of

Tadiangan HousingProject in Tuba,Benguet 26

Thus, page 2 of the report states in part:

xxx xxx xxx

Actually there is a needto conduct furthergeottechnical [sic]studies in the NHAproperty. StandardPenetration Test (SPT)must be carried out togive an estimate of thedegree of compaction(the relative density) ofthe slide deposit andalso the bearingcapacity of the soilmaterials. Another thingto consider is thevulnerability of the areato landslides and othermass movements due tothick soil cover.Preventive physicalmitigation methods suchas surface andsubsurface drainage andregrading of the slopemust be done in thearea. 27

We read the quoted portion, however, to mean onlythat further tests are required to determine the"degree of compaction," "the bearing capacity ofthe soil materials," and the "vulnerability of thearea to landslides," since the tests alreadyconducted were inadequate to ascertain suchgeological attributes. It is only in this sense thatthe assessment was "preliminary."

Accordingly, we hold that the NHA was justified incanceling the contract. The realization of themistake as regards the quality of the land resultedin the negation of the motive/cause thus renderingthe contract inexistent. 28 Article 1318 of the CivilCode states that:

Art. 1318. There is nocontract unless thefollowing requisitesconcur:

(1) Consent of thecontracting parties;

(2) Object certain whichis the subject matter ofthe contract;

(3) Cause of theobligation which isestablished. (Emphasissupplied.)

Therefore, assuming that petitioners are parties,assignees or beneficiaries to the contract of sale,they would not be entitled to any award ofdamages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.

G.R. No. 167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES,INC., Petitioner, vs.EDWIN CUIZON and ERWINCUIZON, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorariassailing the Decision1 of the Court of Appealsdated 10 August 2004 and its Resolution2 dated 17March 2005 in CA-G.R. SP No. 71397 entitled,"Eurotech Industrial Technologies, Inc. v. Hon.Antonio T. Echavez." The assailed Decision andResolution affirmed the Order3 dated 29 January2002 rendered by Judge Antonio T. Echavezordering 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 importationand distribution of various European industrialequipment for customers here in the Philippines. Ithas as one of its customers Impact Systems Sales("Impact Systems") which is a sole proprietorshipowned by respondent ERWIN Cuizon (ERWIN).Respondent EDWIN is the sales manager of ImpactSystems and was impleaded in the court a quo insaid capacity.

From January to April 1995, petitioner sold toImpact Systems various products allegedlyamounting to ninety-one thousand three hundredthirty-eight (P91,338.00) pesos. Subsequently,respondents sought to buy from petitioner one unitof sludge pump valued at P250,000.00 withrespondents making a down payment of fiftythousand pesos (P50,000.00).4 When the sludgepump arrived from the United Kingdom, petitionerrefused to deliver the same to respondents withouttheir having fully settled their indebtedness topetitioner. Thus, on 28 June 1995, respondentEDWIN and Alberto de Jesus, general manager of

petitioner, executed a Deed of Assignment ofreceivables in favor of petitioner, the pertinent partof which states:

1.) That ASSIGNOR5 has an outstandingreceivables from Toledo Power Corporationin the amount of THREE HUNDRED SIXTYFIVE THOUSAND (P365,000.00) PESOS aspayment for the purchase of one unit ofSelwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does herebyASSIGN, TRANSFER, and CONVEY unto theASSIGNEE6 the said receivables fromToledo Power Corporation in the amount ofTHREE HUNDRED SIXTY FIVE THOUSAND(P365,000.00) PESOS which receivablesthe ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby acceptthis assignment.7

Following the execution of the Deed of Assignment,petitioner delivered to respondents the sludgepump as shown by Invoice No. 12034 dated 30June 1995.8

Allegedly unbeknownst to petitioner, respondents,despite the existence of the Deed of Assignment,proceeded to collect from Toledo Power Companythe amount of P365,135.29 as evidenced by CheckVoucher No. 09339prepared by said power companyand an official receipt dated 15 August 1995 issuedby Impact Systems.10Alarmed by this development,petitioner made several demands uponrespondents to pay their obligations. As a result,respondents were able to make partial payments topetitioner. On 7 October 1996, petitioner’s counselsent respondents a final demand letter wherein itwas stated that as of 11 June 1996, respondents’total obligations stood at P295,000.00 excludinginterests and attorney’s fees.11 Because ofrespondents’ failure to abide by said final demandletter, petitioner instituted a complaint for sum ofmoney, damages, with application for preliminaryattachment against herein respondents before theRegional Trial Court of Cebu City.12

On 8 January 1997, the trial court grantedpetitioner’s prayer for the issuance of writ ofpreliminary attachment.13

On 25 June 1997, respondent EDWIN filed hisAnswer14 wherein he admitted petitioner’sallegations with respect to the sale transactionsentered into by Impact Systems and petitionerbetween 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 realparty in interest in this case. According to him, hewas acting as mere agent of his principal, whichwas the Impact Systems, in his transaction withpetitioner and the latter was very much aware ofthis fact. In support of this argument, petitionerpoints to paragraphs 1.2 and 1.3 of petitioner’sComplaint stating –

1.2. Defendant Erwin H. Cuizon, is of legalage, married, a resident of Cebu City. He isthe proprietor of a single proprietorshipbusiness known as Impact Systems Sales("Impact Systems" for brevity), with officelocated at 46-A del Rosario Street, CebuCity, where he may be served summonsand other processes of the HonorableCourt.

1.3. Defendant Edwin B. Cuizon is of legalage, Filipino, married, a resident of CebuCity. He is the Sales Manager of ImpactSystems and is sued in this action in suchcapacity.17

On 26 June 1998, petitioner filed a Motion toDeclare Defendant ERWIN in Default with Motionfor Summary Judgment. The trial court grantedpetitioner’s motion to declare respondent ERWIN indefault "for his failure to answer within theprescribed period despite the opportunitygranted"18 but it denied petitioner’s motion forsummary judgment in its Order of 31 August 2001and scheduled the pre-trial of the case on 16October 2001.19However, the conduct of the pre-trial conference was deferred pending the

resolution by the trial court of the special andaffirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’sMemorandum21 in support of his special andaffirmative defenses and petitioner’sopposition22 thereto, the trial court rendered itsassailed Order dated 29 January 2002 droppingrespondent EDWIN as a party defendant in thiscase. According to the trial court –

A study of Annex "G" to the complaint shows thatin the Deed of Assignment, defendant Edwin B.Cuizon acted in behalf of or represented [Impact]Systems Sales; that [Impact] Systems Sale is asingle proprietorship entity and the complaintshows that defendant Erwin H. Cuizon is theproprietor; that plaintiff corporation is representedby its general manager Alberto de Jesus in thecontract which is dated June 28, 1995. A study ofAnnex "H" to the complaint reveals that [Impact]Systems Sales which is owned solely by defendantErwin H. Cuizon, made a down paymentof 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 Salesratified the act of Edwin B. Cuizon; the recordsfurther show that plaintiff knew that [Impact]Systems Sales, the principal, ratified the act ofEdwin B. Cuizon, the agent, when it accepted thedown payment of P50,000.00. Plaintiff, therefore,cannot say that it was deceived by defendantEdwin B. Cuizon, since in the instant case theprincipal has ratified the act of its agent andplaintiff knew about said ratification. Plaintiff couldnot say that the subject contract was entered intoby Edwin B. Cuizon in excess of his powers since[Impact] Systems Sales made a down paymentof P50,000.00 two days later.

In view of the Foregoing, the Court directs thatdefendant Edwin B. Cuizon be dropped as partydefendant.23

Aggrieved by the adverse ruling of the trial court,petitioner brought the matter to the Court ofAppeals which, however, affirmed the 29 January2002 Order of the court a quo. The dispositiveportion of the now assailed Decision of the Court ofAppeals states:

WHEREFORE, finding no viable legal ground toreverse or modify the conclusions reached by thepublic respondent in his Order dated January 29,2002, it is hereby AFFIRMED.24

Petitioner’s motion for reconsideration was deniedby the appellate court in its Resolutionpromulgated on 17 March 2005. Hence, the presentpetition raising, as sole ground for its allowance,the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLEERROR WHEN IT RULED THAT RESPONDENT EDWINCUIZON, AS AGENT OF IMPACT SYSTEMSSALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,BECAUSE HE HAS NEITHER ACTED BEYOND THESCOPE OF HIS AGENCY NOR DID HE PARTICIPATE INTHE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is notpersonally liable to the party with whom hecontracts, unless he expressly binds himself orexceeds the limits of his authority without givingsuch party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failedto appreciate the effect of ERWIN’s act of collectingthe receivables from the Toledo Power Corporationnotwithstanding the existence of the Deed ofAssignment signed by EDWIN on behalf of ImpactSystems. While said collection did not revoke theagency relations of respondents, petitioner insiststhat ERWIN’s action repudiated EDWIN’s power tosign the Deed of Assignment. As EDWIN did notsufficiently notify it of the extent of his powers asan agent, petitioner claims that he should be madepersonally liable for the obligations of hisprincipal.26

Petitioner also contends that it fell victim to thefraudulent scheme of respondents who induced itinto selling the one unit of sludge pump to ImpactSystems and signing the Deed of Assignment.Petitioner directs the attention of this Court to thefact that respondents are bound not only by theirprincipal and agent relationship but are in fact full-blooded brothers whose successive contravening

acts bore the obvious signs of conspiracy todefraud petitioner.27

In his Comment,28 respondent EDWIN again positsthe argument that he is not a real party in interestin this case and it was proper for the trial court tohave him dropped as a defendant. He insists thathe was a mere agent of Impact Systems which isowned by ERWIN and that his status as such isknown even to petitioner as it is alleged in theComplaint that he is being sued in his capacity asthe sales manager of the said business venture.Likewise, respondent EDWIN points to the Deed ofAssignment which clearly states that he was actingas a representative of Impact Systems in saidtransaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself torender some service or to do something inrepresentation or on behalf of another with thelatter’s consent.29 The underlying principle of thecontract of agency is to accomplish results by usingthe services of others – to do a great variety ofthings like selling, buying, manufacturing, andtransporting.30 Its purpose is to extend thepersonality of the principal or the party for whomanother acts and from whom he or she derives theauthority to act.31 It is said that the basis of agencyis representation, that is, the agent acts for and onbehalf of the principal on matters within the scopeof his authority and said acts have the same legaleffect as if they were personally executed by theprincipal.32 By this legal fiction, the actual or realabsence of the principal is converted into his legalor juridical presence – qui facit per alium facit perse.33

The elements of the contract of agency are: (1)consent, express or implied, of the parties toestablish the relationship; (2) the object is theexecution of a juridical act in relation to a thirdperson; (3) the agent acts as a representative andnot for himself; (4) the agent acts within the scopeof his authority.34

In this case, the parties do not dispute theexistence of the agency relationship betweenrespondents ERWIN as principal and EDWIN asagent. The only cause of the present dispute iswhether respondent EDWIN exceeded his authority

when he signed the Deed of Assignment therebybinding himself personally to pay the obligations topetitioner. Petitioner firmly believes thatrespondent EDWIN acted beyond the authoritygranted by his principal and he should thereforebear the effect of his deed pursuant to Article 1897of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that anagent, who acts as such, is not personally liable tothe party with whom he contracts. The sameprovision, however, presents two instances whenan agent becomes personally liable to a thirdperson. The first is when he expressly binds himselfto the obligation and the second is when heexceeds his authority. In the last instance, theagent can be held liable if he does not give thethird party sufficient notice of his powers. We holdthat respondent EDWIN does not fall within any ofthe exceptions contained in this provision.

The Deed of Assignment clearly states thatrespondent EDWIN signed thereon as the salesmanager of Impact Systems. As discussedelsewhere, the position of manager is unique inthat it presupposes the grant of broad powers withwhich to conduct the business of the principal,thus:

The powers of an agent are particularly broad inthe case of one acting as a general agent ormanager; such a position presupposes a degree ofconfidence reposed and investiture with liberalpowers for the exercise of judgment and discretionin transactions and concerns which are incidentalor appurtenant to the business entrusted to hiscare and management. In the absence of anagreement to the contrary, a managing agent mayenter into any contracts that he deems reasonablynecessary or requisite for the protection of theinterests of his principal entrusted to hismanagement. x x x.35

Applying the foregoing to the present case, we holdthat Edwin Cuizon acted well-within his authoritywhen he signed the Deed of Assignment. To recall,petitioner refused to deliver the one unit of sludgepump unless it received, in full, the payment forImpact Systems’ indebtedness.36 We may very wellassume that Impact Systems desperately needed

the sludge pump for its business since after it paidthe amount of fifty thousand pesos (P50,000.00) asdown payment on 3 March 1995,37 it still persistedin negotiating with petitioner which culminated inthe execution of the Deed of Assignment of itsreceivables from Toledo Power Company on 28 June1995.38The significant amount of time spent on thenegotiation for the sale of the sludge pumpunderscores Impact Systems’ perseverance to gethold of the said equipment. There is, therefore, nodoubt in our mind that respondent EDWIN’sparticipation in the Deed of Assignment was"reasonably necessary" or was required in order forhim to protect the business of his principal. Had henot acted in the way he did, the business of hisprincipal would have been adversely affected andhe would have violated his fiduciary relation withhis principal.

We likewise take note of the fact that in this case,petitioner is seeking to recover both fromrespondents ERWIN, the principal, and EDWIN, theagent. It is well to state here that Article 1897 ofthe New Civil Code upon which petitioner anchorsits claim against respondent EDWIN "does not holdthat in case of excess of authority, both the agentand the principal are liable to the other contractingparty."39 To reiterate, the first part of Article 1897declares that the principal is liable in cases whenthe agent acted within the bounds of his authority.Under this, the agent is completely absolved of anyliability. The second part of the said provisionpresents the situations when the agent himselfbecomes liable to a third party when he expresslybinds himself or he exceeds the limits of hisauthority without giving notice of his powers to thethird person. However, it must be pointed out thatin case of excess of authority by the agent, likewhat petitioner claims exists here, the law does notsay that a third person can recover from both theprincipal and the agent.40

As we declare that respondent EDWIN acted withinhis authority as an agent, who did not acquire anyright nor incur any liability arising from the Deed ofAssignment, it follows that he is not a real party ininterest who should be impleaded in this case. Areal party in interest is one who "stands to bebenefited or injured by the judgment in the suit, orthe party entitled to the avails of the suit."41 In thisrespect, we sustain his exclusion as a defendant inthe suit before the court a quo.

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

Let the records of this case be remanded to theRegional Trial Court, Branch 8, Cebu City, for thecontinuation of the proceedings against respondentErwin Cuizon.

SO ORDERED.

G.R. No. 149353 June 26, 2006

JOCELYN B. DOLES, Petitioner,vs.MA. AURA TINA ANGELES, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

This refers to the Petition for Review on Certiorariunder Rule 45 of the Rules of Court questioning theDecision1dated April 30, 2001 of the Court ofAppeals (CA) in C.A.-G.R. CV No. 66985, whichreversed the Decision dated July 29, 1998 of theRegional Trial Court (RTC), Branch 21, City ofManila; and the CA Resolution2 dated August 6,2001 which denied petitioner’s Motion forReconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles(respondent) filed with the RTC a complaint forSpecific Performance with Damages against JocelynB. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner wasindebted to the former in the concept of a personalloan amounting to P405,430.00 representing theprincipal amount and interest; that on October 5,1996, by virtue of a "Deed of AbsoluteSale",3petitioner, as seller, ceded to respondent, asbuyer, a parcel of land, as well as theimprovements thereon, with an area of 42 squaremeters, covered by Transfer Certificate of Title No.382532,4 and located at a subdivision projectknown as Camella Townhomes Sorrente in Bacoor,Cavite, in order to satisfy her personal loan withrespondent; that this property was mortgaged toNational Home Mortgage Finance Corporation(NHMFC) to secure petitioner’s loan in the sumof P337,050.00 with that entity; that as a conditionfor the foregoing sale, respondent shall assume theundue balance of the mortgage and pay themonthly amortization of P4,748.11 for theremainder of the 25 years which began onSeptember 3, 1994; that the property was at thattime being occupied by a tenant paying a monthlyrent of P3,000.00; that upon verification with theNHMFC, respondent learned that petitioner had

incurred arrearages amounting to P26,744.09,inclusive of penalties and interest; that uponinforming the petitioner of her arrears, petitionerdenied that she incurred them and refused to paythe same; that despite repeated demand,petitioner refused to cooperate with respondent toexecute the necessary documents and otherformalities required by the NHMFC to effect thetransfer of the title over the property; thatpetitioner collected rent over the property for themonth of January 1997 and refused to remit theproceeds to respondent; and that respondentsuffered damages as a result and was forced tolitigate.

Petitioner, then defendant, while admitting someallegations in the Complaint, denied that sheborrowed money from respondent, and averredthat from June to September 1995, she referred herfriends to respondent whom she knew to beengaged in the business of lending money inexchange for personal checks through her capitalistArsenio Pua. She alleged that her friends, namely,Zenaida Romulo, Theresa Moratin, Julia Inocencio,Virginia Jacob, and Elizabeth Tomelden, borrowedmoney from respondent and issued personalchecks in payment of the loan; that the checksbounced for insufficiency of funds; that despite herefforts to assist respondent to collect from theborrowers, she could no longer locate them; that,because of this, respondent became furious andthreatened petitioner that if the accounts were notsettled, a criminal case will be filed against her;that she was forced to issue eight checksamounting to P350,000 to answer for the bouncedchecks of the borrowers she referred; that prior tothe issuance of the checks she informedrespondent that they were not sufficiently fundedbut the latter nonetheless deposited the checksand for which reason they were subsequentlydishonored; that respondent then threatened toinitiate a criminal case against her for violationof Batas Pambansa Blg. 22; that she was forced byrespondent to execute an "Absolute Deed of Sale"over her property in Bacoor, Cavite, to avoidcriminal prosecution; that the said deed had novalid consideration; that she did not appear beforea notary public; that the Community Tax Certificatenumber on the deed was not hers and for whichrespondent may be prosecuted for falsification andperjury; and that she suffered damages and lostrental as a result.

The RTC identified the issues as follows: first,whether the Deed of Absolute Sale is valid; second;if valid, whether petitioner is obliged to sign andexecute the necessary documents to effect thetransfer of her rights over the property to therespondent; and third, whether petitioner is liablefor damages.

On July 29, 1998, the RTC rendered a decision thedispositive portion of which states:

WHEREFORE, premises considered, the Courthereby orders the dismissal of the complaint forinsufficiency of evidence. With costs againstplaintiff.

SO ORDERED.

The RTC held that the sale was void for lack ofcause or consideration:5

Plaintiff Angeles’ admission that the borrowers arethe friends of defendant Doles and furtheradmission that the checks issued by theseborrowers in payment of the loan obligationnegates [sic] the cause or consideration of thecontract of sale executed by and between plaintiffand defendant. Moreover, the property is not solelyowned by defendant as appearing in Entry No.9055 of Transfer Certificate of Title No. 382532(Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favorof Jocelyn Doles covering the share of TeodoricoDoles on the parcel of land described in thiscertificate of title by virtue of the special power ofattorney to mortgage, executed before the notarypublic, etc."

The rule under the Civil Code is that contractswithout a cause or consideration produce no effectwhatsoever. (Art. 1352, Civil Code).

Respondent appealed to the CA. In her appeal brief,respondent interposed her sole assignment oferror:

THE TRIAL COURT ERRED IN DISMISSING THE CASEAT BAR ON THE GROUND OF [sic] THE DEED OF

SALE BETWEEN THE PARTIES HAS NOCONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6

On April 30, 2001, the CA promulgated its Decision,the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, thisappeal is hereby GRANTED. The Decision of thelower court dated July 29, 1998 is REVERSED andSET ASIDE. A new one is entered orderingdefendant-appellee to execute all necessarydocuments to effect transfer of subject property toplaintiff-appellant with the arrearages of theformer’s loan with the NHMFC, at the latter’sexpense. No costs.

SO ORDERED.

The CA concluded that petitioner was the borrowerand, in turn, would "re-lend" the amount borrowedfrom the respondent to her friends. Hence, theDeed of Absolute Sale was supported by a validconsideration, which is the sum of money petitionerowed respondent amounting to P405,430.00,representing both principal and interest.

The CA took into account the followingcircumstances in their entirety: the supposedfriends of petitioner never presented themselves torespondent and that all transactions were made byand between petitioner and respondent;7 that themoney borrowed was deposited with the bankaccount of the petitioner, while payments made forthe loan were deposited by the latter torespondent’s bank account;8 that petitioner herselfadmitted in open court that she was "re-lending"the money loaned from respondent to otherindividuals for profit;9 and that the documentaryevidence shows that the actual borrowers, thefriends of petitioner, consider her as their creditorand not the respondent.10

Furthermore, the CA held that the alleged threat orintimidation by respondent did not vitiate consent,since the same is considered just or legal if madeto enforce one’s claim through competent authorityunder Article 133511of the Civil Code;12 that withrespect to the arrearages of petitioner on hermonthly amortization with the NHMFC in the sumof P26,744.09, the same shall be deemed part ofthe balance of petitioner’s loan with the NHMFC

which respondent agreed to assume; and that theamount of P3,000.00 representing the rental forJanuary 1997 supposedly collected by petitioner, aswell as the claim for damages and attorney’s fees,is denied for insufficiency of evidence.13

On May 29, 2001, petitioner filed her Motion forReconsideration with the CA, arguing thatrespondent categorically admitted in open courtthat she acted only as agent or representative ofArsenio Pua, the principal financier and, hence, shehad no legal capacity to sue petitioner; and thatthe CA failed to consider the fact that petitioner’sfather, who co-owned the subject property, was notimpleaded as a defendant nor was he indebted tothe respondent and, hence, she cannot be made tosign the documents to effect the transfer ofownership over the entire property.

On August 6, 2001, the CA issued its Resolutiondenying the motion on the ground that theforegoing matters had already been passed upon.

On August 13, 2001, petitioner received a copy ofthe CA Resolution. On August 28, 2001, petitionerfiled the present Petition and raised the followingissues:

I.

WHETHER OR NOT THE PETITIONER CANBE CONSIDERED AS A DEBTOR OF THERESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WASNOT AUTHORIZED BY THE PRINCIPAL TOCOLLECT DEBT IN HIS BEHALF COULDDIRECTLY COLLECT PAYMENT FROM THEDEBTOR.

III.

WHETHER OR NOT THE CONTRACT OFSALE WAS EXECUTED FOR A CAUSE.14

Although, as a rule, it is not the business of thisCourt to review the findings of fact made by thelower courts, jurisprudence has recognized several

exceptions, at least three of which are present inthe instant case, namely: when the judgment isbased on a misapprehension of facts; when thefindings of facts of the courts a quo are conflicting;and when the CA manifestly overlooked certainrelevant facts not disputed by the parties, which, ifproperly considered, could justify a differentconclusion.15 To arrive at a proper judgment,therefore, the Court finds it necessary to re-examine the evidence presented by the contendingparties during the trial of the case.

The Petition is meritorious.

The principal issue is whether the Deed of AbsoluteSale is supported by a valid consideration.

1. Petitioner argues that since she is merely theagent or representative of the alleged debtors,then she is not a party to the loan; and that theDeed of Sale executed between her and therespondent in their own names, which waspredicated on that pre-existing debt, is void for lackof consideration.

Indeed, the Deed of Absolute Sale purports to besupported by a consideration in the form of a pricecertain in money16 and that this sum indisputablypertains to the debt in issue. This Court hasconsistently held that a contract of sale is null andvoid and produces no effect whatsoever where thesame is without cause or consideration.17 Thequestion that has to be resolved for the moment iswhether this debt can be considered as a validcause or consideration for the sale.

To restate, the CA cited four instances in the recordto support its holding that petitioner "re-lends" theamount borrowed from respondent to her friends:first, the friends of petitioner never presentedthemselves to respondent and that all transactionswere made by and between petitioner andrespondent;18 second; the money passed throughthe bank accounts of petitioner andrespondent;19 third, petitioner herself admitted thatshe was "re-lending" the money loaned to otherindividuals for profit;20 and fourth, the documentaryevidence shows that the actual borrowers, thefriends of petitioner, consider her as their creditorand not the respondent.21

On the first, third, and fourth points, the CA citesthe testimony of the petitioner, then defendant,during her cross-examination:22

Atty. Diza:

q. You also mentioned that you were notthe one indebted to the plaintiff?

witness:

a. Yes, sir.

Atty. Diza:

q. And you mentioned the persons[,]namely, Elizabeth Tomelden, TeresaMoraquin, Maria Luisa Inocencio, ZenaidaRomulo, they are your friends?

witness:

a. Inocencio and Moraquin are my friendswhile [as to] Jacob and Tomelden[,] theywere just referred.

Atty. Diza:

q. And you have transact[ed] with theplaintiff?

witness:

a. Yes, sir.

Atty. Diza:

q. What is that transaction?

witness:

a. To refer those persons to Aura and torefer again to Arsenio Pua, sir.

Atty. Diza:

q. Did the plaintiff personally see thetransactions with your friends?

witness:

a. No, sir.

Atty. Diza:

q. Your friends and the plaintiff did notmeet personally?

witness:

a. Yes, sir.

Atty. Diza:

q. You are intermediaries?

witness:

a. We are both intermediaries. Asevidenced by the checks of the debtorsthey were deposited to the name ofArsenio Pua because the money camefrom Arsenio Pua.

x x x x

Atty. Diza:

q. Did the plaintiff knew [sic] that you willlend the money to your friends specificallythe one you mentioned [a] while ago?

witness:

a. Yes, she knows the money will go tothose persons.

Atty. Diza:

q. You are re-lending the money?

witness:

a. Yes, sir.

Atty. Diza:

q. What profit do you have, do you havecommission?

witness:

a. Yes, sir.

Atty. Diza:

q. How much?

witness:

a. Two percent to Tomelden, one percentto Jacob and then Inocencio and myfriends none, sir.

Based on the foregoing, the CA concludedthat petitioner is the real borrower, whilethe respondent, the real lender.

But as correctly noted by the RTC,respondent, then plaintiff, made thefollowing admission during her crossexamination:23

Atty. Villacorta:

q. Who is this Arsenio Pua?

witness:

a. Principal financier, sir.

Atty. Villacorta:

q. So the money came from Arsenio Pua?

witness:

a. Yes, because I am only representinghim, sir.

Other portions of the testimony ofrespondent must likewise be considered:24

Atty. Villacorta:

q. So it is not actually your money but themoney of Arsenio Pua?

witness:

a. Yes, sir.

Court:

q. It is not your money?

witness:

a. Yes, Your Honor.

Atty. Villacorta:

q. Is it not a fact Ms. Witness that thedefendant borrowed from you toaccommodate somebody, are you awareof that?

witness:

a. I am aware of that.

Atty. Villacorta:

q. More or less she [accommodated]several friends of the defendant?

witness:

a. Yes, sir, I am aware of that.

x x x x

Atty. Villacorta:

q. And these friends of the defendantborrowed money from you with theassurance of the defendant?

witness:

a. They go direct to Jocelyn because Idon’t know them.

x x x x

Atty. Villacorta:

q. And is it not also a fact Madam witnessthat everytime that the defendantborrowed money from you her friends who[are] in need of money issued check[s] toyou? There were checks issued to you?

witness:

a. Yes, there were checks issued.

Atty. Villacorta:

q. By the friends of the defendant, am Icorrect?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of your assistance, thefriends of the defendant who are in needof money were able to obtain loan to [sic]Arsenio Pua through your assistance?

witness:

a. Yes, sir.

Atty. Villacorta:

q. So that occasion lasted for more than ayear?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And some of the checks that wereissued by the friends of the defendantbounced, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of that Arsenio Pua gotmad with you?

witness:

a. Yes, sir.

Respondent is estopped to deny that she herselfacted as agent of a certain Arsenio Pua, herdisclosed principal. She is also estopped to denythat petitioner acted as agent for the allegeddebtors, the friends whom she (petitioner) referred.

This Court has affirmed that, under Article 1868 ofthe Civil Code, the basis of agency isrepresentation.25 The question of whether anagency has been created is ordinarily a questionwhich may be established in the same way as anyother fact, either by direct or circumstantialevidence. The question is ultimately one ofintention.26Agency may even be implied from thewords and conduct of the parties and thecircumstances of the particular case.27 Though thefact or extent of authority of the agents may not,as a general rule, be established from thedeclarations of the agents alone, if one professes toact as agent for another, she may be estopped todeny her agency both as against the assertedprincipal and the third persons interested in thetransaction in which he or she is engaged.28

In this case, petitioner knew that the financier ofrespondent is Pua; and respondent knew that theborrowers are friends of petitioner.

The CA is incorrect when it considered the fact thatthe "supposed friends of [petitioner], the actualborrowers, did not present themselves to[respondent]" as evidence that negates the agencyrelationship—it is sufficient that petitioner disclosedto respondent that the former was acting in behalfof her principals, her friends whom she referred torespondent. For an agency to arise, it is notnecessary that the principal personally encounterthe third person with whom the agent interacts.The law in fact contemplates, and to a greatdegree, impersonal dealings where the principalneed not personally know or meet the third personwith whom her agent transacts: precisely, thepurpose of agency is to extend the personality ofthe principal through the facility of the agent.29

In the case at bar, both petitioner and respondenthave undeniably disclosed to each other that theyare representing someone else, and so both ofthem are estopped to deny the same. It is evidentfrom the record that petitioner merely refers actualborrowers and then collects and disburses theamounts of the loan upon which she received acommission; and that respondent transacts onbehalf of her "principal financier", a certain ArsenioPua. If their respective principals do not actuallyand personally know each other, such ignorancedoes not affect their juridical standing as agents,especially since the very purpose of agency is toextend the personality of the principal through thefacility of the agent.

With respect to the admission of petitioner that sheis "re-lending" the money loaned from respondentto other individuals for profit, it must be stressedthat the manner in which the parties designate therelationship is not controlling. If an act done by oneperson in behalf of another is in its essential natureone of agency, the former is the agent of the latternotwithstanding he or she is not so called.30 Thequestion is to be determined by the fact that onerepresents and is acting for another, and ifrelations exist which will constitute an agency, itwill be an agency whether the parties understoodthe exact nature of the relation or not.31

That both parties acted as mere agents is shown bythe undisputed fact that the friends of petitionerissued checks in payment of the loan in the nameof Pua. If it is true that petitioner was "re-lending",then the checks should have been drawn in hername and not directly paid to Pua.

With respect to the second point, particularly, thefinding of the CA that the disbursements andpayments for the loan were made through the bankaccounts of petitioner and respondent,

suffice it to say that in the normal course ofcommercial dealings and for reasons ofconvenience and practical utility it can bereasonably expected that the facilities of the agent,such as a bank account, may be employed, andthat a sub-agent be appointed, such as the bankitself, to carry out the task, especially where thereis no stipulation to the contrary.32

In view of the two agency relationships, petitionerand respondent are not privy to the contract ofloan between their principals. Since the sale ispredicated on that loan, then the sale is void forlack of consideration.

2. A further scrutiny of the record shows, however,that the sale might have been backed up byanother consideration that is separate and distinctfrom the debt: respondent averred in her complaintand testified that the parties had agreed that as acondition for the conveyance of the property therespondent shall assume the balance of themortgage loan which petitioner allegedly owed tothe NHMFC.33 This Court in the recent past hasdeclared that an assumption of a mortgage debtmay constitute a valid consideration for a sale.34

Although the record shows that petitioner admittedat the time of trial that she owned the propertydescribed in the TCT,35 the Court must stress thatthe Transfer Certificate of Title No. 38253236 on itsface shows that the owner of the property whichadmittedly forms the subject matter of the Deed ofAbsolute Sale refers neither to the petitioner nor toher father, Teodorico Doles, the alleged co-owner.Rather, it states that the property is registered inthe name of "Household DevelopmentCorporation." Although there is an entry to theeffect that the petitioner had been granted aspecial power of attorney "covering the shares of

Teodorico Doles on the parcel of land described inthis certificate,"37 it cannot be inferred from thisbare notation, nor from any other evidence on therecord, that the petitioner or her father held anydirect interest on the property in question so as tovalidly constitute a mortgage thereon38 and, withmore reason, to effect the delivery of the object ofthe sale at the consummation stage.39 What isworse, there is a notation that the TCT itself hasbeen "cancelled."40

In view of these anomalies, the Court cannotentertain the

possibility that respondent agreed to assume thebalance of the mortgage loan which petitionerallegedly owed to the NHMFC, especially since therecord is bereft of any factual finding thatpetitioner was, in the first place, endowed with anyownership rights to validly mortgage and conveythe property. As the complainant who initiated thecase, respondent bears the burden of proving thebasis of her complaint. Having failed to dischargesuch burden, the Court has no choice but to declarethe sale void for lack of cause. And since the sale isvoid, the Court finds it unnecessary to dwell on theissue of whether duress or intimidation had beenfoisted upon petitioner upon the execution of thesale.

Moreover, even assuming the mortgage validlyexists, the Court notes respondent’s allegation thatthe mortgage with the NHMFC was for 25 yearswhich began September 3, 1994. Respondent filedher Complaint for Specific Performance in 1997.Since the 25 years had not lapsed, the prayer ofrespondent to compel petitioner to executenecessary documents to effect the transfer of titleis premature.

WHEREFORE, the petition is granted. The Decisionand Resolution of the Court of Appealsare REVERSED andSET ASIDE. The complaint ofrespondent in Civil Case No. 97-82716is DISMISSED.

SO ORDERED.

G.R. No. 141485 June 30, 2005

PABLITO MURAO and NELIOHUERTAZUELA, 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 Rule45 of the Rules of Court, petitioners pray for thereversal of the Decision of the Court of Appeals inCA-G.R. CR No. 21134, dated 31 May1999,1 affirming with modification the Judgment ofthe Regional Trial Court (RTC) of Puerto PrincesaCity, Palawan, in Criminal Case No. 11943, dated05 May 1997,2 finding petitioners guilty beyondreasonable doubt of the crime of estafa underArticle 315(1)(b) of the Revised Penal Code.

Petitioner Pablito Murao is the sole owner of LornaMurao Industrial Commercial Enterprises (LMICE), acompany engaged in the business of selling andrefilling fire extinguishers, with branches inPalawan, Naga, Legaspi, Mindoro, Aurora, Quezon,Isabela, and Laguna. Petitioner Nelio Huertazuela isthe Branch Manager of LMICE in Puerto PrincesaCity, Palawan.3

On 01 September 1994, petitioner Murao andprivate complainant Chito Federico entered into aDealership Agreement for the marketing,distribution, and refilling of fire extinguishers withinPuerto Princesa City.4 According to the DealershipAgreement, private complainant Federico, as adealer for LMICE, could obtain fire extinguishersfrom LMICE at a 50% discount, provided that hesets up his own sales force, acquires and issues hisown sales invoice, and posts a bond with LMICE assecurity for the credit line extended to him byLMICE. Failing to comply with the conditions underthe said Dealership Agreement, privatecomplainant Federico, nonetheless, was stillallowed to act as a part-time sales agent for LMICEentitled to a percentage commission from the salesof fire extinguishers.5

The amount of private complainant Federico’scommission as sales agent for LMICE was undercontention. Private complainant Federico claimedthat he was entitled to a commission equivalent to50% of the gross sales he had made on behalf ofLMICE,6 while petitioners maintained that he shouldreceive only 30% of the net sales. Petitioners evencontended that as company policy, part-time salesagents were entitled to a commission of only 25%of the net sales, but since private complainantFederico helped in establishing the LMICE branchoffice in Puerto Princesa City, he was to receive thesame commission as the full-time sales agents ofLMICE, which was 30% of the net sales.7

Private complainant Federico’s first successfultransaction as sales agent of LMICE involved twofire extinguishers sold to Landbank of thePhilippines (Landbank), Puerto Princesa CityBranch, for the price of P7,200.00. Landbank issueda check, dated 08 November 1993, pay to theorder of "L.M. Industrial Comm’l. Enterprises c/oChito Federico," for the amount of P5,936.40,8 afterdeducting from the original sales price the 15%discount granted by private complainant Federicoto Landbank and the 3% withholding tax. Privatecomplainant Federico encashed the check atLandbank and remitted only P2,436.40 to LMICE,while he kept P3,500.00 for himself as hiscommission from the sale.9

Petitioners alleged that it was contrary to thestandard operating procedure of LMICE that privatecomplainant Federico was named payee of theLandbank check on behalf of LMICE, and thatprivate complainant Federico was not authorized toencash the said check. Despite the supposedirregularities committed by private complainantFederico in the collection of the payment fromLandbank and in the premature withholding of hiscommission from the said payment, petitionersforgave private complainant Federico because thelatter promised to make-up for his misdeeds in thenext transaction.10

Private complainant Federico, on behalf of LMICE,subsequently facilitated a transaction with the CityGovernment of Puerto Princesa for the refill of 202fire extinguishers. Because of the considerablecost, the City Government of Puerto Princesarequested that the transaction be split into two

purchase orders, and the City Government ofPuerto Princesa shall pay for each of the purchaseorders separately.11 Pursuant to the two purchaseorders, LMICE refilled and delivered all 202 fireextinguishers to the City Government of PuertoPrincesa: 154 units on 06 January 1994, 43 moreunits on 12 January 1994, and the last five units on13 January 1994.12

The subject of this Petition is limited to the firstpurchase order, Purchase Order No. GSO-856,dated 03 January 1994, for the refill of 99 fireextinguishers, with a total costof P309,000.00.13 On 16 June 1994, the CityGovernment 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 the3% withholding tax.14 Within the same day,petitioner Huertazuela claimed Check No. 611437from the City Government of Puerto Princesa anddeposited it under the current account of LMICEwith PCIBank.15

On 17 June 1994, private complainant Federicowent to see petitioner Huertazuela at the LMICEbranch office in Puerto Princesa City to demand forthe amount of P154,500.00 as his commission fromthe payment of Purchase Order No. GSO-856 by theCity Government of Puerto Princesa. PetitionerHuertazuela, however, refused to pay privatecomplainant Federico his commission since the twoof them could not agree on the proper amountthereof.16

Also on 17 June 1994, private complainant Federicowent to the police station to file an Affidavit-Complaint for estafa againstpetitioners.17 Petitioners submitted their JointCounter-Affidavit on 12 July 1994.18 The CityProsecution Office of Puerto Princesa City issued aResolution, dated 15 August 1994, finding thata prima faciecase for estafa existed against thepetitioners and recommending the filing of aninformation for estafa against both of them.19

The Information, docketed as Criminal Case No.11943 and raffled to the RTC of Puerto PrincesaCity, Palawan, Branch 52, reads as follows –

I N F O R M A T I O N

The undersigned accuses PABLITO MURAO andNELIO C. HUERTAZUELA of the crime of ESTAFA,committed as follows:

That on or about the 16th day of June, 1994, atPuerto Princesa City, Philippines, and within thejurisdiction of this Honorable Court, the saidaccused, conspiring and confederating togetherand mutually helping one another, after havingreceived the amount of P309,000.00 as payment ofthe 99 tanks of refilled fire extinguisher (sic) fromthe City Government of Puerto Princesa, throughdeceit, fraud and misrepresentation, did then andthere willfully, unlawfully and feloniously defraudone Chito Federico in the following manner, to wit:said accused, well knowing that Chito Federicoagent of LM Industrial Commercial Enterprises isentitled to 50% commission of the gross sales asper their Dealership Contract or the amountof P154,500.00 as his commission for his sale of 99refilled fire extinguishers worth P309,000.00, andaccused once in possession of said amountof P309,000.00 misappropriate, misapply andconvert the amount of P154,500.00 for their ownpersonal use and benefit and despite repeateddemands made upon them by complainant todeliver the amount of P154,500.00, accused failedand refused and still fails and refuses to do so, tothe damage and prejudice of said Chito Federico inthe amount of P154,500.00, Philippine Currency.20

After holding trial, the RTC rendered its Judgmenton 05 May 1997 finding petitioners guilty beyondreasonable doubt as co-principals of the crime ofestafa defined and penalized in Article 315(1)(b) ofthe Revised Penal Code. Estafa, under the saidprovision, is committed by –

ART. 315. Swindling (estafa). – Any person whoshall defraud another by any of the meansmentioned hereinbelow . . .

1. With unfaithfulness or abuse of confidence,namely:

(a) …

(b) By misappropriating or converting, tothe prejudice of another, money, goods, orany other personal property received bythe offender in trust or on commission, or

for administration, or under any otherobligation involving the duty to makedelivery of or to return the same, eventhough such obligation be totally orpartially guaranteed by a bond; or bydenying having received such money,goods, or other property; . . .

In the same Judgment, the RTC expounded on itsfinding of guilt, thus –

For the afore-quoted provision of the Revised PenalCode to be committed, the following requisitesmust concur:

1. That money, goods or other personalproperty be received by the offender intrust, or on commission, or foradministration, or under any otherobligation involving the duty to makedelivery of, or to return, the same;

2. That there be misappropriation orconversion of such money or property bythe offender, or denial on his part of suchreceipt;

3. That such misappropriation orconversion or denial is to the prejudice ofanother; and

4. That there is demand made by theoffended party to the offender. (Reyes,Revised Penal Code of the Philippines, p.716; Manuel Manahan, Jr. vs. Court ofAppeals, Et Al., G.R. No. 111656, March20, 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 ofPuerto Princesa established the fact that indeed, onJune 16, 1994, co-accused Nelio Huertazuela tookdelivery of Check No. 611437 with face valueof P300,572.73, representing payment for the refillof 99 cylinders of fire extinguishers. Although therelationship between complaining witness ChitoFederico and LMIC is not fiduciary in nature, still theclause "any other obligation involving the duty tomake 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. BothPablito Murao and Nelio Huertazuela categoricallyadmitted that they did not give to Chito Federicohis commission. Instead, they deposited the fullamount of the consideration, with the PCIBank inthe Current Account of LMIC.

…

The refusal by the accused to give Chito Federicowhat ever percentage his commission necessarilycaused him prejudice which constitute the thirdelement of estafa. Demand for payment, althoughnot an essential element of estafa was nonethelessmade by the complainant but was rebuffed by theaccused. The fraudulent intent by the accused isindubitably indicated by their refusal to pay ChitoFederico any percentage of the gross sales ascommission. If it were true that what thedealer/sales Agent is entitled to by way ofcommission is only 30% of the gross sales, then byall means the accused should have paid ChitoFederico 30%. If he refused, they could have itdeposited in his name. In that way they may not besaid to have misappropriated for themselves whatpertained to their Agent by way of commission.

…

WHEREFORE, premises considered judgment ishereby rendered finding the accused PABLITOMURAO and NELIO HUERTAZUELA guilty beyondreasonable doubt as co-principals, of the crime ofestafa defined and penalized in Article 315 par.1(b) of the Revised Penal Code, and applying theprovisions of the Indeterminate Sentence Law, bothaccused are hereby sentenced to an indeterminatepenalty ranging from a minimum of TWO (2)YEARS, FOUR (4) MONTHS and ONE (1) DAY ofprision correccional in its medium period, to amaximum of TWENTY (20) YEARS of reclusiontemporal in its maximum period; to pay ChitoFederico, 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 beforeit, the Court of Appeals, in its Decision, dated 31May 1999, affirmed the aforementioned RTCJudgment, finding petitioners guilty of estafa, butmodifying the sentence imposed on the petitioners.The dispositive portion of the Decision of the Courtof Appeals reads –

WHEREFORE, the appealed decision is herebyAFFIRMED with the MODIFICATION that appellantsPABLITO MURAO and NELIO HUERTAZUELA arehereby each sentenced to an indeterminatepenalty of eight (8) years and One (1) dayof prision mayor, as minimum, to Twenty (20) yearsof reclusion temporal, as maximum. The award forattorney’s fee of P 30,000.00 is deleted because theprosecution of criminal action is the task of theState prosecutors. All other aspects of theappealed decision are maintained.22

When the Court of Appeals, in its Resolution, dated19 January 2000,23 denied their Motion forReconsideration, petitioners filed the presentPetition for Review24 before this Court, raising thefollowing errors allegedly committed by the Courtof Appeals in its Decision, dated 31 May 1999 –

I

WITH DUE RESPECT, THE HONORABLE COURT OFAPPEALS GRAVELY ERRED WHEN IT RULED THATPETITIONERS ARE LIABLE FOR ESTAFA UNDERARTICLE 315 1(B) OF THE REVISED PENAL CODEUNDER THE FOREGOING SET OF FACTS, WHEN IT ISCLEAR FROM THE SAID UNDISPUTED FACTS THATTHE LIABILITY IS CIVIL IN NATURE.

II

WITH DUE RESPECT, THE HONORABLE COURTERRED WHEN IT UPHOLD (sic) PRIVATECOMPLAINANT’S CLAIM THAT HE IS ENTITLED TO A

FIFTY (50%) PERCENT COMMISSION WITHOUTEVIDENCE TO SUPPORT SUCH CLAIM.

This Court finds the instant Petition impressed withmerit. Absent herein are two essential elements ofthe crime of estafa by misappropriation orconversion under Article 315(1)(b) of the RevisedPenal Code, namely: (1) That money, goods orother personal property be received by theoffender in trust, or on commission, or foradministration, or under any other obligationinvolving the duty to make delivery of, or to return,the same; and (2) That there be a misappropriationor conversion of such money or property by theoffender.

The findings of the RTC and the Court of Appealsthat petitioners committed estafa rest on theerroneous belief that private complainant Federico,due to his right to commission, already owned 50%of the amount paid by the City Government ofPuerto Princesa to LMICE by virtue of Check No.611437, so that the collection and deposit of thesaid check by petitioners under the account ofLMICE constituted misappropriation or conversionof private complainant Federico’s commission.

However, his right to a commission does notmake private complainant Federico a jointowner of the money paid to LMICE by the CityGovernment of Puerto Princesa, but merelyestablishes the relation of agent and principal.25 Itis unequivocal that an agency existed betweenLMICE and private complainant Federico. Article1868 of the Civil Code defines agency as a specialcontract whereby "a person binds himself to rendersome service or to do something in representationor on behalf of another, with the consent orauthority of the latter." Although privatecomplainant Federico never had the opportunity tooperate as a dealer for LMICE under the terms ofthe Dealership Agreement, he was allowed to actas a sales agent for LMICE. He can negotiate forand on behalf of LMICE for the refill and delivery offire extinguishers, which he, in fact, did on twooccasions – with Landbank and with the CityGovernment of Puerto Princesa. Unlike theDealership Agreement, however, the agreementthat private complainant Federico may act as salesagent of LMICE was based on an oral agreement.26

As a sales agent, private complainant Federicoentered into negotiations with prospective clientsfor and on behalf of his principal, LMICE. Whennegotiations for the sale or refill of fireextinguishers were successful, private complainantFederico prepared the necessary documentation.Purchase orders, invoices, and receipts were all inthe name of LMICE. It was LMICE who had theprimary duty of picking up the empty fireextinguishers, filling them up, and delivering therefilled tanks to the clients, even though privatecomplainant Federico personally helped in haulingand carrying the fire extinguishers during pick-upfrom and delivery to clients.

All profits made and any advantage gained by anagent in the execution of his agency should belongto the principal.27 In the instant case, whether thetransactions negotiated by the sales agent were forthe sale of brand new fire extinguishers or for therefill of empty tanks, evidently, the businessbelonged to LMICE. Consequently, payments madeby clients for the fire extinguishers pertained toLMICE. When petitioner Huertazuela, as the BranchManager of LMICE in Puerto Princesa City, with thepermission of petitioner Murao, the sole proprietorof LMICE, personally picked up Check No. 611437from the City Government of Puerto Princesa, anddeposited the same under the Current Account ofLMICE with PCIBank, he was merely collecting whatrightfully belonged to LMICE. Indeed, Check No.611437 named LMICE as the lone payee. Privatecomplainant Federico may claim commission,allegedly equivalent to 50% of the paymentreceived by LMICE from the City Government ofPuerto Princesa, based on his right to justcompensation under his agency contract withLMICE,28 but not as the automatic owner of the 50%portion of the said payment.

Since LMICE is the lawful owner of the entireproceeds of the check payment from the CityGovernment of Puerto Princesa, then thepetitioners who collected the payment on behalf ofLMICE did not receive the same or any part thereofin trust, or on commission, or for administration, orunder any other obligation involving the duty tomake delivery of, or to return, the same to privatecomplainant Federico, thus, the RTC correctly foundthat no fiduciary relationship existed betweenpetitioners and private complainant Federico. Afiduciary relationship between the complainant andthe accused is an essential element of estafa by

misappropriation or conversion, without which theaccused could not have committed estafa.29

The RTC used the case of Manahan, Jr. v. Court ofAppeals30 to support its position that even in theabsence of a fiduciary relationship, the petitionersstill had the civil obligation to return and deliver toprivate complainant Federico his commission. TheRTC failed to discern the substantial differences inthe factual background of theManahan case fromthe present Petition. The Manahan case involvedthe lease of a dump truck. Although a contract oflease may not be fiduciary in character, the lesseeclearly had the civil obligation to return the truck tothe lessor at the end of the lease period; andfailure of the lessee to return the truck as providedfor in the contract may constitute estafa. Thephrase "or any other obligation involving the dutyto make delivery of, or to return the same" refers tocontracts of bailment, such as, contract of lease ofpersonal property, contract of deposit,and commodatum, wherein juridical possession ofthe thing was transferred to the lessee, depositaryor borrower, and wherein the latter is obligated toreturn the same thing.31

In contrast, the current Petition concerns an agencycontract whereby the principal already receivedpayment from the client but refused to give thesales agent, who negotiated the sale, hiscommission. As has been established by this Courtin the foregoing paragraphs, LMICE had a right tothe full amount paid by the City Government ofPuerto Princesa. Since LMICE, through petitioners,directly collected the payment, then it was alreadyin possession of the amount, and no transfer ofjuridical possession thereof was involved herein.Given that private complainant Federico could notclaim ownership over the said payment or anyportion thereof, LMICE had nothing at all to deliverand return to him. The obligation of LMICE to payprivate complainant Federico his commission doesnot arise from any duty to deliver or return themoney to its supposed owner, but rather from theduty of a principal to give just compensation to itsagent 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 [192SCRA 277] enunciated that the words "convert" and"misappropriate" in the crime of estafa punishedunder Art. 315, par. 1(b) connote an act of using ordisposing of another’s property as if it were one’sown, or if devoting it to a purpose or use differentfrom that agreed upon. To misappropriate to one’suse includes, not only conversion to one’s personaladvantage, but also every attempt to dispose ofthe property of another without right.32

Based on the very same definition, this Court findsthat petitioners did not convert nor misappropriatethe proceeds from Check No. 611437 because thesame belonged to LMICE, and was not "another’sproperty." Petitioners collected the said check fromthe City Government of Puerto Princesa anddeposited the same under the Current Account ofLMICE with PCIBank. Since the money was alreadywith its owner, LMICE, it could not be said that thesame had been converted or misappropriated forone could not very well fraudulently appropriate tohimself money that is his own.33

Although petitioners’ refusal to pay privatecomplainant Federico his commission causedprejudice or damage to the latter, said act does notconstitute a crime, particularly estafa byconversion or misappropriation punishable underArticle 315(1)(b) of the Revised Penal Code.Without the essential elements for the commissionthereof, petitioners cannot be deemed to havecommitted the crime.

While petitioners may have no criminal liability,petitioners themselves admit their civil liability tothe private complainant Federico for the latter’scommission from the sale, whether it be 30% of thenet sales or 50% of the gross sales. However, thisCourt is precluded from making a determinationand an award of the civil liability for the reason thatthe said civil liability of petitioners to pay privatecomplainant Federico his commission arises from aviolation of the agency contract and not from acriminal act.34 It would be improper andunwarranted for this Court to impose in a criminalaction the civil liability arising from a civil contract,which should have been the subject of a separateand independent civil action.35

WHEREFORE, the assailed Decision of the Court ofAppeals in CA-G.R. CR No. 21134, dated 31 May

1999, affirming with modification the Judgment ofthe RTC of Puerto Princesa City, Palawan, inCriminal Case No. 11943, dated 05 May 1997,finding petitioners guilty beyond reasonable doubtof estafa by conversion or misappropriation underArticle 315(1)(b) of the Revised Penal Code, andawarding the amount of P154,500.00 as salescommission to private complainant Federico, ishereby REVERSED and SET ASIDE. A new Judgmentis hereby entered ACQUITTING petitioners based onthe foregoing findings of this Court that theiractions did not constitute the crime of estafa byconversion or misappropriation under Article 315(1)(b) of the Revised Penal Code. The cash bondsposted by the petitioners for their provisionalliberty are hereby ordered RELEASED and theamounts thereof RETURNED to the petitioners,subject to the usual accounting and auditingprocedures.

SO ORDERED.

G.R. No. 148775 January 13, 2004

SHOPPER’S PARADISE REALTY &DEVELOPMENT CORPORATION, petitioner, vs.EFREN P. ROQUE, respondent.

D E C I S I O N

VITUG, J.:

On 23 December 1993, petitioner Shopper’sParadise Realty & Development Corporation,represented by its president, Veredigno Atienza,entered into a twenty-five year lease with Dr. FelipeC. Roque, now deceased, over a parcel of land, withan area of two thousand and thirty six (2,036)square meters, situated at Plaza Novaliches,Quezon City, covered by Transfer of Certificate ofTitle (TCT) No. 30591 of the Register of Deeds ofQuezon City in the name of Dr. Roque. Petitionerissued to Dr. Roque a check for P250,000.00 byway of "reservation payment." Simultaneously,petitioner and Dr. Roque likewise entered into amemorandum of agreement for the construction,development and operation of a commercialbuilding complex on the property. Conformably withthe agreement, petitioner issued a check foranother P250,000.00 "downpayment" to Dr. Roque.

The contract of lease and the memorandum ofagreement, both notarized, were to be annotatedon TCT No. 30591 within sixty (60) days from 23December 1993 or until 23 February 1994. Theannotations, however, were never made because ofthe untimely demise of Dr. Felipe C. Roque. Thedeath of Dr. Roque on 10 February 1994constrained petitioner to deal with respondentEfren P. Roque, one of the surviving children of thelate Dr. Roque, but the negotiations broke downdue to some disagreements. In a letter, dated 3November 1994, respondent advised petitioner "todesist from any attempt to enforce theaforementioned contract of lease andmemorandum of agreement". On 15 February1995, respondent filed a case for annulment of thecontract of lease and the memorandum ofagreement, with a prayer for the issuance of apreliminary injunction, before Branch 222 of theRegional Trial Court of Quezon City. Efren P. Roque

alleged that he had long been the absolute ownerof the subject property by virtue of a deed ofdonation inter vivos executed in his favor by hisparents, Dr. Felipe Roque and Elisa Roque, on 26December 1978, and that the late Dr. Felipe Roquehad no authority to enter into the assailedagreements with petitioner. The donation wasmade in a public instrument duly acknowledged bythe donor-spouses before a notary public and dulyaccepted on the same day by respondent beforethe notary public in the same instrument ofdonation. The title to the property, however,remained in the name of Dr. Felipe C. Roque, and itwas only transferred to and in the name ofrespondent sixteen years later, or on 11 May 1994,under TCT No. 109754 of the Register of Deeds ofQuezon City. Respondent, while he resided in theUnited States of America, delegated to his fatherthe mere administration of the property.Respondent came to know of the assailed contractswith petitioner only after retiring to the Philippinesupon the death of his father.

On 9 August 1996, the trial court dismissed thecomplaint of respondent; it explained:

"Ordinarily, a deed of donation need notbe registered in order to be valid betweenthe parties. Registration, however, isimportant in binding third persons. Thus,when Felipe Roque entered into a leasedcontract with defendant corporation,plaintiff Efren Roque (could) no longerassert the unregistered deed of donationand say that his father, Felipe, was nolonger the owner of the subject propertyat the time the lease on the subjectproperty was agreed upon.

"The registration of the Deed of Donationafter the execution of the lease contractdid not affect the latter unless he hadknowledge thereof at the time of theregistration which plaintiff had not beenable to establish. Plaintiff knew very wellof the existence of the lease. He, in fact,met with the officers of the defendantcorporation at least once before he causedthe registration of the deed of donation inhis favor and although the lease itself wasnot registered, it remains valid considering

that no third person is involved. Plaintiffcannot be the third person because he isthe successor-in-interest of his father,Felipe Roque, the lessor, and it is a rulethat contracts take effect not onlybetween the parties themselves but alsobetween their assigns and heirs (Article1311, Civil Code) and therefore, the leasecontract together with the memorandumof agreement would be conclusive onplaintiff Efren Roque. He is bound by thecontract even if he did not participatetherein. Moreover, the agreements havebeen perfected and partially executed bythe receipt of his father of thedownpayment and deposit totaling toP500,000.00."1

The Trial court ordered respondent to surrender TCTNo. 109754 to the Register of Deeds of Quezon Cityfor the annotation of the questioned Contract ofLease and Memorandum of Agreement.

On appeal, the Court of Appeals reversed thedecision of the trial court and held to be invalid theContract of Lease and Memorandum of Agreement.While it shared the view expressed by the trialcourt that a deed of donation would have to beregistered in order to bind third persons, theappellate court, however, concluded that petitionerwas not a lessee in good faith having had priorknowledge of the donation in favor of respondent,and that such actual knowledge had the effect ofregistration insofar as petitioner was concerned.The appellate court based its findings largely onthe testimony of Veredigno Atienza during cross-examination, viz;

"Q. Aside from these two lots, the first inthe name of Ruben Roque and the second,the subject of the construction involved inthis case, you said there is another lotwhich was part of development project?

"A. Yes, this was the main concept of Dr.Roque so that the adjoining properties ofhis two sons, Ruben and Cesar, willcomprise one whole. The other wholeproperty belongs to Cesar.

"Q. You were informed by Dr. Roque thatthis property was given to his three (3)sons; one to Ruben Roque, the other toEfren, and the other to Cesar Roque?

"A. Yes.

"Q. You did the inquiry from him, how wasthis property given to them?

"A. By inheritance.

"Q. Inheritance in the form of donation?

"A. I mean inheritance.

"Q. What I am only asking you is, were youtold by Dr. Felipe C. Roque at the time ofyour transaction with him that all thesethree properties were given to his childrenby way of donation?

"A. What Architect Biglang-awa told us inhis exact word: "Yang mga yan pupunta samga anak. Yong kay Ruben pupunta kayRuben. Yong kay Efren palibhasa nasaAmerica sya, nasa pangalan pa ni Dr.Felipe C. Roque."

"x x x x x x x x x

"Q. When was the information supplied toyou by Biglang-awa? Before the executionof the Contract of Lease and Memorandumof Agreement?

"A. Yes.

"Q. That being the case, at the time of theexecution of the agreement or soonbefore, did you have such informationconfirmed by Dr. Felipe C. Roque himself?

"A. Biglang-awa did it for us.

"Q. But you yourself did not?

"A. No, because I was doing certain things.We were a team and so Biglang-awa did itfor us.

"Q. So in effect, any information gatheredby Biglang-awa was of the same effect asif received by you because you weremembers of the same team?

"A. Yes."2

In the instant petition for review, petitioner seeks areversal of the decision of the Court of Appeals andthe reinstatement of the ruling of the Regional TrialCourt; it argues that the presumption of good faithit so enjoys as a party dealing in registered landhas not been overturned by the aforequotedtestimonial evidence, and that, in any event,respondent is barred by laches and estoppel fromdenying the contracts.

The existence, albeit unregistered, of the donationin favor of respondent is undisputed. The trial courtand the appellate court have not erred in holdingthat the non-registration of a deed of donation doesnot affect its validity. As being itself a mode ofacquiring ownership, donation results in aneffective transfer of title over the property from thedonor to the donee.3 In donations of immovableproperty, the law requires for its validity that itshould be contained in a public document,specifying therein the property donated and thevalue of the charges which the donee mustsatisfy.4 The Civil Code provides, however, that"titles of ownership, or other rights over immovableproperty, which are not duly inscribed or annotatedin the Registry of Property (now Registry of LandTitles and Deeds) shall not prejudice thirdpersons."5 It is enough, between the parties to adonation of an immovable property, that thedonation be made in a public document but, inorder to bind third persons, the donation must beregistered in the registry of Property (Registry ofLand Titles and Deeds).6 Consistently, Section 50 ofAct No. 496 (Land Registration Act), as so amendedby Section 51 of P.D. No. 1529 (PropertyRegistration Decree), states:

"SECTION 51. Conveyance and otherdealings by registered owner.- An ownerof registered land may convey, mortgage,lease, charge or otherwise deal with the

same in accordance with existing laws. Hemay use such forms of deeds, mortgages,leases or other voluntary instruments asare sufficient in law. But no deed,mortgage, lease, or other voluntaryinstrument, except a will purporting toconvey or affect registered land shall takeeffect as a conveyance or bind the land,but shall operate only as a contractbetween the parties and as evidence ofauthority to the Register of Deeds to makeregistration.

"The act of registration shall be theoperative act to convey or affect the landinsofar as third persons areconcerned, and in all cases under thisDecree, the registration shall be made inthe office of the Register of Deeds for theprovince or city where the land lies."(emphasis supplied)

A person dealing with registered land may thussafely rely on the correctness of the certificate oftitle issued therefore, and he is not required to gobeyond the certificate to determine the condition ofthe property7 but, where such party has knowledgeof a prior existing interest which is unregistered atthe time he acquired a right thereto, his knowledgeof that prior unregistered interest would have theeffect of registration as regards to him.8

The appellate court was not without substantialbasis when it found petitioner to have hadknowledge of the donation at the time it enteredinto the two agreements with Dr. Roque. Duringtheir negotiation, petitioner, through itsrepresentatives, was apprised of the fact that thesubject property actually belonged to respondent.

It was not shown that Dr. Felipe C. Roque had beenan authorized agent of respondent.

In a contract of agency, the agent acts inrepresentation or in behalf of another with theconsent of the latter.9Article 1878 of the Civil Codeexpresses that a special power of attorney isnecessary to lease any real property to anotherperson for more than one year. The lease of realproperty for more than one year is considered notmerely an act of administration but an act of strictdominion or of ownership. A special power of

attorney is thus necessary for its execution throughan agent.1awphil.ne+

The Court cannot accept petitioner’s argument thatrespondent is guilty of laches. Laches, in its realsense, is the failure or neglect, for an unreasonableand unexplained length of time, to do that which,by exercising due diligence, could or should havebeen done earlier; it is negligence or omission toassert a right within a reasonable time, warrantinga presumption that the party entitled to assert iteither has abandoned or declined to assert it.10

Respondent learned of the contracts only inFebruary 1994 after the death of his father, and inthe same year, during November, he assailed thevalidity of the agreements. Hardly, couldrespondent then be said to have neglected toassert his case for unreasonable length of time.

Neither is respondent estopped from repudiatingthe contracts. The essential elements of estoppel inpais, in relation to the party sought to be estopped,are: 1) a clear conduct amounting to falserepresentation or concealment of material facts or,at least, calculated to convey the impression thatthe facts are otherwise than, and inconsistent with,those which the party subsequently attempts toassert; 2) an intent or, at least, an expectation,that this conduct shall influence, or be acted uponby, the other party; and 3) the knowledge, actualor constructive, by him of the real facts.11 Withrespect to the party claiming the estoppel, theconditions he must satisfy are: 1) lack ofknowledge or of the means of knowledge of thetruth as to the facts in question; 2) reliance, ingood faith, upon the conduct or statements of theparty to be estopped; and 3) action or inactionbased thereon of such character as to change hisposition or status calculated to cause him injury orprejudice.12 It has not been shown that respondentintended to conceal the actual facts concerning theproperty; more importantly, petitioner has beenshown not to be totally unaware of the realownership of the subject property.

Altogether, there is no cogent reason to reverse theCourt of Appeals in its assailed decision.

WHEREFORE, the petition is DENIED, and thedecision of the Court of Appeals declaring thecontract of lease and memorandum of agreement

entered into between Dr. Felipe C. Roque andShopper’s Paradise Realty & DevelopmentCorporation not to be binding on respondent isAFFIRMED. No costs.

SO ORDERED.

G.R. No. 151963 September 9, 2004

AIR PHILIPPINES CORPORATION, petitioner, vs.INTERNATIONAL BUSINESS AVIATIONSERVICES PHILS., INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

Simple negligence of counsel binds the client. Thisis especially true in this case in which the clientwas as negligent as its lawyer. Hence, petitionermust bear the consequences and accept its defeat.After all, the winning party did not take advantageof petitioner’s fault, but merely complied with thelaw in prosecuting its valid and proven claims.

The Case

Before us is a Petition for Review1 under Rule 45 ofthe Rules of Court, assailing the September 28,2001 Decision2 and the January 25, 2002Resolution3 of the Court of Appeals (CA) in CA-GRCV No. 64283. The dispositive part of the assailedDecision reads:

"IN THE LIGHT OF ALL THEFOREGOING, the appeal of the[petitioner] is partially GRANTED in thatthe Decision appealed fromis AFFIRMED with the modification thatthe award for a broker’s fee in favor of the[respondent] is deleted."4

The assailed Resolution denied reconsideration ofthe Decision.

The Facts

The facts are narrated by the CA as follows:

"The Air Philippines, Inc., API for brevity,was in need of the services of a businessestablishment to ferry its B-737 airplane,with Registry Number RP C1938, from theUnited States of America to the

Philippines, via Subic Bay InternationalAirport, at Olongapo City. API, throughCaptain Alex Villacampa, its Vice-Presidentfor Operations, engaged the servicesof International Business AviationServices Phils., Inc.,IBASPI forbrevity, as its agent to look for andengage, for API, a business enterprise toferry the airplane. IBASPI did engage theservices of Universal Weather [&] Aviation,Inc., UWAI for brevity, to ferry theairplane x x x to the Philippines, via theInternational Airport at Subic Bay,Olongapo City, where API took delivery ofthe plane.

"UWAI sent its ‘Billings’ to API, throughIBASPI, in the total amount ofUS$65,131.55 for its services for the ferryof the airplane. API failed to pay itsaccount. On December 2, 1996, the[respondent] wrote a letter to the[petitioner] urging the payment of the billsof UWAI. The [petitioner] refused.Exasperated, UWAI blamed IBASPI for theintransigence of API. IBASPI was impelledto write a letter to UWAI ‘to clarify’ criticalpoints of API’s account. Unable to bear thepressure of UWAI and to avoid corporateembarrassment for API’s intransigence,IBASPI was impelled to advance and payto UWAI the said amount of US$65,131.55for the account of API. The latter wasinformed by UWAI of the payment of saidaccount by IBASPI via its letter dated May12, 1997.

"IBASPI forthwith wrote a letter to APIdemanding refund to IBASPI the amount itadvanced to UWAI for the account of API.IBASPI received, via an informant, a copyof a ‘Memorandum’ of Rodolfo Estrellado,the President and Chief Executive Officerof API, dated July 29, 1997, to thePresident of API, recommending that thelatter pay only the amount ofUS$27,730.60, with a recommendationthat IBASPI be required to submitdocumentations/billings in support of thedifference of US$37,400.00. However, nopayment was effected by API.

"On November 6, 1997, IBASPI, throughcounsel, sent another letter to APIdemanding the payment of the saidamount of US$65,131.55 and 10%commission. API ignored the letter.Another letter of demand was sent to APIby IBASPI, on December 1, 1997, to noavail. On January 6, 1998, IBASPI wroteanother letter of demand to API enclosingtherein a ‘Summary Statement ofAccount of Air Philippines, Inc.’ on thedisputed amount of US $37,400.00,appending thereto thedocumentations/billings in support of saidclaim and 10% commission. On February26, 1998, API drew Check No. 0521300against its account, with the Bank ofPhilippine Islands, in the amountof P200,000.00, payable to the order ofIBASPI, and offered the same in partialfirst payment of its account with IBASPIfor the amount of US$65,131.55 as statedin the letter of the [petitioner]. The[respondent] accepted the said check witha simultaneous ‘Receipt/Agreement’executed by IBASPI and API, the latter,through Atty. Manolito A. Manalo, theOfficer-in-Charge of the Legal Departmentof the API, obliging itself to pay thebalance of its account. API in the saidAgreement waived demand by IBASPI.Despite demands of IBASPI, via its letter,dated April 22, 1998, API refused to paythe balance of its account with IBASPI.

"On June 24, 1998, IBASPI filed acomplaint against API, with the RegionalTrial Court of Pasay City, for the collectionof its account, including a 10% broker’sfee, praying that, after due proceedings,judgment be rendered in its favor asfollows:

‘WHEREFORE, [respondent]respectfully prays of thisHonorable Court to renderjudgment:

1) Ordering the[petitioner] to pay the[respondent] the sum of

US$59,798.22 x x x orits equivalent in legaltender with interest atthe legal rate from May1997 until full payment;

2) Ordering the[petitioner] to pay the[respondent] furthersum of US$6,513.00 orits equivalent in legaltender as intermediary’scommission;

3) Ordering the[petitioner] to pay the[respondent] anothersum of US$13,026.00 orits equivalent in legaltender as actualdamages in the form ofattorney’s fees;

4) Ordering the[petitioner] to pay the[respondent] expensesof litigation as can beproved;

5) Ordering the[petitioner] to pay thecosts of the suit; and,

6) [Respondent] praysfor such further or otherrelief as may be deemedjust or equitable.’

"The [respondent] appended to itscomplaint the ‘Receipt/Agreement’executed by the [petitioner], on March 20,1998. In its ‘Unverified Answer’, APIalleged, inter alia, by way of‘Affirmative Allegations’, that:

‘8. In support of the foregoingdenials and by way of affirmativeallegations, [petitioner] states:

‘9. On 6 November 1997, wereceived a letter from[respondent] demandingpayment of $65,131.00 allegedlyfor the ferry flight servicesrendered by Universal andbrokered by [respondent].

‘10. On 1 December 1997 and 12January 1998, we sent letters to[respondent] acknowledgingreceipt of their demand letter[.]However, we mentioned in theletters that we needed time toprocess the documentssubmitted by [respondent] tosupport their claim.

‘11. APC made it very clear that ifan obligation on the part of[petitioner] is proven to exist,[petitioner] would be more thanwilling to settle the obligation.

‘12. In fact, as mentioned in thecomplaint, [petitioner] made apayment of P200,000.00 to coverclaims which [petitioner] did notcontest; [petitioner] opted not tosettle the balance of the claimpending verification of thesubmitted supporting documents.

‘13. [Petitioner] verballyrequested [respondent] to furthersubstantiate its claim by sendingtheir accountants to the offices ofAPC[.]

‘14. [Respondent] did not heedthis request; thus, APC could notrelease any other amounts tocover the claim of [respondent.]

‘15. The documents sent by[respondent] were notaccompanied by any explanationand were merely a loosecollection of statements fromvarious companies[.]

‘16. Thus, [petitioner] wassurprised when [respondent] filedthe instant complaint[,] for[,] asfar as the former [was]concerned[,] the accounting ofthe claim was nowhere neardefinite nor clear[.]’

"On November 17, 1998, the Court issueda ‘Pre-Trial Notice’ setting the pre-trialconference on December 7, 1998, at 8:30x x x in the morning, requiring the partiesto file their respective ‘Pre-Trial Brief’ atleast two (2) days before the scheduledpre-trial. The [respondent] did file its ‘Pre-Trial Brief’[,] but the [petitioner] did not.During the pre-trial, on December 7, 1998,Atty. Manolito Manalo, counsel of the[petitioner], appeared[,] but without any‘Special Power of Attorney’ from the[petitioner]. The Court granted the[petitioner] a period of ten (10) days, fromsaid date, within which to file its ‘Pre-TrialBrief’ and ‘Special Power of Attorney’executed by the [petitioner] in favor of itscounsel. In the meantime, the pre-trialwas reset to January 11, 1999 at the sametime. However, the [petitioner] failed tofile its ‘Pre-Trial Brief’. On January 11,1999, at 9:20 x x x in the morning, the[petitioner] filed an ‘Urgent Ex-ParteMotion for Extension of Time to FilePre-Trial Brief and For Resetting ofPre-Trial Conference’, with a plea to theBranch Clerk of Court to submit the saidmotion for consideration of the Courtimmediately upon receipt thereof. Whenthe case was called for pre-trial, there wasno appearance for the [petitioner] and itscounsel. The Court issued an Orderdenying the motion of the [petitioner] andallowing the [respondent] to adduce itsevidence, ex parte, before the BranchClerk of Court, who was designated, asCommissioner, to receive the evidence ofthe [respondent], ex parte. On January13, 1999, the [petitioner] filed with theCourt another ‘Urgent Ex-Parte Motionfor Extension of Time to File Pre-TrialBrief and for Resetting of Pre-TrialConference’. On January 15, 1999, the[petitioner] filed a ‘Motion forReconsideration’ of the Order of the

Court, dated January 11, 1999. The[petitioner] appended to its motion the‘Affidavit’ of Atty. Manolito Manalo, itscounsel, stating the reason for his failureto appear at the pre-trial conference onJanuary 11, 1999. On January 22, 1999,the Court issued an Order denying the‘Motion for Reconsideration’ of the[petitioner]. On January 25, 1999, the[respondent] did adduce testimonial anddocumentary evidence in support of itscomplaint.

"Among the documentary evidenceadduced by the [respondent] were thexerox copy of the ‘Certification’ ofCaptain Alex Villacampa, and the‘Memorandum’ of Rodolfo Estrellado.

"On April 7, 1999, the Court renderedjudgment in favor of the [respondent] andagainst the [petitioner], the decretalportion of which reads as follows:

‘WHEREFORE, IN VIEW OF THEFOREGOING uncontroverted andsubstantiated evidences of the[respondent], judgment is herebyrendered in favor of the[respondent] and against the[petitioner] ordering the latter topay the former the following:

1. the amount ofUS59,798.22 dollars orits equivalent in legaltender plus interest atthe legal rate from May,1997 until fully paid;

2. the amount ofUS6,513.00 or itsequivalent asintermediary’scommission;

3. [P]50,000.00 as andfor attorney’s fees; and,

Costs of suit.

‘SO ORDERED.’

"The [petitioner] filed a ‘Motion for NewTrial’ on the grounds that: (a) it wasdeprived of its day in court due to thegross negligence of its former counsel,Atty. Manolito A. Manalo; (b) the‘Receipt/Agreement’ executed by Atty.Manolito A. Manalo, in behalf of the[petitioner], was unauthorized as therewas no ‘Resolution’ of the Board ofDirectors authorizing him to execute said‘Receipt/Agreement’ and, hence, saidcounsel acted beyond the scope of hisauthority; (c) the claim of IBASPI wasexcessive and unjustified; [and] (d) the[petitioner] never agreed to pay the[respondent] a commission of 10% of thebillings of UWAI.

"On July 26, 1999, the Court issued a‘Resolution’ denying the ‘Motion forNew Trial’ of the [petitioner]. The latterforthwith interposed its appeal, from saidDecision and Resolution of the Court aquo."5

Ruling of the Court of Appeals

Affirming the Decision of the lower court with somemodification, the CA ruled that under the Rules ofCivil Procedure, petitioner could not avail itself of anew trial, because its former counsel was guilty ofonly simple -- not gross -- negligence. In addition,petitioner, being equally negligent as its counsel,could notbe relieved from the effects of itsnegligence. Thus, it was held liable forUS$59,798.22 and attorney’s fees, but not for the10 percent commission or broker’s fee, for whichthe requisite quantum of evidence in its favor hadnot been mustered by respondent.

Hence this Petition.6

The Issues

Petitioner submits the following issues for ourconsideration:

"1. Whether or not the Honorable Court ofAppeals ruled in accordance withprevailing laws and jurisprudence when itupheld the ruling of the Honorable TrialCourt denying the Motion for New Trialdated April 27, 1999 despite the fact thatthe gross negligence, incompetence anddishonesty of Petitioner APC’s formercounsel, Atty. Manolito A. Manalo, haveeffectively denied Petitioner APC of its dayin court.

"2. Whether or not the Honorable Court ofAppeals ruled in accordance withprevailing laws and jurisprudence when ittook cognizance of and/or gave credenceto the ‘Memorandum’ of RodolfoEstrellado, and the ‘Billings’ of UniversalWeather as well as thedocuments/receipts in support thereofdespite the fact that they are clearlyhearsay and have no probative valueconsidering that Luisito Nazareno, the lonewitness of Respondent IBAS, had nopersonal knowledge of the contents and/orfactual bases thereof and failed toproperly authenticate and/or identify thesame.

"3. Whether or not the Honorable Court ofAppeals ruled in accordance withprevailing laws and jurisprudence when ittook cognizance of and/or gave credenceto the Receipt/Agreement dated March 20,1998 despite the fact that Atty. Manolito A.Manalo was not authorized to execute[the] same for and [in] behalf of PetitionerAPC.

"4. Whether or not the Honorable Court ofAppeals ruled in accordance withprevailing laws and jurisprudence when itupheld the ruling of the Honorable TrialCourt that Petitioner APC is liable to payand/or reimburse Respondent IBAS for thepayments allegedly made by the latter toUniversal Weather despite the fact thatthe claims submitted by UniversalWeather and/or Respondent IBAS werepatently baseless and/or unsubstantiated.

"5. Whether or not the Honorable Court ofAppeals ruled in accordance withprevailing laws and jurisprudence when itupheld the ruling of the Honorable TrialCourt that Respondent IBAS is entitled tolegal interest and attorney’s fees despitethe fact that it has failed to establish itsclaims against Petitioner APC."7

These issues all boil down into two: first, whetherthe Motion for New Trial should be denied; andsecond, in the event of such denial, whether themonetary awards were duly proven.

The Court’s Ruling

The Petition has no merit.

First Issue:

New Trial Not Warranted by SimpleNegligence of Counsel

Axiomatic is the rule that "negligence of counselbinds the client."8 The basis is the tenet that an actperformed by counsel within the scope of a"general or implied authority"9 is regarded as anact of the client.10 "Consequently, the mistake ornegligence of counsel may result in the rendition ofan unfavorable judgment against the client."11

While the application of this general rule certainlydepends upon the surrounding circumstances of agiven case,12 there are exceptions recognized bythis Court: "(1) where reckless or gross negligenceof counsel deprives the client of due process oflaw;13 (2) when its application will result in outrightdeprivation of the client’s liberty or property;14 or(3) where the interests of justice15 sorequire."16 Woefully none of these exceptions applyherein. Thus, the Court cannot "step in and accordrelief"17 to petitioner, even if it may havesuffered18 by reason of its own arrant fatuity.

First, as aptly determined by the appellate court,petitioner’s counsel is guilty of simple, not gross,negligence. We cannot consider as grossnegligence his resort to dilatory schemes, such as(1) the filing of at least three motions to extend thefiling of petitioner’s Answer; (2) his nonappearance

during the scheduled pretrials; and (3) the failureto file petitioner’s pretrial Brief, even after the filingof several Motions to extend the date forfiling.19 There was only a plain "disregard of someduty imposed by law,"20 a slight want of care that"circumstances reasonably impose,"21 and a merefailure to exercise that degree of care22 that anordinarily prudent person would take under thecircumstances. There was neither a totalabandonment or disregard of petitioner’s case nora showing of conscious indifference to or utterdisregard of consequences.23

Because "pre-trial is essential in the simplificationand the speedy disposition ofdisputes,"24 nonobservance of its rules "may resultin prejudice to a party’s substantive rights."25 Suchrules are "not technicalities which the parties mayignore or trifle with."26 The Rules of Court cannot be"ignored at will and at random to the prejudice ofthe orderly presentation and assessment of theissues and their just resolution."27

Counsel’s patent carelessness in citing conflictingreasons in his Motions for Reconsideration verilydisplays his lack of competence,28 diligence29 andcandor,30 but not his recklessness or total want ofcare.

Indeed, the lawyer’s failure to live up to thedictates of the canons of the legal professionmakes him answerable to both his profession andhis employer.31

Second, the negligence of petitioner and that of itscounsel are concurrent.32 As an artificial beingwhose juridical personality is created by fiction oflaw,33 petitioner "can only exercise its powers andtransact its business through the instrumentalitiesof its board of directors, and through its officersand agents, when authorized by resolution or itsby-laws."34 Atty. Manalo is an employee, not anoutsider hired by petitioner on a retainer basis. Infact, he is the officer-in-charge of its LegalDepartment.

There is no showing that he was not authorized toexercise the powers of the corporation or totransact its business, particularly the handling of itslegal affairs. Besides, it is presumed that theordinary course of business has beenfollowed.35 Therefore, counsel’s corporate acts are

supposed to be known and assented to bypetitioner.

For petitioner to feign and repeatedly insist upon alack of awareness of the progress of an importantlitigation is to unmask a penchant for the ludicrous.Although it expects counsel to amply protect itsinterest, it cannot just sit back, relax and await theoutcome of its case.36 In keeping with the normalcourse of events, it should have taken the initiative"of making the proper inquiries from its counseland the trial court as to the status of its case"37 andof extending to him the "necessaryassistance."38 For its failure to do so, it has onlyitself to blame. Indeed, from lethargy is misfortuneborn.

It is of no consequence that its Human Resourcesand Personnel Departments were not aware of theprogress of its case. Of judicial notice is the factthat a corporation has much leeway in determiningwhich of its units, singly or in consonance withothers, is responsible for specific functions. Yet, it isunusual that these departments were tasked withmonitoring the progress of legal matters involvingpetitioner. Nonetheless, having assigned thesematters to them, it should have undertaken promptand proper monitoring and reporting thereof. Again,for its failure to do so, it has only itself to blame.These departments do get involved in finance andaccounting, especially in budget preparation andpayroll computation, but billing and collection arehardly tangential to their concerns.

Third, there was no denial of due process39 topetitioner. Under the Rules of Court, an aggrievedparty may ask for a new trial on the ground ofexcusable negligence,40 but this was not proved inthis case.41 "Negligence, to be ‘excusable,’ must beone which ordinary diligence and prudence couldnot have guarded against"42 and by reason of whichthe rights of an aggrieved party have probablybeen impaired.43

The test of excusable negligence is whether a partyhas acted "with ordinary prudence while x x xtransacting important business."44 The reasonsraised by petitioner in urging for a new trial do notmeet this test; they are flimsy. As we mentionednearly thirty years ago, "[p]arties and counselwould be well advised to avoid such attempts tobefuddle the issues as invariably they will be

exposed for what they are, certainly unethical anddegrading to the dignity of the law profession."45

"The essence of due process is to be found in thereasonable opportunity to be heard and submit anyevidence one may have in support of one’sdefense."46 Where the opportunity to be heard,either through verbal arguments or pleadings, isaccorded, and the party can "present its side"47 ordefend its "interest in due course,"48 "there is nodenial of procedural due process."49 Petitioner hasbeen given its chance, and after being declared indefault, judgment has not been automatically"rendered in favor of the non-defaulting party."50

Rather, judgment was made only after carefullyweighing the evidence presented. Substantive andadjective laws do complement each other51 "in thejust and speedy resolution of the dispute betweenthe parties."52

Petitioner was not deprived of its day in court.Actually, it never even complained against themanner in which its counsel had handled thecase,53 until late in the day. It must therefore "bearthe consequences"54 of its faulty choice of counselwhom it hired itself and whom it had "full authorityto fire at any time and replace withanother."55 Moreover, in all the pertinent casescited by petitioner, the denial of due process wasattributable to the gross negligence of retainedcounsels, who had either been single practitionersor law firms; none had referred to counsels who,like Atty. Manalo, were employees of the aggrievedparty.

Fourth, the negligence of petitioner’s counsel didnot result in the outright deprivation of its property.In fact, it intractably refused to comply with itsobligation to reimburse respondent, after havingalready generated profits from operating theferried unit. When sued, it simply relied upon itsown dillydallying counsel without even monitoringthe progress of his work. Now it tries to pass thebuck entirely to him, after he has been relieved andreplaced by another. Throughout the course oflitigation, none of its assets was reduced; on thecontrary, its fleet of aircraft even increased. Whileit has incurred legal expenses, it has also earnedinterest on money that should have beenreimbursed to respondent.

Fifth, the interests of justice require that positivelaw be equally observed. Petitioner has notsufficiently proved the injustice of holding it liablefor the negligence of its counsel. On the contrary,there is a preponderance of evidence56 todemonstrate that both law and justice demandotherwise. Much leniency has already been shownby the lower court to petitioner, but "aequetasnunquam contravenit legis."57 Equity nevercontravenes the law.58

For these reasons, the rendition of an unfavorablejudgment against petitioner by reason of itscounsel’s simple negligence is therefore apropos.To hold otherwise and grant a new trial will neverput an end to any litigation,59"as there is a newcounsel to be hired every time it is shown that theprior one had not been sufficiently diligent,experienced or learned."60

Second Issue:

Monetary Awards Sufficiently Established bya Preponderance of Evidence

As correctly put by the appellate court, theReceipt/Agreement executed by the partiesvalidated the inter-office Memorandum thatpetitioner issued on July 29, 1997, and the set ofBillings it had received from respondent in 1996.

Liability per Receipt/Agreement and InterestThereon

First, the Receipt/Agreement was entered into byrespondent and petitioner, which was representedby its agent Atty. Manalo. As an agent, he renderedservice to, and did something in representation61 oron behalf of, his principal62 and with itsconsent63 and authority. It cannot be denied that,on its part, there was an actual intent to appoint itscounsel;64 and, on the latter’s part,65 to accept theappointment and "act on it."66

A corporation, as "a juridical person separate anddistinct from its stockholders,"67 may act "throughits officers or agents in the normal course ofbusiness."68 Thus, the general principles of agencygovern its relationship with its officers or agents,subject to the articles of incorporation, bylaws andother relevant provisions of law.69

Second, even assuming that Atty. Manalo exceededhis authority, petitioner is solidarily liable with himif it allowed him "to act as though he had fullpowers."70 Moreover, as for any obligation whereinthe agent has exceeded his power, the principal isnot bound except when there isratification,71 express or tacit.72

Estoppel likewise applies. For one, respondentlacked "knowledge and x x x the means ofknowledge of the truth as to the facts inquestion";73 namely, whether petitioner’s counselhad any authority to bind his principal. Moreover,respondent relied "in good faith"74 upon petitioner’sconduct and statements; and its action "basedthereon [was] of such character as to change theposition or status of the party claiming theestoppel, to his injury, detriment or prejudice."75 Ifit was also true that petitioner’s counsel exceededhis authority in entering into theReceipt/Agreement, the negligence or omission ofpetitioner to assert its right within a reasonabletime only warranted a presumption that it eitherabandoned or declined to assert it.76

Third, while it is true that a special power ofattorney (SPA) is necessary to a compromise, it isequally true that the herein Receipt/Agreement wasnot a compromise.77 The payment was made in theordinary course of business. Whether total orpartial, the payment of an ordinary obligation78 isneither included among nor of a character similarto the instances enumerated in Article 1878 of theCivil Code.79 All that the law requires is a generalpower,80 not an SPA.

Moreover, the Receipt/Agreement is not a promiseto pay that "amounts to an offer to compromiseand requires a special power of attorney or theexpress consent of petitioner."81 A compromiseagreement is "a contract whereby the parties, bymaking reciprocal concessions, avoid a litigation orput an end to one already commenced."82 No suchreciprocal concessions83 were made in this case.Thus, the Receipt/Agreement is but an outrightadmission of petitioner of its obligation, aftermaking partial payment, to pay the balance of itsaccount. And even if we were to consider the sameas a compromise, from its nature as a contract, theabsence of an SPA does not render it void, butmerely unenforceable.84

Fourth, in its Answer,85 petitioner failed to denyunder oath the genuineness and due execution ofthe Receipt/Agreement, which is thus deemedadmitted.86 Indeed, before a private documentoffered as authentic is received in evidence, its dueexecution and authenticity must be proved.However, after it has been offered, failure to denyit under oath87 amounts to its admissibility.88 The"party whose signature it bears admits that hesigned it or that it was signed by another for himwith his authority;89 that at the time it was signed itwas in words and figures exactly as set out in thepleading of the party relying upon it; that thedocument was delivered; and that any formalrequisites required by law, x x x which it lacks, arewaived by him."90 The Receipt/Agreement is thusan instrument that is admittedly not "spurious,counterfeit or of different import on its face fromthe one executed."91

Fifth, what respondent has paid, it may demandfrom petitioner; and even if the payment was madewithout the knowledge or against the will of thelatter, respondent can still recover insofar as suchpayment was beneficial to petitioner.92 Suchpayment cannot be considered as one that isneither due under the provisions of solutioindebiti93 nor recoverable from the creditor byrespondent;94 the latter’s right is against petitionerwhose obligation it has paid in advance.95

Sixth, the Memorandum and the Billings haveprobative value. While it is true that Nazareno96 didnot have any personal knowledge of the contentsthereof, nevertheless, these two documents werevalidated by the Receipt/Agreement. Petitioner’sMemorandum contained a recommendation to payrespondent the amount of US$27,730.60 and torequire additional documentation in support of thebalance. In compliance, a Summary of Statementof Account dated January 6, 199897 was sent to andreceived by petitioner, substantiating it to theextent of US$37,400.95. Not only did theseamounts sum up to a total of US$65,131.55, theunsettled account indicated in the Billings, butthese are also unrefuted by petitioner. In fact, theReceipt/Agreement executed two months later didnot contest this balance, although unvaluedtherein. When a party fails to object to hearsayevidence,98 such party is deemed to have waivedits right to do so; thus, "the evidence offered maybe admitted,"99 though its weight must still bemeasured by the court.

Seventh, the accounting required by petitioner wasnot a legal impediment to the obligation. There wasin fact no indication that the obligation was subjectto such a condition. A pure obligation isdemandable at once,100 and there is nothing toexempt petitioner from compliance therewith.101 Inaddition, it would be preposterous for it to issue acorporate check102 -- without any condition orreservation -- and even waive a demand forpayment of the balance, if it did not recognize itsobligation in the first place.

Eighth, the obligation consisted in the payment of asum of money, and petitioner incurred in delay;hence, there being no stipulation to the contrary,the indemnity for damages shall be the payment oflegal interest, which is six percent (6%) perannum.103 Such interest may be allowed upondamages awarded for a clear breach of contract.104

Commission or Broker’s Fee

Indeed, "only questions of law105 may be raised in apetition for review on certiorari under Rule 45 ofthe Rules of Court."106 Questions of fact cannot bethe subject of this mode of appeal,107 for this Court-- we have repeatedly emphasized -- is "not a trierof facts."108 One of the exceptions to this rule,however, is when the factual findings of the CA andthe trial court are contradictory.109

The lower court held petitioner liable for the 10percent broker’s fee, but the appellate court foundotherwise. It is true that respondent -- oncommission basis -- engaged itself as a broker tonegotiate "contracts relative to property,"110 thecustody of which it had no concern over; to neveract "in its own name but in the name of those whoemployed"111 it; and "to bring parties together x x xin matters of trade, commerce ornavigation."112However, we agree with the CA thatrespondent’s entitlement to a broker’s fee shouldhave been adequately proven.

The March 19, 1997 Certification issued by CaptainVillacampa is inadmissible in evidence. It was amere reproduction of an original that had neverbeen produced or offered in evidence.113 Under thebest evidence rule114 as applied to documentaryevidence, no evidence shall be admissible otherthan the original itself when the subject of inquiryis its contents.115 Since none of the exceptions to

this rule has been proven,116 "secondary orsubstitutionary evidence"117 is not permitted.118

It is of no moment that Nazareno testified as to theintermediary’s commission in open court. Whetherthe Certification has actually been executed cannotbe proved by his mere testimony, because he wasnot a signatory to the document. His assertion wasbare and untested. Without substantiation, "suchtestimony is considered hearsay."119 Witnesses cantestify only to those facts that they know of theirpersonal knowledge or are derived from their ownperception.120 Unlike the unvalued balance in theReceipt/Agreement, the broker’s fee herein has notbeen supported by any admissible evidence otherthan the demand letters sent by respondent’scounsel.

Attorney’s Fees

Attorney’s fees may be recovered, since petitionerhas compelled respondent to incur expenses toprotect the latter’s interest121 in reimbursement.Besides, it is clear from the Receipt/Agreement thatpetitioner is obliged to pay 10 percent of theprincipal, as attorney’s fees.

In sum, petitioner is liable for the unpaid balance ofrespondent’s claim amounting to US$59,798.22 orits equivalent in legal tender under theReceipt/Agreement, including legal interest fromMay 12, 1997 until fully paid; and for attorney’sfees of 10 percent of this unpaid balance, excludinginterest. No broker’s fee can be charged, as it hasnot been proven by respondent. Since the counselof petitioner is guilty of simple negligence only, andsince it was equally negligent as he, no new trialcan be allowed.

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

SO ORDERED.

G.R. No. 140667 August 12, 2004WOODCHILD HOLDINGS, INC., petitioner, vs.ROXAS ELECTRIC AND CONSTRUCTIONCOMPANY, INC., respondent.D E C I S I O NCALLEJO, SR., J.:This is a petition for review on certiorari of theDecision1 of the Court of Appeals in CA-G.R. CV No.56125 reversing the Decision2 of the Regional TrialCourt of Makati, Branch 57, which ruled in favor ofthe petitioner.The AntecedentsThe respondent Roxas Electric and ConstructionCompany, Inc. (RECCI), formerly the Roxas Electricand Construction Company, was theowner of two parcels of land, identified as Lot No.491-A-3-B-1 covered by Transfer Certificate of Title(TCT) No. 78085 and Lot No. 491-A-3-B-2 coveredby TCT No. 78086. A portion of Lot No. 491-A-3-B-1which abutted Lot No. 491-A-3-B-2 was a dirt roadaccessing to the Sumulong Highway, Antipolo,Rizal.At a special meeting on May 17, 1991, therespondent's Board of Directors approved aresolution authorizing the corporation, through itspresident, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of7,213 square meters, at a price and under suchterms and conditions which he deemed mostreasonable and advantageous to the corporation;and to execute, sign and deliver the pertinent salesdocuments and receive the proceeds of the sale forand on behalf of the company.3

Petitioner Woodchild Holdings, Inc. (WHI) wanted tobuy Lot No. 491-A-3-B-2 covered by TCT No. 78086on which it planned to construct its warehousebuilding, and a portion of the adjoining lot, Lot No.491-A-3-B-1, so that its 45-foot container van wouldbe able to readily enter or leave the property. In aLetter to Roxas dated June 21, 1991, WHI PresidentJonathan Y. Dy offered to buy Lot No. 491-A-3-B-2under stated terms and conditions for P1,000 persquare meter or at the price of P7,213,000.4 One ofthe terms incorporated in Dy's offer was thefollowing provision:

5. This Offer to Purchase is made on therepresentation and warranty of theOWNER/SELLER, that he holds a good andregistrable title to the property, whichshall be conveyed CLEAR and FREE of allliens and encumbrances, and that thearea of 7,213 square meters of the subjectproperty already includes the area onwhich the right of way traverses from themain lot (area) towards the exit to theSumulong Highway as shown in the

location plan furnished by theOwner/Seller to the buyer. Furthermore, inthe event that the right of way isinsufficient for the buyer's purposes(example: entry of a 45-foot container),the seller agrees to sell additional squaremeter from his current adjacent propertyto allow the buyer to full access and fulluse of the property.5

Roxas indicated his acceptance of the offer on page2 of the deed. Less than a month later or on July 1,1991, Roxas, as President of RECCI, as vendor, andDy, as President of WHI, as vendee, executed acontract to sell in which RECCI bound and obligeditself to sell to Dy Lot No. 491-A-3-B-2 covered byTCT No. 78086 for P7,213,000.6 On September 5,1991, a Deed of Absolute Sale7 in favor of WHI wasissued, under which Lot No. 491-A-3-B-2 covered byTCT No. 78086 was sold for P5,000,000, receipt ofwhich was acknowledged by Roxas under thefollowing terms and conditions:

The Vendor agree (sic), as it herebyagrees and binds itself to give Vendee thebeneficial use of and a right of way fromSumulong Highway to the property hereinconveyed consists of 25 square meterswide to be used as the latter's egress fromand ingress to and an additional 25 squaremeters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area forVendee's vehicles.The Vendor agrees that in the event thatthe right of way is insufficient for theVendee's use (ex entry of a 45-footcontainer) the Vendor agrees to selladditional square meters from its currentadjacent property to allow the Vendee fullaccess and full use of the property.…The Vendor hereby undertakes andagrees, at its account, to defend the titleof the Vendee to the parcel of land andimprovements herein conveyed, againstall claims of any and all persons orentities, and that the Vendor herebywarrants the right of the Vendee topossess and own the said parcel of landand improvements thereon and willdefend the Vendee against all present andfuture claims and/or action in relationthereto, judicial and/or administrative. Inparticular, the Vendor shall eject allexisting squatters and occupants of thepremises within two (2) weeks from thesigning hereof. In case of failure on thepart of the Vendor to eject all occupantsand squatters within the two-week period

or breach of any of the stipulations,covenants and terms and conditionsherein provided and that of contract to selldated 1 July 1991, the Vendee shall havethe right to cancel the sale and demandreimbursement for all payments made tothe Vendor with interest thereon at 36%per annum.8

On September 10, 1991, the Wimbeco Builder's,Inc. (WBI) submitted its quotation for P8,649,000 toWHI for the construction of the warehouse buildingon a portion of the property with an area of 5,088square meters.9 WBI proposed to start the projecton October 1, 1991 and to turn over the building toWHI on February 29, 1992.10

In a Letter dated September 16, 1991, PonderosaLeather Goods Company, Inc. confirmed its leaseagreement with WHI of a 5,000-square-meterportion of the warehouse yet to be constructed atthe rental rate of P65 per square meter. Ponderosaemphasized the need for the warehouse to beready for occupancy before April 1, 1992.11 WHIaccepted the offer. However, WBI failed tocommence the construction of the warehouse inOctober 1, 1991 as planned because of thepresence of squatters in the property andsuggested a renegotiation of the contract after thesquatters shall have been evicted.12 Subsequently,the squatters were evicted from the property.On March 31, 1992, WHI and WBI executed aLetter-Contract for the construction of thewarehouse building for P11,804,160.13 Thecontractor started construction in April 1992 evenbefore the building officials of Antipolo City issueda building permit on May 28, 1992. After thewarehouse was finished, WHI issued on March 21,1993 a certificate of occupancy by the buildingofficial. Earlier, or on March 18, 1993, WHI, aslessor, and Ponderosa, as lessee, executed acontract of lease over a portion of the property fora monthly rental of P300,000 for a period of threeyears from March 1, 1993 up to February 28,1996.14

In the meantime, WHI complained to Roberto Roxasthat the vehicles of RECCI were parked on a portionof the property over which WHI had been granted aright of way. Roxas promised to look into thematter. Dy and Roxas discussed the need of theWHI to buy a 500-square-meter portion of Lot No.491-A-3-B-1 covered by TCT No. 78085 as providedfor in the deed of absolute sale. However, Roxasdied soon thereafter. On April 15, 1992, the WHIwrote the RECCI, reiterating its verbal requests topurchase a portion of the said lot as provided for inthe deed of absolute sale, and complained aboutthe latter's failure to eject the squatters within thethree-month period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion ofLot No. 491-A-3-B-1 covered by TCT No. 78085 forits beneficial use within 72 hours from noticethereof, otherwise the appropriate action would befiled against it. RECCI rejected the demand of WHI.WHI reiterated its demand in a Letter dated May29, 1992. There was no response from RECCI.On June 17, 1992, the WHI filed a complaint againstthe RECCI with the Regional Trial Court of Makati,for specific performance and damages, andalleged, inter alia, the following in its complaint:

5. The "current adjacent property" referredto in the aforequoted paragraph of theDeed of Absolute Sale pertains to theproperty covered by Transfer Certificate ofTitle No. N-78085 of the Registry of Deedsof Antipolo, Rizal, registered in the nameof herein defendant Roxas Electric.6. Defendant Roxas Electric in patentviolation of the express and valid terms ofthe Deed of Absolute Sale unjustifiablyrefused to deliver to Woodchild Holdingsthe stipulated beneficial use and right ofway consisting of 25 square meters and55 square meters to the prejudice of theplaintiff.7. Similarly, in as much as the 25 squaremeters and 55 square meters alloted toWoodchild Holdings for its beneficial use isinadequate as turning and/or maneuveringarea of its 45-foot container van,Woodchild Holdings manifested itsintention pursuant to para. 5 of the Deedof Sale to purchase additional squaremeters from Roxas Electric to allow it fullaccess and use of the purchased property,however, Roxas Electric refused and failedto merit Woodchild Holdings' requestcontrary to defendant Roxas Electric'sobligation under the Deed of Absolute Sale(Annex "A").8. Moreover, defendant, likewise, failed toeject all existing squatters and occupantsof the premises within the stipulated timeframe and as a consequence thereof,plaintiff's planned construction has beenconsiderably delayed for seven (7) monthsdue to the squatters who continue totrespass and obstruct the subjectproperty, thereby Woodchild Holdingsincurred substantial losses amounting toP3,560,000.00 occasioned by theincreased cost of construction materialsand labor.9. Owing further to Roxas Electric'sdeliberate refusal to comply with itsobligation under Annex "A," Woodchild

Holdings suffered unrealized income ofP300,000.00 a month or P2,100,000.00supposed income from rentals of thesubject property for seven (7) months.10. On April 15, 1992, Woodchild Holdingsmade a final demand to Roxas Electric tocomply with its obligations and warrantiesunder the Deed of Absolute Sale butnotwithstanding such demand, defendantRoxas Electric refused and failed andcontinue to refuse and fail to heedplaintiff's demand for compliance.Copy of the demand letter dated April 15,1992 is hereto attached as Annex "B" andmade an integral part hereof.11. Finally, on 29 May 1991, WoodchildHoldings made a letter request addressedto Roxas Electric to particularly annotateon Transfer Certificate of Title No. N-78085the agreement under Annex "A" withrespect to the beneficial use and right ofway, however, Roxas Electric unjustifiablyignored and disregarded the same.Copy of the letter request dated 29 May1992 is hereto attached as Annex "C" andmade an integral part hereof.12. By reason of Roxas Electric'scontinuous refusal and failure to complywith Woodchild Holdings' valid demand forcompliance under Annex "A," the latterwas constrained to litigate, therebyincurring damages as and by way ofattorney's fees in the amount ofP100,000.00 plus costs of suit andexpenses of litigation.15

The WHI prayed that, after due proceedings,judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed thatjudgment be rendered in favor ofWoodchild Holdings and ordering RoxasElectric the following:a) to deliver to Woodchild Holdings thebeneficial use of the stipulated 25 squaremeters and 55 square meters;b) to sell to Woodchild Holdings additional25 and 100 square meters to allow it fullaccess and use of the purchased propertypursuant to para. 5 of the Deed ofAbsolute Sale;c) to cause annotation on TransferCertificate of Title No. N-78085 thebeneficial use and right of way granted toWoodchild Holdings under the Deed ofAbsolute Sale;d) to pay Woodchild Holdings the amountof P5,660,000.00, representing actualdamages and unrealized income;

e) to pay attorney's fees in the amount ofP100,000.00; andf) to pay the costs of suit.Other reliefs just and equitable are prayedfor.16

In its answer to the complaint, the RECCI allegedthat it never authorized its former president,Roberto Roxas, to grant the beneficial use of anyportion of Lot No. 491-A-3-B-1, nor agreed to sellany portion thereof or create a lien or burdenthereon. It alleged that, under the Resolutionapproved on May 17, 1991, it merely authorizedRoxas to sell Lot No. 491-A-3-B-2 covered by TCTNo. 78086. As such, the grant of a right of way andthe agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deedare ultra vires. The RECCI further alleged that theprovision therein that it would sell a portion of LotNo. 491-A-3-B-1 to the WHI lacked the essentialelements of a binding contract.17

In its amended answer to the complaint, the RECCIalleged that the delay in the construction of itswarehouse building was due to the failure of theWHI's contractor to secure a building permitthereon.18

During the trial, Dy testified that he told Roxas thatthe petitioner was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters,for the price of P1,000 per square meter.On November 11, 1996, the trial court renderedjudgment in favor of the WHI, the decretal portionof which reads:

WHEREFORE, judgment is herebyrendered directing defendant:(1) To allow plaintiff the beneficial use ofthe existing right of way plus thestipulated 25 sq. m. and 55 sq. m.;(2) To sell to plaintiff an additional area of500 sq. m. priced at P1,000 per sq. m. toallow said plaintiff full access and use ofthe purchased property pursuant to Par. 5of their Deed of Absolute Sale;(3) To cause annotation on TCT No. N-78085 the beneficial use and right of waygranted by their Deed of Absolute Sale;(4) To pay plaintiff the amount ofP5,568,000 representing actual damagesand plaintiff's unrealized income;(5) To pay plaintiff P100,000 representingattorney's fees; andTo pay the costs of suit.SO ORDERED.19

The trial court ruled that the RECCI was estoppedfrom disowning the apparent authority of Roxasunder the May 17, 1991 Resolution of its Board ofDirectors. The court reasoned that to do so wouldprejudice the WHI which transacted with Roxas in

good faith, believing that he had the authority tobind the WHI relating to the easement of right ofway, as well as the right to purchase a portion ofLot No. 491-A-3-B-1 covered by TCT No. 78085.The RECCI appealed the decision to the CA, whichrendered a decision on November 9, 1999reversing that of the trial court, and ordering thedismissal of the complaint. The CA ruled that,under the resolution of the Board of Directors of theRECCI, Roxas was merely authorized to sell Lot No.491-A-3-B-2 covered by TCT No. 78086, but not togrant right of way in favor of the WHI over a portionof Lot No. 491-A-3-B-1, or to grant an option to thepetitioner to buy a portion thereof. The appellatecourt also ruled that the grant of a right of way andan option to the respondent were so lopsided infavor of the respondent because the latter wasauthorized to fix the location as well as the price ofthe portion of its property to be sold to therespondent. Hence, such provisions contained inthe deed of absolute sale were not binding on theRECCI. The appellate court ruled that the delay inthe construction of WHI's warehouse was due to itsfault.The Present PetitionThe petitioner now comes to this Court assertingthat:

I.THE COURT OF APPEALS ERRED INHOLDING THAT THE DEED OF ABSOLUTESALE (EXH. "C") IS ULTRA VIRES.II.THE COURT OF APPEALS GRAVELY ERREDIN REVERSING THE RULING OF THE COURTA QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THEEXISTING RIGHT OF WAY PLUS THESTIPULATED 25 SQUARE METERS AND 55SQUARE METERS BECAUSE THESE AREVALID STIPULATIONS AGREED BY BOTHPARTIES TO THE DEED OF ABSOLUTE SALE(EXH. "C").III.THERE IS NO FACTUAL PROOF OREVIDENCE FOR THE COURT OF APPEALSTO RULE THAT THE STIPULATIONS OF THEDEED OF ABSOLUTE SALE (EXH. "C")WERE DISADVANTAGEOUS TO THEAPPELLEE, NOR WAS APPELLEE DEPRIVEDOF ITS PROPERTY WITHOUT DUEPROCESS.IV.IN FACT, IT WAS WOODCHILD WHO WASDEPRIVED OF PROPERTY WITHOUT DUEPROCESS BY THE ASSAILED DECISION.V.

THE DELAY IN THE CONSTRUCTION WASDUE TO THE FAILURE OF THE APPELLANTTO EVICT THE SQUATTERS ON THE LANDAS AGREED IN THE DEED OF ABSOLUTESALE (EXH. "C").VI.THE COURT OF APPEALS GRAVELY ERREDIN REVERSING THE RULING OF THE COURTA QUO DIRECTING THE DEFENDANT TOPAY THE PLAINTIFF THE AMOUNT OFP5,568,000.00 REPRESENTING ACTUALDAMAGES AND PLAINTIFF'S UNREALIZEDINCOME AS WELL AS ATTORNEY'S FEES.20

The threshold issues for resolution are thefollowing: (a) whether the respondent is bound bythe provisions in the deed of absolute sale grantingto the petitioner beneficial use and a right of wayover a portion of LotNo. 491-A-3-B-1 accessing to the SumulongHighway and granting the option to the petitionerto buy a portion thereof, and, if so, whether suchagreement is enforceable against the respondent;(b) whether the respondent failed to eject thesquatters on its property within two weeks from theexecution of the deed of absolute sale; and, (c)whether the respondent is liable to the petitionerfor damages.On the first issue, the petitioner avers that, underits Resolution of May 17, 1991, the respondentauthorized Roxas, then its president, to grant aright of way over a portion of Lot No. 491-A-3-B-1 infavor of the petitioner, and an option for therespondent to buy a portion of the said property.The petitioner contends that when the respondentsold Lot No. 491-A-3-B-2 covered by TCT No. 78086,it (respondent) was well aware of its obligation toprovide the petitioner with a means of ingress to oregress from the property to the SumulongHighway, since the latter had no adequate outlet tothe public highway. The petitioner asserts that itagreed to buy the property covered by TCT No.78085 because of the grant by the respondent of aright of way and an option in its favor to buy aportion of the property covered by TCT No. 78085.It contends that the respondent never objected toRoxas' acceptance of its offer to purchase theproperty and the terms and conditions therein; therespondent even allowed Roxas to execute thedeed of absolute sale in its behalf. The petitionerasserts that the respondent even received thepurchase price of the property without anyobjection to the terms and conditions of the saiddeed of sale. The petitioner claims that it acted ingood faith, and contends that after having beenbenefited by the said sale, the respondent isestopped from assailing its terms and conditions.The petitioner notes that the respondent's Board of

Directors never approved any resolution rejectingthe deed of absolute sale executed by Roxas forand in its behalf. As such, the respondent is obligedto sell a portion of Lot No. 491-A-3-B-1 covered byTCT No. 78085 with an area of 500 square metersat the price of P1,000 per square meter, based onits evidence and Articles 649 and 651 of the NewCivil Code.For its part, the respondent posits that Roxas wasnot so authorized under the May 17, 1991Resolution of its Board of Directors to impose aburden or to grant a right of way in favor of thepetitioner on Lot No. 491-A-3-B-1, much lessconvey a portion thereof to the petitioner. Hence,the respondent was not bound by such provisionscontained in the deed of absolute sale. Besides, therespondent contends, the petitioner cannot enforceits right to buy a portion of the said property sincethere was no agreement in the deed of absolutesale on the price thereof as well as the specificportion and area to be purchased by the petitioner.We agree with the respondent.In San Juan Structural and Steel Fabricators, Inc. v.Court of Appeals,21 we held that:

A corporation is a juridical person separateand distinct from its stockholders ormembers. Accordingly, the property of thecorporation is not the property of itsstockholders or members and may not besold by the stockholders or memberswithout express authorization from thecorporation's board of directors. Section23 of BP 68, otherwise known as theCorporation Code of the Philippines,provides:

"SEC. 23. The Board of Directorsor Trustees. – Unless otherwiseprovided in this Code, thecorporate powers of allcorporations formed under thisCode shall be exercised, allbusiness conducted and allproperty of such corporationscontrolled and held by the boardof directors or trustees to beelected from among the holdersof stocks, or where there is nostock, from among the membersof the corporation, who shall holdoffice for one (1) year and untiltheir successors are elected andqualified."

Indubitably, a corporation may act onlythrough its board of directors or, whenauthorized either by its by-laws or by itsboard resolution, through its officers oragents in the normal course of business.

The general principles of agency governthe relation between the corporation andits officers or agents, subject to thearticles of incorporation, by-laws, orrelevant provisions of law. …22

Generally, the acts of the corporate officers withinthe scope of their authority are binding on thecorporation. However, under Article 1910 of theNew Civil Code, acts done by such officers beyondthe scope of their authority cannot bind thecorporation unless it has ratified such actsexpressly or tacitly, or is estopped from denyingthem:

Art. 1910. The principal must comply withall the obligations which the agent mayhave contracted within the scope of hisauthority.As for any obligation wherein the agenthas exceeded his power, the principal isnot bound except when he ratifies itexpressly or tacitly.Thus, contracts entered into by corporateofficers beyond the scope of authority areunenforceable against the corporationunless ratified by the corporation.23

In BA Finance Corporation v. Court of Appeals,24 wealso ruled that persons dealing with an assumedagency, whether the assumed agency be a generalor special one, are bound at their peril, if theywould hold the principal liable, to ascertain not onlythe fact of agency but also the nature and extent ofauthority, and in case either is controverted, theburden of proof is upon them to establish it.In this case, the respondent denied authorizing itsthen president Roberto B. Roxas to sell a portion ofLot No. 491-A-3-B-1 covered by TCT No. 78085, andto create a lien or burden thereon. The petitionerwas thus burdened to prove that the respondent soauthorized Roxas to sell the same and to create alien thereon.Central to the issue at hand is the May 17, 1991Resolution of the Board of Directors of therespondent, which is worded as follows:

RESOLVED, as it is hereby resolved, thatthe corporation, thru the President, sell toany interested buyer, its 7,213-sq.-meterproperty at the Sumulong Highway,Antipolo, Rizal, covered by TransferCertificate of Title No. N-78086, at a priceand on terms and conditions which hedeems most reasonable andadvantageous to the corporation;FURTHER RESOLVED, that Mr. ROBERTO B.ROXAS, President of the corporation, be,as he is hereby authorized to execute,sign and deliver the pertinent sales

documents and receive the proceeds ofsale for and on behalf of the company.25

Evidently, Roxas was not specifically authorizedunder the said resolution to grant a right of way infavor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner aportion thereof. The authority of Roxas, under theresolution, to sell Lot No. 491-A-3-B-2 covered byTCT No. 78086 did not include the authority to sella portion of the adjacent lot, Lot No. 491-A-3-B-1, orto create or convey real rights thereon. Neithermay such authority be implied from the authoritygranted to Roxas to sell Lot No. 491-A-3-B-2 to thepetitioner "on such terms and conditions which hedeems most reasonable and advantageous." Underparagraph 12, Article 1878 of the New Civil Code, aspecial power of attorney is required to convey realrights over immovable property.26 Article 1358 ofthe New Civil Code requires that contracts whichhave for their object the creation of real rights overimmovable property must appear in a publicdocument.27 The petitioner cannot feign ignoranceof the need for Roxas to have been specificallyauthorized in writing by the Board of Directors tobe able to validly grant a right of way and agree tosell a portion of Lot No. 491-A-3-B-1. The rule isthat if the act of the agent is one which requiresauthority in writing, those dealing with him arecharged with notice of that fact.28

Powers of attorney are generally construed strictlyand courts will not infer or presume broad powersfrom deeds which do not sufficiently includeproperty or subject under which the agent is todeal.29 The general rule is that the power ofattorney must be pursued within legal strictures,and the agent can neither go beyond it; nor besideit. The act done must be legally identical with thatauthorized to be done.30 In sum, then, the consentof the respondent to the assailed provisions in thedeed of absolute sale was not obtained; hence, theassailed provisions are not binding on it.We reject the petitioner's submission that, inallowing Roxas to execute the contract to sell andthe deed of absolute sale and failing to reject ordisapprove the same, the respondent thereby gavehim apparent authority to grant a right of way overLot No. 491-A-3-B-1 and to grant an option for therespondent to sell a portion thereof to thepetitioner. Absent estoppel or ratification, apparentauthority cannot remedy the lack of the writtenpower required under the statement of frauds.31 Inaddition, the petitioner's fallacy is its wrongassumption of the unproved premise that therespondent had full knowledge of all the terms andconditions contained in the deed of absolute salewhen Roxas executed it.

It bears stressing that apparent authority is basedon estoppel and can arise from two instances: first,the principal may knowingly permit the agent to sohold himself out as having such authority, and inthis way, the principal becomes estopped to claimthat the agent does not have such authority;second, the principal may so clothe the agent withthe indicia of authority as to lead a reasonablyprudent person to believe that he actually has suchauthority.32 There can be no apparent authority ofan agent without acts or conduct on the part of theprincipal and such acts or conduct of the principalmust have been known and relied upon in goodfaith and as a result of the exercise of reasonableprudence by a third person as claimant and suchmust have produced a change of position to itsdetriment. The apparent power of an agent is to bedetermined by the acts of the principal and not bythe acts of the agent.33

For the principle of apparent authority to apply, thepetitioner was burdened to prove the following: (a)the acts of the respondent justifying belief in theagency by the petitioner; (b) knowledge thereof bythe respondent which is sought to be held; and, (c)reliance thereon by the petitioner consistent withordinary care and prudence.34 In this case, there isno evidence on record of specific acts made by therespondent35 showing or indicating that it had fullknowledge of any representations made by Roxasto the petitioner that the respondent hadauthorized him to grant to the respondent anoption to buy a portion of Lot No. 491-A-3-B-1covered by TCT No. 78085, or to create a burden orlien thereon, or that the respondent allowed him todo so.The petitioner's contention that by receiving andretaining the P5,000,000 purchase price of Lot No.491-A-3-B-2, the respondent effectively andimpliedly ratified the grant of a right of way on theadjacent lot, Lot No. 491-A-3-B-1, and to grant tothe petitioner an option to sell a portion thereof, isbarren of merit. It bears stressing that therespondent sold Lot No. 491-A-3-B-2 to thepetitioner, and the latter had taken possession ofthe property. As such, the respondent had the rightto retain the P5,000,000, the purchase price of theproperty it had sold to the petitioner. For an act ofthe principal to be considered as an impliedratification of an unauthorized act of an agent,such act must be inconsistent with any otherhypothesis than that he approved and intended toadopt what had been done in hisname.36 Ratification is based on waiver – theintentional relinquishment of a known right.Ratification cannot be inferred from acts that aprincipal has a right to do independently of theunauthorized act of the agent. Moreover, if a

writing is required to grant an authority to do aparticular act, ratification of that act must also bein writing.37 Since the respondent had not ratifiedthe unauthorized acts of Roxas, the same areunenforceable.38 Hence, by the respondent'sretention of the amount, it cannot thereby beimplied that it had ratified the unauthorized acts ofits agent, Roberto Roxas.On the last issue, the petitioner contends that theCA erred in dismissing its complaint for damagesagainst the respondent on its finding that the delayin the construction of its warehouse was due to its(petitioner's) fault. The petitioner asserts that theCA should have affirmed the ruling of the trial courtthat the respondent failed to cause the eviction ofthe squatters from the property on or beforeSeptember 29, 1991; hence, was liable forP5,660,000. The respondent, for its part, assertsthat the delay in the construction of the petitioner'swarehouse was due to its late filing of anapplication for a building permit, only on May 28,1992.The petitioner's contention is meritorious. Therespondent does not deny that it failed to causethe eviction of the squatters on or beforeSeptember 29, 1991. Indeed, the respondent doesnot deny the fact that when the petitioner wrotethe respondent demanding that the latter causethe eviction of the squatters on April 15, 1992, thelatter were still in the premises. It was only afterreceiving the said letter in April 1992 that therespondent caused the eviction of the squatters,which thus cleared the way for the petitioner'scontractor to commence the construction of itswarehouse and secure the appropriate buildingpermit therefor.The petitioner could not be expected to file itsapplication for a building permit before April 1992because the squatters were still occupying theproperty. Because of the respondent's failure tocause their eviction as agreed upon, thepetitioner's contractor failed to commence theconstruction of the warehouse in October 1991 forthe agreed price of P8,649,000. In the meantime,costs of construction materials spiraled. Under theconstruction contract entered into between thepetitioner and the contractor, the petitioner wasobliged to pay P11,804,160,39including theadditional work costing P1,441,500, or a netincrease of P1,712,980.40 The respondent is liablefor the difference between the original cost ofconstruction and the increase thereon, conformablyto Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performanceof their obligations are guilty of fraud,negligence, or delay and those who in any

manner contravene the tenor thereof, areliable for damages.

The petitioner, likewise, lost the amount ofP3,900,000 by way of unearned income from thelease of the property to the Ponderosa LeatherGoods Company. The respondent is, thus, liable tothe petitioner for the said amount, under Articles2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damagesshall comprehend not only the value ofthe loss suffered, but also that of theprofits which the obligee failed to obtain.Art. 2201. In contracts and quasi-contracts, the damages for which theobligor who acted in good faith is liableshall be those that are the natural andprobable consequences of the breach ofthe obligation, and which the parties haveforeseen or could have reasonablyforeseen at the time the obligation wasconstituted.In case of fraud, bad faith, malice orwanton attitude, the obligor shall beresponsible for all damages which may bereasonably attributed to the non-performance of the obligation.

In sum, we affirm the trial court's award ofdamages and attorney's fees to the petitioner.IN LIGHT OF ALL THE FOREGOING, judgment ishereby rendered AFFIRMING the assailed Decisionof the Court of Appeals WITH MODIFICATION. Therespondent is ordered to pay to the petitioner theamount of P5,612,980 by way of actual damagesand P100,000 by way of attorney's fees. No costs.SO ORDERED.

G.R. No. 129919 February 6, 2002

DOMINION INSURANCECORPORATION, petitioner, vs.COURT OF APPEALS, RODOLFO S. GUEVARRA,and FERNANDO AUSTRIA, respondents.

D E C I S I O N

PARDO, J.:

The Case

This is an appeal via certiorari1 from the decision ofthe Court of Appeals2 affirming the decision3 of theRegional Trial Court, Branch 44, San Fernando,Pampanga, which ordered petitioner DominionInsurance Corporation (Dominion) to pay Rodolfo S.Guevarra (Guevarra) the sum ofP156,473.90 representing the total amountadvanced by Guevarra in the payment of theclaims of Dominion’s clients.

The Facts

The facts, as found by the Court of Appeals, are asfollows:

"On January 25, 1991, plaintiff Rodolfo S. Guevarrainstituted Civil Case No. 8855 for sum of moneyagainst defendant Dominion Insurance Corporation.Plaintiff sought to recover thereunder the sum ofP156,473.90 which he claimed to have advanced inhis capacity as manager of defendant to satisfycertain claims filed by defendant’s clients.

"In its traverse, defendant denied any liability toplaintiff and asserted a counterclaim forP249,672.53, representing premiums that plaintiffallegedly failed to remit.

"On August 8, 1991, defendant filed a third-partycomplaint against Fernando Austria, who, at thetime relevant to the case, was its Regional Managerfor Central Luzon area.

"In due time, third-party defendant Austria filed hisanswer.

"Thereafter the pre-trial conference was set on thefollowing dates: October 18, 1991, November 12,1991, March 29, 1991, December 12, 1991, January17, 1992, January 29, 1992, February 28, 1992,March 17, 1992 and April 6, 1992, in all of whichdates no pre-trial conference was held. The recordshows that except for the settings on October 18,1991, January 17, 1992 and March 17, 1992 whichwere cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the restwere postponed upon joint request of the parties.

"On May 22, 1992 the case was again called forpre-trial conference. Only plaintiff and counsel werepresent. Despite due notice, defendant and counseldid not appear, although a messenger, RoyGamboa, submitted to the trial court a handwrittennote sent to him by defendant’s counsel whichinstructed him to request for postponement.Plaintiff’s counsel objected to the desiredpostponement and moved to have defendantdeclared as in default. This was granted by the trialcourt in the following order:

"ORDER

"When this case was called for pre-trial thisafternoon only plaintiff and his counsel Atty. RomeoMaglalang appeared. When shown a note datedMay 21, 1992 addressed to a certain Roy who wasrequested to ask for postponement, Atty. Maglalangvigorously objected to any postponement on theground that the note is but a mere scrap of paperand moved that the defendant corporation bedeclared as in default for its failure to appear incourt despite due notice.

"Finding the verbal motion of plaintiff’s counsel tobe meritorious and considering that the pre-trialconference has been repeatedly postponed onmotion of the defendant Corporation, thedefendant Dominion Insurance Corporation ishereby declared (as) in default and plaintiff isallowed to present his evidence on June 16, 1992 at9:00 o’clock in the morning.

"The plaintiff and his counsel are notified of thisorder in open court.

"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992.This was followed by a written offer ofdocumentary exhibits on July 8 and a supplementaloffer of additional exhibits on July 13, 1992. Theexhibits were admitted in evidence in an orderdated July 17, 1992.

"On August 7, 1992 defendant corporation filed a‘MOTION TO LIFT ORDER OF DEFAULT.’ It allegedtherein that the failure of counsel to attend the pre-trial conference was ‘due to an unavoidablecircumstance’ and that counsel had sent hisrepresentative on that date to inform the trial courtof his inability to appear. The Motion wasvehemently opposed by plaintiff.

"On August 25, 1992 the trial court denieddefendant’s motion for reasons, among others, thatit was neither verified nor supported by an affidavitof merit and that it further failed to allege orspecify the facts constituting his meritoriousdefense.

"On September 28, 1992 defendant moved forreconsideration of the aforesaid order. For the firsttime counsel revealed to the trial court that thereason for his nonappearance at the pre-trialconference was his illness. An Affidavit of Meritexecuted by its Executive Vice-President purportingto explain its meritorious defense was attached tothe said Motion. Just the same, in an Order datedNovember 13, 1992, the trial court denied saidMotion.

"On November 18, 1992, the court a quo renderedjudgment as follows:

"WHEREFORE, premises considered, judgment ishereby rendered ordering:

"1. The defendant Dominion InsuranceCorporation to pay plaintiff the sum ofP156,473.90 representing the totalamount advanced by plaintiff in the

payment of the claims of defendant’sclients;

"2. The defendant to pay plaintiffP10,000.00 as and by way of attorney’sfees;

"3. The dismissal of the counter-claim ofthe defendant and the third-partycomplaint;

"4. The defendant to pay the costs ofsuit."4

On December 14, 1992, Dominion appealed thedecision to the Court of Appeals.5

On July 19, 1996, the Court of Appeals promulgateda decision affirming that of the trial court.6 OnSeptember 3, 1996, Dominion filed with the Courtof Appeals a motion for reconsideration.7 On July16, 1997, the Court of Appeals denied the motion.8

Hence, this appeal.9

The Issues

The issues raised are: (1) whether respondentGuevarra acted within his authority as agent forpetitioner, and (2) whether respondent Guevarra isentitled to reimbursement of amounts he paid outof his personal money in settling the claims ofseveral insured.

The Court's Ruling

The petition is without merit.

By the contract of agency, a person binds himselfto render some service or to do something inrepresentation or on behalf of another, with theconsent or authority of the latter.10 The basis foragency is representation.11 On the part of theprincipal, there must be an actual intention toappoint12 or an intention naturally inferrable fromhis words or actions;13 and on the part of the agent,there must be an intention to accept theappointment and act on it,14 and in the absence ofsuch intent, there is generally no agency.15

A perusal of the Special Power of Attorney16 wouldshow that petitioner (represented by third-partydefendant Austria) and respondent Guevarraintended to enter into a principal-agentrelationship. Despite the word "special" in the titleof the document, the contents reveal that what wasconstituted was actually a general agency. Theterms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCECOMPANY, INC.,17 a corporation duly organized andexisting under and by virtue of the laws of theRepublic of the Philippines, xxx represented by theundersigned as Regional Manager, xxx do herebyappoint RSG Guevarra Insurance Servicesrepresented by Mr. Rodolfo Guevarra xxx to be ourAgency Manager in San Fdo., for our place andstead, to do and perform the following acts andthings:

"1. To conduct, sign, manager (sic), carryon and transact Bonding and Insurancebusiness as usually pertain to a AgencyOffice, or FIRE, MARINE, MOTOR CAR,PERSONAL ACCIDENT, and BONDING withthe right, upon our prior written consent,to appoint agents and sub-agents.

"2. To accept, underwrite and subscribed(sic) cover notes or Policies of Insuranceand Bonds for and on our behalf.

"3. To demand, sue, for (sic) collect,deposit, enforce payment, deliver andtransfer for and receive and give effectualreceipts and discharge for all money towhich the FIRST CONTINENTALASSURANCE COMPANY, INC.,18 mayhereafter become due, owing payable ortransferable to said Corporation by reasonof or in connection with the above-mentioned appointment.

"4. To receive notices, summons, and legalprocesses for and in behalf of the FIRSTCONTINENTAL ASSURANCE COMPANY,INC., in connection with actions and alllegal proceedings against the saidCorporation."19 [Emphasis supplied]

The agency comprises all the business of theprincipal,20 but, couched in general terms, it islimited only to acts of administration.21

A general power permits the agent to do all acts forwhich the law does not require a specialpower.22 Thus, the acts enumerated in or similar tothose enumerated in the Special Power of Attorneydo not require a special power of attorney.

Article 1878, Civil Code, enumerates the instanceswhen a special power of attorney is required. Thepertinent portion that applies to this case providesthat:

"Article 1878. Special powers of attorney arenecessary in the following cases:

"(1) To make such payments as are not usuallyconsidered as acts of administration;

"x x x x x x x x x

"(15) Any other act of strict dominion."

The payment of claims is not an act ofadministration. The settlement of claims is notincluded among the acts enumerated in the SpecialPower of Attorney, neither is it of a charactersimilar to the acts enumerated therein. A specialpower of attorney is required before respondentGuevarra could settle the insurance claims of theinsured.

Respondent Guevarra’s authority to settle claims isembodied in the Memorandum of ManagementAgreement23dated February 18, 1987 whichenumerates the scope of respondent Guevarra’sduties and responsibilities as agency manager forSan Fernando, Pampanga, as follows:

"x x x x x x x x x

"1. You are hereby given authority tosettle and dispose of all motor car claimsin the amount of P5,000.00 with priorapproval of the Regional Office.

"2. Full authority is given you on TPPIclaims settlement.

" x x x x x x x x x "24

In settling the claims mentioned above, respondentGuevarra’s authority is further limited by thewritten standard authority to pay,25 which statesthat the payment shall come from respondentGuevarra’s revolving fund or collection. Theauthority to pay is worded as follows:

"This is to authorize you to withdraw from yourrevolving fund/collection the amount of PESOS__________________ (P ) representing the payment onthe _________________ claim of assured_______________ under Policy No. ______ in thataccident of ___________ at ____________.

"It is further expected, release papers will besigned and authorized by the concerned andattached to the corresponding claim folder aftereffecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIARegional Manager"26

[Emphasis supplied]

The instruction of petitioner as the principal couldnot be any clearer.1âwphi1 Respondent Guevarrawas authorized to pay the claim of the insured, butthe payment shall come from the revolving fund orcollection in his possession.

Having deviated from the instructions of theprincipal, the expenses that respondent Guevarraincurred in the settlement of the claims of theinsured may not be reimbursed from petitionerDominion. This conclusion is in accord with Article1918, Civil Code, which states that:

"The principal is not liable for the expensesincurred by the agent in the following cases:

"(1) If the agent acted in contravention ofthe principal’s instructions, unless thelatter should wish to avail himself of thebenefits derived from the contract;

" x x x x x x x x x "

However, while the law on agency prohibitsrespondent Guevarra from obtainingreimbursement, his right to recover may still bejustified under the general law on obligations andcontracts.

Article 1236, second paragraph, Civil Code,provides:

"Whoever pays for another may demand from thedebtor what he has paid, except that if he paidwithout the knowledge or against the will of thedebtor, he can recover only insofar as the paymenthas been beneficial to the debtor."

In this case, when the risk insured againstoccurred, petitioner’s liability as insurerarose.1âwphi1 This obligation was extinguishedwhen respondent Guevarra paid the claims andobtained Release of Claim Loss and SubrogationReceipts from the insured who were paid.

Thus, to the extent that the obligation of thepetitioner has been extinguished, respondentGuevarra may demand for reimbursement from hisprincipal. To rule otherwise would result in unjustenrichment of petitioner.

The extent to which petitioner was benefited by thesettlement of the insurance claims could best beproven by the Release of Claim Loss andSubrogation Receipts27 which were attached to theoriginal complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount ofP116,276.95.

However, the amount of the revolvingfund/collection that was then in the possession ofrespondent Guevarra as reflected in the statementof account dated July 11, 1990 would be deductedfrom the above amount.

The outstanding balance and theproduction/remittance for the period correspondingto the claims was P3,604.84. Deducting this fromP116,276.95, we get P112,672.11. This is theamount that may be reimbursed to respondentGuevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition.However, we MODIFY the decision of the Court ofAppeals28 and that of the Regional Trial Court,Branch 44, San Fernando, Pampanga,29 in thatpetitioner is ordered to pay respondent Guevarrathe amount of P112,672.11 representing the totalamount advanced by the latter in the payment ofthe claims of petitioner’s clients.

No costs in this instance.

SO ORDERED.

G.R. No. 171460 July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS,and JULIAN MERCADO, JR., represented bytheir 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 Reviewon Certiorari under Rule 45 of the Revised Rules ofCourt, 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 theDecision1 of the Court of Appeals dated 12 October2005, and its Resolution2 dated 15 February 2006in CA-G.R. CV No. 82636. The Court of Appeals, inits assailed Decision and Resolution, reversed theDecision3 of the Regional Trial Court (RTC) ofQuezon City, Branch 220 dated 23 September2003, declaring the deeds of real estate mortgageconstituted on TCT No. RT-18206 (106338) null andvoid. The dispositive portion of the assailed Courtof Appeals Decision thus reads:

WHEREFORE, the appealed decision is REVERSEDand SET ASIDE, and a new judgment is herebyentered dismissing the [petitioners] complaint.4

Petitioners are heirs of Perla N. Mercado (Perla).Perla, during her lifetime, owned several pieces ofreal property situated in different provinces of thePhilippines.

Respondent, on the other hand, is a bankinginstitution duly authorized as such under thePhilippine laws.

On 28 May 1992, Perla executed a Special Power ofAttorney (SPA) in favor of her husband, Julian D.Mercado (Julian) over several pieces of realproperty registered under her name, authorizingthe latter to perform the following acts:

1. To act in my behalf, to sell, alienate,mortgage, lease and deal otherwise overthe different parcels of land describedhereinafter, to wit:

a) Calapan, Oriental MindoroProperties covered by TransferCertificates 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 – 39Square Meters of the Registry ofDeeds of Oriental Mindoro;

b) Susana Heights, Muntinlupacovered by Transfer Certificatesof Title Nos. T-108954 – 600Square Meters and RT-106338 –805 Square Meters of theRegistry of Deeds of Pasig (nowMakati);

c) Personal property – 1983 Carwith Vehicle Registration No. R-16381; Model 1983; Make –Toyota; Engine No. T- 2464

2. To sign for and in my behalf any act ofstrict dominion or ownership any sale,disposition, mortgage, lease or any othertransactions including quit-claims, waiverand relinquishment of rights in and overthe parcels of land situated in GeneralTrias, Cavite, covered by TransferCertificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite,in conjunction with his co-owner and inthe person ATTY. AUGUSTO F. DELROSARIO;

3. To exercise any or all acts of strictdominion or ownership over the above-mentioned properties, rights and interesttherein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12December 1996, obtained a loan from therespondent in the amount of P3,000,000.00,secured by real estate mortgage constituted on

TCT No. RT-18206 (106338) which covers a parcelof land with an area of 805 square meters,registered with the Registry of Deeds of QuezonCity (subject property).5

Still using the subject property as security, Julianobtained an additional loan from the respondent inthe sum ofP5,000,000.00, evidenced by aPromissory Note6 he executed on 5 February 1997as another real estate mortgage (REM).

It appears, however, that there was no propertyidentified in the SPA as TCT No. RT – 18206(106338) and registered with the Registry of Deedsof Quezon City. What was identified in the SPAinstead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds ofPasig.

Subsequently, Julian defaulted on the payment ofhis loan obligations. Thus, respondent initiatedextra-judicial foreclosure proceedings over thesubject property which was subsequently sold atpublic auction wherein the respondent wasdeclared as the highest bidder as shown in theSheriff’s Certificate of Sale dated 15 January 1998.7

On 23 March 1999, petitioners initiated with theRTC an action for the annulment of REM constitutedover the subject property on the ground that thesame was not covered by the SPA and that the saidSPA, at the time the loan obligations werecontracted, no longer had force and effect since itwas previously revoked by Perla on 10 March 1993,as evidenced by the Revocation of SPA signed bythe latter.8

Petitioners likewise alleged that together with thecopy of the Revocation of SPA, Perla, in a Letterdated 23 January 1996, notified the Registry ofDeeds of Quezon City that any attempt tomortgage or sell the subject property must be withher full consent documented in the form of an SPAduly authenticated before the Philippine ConsulateGeneral in New York. 9

In the absence of authority to do so, the REMconstituted by Julian over the subject property wasnull and void; thus, petitioners likewise prayed thatthe subsequent extra-judicial foreclosure

proceedings and the auction sale of the subjectproperty be also nullified.

In its Answer with CompulsoryCounterclaim,10 respondent averred that, contraryto petitioner’s allegations, the SPA in favor of Julianincluded the subject property, covered by one ofthe titles specified in paragraph 1(b) thereof, TCTNo. RT- 106338 registered with the Registry ofDeeds of Pasig (now Makati). The subject propertywas purportedly registered previously under TCTNo. T-106338, and was only subsequentlyreconstituted as TCT RT-18206 (106338). Moreover,TCT No. T-106338 was actually registered with theRegistry of Deeds of Quezon City and not beforethe Registry of Deeds of Pasig (now Makati).Respondent explained that the discrepancy in thedesignation of the Registry of Deeds in the SPA wasmerely an error that must not prevail over the clearintention of Perla to include the subject property inthe said SPA. In sum, the property referred to in theSPA Perla executed in favor of Julian as covered byTCT No. 106338 of the Registry of Deeds of Pasig(now Makati) and the subject property in the caseat bar, covered by RT – 18206 (106338) of theRegistry of Deeds of Quezon City, are one and thesame.

On 23 September 2003, the RTC rendered aDecision declaring the REM constituted over thesubject property null and void, for Julian was notauthorized by the terms of the SPA to mortgage thesame. The court a quo likewise ordered that theforeclosure proceedings and the auction saleconducted pursuant to the void REM, be nullified.The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment ishereby rendered in favor of the [herein petitioners]and against the [herein respondent] Bank:

1. Declaring the Real Estate Mortgagesconstituted and registered under EntryNos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206(106338) of the Registry of Deeds ofQuezon City as NULL and VOID;

2. Declaring the Sheriff’s Sale andCertificate of Sale under FRE No. 2217dated January 15, 1998 over the propertycovered by TCT No. RT-18206 (106338) of

the Registry of Deeds of Quezon City asNULL and VOID;

3. Ordering the defendant Registry ofDeeds of Quezon City to cancel theannotation of Real Estate Mortgagesappearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deedsof Quezon City;

4. Ordering the [respondent] Bank todeliver/return to the [petitioners]represented by their attorney-in-factAlfredo M. Perez, the original Owner’sDuplicate Copy of TCT No. RT-18206(106338) free from the encumbrancesreferred to above; and

5. Ordering the [respondent] Bank to paythe [petitioners] the amountof P100,000.00 as for attorney’s fees pluscost of the suit.

The other claim for damages and counterclaim arehereby DENIED for lack of merit.11

Aggrieved, respondent appealed the adverseDecision before the Court of Appeals.

In a Decision dated 12 October 2005, the Court ofAppeals reversed the RTC Decision and upheld thevalidity of the REM constituted over the subjectproperty on the strength of the SPA. The appellatecourt declared that Perla intended the subjectproperty to be included in the SPA she executed infavor of Julian, and that her subsequent revocationof the said SPA, not being contained in a publicinstrument, cannot bind third persons.

The Motion for Reconsideration interposed by thepetitioners was denied by the Court of Appeals inits Resolution dated 15 February 2006.

Petitioners are now before us assailing the Decisionand Resolution rendered by the Court of Appealsraising several issues, which are summarized asfollows:

I WHETHER OR NOT THERE WAS A VALIDMORTGAGE CONSTITUTED OVER SUBJECTPROPERTY.

II WHETHER OR NOT THERE WAS A VALIDREVOCATION OF THE SPA.

III WHETHER OR NOT THE RESPONDENTWAS A MORTGAGEE-IN- GOOD FAITH.

For a mortgage to be valid, Article 2085 of the CivilCode enumerates the following essential requisites:

Art. 2085. The following requisites are essential tothe contracts of pledge and mortgage:

(1) That they be constituted to secure thefulfillment of a principal obligation;

(2) That the pledgor or mortgagor be theabsolute owner of the thing pledged ormortgaged;

(3) That the persons constituting thepledge or mortgage have the free disposalof their property, and in the absencethereof, that they be legally authorized forthe purpose.

Third persons who are not parties to the principalobligation may secure the latter by pledging ormortgaging their own property.

In the case at bar, it was Julian who obtained theloan obligations from respondent which he securedwith the mortgage of the subject property. Theproperty mortgaged was owned by his wife, Perla,considered a third party to the loan obligationsbetween Julian and respondent. It was, thus, asituation recognized by the last paragraph ofArticle 2085 of the Civil Code afore-quoted.However, since it was not Perla who personallymortgaged her own property to secure Julian’s loanobligations with respondent, we proceed todetermining if she duly authorized Julian to do soon her behalf.

Under Article 1878 of the Civil Code, a specialpower of attorney is necessary in cases where realrights over immovable property are created or

conveyed.12 In the SPA executed by Perla in favor ofJulian on 28 May 1992, the latter was conferredwith the authority to "sell, alienate, mortgage,lease and deal otherwise" the different pieces ofreal and personal property registered in Perla’sname. The SPA likewise authorized Julian "[t]oexercise any or all acts of strict dominion orownership" over the identified properties, andrights and interest therein. The existence and dueexecution of this SPA by Perla was not denied orchallenged by petitioners.

There is no question therefore that Julian wasvested with the power to mortgage the pieces ofproperty identified in the SPA. However, as towhether the subject property was among thoseidentified in the SPA, so as to render Julian’smortgage of the same valid, is a question we stillmust resolve.

Petitioners insist that the subject property was notincluded in the SPA, considering that it containedan exclusive enumeration of the pieces of propertyover which Julian had authority, and these includeonly: (1) TCT No. T-53618, with an area of 3,522square meters, located at Calapan, OrientalMindoro, and registered with the Registry of Deedsof Oriental Mindoro; (2) TCT No. T-46810, with anarea of 3,953 square meters, located at Calapan,Oriental Mindoro, and registered with the Registryof Deeds of Oriental Mindoro; (3) TCT No. T-53140,with an area of 177 square meters, located atCalapan, Oriental Mindoro, and registered with theRegistry of Deeds of Oriental Mindoro; (4) TCT No.T-21403, with an area of 263 square meters,located at Calapan, Oriental Mindoro, andregistered with the Registry of Deeds of OrientalMindoro; (5) TCT No. T- 46807, with an area of 39square meters, located at Calapan, OrientalMindoro, and registered with the Registry of Deedsof Oriental Mindoro; (6) TCT No. T-108954, with anarea of 690 square meters and located at SusanaHeights, Muntinlupa; (7) RT-106338 – 805 SquareMeters registered with the Registry of Deeds ofPasig (now Makati); and (8) Personal Propertyconsisting of a 1983 Car with Vehicle RegistrationNo. R-16381, Model – 1983, Make – Toyota, andEngine No. T- 2464. Nowhere is it stated in the SPAthat Julian’s authority extends to the subjectproperty covered by TCT No. RT – 18206 (106338)registered with the Registry of Deeds of QuezonCity. Consequently, the act of Julian of constitutinga mortgage over the subject property is

unenforceable for having been done withoutauthority.

Respondent, on the other hand, mainly hinges itsargument on the declarations made by the Court ofAppeals that there was no property covered by TCTNo. 106338 registered with the Registry of Deeds ofPasig (now Makati); but there exists a property, thesubject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry ofDeeds of Quezon City. Further verification wouldreveal that TCT No. RT-18206 is merely areconstitution of TCT No. 106338, and the propertycovered by both certificates of title is actuallysituated in Quezon City and not Pasig. From theforegoing circumstances, respondent argues thatPerla intended to include the subject property inthe SPA, and the failure of the instrument to reflectthe recent TCT Number or the exact designation ofthe Registry of Deeds, should not defeat Perla’sclear intention.

After an examination of the literal terms of the SPA,we find that the subject property was not amongthose enumerated therein. There is no obviousreference to the subject property covered by TCTNo. RT-18206 (106338) registered with the Registryof Deeds of Quezon City.

There was also nothing in the language of the SPAfrom which we could deduce the intention of Perlato include the subject property therein. We cannotattribute such alleged intention to Perla whoexecuted the SPA when the language of theinstrument is bare of any indication suggestive ofsuch intention. Contrariwise, to adopt the intenttheory advanced by the respondent, in the absenceof clear and convincing evidence to that effect,would run afoul of the express tenor of the SPA andthus defeat Perla’s true intention.

In cases where the terms of the contract are clearas to leave no room for interpretation, resort tocircumstantial evidence to ascertain the true intentof the parties, is not countenanced. As aptly statedin the case of JMA House, Incorporated v. Sta.Monica Industrial and DevelopmentCorporation,13 thus:

[T]he law is that if the terms of a contract are clearand leave no doubt upon the intention of thecontracting parties, the literal meaning of its

stipulation shall control. When the language of thecontract is explicit, leaving no doubt as to theintention of the drafters, the courts may not readinto it [in] any other intention that would contradictits main import. The clear terms of the contractshould never be the subject matter ofinterpretation. Neither abstract justice nor the ruleon liberal interpretation justifies the creation of acontract for the parties which they did not makethemselves or the imposition upon one party to acontract or obligation not assumed simply ormerely to avoid seeming hardships. The truemeaning must be enforced, as it is to be presumedthat the contracting parties know their scope andeffects.14

Equally relevant is the rule that a power of attorneymust be strictly construed and pursued. Theinstrument will be held to grant only those powerswhich are specified therein, and the agent mayneither go beyond nor deviate from the power ofattorney.15 Where powers and duties are specifiedand defined in an instrument, all such powers andduties are limited and are confined to those whichare specified and defined, and all other powers andduties are excluded.16 This is but in accord with thedisinclination of courts to enlarge the authoritygranted beyond the powers expressly given andthose which incidentally flow or derive therefrom asbeing usual and reasonably necessary and properfor the performance of such express powers.17

Even the commentaries of renowned CivilistManresa18 supports a strict and limited constructionof 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 vagueand general way with reference to the right heconfers upon another for the purpose of alienationor hypothecation, whereby he might be despoiledof all he possessed and be brought to ruin, suchexcessive authority must be set down in the mostformal and explicit terms, and when this is notdone, the law reasonably presumes that theprincipal did not mean to confer it.

In this case, we are not convinced that the propertycovered by TCT No. 106338 registered with theRegistry of Deeds of Pasig (now Makati) is the sameas the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of

Deeds of Quezon City. The records of the case arestripped of supporting proofs to verify therespondent’s claim that the two titles cover thesame property. It failed to present any certificationfrom the Registries of Deeds concerned to supportits assertion. Neither did respondent take the effortof submitting and making part of the records of thiscase copies of TCTs No. RT-106338 of the Registryof Deeds of Pasig (now Makati) and RT-18206(106338) of the Registry of Deeds of Quezon City,and closely comparing the technical descriptions ofthe properties covered by the said TCTs. The bareand sweeping statement of respondent that theproperties covered by the two certificates of titleare one and the same contains nothing but emptyimputation of a fact that could hardly be given anyevidentiary weight by this Court.

Having arrived at the conclusion that Julian was notconferred by Perla with the authority to mortgagethe subject property under the terms of the SPA,the real estate mortgages Julian executed over thesaid property are therefore unenforceable.

Assuming arguendo that the subject property wasindeed included in the SPA executed by Perla infavor of Julian, the said SPA was revoked by virtueof a public instrument executed by Perla on 10March 1993. To address respondent’s assertion thatthe said revocation was unenforceable against it asa third party to the SPA and as one who relied onthe same in good faith, we quote with approval thefollowing ruling of the RTC on this matter:

Moreover, an agency is extinguished, amongothers, by its revocation (Article 1999, New CivilCode of the Philippines). The principal may revokethe agency at will, and compel the agent to returnthe document evidencing the agency. Suchrevocation may be express or implied (Article1920, supra).

In this case, the revocation of the agency or SpecialPower of Attorney is expressed and by a publicdocument executed on March 10, 1993.

The Register of Deeds of Quezon City was evennotified that any attempt to mortgage or sell theproperty covered by TCT No. [RT-18206] 106338located at No. 21 Hillside Drive, Blue Ridge, QuezonCity must have the full consent documented in theform 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 SpecialPower of Attorney on TCT No. RT-18206 is of noconsequence as far as the revocation’s existenceand legal effect is concerned since actual notice isalways superior to constructive notice. The actualnotice of the revocation relayed to defendantRegistry of Deeds of Quezon City is not denied byeither the Registry of Deeds of Quezon City or thedefendant Bank. In which case, there appears noreason why Section 52 of the Property RegistrationDecree (P.D. No. 1529) should not apply to thesituation. 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 entryaffecting registered land shall, if registered, filed orentered in the Office of the Register of Deeds forthe province or city where the land to which itrelates lies, be constructive notice to all personsfrom the time of such registering, filing or entering.(Pres. Decree No. 1529, Section 53) (emphasisours)

It thus developed that at the time the first loantransaction with defendant Bank was effected onDecember 12, 1996, there was on record at theOffice of the Register of Deeds of Quezon City thatthe special power of attorney granted Julian, Sr. byPerla had been revoked. That notice, works asconstructive notice to third parties of its being filed,effectively rendering Julian, Sr. without authority toact for and in behalf of Perla as of the date therevocation letter was received by the Register ofDeeds of Quezon City on February 7, 1996.19

Given that Perla revoked the SPA as early as 10March 1993, and that she informed the Registry ofDeeds of Quezon City of such revocation in a letterdated 23 January 1996 and received by the latteron 7 February 1996, then third parties to the SPAare constructively notified that the same had beenrevoked and Julian no longer had any authority tomortgage the subject property. Although therevocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neitherthe Registry of Deeds of Quezon City norrespondent denied that Perla’s 23 January 1996letter was received by and filed with the Registry of

Deeds of Quezon City. Respondent would haveundoubtedly come across said letter if it indeeddiligently investigated the subject property and thecircumstances surrounding its mortgage.

The final issue to be threshed out by this Court iswhether the respondent is a mortgagee-in-goodfaith. Respondent fervently asserts that it exercisedreasonable diligence required of a prudent man indealing with the subject property.

Elaborating, respondent claims to have carefullyverified Julian’s authority over the subject propertywhich was validly contained in the SPA. It stressesthat the SPA was annotated at the back of the TCTof the subject property. Finally, after conducting aninvestigation, it found that the property covered byTCT No. 106338, registered with the Registry ofDeeds of Pasig (now Makati) referred to in the SPA,and the subject property, covered by TCT No.18206 (106338) registered with the Registry ofDeeds of Quezon City, are one and the sameproperty. From the foregoing, respondent concludedthat Julian was indeed authorized to constitute amortgage over the subject property.

We are unconvinced. The property listed in the realestate mortgages Julian executed in favor of PNB isthe one covered by "TCT#RT-18206(106338)." Onthe other hand, the Special Power of Attorneyreferred to TCT No. "RT-106338 – 805 SquareMeters of the Registry of Deeds of Pasig nowMakati." The palpable difference between the TCTnumbers referred to in the real estate mortgagesand Julian’s SPA, coupled with the fact that the saidTCTs are registered in the Registries of Deeds ofdifferent cities, should have put respondent onguard. Respondent’s claim of prudence is debunkedby the fact that it had conveniently or otherwiseoverlooked the inconsistent details appearing onthe face of the documents, which it was relying onfor its rights as mortgagee, and which significantlyaffected the identification of the property beingmortgaged. In Arrofo v. Quiño,20 we have elucidatedthat:

[Settled is the rule that] a person dealing withregistered lands [is not required] to inquire furtherthan what the Torrens title on its face indicates.This rule, however, is not absolute but admits ofexceptions. Thus, while its is true, x x x that aperson dealing with registered lands need

not go beyond the certificate of title, it islikewise a well-settled rule that a purchaseror mortgagee cannot close his eyes to factswhich should put a reasonable man on hisguard, and then claim that he acted in goodfaith under the belief that there was nodefect in the title of the vendor or mortgagor.His mere refusal to face up the fact that suchdefect exists, or his willful closing of his eyes to thepossibility of the existence of a defect in thevendor’s or mortgagor’s title, will not make him aninnocent purchaser for value, if it afterwardsdevelops that the title was in fact defective, and itappears that he had such notice of the defect aswould have led to its discovery had he acted withthe measure of precaution which may be requiredof a prudent man in a like situation.

By putting blinders on its eyes, and by refusing tosee the patent defect in the scope of Julian’sauthority, easily discernable from the plain terms ofthe SPA, respondent cannot now claim to be aninnocent mortgagee.

Further, in the case of Abad v. Guimba,21 we laiddown the principle that where the mortgagee doesnot directly deal with the registered owner of realproperty, the law requires that a higher degree ofprudence be exercised by the mortgagee, thus:

While [the] one who buys from the registeredowner does not need to look behind the certificateof title, one who buys from [the] one who is not[the] registered owner is expected to examine notonly the certificate of title but all factualcircumstances necessary for [one] to determine ifthere are any flaws in the title of the transferor, orin [the] capacity to transfer the land. Although theinstant case does not involve a sale but only amortgage, the same rule applies inasmuch as thelaw itself includes a mortgagee in the term"purchaser."22

This principle is applied more strenuously when themortgagee is a bank or a banking institution. Thus,in the case of Cruz v. BancomFinance Corporation,23 we ruled:

Respondent, however, is not an ordinarymortgagee; it is a mortgagee-bank. As such, unlikeprivate individuals, it is expected to exercisegreater care and prudence in its dealings, including

those involving registered lands. A bankinginstitution is expected to exercise due diligencebefore entering into a mortgage contract. Theascertainment of the status or condition of aproperty offered to it as security for a loan must bea standard and indispensable part of itsoperations.24

Hence, considering that the property beingmortgaged by Julian was not his, and there areadditional doubts or suspicions as to the realidentity of the same, the respondent bank shouldhave proceeded with its transactions with Julianonly with utmost caution. As a bank, respondentmust subject all its transactions to the most rigidscrutiny, since its business is impressed with publicinterest and its fiduciary character requires highstandards of integrity and performance.25 Whererespondent acted in undue haste in granting themortgage loans in favor of Julian and disregardingthe apparent defects in the latter’s authority asagent, it failed to discharge the degree of diligencerequired of it as a banking corporation.1awphil

Thus, even granting for the sake of argument thatthe subject property and the one identified in theSPA are one and the same, it would not elevaterespondent’s status to that of an innocentmortgagee. As a banking institution, jurisprudencestringently requires that respondent should takemore precautions than an ordinary prudent manshould, to ascertain the status and condition of theproperties offered as collateral and to verify thescope of the authority of the agents dealing withthese. Had respondent acted with the requireddegree of diligence, it could have acquiredknowledge of the letter dated 23 January 1996 sentby Perla to the Registry of Deeds of Quezon Citywhich recorded the same. The failure of therespondent to investigate into the circumstancessurrounding the mortgage of the subject propertybelies its contention of good faith.

On a last note, we find that the real estatemortgages constituted over the subject propertyare unenforceable and not null and void, as ruledby the RTC. It is best to reiterate that the saidmortgage was entered into by Julian on behalf ofPerla without the latter’s authority andconsequently, unenforceable under Article 1403(1)of the Civil Code. Unenforceable contracts arethose which cannot be enforced by a proper action

in court, unless they are ratified, because eitherthey are entered into without or in excess ofauthority or they do not comply with the statute offrauds or both of the contracting parties do notpossess the required legal capacity.26 Anunenforceable contract may be ratified, expresslyor impliedly, by the person in whose behalf it hasbeen executed, before it is revoked by the othercontracting party.27 Without Perla’s ratification ofthe same, the real estate mortgages constituted byJulian over the subject property cannot be enforcedby any action in court against Perla and/or hersuccessors in interest.

In sum, we rule that the contracts of real estatemortgage constituted over the subject propertycovered by TCT No. RT – 18206 (106338) registeredwith the Registry of Deeds of Quezon City areunenforceable. Consequently, the foreclosureproceedings and the auction sale of the subjectproperty conducted in pursuance of theseunenforceable contracts are null and void. This,however, is without prejudice to the right of therespondent to proceed against Julian, in hispersonal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, theinstant petition is GRANTED. The Decision dated 12October 2005 and its Resolution dated 15 February2006 rendered by the Court of Appeals in CA-G.R.CV No. 82636, are hereby REVERSED. The Decisiondated 23 September 2003 of the Regional TrialCourt of Quezon City, Branch 220, in Civil Case No.Q-99-37145, is hereby REINSTATED andAFFIRMED with modification that the real estatemortgages constituted over TCT No. RT – 18206(106338) are not null and void butUNENFORCEABLE. No costs.

SO ORDERED.

G.R. No. 82040 August 27, 1991

BA FINANCE CORPORATION, petitioner, vs.HON. COURT OF APPEALS, Hon. PresidingJudge of Regional Trial Court of Manila,Branch 43, MANUEL CUADY and LILIACUADY, respondents.

Valera, Urmeneta & Associates for petitioner.

Pompeyo L. Bautista for private respondents.

PARAS, J.:p

This is a petition for review on certiorari whichseeks to reverse and set aside (1) the decision ofthe Court of Appeals dated July 21, 1987 in CA-G.R.No. CV-06522 entitled "B.A. Finance Corporation,Plaintiff-Appellant, vs. Manuel Cuady and LiliaCuady, Defendants-Appellees," affirming thedecision of the Regional Trial Court of Manila,Branch 43, which dismissed the complaint in CivilCase No. 82-10478, and (2) the resolution datedFebruary 9, 1988 denying petitioner's motion forreconsideration.

As gathered from the records, the facts are asfollows:

On July 15, 1977, private respondents ManuelCuady and Lilia Cuady obtained from Supercars,Inc. a credit of P39,574.80, which amount coveredthe cost of one unit of Ford Escort 1300, four-doorsedan. Said obligation was evidenced by apromissory note executed by private respondentsin favor of Supercars, Inc., obligating themselves topay the latter or order the sum of P39,574.80,inclusive of interest at 14% per annum, payable onmonthly installments of P1,098.00 starting August16, 1977, and on the 16th day of the next 35months from September 16, 1977 until fullpayment thereof. There was also stipulated apenalty of P10.00 for every month of lateinstallment payment. To secure the faithful andprompt compliance of the obligation under the saidpromissory note, the Cuady spouses constituted a

chattel mortage on the aforementioned motorvehicle. On July 25, 1977, Supercars, Inc. assignedthe promissory note, together with the chattelmortgage, to B.A. Finance Corporation. The Cuadyspaid a total of P36,730.15 to the B.A. FinanceCorporation, thus leaving an unpaid balance ofP2,344.65 as of July 18, 1980. In addition thereto,the Cuadys owe B.A. Finance Corporation P460.00representing penalties or surcharges for tardymonthly installments (Rollo, pp. 27-29).

Parenthetically, the B.A. Finance Corporation, asthe assignee of the mortgage lien obtained therenewal of the insurance coverage over theaforementioned motor vehicle for the year 1980with Zenith Insurance Corporation, when theCuadys failed to renew said insurance coveragethemselves. Under the terms and conditions of thesaid insurance coverage, any loss under the policyshall be payable to the B.A. Finance Corporation(Memorandum for Private Respondents, pp. 3-4).

On April 18, 1980, the aforementioned motorvehicle figured in an accident and was badlydamaged. The unfortunate happening was reportedto the B.A. Finance Corporation and to the insurer,Zenith Insurance Corporation. The Cuadys askedthe B.A. Finance Corporation to consider the sameas a total loss, and to claim from the insurer theface value of the car insurance policy and apply thesame to the payment of their remaining accountand give them the surplus thereof, if any. Butinstead of heeding the request of the Cuadys, B.A.Finance Corporation prevailed upon the former tojust have the car repaired. Not long thereafter,however, the car bogged down. The Cuadys wroteB.A. Finance Corporation requesting the latter topursue their prior instruction of enforcing the totalloss provision in the insurance coverage. When B.A.Finance Corporation did not respond favorably totheir request, the Cuadys stopped paying theirmonthly installments on the promissory note (Ibid.,pp. 45).

On June 29, 1982, in view of the failure of theCuadys to pay the remaining installments on thenote, B.A. Finance Corporation sued them in theRegional Trial Court of Manila, Branch 43, for therecovery of the said remaining installments(Memorandum for the Petitioner, p. 1).

After the termination of the pre-trial conference,the case was set for trial on the merits on April 25,1984. B.A. Finance Corporation's evidence waspresented on even date and the presentation ofCuady's evidence was set on August 15, 1984. OnAugust 7,1984, Atty. Noel Ebarle, counsel for thepetitioner, filed a motion for postponement, thereason being that the "handling" counsel, Atty.Ferdinand Macibay was temporarily assigned inCebu City and would not be back until after August15, 1984. Said motion was, however, denied by thetrial court on August 10, 1984. On August 15, 1984,the date of hearing, the trial court allowed privaterespondents to adduce evidence ex-parte in theform of an affidavit to be sworn to before anyauthorized officer. B.A. Finance Corporation filed amotion for reconsideration of the order of the trialcourt denying its motion for postponement. Saidmotion was granted in an order dated September26, 1984, thus:

The Court grants plaintiff'smotion for reconsideration datedAugust 22, 1984, in the sensethat plaintiff is allowed to adduceevidence in the form of counter-affidavits of its witnesses, to besworn to before any personauthorized to administer oaths,within ten days from noticehereof. (Ibid., pp. 1-2).

B.A. Finance Corporation, however, never compliedwith the above-mentioned order, paving the wayfor the trial court to render its decision on January18, 1985, the dispositive portion of which reads asfollows:

IN VIEW WHEREOF, the CourtDISMISSES the complaint withoutcosts.

SO ORDERED. (Rollo, p. 143)

On appeal, the respondent appellate court *affirmed the decision of the trial court. The decretalportion of the said decision reads as follows:

WHEREFORE, after consultationamong the undersigned members

of this Division, in compliancewith the provision of Section 13,Article VIII of the Constitution;and finding no reversible error inthe judgment appealed from, thesame is hereby AFFIRMED,without any pronouncement as tocosts. (Ibid., p. 33)

B.A. Finance Corporation moved for thereconsideration of the above decision, but themotion was denied by the respondent appellatecourt in a resolution dated February 9, 1988 (Ibid.,p. 38).

Hence, this present recourse.

On July 11, 1990, this Court gave due course to thepetition and required the parties to submit theirrespective memoranda. The parties havingcomplied with the submission of their memoranda,the case was submitted for decision.

The real issue to be resolved in the case at bar iswhether or not B.A. Finance Corporation has waivedits right to collect the unpaid balance of the Cuadyspouses on the promissory note for failure of theformer to enforce the total loss provision in theinsurance coverage of the motor vehicle subject ofthe chattel mortgage.

It is the contention of B.A. Finance Corporation thateven if it failed to enforce the total loss provision inthe insurance policy of the motor vehicle subject ofthe chattel mortgage, said failure does not operateto extinguish the unpaid balance on the promissorynote, considering that the circumstances obtainingin the case at bar do not fall under Article 1231 ofthe Civil Code relative to the modes ofextinguishment of obligations (Memorandum forthe Petitioner, p. 11).

On the other hand, the Cuadys insist that owing toits failure to enforce the total loss provision in theinsurance policy, B.A. Finance Corporation lost notonly its opportunity to collect the insuranceproceeds on the mortgaged motor vehicle in itscapacity as the assignee of the said insuranceproceeds pursuant to the memorandum in theinsurance policy which states that the "LOSS: IFANY, under this policy shall be payable to BA

FINANCE CORP., as their respective rights andinterest may appear" (Rollo, p. 91) but also theremaining balance on the promissory note(Memorandum for the Respondents, pp. 16-17).

The petition is devoid of merit.

B.A. Finance Corporation was deemed subrogatedto the rights and obligations of Supercars, Inc.when the latter assigned the promissory note,together with the chattel mortgage constituted onthe motor vehicle in question in favor of the former.Consequently, B.A. Finance Corporation is bound bythe terms and conditions of the chattel mortgageexecuted between the Cuadys and Supercars, Inc.Under the deed of chattel mortgage, B.A. FinanceCorporation was constituted attorney-in-fact withfull power and authority to file, follow-up,prosecute, compromise or settle insurance claims;to sign execute and deliver the correspondingpapers, receipts and documents to the InsuranceCompany as may be necessary to prove the claim,and to collect from the latter the proceeds ofinsurance to the extent of its interests, in the eventthat the mortgaged car suffers any loss or damage(Rollo, p. 89). In granting B.A. Finance Corporationthe aforementioned powers and prerogatives, theCuady spouses created in the former's favor anagency. Thus, under Article 1884 of the Civil Codeof the Philippines, B.A. Finance Corporation isbound by its acceptance to carry out the agency,and is liable for damages which, through its non-performance, the Cuadys, the principal in the caseat bar, may suffer.

Unquestionably, the Cuadys suffered pecuniary lossin the form of salvage value of the motor vehicle inquestion, not to mention the amount equivalent tothe unpaid balance on the promissory note, whenB.A. Finance Corporation steadfastly refused andrefrained from proceeding against the insurer forthe payment of a clearly valid insurance claim, andcontinued to ignore the yearning of the Cuadys toenforce the total loss provision in the insurancepolicy, despite the undeniable fact that Rea AutoCenter, the auto repair shop chosen by the insureritself to repair the aforementioned motor vehicle,misrepaired and rendered it completely useless andunserviceable (Ibid., p. 31).

Accordingly, there is no reason to depart from theruling set down by the respondent appellate court.In this connection, the Court of Appeals said:

... Under the established factsand circumstances, it is unjust,unfair and inequitable to requirethe chattel mortgagors, appelleesherein, to still pay the unpaidbalance of their mortgage debton the said car, the non-paymentof which account was due to thestubborn refusal and failure ofappellant mortgagee to avail ofthe insurance money whichbecame due and demandableafter the insured motor vehiclewas badly damaged in avehicular accident covered by theinsurance risk. ... (Ibid.)

On the allegation that the respondent court'sfindings that B.A. Finance Corporation failed toclaim for the damage to the car was not supportedby evidence, the records show that instead ofacting on the instruction of the Cuadys to enforcethe total loss provision in the insurance policy, thepetitioner insisted on just having the motor vehiclerepaired, to which private respondents reluctantlyacceded. As heretofore mentioned, the repair shopchosen was not able to restore the aforementionedmotor vehicle to its condition prior to the accident.Thus, the said vehicle bogged down shortlythereafter. The subsequent request of the Cuadysfor the B.A. Finance Corporation to file a claim fortotal loss with the insurer fell on deaf ears,prompting the Cuadys to stop paying the remainingbalance on the promissory note (Memorandum forthe Respondents, pp. 4-5).

Moreover, B.A. Finance Corporation would have thisCourt review and reverse the factual findings of therespondent appellate court. This, of course, theCourt cannot and will not generally do. It isaxiomatic that the judgment of the Court ofAppeals is conclusive as to the facts and may notordinarily be reviewed by the Supreme Court. Thedoctrine is, to be sure, subject to certain specificexceptions none of which, however, obtains in theinstant case (Luzon Brokerage Corporation v. Courtof Appeals, 176 SCRA 483 [1989]).

Finally, B.A. Finance Corporation contends thatrespondent trial court committed grave abuses ofdiscretion in two instances: First, when it deniedthe petitioner's motion for reconsideration prayingthat the counsel be allowed to cross-examine theaffiant, and; second, when it seriously consideredthe evidence adduced ex-parte by the Cuadys, andheavily relied thereon, when in truth and in fact,the same was not formally admitted as part of theevidence for the private respondents(Memorandum for the Petitioner, p. 10). This Courtdoes not have to unduly dwell on this issue whichwas only raised by B.A. Finance Corporation for thefirst time on appeal. A review of the records of thecase shows that B.A. Finance Corporation failed todirectly raise or ventilate in the trial court nor inthe respondent appellate court the validity of theevidence adduced ex-parte by private respondents.It was only when the petitioner filed the instantpetition with this Court that it later raised theaforementioned issue. As ruled by this Court in along line of cases, issues not raised and/orventilated in the trial court, let alone in the Court ofAppeals, cannot be raised for the first time onappeal as it would be offensive to the basic rules offair play, justice and due process (Galicia v. Polo,179 SCRA 375 [1989]; Ramos v. IntermediateAppellate Court, 175 SCRA 70 [1989]; Dulos Realty& Development Corporation v. Court of Appeals,157 SCRA 425 [1988]; Dihiansan, et al. v. Court ofAppeals, et al., 153 SCRA 712 [1987]; De la Santav. Court of Appeals, et al., 140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition isDENIED, and the decision appealed from isAFFIRMED.

SO ORDERED.

G.R. No. 151319 November 22, 2004MANILA MEMORIAL PARK CEMETERY,INC., petitioner, vs.PEDRO L. LINSANGAN, respondent.D E C I S I O NTINGA, J.:For resolution in this case is a classic andinteresting texbook question in the law on agency.This is a petition for review assailing theDecision1 of the Court of Appeals dated 22 June2001, and its Resolution2 dated 12 December 2001in CA G.R. CV No. 49802 entitled "Pedro L.Linsangan v. Manila Memorial Cemetery, Inc. etal.," finding Manila Memorial Park Cemetery, Inc.(MMPCI) jointly and severally liable with FlorenciaC. Baluyot to respondent Atty. Pedro L. Linsangan.The facts of the case are as follows:Sometime in 1984, Florencia Baluyot offered Atty.Pedro L. Linsangan a lot called Garden State at theHoly Cross Memorial Park owned by petitioner(MMPCI). According to Baluyot, a former owner of amemorial lot under Contract No. 25012 was nolonger interested in acquiring the lot and had optedto sell his rights subject to reimbursement of theamounts he already paid. The contract was forP95,000.00. Baluyot reassured Atty. Linsangan thatonce reimbursement is made to the former buyer,the contract would be transferred to him. Atty.Linsangan agreed and gave Baluyot P35,295.00representing the amount to be reimbursed to theoriginal buyer and to complete the down paymentto MMPCI.3 Baluyot issued handwritten andtypewritten receipts for these payments.4

Sometime in March 1985, Baluyot informed Atty.Linsangan that he would be issued Contract No.28660, a new contract covering the subject lot inthe name of the latter instead of old Contract No.25012. Atty. Linsangan protested, but Baluyotassured him that he would still be paying the oldprice of P95,000.00 with P19,838.00 credited as fulldown payment leaving a balance of aboutP75,000.00.5

Subsequently, on 8 April 1985, Baluyot brought anOffer to Purchase Lot No. A11 (15), Block 83,Garden Estate I denominated as Contract No.28660 and the Official Receipt No. 118912 dated 6April 1985 for the amount of P19,838.00. ContractNo. 28660 has a listed price of P132,250.00. Atty.Linsangan objected to the new contract price, asthe same was not the amount previously agreedupon. To convince Atty. Linsangan, Baluyotexecuted a document6 confirming that while thecontract price is P132,250.00, Atty. Linsanganwould pay only the original price of P95,000.00.The document reads in part:

The monthly installment will start April 6,1985; the amount of P1,800.00 and thedifference will be issued as discounted toconform to the previous price aspreviously agreed upon. --- P95,000.00Prepared by:(Signed)(MRS.) FLORENCIA C. BALUYOTAgency ManagerHoly Cross Memorial Park4/18/85Dear Atty. Linsangan:This will confirm our agreement that whilethe offer to purchase under Contract No.28660 states that the total price ofP132,250.00 your undertaking is to payonly the total sum of P95,000.00 underthe old price. Further the total sum ofP19,838.00 already paid by you under O.R.# 118912 dated April 6, 1985 has beencredited in the total purchase pricethereby leaving a balance of P75,162.00on a monthly installment of P1,800.00including interests (sic) charges for aperiod of five (5) years.

(Signed)FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signedContract No. 28660 and accepted Official ReceiptNo. 118912. As requested by Baluyot, Atty.Linsangan issued twelve (12) postdated checks ofP1,800.00 each in favor of MMPCI. The next year,or on 29 April 1986, Atty. Linsangan again issuedtwelve (12) postdated checks in favor of MMPCI.On 25 May 1987, Baluyot verbally advised Atty.Linsangan that Contract No. 28660 was cancelledfor reasons the latter could not explain, andpresented to him another proposal for the purchaseof an equivalent property. He refused the newproposal and insisted that Baluyot and MMPCIhonor their undertaking.For the alleged failure of MMPCI and Baluyot toconform to their agreement, Atty. Linsangan filed aComplaint7for Breach of Contract and Damagesagainst the former.Baluyot did not present any evidence. For its part,MMPCI alleged that Contract No. 28660 wascancelled conformably with the terms of thecontract8 because of non-payment ofarrearages.9 MMPCI stated that Baluyot was not anagent but an independent contractor, and as suchwas not authorized to represent MMPCI or to use itsname except as to the extent expressly stated inthe Agency Manager Agreement.10 Moreover,MMPCI was not aware of the arrangements enteredinto by Atty. Linsangan and Baluyot, as it in fact

received a down payment and monthlyinstallments as indicated in the contract.11 Officialreceipts showing the application of payment wereturned over to Baluyot whom Atty. Linsangan hadfrom the beginning allowed to receive the same inhis behalf. Furthermore, whatever misimpressionthat Atty. Linsangan may have had must have beenrectified by the Account Updating Arrangementsigned by Atty. Linsangan which states that he"expressly admits that Contract No. 28660 'onaccount of serious delinquency…is now due forcancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly andseverally liable.13 It found that Baluyot was anagent of MMPCI and that the latter was estoppedfrom denying this agency, having received andenchased the checks issued by Atty. Linsangan andgiven to it by Baluyot. While MMPCI insisted thatBaluyot was authorized to receive only the downpayment, it allowed her to continue to receivepostdated checks from Atty. Linsangan, which it inturn consistently encashed.14

The dispositive portion of the decision reads:WHEREFORE, judgment by preponderanceof evidence is hereby rendered in favor ofplaintiff declaring Contract No. 28660 asvalid and subsisting and orderingdefendants to perform their undertakingsthereof which covers burial lot No. A11(15), Block 83, Section Garden I, HolyCross Memorial Park located atNovaliches, Quezon City. All paymentsmade by plaintiff to defendants should becredited for his accounts. NO DAMAGES,NO ATTORNEY'S FEES but with costsagainst the defendants.The cross claim of defendant ManilaMemorial Cemetery Incorporated asagainst defendant Baluyot is GRANTED upto the extent of the costs.SO ORDERED.15

MMPCI appealed the trial court's decision to theCourt of Appeals.16 It claimed that Atty. Linsanganis bound by the written contract with MMPCI, theterms of which were clearly set forth therein andread, understood, and signed by the former.17 Italso alleged that Atty. Linsangan, a practicinglawyer for over thirteen (13) years at the time heentered into the contract, is presumed to know hiscontractual obligations and is fully aware that hecannot belatedly and unilaterally change the termsof the contract without the consent, much less theknowledge of the other contracting party, whichwas MMPCI. And in this case, MMPCI did not agreeto a change in the contract and in factimplemented the same pursuant to its clear terms.

In view thereof, because of Atty. Linsangan'sdelinquency, MMPCI validly cancelled the contract.MMPCI further alleged that it cannot be held jointlyand solidarily liable with Baluyot as the latterexceeded the terms of her agency, neither didMMPCI ratify Baluyot's acts. It added that it cannotbe charged with making any misrepresentation, norof having allowed Baluyot to act as though she hadfull powers as the written contract expressly statedthe terms and conditions which Atty. Linsanganaccepted and understood. In canceling thecontract, MMPCI merely enforced the terms andconditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan,MMPCI claimed that it was the former's obligation,as a party knowingly dealing with an alleged agent,to determine the limitations of such agent'sauthority, particularly when such alleged agent'sactions were patently questionable. According toMMPCI, Atty. Linsangan did not even bother toverify Baluyot's authority or ask copies of officialreceipts for his payments.19

The Court of Appeals affirmed the decision of thetrial court. It upheld the trial court's finding thatBaluyot was an agent of MMPCI at the time thedisputed contract was entered into, havingrepresented MMPCI's interest and acting on itsbehalf in the dealings with clients and customers.Hence, MMPCI is considered estopped when itallowed Baluyot to act and represent MMPCI evenbeyond her authority.20 The appellate court likewisefound that the acts of Baluyot bound MMPCI whenthe latter allowed the former to act for and in itsbehalf and stead. While Baluyot's authority "maynot have been expressly conferred upon her, thesame may have been derived impliedly by habit orcustom, which may have been an acceptedpractice in the company for a long period oftime."21 Thus, the Court of Appeals noted, innocentthird persons such as Atty. Linsangan should not beprejudiced where the principal failed to adopt theneeded measures to prevent misrepresentation.Furthermore, if an agent misrepresents to apurchaser and the principal accepts the benefits ofsuch misrepresentation, he cannot at the sametime deny responsibility for suchmisrepresentation.22 Finally, the Court of Appealsdeclared:There being absolutely nothing on the record thatwould show that the court a quo overlooked,disregarded, or misinterpreted facts of weight andsignificance, its factual findings and conclusionsmust be given great weight and should not bedisturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, theappeal is hereby DENIED and theappealed decision in Civil Case No. 88-

1253 of the Regional Trial Court, NationalCapital Judicial Region, Branch 57 ofMakati, is hereby AFFIRMED in toto.SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but thesame was denied for lack of merit.25

In the instant Petition for Review, MMPCI claimsthat the Court of Appeals seriously erred indisregarding the plain terms of the written contractand Atty. Linsangan's failure to abide by the termsthereof, which justified its cancellation. In addition,even assuming that Baluyot was an agent ofMMPCI, she clearly exceeded her authority andAtty. Linsangan knew or should have known aboutthis considering his status as a long-practicinglawyer. MMPCI likewise claims that the Court ofAppeals erred in failing to consider that the factsand the applicable law do not support a judgmentagainst Baluyot only "up to the extent of costs."26

Atty. Linsangan argues that he did not violate theterms and conditions of the contract, and in factfaithfully performed his contractual obligations andcomplied with them in good faith for at least twoyears.27 He claims that contrary to MMPCI'sposition, his profession as a lawyer is immaterial tothe validity of the subject contract and the case atbar.28 According to him, MMPCI had practicallyadmitted in its Petition that Baluyot was its agent,and thus, the only issue left to be resolved iswhether MMPCI allowed Baluyot to act as thoughshe had full powers to be held solidarily liable withthe latter.29

We find for the petitioner MMPCI.The jurisdiction of the Supreme Court in a petitionfor review under Rule 45 of the Rules of Court islimited to reviewing only errors of law, not fact,unless the factual findings complained of aredevoid of support by the evidence on record or theassailed judgment is based on misapprehension offacts.30 In BPI Investment Corporation v. D.G.Carreon Commercial Corporation,31 this Court ruled:

There are instances when the findings offact of the trial court and/or Court ofAppeals may be reviewed by the SupremeCourt, such as (1) when the conclusion is afinding grounded entirely on speculation,surmises and conjectures; (2) when theinference made is manifestly mistaken,absurd or impossible; (3) where there is agrave abuse of discretion; (4) when thejudgment is based on a misapprehensionof facts; (5) when the findings of fact areconflicting; (6) when the Court of Appeals,in making its findings, went beyond theissues of the case and the same iscontrary to the admissions of bothappellant and appellee; (7) when the

findings are contrary to those of the trialcourt; (8) when the findings of fact areconclusions without citation of specificevidence on which they are based; (9)when the facts set forth in the petition aswell as in the petitioners' main and replybriefs are not disputed by therespondents; and (10) the findings of factof the Court of Appeals are premised onthe supposed absence of evidence andcontradicted by the evidence on record.32

In the case at bar, the Court of Appeals committedseveral errors in the apprehension of the facts ofthe case, as well as made conclusions devoid ofevidentiary support, hence we review its findings offact.By the contract of agency, a person binds himselfto render some service or to do something inrepresentation or on behalf of another, with theconsent or authority of the latter.33 Thus, theelements of agency are (i) consent, express orimplied, of the parties to establish the relationship;(ii) the object is the execution of a juridical act inrelation to a third person; (iii) the agent acts as arepresentative and not for himself; and (iv) theagent acts within the scope of his authority.34

In an attempt to prove that Baluyot was not itsagent, MMPCI pointed out that under its AgencyManager Agreement; an agency manager such asBaluyot is considered an independent contractorand not an agent.35However, in the same contract,Baluyot as agency manager was authorized tosolicit and remit to MMPCI offers to purchaseinterment spaces belonging to and sold by thelatter.36 Notwithstanding the claim of MMPCI thatBaluyot was an independent contractor, the factremains that she was authorized to solicit solely forand in behalf of MMPCI. As properly found both bythe trial court and the Court of Appeals, Baluyotwas an agent of MMPCI, having represented theinterest of the latter, and having been allowed byMMPCI to represent it in her dealings with itsclients/prospective buyers.Nevertheless, contrary to the findings of the Courtof Appeals, MMPCI cannot be bound by the contractprocured by Atty. Linsangan and solicited byBaluyot.Baluyot was authorized to solicit and remit toMMPCI offers to purchase interment spacesobtained on forms provided by MMPCI. The terms ofthe offer to purchase, therefore, are contained insuch forms and, when signed by the buyer and anauthorized officer of MMPCI, becomes binding onboth parties.The Offer to Purchase duly signed by Atty.Linsangan, and accepted and validated by MMPCIshowed a total list price of P132,250.00. Likewise, it

was clearly stated therein that "Purchaser agreesthat he has read or has had read to him thisagreement, that he understands its terms andconditions, and that there are no covenants,conditions, warranties or representations otherthan those contained herein."37 By signing the Offerto Purchase, Atty. Linsangan signified that heunderstood its contents. That he and Baluyot hadan agreement different from that contained in theOffer to Purchase is of no moment, and should notaffect MMPCI, as it was obviously made outsideBaluyot's authority. To repeat, Baluyot's authoritywas limited only to soliciting purchasers. She hadno authority to alter the terms of the writtencontract provided by MMPCI. The document/letter"confirming" the agreement that Atty. Linsanganwould have to pay the old price was executed byBaluyot alone. Nowhere is there any indication thatthe same came from MMPCI or any of its officers.It is a settled rule that persons dealing with anagent are bound at their peril, if they would holdthe principal liable, to ascertain not only the fact ofagency but also the nature and extent of authority,and in case either is controverted, the burden ofproof is upon them to establish it.38 The basis foragency is representation and a person dealing withan agent is put upon inquiry and must discoverupon his peril the authority of the agent.39 If hedoes not make such an inquiry, he is chargeablewith knowledge of the agent's authority and hisignorance of that authority will not be any excuse.40

As noted by one author, the ignorance of a persondealing with an agent as to the scope of the latter'sauthority is no excuse to such person and the faultcannot be thrown upon the principal.41 A persondealing with an agent assumes the risk of lack ofauthority in the agent. He cannot charge theprincipal by relying upon the agent's assumption ofauthority that proves to be unfounded. Theprincipal, on the other hand, may act on thepresumption that third persons dealing with hisagent will not be negligent in failing to ascertainthe extent of his authority as well as the existenceof his agency.42

In the instant case, it has not been established thatAtty. Linsangan even bothered to inquire whetherBaluyot was authorized to agree to terms contraryto those indicated in the written contract, muchless bind MMPCI by her commitment with respectto such agreements. Even if Baluyot was Atty.Linsangan's friend and known to be an agent ofMMPCI, her declarations and actions alone are notsufficient to establish the fact or extent of herauthority.43 Atty. Linsangan as a practicing lawyerfor a relatively long period of time when he signedthe contract should have been put on guard whentheir agreement was not reflected in the contract.

More importantly, Atty. Linsangan should havebeen alerted by the fact that Baluyot failed toeffect the transfer of rights earlier promised, andwas unable to make good her written commitment,nor convince MMPCI to assent thereto, asevidenced by several attempts to induce him toenter into other contracts for a higherconsideration. As properly pointed out by MMPCI,as a lawyer, a greater degree of caution should beexpected of Atty. Linsangan especially in dealingsinvolving legal documents. He did not even botherto ask for official receipts of his payments, norinquire from MMPCI directly to ascertain the realstatus of the contract, blindly relying on therepresentations of Baluyot. A lawyer by profession,he knew what he was doing when he signed thewritten contract, knew the meaning and value ofevery word or phrase used in the contract, andmore importantly, knew the legal effects which saiddocument produced. He is bound to acceptresponsibility for his negligence.The trial and appellate courts found MMPCI liablebased on ratification and estoppel. For the trialcourt, MMPCI's acts of accepting and encashing thechecks issued by Atty. Linsangan as well asallowing Baluyot to receive checks drawn in thename of MMPCI confirm and ratify the contract ofagency. On the other hand, the Court of Appealsfaulted MMPCI in failing to adopt measures toprevent misrepresentation, and declared that inview of MMPCI's acceptance of the benefits ofBaluyot's misrepresentation, it can no longer denyresponsibility therefor.The Court does not agree. Pertinent to this case arethe following provisions of the Civil Code:

Art. 1898. If the agent contracts in thename of the principal, exceeding thescope of his authority, and the principaldoes not ratify the contract, it shall bevoid if the party with whom the agentcontracted is aware of the limits of thepowers granted by the principal. In thiscase, however, the agent is liable if heundertook to secure the principal'sratification.Art. 1910. The principal must comply withall the obligations that the agent mayhave contracted within the scope of hisauthority.As for any obligation wherein the agenthas exceeded his power, the principal isnot bound except when he ratifies itexpressly or tacitly.Art. 1911. Even when the agent hasexceeded his authority, the principal issolidarily liable with the agent if the

former allowed the latter to act as thoughhe had full powers.

Thus, the acts of an agent beyond the scope of hisauthority do not bind the principal, unless heratifies them, expressly or impliedly. Only theprincipal can ratify; the agent cannot ratify his ownunauthorized acts. Moreover, the principal musthave knowledge of the acts he is to ratify.44

Ratification in agency is the adoption orconfirmation by one person of an act performed onhis behalf by another without authority. Thesubstance of the doctrine is confirmation afterconduct, amounting to a substitute for a priorauthority. Ordinarily, the principal must have fullknowledge at the time of ratification of all thematerial facts and circumstances relating to theunauthorized act of the person who assumed to actas agent. Thus, if material facts were suppressed orunknown, there can be no valid ratification and thisregardless of the purpose or lack thereof inconcealing such facts and regardless of the partiesbetween whom the question of ratification mayarise.45Nevertheless, this principle does not apply ifthe principal's ignorance of the material facts andcircumstances was willful, or that the principalchooses to act in ignorance of the facts.46 However,in the absence of circumstances putting areasonably prudent man on inquiry, ratificationcannot be implied as against the principal who isignorant of the facts.47

No ratification can be implied in the instant case.A perusal of Baluyot's Answer48 reveals that thereal arrangement between her and Atty. Linsanganwas for the latter to pay a monthly installment ofP1,800.00 whereas Baluyot was to shoulder thecounterpart amount of P1,455.00 to meet theP3,255.00 monthly installments as indicated in thecontract. Thus, every time an installment falls due,payment was to be made through a check fromAtty. Linsangan for P1,800.00 and a cashcomponent of P1,455.00 from Baluyot.49 However,it appears that while Atty. Linsangan issued thepost-dated checks, Baluyot failed to come up withher part of the bargain. This was supported byBaluyot's statements in her letter50 to Mr. ClydeWilliams, Jr., Sales Manager of MMPCI, two daysafter she received the copy of the Complaint. In theletter, she admitted that she was remiss in herduties when she consented to Atty. Linsangan'sproposal that he will pay the old price while thedifference will be shouldered by her. She likewiseadmitted that the contract suffered arrearagesbecause while Atty. Linsangan issued the agreedchecks, she was unable to give her share ofP1,455.00 due to her own financial difficulties.Baluyot even asked for compassion from MMPCI forthe error she committed.

Atty. Linsangan failed to show that MMPCI hadknowledge of the arrangement. As far as MMPCI isconcerned, the contract price was P132,250.00, asstated in the Offer to Purchase signed by Atty.Linsangan and MMPCI's authorized officer. Thedown payment of P19,838.00 given by Atty.Linsangan was in accordance with the contract aswell. Payments of P3,235.00 for at least twoinstallments were likewise in accord with thecontract, albeit made through a check and partly incash. In view of Baluyot's failure to give her sharein the payment, MMPCI received only P1,800.00checks, which were clearly insufficient payment. Infact, Atty. Linsangan would have incurredarrearages that could have caused the earliercancellation of the contract, if not for MMPCI'sapplication of some of the checks to his account.However, the checks alone were not sufficient tocover his obligations.If MMPCI was aware of the arrangement, it wouldhave refused the latter's check payments for beinginsufficient. It would not have applied to hisaccount the P1,800.00 checks. Moreover, the factthat Baluyot had to practically explain to MMPCI'sSales Manager the details of her "arrangement"with Atty. Linsangan and admit to having made anerror in entering such arrangement confirm thatMMCPI had no knowledge of the said agreement. Itwas only when Baluyot filed her Answer that sheclaimed that MMCPI was fully aware of theagreement.Neither is there estoppel in the instant case. Theessential elements of estoppel are (i) conduct of aparty amounting to false representation orconcealment of material facts or at least calculatedto convey the impression that the facts areotherwise than, and inconsistent with, those whichthe party subsequently attempts to assert; (ii)intent, or at least expectation, that this conductshall be acted upon by, or at least influence, theother party; and (iii) knowledge, actual orconstructive, of the real facts.51

While there is no more question as to the agencyrelationship between Baluyot and MMPCI, there isno indication that MMPCI let the public, orspecifically, Atty. Linsangan to believe that Baluyothad the authority to alter the standard contracts ofthe company. Neither is there any showing thatprior to signing Contract No. 28660, MMPCI had anyknowledge of Baluyot's commitment to Atty.Linsangan. One who claims the benefit of anestoppel on the ground that he has been misled bythe representations of another must not have beenmisled through his own want of reasonable careand circumspection.52 Even assuming that Atty.Linsangan was misled by MMPCI's actuations, hestill cannot invoke the principle of estoppel, as he

was clearly negligent in his dealings with Baluyot,and could have easily determined, had he onlybeen cautious and prudent, whether said agentwas clothed with the authority to change the termsof the principal's written contract. Estoppel must beintentional and unequivocal, for when misapplied, itcan easily become a most convenient and effectivemeans of injustice.53 In view of the lack of sufficientproof showing estoppel, we refuse to hold MMPCIliable on this score.Likewise, this Court does not find favor in the Courtof Appeals' findings that "the authority ofdefendant Baluyot may not have been expresslyconferred upon her; however, the same may havebeen derived impliedly by habit or custom whichmay have been an accepted practice in theircompany in a long period of time." A perusal of therecords of the case fails to show any indication thatthere was such a habit or custom in MMPCI thatallows its agents to enter into agreements for lowerprices of its interment spaces, nor to assume aportion of the purchase price of the intermentspaces sold at such lower price. No evidence wasever presented to this effect.As the Court sees it, there are two obligations inthe instant case. One is the Contract No. 28660between MMPCI and by Atty. Linsangan for thepurchase of an interment space in the former'scemetery. The other is the agreement betweenBaluyot and Atty. Linsangan for the former toshoulder the amount P1,455.00, or the differencebetween P95,000.00, the original price, andP132,250.00, the actual contract price.To repeat, the acts of the agent beyond the scopeof his authority do not bind the principal unless thelatter ratifies the same. It also bears emphasis thatwhen the third person knows that the agent wasacting beyond his power or authority, the principalcannot be held liable for the acts of the agent. Ifthe said third person was aware of such limits ofauthority, he is to blame and is not entitled torecover damages from the agent, unless the latterundertook to secure the principal's ratification.54

This Court finds that Contract No. 28660 wasvalidly entered into both by MMPCI and Atty.Linsangan. By affixing his signature in the contract,Atty. Linsangan assented to the terms andconditions thereof. When Atty. Linsangan incurreddelinquencies in payment, MMCPI merely enforcedits rights under the said contract by canceling thesame.Being aware of the limits of Baluyot's authority,Atty. Linsangan cannot insist on what he claims tobe the terms of Contract No. 28660. Theagreement, insofar as the P95,000.00 contractprice is concerned, is void and cannot be enforcedas against MMPCI. Neither can he hold Baluyot

liable for damages under the same contract, sincethere is no evidence showing that Baluyotundertook to secure MMPCI's ratification. At best,the "agreement" between Baluyot and Atty.Linsangan bound only the two of them. As far asMMPCI is concerned, it bound itself to sell itsinterment space to Atty. Linsangan for P132,250.00under Contract No. 28660, and had in fact receivedseveral payments in accordance with the samecontract. If the contract was cancelled due toarrearages, Atty. Linsangan's recourse should onlybe against Baluyot who personally undertook topay the difference between the true contract priceof P132,250.00 and the original proposed price ofP95,000.00. To surmise that Baluyot was acting onbehalf of MMPCI when she promised to shoulder thesaid difference would be to conclude that MMPCIundertook to pay itself the difference, a conclusionthat is very illogical, if not antithetical to itsbusiness interests.However, this does not preclude Atty. Linsanganfrom instituting a separate action to recoverdamages from Baluyot, not as an agent of MMPCI,but in view of the latter's breach of their separateagreement. To review, Baluyot obligated herself topay P1,455.00 in addition to Atty. Linsangan'sP1,800.00 to complete the monthly installmentpayment under the contract, which, by her ownadmission, she was unable to do due to personalfinancial difficulties. It is undisputed that Atty.Linsangan issued the P1,800.00 as agreed upon,and were it not for Baluyot's failure to provide thebalance, Contract No. 28660 would not have beencancelled. Thus, Atty. Linsangan has a cause ofaction against Baluyot, which he can pursue inanother case.WHEREFORE, the instant petition is GRANTED. TheDecision of the Court of Appeals dated 22 June2001 and its Resolution dated 12 December 2001in CA- G.R. CV No. 49802, as well as the Decision inCivil Case No. 88-1253 of the Regional Trial Court,Makati City Branch 57, are hereby REVERSED andSET ASIDE. The Complaint in Civil Case No. 88-1253is DISMISSED for lack of cause of action. Nopronouncement as to costs.SO ORDERED.

G.R. No. 126751 March 28, 2001

SAFIC ALCAN & CIE, petitioner, vs.IMPERIAL VEGETABLE OIL CO.,INC., respondent.

YNARES-SANTIAGO, J.:

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

Under its second cause of action, Safic alleged thaton eight occasions between April 24, 1986 andOctober 31, 1986, it placed purchase orders withIVO for a total of 4,750 tons of crude coconut oil,covered by Purchase Contract Nos. A601297A/B,A601384, A601385, A601391, A601415, A601681,A601683 and A601770A/B/C/. When IVO failed tohonor its obligation under the wash out settlementnarrated above, Safic demanded that IVO makemarginal deposits within forty-eight hours on theeight purchase contracts in amounts equivalent tothe difference between the contract price and themarket price of the coconut oil, to compensate itfor the damages it suffered when it was forced toacquire coconut oil at a higher price. IVO failed tomake the prescribed marginal deposits on the eight

contracts, in the aggregate amount ofUS$391,593.62, despite written demand therefor.

The demand for marginal deposits was based onthe customs of the trade, as governed by theprovisions of the standard N.I.O.P. Contract arid theFOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financialcondition of either party to a contractsubject to these rules becomes soimpaired as to create a reasonable doubtas to the ability of such party to performits obligations under the contract, theother party may from time to timedemand marginal deposits to be madewithin forty-eight (48) hours after receiptof such demand, such deposits not toexceed the difference between thecontract price and the market price of thegoods covered by the contract on the dayupon which such demand is made, suchdeposit to bear interest at the prime rateplus one percent (1%) per annum. Failureto make such deposit within the timespecified shall constitute a breach ofcontract by the party upon whom demandfor deposit is made, and all losses andexpenses resulting from such breach shallbe for the account of the party uponwhom such demand is made.(Underscoring ours.)1

FOSFA Contract, Rule 54 -BANKRUPTCY/INSOLVENCY: If before thefulfillment of this contract either partyshall suspend payment, commit an act ofbankruptcy, notify any of his creditors thathe is unable to meet his debts or that hehas suspended payment or that he isabout to suspend payment of his debts,convene, call or hold a meeting either ofhis creditors or to pass a resolution to gointo liquidation (except for a voluntarywinding up of a solvent company for thepurpose of reconstruction oramalgamation) or shall apply for an officialmoratorium, have a petition presented forwinding up or shal1i have a Receiverappointed, the contract shall forthwith beclosed either at the market price then

current for similar goods or, at the optionof the other party at a price to beascertained by repurchase or resale andthe difference between the contract priceand such closing-out price shall be theamount which the other party shall beentitled to claim shall be liable to accountfor under this contract (sic). Should eitherparty be dissatisfied with the price, thematter shall be referred to arbitration.Where no such resale or repurchase takesplace, the closing-out price shall be fixedby a Price Settlement Committeeappointed by the Federation.(Underscoring ours.)2

Hence, Safic prayed that IVO be ordered to pay thesums of US$293,500.00 and US$391,593.62, plusattorney's fees and litigation expenses. Thecomplaint also included an application for a writ ofpreliminary attachment against the properties ofIVO.

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

In its answer, IVO raised the following specialaffirmative defenses: Safic had no legal capacity tosue because it was doing business in thePhilippines without the requisite license orauthority; the subject contracts were speculativecontracts entered into by IVO's then President,Dominador Monteverde, in contravention of theprohibition by the Board of Directors againstengaging in speculative paper trading, and despiteIVO's lack of the necessary license from CentralBank to engage in such kind of trading activity; andthat under Article 2018 of the Civil Code, if acontract which purports to be for the delivery ofgoods, securities or shares of stock is entered intowith the intention that the difference between theprice stipulated and the exchange or market priceat the time of the pretended delivery shall be paidby the loser to the winner, the transaction is nulland void.1âwphi1.nêt

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

mongering and oppressive action. Later, IVO filed asupplemental counterclaim alleging that it wasunable to operate its business normally because ofthe arrest of most of its physical assets; that itssuppliers were driven away; and that its majorcreditors have inundated it with claims forimmediate payment of its debts, and ChinaBanking Corporation had foreclosed its chattel andreal estate mortgages.

During the trial, the lower court found that in 1985,prior to the date of the contracts sued upon, theparties had entered into and consummated anumber of contracts for the sale of crude coconutoil. In those transactions, Safic placed severalorders and IVO faithfully filled up those orders byshipping out the required crude coconut oil to Safic,totaling 3,500 metric tons. Anent the 1986contracts being sued upon, the trial court refusedto declare the same as gambling transactions, asdefined in Article 2018 of the Civil Code, althoughthey involved some degree of speculation. After all,the court noted, every business enterprise carrieswith it a certain measure of speculation or risk.However, the contracts performed in 1985, on onehand, and the 1986 contracts subject of this case,on the other hand, differed in that under the 1985contracts, deliveries were to be made within twomonths. This, as alleged by Safic, was the timeneeded for milling and building up oil inventory.Meanwhile, the 1986 contracts stipulated that thecoconut oil were to be delivered within periodranging from eight months to eleven to twelvemonths after the placing of orders. The coconutsthat were supposed to be milled were in alllikelihood not yet growing when DominadorMonteverde sold the crude coconut oil. As such, the1986 contracts constituted trading in futures or inmere expectations.

The lower court further held that the subjectcontracts were ultra vires and were entered into byDominador Monteverde without authority from theBoard of Directors. It distinguished between the1985 contracts, where Safic likewise dealt withDominador Monteverde, who was presumablyauthorized to bind IVO, and the 1986 contracts,which were highly speculative in character.Moreover, the 1985 contracts were covered byletters of credit, while the 1986 contracts werepayable by telegraphic transfers, which werenothing more than mere promises to pay once theshipments became ready. For these reasons, the

lower court held that Safic cannot invoke the 1985contracts as an implied corporate sanction for thehigh-risk 1986 contracts, which were evidentlyentered into by Monteverde for his personalbenefit.

The trial court ruled that Safic failed to substantiateits claim for actual damages. Likewise, it rejectedIVO's counterclaim and supplemental counterclaim.

Thus, on August 28, 1992, the trial court renderedjudgment as follows:

WHEREFORE, judgment is herebyrendered dismissing the complaint ofplaintiff Safic Alcan & Cie, withoutprejudice to any action it mightsubsequently institute against DominadorMonteverde, the former President ofImperial Vegetable Oil Co., Inc., arisingfrom the subject matter of this case. Thecounterclaim and supplementalcounterclaim of the latter defendant arelikewise hereby dismissed for lack ofmerit. No pronouncement as to costs.

The writ of preliminary attachment issuedin this case as well as the order placingImperial Vegetable Oil Co., Inc. underreceivership are hereby dissolved and setaside.3

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

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING'I'HAT THE ISSUANCE OF THE WRIT OFPRELIMINARY ATTACHMENT WAS NOT THEMAIN CAUSE OF THE DAMAGES SUFFEREDBY DEFENDANT AND IN NOT AWARDINGDEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDINGTHAT IVO'S PRESIDENT, DOMINADORMONTEVERDE, ENTERED INTOCONTRACTS WHICH WERE ULTRA

VIRES AND WHICH DID NOT BIND ORMAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THASAFIC WAS UNABLE TO PROVE THEDAMAGES SUFFERED BY IT AND IN NOTAWARDING SUCH DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDINGTHAT IVO IS LIABLE UNDER THE WASHOUT CONTRACTS.

On September 12, 1996, the Court of Appealsrendered the assailed Decision dismissing the,appeals and affirming the judgment appealed fromin toto.4

Hence, Safic filed the instant petition for reviewwith this Court, substantially reiterating the errorsit raised before the Court of Appeals andmaintaining that the Court of Appeals grievouslyerred when:

a. it declared that the 1986 forwardcontracts (i.e., Contracts Nos. A601446and A60155 (sic) involving 2,000 long tonsof crude coconut oil, and Contracts Nos.A60l297A/B, A601385, A60l39l, A60l4l5,A601681. A601683 and A60l770A/B/Cinvolving 4,500 tons of crude coconut oil)were unauthorized acts of DominadorMonteverde which do not bind IVO inwhose name they were entered into. Inthis connection, the Court of Appeals erredwhen (i) it ignored its own finding that (a)Dominador Monteverde, as IVO'sPresident, had "an implied authority tomake any contract necessary orappropriate to the contract of the ordinarybusiness of the company"; and (b)Dominador Monteverde had validlyentered into similar forward contracts forand on behalf of IVO in 1985; (ii) itdistinguished between the 1986 forwardcontracts despite the fact that the ManilaRTC has struck down IVO's objection to the1986 forward contracts (i.e. that theywere highly speculative paper tradingwhich the IVO Board of Directors hadprohibited Dominador Monteverde fromengaging in because it is a form ofgambling where the parties do not intend

actual delivery of the coconut oil sold) andinstead found that the 1986 forwardcontracts were not gambling; (iii) it reliedon the testimony of Mr. RodrigoMonteverde in concluding that the IVOBoard of Directors did not authorize itsPresident, Dominador Monteverde, toenter into the 1986 forward contracts; and(iv) it did not find IVO, in any case,estopped from denying responsibility for,and liability under, the 1986 forwardcontracts because IVO had recognizeditself bound to similar forward contractswhich Dominador Monteverde entered into(for and on behalf of IVO) with Safic in1985 notwithstanding that DominadorMonteverde was (like in the 1986 forwardcontracts) not expressly authorized by theIVO Board of Directors to enter into suchforward contracts;

b. it declared that Safic was not able, toprove damages suffered by it, despite thefact that Safic had presented not onlytestimonial, but also documentary,evidence which proved the higher amountit had to pay for crude coconut oil (vis-à-vis the contract price it was to pay to IVO)when IVO refused to deliver the crudecoconut oil bought by Safic under the1986 forward contracts; and

c. it failed to resolve the issue of whetheror not IVO is liable to Safic under the washout contracts involving Contracts Nos.A601446 and A60155 (sic), despite thefact that Safic had properly raised theissue on its appeal, and the evidence andthe law support Safic's position that IVO isso liable to Safic.

In fine, Safic insists that the appellate courtgrievously erred when it did not declare that IVO'sPresident, Dominador Monteverde, validly enteredinto the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVOprovides, among others, that –

Section 3. Powers and Duties of thePresident. - The President shall be electedby the Board of Directors from their ownnumber .

He shall have the following duties:

x x x x x x x x x

[g] Have direct and active management ofthe business and operation of thecorporation, conducting the sameaccording to, the orders, resolutions andinstruction of the Board of Directors andaccording to his own discretion wheneverand wherever the same is not expresslylimited by such orders, resolutions andinstructions.

It can be clearly seen from the foregoing provisionof IVO's By-laws that Monteverde had no blanketauthority to bind IVO to any contract. He must actaccording to the instructions of the Board ofDirectors. Even in instances when he wasauthorized to act according to his discretion, thatdiscretion must not conflict with prior Board orders,resolutions and instructions. The evidence showsthat the IVO Board knew nothing of the 1986contracts6 and that it did not authorize Monteverdeto enter into speculative contracts.7 In fact,Monteverde had earlier proposed that the companyengage in such transactions but the IVO Boardrejected his proposal.8 Since the 1986 contractsmarked a sharp departure from past IVOtransactions, Safic should have obtained fromMonteverde the prior authorization of the IVOBoard. Safic can not rely on the doctrine of impliedagency because before the controversial 1986contracts, IVO did not enter into identical contractswith Safic. The basis for agency is representationand a person dealing with an agent is put uponinquiry and must discover upon his peril theauthority of the agent.9 In the case of Bacaltos CoalMines v. Court of Appeals,10 we elucidated the ruleon dealing with an agent thus:

Every person dealing with an agent is putupon inquiry and must discover upon hisperil the authority of the agent. If he doesnot make such inquiry, he is chargeablewith knowledge of the agent's authority,and his ignorance of that authority will not

be any excuse. Persons dealing with anassumed agent, whether the assumedagency be a general or special one, arebound at their peril, if they would hold theprincipal, to ascertain not only the fact ofthe agency but also the nature and extentof the authority, and in case either iscontroverted, the burden of proof is uponthem to establish it.11

The most prudent thing petitioner should havedone was to ascertain the extent of the authority ofDominador Monteverde. Being remiss in thisregard, petitioner can not seek relief on the basis ofa supposed agency.

Under Article 189812 of the Civil Code, the acts ofan agent beyond the scope of his authority do notbind the principal unless the latter ratifies the sameexpressly or impliedly. It also bears emphasizingthat when the third person knows that the agentwas acting beyond his power or authority, theprincipal can not be held liable for the acts of theagent. If the said third person is aware of suchlimits of authority, he is to blame, and is notentitled to recover damages from the agent, unlessthe latter undertook to secure the principal'sratification.13

There was no such ratification in this case. WhenMonteverde entered into the speculative contractswith Safic, he did not secure the Board'sapproval.14 He also did not submit the contracts tothe Board after their consummation so there was,in fact, no occasion at all for ratification. Thecontracts were not reported in IVO's export salesbook and turn-out book.15 Neither were theyreflected in other books and records of thecorporation.16 It must be pointed out that the Boardof Directors, not Monteverde, exercises corporatepower.17 Clearly, Monteverde's speculativecontracts with Safic never bound IVO and Safic cannot therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel pointthat the IVO Board of Directors did not setlimitations on the extent of Monteverde's authorityto sell coconut oil. It must be borne in mind in thisregard that a question that was never raised in thecourts below can not be allowed to be raised forthe first time on appeal without offending basicrules of fair play, justice and due process.18 Such an

issue was not brought to the fore either in the trialcourt or the appellate court, and would have beendisregarded by the latter tribunal for the reasonspreviously stated. With more reason, the samedoes not deserve consideration by this Court.

Be that as it may, Safic's belated contention thatthe IVO Board of Directors did not set limitations onMonteverde's authority to sell coconut oil is beliedby what appears on the record. RodrigoMonteverde, who succeeded DominadorMonteverde as IVO President, testified that the IVOBoard had set down the policy of engaging inpurely physical trading thus:

Q. Now you said that IVO is engaged intrading. With whom does, it usually tradeits oil?

A. I am not too familiar with tradingbecause as of March 1987, I was not yetan officer of the corporation, although Iwas at the time already a stockholder, Ithink IVO is engaged in trading oil.

Q. As far as you know, what kind oftrading was IVO engaged with?

A. It was purely on physical trading.

Q. How did you know this?

A. As a stockholder, rather as member of[the] Board of Directors, I frequentlyvisited the plant and from my observation,as I have to supervise and monitorpurchases of copras and also the sale ofthe same, I observed that the policy of thecorporation is for the company to engaged(sic) or to purely engaged (sic) in physicaltrading.

Q. What do you mean by physical trading?

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

Q. And what is the other form of trading?

Atty. Fernando

No basis, your Honor.

Atty. Abad

Well, the witness said they areengaged in physical trading andwhat I am saying [is] if there areany other kind or form of trading.

Court

Witness may answer if he knows.

Witness

A. Trading future[s] contractswherein the trader commits aprice and to deliver coconut oil inthe future in which he is yet toacquire the stocks in the future.

Atty. Abad

Q. Who established the so-called physicaltrading in IVO?

A. The Board of Directors, sir.

Atty. Abad.

Q. How did you know that?

A. There was a meeting held in the officeat the factory and it was brought out andsuggested by our former president,Dominador Monteverde, that the companyshould engaged (sic) in future[s]contract[s] but it was rejected by theBoard of Directors. It was only AdorMonteverde who then wanted to engaged(sic) in this future[s] contract[s].

Q. Do you know where this meeting tookplace?

A. As far as I know it was sometime in1985.

Q. Do you know why the Board ofDirectors rejected the proposal ofDominador Monteverde that the companyshould engaged (sic) in future[s]contracts?

Atty. Fernando

Objection, your Honor, no basis.

Court

Why don't you lay the basis?

Atty. Abad

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

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

Q. Then would [you] now answer myquestion?

Atty. Fernando

No basis, your Honor. What weare talking is about 1985.

Atty. Abad

Q. When you mentioned about themeeting in 1985 wherein the Board ofDirectors rejected the future[s]contract[s], were you already a member ofthe Board of Directors at that time?

A. Yes, sir.

Q. Do you know the reason why the saidproposal of Mr. Dominador Monteverde toengage in future[s] contract[s] wasrejected by the Board of Directors?

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

Q. Do you keep records of the Boardmeetings of the company?

A. Yes, sir.

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

A. Incidentally our Secretary of the Boardof Directors, Mr. Elfren Sarte, died in 1987or 1988, and despite [the] request of ouroffice for us to be furnished a copy he wasnot able to furnish us a copy.19

x x x x x x x x x

Atty. Abad

Q. You said the Board of Directors wereagainst the company engaging in future[s]contracts. As far as you know, has thispolicy of the Board of Directors beenobserved or followed?

Witness

A. Yes, sir.

Q. How far has this DominadorMonteverde been using the name of I.V.0.in selling future contracts without theproper authority and consent of thecompany's Board of Directors?

A. Dominador Monteverde never recordsthose transactions he entered into inconnection with these future[s] contractsin the company's books of accounts.

Atty. Abad

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

Witness

A. Those were not recorded at all in thebooks of accounts of the company, sir.20

x x x x x x x x x

Q. What did you do when you discoveredthese transactions?

A. There was again a meeting by theBoard of Directors of the corporation andthat we agreed to remove the presidentand then I was made to replace him aspresident.

Q. What else?

A. And a resolution was passed disowningthe illegal activities of the formerpresident.21

Petitioner next argues that there was actually nodifference between the 1985 physical contractsand the 1986 futures contracts.

The contention is unpersuasive for, as aptlypointed out by the trial court and sustained by theappellate court –

Rejecting IVO's position, SAFIC claims thatthere is no distinction between the 1985and 1986 contracts, both of which groupsof contracts were signed or authorized byIVO's President, Dominador Monteverde.The 1986 contracts, SAFIC would bewail,were similarly with their 1985predecessors, forward sales contracts inwhich IVO had undertaken to deliver thecrude coconut oil months after suchcontracts were entered into. The lead timebetween the closing of the deal and thedelivery of the oil supposedly allowed theseller to accumulate enough copra to milland to build up its inventory and so meetits delivery commitment to its foreignbuyers. SAFIC concludes that the 1986contracts were equally binding, as the1985 contracts were, on IVO.

Subjecting the evidence on both sides toclose scrutiny, the Court has found someremarkable distinctions between the 1985and 1986 contracts. x x x

1. The 1985 contracts were performedwithin an average of two months from thedate of the sale. On the other hand, the1986 contracts were to be performedwithin an average of eight and a halfmonths from the dates of the sale. All thesupposed performances fell in 1987.Indeed, the contract covered by Exhibit Jwas to be performed 11 to 12 monthsfrom the execution of the contract. Thesepattern (sic) belies plaintiffs contentionthat the lead time merely allowed formilling and building up of oil inventory. Itis evident that the 1986 contractsconstituted trading in futures or in mereexpectations. In all likelihood, thecoconuts that were supposed to be milledfor oil were not yet on their trees whenDominador Monteverde sold the crude oilto SAFIC.

2. The mode of payment agreed on by theparties in their 1985 contracts wasuniformly thru the opening of a letter ofcredit LC by SAFIC in favor of IVO. Sincethe buyer's letter of credit guaranteespayment to the seller as soon as the latteris able to present the shipping documentscovering the cargo, its opening usuallymark[s] the fact that the transactionwould be consummated. On the otherhand, seven out of the ten 1986 contractswere to be paid by telegraphic transferupon presentation of the shippingdocuments. Unlike the letter of credit, amere promise to pay by telegraphictransfer gives no assurance of [the]buyer's compliance with its contracts. Thisfact lends an uncertain element in the1986 contracts.1âwphi1.nêt

3. Apart from the above, it is not disputedthat with respect to the 1985 contracts,IVO faithfully complied with Central BankCircular No. 151 dated April 1, 1963,requiring a coconut oil exporter to submita Report of Foreign Sales within twenty-

four (24) hours "after the closing of therelative sales contract" with a foreignbuyer of coconut oil. But with respect tothe disputed 1986 contracts, the partiesstipulated during the hearing that none ofthese contracts were ever reported to theCentral Bank, in violation of its aboverequirement. (See Stipulation of Factsdated June 13, 1990). The 1986 saleswere, therefore suspect.

4. It is not disputed that, unlike the 1985contacts, the 1986 contracts were neverrecorded either in the 1986 accountingbooks of IVO or in its annual financialstatement for 1986, a document that wasprepared prior to the controversy. (Exhibits6 to 6-0 and 7 to 7-1). Emelita Ortega,formerly an assistant of DominadorMonteverde, testified that they werestrange goings-on about the 1986contract. They were neither recorded inthe books nor reported to the CentralBank. What is more, in those unreportedcases where profits were made, suchprofits were ordered remitted to unknownaccounts in California, U.S.A., byDominador Monteverde.

x x x x x x x x x

Evidently, Dominador Monteverde madebusiness or himself, using the name of IVObut concealing from it his speculativetransactions.

Petitioner further contends that both the trial andappellate courts erred in concluding that Safic wasnot able to prove its claim for damages. Petitionerfirst points out that its wash out agreements withMonteverde where IVO allegedly agreed to payUS$293,500.00 for some of the failed contracts wasproof enough and, second, that it presentedpurchases of coconut oil it made from others duringthe period of IVO's default.

We remain unconvinced. The so-called "wash out"agreements are clearly ultra vires and not bindingon IVO. Furthermore, such agreements did notprove Safic's actual losses in the transactions inquestion. The fact is that Safic did not pay for thecoconut oil that it supposedly ordered from IVO

through Monteverede. Safic only claims that, sinceit was ready to pay when IVO was not ready todeliver, Safic suffered damages to the extent thatthey had to buy the same commodity from othersat higher prices.

The foregoing claim of petitioner is not, however,substantiated by the evidence and only raisesseveral questions, to wit: 1.] Did Safic commit todeliver the quantity of oil covered by the 1986contracts to its own buyers? Who were thesebuyers? What were the terms of those contractswith respect to quantity, price and date of delivery?2.] Did Safic pay damages to its buyers? Wherewere the receipts? Did Safic have to procure theequivalent oil from other sources? If so, who werethese sources? Where were their contracts andwhat were the terms of these contracts as toquantity, price and date of delivery?

The records disclose that during the course of theproceedings in the trial court, IVO filed an amendedmotion22for production and inspection of thefollowing documents: a.] contracts of resale ofcoconut oil that Safic bought from IVO; b.] therecords of the pooling and sales contracts coveringthe oil from such pooling, if the coconut oil hasbeen pooled and sold as general oil; c.] thecontracts of the purchase of oil that, according toSafic, it had to resort to in order to fill up allegedundelivered commitments of IVO; d.] all othercontracts, confirmations, invoices, wash outagreements and other documents of sale related to(a), (b) and (c). This amended motion was opposedby Safic.23 The trial court, however, in itsSeptember 16, 1988 Order ,24 ruled that:

From the analysis of the parties'respective positions, conclusion can easilybe drawn therefrom that there ismateriality in the defendant's move:firstly, plaintiff seeks to recover damagesfrom the defendant and these areintimately related to plaintiffs allegedlosses which it attributes to the default ofthe defendant in its contractualcommitments; secondly, the documentsare specified in the amended motion. Assuch, plaintiff would entertain noconfusion as to what, which documents tolocate and produce considering plaintiff tobe (without doubt) a reputable going

concern in the management of the affairswhich is serviced by competent,industrious, hardworking and diligentpersonnel; thirdly, the desired productionand inspection of the documents wasprecipitated by the testimony of plaintiffswitness (Donald O'Meara) who admitted,in open court, that they are available. Ifthe said witness represented that thedocuments, as generally described, areavailable, reason there would be none forthe same witness to say later that theycould not be produced, even after theyhave been clearly described.

Besides, if the Court may additionallydwell on the issue of damages, theproduction and inspection of the desireddocuments would be of tremendous helpin the ultimate resolution thereof. Plaintiffclaims for the award of liquidated oractual damages to the tune ofUS$391,593.62 which, certainly, is a hugeamount in terms of pesos, and whichdefendant disputes. As the defendantcannot be precluded in taking exceptionsto the correctness and validity of suchclaim which plaintiffs witness (DonaldO'Meara) testified to, and as, by thisnature of the plaintiffs claim for damages,proof thereof is a must which can bebetter served, if not amply ascertained byexamining the records of the related salesadmitted to be in plaintiffs possession, theamended motion for production andinspection of the defendant is in order.

The interest of justice will be served best,if there would be a full disclosure by theparties on both sides of all documentsrelated to the transactions in litigation.

Notwithstanding the foregoing ruling of the trialcourt, Safic did not produce the requireddocuments, prompting the court a quo to assumethat if produced, the documents would have beenadverse to Safic's cause. In its efforts to bolster itsclaim for damages it purportedly sustained, Saficsuggests a substitute mode of computing itsdamages by getting the average price it paid forcertain quantities of coconut oil that it allegedlybought in 1987 and deducting this from the

average price of the 1986 contracts. But this modeof computation if flawed .because: 1.] it isconjectural since it rests on average prices not onactual prices multiplied by the actual volume ofcoconut oil per contract; and 2.] it is based on theunproven assumption that the 1987 contracts ofpurchase provided the coconut oil needed to makeup for the failed 1986 contracts. There is also noevidence that Safic had contracted to supply thirdparties with coconut oil from the 1986 contractsand that Safic had to buy such oil from others tomeet the requirement.

Along the same vein, it is worthy to note that thequantities of oil covered by its 1987 contracts withthird parties do not match the quantities of oilprovided under the 1986 contracts. Had Saficproduced the documents that the trial courtrequired, a substantially correct determination ofits actual damages would have been possible. This,unfortunately, was not the case. Suffice it to statein this regard that "[T]he power of the courts togrant damages and attorney's fees demandsfactual, legal and equitable justification; its basiscannot be left to speculation and conjecture."25

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

G.R. No. 159489 February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (nowAYALA LIFE ASSURANCE, INC.), petitioner, vs.CLEMENTE N. PEDROSO, TERESITA O.PEDROSO and JENNIFER N. PALACIO thru herAttorney-in-Fact PONCIANO C.MARQUEZ, respondents.

DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks thereversal of the Decision1 and Resolution,2 datedNovember 29, 2002 and August 5, 2003,respectively, of the Court of Appeals in CA-G.R. CVNo. 33568. The appellate court had affirmed theDecision3 dated October 10, 1989 of the RegionalTrial Court (RTC) of Manila, Branch 3, findingpetitioner as defendant and the co-defendantsbelow jointly and severally liable to the plaintiffs,now herein respondents.

The antecedent facts are as follows:

Respondent Teresita O. Pedroso is a policyholder ofa 20-year endowment life insurance issued bypetitioner Filipinas Life Assurance Company(Filipinas Life). Pedroso claims Renato Valle was herinsurance agent since 1972 and Valle collected hermonthly premiums. In the first week of January1977, Valle told her that the Filipinas Life EscoltaOffice was holding a promotional investmentprogram for policyholders. It was offering 8%prepaid interest a month for certain amountsdeposited on a monthly basis. Enticed, she initiallyinvested and issued a post-dated check datedJanuary 7, 1977 for P10,000.4 In return, Valle issuedPedroso his personal check forP800 for the8%5 prepaid interest and a Filipinas Life "Agent’sReceipt" No. 807838.6

Subsequently, she called the Escolta office andtalked to Francisco Alcantara, the administrativeassistant, who referred her to the branch manager,Angel Apetrior. Pedroso inquired about thepromotional investment and Apetrior confirmed

that there was such a promotion. She was eventold she could "push through with the check" sheissued. From the records, the check, with theendorsement of Alcantara at the back, wasdeposited in the account of Filipinas Life with theCommercial Bank and Trust Company (CBTC),Escolta Branch.

Relying on the representations made by thepetitioner’s duly authorized representativesApetrior and Alcantara, as well as having knownagent Valle for quite some time, Pedroso waited forthe maturity of her initial investment. A monthafter, her investment of P10,000 was returned toher after she made a written request for its refund.The formal written request, dated February 3,1977, was written on an inter-office memorandumform of Filipinas Life prepared by Alcantara.7 Tocollect the amount, Pedroso personally went to theEscolta branch where Alcantara gave herthe P10,000 in cash. After a second investment,she made 7 to 8 more investments in varyingamounts, totaling P37,000 but at a lower rate of5%8 prepaid interest a month. Upon maturity ofPedroso’s subsequent investments, Valle wouldtake back from Pedroso the corresponding yellow-colored agent’s receipt he issued to the latter.

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

After trial, the RTC, Branch 3, Manila, held FilipinasLife and its co-defendants Valle, Apetrior andAlcantara jointly and solidarily liable to therespondents.

On appeal, the Court of Appeals affirmed the trialcourt’s ruling and subsequently denied the motionfor reconsideration.

Petitioner now comes before us raising a singleissue:

WHETHER OR NOT THE COURT OFAPPEALS COMMITTED A REVERSIBLEERROR AND GRAVELY ABUSED ITSDISCRETION IN AFFIRMING THE DECISIONOF THE LOWER COURT HOLDING FLAC[FILIPINAS LIFE] TO BE JOINTLY ANDSEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OFRESPONDENTS INSTEAD OF HOLDING ITSAGENT, RENATO VALLE, SOLELY LIABLE TOTHE RESPONDENTS.10

Simply put, did the Court of Appeals err in holdingpetitioner and its co-defendants jointly andseverally liable to the herein respondents?

Filipinas Life does not dispute that Valle was itsagent, but claims that it was only a life insurancecompany and was not engaged in the business ofcollecting investment money. It contends that theinvestment scheme offered to respondents byValle, Apetrior and Alcantara was outside the scopeof their authority as agents of Filipinas Life suchthat, it cannot be held liable to the respondents.11

On the other hand, respondents contend thatFilipinas Life authorized Valle to solicit investmentsfrom them. In fact, Filipinas Life’s officialdocuments and facilities were used inconsummating the transactions. Thesetransactions, according to respondents, wereconfirmed by its officers Apetrior and Alcantara.Respondents assert they exercised all the diligencerequired of them in ascertaining the authority ofpetitioner’s agents; and it is Filipinas Life that failedin its duty to ensure that its agents act within thescope of their authority.

Considering the issue raised in the light of thesubmissions of the parties, we find that the petitionlacks merit. The Court of Appeals committed noreversible error nor abused gravely its discretion inrendering the assailed decision and resolution.

It appears indisputable that respondents Pedrosoand Palacio had invested P47,000 and P49,550,respectively. These were received by Valle andremitted to Filipinas Life, using Filipinas Life’sofficial receipts, whose authenticity were notdisputed. Valle’s authority to solicit and receiveinvestments was also established by the parties.When respondents sought confirmation, Alcantara,holding a supervisory position, and Apetrior, thebranch manager, confirmed that Valle hadauthority. While it is true that a person dealing withan agent is put upon inquiry and must discover athis own peril the agent’s authority, in this case,respondents did exercise due diligence in removingall doubts and in confirming the validity of therepresentations made by Valle.

Filipinas Life, as the principal, is liable forobligations contracted by its agent Valle. By thecontract of agency, a person binds himself torender some service or to do something inrepresentation or on behalf of another, with theconsent or authority of the latter.12 The general ruleis that the principal is responsible for the acts of itsagent done within the scope of its authority, andshould bear the damage caused to thirdpersons.13 When the agent exceeds his authority,the agent becomes personally liable for thedamage.14 But even when the agent exceeds hisauthority, the principal is still solidarily liabletogether with the agent if the principal allowed theagent to act as though the agent had fullpowers.15 In other words, the acts of an agentbeyond the scope of his authority do not bind theprincipal, unless the principal ratifies them,expressly or impliedly.16 Ratification in agency isthe adoption or confirmation by one person of anact performed on his behalf by another withoutauthority.17

Filipinas Life cannot profess ignorance of Valle’sacts. Even if Valle’s representations were beyondhis authority as a debit/insurance agent, FilipinasLife thru Alcantara and Apetrior expressly andknowingly ratified Valle’s acts. It cannot even bedenied that Filipinas Life benefited from theinvestments deposited by Valle in the account ofFilipinas Life. In our considered view, Filipinas Lifehad clothed Valle with apparent authority; hence, itis now estopped to deny said authority. Innocentthird persons should not be prejudiced if theprincipal failed to adopt the needed measures toprevent misrepresentation, much more so if the

principal ratified his agent’s acts beyond thelatter’s authority. The act of the agent is consideredthat of the principal itself. Qui per alium facit perseipsum facere videtur. "He who does a thing by anagent is considered as doing it himself."18

WHEREFORE, the petition is DENIED for lack ofmerit. The Decision and Resolution, datedNovember 29, 2002 and August 5, 2003,respectively, of the Court of Appeals in CA-G.R. CVNo. 33568 are AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. 137162 January 24, 2007

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

D E C I S I O N

AZCUNA, J.:

This is an appeal by certiorari1 to annul and setaside the Decision and Resolution of the Court ofAppeals (CA) dated October 26, 1998 and January11, 1999, respectively, in CA-G.R. CV No. 48282,entitled "Rufina Lim v. Corazon L. Escueta, etc., et.al."

The facts2 appear as follows:

Respondent Rufina Lim filed an action to removecloud on, or quiet title to, real property, withpreliminary injunction and issuance of [a hold-departure order] from the Philippines againstIgnacio E. Rubio. Respondent amended hercomplaint to include specific performance anddamages.

In her amended complaint, respondent averredinter alia that she bought the hereditary shares(consisting of 10 lots) of Ignacio Rubio [and] theheirs of Luz Baloloy, namely: Alejandrino, Bayani,and other co-heirs; that said vendors executed acontract of sale dated April 10, 1990 in her favor;that Ignacio Rubio and the heirs of Luz Baloloyreceived [a down payment] or earnest money inthe amount of P102,169.86 and P450,000,respectively; that it was agreed in the contract ofsale that the vendors would secure certificates oftitle covering their respective hereditary shares;that the balance of the purchase price would bepaid to each heir upon presentation of theirindividual certificate[s] of [title]; that Ignacio Rubiorefused to receive the other half of the downpayment which is P[100,000]; that Ignacio Rubiorefused and still refuses to deliver to [respondent]

the certificates of title covering his share on thetwo lots; that with respect to the heirs of LuzBaloloy, they also refused and still refuse toperform the delivery of the two certificates of titlecovering their share in the disputed lots; thatrespondent was and is ready and willing to payIgnacio Rubio and the heirs of Luz Baloloy uponpresentation of their individual certificates of title,free from whatever lien and encumbrance;

As to petitioner Corazon Escueta, in spite of herknowledge that the disputed lots have alreadybeen sold by Ignacio Rubio to respondent, it isalleged that a simulated deed of sale involving saidlots was effected by Ignacio Rubio in her favor; andthat the simulated deed of sale by Rubio to Escuetahas raised doubts and clouds over respondent’stitle.

In their separate amended answers, petitionersdenied the material allegations of the complaintand alleged inter alia the following:

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

Respondent has no cause of action, because thesubject contract of sale has no more force andeffect as far as the Baloloys are concerned, sincethey have withdrawn their offer to sell for thereason that respondent failed to pay the balance ofthe purchase price as orally promised on or beforeMay 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) andCorazon Escueta (Escueta for brevity):

Respondent has no cause of action, because Rubiohas not entered into a contract of sale with her;that he has appointed his daughter Patricia Llamasto be his attorney-in-fact and not in favor of VirginiaRubio Laygo Lim (Lim for brevity) who was the onewho represented him in the sale of the disputedlots in favor of respondent; that theP100,000respondent claimed he received as down paymentfor the lots is a simple transaction by way of a loanwith Lim.

The Baloloys failed to appear at the pre-trial. Uponmotion of respondent, the trial court declared the

Baloloys in default. They then filed a motion to liftthe order declaring them in default, which wasdenied by the trial court in an order datedNovember 27, 1991. Consequently, respondent wasallowed to adduce evidence ex parte. Thereafter,the trial court rendered a partial decision dated July23, 1993 against the Baloloys, the dispositiveportion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is herebyrendered in favor of [respondent] and against[petitioners, heirs] of Luz R. Balolo[y], namely:Alejandrino Baloloy and Bayani Baloloy. The[petitioners] Alejandrino Baloloy and Bayani Baloloyare ordered to immediately execute an [Absolute]Deed of Sale over their hereditary share in theproperties covered by TCT No. 74392 and TCT No.74394, after payment to them by [respondent] theamount of P[1,050,000] or consignation of saidamount in Court. [For] failure of [petitioners]Alejandrino Baloloy and Bayani Baloloy to executethe Absolute Deed of Sale over their hereditaryshare in the property covered by TCT No. T-74392and TCT No. T-74394 in favor of [respondent], theClerk of Court is ordered to execute the necessaryAbsolute Deed of Sale in behalf of the Baloloys infavor of [respondent,] with a considerationofP[1,500,000]. Further[,] [petitioners] AlejandrinoBaloloy and Bayani Baloloy are ordered to jointlyand severally pay [respondent] moral damages inthe amount of P[50,000] and P[20,000] forattorney’s fees. The adverse claim annotated at theback of TCT No. T-74392 and TCT No. T-74394[,]insofar as the shares of Alejandrino Baloloy andBayani Baloloy are concerned[,] [is] orderedcancelled.

With costs against [petitioners] Alejandrino Baloloyand Bayani Baloloy.

SO ORDERED.3

The Baloloys filed a petition for relief fromjudgment and order dated July 4, 1994 andsupplemental petition dated July 7, 1994. This wasdenied by the trial court in an order datedSeptember 16, 1994. Hence, appeal to the Court ofAppeals was taken challenging the order denyingthe petition for relief.

Trial on the merits ensued between respondent andRubio and Escueta. After trial, the trial courtrendered its assailed Decision, as follows:

IN VIEW OF THE FOREGOING, the complaint [and]amended complaint are dismissed against[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,]and the Register of Deeds. The counterclaim of[petitioners] [is] also dismissed. However,[petitioner] Ignacio E. Rubio is ordered to return tothe [respondent], Rufina Lim[,] the amountof P102,169.80[,] with interest at the rate of sixpercent (6%) per annum from April 10, [1990] untilthe same is fully paid. Without pronouncement asto costs.

SO ORDERED.4

On appeal, the CA affirmed the trial court’s orderand partial decision, but reversed the laterdecision. The dispositive portion of its assailedDecision reads:

WHEREFORE, upon all the foregoing premisesconsidered, this Court rules:

1. the appeal of the Baloloys from theOrder denying the Petition for Relief fromJudgment and Orders dated July 4, 1994and Supplemental Petition dated July 7,1994 is DISMISSED. The Order appealedfrom is AFFIRMED.

2. the Decision dismissing [respondent’s]complaint is REVERSED and SET ASIDEand a new one is entered. Accordingly,

a. the validity of the subjectcontract of sale in favor of[respondent] is upheld.

b. Rubio is directed to execute aDeed of Absolute Saleconditioned upon the payment ofthe balance of the purchase priceby [respondent] within 30 daysfrom the receipt of the entry ofjudgment of this Decision.

c. the contracts of sale betweenRubio and Escueta involvingRubio’s share in the disputedproperties is declared NULL andVOID.

d. Rubio and Escueta are orderedto pay jointly and severally the[respondent] the amountofP[20,000] as moral damagesand P[20,000] as attorney’s fees.

3. the appeal of Rubio and Escueta on thedenial of their counterclaim is DISMISSED.

SO ORDERED.5

Petitioners’ Motion for Reconsideration of the CADecision was denied. Hence, this petition.

The issues are:

I

THE HONORABLE COURT OF APPEALS ERRED INDENYING THE PETITION FOR RELIEF FROMJUDGMENT FILED BY THE BALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED INREINSTATING THE COMPLAINT AND IN AWARDINGMORAL DAMAGES AND ATTORNEY’S FEES IN FAVOROF RESPONDENT RUFINA L. LIM CONSIDERINGTHAT:

A. IGNACIO E. RUBIO IS NOT BOUND BYTHE CONTRACT OF SALE BETWEENVIRGINIA LAYGO-LIM AND RUFINA LIM.

B. THE CONTRACT ENTERED INTOBETWEEN RUFINA LIM AND VIRGINIALAYGO-LIM IS A CONTRACT TO SELL ANDNOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLYCOMPLY WITH HER OBLIGATIONS UNDERTHE CONTRACT TO SELL THEREBY

WARRANTING THE CANCELLATIONTHEREOF.

D. CORAZON L. ESCUETA ACTED INUTMOST GOOD FAITH IN ENTERING INTOTHE CONTRACT OF SALE WITH IGNACIO E.RUBIO.

III

THE CONTRACT OF SALE EXECUTEDBETWEEN IGNACIO E. RUBIO ANDCORAZON L. ESCUETA IS VALID.

IV

THE HONORABLE COURT OF APPEALSERRED IN DISMISSING PETITIONERS’COUNTERCLAIMS.

Briefly, the issue is whether the contract of salebetween petitioners and respondent is valid.

Petitioners argue, as follows:

First, the CA did not consider the circumstancessurrounding petitioners’ failure to appear at thepre-trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, therewas fraud, accident and/or excusable neglect,because petitioner Bayani was in the United States.There was no service of the notice of pre-trial ororder. Neither did the former counsel of recordinform him. Consequently, the order declaring himin default is void, and all subsequent proceedings,orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothedwith a power of attorney to appear on behalf ofBayani at the pre-trial conference.

Second, the sale by Virginia to respondent is notbinding. Petitioner Rubio did not authorize Virginiato transact business in his behalf pertaining to theproperty. The Special Power of Attorney wasconstituted in favor of Llamas, and the latter wasnot empowered to designate a substitute attorney-in-fact. Llamas even disowned her signature

appearing on the "Joint Special Power of Attorney,"which constituted Virginia as her true and lawfulattorney-in-fact in selling Rubio’s properties.

Dealing with an assumed agent, respondent shouldascertain not only the fact of agency, but also thenature and extent of the former’s authority.Besides, Virginia exceeded the authority for failingto comply with her obligations under the "JointSpecial Power of Attorney."

The amount encashed by Rubio represented notthe down payment, but the payment ofrespondent’s debt. His acceptance andencashment of the check was not a ratification ofthe contract of sale.

Third, the contract between respondent andVirginia is a contract to sell, not a contract of sale.The real character of the contract is not the titlegiven, but the intention of the parties. Theyintended to reserve ownership of the property topetitioners pending full payment of the purchaseprice. Together with taxes and other fees due onthe properties, these are conditions precedent forthe perfection of the sale. Even assuming that thecontract is ambiguous, the same must be resolvedagainst respondent, the party who caused thesame.

Fourth, Respondent failed to faithfully fulfill her partof the obligation. Thus, Rubio had the right to sellhis properties to Escueta who exercised duediligence in ascertaining ownership of theproperties sold to her. Besides, a purchaser neednot inquire beyond what appears in a Torrens title.

The petition lacks merit. The contract of salebetween petitioners and respondent isvalid.lawphil.net

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer tothe original complaint and amended complaint, theallegations relating to the personal circumstancesof the Baloloys are clearly admitted.

"An admission, verbal or written, made by a partyin the course of the proceedings in the same case,does not require proof."6 The "factual admission inthe pleadings on record [dispenses] with the need

x x x to present evidence to prove the admittedfact."7 It cannot, therefore, "be controverted by theparty making such admission, and [is]conclusive"8 as to them. All proofs submitted bythem "contrary thereto or inconsistent therewithshould be ignored whether objection is interposedby a party or not."9 Besides, there is no showingthat a palpable mistake has been committed intheir admission or that no admission has beenmade by them.

Pre-trial is mandatory.10 The notices of pre-trial hadbeen sent to both the Baloloys and their formercounsel of record. Being served with notice, he is"charged with the duty of notifying the partyrepresented by him."11 He must "see to it that hisclient receives such notice and attends the pre-trial."12 What the Baloloys and their former counselhave alleged instead in their Motion to Lift Order ofAs In Default dated December 11, 1991 is thebelated receipt of Bayani Baloloy’s special power ofattorney in favor of their former counsel, not thatthey have not received the notice or been informedof the scheduled pre-trial. Not having raised theground of lack of a special power of attorney intheir motion, they are now deemed to have waivedit. Certainly, they cannot raise it at this late stageof the proceedings. For lack of representation,Bayani Baloloy was properly declared in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents andverification. – A petition provided for in either of thepreceding sections of this Rule must be verified,filed within sixty (60) days after the petitionerlearns of the judgment, final order, or otherproceeding to be set aside, and not more than six(6) months after such judgment or final order wasentered, or such proceeding was taken; and mustbe accompanied with affidavits showing the fraud,accident, mistake, or excusable negligence reliedupon, and the facts constituting the petitioner’sgood and substantial cause of action or defense, asthe case may be.

There is no reason for the Baloloys to ignore theeffects of the above-cited rule. "The 60-day periodis reckoned from the time the party acquiredknowledge of the order, judgment or proceedingsand not from the date he actually read thesame."13 As aptly put by the appellate court:

The evidence on record as far as this issue isconcerned shows that Atty. Arsenio Villalon, Jr., theformer counsel of record of the Baloloys received acopy of the partial decision dated June 23, 1993 onApril 5, 1994. At that time, said former counsel isstill their counsel of record. The reckoning of the 60day period therefore is the date when the saidcounsel of record received a copy of the partialdecision which was on April 5, 1994. The petitionfor relief was filed by the new counsel on July 4,1994 which means that 90 days have alreadylapsed or 30 days beyond the 60 day period.Moreover, the records further show that theBaloloys received the partial decision onSeptember 13, 1993 as evidenced by Registryreturn cards which bear the numbers 02597 and02598 signed by Mr. Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to curethe lapse of the aforesaid reglementary period tofile a petition for relief from judgment[,] included inits petition the two Orders dated May 6, 1994 andJune 29, 1994. The first Order denied Baloloys’motion to fix the period within which plaintiffs-appellants pay the balance of the purchase price.The second Order refers to the grant of partialexecution, i.e. on the aspect of damages. TheseOrders are only consequences of the partialdecision subject of the petition for relief, and thus,cannot be considered in the determination of thereglementary period within which to file the saidpetition for relief.

Furthermore, no fraud, accident, mistake, orexcusable negligence exists in order that thepetition for relief may be granted.14 There is noproof of extrinsic fraud that "prevents a party fromhaving a trial x x x or from presenting all of hiscase to the court"15 or an "accident x x x whichordinary prudence could not have guarded against,and by reason of which the party applying hasprobably been impaired in his rights."16 There isalso no proof of either a "mistake x x x of law"17 oran excusable negligence "caused by failure toreceive notice of x x x the trial x x x that it wouldnot be necessary for him to take an active part inthe case x x x by relying on another person toattend to the case for him, when such other personx x x was chargeable with that duty x x x, or byother circumstances not involving fault of themoving party."18

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute ifthe principal has not prohibited him from doing so;but he shall be responsible for the acts of thesubstitute:

(1) When he was not given the power to appointone x x x.

Applying the above-quoted provision to the specialpower of attorney executed by Ignacio Rubio infavor of his daughter Patricia Llamas, it is clear thatshe is not prohibited from appointing a substitute.By authorizing Virginia Lim to sell the subjectproperties, Patricia merely acted within the limits ofthe authority given by her father, but she will haveto be "responsible for the acts of the sub-agent,"19 among which is precisely the sale of thesubject properties in favor of respondent.

Even assuming that Virginia Lim has no authority tosell the subject properties, the contract sheexecuted in favor of respondent is not void, butsimply unenforceable, under the second paragraphof Article 1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another byone who has no authority or legal representation,or who has acted beyond his powers, shall beunenforceable, unless it is ratified, expressly orimpliedly, by the person on whose behalf it hasbeen executed, before it is revoked by the othercontracting party.

Ignacio Rubio merely denies the contract of sale.He claims, without substantiation, that what hereceived was a loan, not the down payment for thesale of the subject properties. His acceptance andencashment of the check, however, constituteratification of the contract of sale and "produce theeffects of an express power of agency."20"[H]isaction necessarily implies that he waived his rightof action to avoid the contract, and, consequently,it also implies the tacit, if not express, confirmationof the said sale effected" by Virginia Lim in favor ofrespondent.

Similarly, the Baloloys have ratified the contract ofsale when they accepted and enjoyed its benefits."The doctrine of estoppel applicable to petitionershere is not only that which prohibits a party fromassuming inconsistent positions, based on theprinciple of election, but that which precludes himfrom repudiating an obligation voluntarily assumedafter having accepted benefits therefrom. Tocountenance such repudiation would be contrary toequity, and would put a premium on fraud ormisrepresentation."21

Indeed, Virginia Lim and respondent have enteredinto a contract of sale. Not only has the title to thesubject properties passed to the latter upondelivery of the thing sold, but there is also nostipulation in the contract that states theownership is to be reserved in or "retained by thevendor until full payment of the price."22

Applying Article 1544 of the Civil Code, a secondbuyer of the property who may have had actual orconstructive knowledge of such defect in theseller’s title, or at least was charged with theobligation to discover such defect, cannot be aregistrant in good faith. Such second buyer cannotdefeat the first buyer’s title. In case a title is issuedto the second buyer, the first buyer may seekreconveyance of the property subject of thesale.23 Even the argument that a purchaser neednot inquire beyond what appears in a Torrens titledoes not hold water. A perusal of the certificates oftitle alone will reveal that the subject properties areregistered in common, not in the individual namesof the heirs.

Nothing in the contract "prevents the obligation ofthe vendor to convey title from becomingeffective"24 or gives "the vendor the right tounilaterally resolve the contract the moment thebuyer fails to pay within a fixedperiod."25Petitioners themselves have failed todeliver their individual certificates of title, for whichreason it is obvious that respondent cannot beexpected to pay the stipulated taxes, fees, andexpenses.

"[A]ll the elements of a valid contract of sale underArticle 1458 of the Civil Code are present, such as:(1) consent or meeting of the minds; (2)determinate subject matter; and (3) price certain inmoney or its equivalent."26Ignacio Rubio, the

Baloloys, and their co-heirs sold their hereditaryshares for a price certain to which respondentagreed to buy and pay for the subject properties."The offer and the acceptance are concurrent,since the minds of the contracting parties meet inthe terms of the agreement."27

In fact, earnest money has been given byrespondent. "[I]t shall be considered as part of theprice and as proof of the perfection of thecontract.28 It constitutes an advance payment to"be deducted from the total price."29

Article 1477 of the same Code also states that"[t]he ownership of the thing sold shall betransferred to the vendee upon actual orconstructive delivery thereof."30 In the presentcase, there is actual delivery as manifested by actssimultaneous with and subsequent to the contractof sale when respondent not only took possessionof the subject properties but also allowed their useas parking terminal for jeepneys and buses.Moreover, the execution itself of the contract ofsale is constructive delivery.

Consequently, Ignacio Rubio could no longer sellthe subject properties to Corazon Escueta, afterhaving sold them to respondent. "[I]n a contract ofsale, the vendor loses ownership over the propertyand cannot recover it until and unless the contractis resolved or rescinded x x x."31 The records do notshow that Ignacio Rubio asked for a rescission ofthe contract. What he adduced was a belatedrevocation of the special power of attorney heexecuted in favor of Patricia Llamas. "In the sale ofimmovable property, even though it may havebeen stipulated that upon failure to pay the price atthe time agreed upon the rescission of the contractshall of right take place, the vendee may pay, evenafter the expiration of the period, as long as nodemand for rescission of the contract has beenmade upon him either judicially or by a notarialact."32

WHEREFORE, the petition is DENIED. TheDecision and Resolution of the Court of Appeals inCA-G.R. CV No. 48282, dated

October 26, 1998 and January 11, 1999,respectively, are hereby AFFIRMED. Costs againstpetitioners.

SO ORDERED.

G.R. No. 136433 December 6, 2006ANTONIO B. BALTAZAR, petitioner, vs.HONORABLE OMBUDSMAN, EULOGIO M.MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E.ILAO, JR. and ERNESTO R.SALENGA, respondents.VELASCO, JR., J.:

The CaseAscribing grave abuse of discretion to respondentOmbudsman, this Petition for Review onCertiorari,1 under Rule 45 pursuant to Section 27 ofRA 6770,2 seeks to reverse and set aside theNovember 26, 1997 Order3 of the Office of theSpecial Prosecutor (OSP) in OMB-1-94-3425 dulyapproved by then Ombudsman Aniano Desierto onAugust 21, 1998, which recommended thedismissal of the Information4 in Criminal Case No.23661 filed before the Sandiganbayan againstrespondents Pampanga Provincial AdjudicatorToribio E. Ilao, Jr., Chief Legal Officer Eulogio M.Mariano and Legal Officer Jose D. Jimenez, Jr. (bothof the DAR Legal Division in San Fernando,Pampanga), and Ernesto R. Salenga. The petitionlikewise seeks to set aside the October 30, 1998Memorandum5 of the OSP duly approved by theOmbudsman on November 27, 1998 which deniedpetitioner's Motion for Reconsideration.6 Previously,the filing of the Information against saidrespondents was authorized by the May 10, 1996Resolution7 and October 3, 1996 Order8 of theOmbudsman which found probable cause that theygranted unwarranted benefits, advantage, andpreference to respondent Salenga in violation ofSection 3 (e) of RA 3019.9

The FactsPaciencia Regala owns a seven (7)-hectare fishpondlocated at Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado leased the fishpond forPhP 230,000.00 to Eduardo Lapid for a three (3)-year period, that is, from August 7, 1990 to August7, 1993.10 Lessee Eduardo Lapid in turn sub-leasedthe fishpond to Rafael Lopez for PhP 50,000.00during the last seven (7) months of the originallease, that is, from January 10, 1993 to August 7,1993.11 Respondent Ernesto Salenga was hired byEduardo Lapid as fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehiredrespondent Salenga.Meanwhile, on March 11, 1993, respondentSalenga, through a certain Francis Lagman, sent hisJanuary 28, 1993 demand letter12 to Rafael Lopezand Lourdes Lapid for unpaid salaries and non-payment of the 10% share in the harvest.On June 5, 1993, sub-lessee Rafael Lopez wrote aletter to respondent Salenga informing the latter

that for the last two (2) months of the sub-lease, hehad given the rights over the fishpond to MarioPalad and Ambit Perez for PhP 20,000.00.13 Thisprompted respondent Salenga to file aComplaint14 before the Provincial Agrarian ReformAdjudication Board (PARAB), Region III, SanFernando, Pampanga docketed as DARAB Case No.552-P’93 entitled Ernesto R. Salenga v. Rafael L.Lopez and Lourdes L. Lapid for Maintenance ofPeaceful Possession, Collection of Sum of Moneyand Supervision of Harvest. The Complaint wassigned by respondent Jose D. Jimenez, Jr., LegalOfficer of the Department of Agrarian Reform (DAR)Region III Office in San Fernando, Pampanga, ascounsel for respondent Salenga; whereasrespondent Eulogio M. Mariano was the Chief LegalOfficer of DAR Region III. The case was assigned torespondent Toribio E. Ilao, Jr., Provincial Adjudicatorof DARAB, Pampanga.On May 10, 1993, respondent Salenga amended hiscomplaint.15 The amendments included a prayer forthe issuance of a temporary restraining order (TRO)and preliminary injunction. However, before theprayer for the issuance of a TRO could be actedupon, on June 16, 1993, respondent Salenga filed aMotion to Maintain Status Quo and to IssueRestraining Order16 which was set for hearing onJune 22, 1993. In the hearing, however, onlyrespondent Salenga with his counsel appeareddespite notice to the other parties. Consequently,the ex-partepresentation of respondent Salenga’sevidence in support of the prayer for the issuanceof a restraining order was allowed, since the motionwas unopposed, and on July 21, 1993, respondentIlao, Jr. issued a TRO.17

Thereafter, respondent Salenga asked forsupervision of the harvest, which the board sheriffdid. Accordingly, defendants Lopez and Lapidreceived their respective shares while respondentSalenga was given his share under protest. In thesubsequent hearing for the issuance of apreliminary injunction, again, only respondentSalenga appeared and presented his evidence forthe issuance of the writ.Pending resolution of the case, Faustino Mercado,as Attorney-in-Fact of the fishpond owner PacienciaRegala, filed a motion to intervene which wasgranted by respondent Ilao, Jr. through theNovember 15, 1993 Order. After the trial,respondent Ilao, Jr. rendered a Decision on May 29,1995 dismissing the Complaint for lack of merit;but losing plaintiff, respondent Salenga, appealedthe decision before the DARAB Appellate Board.Complaint Before the OmbudsmanOn November 24, 1994, pending resolution of theagrarian case, the instant case was instituted bypetitioner Antonio Baltazar, an alleged nephew of

Faustino Mercado, through a Complaint-Affidavit18 against private respondents before theOffice of the Ombudsman which was docketed asOMB-1-94-3425 entitled Antonio B. Baltazar v.Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr.and Ernesto Salenga for violation of RA 3019.Petitioner charged private respondents ofconspiracy through the issuance of the TRO inallowing respondent Salenga to retain possessionof the fishpond, operate it, harvest the produce,and keep the sales under the safekeeping of otherprivate respondents. Moreover, petitionermaintains that respondent Ilao, Jr. had nojurisdiction to hear and act on DARAB Case No.552-P’93 filed by respondent Salenga as there wasno tenancy relation between respondent Salengaand Rafael L. Lopez, and thus, the complaint wasdismissible on its face.Through the December 14, 1994 Order,19 theOmbudsman required private respondents to filetheir counter-affidavits, affidavits of theirwitnesses, and other controverting evidence. Whilethe other respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed hisFebruary 9, 1995 motion to dismiss, February 21,1995 Reply, and March 24, 1995 Rejoinder.Ombudsman’s Determination of ProbableCauseOn May 10, 1996, the Ombudsman issued aResolution20 finding cause to bring respondents tocourt, denying the motion to dismiss of respondentIlao, Jr., and recommending the filing of anInformation for violation of Section 3 (e) of RA3019. Subsequently, respondent Ilao, Jr. filed hisSeptember 16, 1996 Motion for Reconsiderationand/or Re-investigation21 which was denied throughthe October 3, 1996 Order.22Consequently, theMarch 17, 1997 Information23 was filed against allthe private respondents before the Sandiganbayanwhich was docketed as Criminal Case No. 23661.Before the graft court, respondent Ilao, Jr. filed hisMay 19, 1997 Motion for Reconsideration and/orRe-investigation which was granted through theAugust 29, 1997 Order.24 On September 8, 1997,respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did notfile any reply-affidavit despite notice to him. TheOSP of the Ombudsman conducted the re-investigation; and the result of the re-investigationwas embodied in the assailed November 26, 1997Order26 which recommended the dismissal of thecomplaint in OMB-1-94-3425 against all privaterespondents. Upon review, the Ombudsmanapproved the OSP’s recommendation on August 21,1998.Petitioner’s Motion for Reconsideration27 waslikewise denied by the OSP through the October 30,

1998 Memorandum28 which was approved by theOmbudsman on November 27, 1998.Consequently, the trial prosecutor moved orallybefore the Sandiganbayan for the dismissal ofCriminal Case No. 23661 which was grantedthrough the December 11, 1998 Order.29

Thus, the instant petition is before us.The IssuesPetitioner raises two assignments of errors, to wit:

THE HONORABLE OMBUDSMAN ERRED INGIVING DUE COURSE A MISPLACEDCOUNTER-AFFIDAVIT FILED AFTER THETERMINATION OF THE PRELIMINARYINVESTIGATION AND/OR THE CASE WASALREADY FILED BEFORE THESANDIGANBAYAN.ASSUMING OTHERWISE, THE HONORABLEOMBUDSMAN LIKEWISE ERRED INREVERSING HIS OWN RESOLUTION WHEREIT WAS RESOLVED THAT ACCUSED ASPROVINCIAL AGRARIAN ADJUDICATOR HASNO JURISDICTION OVER A COMPLAINTWHERE THERE EXIST [sic] NO TENANCYRELATIONSHIP CONSIDERING [sic]COMPLAINANT IS NOT A TENANT BUT A"BANTE-ENCARGADO" OR WATCHMAN-OVERSEER HIRED FOR A SALARY OFP3,000.00 PER MONTH AS ALLEGED IN HISOWN COMPLAINT.30

Before delving into the errors raised by petitioner,we first address the preliminary procedural issue ofthe authority and locus standi of petitioner topursue the instant petition.Preliminary Issue: Legal StandingLocus standi is defined as "a right of appearance ina court of justice x x x on a given question."31 Inprivate suits, standing is governed by the "real-parties-in interest" rule found in Section 2, Rule 3 ofthe 1997 Rules of Civil Procedure which providesthat "every action must be prosecuted or defendedin the name of the real party in interest."Accordingly, the "real-party-in interest" is "theparty who stands to be benefited or injured by thejudgment in the suit or the party entitled to theavails of the suit."32 Succinctly put, the plaintiffs’standing is based on their own right to the reliefsought.The records show that petitioner is a non-lawyerappearing for himself and conducting litigation inperson. Petitioner instituted the instant case beforethe Ombudsman in his own name. In so far as theComplaint-Affidavit filed before the Office of theOmbudsman is concerned, there is no question onhis authority and legal standing. Indeed, the Officeof the Ombudsman is mandated to "investigate andprosecute on its own or on complaint by anyperson, any act or omission of any public officer or

employee, office or agency, when such act oromission appears to be illegal, unjust, improper orinefficient (emphasis supplied)."33 The Ombudsmancan act on anonymous complaints and motuproprio inquire into alleged improper official acts oromissions from whatever source, e.g., anewspaper.34 Thus, any complainant may beentertained by the Ombudsman for the latter toinitiate an inquiry and investigation for allegedirregularities.However, filing the petition in person before thisCourt is another matter. The Rules allow a non-lawyer to conduct litigation in person and appearfor oneself only when he is a party to a legalcontroversy. Section 34 of Rule 138 pertinentlyprovides, thus:

SEC. 34. By whom litigation conducted. –In the court of a justice of the peace aparty may conduct his litigation in person,with the aid of an agent or friendappointed by him for that purpose, or withthe aid of an attorney. In any other court,a party may conduct his litigationpersonally or by aid of an attorney,and his appearance must beeither personal or by a duly authorizedmember of the bar (emphases supplied).

Petitioner has no legal standingIs petitioner a party or a real party in interest tohave the locus standi to pursue the instantpetition? We answer in the negative.While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section2, Rule 3 of the 1997 Rules of Civil Procedurestipulates, thus:

SEC. 2. Parties in interest. – A real party ininterest is the party who stands to bebenefited or injured by the judgment inthe suit, or the party entitled to the availsof the suit. Unless otherwise authorized bylaw or these Rules, every action must beprosecuted or defended in the name ofthe real party in interest.

The same concept is applied in criminal andadministrative cases.In the case at bar which involves a criminalproceeding stemming from a civil (agrarian) case, itis clear that petitioner is not a real party in interest.Except being the complainant, the records showthat petitioner is a stranger to the agrarian case. Itmust be recalled that the undisputed owner of thefishpond is Paciencia Regala, who intervened inDARAB Case No. 552-P’93 through her Attorney-in-Fact Faustino Mercado in order to protect herinterest. The motion for intervention filed byFaustino Mercado, as agent of Paciencia Regala,was granted by respondent Provincial Adjudicator

Ilao, Jr. through the November 15, 1993 Order inDARAB Case No. 552-P’93.Agency cannot be further delegatedPetitioner asserts that he is duly authorized byFaustino Mercado to institute the suit andpresented a Special Power of Attorney35 (SPA) fromFaustino Mercado. However, such SPA is unavailingfor petitioner. For one, petitioner’s principal,Faustino Mercado, is an agent himself and as suchcannot further delegate his agency to another.Otherwise put, an agent cannot delegate toanother the same agency. The legalmaxim potestas delegata non delegare potest; apower once delegated cannot be re-delegated,while applied primarily in political law to theexercise of legislative power, is a principle ofagency.36 For another, a re-delegation of theagency would be detrimental to the principal as thesecond agent has no privity of contract with theformer. In the instant case, petitioner has no privityof contract with Paciencia Regala, owner of thefishpond and principal of Faustino Mercado.Moreover, while the Civil Code under Article189237 allows the agent to appoint a substitute,such is not the situation in the instant case. TheSPA clearly delegates the agency to petitioner topursue the case and not merely as a substitute.Besides, it is clear in the aforecited Article thatwhat is allowed is a substitute and not a delegationof the agency.Clearly, petitioner is neither a real party in interestwith regard to the agrarian case, nor is he a realparty in interest in the criminal proceedingsconducted by the Ombudsman as elevated to theSandiganbayan. He is not a party who will bebenefited or injured by the results of both cases.Petitioner: a stranger and not an injuredprivate complainantPetitioner only surfaced in November 1994 ascomplainant before the Ombudsman. Aside fromthat, not being an agent of the parties in theagrarian case, he has no locus standi to pursue thispetition. He cannot be likened to an injured privatecomplainant in a criminal complaint who has directinterest in the outcome of the criminal case.More so, we note that the petition is not pursued asa public suit with petitioner asserting a "publicright" in assailing an allegedly illegal official action,and doing so as a representative of the generalpublic. He is pursuing the instant case as an agentof an ineffective agency.Petitioner has not shown entitlement tojudicial protectionEven if we consider the instant petition as a publicsuit, where we may consider petitioner suing as a"stranger," or in the category of a "citizen," or"taxpayer," still petitioner has not adequately

shown that he is entitled to seek judicial protection.In other words, petitioner has not made out asufficient interest in the vindication of the publicorder and the securing of relief as a "citizen" or"taxpayer"; more so when there is no showing thathe was injured by the dismissal of the criminalcomplaint before the Sandiganbayan.Based on the foregoing discussion, petitionerindubitably does not have locus standi to pursuethis action and the instant petition must beforthwith dismissed on that score. Evengranting arguendo that he has locus standi,nonetheless, petitioner fails to show grave abuse ofdiscretion of respondent Ombudsman to warrant areversal of the assailed November 26, 1997 Orderand the October 30, 1998 Memorandum.First Issue: Submission of Counter-AffidavitThe Sandiganbayan, not the Ombudsman,ordered re-investigationOn the substantive aspect, in the first assignmentof error, petitioner imputes grave abuse ofdiscretion on public respondent Ombudsman forallowing respondent Ilao, Jr. to submit his Counter-Affidavit when the preliminary investigation wasalready concluded and an Information filed with theSandiganbayan which assumed jurisdiction overthe criminal case. This contention is utterlyerroneous.The facts clearly show that it was not theOmbudsman through the OSP who allowedrespondent Ilao, Jr. to submit his Counter-Affidavit.It was the Sandiganbayan who granted the prayedfor re-investigation and ordered the OSP to conductthe re-investigation through its August 29, 1997Order, as follows:

Considering the manifestation ofProsecutor Cicero Jurado, Jr. that accusedToribio E. Ilao, Jr. was not able to file hiscounter-affidavit in the preliminaryinvestigation, there appears to be somebasis for granting the motion of saidaccused for reinvestigation.WHEREFORE, accused Toribio E. Ilao,Jr. may file his counter-affidavit, withdocumentary evidence attached, if any,with the Office of the Special Prosecutorwithin then (10) days from today.Theprosecution is ordered to conducta reinvestigation within a period ofthirty (30) days.38 (Emphases supplied.)

As it is, public respondent Ombudsman through theOSP did not exercise any discretion in allowingrespondent Ilao, Jr. to submit his Counter-Affidavit.The OSP simply followed the graft court’s directiveto conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed,petitioner did not contest nor question the August

29, 1997 Order of the graft court. Moreover,petitioner did not file any reply-affidavit in the re-investigation despite notice.Re-investigation upon sound discretion ofgraft courtFurthermore, neither can we fault the graft court ingranting the prayed for re-investigation as it canreadily be seen from the antecedent facts thatrespondent Ilao, Jr. was not given the opportunityto file his Counter-Affidavit. Respondent Ilao, Jr.filed a motion to dismiss with the Ombudsman butsuch was not resolved before the Resolution—finding cause to bring respondents to trial—wasissued. In fact, respondent Ilao, Jr.’s motion todismiss was resolved only through the May 10,1996 Resolution which recommended the filing ofan Information. Respondent Ilao, Jr.’s Motion forReconsideration and/or Re-investigation was deniedand the Information was filed with the graft court.Verily, courts are given wide latitude to accord theaccused ample opportunity to presentcontroverting evidence even before trial asdemanded by due process. Thus, we heldin Villaflor v. Vivar that "[a] component part of dueprocess in criminal justice, preliminaryinvestigation is a statutory and substantive rightaccorded to the accused before trial. To deny theirclaim to a preliminary investigation would be todeprive them of the full measure of their right todue process."39

Second Issue: Agrarian DisputeAnent the second assignment of error, petitionercontends that DARAB Case No. 552-P’93 is not anagrarian dispute and therefore outside thejurisdiction of the DARAB. He maintains thatrespondent Salenga is not an agricultural tenantbut a mere watchman of the fishpond owned byPaciencia Regala. Moreover, petitioner furtherargues that Rafael Lopez and Lourdes Lapid, therespondents in the DARAB case, are not the ownersof the fishpond.Nature of the case determined by allegationsin the complaintThis argument is likewise bereft of merit. Indeed, asaptly pointed out by respondents and as borne outby the antecedent facts, respondent Ilao, Jr. couldnot have acted otherwise. It is a settled rule thatjurisdiction over the subject matter is determinedby the allegations of the complaint.40 The nature ofan action is determined by the material avermentsin the complaint and the character of the reliefsought,41 not by the defenses asserted in theanswer or motion to dismiss.42 Given thatrespondent Salenga’s complaint and its attachmentclearly spells out the jurisdictional allegations thathe is an agricultural tenant in possession of thefishpond and is about to be ejected from it, clearly,

respondent Ilao, Jr. could not be faulted inassuming jurisdiction as said allegationscharacterize an agricultural dispute. Besides,whatever defense asserted in an answer or motionto dismiss is not to be considered in resolving theissue on jurisdiction as it cannot be madedependent upon the allegations of the defendant.Issuance of TRO upon the sound discretion ofhearing officerAs regards the issuance of the TRO, considering theproper assumption of jurisdiction by respondentIlao, Jr., it can be readily culled from the antecedentfacts that his issuance of the TRO was a properexercise of discretion. Firstly, the averments withevidence as to the existence of the need for theissuance of the restraining order were manifest inrespondent Salenga’s Motion to Maintain StatusQuo and to Issue Restraining Order,43 the attachedPolice Investigation Report,44 and MedicalCertificate.45 Secondly, only respondent Salengaattended the June 22, 1993 hearing despite noticeto parties. Hence, Salenga’s motion was not onlyunopposed but his evidence adduced ex-parte alsoadequately supported the issuance of therestraining order.Premises considered, respondent Ilao, Jr. hascorrectly assumed jurisdiction and properlyexercised his discretion in issuing the TRO—asrespondent Ilao, Jr. aptly maintained that givingdue course to the complaint and issuing the TRO donot reflect the final determination of the merits ofthe case. Indeed, after hearing the case,respondent Ilao, Jr. rendered a Decision on May 29,1995 dismissing DARAB Case No. 552-P’93 for lackof merit.Court will not review prosecutor’sdetermination of probable causeFinally, we will not delve into the merits of theOmbudsman’s reversal of its initial finding ofprobable cause or cause to bring respondents totrial. Firstly, petitioner has not shown that theOmbudsman committed grave abuse of discretionin rendering such reversal. Secondly, it is clearfrom the records that the initial finding embodied inthe May 10, 1996 Resolution was arrived at beforethe filing of respondent Ilao, Jr.’s Counter-Affidavit.Thirdly, it is the responsibility of the publicprosecutor, in this case the Ombudsman, to upholdthe law, to prosecute the guilty, and to protect theinnocent. Lastly, the function of determining theexistence of probable cause is proper for theOmbudsman in this case and we will not tread onthe realm of this executive function to examine andassess evidence supplied by the parties, which issupposed to be exercised at the start of criminalproceedings. In Perez v. Hagonoy Rural Bank,Inc.,46 as cited in Longos Rural Waterworks and

Sanitation Association, Inc. v. Hon. Desierto,47 wehad occasion to rule that we cannot pass upon thesufficiency or insufficiency of evidence todetermine the existence of probable cause.48

WHEREFORE, the instant petition is DENIED forlack of merit, and the November 26, 1997 Orderand the October 30, 1998 Memorandum of theOffice of the Special Prosecutor in Criminal CaseNo. 23661 (OMB-1-94-3425) arehereby AFFIRMED IN TOTO, with costs againstpetitioner.SO ORDERED.

G.R. No. 130423 November 18, 2002

VIRGIE SERONA, petitioner, vs.HON. COURT OF APPEALS and THE PEOPLE OFTHE PHILIPPINES, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

During the period from July 1992 to September1992, Leonida Quilatan delivered pieces of jewelryto petitioner Virgie Serona to be sold oncommission basis. By oral agreement of theparties, petitioner shall remit payment or return thepieces of jewelry if not sold to Quilatan, both within30 days from receipt of the items.

Upon petitioner’s failure to pay on September 24,1992, Quilatan required her to execute anacknowledgment receipt (Exhibit B) indicating theiragreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother EarthSubd., Las Pinas, ay kumuha ng mga alahas kayGng. Leonida Quilatan na may kabuohang halagana P567,750.00 para ipagbili para akomagkakomisyon at ibibigay ang benta kungmabibili o ibabalik sa kanya ang mga nasabingalahas 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 earlierentrusted the jewelry to one Marichu Labrador forthe latter to sell on commission basis. Petitionerwas not able to collect payment from Labrador,which caused her to likewise fail to pay herobligation to Quilatan.

Subsequently, Quilatan, through counsel, sent aformal letter of demand2 to petitioner for failure tosettle her obligation. Quilatan executed acomplaint affidavit3 against petitioner before the

Office of the Assistant Provincial Prosecutor.Thereafter, an information for estafa under Article315, paragraph 1(b)4 of the Revised Penal Codewas filed against petitioner, which was raffled toBranch 255 of the Regional Trial Court of Las Pinas.The information alleged:

That on or about and sometime during the periodfrom July 1992 up to September 1992, in theMunicipality of Las Pinas, Metro Manila, Philippines,and within the jurisdiction of this Honorable Court,the said accused received in trust from thecomplainant Leonida E. Quilatan various pieces ofjewelry in the total value of P567,750.00 to be soldon commission basis under the express duty andobligation of remitting the proceeds thereof to thesaid complainant if sold or returning the same tothe latter if unsold but the said accused once inpossession of said various pieces of jewelry, withunfaithfulness and abuse of confidence and withintent to defraud, did then and there willfully,unlawfully and feloniously misappropriate andconvert the same for her own personal use andbenefit and despite oral and written demands, shefailed and refused to account for said jewelry or theproceeds of sale thereof, to the damage andprejudice of complainant Leonida E. Quilatan in theaforestated total amount of P567,750.00.

CONTRARY TO LAW.5

Petitioner pleaded not guilty to the charge uponarraignment.6 Trial on the merits thereafter ensued.

Quilatan testified that petitioner was able to remitP100,000.00 and returned P43,000.00 worth ofjewelriy;7 that at the start, petitioner was prompt insettling her obligation; however, subsequently thepayments were remitted late;8 that petitioner stillowed her in the amount of P424,750.00.9

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

Marichu Labrador confirmed that she receivedpieces of jewelry from petitioner worthP441,035.00. She identified an acknowledgmentreceipt (Exhibit 3)12 signed by her dated July 5,1992 and testified that she sold the jewelry to aperson who absconded without paying her.Labrador also explained that in the past, she toohad directly transacted with Quilatan for the sale ofjewelry on commission basis; however, due to heroutstanding account with the latter, she got jewelryfrom petitioner instead.13

On November 17, 1994, the trial court rendered adecision finding petitioner guilty of estafa, thedispositive portion of which reads:

WHEREFORE, in the light of the foregoing, the courtfinds the accused Virgie Serona guilty beyondreasonable doubt, and as the amountmisappropriated is P424,750.00 the penaltyprovided under the first paragraph of Article 315 ofthe Revised Penal Code has to be imposed whichshall be in the maximum period plus one (1) yearfor every additional P10,000.00.

Applying the Indeterminate Sentence Law, the saidaccused is hereby sentenced to suffer the penaltyof imprisonment ranging from FOUR (4) YEARS andONE (1) DAY of prision correccional as minimum toTEN (10) YEARS and ONE (1) DAY of prision mayoras maximum; to pay the sum of P424,750.00 ascost for the unreturned jewelries; to suffer theaccessory penalties provided by law; and to paythe costs.

SO ORDERED.14

Petitioner appealed to the Court of Appeals, whichaffirmed the judgment of conviction but modifiedthe penalty as follows:

WHEREFORE, the appealed decision finding theaccused-appellant guilty beyond reasonable doubtof the crime of estafa is hereby AFFIRMED with thefollowing MODIFICATION:

Considering that the amount involved isP424,750.00, the penalty should be imposed in itsmaximum period adding one (1) year for each

additional P10,000.00 albeit the total penaltyshould not exceed Twenty (20) Years (Art. 315).Hence, accused-appellant is hereby SENTENCED tosuffer the penalty of imprisonment ranging fromFour (4) Years and One (1) Day of PrisionCorreccional as minimum to Twenty (20) Years ofReclusion Temporal.

SO ORDERED.15

Upon denial of her motion forreconsideration,16 petitioner filed the instantpetition under Rule 45, alleging that:

I

RESPONDENT COURT OF APPEALS SERIOUSLYERRED IN CONCLUDING THAT THERE WAS ANABUSE OF CONFIDENCE ON THE PART OFPETITIONER IN ENTRUSTING THE SUBJECTJEWELRIES (sic) TO HER SUB-AGENT FOR SALE ONCOMMISSION TO PROSPECTIVE BUYERS.

II

RESPONDENT COURT OF APPEALS SERIOUSLYERRED IN CONCLUDING THAT THERE WASMISAPPROPRIATION OR CONVERSION ON THE PARTOF PETITIONER WHEN SHE FAILED TO RETURN THESUBJECT JEWELRIES (sic) TO PRIVATECOMPLAINANT.17

Petitioner argues that the prosecution failed toestablish the elements of estafa as penalized underArticle 315, par. 1(b) of the Revised Penal Code. Inparticular, she submits that she neither abused theconfidence reposed upon her by Quilatan norconverted or misappropriated the subject jewelry;that her giving the pieces of jewelry to a sub-agentfor sale on commission basis did not violate herundertaking with Quilatan. Moreover, petitionerdelivered the jewelry to Labrador under the sameterms upon which it was originally entrusted to her.It was established that petitioner had not derivedany personal benefit from the loss of the jewelry.Consequently, it cannot be said that shemisappropriated or converted the same.

We find merit in the petition.

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

Petitioner did not ipso facto commit the crime ofestafa through conversion or misappropriation bydelivering the jewelry to a sub-agent for sale oncommission basis. We are unable to agree with thelower courts’ conclusion that this fact alone issufficient ground for holding that petitionerdisposed of the jewelry "as if it were hers, therebycommitting conversion and a clear breach oftrust."19

It must be pointed out that the law on agency inour jurisdiction allows the appointment by an agentof a substitute or sub-agent in the absence of anexpress agreement to the contrary between theagent and the principal.20 In the case at bar, theappointment of Labrador as petitioner’s sub-agentwas not expressly prohibited by Quilatan, as theacknowledgment receipt, Exhibit B, does notcontain any such limitation. Neither does it appearthat petitioner was verbally forbidden by Quilatanfrom passing on the jewelry to another personbefore the acknowledgment receipt was executedor at any other time. Thus, it cannot be said thatpetitioner’s act of entrusting the jewelry toLabrador is characterized by abuse of confidencebecause such an act was not proscribed and is, infact, legally sanctioned.

The essence of estafa under Article 315, par. 1(b) isthe appropriation or conversion of money orproperty received to the prejudice of the owner.The words "convert" and "misappropriated"connote an act of using or disposing of another’sproperty 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 notonly conversion to one’s personal advantage, butalso every attempt to dispose of the property ofanother without right.21

In the case at bar, it was established that theinability of petitioner as agent to comply with herduty to return either the pieces of jewelry or theproceeds of its sale to her principal Quilatan wasdue, in turn, to the failure of Labrador to abide byher agreement with petitioner. Notably, Labradortestified that she obligated herself to sell thejewelry in behalf of petitioner also on commissionbasis or to return the same if not sold. In otherwords, the pieces of jewelry were given bypetitioner to Labrador to achieve the very sameend for which they were delivered to her in the firstplace. Consequently, there is no conversion sincethe pieces of jewelry were not devoted to apurpose or use different from that agreed upon.

Similarly, it cannot be said that petitionermisappropriated the jewelry or delivered them toLabrador "without right." Aside from the fact thatno condition or limitation was imposed on themode or manner by which petitioner was to effectthe sale, it is also consistent with usual practice forthe seller to necessarily part with the valuables inorder to find a buyer and allow inspection of theitems for sale. In People v. Nepomuceno,22 theaccused-appellant was acquitted of estafa on factssimilar to the instant case. Accused-appellanttherein undertook to sell two diamond rings inbehalf of the complainant on commission basis,with the obligation to return the same in a few daysif not sold. However, by reason of the fact that therings were delivered also for sale on commission tosub-agents who failed to account for the rings orthe proceeds of its sale, accused-appellant likewisefailed to make good his obligation to thecomplainant thereby giving rise to the charge ofestafa. In absolving the accused-appellant of thecrime charged, we held:

Where, as in the present case, the agents to whompersonal property was entrusted for sale,conclusively proves the inability to return the sameis solely due to malfeasance of a subagent towhom the first agent had actually entrusted theproperty in good faith, and for the same purposefor which it was received; there being no

prohibition to do so and the chattel being deliveredto the subagent before the owner demands itsreturn or before such return becomes due, we holdthat the first agent can not be held guilty of estafaby either misappropriation or conversion. Theabuse of confidence that is characteristic of thisoffense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted.The lower courts’ reliance on People v. Flores24 andU.S. v. Panes25 to justify petitioner’s conviction ismisplaced, considering that the factual backgroundof the cited cases differ from those which obtain inthe case at bar. In Flores, the accused received aring to sell under the condition that she wouldreturn it the following day if not sold and withoutauthority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, wasobliged to return the jewelry he received upondemand, but passed on the same to a sub-agenteven after demand for its return had already beenmade. In the foregoing cases, it was held that therewas 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 beobtained by the accused personally, through hisown acts, and his mere negligence in permittinganother to take advantage or benefit from theentrusted chattel cannot constitute estafa underArticle 315, paragraph 1-b, of the Revised PenalCode; unless of course the evidence shoulddisclose that the agent acted in conspiracy orconnivance with the one who carried out the actualmisappropriation, then the accused would beanswerable for the acts of his co-conspirators. Ifthere is no such evidence, direct or circumstantial,and if the proof is clear that the accused herselfwas the innocent victim of her sub-agent’sfaithlessness, her acquittal is in order.28 (Italicscopied)

Labrador admitted that she received the jewelryfrom petitioner and sold the same to a third person.She further acknowledged that she owed petitionerP441,035.00, thereby negating any criminal intenton the part of petitioner. There is no showing thatpetitioner derived personal benefit from orconspired with Labrador to deprive Quilatan of the

jewelry or its value. Consequently, there is noestafa within contemplation of the law.

Notwithstanding the above, however, petitioner isnot entirely free from any liability towards Quilatan.The rule is that an accused acquitted of estafa maynevertheless be held civilly liable where the factsestablished by the evidence so warrant. Then too,an agent who is not prohibited from appointing asub-agent but does so without express authority isresponsible for the acts of the sub-agent.29 Considering that the civil action for therecovery of civil liability arising from the offense isdeemed instituted with the criminalaction,30 petitioner is liable to pay complainantQuilatan the value of the unpaid pieces of jewelry.WHEREFORE, the petition is GRANTED. The decisionof the Court of Appeals in CA-G.R. CR No. 17222dated April 30,1997 and its resolution dated August28, 1997 are REVERSED and SET ASIDE. PetitionerVirgie Serona is ACQUITTED of the crime charged,but is held civilly liable in the amount ofP424,750.00 as actual damages, plus legal interest,without subsidiary imprisonment in case ofinsolvency. SO ORDERED.

G.R. No. L-55630 March 6, 1990

IMPERIAL INSURANCE, INC. represented bythe IMPERIAL INSURANCE, INC., Cagayan deOro Branch Office Manager BERNARDITO R.PULVERA, petitioner, vs.THE HONORABLE EULALIO D. ROSETE, Judgeof the Court of First Instance of MisamisOriental, Branch V, and CHIU ENGHUA respondents.

Ariston M. Magallanes and Jesus Ma. Jajalla forpetitioner.

Quimpo, Willkom , Dadole & Mutia for privaterespondent.

GANCAYCO, J.:

Section 2, Rule 1 of the Rules of Court provides forthe basic rule of thumb that said "rules shall beliberally construed in order to promote its objectiveand to assist the parties in obtaining just, speedy,and inexpensive determination of every action andproceeding." Its application is put into test in thepresent case.

The antecedent facts are undisputed. Privaterespondent filed a complaint for specificperformance and damages against petitioner datedApril 11, 1980 in the Court of First Instance ofMisamis Oriental, docketed as Civil Case No. 7072.After receipt of service of summons petitioner filedan answer with counterclaim within thereglementary period.

The case was set for pre-trial conference on August5, 1980 of which the parties and their counsel wereduly notified. At said pre-trial conference petitionerwas represented by Atty. Arturo A. Magallanes whopresented a special power of attorney executed byBernardito R. Pulvera, regional branch manager ofpetitioner for Mindanao and Visayas, authorizingsaid counsel to represent petitioner at the pre-trialconference, to enter into any amicable settlementand to do such other acts as may be necessary to

implement the authority. The presiding judgerefused to honor the same and observed that it isonly the Board of Directors of the petitioner whomay authorize the appearance of the regionalmanager in behalf of petitioner and that he cannotdelegate his functions. Counsel for privaterespondent stated he was willing to give petitionera chance to produce the appropriate authority.Nevertheless, the respondent judge declared thepetitioner in default in an order dated August 5,1980 and set the reception of the evidence for theprivate respondent on August 12, 1980. 1

A motion to set aside the said order of default wasfiled by petitioner, stating therein that the rules ofcourt should be liberally construed, that the specialpower of attorney was submitted in good faith andthat there are meritorious and good defenses asshown in the attached affidavit showing that asearly as June 1980 Pulvera had asked for such aspecial power of attorney from the main office inManila but the same had not yet arrived and will besubmitted upon receipt. The motion was denied inan order dated August 27, 1980.

A motion for reconsideration of the denial was filedby the petitioner alleging that it is within theimplied powers and duties of the regional branchmanager of petitioner to represent the petitionerand in the process to settle claims againstpetitioner as this has been done in a similar casethat was amicably settled before the same courtdocketed as Civil Case No. 6316; and that thespecial power of attorney of Atty. Arturo Magallanesto represent the petitioner was executed in goodfaith. The motion for reconsideration was likewisedenied for lack of merit on October 17, 1982.

Hence, the herein petitionfor certiorari and/or mandamus wherein petitioneralleges that the respondent judge acted without orin excess of jurisdiction and in grave abuse ofdiscretion in declaring petitioner in default and indenying the motion for reconsideration of the orderof default.

The petition is impressed with merit.

In Civil Case No. 6316 entitled "Heirs of RuizDosdos, et al. vs. Andres Tan; and Andres Tan as

third party plaintiff vs. Imperial Insurance, thirdparty defendant", filed in the Court of First Instanceof Misamis Oriental, Cagayan de Oro City, presidedby the respondent Judge, a special power ofattorney was presented dated June 20, 1979executed by the same regional manager ofpetitioner in favor of Carmelito Gaburno, productionmanager of sales of petitioner, to appear in behalfof petitioner in all stages of the case and to enterinto any stipulation of facts. 2 A compromiseagreement was entered into by the parties assistedby their respective counsel and the same wassubmitted for approval of the court whereinCarmelito Gaburno signed for and in behalf ofpetitioner. In an order dated November 27, 1979the respondent judge approved the compromiseagreement by rendering judgment in accordancetherewith. 3

Thus, when at the pre-trial conference of Civil CaseNo. 7072 before the same respondent judge aspecial power of attorney executed by Pulvera onJuly 31, 1980 in favor of Atty. Magallanes to appearin behalf of petitioner and to enter into anyamicable settlement 4 was presented, the courtfinds no cogent reason why the respondent judgerefused to honor the said special power of attorneyfor purposes of the pre-trial and instead declaredthe petitioner to be in default.

Obviously in the earlier case, Civil Case No. 6316,the respondent judge accepted and/oracknowledged the authority of Pulvera as regionalbranch manager of the petitioner to represent thepetitioner, to enter into a compromise agreementand as such to execute a special power of attorneyin favor of another person to act in his place and torepresent the petitioner in the litigation.

Indeed, in another case docketed as Civil Case No.2899 entitled Gil Ecleo vs. Lydia Sacal and ImperialInsurance, Inc., in the Court of First Instance ofSurigao del Norte, Surigao City a similar specialpower of attorney for purposes of pre-trial wasexecuted by regional branch manager Pulvera infavor of Atty. Magallanes dated December 9,1980. 5 A compromise agreement was entered intoby Magallanes in behalf of petitioner which wasduly approved by the trial court on January 13,1981. 6

There can be no doubt therefore that regionalbranch manager Pulvera, as regional manager forVisayas and Mindanao of petitioner, was authorizedto represent petitioner in any litigation and in theprocess to enter into a compromise agreement orsettlement thereof. As such agent of petitioner hemay appoint a substitute as he was not prohibitedfrom doing so by his principal. 7

Moreover, even assuming for the sake of argumentthat the observations of the respondent judge iscorrect in that a board resolution of the petitioner isrequired for the purposes of authorizing Pulveraand/or Magallanes to bind the petitioner, thecounsel for the private respondent manifested tothe respondent judge his willingness to give thepetitioner an opportunity to comply with therequirement of the court. Just the same, therespondent judge declared petitioner to be indefault. No doubt, the respondent judge wasunnecessarily harsh when the Rules call forliberality in such cases.

This is a case where petitioner filed an answer withcounterclaim and advanced apparently ameritorious and valid defense. It should be given itsday in court and the opportunity to prove itsassertions. This is the situation contemplated bythe Rules. The courts must lean in favor ofaffording substantial justice as against a technicalrequirement.

WHEREFORE, the questioned orders of therespondent judge dated August 6, 1980, August 27,1980 and October 17, 1980 are hereby REVERSEDAND SET ASIDE and the record of this case isremanded to the trial court for further proceedings.No costs in this instance.

SO ORDERED.

THIRD DIVISION

[G.R. No. 82978. November 22, 1990.]

THE MANILA REMNANT CO., INC., Petitioner,v. THE HONORABLE COURT OF APPEALS andOSCAR VENTANILLA, JR. and CARMEN GLORIADIAZ, Respondents.

Bede S. Talingcos, for Petitioners.

Augusto Gatmaytan for Private Respondent.

D E C I S I O N

FERNAN, J.:

Like any other couple, Oscar Ventanilla and his wifeCarmen, both faculty members of the University ofthe Philippines and renting a faculty unit, dreamedof someday owning a house and lot. Instead ofattaining this dream, they became innocent victimsof deceit and found themselves in the midst of anensuing squabble between a subdivision owner andits real estate agent.

The facts as found by the trial court and adoptedby the Appellate Court are as follows:chanrob1esvirtual 1aw library

Petitioner Manila Remnant Co., Inc. is the owner ofthe parcels of land situated in Quezon City coveredby Transfer Certificates of Title Nos. 26400, 26401,30783 and 31986 and constituting the subdivisionknown as Capital Homes Subdivision Nos. I and II.On July 25, 1972, Manila Remnant and A.U.Valencia & Co. Inc. entered into a writtenagreement entitled "Confirmation of LandDevelopment and Sales Contract" to formalize anearlier verbal agreement whereby for aconsideration of 17 and 1/2% fee, including salescommission and management fee, A.U. Valenciaand Co., Inc. was to develop the aforesaidsubdivision with authority to manage the salesthereof, execute contracts to sell to lot buyers andissue official receipts. 1

At that time the President of both A.U. Valencia andCo. Inc. and Manila Remnant Co., Inc. was ArtemioU. Valencia.cralawnad

On March 3, 1970, Manila Remnant thru A.U.Valencia and Co. executed two "contracts to sell"

covering Lots 1 and 2 of Block 17 in favor of OscarC. Ventanilla and Carmen Gloria Diaz for thecombined contract price of P66,571.00 payablemonthly for ten years. 2 As thus agreed in thecontracts to sell, the Ventanillas paid the downpayments on the two lots even before the formalcontract was signed on March 3, 1970.

Ten (10) days after the signing of the contracts withthe Ventanillas or on March 13, 1970, Artemio U.Valencia, as President of Manila Remnant, andwithout the knowledge of the Ventanilla couple,sold Lots 1 and 2 of Block 17 again, this time infavor of Carlos Crisostomo, one of his sales agentswithout any consideration. 3 Artemio Valencia thentransmitted the fictitious Crisostomo contracts toManila Remnant while he kept in his files thecontracts to sell in favor of the Ventanillas. All theamounts paid by the Ventanillas were deposited inValencia’s bank account.

Beginning March 13, 1970, upon orders of ArtemioValencia, the monthly payments of the Ventanillaswere remitted to Manila Remnant as payments ofCrisostomo for which the former issued receipts infavor of Crisostomo. Since Valencia kept thereceipts in his files and never transmitted the sameto Crisostomo, the latter and the Ventanillasremained ignorant of Valencia’s scheme. Thus, theVentanillas continued paying their monthlyinstallments.chanrobles virtual lawlibrary

Subsequently, the harmonious businessrelationship between Artemio Valencia and ManilaRemnant ended. On May 30, 1973, ManilaRemnant, through its General Manager KarlLandahl, wrote Artemio Valencia informing him thatManila Remnant was terminating its existingcollection agreement with his firm on account ofthe considerable amount of discrepancies andirregularities discovered in its collections andremittances by virtue of confirmations receivedfrom lot buyers. 4 As a consequence, on June 6,1973, Artemio Valencia was removed as Presidentby the Board of Directors of Manila Remnant.Therefore, from May of 1973, Valencia stoppedtransmitting Ventanilla’s monthly installmentswhich at that time had already amounted toP17,925.40 for Lot 1 and P18,141.95 for Lot 2,(which appeared in Manila Remnant’s record ascredited in the name of Crisostomo). 5

On June 8, 1973, A.U. Valencia and Co. sued ManilaRemnant before Branch 19 of the then Court ofFirst Instance of Manila 6 to impugn the abrogationof their agency agreement. On June 10 and July 10,1973, said court ordered all lot buyers to deposit

their monthly amortizations with the court. 7 Buton July 17, 1973, A.U. Valencia and Co. wrote theVentanillas that it was still authorized by the courtto collect the monthly amortizations and requestedthem to continue remitting their amortizations withthe assurance that said payments would bedeposited later in court. 8 On May 22, 1974, thetrial court issued an order prohibiting A.U. Valenciaand Co. from collecting the monthly installments. 9On July 22, 1974 and February 6, 1976 the samecourt ordered the Valencia firm to furnish the courtwith a complete list of all lot buyers who hadalready made down payments to Manila Remnantbefore December 1972. 10 Valencia complied withthe court’s order on August 6, 1974 by submitting alist which excluded the name of the Ventanillas. 11

Since A.U. Valencia and Co. failed to forward itscollections after May 1973, Manila Remnant causedon August 20, 1976 the publication in the TimesJournal of a notice cancelling the contracts to sell ofsome lot buyers including that of Carlos Crisostomoin whose name the payments of the Ventanillas hadbeen credited. 12

To prevent the effective cancellation of theircontracts, Artemio Valencia instigated onSeptember 22, 1976 the filing by Carlos Crisostomoand seventeen (17) other lot vendees of acomplaint for specific performance with damagesagainst Manila Remnant before the Court of FirstInstance of Quezon City. The complaint alleged thatCrisostomo had already paid a total of P17,922.40and P18,136.85 on Lots 1 and 2, respectively. 13

It was not until March 1978 when the Ventanillas,after learning of the termination of the agencyagreement between Manila Remnant and A.U.Valencia & Co., decided to stop paying theiramortizations to the latter. The Ventanillas,believing that they had already remittedP37,007.00 for Lot 1 and P36,911.00 for Lot 2 or agrand total, inclusive of interest, of P73,122.35 forthe two lots, thereby leaving a balance ofP13,531.58 for Lot 1 and P13,540.22 for Lot 2, wentdirectly to Manila Remnant and offered to pay theentire outstanding balance of the purchase price.14 To their shock and utter consternation, theydiscovered from Gloria Caballes, an accountant ofManila Remnant, that their names did not appear inthe records of A.U. Valencia and Co. as lot buyers.Caballes showed the Ventanillas copies of thecontracts to sell in favor of Carlos Crisostomo, dulysigned by Artemio U. Valencia as President ofManila Remnant. 15 Whereupon, Manila Remnantrefused the offer of the Ventanillas to pay for theremainder of the contract price because they did

not have the personality to do so. Furthermore,they were shown the published Notice ofCancellation in the January 29, 1978 issue of theTimes Journal rescinding the contracts ofdelinquent buyers including Crisostomo.

Thus, on November 21, 1978, the Ventanillascommenced an action for specific performance,annulment of deeds and damages against ManilaRemnant, A.U. Valencia and Co. and CarlosCrisostomo before the Court of First Instance ofQuezon City, Branch 17-B. 16 Crisostomo wasdeclared in default for failure to file ananswer.chanrobles.com:cralaw:red

On November 17, 1980, the trial court rendered adecision 1) declaring the contracts to sell issued infavor of the Ventanillas valid and subsisting andannulling the contracts to sell in Crisostomo’sfavor; 2) ordering Manila Remnant to execute infavor of the Ventanillas an Absolute Deed of Salefree from all liens and encumbrances; and 3)condemning defendants A.U. Valencia and Co. Inc.,Manila Remnant and Carlos Crisostomo jointly andseverally to pay the Ventanillas the amount ofP100,000.00 as moral damages, P100,000.00 asexemplary damages, and P100,000.00 asattorney’s fees. The lower court also added that if,for any legal reason, the transfer of the lots couldno longer be effected, the defendants shouldreimburse jointly and severally to the Ventanillasthe total amount of P73,122.35 representing thetotal amount paid for the two lots plus legalinterest thereon from March 1970 plus damages asaforestated. With regard to the cross claim ofManila Remnant against Valencia, the court foundthat Manila Remnant could have not been draggedinto this suit without the fraudulent manipulationsof Valencia. Hence, it adjudged A.U. Valencia andCo. to pay the Manila Remnant P5,000.00 as moraldamages and exemplary damages and P5,000.00as attorney’s fees. 17

Subsequently, Manila Remnant and A.U. Valenciaand Co. elevated the lower court’s decision to theCourt of Appeals through separate appeals. OnOctober 13, 1987, the Appellate Court affirmed intoto the decision of the lower court.Reconsideration sought by petitioner ManilaRemnant was denied, hence the instant petition.

There is no question that the contracts to sell infavor of the Ventanilla spouses are valid andsubsisting. The only issue remaining is whether ornot petitioner Manila Remnant should be heldsolidarily liable together with A.U. Valencia and Co.and Carlos Crisostomo for the payment of moral,

exemplary damages and attorney’s fees in favor ofthe Ventanillas. 18

While petitioner Manila Remnant has not refutedthe legality of the award of damages per se, itbelieves that it cannot be made jointly andseverally liable with its agent A.U. Valencia and Co.since it was not aware of the illegal actsperpetrated nor did it consent or ratify said acts ofits agent.

The argument is devoid of merit.

In the case at bar, the Valencia realty firm hadclearly overstepped the bounds of its authority asagent — and for that matter, even the law — whenit undertook the double sale of the disputed lots.Such being the case, the principal, ManilaRemnant, would have been in the clear pursuant toArticle 1897 of the Civil Code which states that"(t)he agent who acts as such is not personallyliable to that party with whom he contracts, unlesshe expressly binds himself or exceeds the limits ofhis authority without giving such party sufficientnotice of his powers." chanrobles.com.ph : virtuallaw library

However, the unique relationship existing betweenthe principal and the agent at the time of the dualsale must be underscored. Bear in mind that thepresident then of both firms was Artemio U.Valencia, the individual directly responsible for thesale scam. Hence, despite the fact that the doublesale was beyond the power of the agent, ManilaRemnant as principal was chargeable with theknowledge or constructive notice of that fact andnot having done anything to correct such anirregularity was deemed to have ratified the same.19

More in point, we find that by the principle ofestoppel, Manila Remnant is deemed to haveallowed its agent to act as though it had plenarypowers. Article 1911 of the Civil Codeprovides:jgc:chanrobles.com.ph

"Even when the agent has exceeded his authority,the principal is solidarily liable with the agent if theformer allowed the latter to act as though he hadfull powers." (Emphasis supplied)

The above-quoted article is new. It is intended toprotect the rights of innocent persons. In such asituation, both the principal and the agent may beconsidered as joint feasors whose liability is jointand solidary. 20

Authority by estoppel has arisen in the instant casebecause by its negligence, the principal, ManilaRemnant, has permitted its agent, A.U. Valenciaand Co., to exercise powers not granted to it. Thatthe principal might not have had actual knowledgeof the agent’s misdeed is of no moment. Considerthe following circumstances:chanrob1es virtual 1awlibrary

Firstly, Manila Remnant literally gave carte blancheto its agent A.U. Valencia and Co. in the sale anddisposition of the subdivision lots. As a disclosedprincipal in the contracts to sell in favor of theVentanilla couple, there was no doubt that theywere in fact contracting with the principal. Section7 of the Ventanillas’ contracts to sellstates:jgc:chanrobles.com.ph

"7. That all payments whether deposits, downpayment and monthly installment agreed to bemade by the vendee shall be payable to A.U.Valencia and Co., Inc. It is hereby expresslyunderstood that unauthorized payments made toreal estate brokers or agents shall be the sole andexclusive responsibility and at the risk of thevendee and any and all such payments shall not berecognized by the vendors unless the officialreceipts therefor shall have been duly signed bythe vendors’ duly authorized agent, A.U. Valenciaand Co., Inc." (Emphasis supplied)

Indeed, once Manila Remnant had been furnishedwith the usual copies of the contracts to sell, itsonly participation then was to accept thecollections and pay the commissions to the agent.The latter had complete control of the businessarrangement. 21

Secondly, it is evident from the records that ManilaRemnant was less than prudent in the conduct ofits business as a subdivision owner. For instance,Manila Remnant failed to take immediate steps toavert any damage that might be incurred by the lotbuyers as a result of its unilateral abrogation of theagency contract. The publication of the cancelledcontracts to sell in the Times Journal came threeyears after Manila Remnant had revoked itsagreement with A.U. Valencia and Co.chanroblesvirtual lawlibrary

Moreover, Manila Remnant also failed to check therecords of its agent immediately after therevocation of the agency contract despite the factthat such revocation was due to reportedanomalies in Valencia’s collections. Altogether, aspointed out by the counsel for the Ventanillas,Manila Remnant could and should have devised a

system whereby it could monitor and require aregular accounting from A.U. Valencia and Co., itsagent. Not having done so, Manila Remnant hasmade itself liable to those who have relied on itsagent and the representation that such agent wasclothed with sufficient powers to act on behalf ofthe principal.

Even assuming that Manila Remnant was as mucha victim as the other innocent lot buyers, it cannotbe gainsaid that it was precisely its negligence andlaxity in the day to day operations of the realestate business which made it possible for theagent to deceive unsuspecting vendees like theVentanillas.

In essence, therefore, the basis for ManilaRemnant’s solidary liability is estoppel which, inturn, is rooted in the principal’s neglectfulness infailing to properly supervise and control the affairsof its agent and to adopt the needed measures toprevent further misrepresentation. As aconsequence, Manila Remnant is consideredestopped from pleading the truth that it had nodirect hand in the deception employed by its agent.22

A final word. The Court cannot help but be alarmedover the reported practice of supposedly reputablereal estate brokers of manipulating prices byallowing their own agents to "buy" lots in theirnames in the hope of reselling the same at a higherprice to the prejudice of bona fide lot buyers, asprecisely what the agent had intended to happen inthe present case. This is a serious matter that mustbe looked into by the appropriate governmenthousing authority.chanrobles.com.ph : virtual lawlibrary

WHEREFORE, in view of the foregoing, theappealed decision of the Court of Appeals datedOctober 13, 1987 sustaining the decision of theQuezon City trial court dated November 17, 1980 isAFFIRMED. This judgment is immediately executory.Costs against petitioner.

SO ORDERED.

G.R. No. 125138 March 2, 1999

NICHOLAS Y. CERVANTES, petitioner, vs.COURT OF APPEALS AND THE PHILIPPINE AIRLINES, INC., respondent.

PURISMA, J.:

This Petition for Review on certiorari assails the 25July 1995 decision of the Court of Appeals 1 in CAGR CV No. 41407, entitled "Nicholas Y. Cervantesvs. Philippine Air Lines Inc.", affirming in toto thejudgment of the trial court dismissing petitioner'scomplaint for damages.

On March 27, 1989, the private respondent,Philippines Air Lines, Inc. (PAL), issued to the hereinpetitioner, Nicholas Cervantes (Cervantes), a roundtrip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided anexpiry of date of one year from issuance, i.e., untilMarch 27, 1990. The issuance of the said planeticket was in compliance with a CompromiseAgreement entered into between the contendingparties in two previous suits, docketed as Civil CaseNos. 3392 and 3451 before the Regional Trial Courtin Surigao City. 2

On March 23, 1990, four days before the expirydate of subject ticket, the petitioner used it. Uponhis arrival in Los Angeles on the same day, heimmediately booked his Los Angeles-Manila returnticket with the PAL office, and it was confirmed forthe April 2, 1990 flight.

Upon learning that the same PAL plane would makea stop-over in San Francisco, and considering thathe would be there on April 2, 1990, petitioner madearrangements with PAL for him to board the flightIn San Francisco instead of boarding in Las Angeles.

On April 2, 1990, when the petitioner checked in atthe PAL counter in San Francisco, he was notallowed to board. The PAL personnel concernedmarked the following notation on his ticket: "TICKETNOT ACCEPTED DUE EXPIRATION OF VALIDITY."

Aggrieved, petitioner Cervantes filed a Complaintfor Damages, for breach of contract of carriagedocketed as Civil Case No. 3807 before Branch 32of the Regional Trial Court of Surigao del Norte inSurigao City. But the said complaint was dismissedfor lack of merit. 3

On September 20, 1993, petitioner interposed anappeal to the Court of Appeals, which came outwith a Decision, on July 25, 1995, upholding thedismissal of the case.

On May 22, 1996, petitioner came to this Court viathe Petition for Review under consideration.

The issues raised for resolution are: (1) Whether ornot the act of the PAL agents in confirming subjectticket extended the period of validity of petitioner'sticket; (2) Whether or not the defense of lack ofauthority was correctly ruled upon; and (3)Whether or not the denial of the award fordamages was proper.

To rule on the first issue, there is a need to quotethe findings below. As a rule, conclusions andfindings of fact arrived at by the trial court areentitled to great weight on appeal and should notbe disturbed unless for strong and cogentreasons. 4

The facts of the case as found by the lowercourt 5 are, as follows:

The plane ticket itself (Exhibit Afor plaintiff; Exhibit 1 fordefendant) provides that it is notvalid after March 27, 1990.(Exhibit 1-F). It is also stipulatedin paragraph 8 of the Conditionsof Contract (Exhibit 1, page 2) asfollows:

8. This ticket isgood forcarriage forone year fromdate ofissue, except asotherwise

provided in thisticket, incarrier's tariffs,conditions ofcarriage, orrelatedregulations.The fare forcarriagehereunder issubject tochange prior tocommencement of carriage.Carrier mayrefusetransportationif the applicablefare has notbeen paid. 6

The question on the validity of subject ticket can beresolved in light of the ruling in the caseof Lufthansa vs. Court of Appeals. 7 In the saidcase, the Tolentinos were issued first class ticketson April 3, 1982, which will be valid until April 10,1983. On June 10, 1982, they changed theiraccommodations to economy class but thereplacement tickets still contained the samerestriction. On May 7, 1983, Tolentino requestedthat subject tickets be extended, which requestwas refused by the petitioner on the ground thatthe said tickets had already expired. The non-extension of their tickets prompted the Tolentinosto bring a complaint for breach of contract ofcarriage against the petitioner. In ruling against theaward of damages, the Court held that the "ticketconstitute the contract between the parties. It isaxiomatic that when the terms are clear and leaveno doubt as to the intention of the contractingparties, contracts are to be interpreted according totheir literal meaning."

In his effort to evade this inevitable conclusion,petitioner theorized that the confirmation by thePAL's agents in Los Angeles and San Franciscochanged the compromise agreement between theparties.

As aptly by the appellate court:

. . . on March23, 1990, hewas aware ofthe risk that histicket couldexpire, as it did,before hereturned to thePhilippines.'(pp. 320-321,OriginalRecords) 8

The question is:"Did these two(2) employees,in effect,extend thevalidity orlifetime of theticket inquestion? Theanswer is in thenegative. Bothhad noauthority to doso. Appellantknew this fromthe very startwhen he calledup the LegalDepartment ofappellee in thePhilippinesbefore he leftfor the UnitedStates ofAmerica. Hehad first handknowledge thatthe ticket inquestion wouldexpire on March27, 1990 andthat to securean extension,he would haveto file a writtenrequest forextension atthe PAL's officein thePhilippines

(TSN,Testimony ofNicholasCervantes,August 2, 1991,pp. 20-23).Despite thisknowledge,appellantpersisted to usethe ticket inquestion." 9

From the aforestated facts, it can be gleaned thatthe petitioner was fully aware that there was aneed to send a letter to the legal counsel of PAL forthe extension of the period of validity of his ticket.

Since the PAL agents are not privy to the saidAgreement and petitioner knew that a writtenrequest to the legal counsel of PAL was necessary,he cannot use what the PAL agents did to hisadvantage. The said agents, according to the Courtof Appeals, 10 acted without authority when theyconfirmed the flights of the petitioner.

Under Article 1989 11 of the New Civil Code, theacts an agent beyond the scope of his authority donot bind the principal, unless the latter ratifies thesame expressly or impliedly. Furthermore, when thethird person (herein petitioner) knows that theagent was acting beyond his power or authority,the principal cannot be held liable for the acts ofthe agent. If the said third person is aware of suchlimits of authority, he is to blame, and is notentitled to recover damages from the agent, unlessthe latter undertook to secure the principal'sratification. 12

Anent the second issue, petitioner's stance that thedefense of lack of authority on the part of the PALemployees was deemed waived under Rule 9,Section 2 of the Revised Rules of Court, isunsustainable. Thereunder, failure of a party to putup defenses in their answer or in a motion todismiss is a waiver thereof.

Petitioner stresses that the alleged lack of authorityof the PAL employees was neither raised in theanswer nor in the motion to dismiss. But recordsshow that the question of whether there wasauthority on the part of the PAL employees was

acted upon by the trial court when NicholasCervantes was presented as a witness and thedepositions of the PAL employees, Georgina M.Reyes and Ruth Villanueva, were presented.

The admission by Cervantes that he was told byPAL's legal counsel that he had to submit a letterrequesting for an extension of the validity ofsubject tickets was tantamount to knowledge onhis part that the PAL employees had no authority toextend the validity of subject tickets and only PAL'slegal counsel was authorized to do so.

However, notwithstanding PAL's failure to raise thedefense of lack of authority of the said PAL agentsin its answer or in a motion to dismiss, the omissionwas cured since the said issue was litigated upon,as shown by the testimony of the petitioner in thecourse of trial. Rule 10, Section 5 of the 1997 Rulesof Civil Procedure provides:

Sec. 5. Amendment to conform,or authorize presentation ofevidence. — When issues notraised by the pleadings are triedwith express or implied consentof the parties, as if they had beenraised in the pleadings. Suchamendment of the pleadings asmay be necessary to cause themto conform to the evidence andto raise these issues may bemade upon motion of any partyat any time, even after judgment;but failure to amend does notaffect the result of the trial ofthese issues. . . .

Thus, "when evidence is presented by one party,with the express or implied consent of the adverseparty, as to issues not alleged in the pleadings,judgment may be rendered validly as regards thesaid issue, which shall be treated as if they havebeen raised in the pleadings. There is impliedconsent to the evidence thus presented when theadverse party fails to object thereto." 13

Re: the third issue, an award of damages isimproper because petitioner failed to show that PALacted in bad faith in refusing to allow him to boardits plane in San Francisco.

In awarding moral damages for breach of contractof carriage, the breach must be wanton anddeliberately injurious or the one responsible actedfraudulently or with malice or badfaith. 14 Petitioner knew there was a strongpossibility that he could not use the subject ticket,so much so that he bought a back-up ticket toensure his departure. Should there be a finding ofbad faith, we are of the opinion that it should be onthe petitioner. What the employees of PAL did wasone of simple negligence. No injury resulted on thepart of petitioner because he had a back-up ticketshould PAL refuse to accommodate him with theuse of subject ticket.

Neither can the claim for exemplary damages beupheld. Such kind of damages is imposed by way ofexample or correction for the public good, and theexistence of bad faith is established. The wrongfulact must be accompanied by bad faith, and anaward of damages would be allowed only if theguilty party acted in a wanton, fraudulent, recklessor malevolent manner. 15 Here, there is no showingthat PAL acted in such a manner. An award forattorney's fees is also improper.

WHEREFORE, the Petition is DENIED and thedecision of the Court of Appeals dated July 25,1995 AFFIRMED in toto. No pronouncement as tocosts.

SO ORDERED.

G.R. No. 129039. September 17, 2002]

SIREDY ENTERPRISES, INC. petitioner, vs.HON. COURT OF APPEALS and CONRADO DEGUZMAN, respondents.

D E C I S I O N

QUISUMBING, J.:

Before us is a petition for review seeking toannul the decision[1] dated April 26, 1996 of theCourt of Appeals in CA-G.R. CV No. 30374,reversing the decision of the Regional Trial Court ofMalolos, Bulacan, and the resolution[2] dated April22, 1997, denying petitioners motion forreconsideration.

The following are the facts as found by theCourt of Appeals,[3] undisputed by the parties andadopted by petitioner:[4]

Private respondent Conrado De Guzman is anarchitect-contractor doing business under thename and style of Jigscon Construction. Hereinpetitioner Siredy Enterprises, Inc. (hereafter Siredy)is the owner and developer of Ysmael Village, asubdivision in Sta. Cruz, Marilao, Bulacan.[5] Thepresident of Siredy is Ismael E. Yanga.[6]

As stated in its Articles of Incorporation,[7] theprimary corporate purpose of Siredy is to acquirelands, subdivide and develop them, erect buildingsand houses thereon, and sell, lease or otherwisedispose of said properties to interested buyers.[8]

Sometime before October 1978, Yangaexecuted an undated Letter of Authority,[9] hereunder reproduced verbatim:

KNOW ALL MEN BY THESE PRESENTS:

That I, DR. ISMAEL E. YANGA, SR., of legal age,Filipino, married, resident of and with Postaladdress at Poblacion, Bocaue, Bulacan and dulyauthorized to execute this LETTER OF AUTHORITY,do hereby authorize MR. HERMOGENES B. SANTOSof legal age, Filipino, married, resident of and with

Postal Address at 955 Banawe St., Quezon City todo and execute all or any of the following acts:

1. To negotiate and enter into contract or contractsto build Housing Units on our subdivision lots inYsmael Village, Sta. Rosa, Marilao, Bulacan.However, all proceeds from said contract orcontracts shall be deposited in my name, paymentsof all obligation in connection with the said contractor contracts should be made and the remainder willbe paid to MR. HERMOGENES B. SANTOS.

2. To sell lots on our subdivisions and;

3. To represent us, intercede and agree for or makeagreements for all payments in our favor, providedthat actual receipts thereof shall be made by theundersigned.

(SGD) DR. ISMAEL E. YANGA, SR.

For myself and in my capacity asPresident

of SIREDY ENTERPRISE, INCORPORATED

PRINCIPAL

On October 15, 1978, Santos entered into aDeed of Agreement[10] with De Guzman. The deedexpressly stated that Santos was representingSiredy Enterprises, Inc. Private respondent wasreferred to as contractor while petitioner Siredywas cited as principal.

In said Deed of Agreement we find thefollowing stipulations:

1.) That, the PRINCIPAL has contractswith different SSS membersemployed with different domesticentities to build for them 2-bedroomsingle housing units and 4-bedroomduplex housing units;

2.) That, the site of the said housingproject is at YSMAEL VILLAGE, Bo.Sta. Rosa, Marilao, Bulacan ownedand developed by SIREDYENTERPRISES and Mr. Ismael E.Yanga, Sr.;

3.) That, the PRINCIPAL has contractedto build the said units at the amountof FORTY FIVE THOUSAND(P45,000.00) PESOS for the 2-bedroom single and SIXTY NINETHOUSAND (P69,000.00) PESOS,Philippine Currency for the duplexresidences;

4.) That, the CONTRACTOR intends tobuild for the PRINCIPAL eighty (80)units singles and eighteen (18) unitsduplex residences at the cost abovementioned or a lump sum total ofFOUR MILLION, EIGHT HUNDREDFORTY TWO THOUSAND(P4,842,000.00) PESOS, PhilippineCurrency;

5.) That, the CONTRACTOR agrees tosupply all Construction Materials,labor, tools and equipmentsnecessary for the completion of thesaid housing units;

6.) That, the PRINCIPAL agrees to pay allnecessary permits and papers inaccordance with Government rulesand regulations;

7.) That, the PRINCIPAL agrees to supplywater and electrical facilities neededduring the time of construction;

8.) That, the manner of payment shall bein accordance with SSS releases.Should the SSS fail to pay thePRINCIPAL, the PRINCIPAL is still inobligation to pay the CONTRACTORfor whatever accomplishments theCONTRACTOR havefinished provided, that the failure of

the SSS to pay is not due todefective work of the CONTRACTOR;

9.) That, the CONTRACTOR promises tofinish the project at the rate of TEN(10) units in THIRTY (30) days or atotal of THREE HUNDRED (300)working days;

10.) That, the integral part of thisCONTRACT are:

a. Plans and Specifications

b. Subdivision Plan indicatingthe Lot location of each unit

c. Authority of the NationalHousing Authority;

11.) That, the CONTRACTOR agree[s] tostart work on the housing units thirty(30) days after signing of thisCONTRACT.

NOW THEREFORE, for and in consideration of theamount of FOUR MILLION, EIGHT HUNDRED FORTYTWO THOUSAND (P4,842,000.00) PESOS, PhilippineCurrency, the PARTIES agree and herein set theirhands on the date and place above-mentioned.

x x x

From October 1978 to April 1990, De Guzmanconstructed 26 residential units at YsmaelVillage. Thirteen (13) of these were fully paid butthe other 13 remained unpaid. The totalcontractual price of these 13 unpaid houses isP412,154.93 which was verified and confirmed tobe correct by Santos, per an AccomplishmentBilling[11] that the latter signed.

De Guzman tried but failed to collect theunpaid account from petitioner. Thus, he institutedthe action below for specific performance againstSiredy, Yanga, and Santos who all denied liability.

During the trial, Santos disappeared and hiswhereabouts remain unknown.

In its defense, petitioner presentedtestimonial evidence to the effect that Siredy hadno contract with De Guzman and had notauthorized Santos to enter into a contract withanyone for the construction of housing units atYsmael Village.

The trial court agreed with petitioner basedon the doctrine of privity of contract and gave thefollowing rationale:[12]

The Deed of Agreement (Exh. A and A-1) clearlyreflects that the said contract was entered into byand between plaintiff De Guzman, on one hand,and defendant Hermogenes B. Santos as purportedauthorized representative of defendant SiredyEnterprises, on the other. Plainly and clearlyenough, defendants Siredy Enterprises and IsmaelYanga, Sr. were neither parties nor signatories tothe same. It does not bear any legal significancethat Dr. Yanga appears to have signed the Letter ofAuthority (Exh. B) designating defendant Santos asthe authorized representative for myself and aspresident of the Siredy Enterprises, Inc. For theevidentiary fact remains that Siredy Enterprisesand Dr. Yanga had absolutely had nothing to dowith the fulfillment of the terms and conditionsstipulated in the Deed of Agreement, much lesshad they benefited in any perceptible degreetherefrom.

In the light of the foregoing circumstances, SiredyEnterprises and Dr. Yanga cannot be held liable infavor of the plaintiff in any manner whatsoeverrespecting the unpaid residential units constructedby the plaintiff. This is as it should be, becausecontracts take effect only between the parties,their assigns and heirs, except only in the casesprovided for by law. (Art. 1311, Civil Code of thePhilippines). Not one of the exceptions obtains inthis case.[13]

Thus, the trial court disposed of the case asfollows:

WHEREFORE, premises considered, judgment ishereby rendered:

a) directing defendant Hermogenes B.Santos to pay unto plaintiff Conradode Guzman the amount of

P412,154.93 as actual damages withlegal interest thereon from the filingof the complaint on July 29, 1982until the same shall have been fullypaid, and P25,000.00 as attorneysfees, plus costs;

b) dismissing the above-entitled case asagainst defendants SiredyEnterprises, Inc. and Dr. IsmaelYanga, Sr.

SO ORDERED.[14]

On appeal, De Guzman obtained a favorablejudgment from the Court of Appeals. The appellatecourt held that the Letter of Authority duly signedby Yanga clearly constituted Santos as Siredysagent,[15] whose authority included entering into acontract for the building of housing units at YsmaelVillage. Consequently, Siredy cannot deny liabilityfor the Deed of Agreement with private respondentDe Guzman, since the same contract was enteredinto by Siredys duly designated agent,Santos. There was no need for Yanga himself to bea signatory to the contract, for him and Siredy tobe bound by the terms thereof.

Hence, the Court of Appeals held:

WHEREFORE, We find merit in the appeal and Wehereby REVERSE the appealed Decision. In itsstead, we render the following verdict: AppelleeSiredy Enterprises. Inc. is ordered to pay appellantConrado de Guzman cost (sic) and P412,154.93 asactual damage plus legal interest thereon from thefiling of the Complaint on July 29, 1982 until fullpayment thereof. All other claims andcounterclaims are dismissed.

SO ORDERED.[16]

Petitioner Siredy Enterprises, Inc. now comesto us via a petition for review on certiorari[17] underRule 45 of the Rules of Court, on the followinggrounds:

I. RESPONDENT COURT ERRED INHOLDING THAT A VALID AGENCY WASCONSTITUTED DESPITE THE FACT

THAT PETITIONER WAS NOTINVOLVED IN THE CONSTRUCTIONBUSINESS;

II. RESPONDENT COURT ERRED INFAILING TO CONSIDER A VITALPROVISION IN THE DEED OFAGREEMENT (PAR. 8), WHEN ITRENDERED ITS DECISION; and

III. RESPONDENT COURT ERRED INFAILING TO CONSIDER THAT PRIVATERESPONDENT WAS NOT ENTITLED TOHIS CLAIM AS HE WAS THE PARTYWHO VIOLATED THE CONTRACT.[18]

We find two main issues presented forresolution: First, whether or not Hermogenes B.Santos was a duly constituted agent of Siredy, withauthority to enter into contracts for theconstruction of residential units in Ysmael Villageand thus the capacity to bind Siredy to the Deed ofAgreement; and Second, assuming arguendo thatSiredy was bound by the acts of Santos, whether ornot under the terms of the Deed of Agreement,Siredy can be held liable for the amount sought tobe collected by private respondent De Guzman.

By the relationship of agency, one partycalled the principal authorizes another called theagent to act for and in his behalf in transactionswith third persons. The authority of the agent to actemanates from the powers granted to him by hisprincipal; his act is the act of the principal if donewithin the scope of the authority. He who actsthrough another acts himself.[19]

Was Santos then an agent of Siredy? Was heacting within the scope of his authority?

Resolution of the first issue necessitates areview of the Letter of Authority executed byIsmael E. Yanga as president of Siredy in favor ofSantos. Within its terms can be found the natureand extent of the authority granted to Santoswhich, in turn, determines the extent of Siredysparticipation in the Deed of Agreement.

On its face, the instrument executed by Yangaclearly and unequivocally constituted Santos to doand execute, among other things, the act of

negotiating and entering into contract orcontracts to build Housing Units on our subdivisionlots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.[20] Nothing could be more express than the writtenstipulations contained therein.

It was upon the authority of this documentthat De Guzman transacted business with Santosthat resulted in the construction contractdenominated as the Deed of Agreement.

However, petitioner denies any liability bystating that: (1) the nature of Siredys business didnot involve the construction of housing units sinceit was merely engaged in the selling of empty lots;(2) the Letter of Authority is defective, and henceneeded reformation; (3) Santos entering into theDeed of Agreement was invalid because the samewas in excess of his authority; and (4) there is nowimplied revocation of such Letter of Authority.

Testifying on the nature of the business andthe business practices of Siredy, its owner Yangatestified[21] that Siredy was interested only in thesale of lots. It was up to the buyers, as owners, toconstruct their houses in the particular style theyprefer. It was allegedly never the practice of thecompany to sell lots with houses already erectedthereon. On the basis of the foregoing testimony,petitioner states that despite the letter of authority,it is quite certain that such provision would goagainst the nature of the business of Siredy as thesame has absolutely no capability of undertakingsuch a task as constructing houses.

However, the self-serving contention ofpetitioner cannot stand against the documentaryevidence clearly showing the companys liability toDe Guzman. As we stated in the case ofCuizon vs.Court of Appeals:[22]

As it is, the mere denial of petitioner cannotoutweigh the strength of the documentaryevidence presented by and the positive testimonyof private respondents. As a jurist once said, Iwould sooner trust the smallest slip of paper fortruth than the strongest and most retentivememory ever bestowed on moral man.[23]

Aside from the Letter of Authority, SiredysArticles of Incorporation, duly approved by the

Securities and Exchange Commission, shows thatSiredy may also undertake to erect buildings andhouses on the lots and sell, lease, or otherwisedispose of said properties to interested buyers.[24] Such Articles, coupled with the Letter ofAuthority, is sufficient to have given De Guzmanreason to believe that Santos was duly authorizedto represent Siredy for the purpose stated in theDeed of Agreement. Petitioners theory that itmerely sold lots is effectively debunked.

Thus, it was error for the trial court to haveignored the Letter of Authority. As correctly held bythe Court of Appeals:

There is absolutely no question that the Letter ofAuthority (Exhibit B) executed by appellee Yangaconstituted defendant Santos as his and appelleeSiredys agent. As agent, he was empowered interalia to enter into a contract to build housing unitsin the Ysmael Village. This was in furtherance ofappellees business of developing and subdividinglands, erecting houses thereon, and selling them tothe public.

x x x [25]

We find that a valid agency was createdbetween Siredy and Santos, and the authorityconferred upon the latter includes the power toenter into a construction contract to build housessuch as the Deed of Agreement between Santosand De Guzmans Jigscon Construction. Hence, theinescapable conclusion is that Siredy is bound bythe contract through the representation of its agentSantos.

The basis of agency is representation, that is, theagent acts for and in behalf of the principal onmatters within the scope of his authority (Art,1881) and said acts have the same legal effect as ifthey were personally done by the principal. By thislegal fiction of representation, the actual or legalabsence of the principal is converted into his legalor juridical presence.[26]

Moreover, even if arguendo Santos mandatewas only to sell subdivision lots as Siredy asserts,the latter is still bound to pay De Guzman. DeGuzman is considered a third party to the agencyagreement who had no knowledge of the specific

instructions or agreements between Siredy and itsagent. What De Guzman only saw was the writtenLetter of Authority where Santos appears to be dulyauthorized. Article 1900 of the Civil Code provides:

Art. 1900. So far as third persons are concerned, anact is deemed to have been performed within thescope of the agents authority, if such act is withinthe terms of the power of attorney, as written, evenif the agent has in fact exceeded the limits of hisauthority according to an understanding betweenthe principal and the agent.

The scope of the agents authority is whatappears in the written terms of the power ofattorney. While third persons are bound to inquireinto the extent or scope of the agents authority,they are not required to go beyond the terms of thewritten power of attorney. Third persons cannot beadversely affected by an understanding betweenthe principal and his agent as to the limits of thelatters authority. In the same way, third personsneed not concern themselves with instructionsgiven by the principal to his agent outside of thewritten power of attorney.

The essence of agency being therepresentation of another, it is evident that theobligations contracted are for and on behalf of theprincipal. This is what gives rise to the juridicalrelation. A consequence of this representation isthe liability of the principal for the acts of his agentperformed within the limits of his authority that isequivalent to the performance by the principalhimself who should answer therefor.[27]

Petitioner belatedly asserts, however, that theLetter of Authority was defective as it allegedlyfailed to reduce into writing the real intentions ofthe parties, and insists on its reformation.

Such an argument deserves scantconsideration. As found by the Court of Appeals,being a doctor of medicine and a businessman,Yanga knew the meaning and import of thisdocument and had in fact admitted having signedit. As aptly observed by the Court of Appeals, thereis no evidence that ante litem, he abrogated theLetter of Authority and withdrew the powerconferred on Santos.

Siredys contention that the present case is ineffect a revocation of the Letter of Authority alsodeserves scant consideration. This is a patentlyerroneous claim considering that it was, in fact,private respondent De Guzman who instituted thecivil case before the RTC.

With regard to the second issue put forth bypetitioner, this Court notes that this issue is beingraised for the first time on appeal. From the trial inthe RTC to the appeal before the Court of Appeals,the alleged violation of the Deed of Agreement byConrado de Guzman was never put inissue. Heretofore, the substance of petitionersdefense before the courts a quoconsisted of itsdenial of any liability under the Deed of Agreement.

As we held in the case of Safic Alcan & Cie vs.Imperial Vegetable Oil Co., Inc.:[28]

It must be borne in mind that a question that wasnever raised in the courts below cannot be allowedto be raised for the first time on appeal withoutoffending basic rules of fair play, justice and dueprocess. Such an issue was not brought to the foreeither in the trial court or the appellate court, andwould have been disregarded by the latter tribunalfor the reasons previously stated. With morereason, the same does not deserve considerationby this Court.[29]

WHEREFORE, this petition is DENIED for lackof merit. The Decision of the Court of Appealsdated April 26, 1996, in CA-G.R. CV No. 30374, ishereby AFFIRMED. Petitioner Siredy Enterprises,Inc. is ordered to pay Conrado de Guzman actualdamages in the amount of P412,154.93, with legalinterest thereon from the time the case was fileduntil its full payment.Costs against petitioner.

SO ORDERED.

G.R. No. 85685 September 11, 1991

LAURO CRUZ, petitioner, vs.THE HONORABLE COURT OF APPEALS andPURE FOODS CORP., respondents.

DAVIDE, JR., J.:p

In C.A.-G.R. CV No. 07859 (entitled Pure FoodsCorporation versus Lauro Cruz, doing businessunder the name and style Mang Uro Store), adecision was promulgated on 9 August 1988 byrespondent Court of Appeals 1affirming in toto thedecision promulgated on 28 February 1985 of theRegional Trial Court of Pasig (Branch 151) of theNational Capital Judicial Region in Civil Case No.49672 2 which, by reason of its unusual brevity, isfully reproduced as follows:

DECISION

This is an action for sum ofmoney. From the record, thefollowing facts are gathered: Theplaintiff is a domestic corporationengaged in the manufacture,processing and selling of variousmeat products while thedefendant is the owner/managerof Mang Uro Store in Dela PazStreet, Marikina, Metro Manila.Sometime in November 1977, thedefendant was granted by theplaintiff a credit line on which thedefendant, on several occasions,bought on credit severalPurefoods products. Thedefendant had an unpaid balancewith the plaintiff in the amount ofP57,897.63, from which theformer was credited the amountof P2,651.42 representing theamount of returned goods,thereby leaving the balance of P55,246.21. Demands were madeupon the defendant for him tosettle his account with theplaintiff. A demand letter datedJanuary 17, 1983 was sent to and

was received by the defendantwho failed to heed the same. Theplaintiff, to protect its interest,was constrained to hire theservices of counsel.

WHEREFORE, judgment is herebyrendered in favor of the plaintiffand against the defendant,ordering the latter to pay theformer the following:

1. The sum of P 55,246.21,representing his outstandingunpaid account plus interest of12% percent per annum to becounted from the date of thefiling of this case on April 15,1983 until fully paid; and

2. The sum equivalent to 15% ofthe total amount due as and forattorney's fees and litigationexpenses.

Costs against the defendant.

SO ORDERED.

His motion for reconsideration having been deniedin the resolution of respondent Court on 27 October1988, 3petitioner filed the instant appeal bycertiorari under Rule 45 of the Rules of Court urgingUs to annul and set aside the aforesaid decisionand resolution because respondent Courtcommitted the following errors — which are thevery errors he ascribed to the trial court: (a) in notholding that petitioner is not a signatory to thecredit application card attached as Annex "A" ofprivate respondent's complaint as clearlyevidenced by the fact that only the signaturesof Me Cruz and Marilou Cruz, who are notimpleaded as party defendants, appear therein; (b)in not holding that his signature does not appear inthe invoices submitted by private respondent; (c) innot holding that he did not receive the letters ofdemand; (d) in not finding and concluding thatprivate respondent failed to comply with the Orderof the trial court to amend the complaint; and (e) indenying his motion for reconsideration.

The antecedent facts are not disputed.

On 15 April 1983, private respondent Pure FoodsCorporation filed with the trial court acomplaint 4 for sum of money against petitioneralleging therein that sometime in November 1977,petitioner applied for a credit line with the plaintiffwhich was consequently approved by the lattersubject to the conditions therein stated; pursuantto said approved credit arrangement, defendant(petitioner herein) made various purchases fromplaintiff until the early part of 1982, when heaccumulated a total unpaid account of P57,897.63as evidenced by short payment notices andinvoices; against this obligation, defendant wascredited with the amount of P2,651.42 representingthe value of returned goods, thereby leaving abalance of P55,246.21, which remained unpaiddespite numerous demands made upon him.

The parties who signed the Credit Application cardas applicants are Me Cruz, who signed over theprinted wordsname of signatory, and Marilou L.Cruz, who signed over the printedwords Authorized Signature. The openingparagraph thereof reads:

I/We hereby apply for a chargeaccount in the amount statedabove, and herewith are theinformation for yourconsideration as a basis for theextension of credit to us:

TRADE NAME: MANG URO STORE

Owner/Manager: Lauro Cruz

xxx xxx xxx

Petitioner did not sign any of the invoices attachedto the complaint.

For failure to file an answer within thereglementary period, and upon motion of privaterespondent, the trial court issued an Order on 29September 1983 declaring the petitioner in defaultand authorizing the private respondent to presentits evidence ex parte on 4 October 1983. 5

On 19 October 1983, petitioner filed a motion toset aside the order of default 6 alleging therein thathe did not file an answer anymore because uponexamination of the records of the case, hediscovered that it was his son Rodolfo who receivedthe summons and copy of the complaint; he neverentered into any transaction with privaterespondent and that although the store referred tois still licensed in his name, it has, since 1977, beenowned and operated by his son Rodolfo Cruz for thereason that he "is getting old already andmoreover, because of deteriorating physicalcondition;" and according to his son Rodolfo, hehad already settled the matter with the privaterespondent under an agreement whereby Rodolfowould make partial payments and the privaterespondent would dismiss the case.

In its Order of 9 November 1983, 7 the trial courtgranted the aforesaid motion, required petitioner tofile his responsive pleading within five (5) days,and to present his evidence on 6 January 1984.

Petitioner filed an Answer With Counterclaim on 28March 1983. 8 He reiterates therein his allegationsin the motion to lift the default order and furtheravers that his signature does not even appear onthe credit application card. On the counter-claim,he prays for judgment awarding him moraldamages in an amount to be proved at the trial,and attorney's fees in the amount of P15,000.00.

Pre-trial was set on 2 January 1984. It was reset bythe trial court for 19 January 1984, and furtherreset for 21 February 1984 at 1:00 P.M. uponmotion of private respondent. On the lastmentioned date, however, petitioner arrived lateand by then, the court had already issued an orderdeclaring him in default for failure to appear at thepre-trial. Forthwith, he filed a motion forreconsideration which the trial court granted in itsorder of 22 February 1984. Pre-trial was reset to 27March 1984. 9

Pre-trial was held as above scheduled and wasconcluded with the issuance of the following order:

As prayed for, the plaintiff isgiven ten (10) days from today tofile amended complaint.

By agreement, the presentationof defendant's evidence is set forMay 16, 1984, at 8:30 a.m.,without prejudice to the filing of acompromise agreement. 10

As stated by petitioner, 11 which is not denied byprivate respondent, the purpose of the amendmentwas to implead Me Cruz and Marilou Cruz as partiesdefendants since they are the applicants in thecredit application card.

Both parties did not appear on 16 May 1984.Thereupon, the trial court issued an order declaringthe case as submitted for decision on the basis ofthe evidence on record. 12

As adverted to earlier, on 28 February 1985, thetrial court rendered its decision against petitionerwho, on 21 March 1985, filed a motion toreconsider 13 the decision, which the trial courtdenied for lack of merit in its order of 16 May1985. 14

Petitioner appealed from the decision to the thenIntermediate Appellate Court, now Court ofAppeals.

The appeal was docketed as C.A.-G.R. CV No.07859.

In his Brief in said case, petitioner attributes to thetrial court the errors 15 which, as earlier mentioned,are the very same errors submitted before Us ashaving been committed by the respondent court.

According to the respondent Court, these errorsbring into focus one crucial issue: the liability ofpetitioner for the amounts adjudged by the trialcourt in favor of private respondent. It held thatpetitioner is liable because in his motion to setaside the order of default, he admitted that theMang Uro Store is still licensed under his name andthe credit application card indicates that he is theowner/manager thereof. Hence, even on theassumption that there had been a transfer ofownership and management of the store to RodolfoCruz, previous to the transactions made withappellee, petitioner permitted the business to becarried on in his name as its ostensible owner.Private respondent should not be expected to be

aware of such a transfer and whatever agreementor understanding appellant had with petitioner'sson Rodolfo regarding the store cannot bind oraffect private respondent, for mattersaccomplished between two parties ought not tooperate to the prejudice of a thirdperson.16 Accordingly, it also finds as superfluousthe amendment of the complaint for the purpose ofimpleading Rodolfo Cruz, Marilou Cruz and Me Cruz;moreover, it contends that failure to amend thecomplaint is no cause for reversal because thesepersons were known to private respondent aspetitioner's "progeny"; besides, the transfer ofbusiness, if indeed there was such, is a matter ofdefense which need not be "negatived" in thecomplaint. A complaint should not, by theaverments, anticipate a defense thereto.

In respect to the failure of private respondent tocomply with the order of 27 March 1984 directing itto amend the complaint, respondent Court heldthat the non-compliance was "muted by thesubsequent order of 16 May 1984 which consideredthe case submitted for decision." By such order,the trial court gave its assent to resolving the caseon the basis of the unamended complaint. Section11 of Rule 3 (erroneously stated as Section 3 ofRule 11) of the Rules of Court provides that partiesmay be dropped or added by order of the court onmotion of any party or on its own initiative at anystage of the action and on such terms as are just;in the instant case, it may be inferred that the trialcourt opted to resolve the case without theproposed change in parties defendants.

Finally, it ruled that both oral and documentaryevidence presented at the hearing on 3 October1983 proved petitioner's unsatisfied obligation tothe private respondent.

To bring this petition within Our authority,petitioner asserts, in effect, that at the bottom ofthe assigned errors is the issue of whether therespondent Court has made conclusions of factwhich are not substantiated by the evidence onrecord. Petitioner asserts that it did.

We have held in a long line of cases that findings offacts of the Court of Appeals are conclusive uponthis Court.17 There are, however, recognizedexceptions to this rule, 18 as where the findings aretotally devoid of support in the record, or are

glaringly erroneous as to constitute serious abuseof discretion, 19 or when the findings are groundedentirely on speculation, surmise or conjecture. 20

Deliberating on this case, We hold that the findingsand conclusions of both the trial court and therespondent Court are not supported by theevidence and that such conclusions are glaringlyerroneous. This petition is impressed with merit.

In its very brief decision, the trial court, withouteven laying the factual premises, made a sweepingconclusion that it was the petitioner who appliedfor a credit line with private respondent and whichthe latter approved for him; on the basis of suchapproval, he subsequently bought Purefoodsproducts on credit from private respondent.Evidently, the trial court may have in mind theCredit Application Card 21 and the several invoicesfor the delivery of the goods. 22 But as correctlypointed out by the petitioner, and as thedocuments themselves show, he did not sign anyof them.

It is the respondent Court which endeavored tosupply the arguments in support of the foregoingconclusion. According to the respondent court:

In his Motion to Set Aside Orderof Default filed on October 19,1983 appellant 23 admitted thatsubject store is still licensedunder his name ... Also, the creditapplication card accomplished inbehalf of the store clearlyindicates appellant asowner/manager thereof ... Hence,even on the assumption thatthere really had been a transferof ownership and management ofthe "Mang Uro Store" to RodolfoCruz previous to the transactionsmade with appellee 24 the fact isthat appellant permitted thecarrying of the business of Idstore with him as ostensibleowner. Appellee should not beexpected to be aware of suchtransfer. Whatever privateagreement or understandingappellant made with his sonRodolfo regarding the store

cannot bind or affect appellee.Insofar as the latter is concerned,the store is business property ofappellant. The maxim res interalios acta alteri nocere nondebet is square. Mattersaccomplished between twoparties ought not to operate tothe prejudice of a third person(Blanza vs. Arcangel, 21 SCRA 4;Perez vs. Mendoza, 65 SCRA 493;Tinitigan vs. Tinitigan 100 SCRA636). 25

Unfortunately, however, this conclusion is bereft ofsubstantial factual basis and disregardsfundamental principles concerning the primaryduty of persons dealing with parties who act forothers, and of estoppel. Indisputably, the creditapplication card is a form prepared and supplied byprivate respondent. There is no evidence, muchless an allegation by private respondent, that itwas petitioner who filled up the entries in saidform. It is logical to presume then that the partieswho signed it (Me Cruz and Marilou L. Cruz), oranyone of them, made or accomplished the entries.Needless to state, since on the face of thedocument, the "owner/manager" of the "Mang UroStore", which is written on the column Trade Name,is Lauro Cruz, and not the parties signing the same,it was incumbent upon the private respondent toinquire into the relationship of the signatories tothe petitioner or to satisfy itself as to theirauthority to act for or represent the petitioner.Under the circumstances, it is apparent thatpetitioner had no direct participation and that thetwo applicants could have acted without authorityfrom him or as his duly authorized representatives.In either case, for the protection of its interest,private respondent should have made thenecessary inquiry verification as to the authority ofthe applicants and to find out from them whetherLauro Cruz is both the owner and manager ormerely the owner or the manager, for that is what"owner/manager" in its form could signify.

A person dealing with an agent is put upon inquiryand must discover upon his peril the authority ofthe agent. 26It is for this reason that under ArticleNo. 1902 of the Civil Code, a third person withwhom the agent wishes to contract on behalf of theprincipal may require the presentation of the powerof attorney, or the instructions as regards the

agency, and that private or secret orders andinstructions of the principal do not prejudice thirdpersons who have relied upon the power ofattorney or instructions shown them.

In short, petitioner is not under estoppel, as againstthe claim of private respondent, which seems to beat the bottom of the respondent Court'srationalization.

In Kalalo vs. Luz, 27 We held that the essentialelements of estoppel in respect to the partyclaiming it are: (a) lack of knowledge and of themeans of knowledge of the truth as the facts inquestion; (b) reliance, in good faith, upon theconduct or statements of the party to be estopped;and (c) action or inaction based thereon of suchcharacter as to change the position or status of theparty claiming the estoppel, to his injury,detriment, or prejudice.

The above disquisitions ineluctably show theabsence of said elements in this case.

In the instant case, there is no showing at all thatprivate respondent tried to ascertain the ownershipof Mang Uro Store and the extent of the authorityof the applicants to represent Lauro Cruz at anytime before it approved the credit application card.

There is as well no evidence, much less any claimby private respondent, that before Me Cruz andMarilou Cruz signed the credit application card, ithad been dealing with petitioner or the Mang UroStore, or that for sometime prior thereto, petitionerever represented to it as the owner of the storethat he has authorized the above signatories torepresent him in any transaction. Clearly, it waserror for the respondent Court to conclude thatpetitioner should be held liable to privaterespondent on account of the credit applicationcard on the theory that he permitted the carryingof the business of the store. This theory furthererroneously assumes that the business of the storebefore the filing of the credit application cardincluded the sale of products of private respondent.There is evidence on this appoint.

Moreover, it is apparent that the purpose of therequest of private respondent to file an amendedcomplaint within ten (10) days from 27 March

1984, the date when the pre-trial was held, whichthe trial court granted, 28 was precisely to impleadthe signatories to the credit application card. Thiswas precisely prompted by the insistence ofpetitioner that he is not liable for the claims in thecomplaint because he did not sign the credit cardapplication and the invoices. In short, he iserroneously impleaded as defendant. Since amongthe matters to be considered at pre-trial is thenecessity or desirability of amendments topleadings, 29 the request was seasonably andproperly made.

Private respondent did not amend the complaintwithin the period aforesaid. So, when the case wascaned for heating on 16 May 1984, pursuant to theOrder of 27 March 1984, and the parties did notappear, the trial court should have dismissed thecase for failure on the part of private respondent tofile the amended complaint. Such dismissal isauthorized under Section 3 of Rule 17 of the Rulesof Court. The respondent Court, however, brushedaside this point by holding that the non-complianceby private respondent "was muted by thesubsequent order dated May 16, 1984 whichsubmitted the case for decision;" and that by saidorder "the trial court appears to have given itsassent to resolving the case on the basis of theunamended complaint," which is authorized bySection 11 of Rule 3 of the Rules of Court. Althoughthis justification is flimsy and begs the question,the foregoing resolution on the issue of petitioner'sliability to the private respondent rendersunnecessary further discussion on the remainingassigned errors.

WHEREFORE, the instant petition is GRANTED, andthe decision of the respondent Court of Appeals of9 August 1988 and its resolution of 27 October1988 in C.A.-G.R. CV No. 07859, as well as thedecision of the trial court of 28 February 1985 inCivil Case No. 49672, are hereby REVERSED andSET ASIDE. With costs against private respondent.

SO ORDERED.

G.R. No. 88866 February 18, 1991METROPOLITAN BANK & TRUSTCOMPANY, petitioner, vs.COURT OF APPEALS, GOLDEN SAVINGS &LOAN ASSOCIATION, INC., LUCIA CASTILLO,MAGNO CASTILLO and GLORIACASTILLO, respondents.Angara, Abello, Concepcion, Regala & Cruz forpetitioner.Bengzon, Zarraga, Narciso, Cudala, Pecson &Bengson for Magno and Lucia Castillo.Agapito S. Fajardo and Jaime M. Cabiles forrespondent Golden Savings & Loan Association,Inc.

CRUZ, J.:This case, for all its seeming complexity, turns on asimple question of negligence. The facts, pruned ofall non-essentials, are easily told.The Metropolitan Bank and Trust Co. is acommercial bank with branches throughout thePhilippines and even abroad. Golden Savings andLoan Association was, at the time these eventshappened, operating in Calapan, Mindoro, with theother private respondents as its principal officers.In January 1979, a certain Eduardo Gomez openedan account with Golden Savings and depositedover a period of two months 38 treasury warrantswith a total value of P1,755,228.37. They were alldrawn by the Philippine Fish Marketing Authorityand purportedly signed by its General Manager andcountersigned by its Auditor. Six of these weredirectly payable to Gomez while the othersappeared to have been indorsed by their respectivepayees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16,1979, all these warrants were subsequentlyindorsed by Gloria Castillo as Cashier of GoldenSavings and deposited to its Savings Account No.2498 in the Metrobank branch in Calapan, Mindoro.They were then sent for clearing by the branchoffice to the principal office of Metrobank, whichforwarded them to the Bureau of Treasury forspecial clearing. 2

More than two weeks after the deposits, GloriaCastillo went to the Calapan branch several timesto ask whether the warrants had been cleared. Shewas told to wait. Accordingly, Gomez wasmeanwhile not allowed to withdraw from hisaccount. Later, however, "exasperated" overGloria's repeated inquiries and also as anaccommodation for a "valued client," the petitionersays it finally decided to allow Golden Savings towithdraw from the proceeds of thewarrants. 3

The first withdrawal was made on July 9, 1979, inthe amount of P508,000.00, the second on July 13,1979, in the amount of P310,000.00, and the thirdon July 16, 1979, in the amount of P150,000.00.The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowedGomez to make withdrawals from his own account,eventually collecting the total amount ofP1,167,500.00 from the proceeds of the apparentlycleared warrants. The last withdrawal was made onJuly 16, 1979.On July 21, 1979, Metrobank informed GoldenSavings that 32 of the warrants had beendishonored by the Bureau of Treasury on July 19,1979, and demanded the refund by Golden Savingsof the amount it had previously withdrawn, to makeup the deficit in its account.The demand was rejected. Metrobank then suedGolden Savings in the Regional Trial Court ofMindoro. 5 After trial, judgment was rendered infavor of Golden Savings, which, however, filed amotion for reconsideration even as Metrobank filedits notice of appeal. On November 4, 1986, thelower court modified its decision thus:

ACCORDINGLY, judgment is herebyrendered:1. Dismissing the complaint with costsagainst the plaintiff;2. Dissolving and lifting the writ ofattachment of the properties of defendantGolden Savings and Loan Association, Inc.and defendant Spouses Magno Castilloand Lucia Castillo;3. Directing the plaintiff to reverse itsaction of debiting Savings Account No.2498 of the sum of P1,754,089.00 and toreinstate and credit to such account suchamount existing before the debit wasmade including the amount ofP812,033.37 in favor of defendant GoldenSavings and Loan Association, Inc. andthereafter, to allow defendant GoldenSavings and Loan Association, Inc. towithdraw the amount outstanding thereonbefore the debit;4. Ordering the plaintiff to pay thedefendant Golden Savings and LoanAssociation, Inc. attorney's fees andexpenses of litigation in the amount ofP200,000.00.5. Ordering the plaintiff to pay thedefendant Spouses Magno Castillo andLucia Castillo attorney's fees andexpenses of litigation in the amount ofP100,000.00.SO ORDERED.

On appeal to the respondent court, 6 the decisionwas affirmed, prompting Metrobank to file thispetition for review on the following grounds:

1. Respondent Court of Appeals erred indisregarding and failing to apply the clearcontractual terms and conditions on thedeposit slips allowing Metrobank to chargeback any amount erroneously credited.

(a) Metrobank's right to chargeback is not limited to instanceswhere the checks or treasurywarrants are forged orunauthorized.(b) Until such time as Metrobankis actually paid, its obligation isthat of a mere collecting agentwhich cannot be held liable for itsfailure to collect on the warrants.

2. Under the lower court's decision,affirmed by respondent Court of Appeals,Metrobank is made to pay for warrantsalready dishonored, thereby perpetuatingthe fraud committed by Eduardo Gomez.3. Respondent Court of Appeals erred innot finding that as between Metrobankand Golden Savings, the latter should bearthe loss.4. Respondent Court of Appeals erred inholding that the treasury warrantsinvolved in this case are not negotiableinstruments.

The petition has no merit.From the above undisputed facts, it would appearto the Court that Metrobank was indeed negligentin giving Golden Savings the impression that thetreasury warrants had been cleared and that,consequently, it was safe to allow Gomez towithdraw the proceeds thereof from his accountwith it. Without such assurance, Golden Savingswould not have allowed the withdrawals; with suchassurance, there was no reason not to allow thewithdrawal. Indeed, Golden Savings might evenhave incurred liability for its refusal to return themoney that to all appearances belonged to thedepositor, who could therefore withdraw it any timeand for any reason he saw fit.It was, in fact, to secure the clearance of thetreasury warrants that Golden Savings depositedthem to its account with Metrobank. GoldenSavings had no clearing facilities of its own. Itrelied on Metrobank to determine the validity of thewarrants through its own services. The proceeds ofthe warrants were withheld from Gomez untilMetrobank allowed Golden Savings itself towithdraw them from its own deposit. 7 It was onlywhen Metrobank gave the go-signal that Gomez

was finally allowed by Golden Savings to withdrawthem from his own account.The argument of Metrobank that Golden Savingsshould have exercised more care in checking thepersonal circumstances of Gomez before acceptinghis deposit does not hold water. It was Gomez whowas entrusting the warrants, not Golden Savingsthat was extending him a loan; and moreover, thetreasury warrants were subject to clearing, pendingwhich the depositor could not withdraw itsproceeds. There was no question of Gomez'sidentity or of the genuineness of his signature aschecked by Golden Savings. In fact, the treasurywarrants were dishonored allegedly because of theforgery of the signatures of the drawers, not ofGomez as payee or indorser. Under thecircumstances, it is clear that Golden Savings actedwith due care and diligence and cannot be faultedfor the withdrawals it allowed Gomez to make.By contrast, Metrobank exhibited extraordinarycarelessness. The amount involved was not trifling— more than one and a half million pesos (and thiswas 1979). There was no reason why it should nothave waited until the treasury warrants had beencleared; it would not have lost a single centavo bywaiting. Yet, despite the lack of such clearance —and notwithstanding that it had not received asingle centavo from the proceeds of the treasurywarrants, as it now repeatedly stresses — itallowed Golden Savings to withdraw — not once,not twice, but thrice — from the uncleared treasurywarrants in the total amount of P968,000.00Its reason? It was "exasperated" over the persistentinquiries of Gloria Castillo about the clearance andit also wanted to "accommodate" a valued client. It"presumed" that the warrants had been clearedsimply because of "the lapse of one week." 8 For abank with its long experience, this explanation isunbelievably naive.And now, to gloss over its carelessness, Metrobankwould invoke the conditions printed on the dorsalside of the deposit slips through which the treasurywarrants were deposited by Golden Savings with itsCalapan branch. The conditions read as follows:

Kindly note that in receiving items ondeposit, the bank obligates itself only asthe depositor's collecting agent, assumingno responsibility beyond care in selectingcorrespondents, and until such time asactual payment shall have come intopossession of this bank, the right isreserved to charge back to the depositor'saccount any amount previously credited,whether or not such item is returned. Thisalso applies to checks drawn on localbanks and bankers and their branches aswell as on this bank, which are unpaid due

to insufficiency of funds, forgery,unauthorized overdraft or any otherreason. (Emphasis supplied.)

According to Metrobank, the said conditions clearlyshow that it was acting only as a collecting agentfor Golden Savings and give it the right to "chargeback to the depositor's account any amountpreviously credited, whether or not such item isreturned. This also applies to checks ". . . which areunpaid due to insufficiency of funds, forgery,unauthorized overdraft of any other reason." It isclaimed that the said conditions are in the natureof contractual stipulations and became binding onGolden Savings when Gloria Castillo, as its Cashier,signed the deposit slips.Doubt may be expressed about the binding force ofthe conditions, considering that they haveapparently been imposed by the bank unilaterally,without the consent of the depositor. Indeed, itcould be argued that the depositor, in signing thedeposit slip, does so only to identify himself andnot to agree to the conditions set forth in the givenpermit at the back of the deposit slip. We do nothave to rule on this matter at this time. At any rate,the Court feels that even if the deposit slip wereconsidered a contract, the petitioner could still notvalidly disclaim responsibility thereunder in thelight of the circumstances of this case.In stressing that it was acting only as a collectingagent for Golden Savings, Metrobank seems to besuggesting that as a mere agent it cannot be liableto the principal. This is not exactly true. On thecontrary, Article 1909 of the Civil Code clearlyprovides that —

Art. 1909. — The agent is responsible notonly for fraud, but also for negligence,which shall be judged 'with more or lessrigor by the courts, according to whetherthe agency was or was not for acompensation.

The negligence of Metrobank has been sufficientlyestablished. To repeat for emphasis, it was theclearance given by it that assured Golden Savingsit was already safe to allow Gomez to withdraw theproceeds of the treasury warrants he had depositedMetrobank misled Golden Savings. There may havebeen no express clearance, as Metrobank insists(although this is refuted by Golden Savings) but inany case that clearance could be implied from itsallowing Golden Savings to withdraw from itsaccount not only once or even twice but threetimes. The total withdrawal was in excess of itsoriginal balance before the treasury warrants weredeposited, which only added to its belief that thetreasury warrants had indeed been cleared.Metrobank's argument that it may recover thedisputed amount if the warrants are not paid for

any reason is not acceptable. Any reason does notmean no reason at all. Otherwise, there would havebeen no need at all for Golden Savings to depositthe treasury warrants with it for clearance. Therewould have been no need for it to wait until thewarrants had been cleared before paying theproceeds thereof to Gomez. Such a condition, ifinterpreted in the way the petitioner suggests, isnot binding for being arbitrary and unconscionable.And it becomes more so in the case at bar when itis considered that the supposed dishonor of thewarrants was not communicated to Golden Savingsbefore it made its own payment to Gomez.The belated notification aggravated the petitioner'searlier negligence in giving express or at leastimplied clearance to the treasury warrants andallowing payments therefrom to Golden Savings.But that is not all. On top of this, the supposedreason for the dishonor, to wit, the forgery of thesignatures of the general manager and the auditorof the drawer corporation, has not beenestablished. 9 This was the finding of the lowercourts which we see no reason to disturb. And aswe said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al.v. IAC, et al., 139 SCRA 238). It must beestablished by clear, positive andconvincing evidence. This was not done inthe present case.

A no less important consideration is thecircumstance that the treasury warrants inquestion are not negotiable instruments. Clearlystamped on their face is the word "non-negotiable."Moreover, and this is of equal significance, it isindicated that they are payable from a particularfund, to wit, Fund 501.The following sections of the NegotiableInstruments Law, especially the underscored parts,are pertinent:

Sec. 1. — Form of negotiable instruments.— An instrument to be negotiable mustconform to the following requirements:(a) It must be in writing and signed by themaker or drawer;(b) Must contain an unconditional promiseor order to pay a sum certain in money;(c) Must be payable on demand, or at afixed or determinable future time;(d) Must be payable to order or to bearer;and(e) Where the instrument is addressed toa drawee, he must be named or otherwiseindicated therein with reasonablecertainty.x x x x x x x x xSec. 3. When promise is unconditional. —An unqualified order or promise to pay is

unconditional within the meaning of thisAct though coupled with —(a) An indication of a particular fund out ofwhich reimbursement is to be made or aparticular account to be debited with theamount; or(b) A statement of the transaction whichgives rise to the instrument judgment.But an order or promise to pay out of aparticular fund is not unconditional.

The indication of Fund 501 as the source of thepayment to be made on the treasury warrantsmakes the order or promise to pay "notunconditional" and the warrants themselves non-negotiable. There should be no question that theexception on Section 3 of the NegotiableInstruments Law is applicable in the case at bar.This conclusion conforms to Abubakar vs. AuditorGeneral 11 where the Court held:

The petitioner argues that he is a holder ingood faith and for value of a negotiableinstrument and is entitled to the rightsand privileges of a holder in due course,free from defenses. But this treasurywarrant is not within the scope of thenegotiable instrument law. For one thing,the document bearing on its face thewords "payable from the appropriation forfood administration, is actually an Orderfor payment out of "a particular fund," andis not unconditional and does not fulfillone of the essential requirements of anegotiable instrument (Sec. 3 lastsentence and section [1(b)] of theNegotiable Instruments Law).

Metrobank cannot contend that by indorsing thewarrants in general, Golden Savings assumed thatthey were "genuine and in all respects what theypurport to be," in accordance with Section 66 of theNegotiable Instruments Law. The simple reason isthat this law is not applicable to the non-negotiabletreasury warrants. The indorsement was made byGloria Castillo not for the purpose of guaranteeingthe genuineness of the warrants but merely todeposit them with Metrobank for clearing. It was infact Metrobank that made the guarantee when itstamped on the back of the warrants: "All priorindorsement and/or lack of endorsementsguaranteed, Metropolitan Bank & Trust Co., CalapanBranch."The petitioner lays heavy stress on Jai AlaiCorporation v. Bank of the Philippine Islands, 12 butwe feel this case is inapplicable to the presentcontroversy.1âwphi1 That case involved checkswhereas this case involves treasury warrants.Golden Savings never represented that thewarrants were negotiable but signed them only for

the purpose of depositing them for clearance. Also,the fact of forgery was proved in that case but notin the case before us. Finally, the Court found theJai Alai Corporation negligent in accepting thechecks without question from one Antonio Ramireznotwithstanding that the payee was the Inter-IslandGas Services, Inc. and it did not appear that he wasauthorized to indorse it. No similar negligence canbe imputed to Golden Savings.We find the challenged decision to be basicallycorrect. However, we will have to amend it insofaras it directs the petitioner to credit Golden Savingswith the full amount of the treasury checksdeposited to its account.The total value of the 32 treasury warrantsdishonored was P1,754,089.00, from which Gomezwas allowed to withdraw P1,167,500.00 beforeGolden Savings was notified of the dishonor. Theamount he has withdrawn must be charged not toGolden Savings but to Metrobank, which must bearthe consequences of its own negligence. But thebalance of P586,589.00 should be debited toGolden Savings, as obviously Gomez can no longerbe permitted to withdraw this amount from hisdeposit because of the dishonor of the warrants.Gomez has in fact disappeared. To also credit thebalance to Golden Savings would unduly enrich itat the expense of Metrobank, let alone the fact thatit has already been informed of the dishonor of thetreasury warrants.WHEREFORE, the challenged decision is AFFIRMED,with the modification that Paragraph 3 of thedispositive portion of the judgment of the lowercourt shall be reworded as follows:

3. Debiting Savings Account No. 2498 inthe sum of P586,589.00 only andthereafter allowing defendant GoldenSavings & Loan Association, Inc. towithdraw the amount outstanding thereon,if any, after the debit.

SO ORDERED.

G.R. No. 94050 November 21, 1991

SYLVIA H. BEDIA and HONTIVEROS &ASSOCIATED PRODUCERS PHILS. YIELDS,INC., petitioners, vs.EMILY A. WHITE and HOLMAN T.WHITE, respondents.

Ramon A. Gonzales for petitioner of the Court.

Renato S. Corpuz for private respondents.

CRUZ, J.:p

The basic issue before us is the capacity in whichpetitioner Sylvia H. Bedia entered into the subjectcontract with private respondent Emily A. White.Both the trial court and the respondent court heldshe was acting in her own personal behalf. Shefaults this finding as reversible error and insiststhat she was merely acting as an agent.

The case arose when Bedia and White entered intoa Participation Contract 1 reading in full as follows:

THE STATE FAIR OF TEXAS '80PARTICIPATION CONTRACT

PARTICIPANT (COMPANY NAME)EMILY WHITEENTERPRISES

I/We, the abovementionedcompany hereby agrees toparticipate in the 1980 DallasState Fair to be held in Dallas,Texas on October 3, to October19,1980. I/We request for a 15square meter booth space worth$2,250.00 U.S. Dollars.

I/We further understand that thisparticipation contract shall bedeemed non-cancellable afterpayment of the said down

payment, and that any intentionon our part to cancel the sameshall render whatever amount wehave paid forfeited in favor ofHONTIVEROS & ASSOCIATEDPRODUCERS PHILIPPINE YIELDS,INC.

FOR THE ABOVE CONSIDERATION,I/We understand theHONTIVEROS & ASSOCIATEDPRODUCERS PHIL. YIELDS, INC.shall: Reserve said booth for ourexclusive perusal; We alsounderstand that the above costincludes overall exterior boothdecoration and materials butdoes not include interior designswhich will be per ourspecifications and expenses.

PARTICIPANT'S PARTICIPATIONAUTHORIZED SIGNATURE:ACCEPTED BY:

(SGD.) EMILY WHITE (SGD.)SYLVIA H. BEDIADATE: 8/13/80 DATE: Aug. 1,1980

On August 10, 1986, White and her husband filed acomplaint in the Regional Trial Court of Pasay Cityfor damages against Bedia and Hontiveros &Associated Producers Phil. Yields, Inc. for damagescaused by their fraudulent violation of theiragreement. She averred that Bedia hadapproached her and persuaded her to participate inthe State of Texas Fair, and that she made a downpayment of $500.00 to Bedia on the agreed displayspace. In due time, she enplaned for Dallas withher merchandise but was dismayed to learn laterthat the defendants had not paid for or registeredany display space in her name, nor were theyauthorized by the state fair director to recruitparticipants. She said she incurred losses as aresult for which the defendants should be heldsolidarily liable. 2

In their joint answer, the defendants denied theplaintiff's allegation that they had deceived her and

explained that no display space was registered inher name as she was only supposed to share thespace leased by Hontiveros in its name. She wasnot allowed to display her goods in that spacebecause she had not paid her balance of$1,750.00, in violation of their contract. Bedia alsomade the particular averment that she did not signthe Participation Contract on her own behalf but asan agent of Hontiveros and that she had laterreturned the advance payment of $500.00 to theplaintiff. The defendants filed their owncounterclaim and complained of malice on the partof the plaintiffs. 3

In the course of the trial, the complaint againstHontiveros was dismissed on motion of theplaintiffs. 4

In his decision dated May 29, 1986, Judge FerminMartin, Jr. found Bedia liable for fraud and awardedthe plaintiffs actual and moral damages plusattorney's fees and the costs. The court said:

In claiming to be a mere agent ofHontiveros & AssociatedProducers Phil. Yields, Inc.,defendant Sylvia H. Bediaevidently attempted to escapeliability for herself. Unfortunatelyfor her, the "ParticipationContract" is not actually inrepresentation or in the name ofsaid corporation. It is a covenantentered into by her in herpersonal capacity, for no onemay contract in the name ofanother without being authorizedby the latter, or unless she hasby law a right to represent her.(Art. 1347, new Civil Code)

Sustaining the trail court on this point, therespondent court 5 declared in its decision datedMarch 30, 1990:

The evidence, on the whole,shows that she definitely actedon her own. She representedherself asauthorized by the Stateof Texas to solicit and assign

booths at the Texas fair; sheassured the appellee that shecould give her booth. UnderArticle 1883 of the New CivilCode, if the agent acts in his ownname, the principal has no rightof action against the persons withwhom the agent had contracted.

We do not share these views.

It is noteworthy that in her letter to the Minister ofTrade dated December 23,1984, Emily Whitebegan:

I am a local exporter whowas recruited by Hontiveros &Associated Producers Phil. Yields,Inc. to participate in the StateFair of Dallas, Texas which washeld last Oct. 3 to 19,1980. Hontiveros & Associatedcharged me US$150.00 persquare meter for display booth ofsaid fair. I have paid an advanceof US$500.00 as partial paymentfor the total space of 15 squaremeter of which is $2,250.00 (TwoThousand Two Hundred FiftyDollars). 6

As the Participation Contract was signed by Bedia,the above statement was an acknowledgment byWhite that Bedia was only acting for Hontiveroswhen it recruited her as a participant in the TexasState Fair and charged her a partial payment of$500.00. This amount was to be fortified toHontiveros in case of cancellation by her of theagreement. The fact that the contract wastypewritten on the letterhead stationery ofHontiveros bolsters this conclusion in the absenceof any showing that said stationery had beenillegally used by Bedia.

Significantly, Hontiveros itself has not repudiatedBedia's agency as it would have if she had reallynot signed in its name. In the answer it filed withBedia, it did not deny the latter's allegation inParagraph 4 thereof that she was only acting as itsagent when she solicited White's participation. Infact, by filing the answer jointly with Bedia through

their common counsel, Hontiveros affirmed thisallegation.

If the plaintiffs had any doubt about the capacity inwhich Bedia was acting, what they should havedone was verify the matter with Hontiveros. Theydid not. Instead, they simply accepted Bedia'srepresentation that she was an agent of Hontiverosand dealt with her as such. Under Article 1910 ofthe Civil Code, "the principal must comply with allthe obligations which the agent may havecontracted within the scope of his authority."Hence, the private respondents cannot now holdBedia liable for the acts performed by her for, andimputable to, Hontiveros as her principal.

The plaintiffs' position became all the moreuntenable when they moved on June 5, 1984, forthe dismissal of the complaint againstHontiveros, 7 leaving Bedia as the sole defendant.Hontiveros had admitted as early as when it filedits answer that Bedia was acting as its agent. Theeffect of the motion was to leave the plaintiffswithout a cause of action against Bedia for theobligation, if any, of Hontiveros.

Our conclusion is that since it has not been foundthat Bedia was acting beyond the scope of herauthority when she entered into the ParticipationContract on behalf of Hontiveros, it is the latter thatshould be held answerable for any obligationarising from that agreement. By moving to dismissthe complaint against Hontiveros, the plaintiffsvirtually disarmed themselves and forfeitedwhatever claims they might have proved againstthe latter under the contract signed for it by Bedia.It should be obvious that having waived theseclaims against the principal, they cannot nowassert them against the agent.

WHEREFORE, the appealed decision dated March30, 1990, of the respondent court is REVERSED anda new judgment is rendered dismissing Civil CaseNo. 9246-P in the Regional Trial Court of Pasay City.

SO ORDERED.

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D.AREOLA, petitioners-appellants, vs.COURT OF APPEALS and PRUDENTIALGUARANTEE AND ASSURANCE,INC., respondents-appellees.

ROMERO, J.:

On June 29, 1985, seven months after the issuanceof petitioner Santos Areola's Personal AccidentInsurance Policy No. PA-20015, respondentinsurance company unilaterally cancelled the samesince company records revealed that petitioner-insured failed to pay his premiums.

On August 3, 1985, respondent insurance companyoffered to reinstate same policy it had previouslycancelled and even proposed to extend its lifetimeto December 17, 1985, upon a finding that thecancellation was erroneous and that the premiumswere paid in full by petitioner-insured but were notremitted by Teofilo M. Malapit, respondentinsurance company's branch manager.

These, in brief, are the material facts that gave riseto the action for damages due to breach of contractinstituted by petitioner-insured beforeBranch 40 RTC, Dagupan City against respondentinsurance company.

There are two issues for resolution in this case:

(1) Did the erroneous act of cancelling subjectinsurance policy entitle petitioner-insured topayment of damages?

(2) Did the subsequent act of reinstating thewrongfully cancelled insurance policy byrespondent insurance company, in an effort torectify such error, obliterate whatever liability fordamages it may have to bear, thus absolving ittherefrom?

From the factual findings of the trial court, itappears that petitioner-insured, Santos Areola, alawyer from Dagupan City, bought, through

the Baguio City branch of Prudential Guarantee andAssurance, Inc. (hereinafter referred to asPrudential), a personal accident insurance policycovering the one-year period between noon ofNovember 28, 1984 and noon of November 28,1985. 1 Under the terms of the statement ofaccount issued by respondent insurance company,petitioner-insured was supposed to pay the totalamount of P1,609.65 which included the premiumof P1,470.00, documentary stamp of P110.25 and2% premium tax of P29.40. 2 At the lower left-handcorner of the statement of account, the following islegibly printed:

This Statement of Account mustnot be considered a receipt.Official Receipt will be issued toyou upon payment of thisaccount.

If payment is made to ourrepresentative, demand for aProvisional Receipt and if ourOfficial Receipts is (sic) notreceived by you within 7 daysplease notify us.

If payment is made to our office,demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurancecompany issued collector's provisional receipt No.9300 to petitioner-insured for the amount ofP1,609.65 3 On the lower portion of the receipt thefollowing is written in capital letters:

Note: This collector's provisionalreceipt will be confirmed by ourofficial receipt. If our officialreceipt is not received by youwithin 7 days, please notify us. 4

On June 29, 1985, respondent insurance company,through its Baguio City manager, Teofilo M. Malapit,sent petitioner-insured EndorsementNo. BG-002/85 which "cancelled flat" Policy No. PABG-20015 "for non-payment of premium effectiveas of inception dated." 5 The same endorsementalso credited "a return premium of P1,609.65 plus

documentary stamps and premium tax" to theaccount of the insured.

Shocked by the cancellation of the policy,petitioner-insured confronted Carlito Ang, agent ofrespondent insurance company, and demanded theissuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was amistake but he would personally see to itsrectification. However, petitioner-insured failed toreceive any official receipt from Prudential.

Hence, on July 15, 1985, petitioner-insured sentrespondent insurance company a letter demandingthat he be insured under the same terms andconditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, orthat the current commercial rate of increase on thepayment he had made under provisional receiptNo. 9300 be returned within five days. 6 Areola alsowarned that should his demands be unsatisfied, hewould sue for damages.

On July 17, 1985, he received a letter fromproduction manager Malapit informing him that the"partial payment" of P1,000.00 he had made on thepolicy had been "exhausted pursuant to theprovisions of the Short Period Rate Scale" printed atthe back of the policy. Malapit warned Areola thatshould be fail to pay the balance, the company'sliability would cease to operate. 7

In reply to the petitioner-insured's letter of July 15,1985, respondent insurance company, through itsAssistant Vice-President Mariano M. Ampil III, wroteAreola a letter dated July 25, 1985 stating that thecompany was verifying whether the payment hadin fact been issued therefor. Ampil emphasized thatthe official receipt should have been issued sevendays from the issuance of the provisional receiptbut because no official receipt had been issued inAreola's name, there was reason to believe that nopayment had been made. Apologizing for theinconvenience, Ampil expressed the company'sconcern by agreeing "to hold you cover (sic) underthe terms of the referenced policy until such timethat this matter is cleared." 8

On August 3, 1985, Ampil wrote Areola anotherletter confirming that the amount of P1,609.65

covered by provisional receipt No. 9300 was in factreceived by Prudential on December 17, 1984.Hence, Ampil informedAreola that Prudential was "amenable to extendingPGA-PA-BG-20015 up to December 17, 1985 or oneyear from the date when payment was received."Apologizing again for the inconvenience causedAreola, Ampil exhorted him to indicate hisconformity to the proposal by signing on the spaceprovided for in the letter. 9

The letter was personally delivered by Carlito Angto Areola onAugust 13, 1985 10 but unfortunately, Areola andhis wife, Lydia, as early as August 6, 1985 had fileda complaint for breach of contract with damagesbefore the lower court.

In its Answer, respondent insurance companyadmitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit toturn over the premiums collected, for which reasonno official receipt was issued to him. However, itargued that, by acknowledging the inconveniencecaused on petitioner-insured and after taking stepsto rectify its omission by reinstating the cancelledpolicy prior to the filing of the complaint,respondent insurance company had complied withits obligation under the contract. Hence, itconcluded that petitioner-insured no longer has acause of action against it. It insists that it cannot beheld liable for damages arising from breach ofcontract, having demonstrated fully well itsfulfillment of its obligation.

The trial court, on June 30, 1987, rendered ajudgment in favor of petitioner-insured, orderingrespondent insurance company to pay the formerthe following:

a) P1,703.65 as actual damages;

b) P200,000.00 as moraldamages; and

c) P50,000.00 as exemplarydamages;

2. To pay to the plaintiff, as andfor attorney's fees the amount ofP10,000.00; and

3. To pay the costs.

In its decision, the court below declared thatrespondent insurance company acted in bad faithin unilaterally cancelling subject insurance policy,having done so only after seven months from thetime that it had taken force and effect and despitethe fact of full payment of premiums and othercharges on the issued insurance policy.Cancellation from the date of the policy's inception,explained the lower court, meant that theprotection sought by petitioner-insured from therisks insured against was never extended byrespondent insurance company. Had the insuredmet an accident at the time, the insurancecompany would certainly have disclaimed anyliability because technically, the petitioner couldnot have been considered insured. Consequently,the trial court held that there was breach ofcontract on the part of respondent insurancecompany, entitling petitioner-insured to an awardof the damages prayed for.

This ruling was challenged on appeal byrespondent insurance company, denying bad faithon its part in unilaterally cancelling subjectinsurance policy.

After consideration of the appeal, the appellatecourt issued a reversal of the decision of the trialcourt, convinced that the latter had erred in findingrespondent insurance company in bad faith for thecancellation of petitioner-insured's policy. Accordingto the Court of Appeals, respondent insurancecompany was not motivated by negligence, maliceor bad faith in cancelling subject policy. Rather, thecancellation of the insurance policy was based onwhat the existing records showed, i.e., absence ofan official receipt issued to petitioner-insuredconfirming payment of premiums. Bad faith, saidthe Court of Appeals, is some motive of self-interestor ill-will; a furtive design of ulterior purpose, proofof which must be established convincingly. On thecontrary, it further observed, the following actsindicate that respondent insurance company didnot act precipitately or willfully to inflict a wrong onpetitioner-insured:(a) the investigation conducted by AlfredoBustamante to verify if petitioner-insured hadindeed paid the premium; (b) the letter of August3, 1985 confirming that the premium had beenpaid on December 17, 1984; (c) the reinstatement

of the policy with a proposal to extend its effectiveperiod to December 17, 1985; and (d) respondentinsurance company's apologies for the"inconvenience" caused upon petitioner-insured.The appellate court added that respondentinsurance company even relieved Malapit, itsBaguio City manager, of his job by forcing him toresign.

Petitioner-insured moved for the reconsideration ofthe said decision which the Court of Appealsdenied. Hence, this petition for reviewon certiorari anchored on these arguments:

I

Respondent Court of Appeals isguilty of grave abuse ofdiscretion and committed aserious and reversible error in notholding Respondent Prudentialliable for the cancellation of theinsurance contract which wasadmittedly caused by thefraudulent acts and bad faith ofits own officers.

II

Respondent Court of Appealscommitted serious and reversibleerror and abused its discretion inruling that the defenses of goodfaith and honest mistake can co-exist with the admittedfraudulent acts and evident badfaith.

III

Respondent Court of Appealscommitted a reversible error innot finding that even withoutconsidering the fraudulent acts ofits own officer inmisappropriating the premiumpayment, the act itself incancelling the insurance policywas done with bad faith and/orgross negligence and wantonattitude amounting to bad faith,

because among others, it wasMr. Malapit — the person whocommitted the fraud — who sentand signed the notice ofcancellation.

IV

Respondent Court of Appeals hasdecided a question of substancecontrary to law and applicabledecision of the Supreme Courtwhen it refused to awarddamages in favor of hereinPetitioner-Appellants.

It is petitioner-insured's submission that thefraudulent act of Malapit, manager of respondentinsurance company's branch office in Baguio, inmisappropriating his premium payments is theproximate cause of the cancellation of theinsurance policy. Petitioner-insured theorized thatMalapit's act of signing and even sending thenotice of cancellation himself, notwithstanding hispersonal knowledge of petitioner-insured's fullpayment of premiums, further reinforces theallegation of bad faith. Such fraudulent actcommitted by Malapit, argued petitioner-insured, isattributable to respondent insurance company, anartificial corporate being which can act onlythrough its officers or employees. Malapit'sactuation, concludes petitioner-insured, is thereforenot separate and distinct from that of respondent-insurance company, contrary to the view held bythe Court of Appeals. It must, therefore, bear theconsequences of the erroneous cancellation ofsubject insurance policy caused by the non-remittance by its own employee of the premiumspaid. Subsequent reinstatement, according topetitioner-insured, could not possibly absolverespondent insurance company from liability, therebeing an obvious breach of contract. After all,reasoned out petitioner-insured, damage hadalready been inflicted on him and no amount ofrectification could remedy the same.

Respondent insurance company, on the other hand,argues that where reinstatement, the equitablerelief sought by petitioner-insured was granted atan opportune moment, i.e. prior to the filing of thecomplaint, petitioner-insured is left without a causeof action on which to predicate his claim for

damages. Reinstatement, it further explained,effectively restored petitioner-insured to all hisrights under the policy. Hence, whatever cause ofaction there might have been against it, no longerexists and the consequent award of damagesordered by the lower court in unsustainable.

We uphold petitioner-insured's submission.Malapit's fraudulent act of misappropriating thepremiums paid by petitioner-insured is beyonddoubt directly imputable to respondent insurancecompany. A corporation, such as respondentinsurance company, acts solely thru its employees.The latters' acts are considered as its own forwhich it can be held to account. 11 The facts areclear as to the relationship between privaterespondent insurance company and Malapit. Asadmitted by private respondent insurance companyin its answer, 12 Malapit was the manager of itsBaguio branch. It is beyond doubt that herepresented its interest and acted in its behalf. Hisact of receiving the premiums collected is wellwithin the province of his authority. Thus, hisreceipt of said premiums is receipt by privaterespondent insurance company who, by provisionof law, particularly under Article 1910 of the CivilCode, is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal mustcomply with all the obligationswhich the agent may havecontracted within the scope of hisauthority.

As for any obligation wherein theagent has exceeded his power,the principal is not bound exceptwhen he ratifies it expressly ortacitly.

Malapit's failure to remit the premiums he receivedcannot constitute a defense for private respondentinsurance company; no exoneration from liabilitycould result therefrom. The fact that privaterespondent insurance company was itselfdefrauded due to the anomalies that took place inits Baguio branch office, such as the non-accrual ofsaid premiums to its account, does not free thesame from its obligation to petitioner Areola. As

held inPrudential Bank v. Court of Appeals 13 citingthe ruling in McIntosh v. Dakota Trust Co.: 14

A bank is liable for wrongful actsof its officers done in theinterests of the bank or in thecourse of dealings of the officersin their representative capacitybut not for acts outside the scopeof their authority. A bank holdingout its officers and agent asworthy of confidence will not bepermitted to profit by the fraudsthey may thus be enabled toperpetrate in the apparent scopeof their employment; nor will itbe permitted to shirk itsresponsibility for such frauds,even though no benefit mayaccrue to the bank therefrom.Accordingly, a bankingcorporation is liable to innocentthird persons where therepresentation is made in thecourse of its business by anagent acting within the generalscope of his authority eventhough, in the particular case,the agent is secretly abusing hisauthority and attempting toperpetrate a fraud upon hisprincipal or some other person,for his own ultimate benefit.

Consequently, respondent insurance company isliable by way of damages for the fraudulent actscommitted by Malapit that gave occasion to theerroneous cancellation of subject insurance policy.Its earlier act of reinstating the insurance policycan not obliterate the injury inflicted on petitioner-insured. Respondent company should be remindedthat a contract of insurance creates reciprocalobligations for both insurer and insured. Reciprocalobligations are those which arise from the samecause and in which each party is both a debtor anda creditor of the other, such that the obligation ofone is dependent upon the obligation of theother. 15

Under the circumstances of instant case, therelationship as creditor and debtor between theparties arose from a common cause: i.e., by reason

of their agreement to enter into a contract ofinsurance under whose terms, respondentinsurance company promised to extend protectionto petitioner-insured against the risk insured for aconsideration in the form of premiums to be paidby the latter. Under the law governing reciprocalobligations, particularly the second paragraph ofArticle 1191, 16 the injured party, petitioner-insuredin this case, is given a choice between fulfillment orrescission of the obligation in case one of theobligors, such as respondent insurance company,fails to comply with what is incumbent upon him.However, said article entitles the injured party topayment of damages, regardless of whether hedemands fulfillment or rescission of the obligation.Untenable then is reinstatement insurancecompany's argument, namely, that reinstatementbeing equivalent to fulfillment of its obligation,divests petitioner-insured of a rightful claim forpayment of damages. Such a claim finds nosupport in our laws on obligations and contracts.

The nature of damages to be awarded, however,would be in the form of nominaldamages 17 contrary to that granted by the courtbelow. Although the erroneous cancellation of theinsurance policy constituted a breach of contract,private respondent insurance company, within areasonable time took steps to rectify the wrongcommitted by reinstating the insurance policy ofpetitioner. Moreover, no actual or substantialdamage or injury was inflicted on petitioner Areolaat the time the insurance policy was cancelled.Nominal damages are "recoverable where a legalright is technically violated and must be vindicatedagainst an invasion that has produced no actualpresent loss of any kind, or where there has been abreach of contract and no substantial injury oractual damages whatsoever have been or can beshown. 18

WHEREFORE, the petition for review on certiorari ishereby GRANTED and the decision of the Court ofAppeals in CA-G.R. No. 16902 on May 31, 1990,REVERSED. The decision of Branch 40, RTCDagupan City, in Civil Case No. D-7972 rendered onJune 30, 1987 is hereby REINSTATED subject to thefollowing modifications: (a) that nominal damagesamounting to P30,000.00 be awarded petitioner inlieu of the damages adjudicated by court a quo;and (b) that in the satisfaction of the damagesawarded therein, respondent insurance company isORDERED to pay the legal rate of interest

computed from date of filing of complaint until finalpayment thereof.

SO ORDERED.

G.R. No. 156335 November 28, 2007SPOUSES RAUL and AMALIAPANLILIO, Petitioners, vs.CITIBANK, N.A., Respondent.D E C I S I O NAUSTRIA-MARTINEZ, J.:Before the Court is a Petition for Reviewon Certiorari under Rule 45 of the Rules of Court,seeking to reverse the Decision1 of the Court ofAppeals (CA) dated May 28, 2002 in CA-G.R. CV No.66649 and its Resolution of December 11, 2002,which reversed and set aside the Decision of theRegional Trial Court (RTC) of Makati City.The case originated as a Complaint2 for a sum ofmoney and damages, filed with the RTC of MakatiCity on March 2, 1999, by the spouses Raul andAmalia Panlilio (petitioners) against Citibank N.A.(respondent).The factual antecedents are as follows:On October 10, 1997, petitioner Amalia Panlilio(Amalia) visited respondent's Makati City office anddeposited one million pesos (PhP1 million) in thebank's "Citihi" account, a fixed-term savingsaccount with a higher-than-average interest.3 Onthe same day, Amalia also opened a current orchecking account with respondent, to whichinterest earnings of the Citihi account were to becredited.4 Respondent assigned one of itsemployees, Jinky Suzara Lee (Lee), to personallytransact with Amalia and to handle the accounts.5

Amalia opened the accounts as ITF or "in trust for"accounts, as they were intended to benefit herminor children, Alejandro King Aguilar and FeEmanuelle C. Panlilio, in case she would meet anuntimely death.6 To open these accounts, Amaliasigned two documents: a Relationship OpeningForm (ROF)7 and an Investor Profiling andSuitability Questionnaire (Questionnaire).8

Amalia's initial intention was to invest the money ina Citibank product called the Peso RepriceablePromissory Note (PRPN), a product which had ahigher interest. However, as the PRPN was notavailable that day, Amalia put her money in theCitihi savings account.9

More than a month later, or on November 28, 1997,Amalia phoned Citibank saying she wanted to placean investment, this time in the amount of threemillion pesos (PhP3 million). Again, she spoke withLee, the bank employee, who introduced her toCitibank's various investment offerings. After thephone conversation, apparently decided on whereto invest the money, Amalia went to Citibankbringing a PCIBank check in the amount of threemillion pesos (PhP3 million). During the visit,Amalia instructed Lee on what to do with the PhP3million. Later, she learned that out of the said

amount, PhP2,134,635.87 was placed by Citibankin a Long-Term Commercial Paper (LTCP), a debtinstrument that paid a high interest, issued by thecorporation Camella and Palmera Homes (C&PHomes).10 The rest of the money was placed in twoPRPN accounts, in trust for each of Amalia's twochildren.11

Allegations differ between petitioners andrespondent as to whether Amalia instructed Lee toplace the money in the LTCP of C&P Homes.12

An LTCP is an evidence of indebtedness, with amaturity period of more than 365 days, issued by acorporation to any person or entity.13 It is in effect aloan obtained by a corporation (as borrower) fromthe investing public (as lender)14 and is one ofmany instruments that investment banks canlegally buy on behalf of their clients, upon thelatter's express instructions, for investmentpurposes.15 LTCPs' attraction is that they usuallyhave higher yields than most investmentinstruments. In the case of the LTCP issued by C&PHomes, the gross interest rate was 16.25% perannum at the time Amalia made her investment.16

On November 28, 1997, the day she made thePhP3million investment, Amalia signed thefollowing documents: a Directional InvestmentManagement Agreement (DIMA),17 Term InvestmentApplication (TIA),18 and Directional Letter/SpecificInstructions.19 Key features of the DIMA and theDirectional Letter are provisions that essentiallyclear Citibank of any obligation to guarantee theprincipal and interest of the investment, absentfraud or negligence on the latter's part. Theprovisions likewise state that all risks are to beassumed by the investor (petitioner).As to the amount invested, only PhP2,134,635.87out of the PhP3 million brought by Amalia wasplaced in the LTCP since, according to Lee, this wasthe only amount of LTCP then available.20 Accordingto Lee, the balance of the PhP3 million was placedin two PRPN accounts, each one in trust forAmalia's two children, per her instructions.21

Following this investment, respondent claims tohave regularly sent confirmations of investment(COIs) to petitioners.22 A COI is a one-page,computer generated document informing thecustomer of the investment earlier made with thebank. The first of these COIs was received bypetitioners on or about December 9, 1997, asadmitted by Amalia, which is around a week afterthe investment was made.23 Respondent claimsthat other succeeding COIs were sent to andreceived by petitioners.Amalia claims to have called Lee as soon as shereceived the first COI in December 1997, anddemanded that the investment in LTCP bewithdrawn and placed in a PRPN.24 Respondent,

however, denies this, claiming that Amalia merelycalled to clarify provisions in the COI and did notdemand a withdrawal.25

On August 6, 1998, petitioners met withrespondent's other employee, Lizza Colet, topreterminate the LTCP and their other investments.Petitioners were told that as to the LTCP, liquidationcould be made only if there is a willing buyer, aprospect which could be difficult at that timebecause of the economic crisis. Still, petitionerssigned three sets of Sales Order Slip to sell theLTCP and left these with Colet.26

On August 18, 1998, Amalia, through counsel, senther first formal, written demand to respondent "fora withdrawal of her investment as soon aspossible."27 The same was followed by anotherletter dated September 7, 1998, which reiteratedthe same demands.28 In answer to the letters,respondent noted that the investment had a 2003maturity, was not a deposit, and thus, its return tothe investor was not guaranteed by respondent;however, it added that the LTCP may be sold priorto maturity and had in fact been put up for sale,but such sale was "subject to the availability ofbuyers in the secondary market."29 At that time,respondent was not able to find a buyer for theLTCP. As this response did not satisfy petitioners,Amalia again wrote respondent, this time a finaldemand letter dated September 21, 1998, askingfor a reconsideration and a return of the money sheinvested.30In reply, respondent wrote a letter datedOctober 12, 1998 stating that despite efforts to sellthe LTCP, no willing buyers were found and thateven if a buyer would come later, the price wouldbe lower than Amalia's original investment.31

Thus, petitioners filed with the RTC their complaintagainst respondent for a sum of money anddamages.The Complaint32 essentially demanded a return ofthe investment, alleging that Amalia neverinstructed respondent's employee Lee to invest themoney in an LTCP; and that far from what Leeexecuted, Amalia's instructions were to invest themoney in a "trust account" with an "interest ofaround 16.25% with a term of 91 days." Further,petitioners alleged that it was only later, or onDecember 8, 1997, when Amalia received the firstconfirmation of investment (COI) from respondent,that she and her husband learned of Lee's infidelityto her orders. The COI allegedly informedpetitioners that the money was placed in an LTCP ofC&P Homes with a maturity in 2003, and that theinvestment was not guaranteed by respondent.Petitioners also claimed that as soon as Amaliareceived the COI, she immediately called Lee;however, the latter allegedly convinced her toignore the COI, that C&P Homes was an Ayala

company, that the investment was secure, and thatit could be easily "withdrawn"; hence, Amaliadecided not to immediately "withdraw" theinvestment. Several months later, or on August 6,1998, petitioners allegedly wanted to "withdraw"the investment to buy a property; however, theyfailed to do so, since respondent told them the LTCPhad not yet matured, and that no buyers werewilling to buy it. Hence, they sent various demandletters to respondent, asking for a return of theirmoney; and when these went unheeded, they filedthe complaint.In its Answer,33 respondent admitted that, indeed,Amalia was its client and that she invested theamounts stated in the complaint. However,respondent disputed the claim that Amalia openeda "trust account" with a "request for an interestrate of around 16.25% with a term of 91 days;"instead, respondent presented documents statingthat Amalia opened a "directional investmentmanagement account," with investments to bemade in C&P Homes' LTCP with a 2003 maturity.Respondent disputed allegations that it violatedpetitioners' express instructions. Respondentlikewise denied that Amalia, upon her receipt of theCOI, immediately called respondent and protestedthe investment in LTCP, its 2003 maturity andCitibank's lack of guarantee. According torespondent, no such protest was made andpetitioners actually decided to liquidate theirinvestment only months later, after thenewspapers reported that Ayala Land, Inc. wascancelling plans to invest in C&P Homes.The rest of respondent's Answer denied (1) that itconvinced Amalia not to liquidate or "withdraw" herinvestment or to ignore the contents of the COI; (2)that it assured Amalia that the investment could beeasily or quickly "withdrawn" or sold; (3) that itmisrepresented that C&P was an Ayala company,implying that C&P had secure finances; and (4) thatrespondent had been unfaithful to and in breach ofits contractual obligations.After trial, the RTC rendered its Decision,34 datedFebruary 16, 2000, the dispositive portion of whichstates:The foregoing considered, the court hereby rules infavor of plaintiffs and order defendant to pay:

1. The sum of PhP2,134,635.87representing the actual amount depositedby plaintiffs with defendant plus interestcorresponding to time deposit during thetime material to this action from date offiling of this case until fully paid;2. The sum of PhP300,000.00 representingmoral damages;3. The sum of PhP100,000.00 representingattorney's fees;

4. Costs.SO ORDERED.35

The RTC upheld all the allegations of petitionersand concluded that Amalia never instructedCitibank to invest the money in an LTCP. Thus, theRTC found Citibank in violation of its contractualand fiduciary duties and held it liable to return themoney invested by petitioners plus damages.Respondent appealed to the CA.On appeal, in its Decision promulgated on May 28,2002, the CA reversed the Decision of the RTC,thus:WHEREFORE, premises considered, the assaileddecision dated 16 February 2000 is REVERSED andSET ASIDE and a new one entered DISMISSING CivilCase No. 99-500.36

The CA held that with respect to the amount ofPhP2,134,635.87, the account opened by Amaliawas an investment management account; as aresult, the money invested was the sole andexclusive obligation of C&P Homes, the issuer ofthe LTCP, and was not guaranteed or insured byherein respondent Citibank;37 that Amalia openedsuch an account as evidenced by the documentsshe executed with Citibank, namely, the DirectionalInvestment Management Agreement (DIMA), TermInvestment Application (TIA), and DirectionalLetter/Specific Instructions, which were all datedNovember 28, 1997, the day Amalia brought themoney to Citibank. Further, the CA brushed asidepetitioners' arguments that Amalia failed tounderstand the true nature of the LTCP investment,and that she failed to read the documents as theywere written in fine print. The CA ruled thatpetitioners could not seek the court's aid toextricate them from their contractual obligations.Citing jurisprudence, the CA held that the courtsprotected only those who were innocent victims offraud, and not those who simply made badbargains or exercised unwise judgment.On petitioners' motion for reconsideration, the CAreiterated its ruling and denied the motion in aResolution38dated December 11, 2002.Thus, the instant petition which raises issues,summarized as follows: (1) whether petitioners arebound by the terms and conditions of theDirectional Investment Management Agreement(DIMA), Term Investment Application (TIA),Directional Letter/Specific Instructions, andConfirmations of Investment (COIs); (2) andwhether petitioners are entitled to take back themoney they invested from respondent bank; orstated differently, whether respondent is obliged toreturn the money to petitioners upon their demandprior to maturity.Petitioners contend that they are not bound by theterms and conditions of the DIMA, Directional Letter

and COIs because these were inconsistent with theTIA and other documents they signed.39 Further,they claim that the DIMA and the Directional letterwere signed in blank or contained unauthorizedintercalations by Citibank.40Petitioners argue thatcontrary to the contents of the documents, they didnot instruct Citibank to invest in an LTCP or to puttheir money in such high-risk, long-terminstruments.41

The Court notes the factual nature of the questionsraised in the petition. Although the general rule isthat only questions of law are entertained by theCourt in petitions for review on certiorari,42 as theCourt is not tasked to repeat the lower courts'analysis or weighing of evidence,43 there areinstances when the Court may resolve factualissues, such as (1) when the trial courtmisconstrued facts and circumstances of substancewhich if considered would alter the outcome of thecase;44 and (2) when the findings of facts of the CAand the trial court differ.45

In the instant case, the CA completely reversed thefindings of facts of the trial court on the groundthat the RTC failed to appreciate certain facts andcircumstances. Thus, applying the standingjurisprudence on the matter,46the Court proceededto examine the evidence on record.The Court's RulingThe Court finds no merit in the petition. After acareful examination of the records, the Courtaffirms the CA's ruling for being more in accordwith the facts and evidence on record.On the first issue of whether petitioners are boundby the terms and conditions of the DIMA, TIA,Directional Letter and COIs, the Court holds in theaffirmative and finds for respondent.The DIMA, Directional Letter and COIs are evidenceof the contract between the parties and are bindingon them, following Article 1159 of the Civil Codewhich states that contracts have the force of lawbetween the parties and must be complied with ingood faith.47 In particular, petitioner Amalia affixedher signatures on the DIMA, Directional Letter andTIA, a clear evidence of her consent which, underArticle 1330 of the same Code, she cannot denyabsent any evidence of mistake, violence,intimidation, undue influence or fraud.48

As the documents have the effect of law, anexamination is in order to reveal what underliespetitioners' zeal to exclude these fromconsideration.Under the DIMA, the following provisions appear:4. Nature of Agreement – THIS AGREEMENT IS ANAGENCY AND NOT A TRUST AGREEMENT. AS SUCH,THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGALTITLE TO THE FUNDS AND PROPERTIES SUBJECT OFTHE ARRANGEMENT.

THIS AGREEMENT IS FOR FINANCIAL RETURN ANDFOR THE APPRECIATION OF ASSETS OF THEACCOUNT. THIS AGREEMENT DOES NOTGUARANTEE A YIELD, RETURN OR INCOME BY THEINVESTMENT MANAGER. AS SUCH, PASTPERFORMANCE OF THE ACCOUNT IS NOT AGUARANTY OF FUTURE PERFORMANCE AND THEINCOME OF INVESTMENTS CAN FALL AS WELL ASRISE DEPENDING ON PREVAILING MARKETCONDITIONS.IT IS UNDERSTOOD THAT THIS INVESTMENTMANAGEMENT AGREEMENT IS NOT COVERED BYTHE PHILIPPINE DEPOSIT INSURANCECORPORATION (PDIC) AND THAT LOSSES, IF ANY,SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.(Underscoring supplied.)x x x x6. Exemption from Liability. - In the absence offraud, bad faith, or gross or willful negligence onthe part of the INVESTMENT MANAGER or anyperson acting in its behalf, the INVESTMENTMANAGER shall not be liable for any loss ordamage to the Portfolio arising out of or inconnection with any act done or omitted or causedto be done or omitted by the INVESTMENTMANAGER pursuant to the terms and conditionsherein agreed upon, and pursuant to and inaccordance with the written instructions of thePRINCIPAL to carry out the powers, duties andpurposes for which this Agreement is executed. ThePRINCIPAL will hold the INVESTMENT MANAGER freeand harmless from any liability, claim, damage orfiduciary responsibility that may arise from anyinvestment made pursuant to this Agreement andto such letters or instructions under Paragraph 3hereof due to the default, bankruptcy or insolvencyof the Borrower/Issuer or the Broker/Dealerhandling the transaction and or their failure in anymanner to comply with any of their obligationsunder the aforesaid transactions, it being thePRINCIPAL'S understanding and intention that theinvestments/reinvestments under this account shallbe strictly for his/its account and risk except asindicated above.The INVESTMENT MANAGER shall manage thePortfolio with the skill, care, prudence, anddiligence necessary under the prevailingcircumstances that a good father of the family,acting in a like capacity and familiar with suchmatters, would exercise in the conduct of anenterprise of like character and with similar aims.(Underscoring supplied.)x x x x11. Withdrawal of Income/Principal – Subject toavailability of funds and taking into considerationthe commitment of this account to third parties,the PRINCIPAL may withdraw the income/principal

of the Portfolio or portion thereof upon request orapplication thereof from the Bank. TheINVESTMENT MANAGER shall not be required toinquire as to the income/principal so withdrawnfrom the Portfolio. Any income of the Portfolio notwithdrawn shall be accumulated and added to theprincipal of the Portfolio for further investment andreinvestment.49 (Underscoring supplied.)Under the Directional Letter, which constitutedpetitioners' instructions to respondent, thefollowing provisions are found:In the absence of fraud, bad faith or gross or willfulnegligence on your part or any person acting inyour behalf, you shall not be held liable for any lossor damage arising out of or in connection with anyact done or performed or caused to be done orperformed by you pursuant to the terms andconditions of our Agreement. I/We shall hold youfree and harmless from any liability, claim,damage, or fiduciary responsibility that may arisefrom this investment made pursuant to theforegoing due to the default, bankruptcy orinsolvency of the Borrower/Issuer, or theBroker/Dealer handling the aforesaidtransactions/s, it being our intention andunderstanding that the investment/reinvestmentunder these transaction/s shall be strictly formy/our account and risk.In case of default of the Borrower/Issuers, wehereby authorize you at your sole option, toterminate the investment/s therein and deliver tous the securities/loan documents then constitutingthe assets of my/our DIMA/trust account with youfor me/us to undertake the necessary legal actionto collect and/or recover from theborrower/issuers.50 (Underscoring supplied.)The documents, characterized by the quotedprovisions, generally extricate respondent fromliability in case the investment is lost. Accordingly,petitioners assumed all risks and the task ofcollecting from the borrower/issuer C&P Homes.In addition to the DIMA and Directional Letter,respondent also sent petitioners the COIs on aregular basis, the first of which was received bypetitioners on December 9, 1997. The COIs havethe following provisions in common:

x x x x

NATURE OF TRANSACTION INVESTMENT INLTCP

NAME OFBORROWER/ISSUER

C&P HOMES

x x x xTENOR 91 DAYSx x x xMATURITY DATE 11/05/03x x x x

OTHERSREPRICEABLEEVERY 91 DAYS

PURSUANT TO THE BANGKO SENTRALREGULATIONS, THE PRINCIPAL AND INTEREST OFYOUR INVESTMENT ARE OBLIGATIONS OF THEBORROWER AND NOT OF THE BANK. YOURINVESTMENT IS NOT A DEPOSIT AND IS NOTGUARANTEED BY CITIBANK N.A.x x x xPlease examine this Confirmation and notify us inwriting within seven (7) days from receipt hereof ofany deviation from your prior conformity to theinvestment. If no notice is received by us withinthis period, this Confirmation shall be deemedcorrect and approved by you, and we shall bereleased and discharged as to all items, particulars,matters and things set forth in this Confirmation.51

Petitioners admit receiving only the first COI onDecember 8, 1997.52 The evidence on record,however, supports respondent's contentions thatpetitioners received the three other COIs onFebruary 12, 1998,53 May 14, 1998,54and August 14,1998,55 before petitioners' first demand letter datedAugust 18, 1998.56

The DIMA, Directional Letter, TIA and COIs, readtogether, establish the agreement between theparties as an investment management agreement,which created a principal-agent relationshipbetween petitioners as principals and respondentas agent for investment purposes. The agreementis not a trust or an ordinary bank deposit; hence,no trustor-trustee-beneficiary or even borrower-lender relationship existed between petitioners andrespondent with respect to the DIMA account.Respondent purchased the LTCPs only as agent ofpetitioners; thus, the latter assumed all obligationsor inherent risks entailed by the transaction underArticle 1910 of the Civil Code, which provides:Article 1910. The principal must comply with all theobligations which the agent may have contractedwithin the scope of his authority.As for any obligation wherein the agent hasexceeded his power, the principal is not boundexcept when he ratifies it expressly or tacitly.The transaction is perfectly legal, as investmentmanagement activities may be exercised by abanking institution, pursuant to Republic Act No.337 or the General Banking Act of 1948, asamended, which was the law then ineffect.1avvphi1 Section 72 of said Act provides:Sec. 72. In addition to the operations specificallyauthorized elsewhere in this Act, bankinginstitutions other than building and loanassociations may perform the following services:

(a) Receive in custody funds, documents,and valuable objects, and rent safety

deposit boxes for the safeguarding of sucheffects;(b) Act as financial agent and buy andsell, by order of and for the accountof their customers, shares, evidencesof indebtedness and all types ofsecurities;(c) Make collections and payments for theaccount of others and perform such otherservices for their customers as are notincompatible with banking business.(d) Upon prior approval of the MonetaryBoard, act as managing agent, adviser,consultant or administrator of investmentmanagement/ advisory/consultancyaccounts.

The banks shall perform the servicespermitted under subsections (a), (b) and (c)of this section as depositories or as agents.Accordingly, they shall keep the funds,securities and other effects which they thusreceive duly separated and apart from thebank's own assets and liabilities.The Monetary Board may regulate the operationsauthorized by this section in order to insure thatsaid operations do not endanger the interests ofthe depositors and other creditors of the banks.(Emphasis supplied.)while Section 74 prohibits banks from guaranteeingobligations of any person, thus:Sec. 74. No bank or banking institution shallenter, directly, or indirectly into any contractof guaranty or suretyship, or shall guaranteethe interest or principal of any obligation ofany person, copartnership, association,corporation or other entity. The provisions ofthis section shall, however, not apply to thefollowing: (a) borrowing of money by bankinginstitution through the rediscounting of receivables;(b) acceptance of drafts or bills of exchange (c)certification of checks; (d) transactions involvingthe release of documents attached to itemsreceived for collection; (e) letters of credittransaction, including stand-by arrangements; (f)repurchase agreements; (g) shipside bonds; (h)ordinary guarantees or indorsements in favor offoreign creditors where the principal obligationinvolves loans and credits extended directly byforeign investment purposes; and (i) othertransactions which the Monetary Board may, byregulation, define or specify as not covered by theprohibition. (Emphasis supplied.)Nothing also taints the legality of the LTCP boughtin behalf of petitioners. C&P Homes' LTCP was dulyregistered with the Securities and ExchangeCommission while the issuer was accredited by thePhilippine Trust Committee.57

The evidence also sustains respondent's claim thatits trust department handled the account onlybecause it was the department tasked to overseethe trust, and other fiduciary and investmentmanagement services of the bank.58 Contrary topetitioners' claim, this did not mean thatpetitioners opened a "trust account." This isconsistent with Bangko Sentral ng Pilipinas (BSP)regulations, specifically the Manual of Regulationsfor Banks (MORB), which groups a bank's trust, andother fiduciary and investment managementactivities under the same set of regulations, to wit:PART FOUR: TRUST, OTHER FIDUCIARY BUSINESSAND INVESTMENT MANAGEMENT ACTIVITIESx x x xSec. X402 Scope of Regulations. These regulationsshall govern the grant of authority to and themanagement, administration and conduct of trust,other fiduciary business and investmentmanagement activities (as these terms are definedin Sec. X403) of banks. The regulations are dividedinto three (3)Sub-Parts where:

A. Trust and Other Fiduciary Business shallapply to banks authorized to engage intrust and other fiduciary businessincluding investment managementactivities;B. Investment Management Activitiesshall apply to banks without trustauthority but with authority toengage in investment managementactivities; andC. General Provisions shall apply to both.x x x x

Sec. X403 Definitions. For purposes of regulatingthe operations of trust and other fiduciary businessand investment management activities, unless thecontext clearly connotes otherwise, the followingshall have the meaning indicated.

a. Trust business shall refer to any activityresulting from a trustor-trusteerelationship (trusteeship) involving theappointment of a trustee by a trustor forthe administration, holding, managementof funds and/or properties of the trustor bythe trustee for the use, benefit oradvantage of the trustor or of otherscalled beneficiaries.b. Other fiduciary business shall referto any activity of a trust-licensedbank resulting from a contract oragreement whereby the bank bindsitself to render services or to act in arepresentative capacity such as in anagency, guardianship,administratorship of wills, properties

and estates, executorship,receivership, and other similarservices which do not create or resultin a trusteeship. It shall excludecollecting or paying agencyarrangements and similar fiduciaryservices which are inherent in the useof the facilities of the other operatingdepartments of said bank.Investment management activities,which are considered as among otherfiduciary business, shall beseparately defined in the succeedingitem to highlight its being a majorsource of fiduciary business.c. Investment management activityshall refer to any activity resultingfrom a contract or agreementprimarily for financial return wherebythe bank (the investment manager)binds itself to handle or manageinvestible funds or any investmentportfolio in a representative capacityas financial or managing agent,adviser, consultant or administratorof financial or investmentmanagement, advisory, consultancyor any similar arrangement whichdoes not create or result in atrusteeship.(Emphasis supplied.)

The Court finds no proof to sustain petitioners'contention that the DIMA and Directional Lettercontradict other papers on record, or were signedin blank, or had unauthorizedintercalations.59 Petitioners themselves admit thatAmalia signed the DIMA and the Directional Letter,which bars them from disowning the contract onthe belated claim that she signed it in blank or didnot read it first because of the "fine print."60 On thecontrary, the evidence does not support theselatter allegations, and it is highly improbable thatsomeone fairly educated and with investmentexperience would sign a document in blank orwithout reading it first.61 Petitioners owned variousbusinesses and were clients of other banks, whichomits the possibility of such carelessness.62 Evenmore damning for petitioners is that, on record,Amalia admitted that it was not her habit to sign inblank and that the contents of the documents wereexplained to her before she signed.63

Testimonial evidence and the complaint itselfcontained allegations that petitioners' reason fortransferring their money from local banks torespondent is because it is safer to do so,64 a clearindicia of their intelligence and keen businesssense which they could not have easily surrenderedupon meeting with respondent.

Nothing irregular or illegal attends the execution orconstruction of the DIMA and the Directional Letter,as their provisions merely conform with BSPregulations governing these types of transactions.Specifically, the MORB mandates that investmentmanagers act as agents, not as trustees, of theinvestor;65 that the investment manager isprohibited from guaranteeing returns on the fundsor properties;66 that a written document shouldstate that the account is not covered by the PDIC;and that losses are to be borne by clients.67 Thatthese legal requirements were communicated topetitioners is evident in Amalia's signatures on thedocuments and in testimony to this effect.68

As to the allegation that the documents were in"fine print," the Court notes that although the printmay have looked smaller than average, they werenevertheless of the same size throughout thedocuments, so that no part or provision is hiddenfrom the reader. The Court also takes judicial noticethat the print is no smaller than those found insimilar contracts in common usage, such asinsurance, mortgage, sales contracts and evenordinary bank deposit contracts. In the documentsin question, the provisions hurtful to petitioners'cause were likewise in no smaller print than therest of the document, as indeed they were evenhighlighted either in bold or in all caps. Thisdisposes of the argument that they were designedto hide their damaging nature to thesignatory.69 The conclusion is that the print isreadable and should not have preventedpetitioners from studying the papers before theirsigning. Considering petitioners' social stature, thenature of the transaction and the amount of moneyinvolved, the Court presumes that petitionersexercised adequate care and diligence in studyingthe contract prior to its execution.70

In Sweet Lines, Inc. v. Teves,71 the Courtpronounced the general rule regarding contracts ofadhesion, thus:x x x there are certain contracts almost all theprovisions of which have been drafted only by oneparty, usually a corporation. Such contracts arecalled contracts of adhesion, because the onlyparticipation of the other party is the signing of hissignature or his ‘adhesion’ thereto. Insurancecontracts, bills of lading, contracts of sale of lots onthe installment plan fall into this category.x x x it is drafted only by one party, usually thecorporation, and is sought to be accepted oradhered to by the other party x x x who cannotchange the same and who are thus made to adherehereto on the ‘take it or leave it’ basis.x x x it is hardly just and proper to expect thepassengers to examine their tickets received fromcrowded/congested counters, more often than not

during rush hours, for conditions that may beprinted thereon, much less charge them withhaving consented to the conditions, so printed,especially if there are a number of such conditionsin fine print, as in this case.However, Sweet Lines72 further expounded that thevalidity and/or enforceability of contracts ofadhesion will have to be determined by thepeculiar circumstances obtaining in each case andthe nature of the conditions or terms sought to beenforced.73 Thus, while any ambiguity, obscurity ordoubt in a contract of adhesion is construed orresolved strictly against the party who preparedit,74 it is also equally obvious that in a case whereno such ambiguity, obscurity or doubt exists, nosuch construction is warranted. This was the casein the DIMA and the Directional Letter signed byAmalia in the instant controversy.The parties to this case only disagree on whetherpetitioners were properly informed of the contentsof the documents. But as earlier stated, petitionerswere free to read and study the contents of thepapers before signing them, without compulsion tosign immediately or even days after, as indeed theparties were even free not to sign the documentsat all. Unlike in Sweet Lines, where the plaintiffshad no choice but to take the services ofmonopolistic transport companies during rushhours, in the instant case, petitioners were underno such pressure; petitioners were free to investanytime and through any of the dozens of local andforeign banks in the market.In addition, it has been held that contracts ofadhesion are not necessarily voidable. The Courthas consistently held that contracts of adhesion,wherein one party imposes a ready-made form ofcontract on the other, are contracts not entirelyprohibited, since the one who adheres to thecontract is in reality free to reject it entirely; if headheres, he gives his consent.75 It is the rule thatthese contracts are upheld unless they are in thenature of a patently lopsided deal where blindadherence is not justified by other factualcircumstances.76

Petitioners insist that other documents Amaliasigned -- that is, the ROF,77 Questionnaire78 andTIA79 -- contradict the DIMA and Directional Letter.Specifically, they argue that under the ROF and theQuestionnaire, they manifested an intent to investonly in a time deposit in the medium term of over ayear to three years, with no risk on the capital, orwith returns in line with a time deposit.80 However,this contention is belied by the evidence andtestimony on record. Respondent explains thatinvestors fill up the ROF and Questionnaire onlywhen they first visit the bank and only for theaccount they first opened,81 as confirmed by the

evidence on record and the fact that there were nosubsequent ROFs and Questionnaires presented bypetitioners.The ROF and Questionnaire were filled up when thePhP1 million "Citihi" savings account was openedby Amalia on October 10, 1997, during her firstvisit to the bank. When Amalia returned more thana month later on November 28, 1997, a change inher investment attitude occurred in that shewanted to invest an even bigger amount (PhP3million) and her interest had shifted to high-yieldbut riskier long-term instruments like PRPNs andLTCPs. When Amalia proceeded to sign newdocuments like the DIMA and the Directional Letterfor the LTCP investment, despite their obviouslydifferent contents from those she was used tosigning for ordinary deposits, she essentiallyconfirmed that she knew what she was agreeing toand that it was different from all her previoustransactions.In addition, even the ROF and Questionnaire signedby Amalia during the first visit contained provisionsthat clearly contradict petitioners' claims. The ROFcontained the following:I/We declare the above information to be correct.I/We hereby acknowledge to have received, read,understood and agree to be bound by thegeneral terms and conditions applicable andgoverning my/our account/s and/orinvestment/s which appear in a separatebrochure/manual as well as separatedocuments relative to said account/s and/orinvestment/s. Said terms and conditions shalllikewise apply to all our existing and futureaccount/s and/or investment/s with Citibank. I/Wehereby further authorize Citibank to openadditional account/s and/or investment/s in thefuture with the same account title as contained inthis relationship opening form subject to the rulesgoverning the aforementioned account/s and/orinvestment/s and the terms and conditions thereinor herein. I/We agree to notify you in writing of anychange in the information supplied in thisrelationship opening form.82 (Emphasis supplied.)while the Questionnaire had the followingprovisions:I am aware that investment products are not bankdeposits or other obligations of, or guaranteed orinsured by Citibank N.A., Citicorp or theiraffiliates. I am aware that the principal andinterest of my investments are obligations ofthe borrower/issuer. They are subject to riskand possible loss of principal. Past performanceis not indicative of future performance. In addition,investments are not covered by the PhilippineDeposit Insurance Corporation (PDIC) or the FederalDeposit Insurance Corporation (FDIC).83

which do not need further elaboration on thematter.Petitioners contend that the Term InvestmentApplication (TIA), viz:

TERM INVESTMENT APPLICATION MAKATI Branch and Service Area

Date 1/28/97

TITLE OF ACCOUNT________________________________________ PANLILIO, AMALIA ITF ALEJANDRO KING AGUILAR& FE EMMANUELLE PANLILIO

CIF Keys____________________________________________________________________

Address______________________________________________________For corporations, c/o _______________________ Tel.No. ____________

Dear Sir:

THIS IS TO AUTHORIZECITIBANK, N. A. TO: ( ) open

( ) rollover( ) rollover w/ added funds( ) rollover w/ payout Ref. No. ____

[ ] Peso TimeDepositories[ ] NNPN

[ ] Dollar TD[ ]MulticurrencyTD

[ ] Confirmationof Sale[ ] CITIHI-Yielder TRUST

NEW ADDED FUNDS WILLCOME FROM:( ) debit my/our account no.________________( ) Check No.____________________________( ) Cash deposit__________________________

for P/$_______________for P/$_______________for P/$_______________

IN THE AMOUNT AND TERMS SPECIFIED ASFOLLOWS:

PRINCIPAL/Money In

P/$ 3,000,000

Value 11/28/97

MATURITY AMOUNT/Par ValueP/$____________

Maturity Date_______

INTERESTRATE

around16.25%

Term 91 days 84

(Emphasis supplied.)clearly contradicts the DIMA, Directional Letter andCOIs.Petitioners insist that the amount PhP3 million inthe TIA does not tally with the actual value of theinvestment which appeared on the first COI, whichwas PhP2,134,635.87. Petitioners add that the TIA'sinterest rate of "around 16.25%" with the term "91days" contradicts the COI's interest rate of 16.95%with a tenor of 75 days repriceable after 91days.85 Further, petitioners claim that the word"TRUST" inscribed on the TIA obviously meant thatthey opened a trust account, and not any otheraccount.86

The explanation of respondent is plausible. OnlyPhP2,134,635.87 out of the PhP3 million wasplaced in the LTCP since this was the only amountof LTCP then available, while the balance wasplaced in two PRPN accounts, each one in trust forAmalia's two children, upon her instructions.87 Thedisparity in the interest rate is also explained bythe fact that the 16.95% rate placed in the COI isgross and not net interest,88 and that it is subject torepricing every 91 days.The Court gives credence to respondent'sexplanation that the word "TRUST" appearing onthe TIA simply means that the account is to behandled by the bank's trust department, whichhandles not only the trust business but also theother fiduciary business and investmentmanagement activities of the bank, while the "ITF"or "in trust for" appearing on the other documentsonly signifies that the money was invested byAmalia in trust for her two children, a device thatshe uses even in her ordinary deposit accountswith other banks.89 The ITF device allows thechildren to obtain the money without need ofpaying estate taxes in case Amalia meets apremature death.90However, it creates a trustee-beneficiary relationship only between Amalia andher children, and not between Amalia, her children,and Citibank.All the documents signed by Amalia, including theDIMA and Directional Letter, show that heragreement with respondent is one of agency, andnot a trust.The DIMA, TIA, Directional Letter and COIs, viewedaltogether, establish without doubt the transactionbetween the parties, that on November 28, 1997,with PhP3 million in tow, Amalia opened aninvestment management account with respondent,under which she instructed the latter as her agentto invest the bulk of the money in LTCP.

Aside from their bare allegations, evidence thatsupports petitioners' contentions that no such dealtook place, or that the agreement was different,simply does not exist in the records.Petitioners were experienced and intelligentenough to be able to demand and sign a differentdocument to signify their real intention; but nosuch document exists. Thus, petitioners' acts andomissions negate their allegations that they wereessentially defrauded by the bank.Petitioners had other chances to protestrespondent's alleged disregard of their instructions.The COIs sent by respondent to petitionersencapsulate the spirit of the DIMA and DirectionalLetter, with the proviso that should there be anydeviations from petitioners' instructions, they mayinform respondent in writing within seven days.Assuming arguendo that respondent violated theinstructions, petitioners did not file a single timelywritten protest, however, despite their admissionthat they received the first COI on December 8,1997.91 It took eight months for petitioners toformally demand the return of their investmentthrough their counsel in a letter dated August 18,1998.92 The letter, however, did not even contestthe placement of the money in an LTCP, but merelyits maturity in the year 2003. Prior to the letter, ithas been shown that petitioners had received COIson February 12, 1998,93May 14, 1998,94 and August14, 1998,95 and in between, petitioners neverdemanded a return of the money they invested.Petitioners' acts and omissions strongly indicatethat they in fact conformed to the agreement in themonths after the signing. In that period, they werereceiving their bank statements and earninginterest from the investment, as in fact, C&PHomes under the LTCP continuously paid interesteven up to the time the instant case was alreadyon trial.96 When petitioners finally contested thecontract months after its signing, it wassuspiciously during the time when newspaperreports came out that C&P Homes' stock hadplunged in value and that Ayala Land waswithdrawing its offer to invest in thecompany.97 The connection is too obvious to ignore.It is reasonable to conclude that petitioners'repudiation of the agreement was nothing morethan an afterthought, a reaction to the negativeevents in the market and an effort to flee from alosing investment.Anent the second issue, whether petitioners areentitled to recover from respondent the amount ofPhP2,134,635.87 invested under the LTCP, theCourt agrees with the CA in dismissing thecomplaint filed by petitioners.Petitioners may not seek a return of theirinvestment directly from respondent at or prior to

maturity. As earlier explained, the investment is nota deposit and is not guaranteed by respondent.Absent any fraud or bad faith, the recourse ofpetitioners in the LTCP is solely against the issuer,C&P Homes, and only upon maturity. The DIMAstates, thus:11. Withdrawal of Income/Principal – Subjectto availability of funds and taking intoconsideration the commitment of thisaccount to third parties, the PRINCIPAL maywithdraw the income/principal of thePortfolio or portion thereof upon request orapplication thereof from the Bank. TheINVESTMENT MANAGER shall not be required toinquire as to the income/principal so withdrawnfrom the Portfolio. Any income of the Portfolio notwithdrawn shall be accumulated and added to theprincipal of the Portfolio for further investment andreinvestment.98 (Emphasis supplied.)It is clear that since the money is committed toC&P Homes via LTCP for five years, or until 2003,petitioners may not seek its recovery fromrespondent prior to the lapse of this period.Petitioners must wait and meanwhile just becontent with receiving their interest regularly. Ifpetitioners want the immediate return of theirinvestment before the maturity date, their only wayis to find a willing buyer to purchase the LTCP at anagreed price, or to go directly against the issuerC&P Homes, not against the respondent.The nature of the DIMA and the other documentssigned by the parties calls for this condition. TheDIMA states that respondent is a mere agent ofpetitioners and that losses from both the principaland interest of the investment are strictly onpetitioners' account. Meanwhile, the DirectionalLetter clearly states that the investment is to bemade in an LTCP which, by definition, has a term ofmore than 365 days.99 Prior to the expiry of theterm, which in the case of the C&P Homes LTCP isfive years, petitioners may not claim back theirinvestment, especially not from respondent bank.Having bound themselves under the contract asearlier discussed, petitioners are governed by itsprovisions. Petitioners as principals in an agencyrelationship are solely obliged to observe thesolemnity of the transaction entered into by theagent on their behalf, absent any proof that thelatter acted beyond its authority.100Concomitant tothis obligation is that the principal also assumesthe risks that may arise from thetransaction.101Indeed, as in the instant case, bankregulations prohibit banks from guaranteeingprofits or the principal in an investmentmanagement account.102 Hence, the CA correctlydismissed petitioners’ complaint againstrespondent.

WHEREFORE, the Petition is DENIED. For lack ofevidence, the Decision of the Court of Appealsdated dated May 28, 2002 and its Resolution ofDecember 11, 2002, are AFFIRMED.Costs against the petitioners.SO ORDERED.

G.R. No. 111924 January 27, 1997

ADORACION LUSTAN, petitioner, vs.COURT OF APPEALS, NICOLAS PARANGAN andSOLEDAD PARANGAN, PHILIPPINE NATIONALBANK,respondents.

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered ownerof a parcel of land otherwise known as Lot 8069 ofthe Cadastral Survey of Calinog, Iloilo containing anarea of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased theabove described property to private respondentNicolas Parangan for a term of ten (10) years andan annual rent of One Thousand (P1,000.00) Pesos.During the period of lease, Parangan was regularlyextending loans in small amounts to petitioner todefray her daily expenses and to finance herdaughter's education. On July 29, 1970, petitionerexecuted a Special Power of Attorney in favor ofParangan to secure an agricultural loan fromprivate respondent Philippine National Bank (PNB)with the aforesaid lot as collateral. On February 18,1972, a second Special Power of Attorney wasexecuted by petitioner, by virtue of which,Parangan was able to secure four (4) additionalloans, to wit: the sums of P24,000.00, P38,000.00,P38,600.00 and P25,000.00 on December 15, 1975,September 6, 1976, July 2, 1979 and June 2, 1980,respectively. The last three loans were without theknowledge of herein petitioner and all the proceedstherefrom were used by Parangan for his ownbenefit. 1 These encumbrances were dulyannotated on the certificate of title. On April 16,1973, petitioner signed a Deed of Pacto deRetro Sale 2 in favor of Parangan which wassuperseded by the Deed of Definite Sale 3 datedMay 4, 1979 which petitioner signed uponParangan's representation that the same merelyevidences the loans extended by him unto theformer.

For fear that her property might be prejudiced bythe continued borrowing of Parangan, petitionerdemanded the return of her certificate of title.Instead of complying with the request, Paranganasserted his rights over the property whichallegedly had become his by virtue of the

aforementioned Deed of Definite Sale. Under saiddocument, petitioner conveyed the subjectproperty and all the improvements thereon untoParangan absolutely for and in consideration of thesum of Seventy Five Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action forcancellation of liens, quieting of title, recovery ofpossession and damages against Parangan andPNB in the Regional Trial Court of Iloilo City. Aftertrial, the lower court rendered judgment, disposingas follows:

WHEREFORE and in view of theforegoing, a decision is renderedas follows:

1. Ordering cancellation by theRegister of Deeds of the Provinceof Iloilo, of the unauthorizedloans, the liens andencumbrances appearing in theTransfer Certificate of Title No. T-561, especially entries nos.286231; 338638; and 352794;

2. Declaring the Deed of Pacto deRetro Sale dated April 25, 1978and the Deed of Definite Saledated May 6, 1979, bothdocuments executed byAdoracion Lustan in favor ofNicolas Parangan over Lot 8069in TCT No. T-561 of the Registerof Deeds of Iloilo, as null andvoid, declaring the same to beDeeds of Equitable Mortgage;

3. Ordering defendant NicolasParangan to pay all the loans hesecured from defendant PNBusing thereto as security TCT No.T-561 of plaintiff and defendantPNB to return TCT No. T-561 toplaintiff;

4. Ordering defendant NicolasParangan to return possession ofthe land in question, Lot 8069 ofthe Calinog Cadastre, described

in TCT No. T-561 of the Registerof Deeds of Iloilo, to plaintiff uponpayment of the sum ofP75,000.00 by plaintiff todefendant Parangan whichpayment by plaintiff must bemade within ninety (90) daysfrom receipt of this decision;otherwise, sale of the land will beordered by the court to satisfypayment of the amount;

5. Ordering defendant NicolasParangan to pay plaintiffattorney's fees in the sum ofP15,000.00 and to pay the costsof the suit.

SO ORDERED. 4

Upon appeal to the Court of Appeals (CA),respondent court reversed the trial court's decision.Hence this petition contending that the CAcommitted the following errors:

IN ARRIVING AT THE CONCLUSIONTHAT NONE OF THE CONDITIONSSTATED IN ART. 1602 OF THENEW CIVIL CODE HAS BEENPROVEN TO EXIST BYPREPONDERANCE OF EVIDENCE;

IN CONCLUDING THATPETITIONER SIGNED THE DEEDOF SALE WITH KNOWLEDGE ASTO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSIONTHAT THE TESTIMONY OFWITNESS DELIA CABIALDESERVES FULL FAITH ANDCREDIT;

IN FINDING THAT THE SPECIALPOWER OF ATTORNEYAUTHORIZING MORTGAGE FOR"UNLIMITED" LOANS ASRELEVANT.

Two main issues confront us in this case, to wit:whether or not the Deed of Definite Sale is inreality an equitable mortgage and whether or notpetitioner's property is liable to PNB for the loanscontracted by Parangan by virtue of the specialpower of attorney. The lower court and the CAarrived at different factual findings thusnecessitating a review of the evidence onrecord. 5 After a thorough examination, we notesome errors, both in fact and in law, committed bypublic respondent CA.

The court a quo ruled that the Deed of Definite Saleis in reality an equitable mortgage as it was shownbeyond doubt that the intention of the parties wasone of a loan secured by petitioner's land. 6 Weagree.

A contract is perfected by mere consent. 7 Moreparticularly, a contract of sale is perfected at themoment there is a meeting of minds upon the thingwhich is the object of the contract and upon theprice. 8 This meeting of the minds speaks of theintent of the parties in entering into the contractrespecting the subject matter and theconsideration thereof. If the words of the contractappear to be contrary to the evident intention ofthe parties, the latter shall prevail over theformer. 9 In the case at bench, the evidence issufficient to warrant a finding that petitioner andParangan merely intended to consolidate theformer's indebtedness to the latter in a singleinstrument and to secure the same with the subjectproperty. Even when a document appears on itsface to be a sale, the owner of the property mayprove that the contract is really a loan withmortgage by raising as an issue the fact that thedocument does not express the true intent of theparties. In this case, parol evidence then becomescompetent and admissible to prove that theinstrument was in truth and in fact given merely asa security for the repayment of a loan. And uponproof of the truth of such allegations, the court willenforce the agreement or understanding inconsonance with the true intent of the parties atthe time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Coderespectively provide:

The contract shall be presumedto be an equitable mortgage inany of the following cases:

1) When the price of a sale withright to repurchase is unusuallyinadequate;

2) When the vendor remains inpossession as lessor orotherwise;

3) When upon or after theexpiration of the right torepurchase, another instrumentextending the period ofredemption or granting a newperiod is executed;

4) When the vendor binds himselfto pay the taxes on the thingsold;

5) When the purchaser retains forhimself a part of the purchaseprice;

6) In any other case where it maybe fairly inferred that the realintention of the parties is that thetransaction shall secure thepayment of a debt or theperformance of any otherobligation.

Art. 1604. The provisions ofArticle 1602 shall also apply to acontract purporting to be anabsolute sale.

From a reading of the above-quoted provisions, fora presumption of an equitable mortgage to arise,we must first satisfy two requisites namely: that theparties entered into a contract denominated as acontract of sale and that their intention was tosecure an existing debt by way of mortgage. UnderArt. 1604 of the Civil Code, a contract purporting tobe an absolute sale shall be presumed to be anequitable mortgage should any of the conditions inArt. 1602 be present. The existence of any of the

circumstances therein, not a concurrence nor anoverwhelming number of such circumstances,suffices to give rise to the presumption that thecontract is an equitable mortgage.11

Art. 1602, (6), in relation to Art 1604 provides thata contract of sale is presumed to be an equitablemortgage in any other case where it may be fairlyinferred that the real intention of the parties is thatthe transaction shall secure the payment of a debtor the performance of any other obligation. Thatthe case clearly falls under this category can beinferred from the circumstances surrounding thetransaction as herein set forth:

Petitioner had no knowledge that thecontract 12 she signed is a deed of sale. Thecontents of the same were not read nor explainedto her so that she may intelligibly formulate in hermind the consequences of her conduct and thenature of the rights she was ceding in favor ofParangan. Petitioner is illiterate and her conditionconstrained her to merely rely on Parangan'sassurance that the contract only evidences herindebtedness to the latter. When one of thecontracting parties is unable to read, or if thecontract is in a language not understood by him,and mistake or fraud is alleged, the personenforcing the contract must show that the termsthereof have been fully explained to theformer. 13 Settled is the rule that where a party to acontract is illiterate or cannot read or cannotunderstand the language in which the contract iswritten, the burden is on the party interested inenforcing the contract to prove that the termsthereof are fully explained to the former in alanguage understood by him. 14 To our mind, thisburden has not been satisfactorily discharged.

We do not find the testimony of Parangan and DeliaCabial that the contract was duly read andexplained to petitioner worthy of credit. Theassessment by the trial court of the credibility ofwitnesses is entitled to great respect and weightfor having had the opportunity of observing theconduct and demeanor of the witnesses whiletestifying. 15 The lower court may not havecategorically declared Cabial's testimony asdoubtful but this fact is readily apparent when itruled on the basis of petitioner's evidence in totaldisregard of the positive testimony on Parangan'sside. We have subjected the records to a thorough

examination, and a reading of the transcript ofstenographic notes would bear out that the court aquo is correct in its assessment. The CA committeda reversible error when it relied on the testimony ofCabial in upholding the validity of the Deed ofDefinite Sale. For one, there are noted majorcontradictions between the testimonies of Cabialand Judge Lebaquin, who notarized the purportedDeed of Definite Sale. While the former testifiedthat receipts were presented before JudgeLebaquin, who in turn made an accounting todetermine the price of the land 16, the lattercategorically denied the allegation. 17 Thiscontradiction casts doubt on the credibility ofCabial as it is ostensible that her version of thestory is concocted.

On the other hand, petitioner's witness CelsoPamplona, testified that the contract was not readnor explained to petitioner. We believe that thiswitness gave a more accurate account of thecircumstances surrounding the transaction. He hasno motive to prevaricate or concoct a story as hewitnessed the execution of the document at thebehest of Parangan himself who, at the outset,informed him that he will witness a documentconsolidating petitioner's debts. He thus testified:

Q: In (sic) May4, 1979, yourememberhaving went(sic) to theMunicipality ofCalinog?

A: Yes, sir.

Q: Who invitedyou to gothere?

A: Parangan.

Q: You meanNicolasParangan?

A: Yes, sir.

Q: What didNicolas tell youwhy he invitedyou to gothere?

A: He told methat I willwitness on theindebtedness ofAdoracion toParangan.

Q: BeforeAdoracionLustan signedher name inthis Exh. "4",was thisdocument readto her?

A: No, sir.

Q: Did NicolasParangan rightin that veryroom tellAdoracion whatshe wassigning?

A: No, sir.

xxx xxx xxx

Q: What didyou have inmind when youwere signingthis document,Exh. "4"?

A: To show thatAdoracionLustan hasdebts withNicolasParangan. 18

Furthermore, we note the absence of any questionpropounded to Judge Lebaquin to establish that thedeed of sale was read and explained by him topetitioner. When asked if witness has anyknowledge whether petitioner knows how to reador write, he answered in the negative. 19 This latteradmission impresses upon us that the contract wasnot at all read or explained to petitioner for had heknown that petitioner is illiterate, his assistancewould not have been necessary.

The foregoing squares with the sixth instance whena presumption of equitable mortgage prevails. Thecontract of definite sale, where petitionerpurportedly ceded all her rights to the subject lot infavor of Parangan, did not embody the trueintention of the parties. The evidence speaksclearly of the nature of the agreement — it was oneexecuted to secure some loans.

Anent the issue of whether the outstandingmortgages on the subject property can be enforcedagainst petitioner, we rule in the affirmative.

Third persons who are not parties to a loan maysecure the latter by pledging or mortgaging theirown property.20 So long as valid consent was given,the fact that the loans were solely for the benefit ofParangan would not invalidate the mortgage withrespect to petitioner's property. In consentingthereto, even granting that petitioner may not beassuming personal liability for the debt, herproperty shall nevertheless secure and respond forthe performance of the principal obligation. 21 It isadmitted that petitioner is the owner of the parcelof land mortgaged to PNB on five (5) occasions byvirtue of the Special Powers of Attorney executedby petitioner in favor of Parangan. Petitioner arguesthat the last three mortgages were void for lack ofauthority. She totally failed to consider that saidSpecial Powers of Attorney are a continuing oneand absent a valid revocation duly furnished to themortgagee, the same continues to have force andeffect as against third persons who had noknowledge of such lack of authority. Article 1921 ofthe Civil Code provides:

Art. 1921. If the agency has beenentrusted for the purpose ofcontracting with specifiedpersons, its revocation shall not

prejudice the latter if they werenot given notice thereof.

The Special Power of Attorney executed bypetitioner in favor of Parangan duly authorized thelatter to represent and act on behalf of the former.Having done so, petitioner clothed Parangan withauthority to deal with PNB on her behalf and in theabsence of any proof that the bank had knowledgethat the last three loans were without the expressauthority of petitioner, it cannot be prejudicedthereby. As far as third persons are concerned, anact is deemed to have been performed within thescope of the agent's authority if such is within theterms of the power of attorney as written even ifthe agent has in fact exceeded the limits of hisauthority according to the understanding betweenthe principal and the agent. 22 The Special Power ofAttorney particularly provides that the same isgood not only for the principal loan but also forsubsequent commercial, industrial, agriculturalloan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney isrevoked in a public instrument and a copy of whichis furnished to PNB. 23 Even when the agent hasexceeded his authority, the principal is solidarilyliable with the agent if the former allowed the latterto act as though he had full powers (Article 1911,Civil Code). 24 The mortgage directly andimmediately subjects the property upon which it isimposed. 25 The property of third persons which hasbeen expressly mortgaged to guarantee anobligation to which the said persons are foreign, isdirectly and jointly liable for the fulfillment thereof;it is therefore subject to execution and sale for thepurpose of paying the amount of the debt for whichit is liable. 26 However, petitioner has anunquestionable right to demand proportionalindemnification from Parangan with respect to thesum paid to PNB from the proceeds of the sale ofher property 27 in case the same is sold to satisfythe unpaid debts.

WHEREFORE, premises considered, the judgment ofthe lower court is hereby REINSTATED with thefollowing MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS ANEQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLASPARANGAN TO RETURN THE POSSESSION OF THE

SUBJECT LAND UNTO PETITIONER UPON THELATTER'S PAYMENT OF THE SUM OF P75,000.00WITHIN NINETY (90) DAYS FROM RECEIPT OF THISDECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNBAS VALID AND SUBSISTING AND MAY THEREFOREBE SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TOPAY PETITIONER THE AMOUNT OF P15,000.00 BYWAY OF ATTORNEY'S FEES AND TO PAY THE COSTSOF THE SUIT.

SO ORDERED.

G.R. No. 115838 July 18, 2002CONSTANTE AMOR DE CASTRO and CORAZONAMOR DE CASTRO, petitioners, vs.COURT OF APPEALS and FRANCISCOARTIGO, respondents.CARPIO, J.:The CaseBefore us is a Petition for Review onCertiorari1 seeking to annul the Decision of theCourt of Appeals2 dated May 4, 1994 in CA-G.R. CVNo. 37996, which affirmed in toto the decision3 ofthe Regional Trial Court of Quezon City, Branch 80,in Civil Case No. Q-89-2631. The trial courtdisposed as follows:

"WHEREFORE, the Court finds defendantsConstante and Corazon Amor de Castrojointly and solidarily liable to plaintiff thesum of:a) P303,606.24 representing unpaidcommission;b) P25,000.00 for and by way of moraldamages;c) P45,000.00 for and by way of attorney'sfees;d) To pay the cost of this suit.Quezon City, Metro Manila, December 20,1991."

The Antecedent FactsOn May 29, 1989, private respondent FranciscoArtigo ("Artigo" for brevity) sued petitionersConstante A. De Castro ("Constante" for brevity)and Corazon A. De Castro ("Corazon" for brevity) tocollect the unpaid balance of his broker'scommission from the De Castros.4 The Court ofAppeals summarized the facts in this wise:

"x x x. Appellants5 were co-owners of four(4) lots located at EDSA corner New Yorkand Denver Streets in Cubao, Quezon City.In a letter dated January 24, 1984 (Exhibit"A-1, p. 144, Records), appellee6 wasauthorized by appellants to act as realestate broker in the sale of theseproperties for the amountofP23,000,000.00, five percent (5%) ofwhich will be given to the agent ascommission. It was appellee who firstfound Times Transit Corporation,represented by its president Mr. Rondaris,as prospective buyer which desired to buytwo (2) lots only, specifically lots 14 and15. Eventually, sometime in May of 1985,the sale of lots 14 and 15 wasconsummated. Appellee received fromappellants P48,893.76 as commission.It was then that the rift between thecontending parties soon emerged.

Appellee apparently felt short changedbecause according to him, his totalcommission should be P352,500.00 whichis five percent (5%) of the agreed priceof P7,050,000.00 paid by Times TransitCorporation to appellants for the two (2)lots, and that it was he who introduced thebuyer to appellants and unceasinglyfacilitated the negotiation which ultimatelyled to the consummation of the sale.Hence, he sued below to collect thebalance of P303,606.24 after havingreceived P48,893.76 inadvance.1âwphi1.nêtOn the other hand, appellants completelytraverse appellee's claims and essentiallyargue that appellee is selfishly asking formore than what he truly deserved ascommission to the prejudice of otheragents who were more instrumental in theconsummation of the sale. Althoughappellants readily concede that it wasappellee who first introduced Times TransitCorp. to them, appellee was notdesignated by them as their exclusive realestate agent but that in fact there weremore or less eighteen (18) others whosecollective efforts in the long run dwarfedthose of appellee's, considering that thefirst negotiation for the sale whereappellee took active participation failedand it was these other agents whosuccessfully brokered in the secondnegotiation. But despite this and out ofappellants' "pure liberality, beneficenceand magnanimity", appellee neverthelesswas given the largest cut in thecommission (P48,893.76), although on theprinciple of quantum meruit he wouldhave certainly been entitled to less. Soappellee should not have been heard tocomplain of getting only a pittance whenhe actually got the lion's share of thecommission and worse, he should nothave been allowed to get the entirecommission. Furthermore, the purchaseprice for the two lots was only P3.6 millionas appearing in the deed of sale andnot P7.05 million as alleged by appellee.Thus, even assuming that appellee isentitled to the entire commission, hewould only be getting 5% of the P3.6million, or P180,000.00."

Ruling of the Court of AppealsThe Court of Appeals affirmed in toto the decisionof the trial court.

First. The Court of Appeals found that Constanteauthorized Artigo to act as agent in the sale of twolots in Cubao, Quezon City. The handwrittenauthorization letter signed by Constante clearlyestablished a contract of agency betweenConstante and Artigo. Thus, Artigo soughtprospective buyers and found Times TransitCorporation ("Times Transit" for brevity). Artigofacilitated the negotiations which eventually led tothe sale of the two lots. Therefore, the Court ofAppeals decided that Artigo is entitled to the 5%commission on the purchase price as provided inthe contract of agency.Second. The Court of Appeals ruled that Artigo'scomplaint is not dismissible for failure to impleadas indispensable parties the other co-owners of thetwo lots. The Court of Appeals explained that it isnot necessary to implead the other co-owners sincethe action is exclusively based on a contract ofagency between Artigo and Constante.Third. The Court of Appeals likewise declared thatthe trial court did not err in admitting parolevidence to prove the true amount paid by TimesTransit to the De Castros for the two lots. The Courtof Appeals ruled that evidence aliunde could bepresented to prove that the actual purchase pricewas P7.05 million and not P3.6 million as appearingin the deed of sale. Evidence aliunde is admissibleconsidering that Artigo is not a party, but a merewitness in the deed of sale between the De Castrosand Times Transit. The Court of Appeals explainedthat, "the rule that oral evidence is inadmissible tovary the terms of written instruments is generallyapplied only in suits between parties to theinstrument and strangers to the contract are notbound by it." Besides, Artigo was not suing underthe deed of sale, but solely under the contract ofagency. Thus, the Court of Appeals upheld the trialcourt's finding that the purchase price was P7.05million and not P3.6 million.Hence, the instant petition.The IssuesAccording to petitioners, the Court of Appeals erredin -

I. NOT ORDERING THE DISMISSAL OF THECOMPLAINT FOR FAILURE TO IMPLEADINDISPENSABLE PARTIES-IN-INTEREST;II. NOT ORDERING THE DISMISSAL OF THECOMPLAINT ON THE GROUND THATARTIGO'S CLAIM HAS BEEN EXTINGUISHEDBY FULL PAYMENT, WAIVER, ORABANDONMENT;III. CONSIDERING INCOMPETENTEVIDENCE;IV. GIVING CREDENCE TO PATENTLYPERJURED TESTIMONY;

V. SANCTIONING AN AWARD OF MORALDAMAGES AND ATTORNEY'S FEES;VI. NOT AWARDING THE DE CASTRO'SMORAL AND EXEMPLARY DAMAGES, ANDATTORNEY'S FEES.

The Court's RulingThe petition is bereft of merit.First Issue: whether the complaint meritsdismissal for failure to implead other co-owners as indispensable partiesThe De Castros argue that Artigo's complaintshould have been dismissed for failure to impleadall the co-owners of the two lots. The De Castrosclaim that Artigo always knew that the two lotswere co-owned by Constante and Corazon withtheir other siblings Jose and Carmela whomConstante merely represented. The De Castroscontend that failure to implead such indispensableparties is fatal to the complaint since Artigo, asagent of all the four co-owners, would be paid withfunds co-owned by the four co-owners.The De Castros' contentions are devoid of legalbasis.An indispensable party is one whose interest will beaffected by the court's action in the litigation, andwithout whom no final determination of the casecan be had.7 The joinder of indispensable parties ismandatory and courts cannot proceed without theirpresence.8 Whenever it appears to the court in thecourse of a proceeding that an indispensable partyhas not been joined, it is the duty of the court tostop the trial and order the inclusion of such party.9

However, the rule on mandatory joinder ofindispensable parties is not applicable to theinstant case.There is no dispute that Constante appointed Artigoin a handwritten note dated January 24, 1984 tosell the properties of the De Castros for P23 millionat a 5 percent commission. The authority was on afirst come, first serve basis. The authority reads infull:

"24 Jan. 84

To Whom It May Concern:This is to state that Mr. Francisco Artigo isauthorized as our real estate broker inconnection with the sale of our propertylocated at Edsa Corner New York &Denver, Cubao, Quezon City.Asking price P 23,000,000.00 with 5%commission as agent's fee.

C.C. de Castroowner & representingco-owners

This authority is on a first-comeFirst serve basis –CAC"

Constante signed the note as owner and asrepresentative of the other co-owners. Under thisnote, a contract of agency was clearly constitutedbetween Constante and Artigo. Whether Constanteappointed Artigo as agent, in Constante's individualor representative capacity, or both, the De Castroscannot seek the dismissal of the case for failure toimplead the other co-owners as indispensableparties. The De Castros admit that the otherco-owners are solidarily liable under thecontract of agency,10 citing Article 1915 of theCivil Code, which reads:

Art. 1915. If two or more persons haveappointed an agent for a commontransaction or undertaking, they shall besolidarily liable to the agent for all theconsequences of the agency.

The solidary liability of the four co-owners,however, militates against the De Castros' theorythat the other co-owners should be impleaded asindispensable parties. A noted commentatorexplained Article 1915 thus –

"The rule in this article applies even whenthe appointments were made by theprincipals in separate acts, provided thatthey are for the same transaction. Thesolidarity arises from the commoninterest of the principals, and notfrom the act of constituting theagency. By virtue of this solidarity,the agent can recover from anyprincipal the whole compensation andindemnity owing to him by theothers.The parties, however, may, byexpress agreement, negate this solidaryresponsibility. The solidarity does notdisappear by the mere partition effectedby the principals after the accomplishmentof the agency.If the undertaking is one in which severalare interested, but only some create theagency, only the latter are solidarily liable,without prejudice to the effectsof negotiorum gestio with respect to theothers. And if the power granted includesvarious transactions some of which arecommon and others are not, only thoseinterested in each transaction shall beliable for it."11

When the law expressly provides for solidarity ofthe obligation, as in the liability of co-principals in acontract of agency, each obligor may be compelledto pay the entire obligation.12 The agent mayrecover the whole compensation from any one ofthe co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides thata creditor may sue any of the solidary debtors.This article reads:

Art. 1216. The creditor may proceedagainst any one of the solidary debtors orsome or all of them simultaneously. Thedemand made against one of them shallnot be an obstacle to those which maysubsequently be directed against theothers, so long as the debt has not beenfully collected.

Thus, the Court has ruled in OperatorsIncorporated vs. American Biscuit Co., Inc.13 that –

"x x x solidarity does not make asolidary obligor an indispensableparty in a suit filed by the creditor.Article 1216 of the Civil Code says that thecreditor `may proceed against anyone ofthe solidary debtors or some or all of themsimultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim hasbeen extinguished by full payment, waiver orabandonmentThe De Castros claim that Artigo was fully paid onJune 14, 1985, that is, Artigo was given "hisproportionate share and no longer entitled to anybalance." According to them, Artigo was just one ofthe agents involved in the sale and entitled to a"proportionate share" in the commission. Theyassert that Artigo did absolutely nothing during thesecond negotiation but to sign as a witness in thedeed of sale. He did not even prepare thedocuments for the transaction as an active realestate broker usually does.The De Castros' arguments are flimsy.A contract of agency which is not contrary to law,public order, public policy, morals or good customis a valid contract, and constitutes the law betweenthe parties.14 The contract of agency entered intoby Constante with Artigo is the law between themand both are bound to comply with its terms andconditions in good faith.The mere fact that "other agents" intervened in theconsummation of the sale and were paid theirrespective commissions cannot vary the terms ofthe contract of agency granting Artigo a 5 percentcommission based on the selling price. These"other agents" turned out to be employees ofTimes Transit, the buyer Artigo introduced to theDe Castros. This prompted the trial court toobserve:

"The alleged `second group' of agentscame into the picture only during the so-called `second negotiation' and it isamusing to note that these (sic) secondgroup, prominent among whom are Atty.Del Castillo and Ms. Prudencio, happened

to be employees of Times Transit, thebuyer of the properties. And their effortswere limited to convincing Constante to'part away' with the properties becausethe redemption period of the foreclosedproperties is around the corner, so tospeak. (tsn. June 6, 1991).x x xTo accept Constante's version of the storyis to open the floodgates of fraud anddeceit. A seller could always pretendrejection of the offer and wait forsometime for others to renew it who aremuch willing to accept a commission farless than the original broker. Theimmorality in the instant case easilypresents itself if one has to considerthat the alleged `second group' arethe employees of the buyer, TimesTransit and they have not betteredthe offer secured by Mr. Artigo for P7million.It is to be noted also that while Constantewas too particular about the unrenewedreal estate broker's license of Mr. Artigo,he did not bother at all to inquire as to thelicenses of Prudencio and Castillo. (tsn,April 11, 1991, pp. 39-40)."15 (Emphasissupplied)

In any event, we find that the 5 percent real estatebroker's commission is reasonable and within thestandard practice in the real estate industry fortransactions of this nature.The De Castros also contend that Artigo's inactionas well as failure to protest estops him fromrecovering more than what was actually paid him.The De Castros cite Article 1235 of the Civil Codewhich reads:

Art. 1235. When the obligee accepts theperformance, knowing its incompletenessand irregularity, and without expressingany protest or objection, the obligation isdeemed fully complied with.

The De Castros' reliance on Article 1235 of the CivilCode is misplaced. Artigo's acceptance of partialpayment of his commission neither amounts to awaiver of the balance nor puts him in estoppel. Thisis the import of Article 1235 which was explained inthis wise:

"The word accept, as used in Article 1235of the Civil Code, means to take assatisfactory or sufficient, or agree to anincomplete or irregularperformance. Hence, the mere receiptof a partial payment is not equivalentto the required acceptance of

performance as would extinguish thewhole obligation."16 (Emphasis supplied)

There is thus a clear distinction betweenacceptance and mere receipt. In this case, it isevident that Artigo merely received the partialpayment without waiving the balance. Thus, thereis no estoppel to speak of.The De Castros further argue that laches shouldapply because Artigo did not file his complaint incourt until May 29, 1989, or almost four years later.Hence, Artigo's claim for the balance of hiscommission is barred by laches.Laches means the failure or neglect, for anunreasonable and unexplained length of time, to dothat which by exercising due diligence could orshould have been done earlier. It is negligence oromission to assert a right within a reasonable time,warranting a presumption that the party entitled toassert it either has abandoned it or declined toassert it.17

Artigo disputes the claim that he neglected toassert his rights. He was appointed as agent onJanuary 24, 1984. The two lots were finally sold inJune 1985. As found by the trial court, Artigodemanded in April and July of 1985 the payment ofhis commission by Constante on the basis of theselling price of P7.05 million but there was noresponse from Constante.18 After it became clearthat his demands for payment have fallen on deafears, Artigo decided to sue on May 29, 1989.Actions upon a written contract, such as a contractof agency, must be brought within ten years fromthe time the right of action accrues.19 The right ofaction accrues from the moment the breach ofright or duty occurs. From this moment, thecreditor can institute the action even as the ten-year prescriptive period begins to run.20

The De Castros admit that Artigo's claim was filedwithin the ten-year prescriptive period. The DeCastros, however, still maintain that Artigo's causeof action is barred by laches. Laches does not applybecause only four years had lapsed from the timeof the sale in June 1985. Artigo made a demand inJuly 1985 and filed the action in court on May 29,1989, well within the ten-year prescriptive period.This does not constitute an unreasonable delay inasserting one's right. The Court has ruled, "adelay within the prescriptive period issanctioned by law and is not considered to bea delay that would bar relief."21 In explainingthat laches applies only in the absence of astatutory prescriptive period, the Court has stated -

"Laches is recourse in equity. Equity,however, is applied only in theabsence, never in contravention, ofstatutory law. Thus, laches, cannot,as a rule, be used to abate a

collection suit filed within theprescriptive period mandated by theCivil Code."22

Clearly, the De Castros' defense of laches finds nosupport in law, equity or jurisprudence.Third issue: whether the determination of thepurchase price was made in violation of theRules on EvidenceThe De Castros want the Court to re-examine theprobative value of the evidence adduced in the trialcourt to determine whether the actual selling priceof the two lots was P7.05 million and not P3.6million. The De Castros contend that it is erroneousto base the 5 percent commission on a purchaseprice of P7.05 million as ordered by the trial courtand the appellate court. The De Castros insist thatthe purchase price is P3.6 million as expresslystated in the deed of sale, the due execution andauthenticity of which was admitted during the trial.The De Castros believe that the trial and appellatecourts committed a mistake in consideringincompetent evidence and disregarding the bestevidence and parole evidence rules. They claimthat the Court of Appeals erroneously affirmed subsilentio the trial court's reliance on the variouscorrespondences between Constante and TimesTransit which were mere photocopies that do notsatisfy the best evidence rule. Further, these letterscovered only the first negotiations betweenConstante and Times Transit which failed; hence,these are immaterial in determining the finalpurchase price.The De Castros further argue that if there was anundervaluation, Artigo who signed as witnessbenefited therefrom, and being equally guilty,should be left where he presently stands. Theylikewise claim that the Court of Appeals erred inrelying on evidence which were not offered for thepurpose considered by the trial court. Specifically,Exhibits "B", "C", "D" and "E" were not offered toprove that the purchase price was P7.05 Million.Finally, they argue that the courts a quo erred ingiving credence to the perjured testimony of Artigo.They want the entire testimony of Artigo rejectedas a falsehood because he was lying when heclaimed at the outset that he was a licensed realestate broker when he was not.Whether the actual purchase price was P7.05Million as found by the trial court and affirmed bythe Court of Appeals, or P3.6 Million as claimed bythe De Castros, is a question of fact and not of law.Inevitably, this calls for an inquiry into the factsand evidence on record. This we can not do.It is not the function of this Court to re-examine theevidence submitted by the parties, or analyze orweigh the evidence again.23 This Court is not theproper venue to consider a factual issue as it is not

a trier of facts. In petitions for review on certiorarias a mode of appeal under Rule 45, a petitionercan only raise questions of law. Ourpronouncement in the case of Cormero vs. Court ofAppeals24 bears reiteration:

"At the outset, it is evident from the errorsassigned that the petition is anchored on aplea to review the factual conclusionreached by the respondent court. Suchtask however is foreclosed by the rule thatin petitions for certiorari as a mode ofappeal, like this one, only questions of lawdistinctly set forth may be raised. Thesequestions have been defined as those thatdo not call for any examination of theprobative value of the evidence presentedby the parties. (Uniland Resources vs.Development Bank of the Philippines, 200SCRA 751 [1991] citing Goduco vs. Courtof appeals, et al., 119 Phil. 531;Hernandez vs. Court of Appeals, 149 SCRA67). And when this court is asked to goover the proof presented by the parties,and analyze, assess and weigh them toascertain if the trial court and theappellate court were correct in accordingsuperior credit to this or that piece ofevidence and eventually, to the totality ofthe evidence of one party or the other, thecourt cannot and will not do the same.(Elayda vs. Court of Appeals, 199 SCRA349 [1991]). Thus, in the absence of anyshowing that the findings complained ofare totally devoid of support in the record,or that they are so glaringly erroneous asto constitute serious abuse of discretion,such findings must stand, for this court isnot expected or required to examine orcontrast the oral and documentaryevidence submitted by the parties.(Morales vs. Court of Appeals, 197 SCRA391 [1991] citing Santa Ana vs.Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. Thetrial and appellate courts are in a much betterposition to evaluate properly the evidence. Hence,we find no other recourse but to affirm their findingon the actual purchase price.1âwphi1.nêtFourth Issue: whether award of moraldamages and attorney's fees is properThe De Castros claim that Artigo failed to provethat he is entitled to moral damages and attorney'sfees. The De Castros, however, cite no concretereason except to say that they are the onesentitled to damages since the case was filed toharass and extort money from them.

Law and jurisprudence support the award of moraldamages and attorney's fees in favor of Artigo. Theaward of damages and attorney's fees is left to thesound discretion of the court, and if such discretionis well exercised, as in this case, it will not bedisturbed on appeal.25 Moral damages may beawarded when in a breach of contract thedefendant acted in bad faith, or in wantondisregard of his contractual obligation.26 On theother hand, attorney's fees are awarded ininstances where "the defendant acted in gross andevident bad faith in refusing to satisfy the plaintiff'splainly valid, just and demandable claim."27 There isno reason to disturb the trial court's finding that"the defendants' lack of good faith and unkindtreatment of the plaintiff in refusing to give his duecommission deserve censure." This warrants theaward of P25,000.00 in moral damagesand P 45,000.00 in attorney's fees. The amountsare, in our view, fair and reasonable. Having founda buyer for the two lots, Artigo had alreadyperformed his part of the bargain under thecontract of agency. The De Castros should haveexercised fairness and good judgment in dealingwith Artigo by fulfilling their own part of the bargain- paying Artigo his 5 percent broker's commissionbased on the actual purchase price of the two lots.WHEREFORE, the petition is denied for lack ofmerit. The Decision of the Court of Appeals datedMay 4, 1994 in CA-G.R. CV No. 37996is AFFIRMED in toto.SO ORDERED.

G.R. No. 88539 October 26, 1993

KUE CUISON, doing business under the firmname and style"KUE CUISON PAPERSUPPLY," petitioner, vs.THE COURT OF APPEALS, VALIANTINVESTMENT ASSOCIATES, respondents.

BIDIN, J.:

This petition for review assails the decision of therespondent Court of Appeals ordering petitioner topay private respondent, among others, the sum ofP297,482.30 with interest. Said decision reversedthe appealed decision of the trial court rendered infavor of petitioner.

The case involves an action for a sum of moneyfiled by respondent against petitioner anchored onthe following antecedent facts:

Petitioner Kue Cuison is a sole proprietorshipengaged in the purchase and sale of newsprint,bond paper and scrap, with places of business atBaesa, Quezon City, and Sto. Cristo, Binondo,Manila. Private respondent Valiant InvestmentAssociates, on the other hand, is a partnership dulyorganized and existing under the laws of thePhilippines with business address at Kalookan City.

From December 4, 1979 to February 15, 1980,private respondent delivered various kinds of paperproducts amounting to P297,487.30 to a certainLilian Tan of LT Trading. The deliveries were madeby respondent pursuant to orders allegedly placedby Tiu Huy Tiac who was then employed in theBinondo office of petitioner. It was likewisepursuant to Tiac's instructions that themerchandise was delivered to Lilian Tan. Upondelivery, Lilian Tan paid for the merchandise byissuing several checks payable to cash at thespecific request of Tiu Huy Tiac. In turn, Tiac issuednine (9) postdated checks to private respondent aspayment for the paper products. Unfortunately, sadchecks were later dishonored by the drawee bank.

Thereafter, private respondent made severaldemands upon petitioner to pay for the

merchandise in question, claiming that Tiu Huy Tiacwas duly authorized by petitioner as the managerof his Binondo office, to enter into the questionedtransactions with private respondent and Lilian Tan.Petitioner denied any involvement in thetransaction entered into by Tiu Huy Tiac andrefused to pay private respondent the amountcorresponding to the selling price of the subjectmerchandise.

Left with no recourse, private respondent filed anaction against petitioner for the collection ofP297,487.30 representing the price of themerchandise. After due hearing, the trial courtdismissed the complaint against petitioner for lackof merit. On appeal, however, the decision of thetrial court was modified, but was in effect reversedby the Court of Appeals, the dispositive portion ofwhich reads:

WHEREFORE, the decisionappealed from is MODIFIED inthat defendant-appellant KueCuison is hereby ordered to payplaintiff-appellant ValiantInvestment Associates the sum ofP297,487.30 with 12% interestfrom the filing of the complaintuntil the amount is fully paid,plus the sum of 7% of the totalamount due as attorney's fees,and to pay the costs. In all otherrespects, the decision appealedfrom is affirmed. (Rollo, p. 55)

In this petition, petitioner contends that:

THE HONORABLE COURT ERREDIN FINDING TIU HUY TIAC AGENTOF DEFENDANT-APPELLANTCONTRARY TO THEUNDISPUTED/ESTABLISHEDFACTS AND CIRCUMSTANCES.

THE HONORABLE COURT ERREDIN FINDING DEFENDANT-APPELLANT LIABLE FOR ANOBLIGATION UNDISPUTEDLYBELONGING TO TIU HUY TIAC.

THE HONORABLE COURT ERRED IN REVERSING THEWELL-FOUNDED DECISION OF THE TRIAL COURT,(Rollo, p, 19)

The issue here is really quite simple — whether ornot Tiu Huy Tiac possessed the required authorityfrom petitioner sufficient to hold the latter liable forthe disputed transaction.

This petition ought to have been denied outright,forin the final analysis, it raises a factual issue. It iselementary that in petitions for review under Rule45, this Court only passes upon questions of law.An exception thereto occurs where the findings offact of the Court of Appeals are at variance withthe trial court, in which case the Court reviews theevidence in order to arrive at the correct findingsbased on the records.

As to the merits of the case, it is a well-establishedrule that one who clothes another with apparentauthority as his agent and holds him out to thepublic as such cannot be permitted to deny theauthority of such person to act as his agent, to theprejudice of innocent third parties dealing withsuch person in good faith and in the honest beliefthat he is what he appears to be (Macke, et al, v.Camps, 7 Phil. 553 (1907]; Philippine NationalBank. v Court of Appeals, 94 SCRA 357 [1979]).From the facts and the evidence on record, there isno doubt that this rule obtains. The petition musttherefore fail.

It is evident from the records that by his own actsand admission, petitioner held out Tiu Huy Tiac tothe public as the manager of his store in Sto.Cristo, Binondo, Manila. More particularly,petitioner explicitly introduced Tiu Huy Tiac toBernardino Villanueva, respondent's manager, ashis (petitioner's) branch manager as testified to byBernardino Villanueva. Secondly, Lilian Tan, whohas been doing business with petitioner for quite awhile, also testified that she knew Tiu Huy Tiac tobe the manager of petitioner's Sto. Cristo, Binondobranch. This general perception of Tiu Huy Tiac asthe manager of petitioner's Sto. Cristo store is evenmade manifest by the fact that Tiu Huy Tiac isknown in the community to be the "kinakapatid"(godbrother) of petitioner. In fact, even petitioneradmitted his close relationship with Tiu Huy Tiacwhen he said that they are "like brothers" (Rollo, p.

54). There was thus no reason for anybodyespecially those transacting business withpetitioner to even doubt the authority of Tiu HuyTiac as his manager in the Sto. Cristo Binondobranch.

In a futile attempt to discredit Villanueva, petitioneralleges that the former's testimony is clearly self-serving inasmuch as Villanueva worked for privaterespondent as its manager.

We disagree, The argument that Villanueva'stestimony is self-serving and therefore inadmissibleon the lame excuse of his employment with privaterespondent utterly misconstrues the nature of"'self-serving evidence" and the specific ground forits exclusion. As pointed out by this Court in Cov. Court of Appeals et, al., (99 SCRA 321 [1980]):

Self-serving evidence is evidencemade by a party out of court atone time; it does not include aparty's testimony as a witness incourt. It is excluded on the sameground as any hearsay evidence,that is the lack of opportunity forcross-examination by the adverseparty, and on the considerationthat its admission would open thedoor to fraud and to fabrication oftestimony. On theother hand, aparty's testimony in court issworn and affords the other partythe opportunity for cross-examination (emphasis supplied)

Petitioner cites Villanueva's failure, despite hiscommitment to do so on cross-examination, toproduce the very first invoice of the transactionbetween petitioner and private respondent asanother ground to discredit Villanueva's testimony.Such failure, proves that Villanueva was not onlybluffing when he pretended that he can producethe invoice, but that Villanueva was likewiseprevaricating when he insisted that such priortransactions actually took place. Petitioner ismistaken. In fact, it was petitioner's counsel himselfwho withdrew the reservation to have Villanuevaproduce the document in court. As aptly observedby the Court of Appeals in its decision:

. . . However, during the hearingon March 3, 1981, Villanuevafailed to present the documentadverted to because defendant-appellant's counsel withdrew hisreservation to have the former(Villanueva) produce thedocument or invoice, thusprompting plaintiff-appellant torest its case that same day(t.s.n., pp. 39-40, Sess. of March3, 1981). Now, defendant-appellant assails the credibility ofVillanueva for having allegedlyfailed to produce even one singledocument to show that plaintiff-appellant have had transactionsbefore, when in fact said failureof Villanueva to produce saiddocument is a direct off-shoot ofthe action of defendant-appellant's counsel who withdrewhis reservation for the productionof the document or invoice andwhich led plaintiff-appellant torest its case that very day. (Rollo,p.52)

In the same manner, petitioner assails thecredibility of Lilian Tan by alleging that Tan was partof an intricate plot to defraud him. However,petitioner failed to substantiate or prove that thesubject transaction was designed to defraud him.Ironically, it was even the testimony of petitioner'sdaughter and assistant manager Imelda Kue Cuisonwhich confirmed the credibility of Tan as a witness.On the witness stand, Imelda testified that sheknew for a fact that prior to the transaction inquestion, Tan regularly transacted business withher father (petitioner herein), thereby corroboratingTan's testimony to the same effect. As correctlyfound by the respondent court, there was no logicalexplanation for Tan to impute liability uponpetitioner. Rather, the testimony of Imelda KueCuison only served to add credence to Tan'stestimony as regards the transaction, the liabilityfor which petitioner wishes to be absolved.

But of even greater weight than any of thesetestimonies, is petitioner's categorical admission onthe witness stand that Tiu Huy Tiac was themanager of his store in Sto. Cristo, Binondo, to wit:

Court:

xxx xxx xxx

Q And who wasmanaging thestore in Sto.Cristo?

A At first it wasMr. Ang, thenlater Mr. TiuHuy Tiac but Icannotremember theexact year.

Q So, Mr. TiuHuy Tiac tookover themanagement,.

A Not that wasbecause everyafternoon, I wasthere, sir.

Q But in themorning, whotakes charge?

A Tiu Huy Tiactakes charge ofmanagement and if there (sic)orders fornewsprint orbond papersthey are alwaysreferred to thecompound inBaesa, sir.(t.s.n., p. 16,Session ofJanuary 20,1981, CAdecision, Rollo,p. 50, emphasissupplied).

Such admission, spontaneous no doubt, andstanding alone, is sufficient to negate all thedenials made by petitioner regarding the capacityof Tiu Huy Tiac to enter into the transaction inquestion. Furthermore, consistent with and as anobvious indication of the fact that Tiu Huy Tiac wasthe manager of the Sto. Cristo branch, three (3)months after Tiu Huy Tiac left petitioner's employ,petitioner even sent, communications to itscustomers notifying them that Tiu Huy Tiac is nolonger connected with petitioner's business. Suchundertaking spoke unmistakenly of Tiu Huy Tiac'svaluable position as petitioner's manager than anyuttered disclaimer. More than anything else, thisact taken together with the declaration ofpetitioner in open court amount to admissionsunder Rule 130 Section 22 of the Rules of Court, towit : "The act, declaration or omission of a party asto a relevant fact may be given in evidence againsthim." For well-settled is the rule that "a man's acts,conduct, and declaration, wherever made, ifvoluntary, are admissible against him, for thereason that it is fair to presume that theycorrespond with the truth, and it is his fault if theydo not. If a man's extrajudicial admissions areadmissible against him, there seems to be noreason why his admissions made in open court,under oath, should not be accepted against him."(U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];).

Moreover, petitioner's unexplained delay indisowning the transactions entered into by Tiu HuyTiac despite several attempts made by respondentto collect the amount from him, proved all the morethat petitioner was aware of the questionedcommission was tantamount to an admission bysilence under Rule 130 Section 23 of the Rules ofCourt, thus: "Any act or declaration made in thepresence of and within the observation of a partywho does or says nothing when the act ordeclaration is such as naturally to call for action orcomment if not true, may be given in evidenceagainst him."

All of these point to the fact that at the time of thetransaction Tiu Huy Tiac was admittedly themanager of petitioner's store in Sto. Cristo,Binondo. Consequently, the transaction in questionas well as the concomitant obligation is valid andbinding upon petitioner.

By his representations, petitioner is now estoppedfrom disclaiming liability for the transactionentered by Tiu Huy Tiac on his behalf. It mattersnot whether the representations are intentional ormerely negligent so long as innocent, third personsrelied upon such representations in good faith andfor value As held in the case of Manila RemnantCo. Inc. v. Court of Appeals, (191 SCRA 622[1990]):

More in point, we find that by theprinciple of estoppel, ManilaRemnant is deemed to haveallowed its agent to act as thoughit had plenary powers. Article1911 of the Civil Code provides:

"Even when theagent hasexceeded hisauthority, theprincipalissolidarilyliable with theagent if theformer allowedthe latter to actas though hehad fullpowers."(Emphasissupplied).

The above-quoted article is new.It is intended to protect the rightsof innocent persons. In such asituation, both the principal andthe agent may be considered asjoint tortfeasors whose liability isjoint and solidary.

Authority by estoppel has arisenin the instant case because by itsnegligence, the principal, ManilaRemnant, has permitted itsagent, A.U. Valencia and Co., toexercise powers not granted to it.That the principal might not havehad actual knowledge oftheagent's misdeed is of nomoment.

Tiu Huy Tiac, therefore, by petitioner's ownrepresentations and manifestations, became anagent of petitioner by estoppel, an admission orrepresentation is rendered conclusive upon theperson making it, and cannot be denied ordisproved as against the person relying thereon(Article 1431, Civil Code of the Philippines). A partycannot be allowed to go back on his own acts andrepresentations to the prejudice of the other partywho, in good faith, relied upon them (PhilippineNational Bank v. Intermediate Appellate Court, etal., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for thetransaction entered into by Tiu Huy Tiac on hisbehalf. Thus, even when the agent has exceededhis authority, the principal is solidarily liable withthe agent if the former allowed the latter to fact asthough he had full powers (Article 1911 Civil Code),as in the case at bar.

Finally, although it may appear that Tiu Huy Tiacdefrauded his principal (petitioner) in not turningover the proceeds of the transaction to the latter,such fact cannot in any way relieve nor exoneratepetitioner of his liability to private respondent. Forit is an equitable maxim that as between twoinnocent parties, the one who made it possible forthe wrong to be done should be the one to bear theresulting loss (Francisco vs. Government ServiceInsurance System, 7 SCRA 577 [1963]).

Inasmuch as the fundamental issue of the capacityor incapacity of the purported agent Tiu Huy Tiac,has already been resolved, the Court deems itunnecessary to resolve the other peripheral issuesraised by petitioner.

WHEREFORE, the instant petition in hereby DENIEDfor lack of merit. Costs against petitioner.

SO ORDERED.

G.R. No. 76931 May 29, 1991ORIENT AIR SERVICES & HOTELREPRESENTATIVES, petitioner, vs.COURT OF APPEALS and AMERICAN AIR-LINESINCORPORATED, respondents.G.R. No. 76933 May 29, 1991AMERICAN AIRLINES,INCORPORATED, petitioner, vs.COURT OF APPEALS and ORIENT AIRSERVICES & HOTEL REPRESENTATIVES,INCORPORATED,respondents.Francisco A. Lava, Jr. and Andresito X. Fornier forOrient Air Service and Hotel Representatives, Inc.Sycip, Salazar, Hernandez & Gatmaitan forAmerican Airlines, Inc.

PADILLA, J.:This case is a consolidation of two (2) petitions forreview on certiorari of a decision 1 of the Court ofAppeals in CA-G.R. No. CV-04294, entitled"American Airlines, Inc. vs. Orient Air Services andHotel Representatives, Inc." which affirmed, withmodification, the decision 2 of the Regional TrialCourt of Manila, Branch IV, which dismissed thecomplaint and granted therein defendant'scounterclaim for agent's overriding commissionand damages.The antecedent facts are as follows:On 15 January 1977, American Airlines, Inc.(hereinafter referred to as American Air), an aircarrier offering passenger and air cargotransportation in the Philippines, and Orient AirServices and Hotel Representatives (hereinafterreferred to as Orient Air), entered into a GeneralSales Agency Agreement (hereinafter referred to asthe Agreement), whereby the former authorizedthe latter to act as its exclusive general sales agentwithin the Philippines for the sale of air passengertransportation. Pertinent provisions of theagreement are reproduced, to wit:

WITNESSETHIn consideration of the mutual convenantsherein contained, the parties hereto agreeas follows:1. Representation of American by OrientAir ServicesOrient Air Services will act on American'sbehalf as its exclusive General Sales Agentwithin the Philippines, including anyUnited States military installation thereinwhich are not serviced by an Air CarrierRepresentation Office (ACRO), for the saleof air passenger transportation. The

services to be performed by Orient AirServices shall include:

(a) soliciting and promotingpassenger traffic for the servicesof American and, if necessary,employing staff competent andsufficient to do so;(b) providing and maintaining asuitable area in its place ofbusiness to be used exclusivelyfor the transaction of thebusiness of American;(c) arranging for distribution ofAmerican's timetables, tariffs andpromotional material to salesagents and the general public inthe assigned territory;(d) servicing and supervising ofsales agents (including such sub-agents as may be appointed byOrient Air Services with the priorwritten consent of American) inthe assigned territory including ifrequired by American the controlof remittances and commissionsretained; and(e) holding out a passengerreservation facility to salesagents and the general public inthe assigned territory.

In connection with scheduled or non-scheduled air passenger transportationwithin the United States, neither Orient AirServices nor its sub-agents will performservices for any other air carrier similar tothose to be performed hereunder forAmerican without the prior writtenconsent of American. Subject to periodicinstructions and continued consent fromAmerican, Orient Air Services may sell airpassenger transportation to be performedwithin the United States by otherscheduled air carriers provided Americandoes not provide substantially equivalentschedules between the points involved.x x x x x x x x x4. RemittancesOrient Air Services shall remit in UnitedStates dollars to American the ticket stockor exchange orders, less commissions towhich Orient Air Services is entitledhereunder, not less frequently than semi-monthly, on the 15th and last days ofeach month for sales made during thepreceding half month.All monies collected by Orient Air Servicesfor transportation sold hereunder on

American's ticket stock or on exchangeorders, less applicable commissions towhich Orient Air Services is entitledhereunder, are the property of Americanand shall be held in trust by Orient AirServices until satisfactorily accounted forto American.5. CommissionsAmerican will pay Orient Air Servicescommission on transportation soldhereunder by Orient Air Services or itssub-agents as follows:(a) Sales agency commissionAmerican will pay Orient Air Services asales agency commission for all sales oftransportation by Orient Air Services or itssub-agents over American's services andany connecting through air transportation,when made on American's ticket stock,equal to the following percentages of thetariff fares and charges:

(i) For transportation solelybetween points within the UnitedStates and between such pointsand Canada: 7% or such otherrate(s) as may be prescribed bythe Air Traffic Conference ofAmerica.(ii) For transportation included ina through ticket coveringtransportation between pointsother than those describedabove: 8% or such other rate(s)as may be prescribed by theInternational Air TransportAssociation.

(b) Overriding commissionIn addition to the above commissionAmerican will pay Orient Air Services anoverriding commission of 3% of the tarifffares and charges for all sales oftransportation over American's service byOrient Air Service or its sub-agents.x x x x x x x x x10. DefaultIf Orient Air Services shall at any timedefault in observing or performing any ofthe provisions of this Agreement or shallbecome bankrupt or make any assignmentfor the benefit of or enter into anyagreement or promise with its creditors orgo into liquidation, or suffer any of itsgoods to be taken in execution, or if itceases to be in business, this Agreementmay, at the option of American, beterminated forthwith and American may,without prejudice to any of its rights under

this Agreement, take possession of anyticket forms, exchange orders, trafficmaterial or other property or fundsbelonging to American.11. IATA and ATC RulesThe provisions of this Agreement aresubject to any applicable rules orresolutions of the International AirTransport Association and the Air TrafficConference of America, and such rules orresolutions shall control in the event ofany conflict with the provisions hereof.x x x x x x x x x13. TerminationAmerican may terminate the Agreementon two days' notice in the event Orient AirServices is unable to transfer to the UnitedStates the funds payable by Orient AirServices to American under thisAgreement. Either party may terminatethe Agreement without cause by givingthe other 30 days' notice by letter,telegram or cable.x x x x x x x x x3

On 11 May 1981, alleging that Orient Air hadreneged on its obligations under the Agreement byfailing to promptly remit the net proceeds of salesfor the months of January to March 1981 in theamount of US $254,400.40, American Air by itselfundertook the collection of the proceeds of ticketssold originally by Orient Air and terminatedforthwith the Agreement in accordance withParagraph 13 thereof (Termination). Four (4) dayslater, or on 15 May 1981, American Air institutedsuit against Orient Air with the Court of FirstInstance of Manila, Branch 24, for Accounting withPreliminary Attachment or Garnishment, MandatoryInjunction and Restraining Order 4 averring theaforesaid basis for the termination of theAgreement as well as therein defendant's previousrecord of failures "to promptly settle pastoutstanding refunds of which there were availablefunds in the possession of the defendant, . . . to thedamage and prejudice of plaintiff." 5

In its Answer 6 with counterclaim dated 9 July 1981,defendant Orient Air denied the materialallegations of the complaint with respect toplaintiff's entitlement to alleged unremittedamounts, contending that after application thereofto the commissions due it under the Agreement,plaintiff in fact still owed Orient Air a balance inunpaid overriding commissions. Further, thedefendant contended that the actions taken byAmerican Air in the course of terminating theAgreement as well as the termination itself wereuntenable, Orient Air claiming that American Air's

precipitous conduct had occasioned prejudice to itsbusiness interests.Finding that the record and the evidencesubstantiated the allegations of the defendant, thetrial court ruled in its favor, rendering a decisiondated 16 July 1984, the dispositive portion of whichreads:

WHEREFORE, all the foregoing premisesconsidered, judgment is hereby renderedin favor of defendant and against plaintiffdismissing the complaint and holding thetermination made by the latter asaffecting the GSA agreement illegal andimproper and order the plaintiff toreinstate defendant as its general salesagent for passenger tranportation in thePhilippines in accordance with said GSAagreement; plaintiff is ordered to paydefendant the balance of the overridingcommission on total flown revenuecovering the period from March 16, 1977to December 31, 1980 in the amount ofUS$84,821.31 plus the additional amountof US$8,000.00 by way of proper 3%overriding commission per monthcommencing from January 1, 1981 untilsuch reinstatement or said amounts in itsPhilippine peso equivalent legallyprevailing at the time of payment pluslegal interest to commence from the filingof the counterclaim up to the time ofpayment. Further, plaintiff is directed topay defendant the amount of One MillionFive Hundred Thousand (Pl,500,000.00)pesos as and for exemplary damages; andthe amount of Three Hundred Thousand(P300,000.00) pesos as and by way ofattorney's fees.Costs against plaintiff. 7

On appeal, the Intermediate Appellate Court (nowCourt of Appeals) in a decision promulgated on 27January 1986, affirmed the findings of the court aquo on their material points but with somemodifications with respect to the monetary awardsgranted. The dispositive portion of the appellatecourt's decision is as follows:

WHEREFORE, with the followingmodifications —1) American is ordered to pay Orient thesum of US$53,491.11 representing thebalance of the latter's overridingcommission covering the period March 16,1977 to December 31, 1980, or itsPhilippine peso equivalent in accordancewith the official rate of exchange legallyprevailing on July 10, 1981, the date thecounterclaim was filed;

2) American is ordered to pay Orient thesum of US$7,440.00 as the latter'soverriding commission per month startingJanuary 1, 1981 until date of termination,May 9, 1981 or its Philippine pesoequivalent in accordance with the officialrate of exchange legally prevailing on July10, 1981, the date the counterclaim wasfiled3) American is ordered to pay interest of12% on said amounts from July 10, 1981the date the answer with counterclaimwas filed, until full payment;4) American is ordered to payOrient exemplary damages ofP200,000.00;5) American is ordered to pay Orient thesum of P25,000.00 as attorney's fees.the rest of the appealed decision isaffirmed.Costs against American.8

American Air moved for reconsideration of theaforementioned decision, assailing the substancethereof and arguing for its reversal. The appellatecourt's decision was also the subject of a Motion forPartial Reconsideration by Orient Air which prayedfor the restoration of the trial court's ruling withrespect to the monetary awards. The Court ofAppeals, by resolution promulgated on 17December 1986, denied American Air's motion andwith respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsiderationis denied insofar as it prays for affirmanceof the trial court's award of exemplarydamages and attorney's fees, but grantedinsofar as the rate of exchange isconcerned. The decision of January 27,1986 is modified in paragraphs (1) and (2)of the dispositive part so that the paymentof the sums mentioned therein shall be attheir Philippine peso equivalent inaccordance with the official rate ofexchange legally prevailing on the date ofactual payment. 9

Both parties appealed the aforesaid resolution anddecision of the respondent court, Orient Air aspetitioner in G.R. No. 76931 and American Air aspetitioner in G.R. No. 76933. By resolution 10 of thisCourt dated 25 March 1987 both petitions wereconsolidated, hence, the case at bar.The principal issue for resolution by the Court is theextent of Orient Air's right to the 3% overridingcommission. It is the stand of American Air thatsuch commission is based only on sales of itsservices actually negotiated or transacted byOrient Air, otherwise referred to as "ticketed sales."As basis thereof, primary reliance is placed upon

paragraph 5(b) of the Agreement which, inreiteration, is quoted as follows:

5. Commissionsa) . . .b) Overriding CommissionIn addition to the above commission,American will pay Orient Air Services anoverriding commission of 3% of the tarifffees and charges for all sales oftransportation over American's servicesby Orient Air Servicesor its sub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticketstocks of American Air, and the former not havingopted to appoint any sub-agents, it is AmericanAir's contention that Orient Air can claimentitlement to the disputed overriding commissionbased only on ticketed sales. This is supposed to bethe clear meaning of the underscored portion of theabove provision. Thus, to be entitled to the 3%overriding commission, the sale must be made byOrient Air and the sale must be done with the useof American Air's ticket stocks.On the other hand, Orient Air contends that thecontractual stipulation of a 3% overridingcommission covers the total revenue of AmericanAir and not merely that derived from ticketed salesundertaken by Orient Air. The latter, in justificationof its submission, invokes its designation asthe exclusive General Sales Agent of American Air,with the corresponding obligations arising fromsuch agency, such as, the promotion andsolicitation for the services of its principal. In effect,by virtue of such exclusivity, "all sales oftransportation over American Air's services arenecessarily by Orient Air." 11

It is a well settled legal principle that in theinterpretation of a contract, the entirety thereofmust be taken into consideration to ascertain themeaning of its provisions. 12 The variousstipulations in the contract must be read togetherto give effect to all. 13 After a careful examination ofthe records, the Court finds merit in the contentionof Orient Air that the Agreement, when interpretedin accordance with the foregoing principles, entitlesit to the 3% overriding commission based on totalrevenue, or as referred to by the parties, "totalflown revenue."As the designated exclusive General Sales Agent ofAmerican Air, Orient Air was responsible for thepromotion and marketing of American Air's servicesfor air passenger transportation, and thesolicitation of sales therefor. In return for suchefforts and services, Orient Air was to be paidcommissions of two (2) kinds: first, a sales agencycommission, ranging from 7-8% of tariff fares andcharges from sales by Orient Air when made on

American Air ticket stock; and second, anoverriding commission of 3% of tariff fares andcharges for all sales of passenger transportationover American Air services. It is immediatelyobserved that the precondition attached to the firsttype of commission does not obtain for the secondtype of commissions. The latter type ofcommissions would accrue for sales of AmericanAir services made not on its ticket stock but on theticket stock of other air carriers sold by suchcarriers or other authorized ticketing facilities ortravel agents. To rule otherwise, i.e., to limit thebasis of such overriding commissions to sales fromAmerican Air ticket stock would erase anydistinction between the two (2) types ofcommissions and would lead to the absurdconclusion that the parties had entered into acontract with meaningless provisions. Such aninterpretation must at all times be avoided withevery effort exerted to harmonize the entireAgreement.An additional point before finally disposing of thisissue. It is clear from the records that American Airwas the party responsible for the preparation of theAgreement. Consequently, any ambiguity in this"contract of adhesion" is to be taken "contraproferentem", i.e., construed against the party whocaused the ambiguity and could have avoided it bythe exercise of a little more care. Thus, Article 1377of the Civil Code provides that the interpretation ofobscure words or stipulations in a contract shall notfavor the party who caused the obscurity. 14 To putit differently, when several interpretations of aprovision are otherwise equally proper, thatinterpretation or construction is to be adoptedwhich is most favorable to the party in whose favorthe provision was made and who did not cause theambiguity. 15 We therefore agree with therespondent appellate court's declaration that:

Any ambiguity in a contract, whose termsare susceptible of different interpretations,must be read against the party whodrafted it. 16

We now turn to the propriety of American Air'stermination of the Agreement. The respondentappellate court, on this issue, ruled thus:

It is not denied that Orient withheldremittances but such action findsjustification from paragraph 4 of theAgreement, Exh. F, which provides forremittances to American lesscommissions to which Orient is entitled,and from paragraph 5(d) which specificallyallows Orient to retain the full amount ofits commissions. Since, as stated ante,Orient is entitled to the 3% override.American's premise, therefore, for the

cancellation of the Agreement did notexist. . . ."

We agree with the findings of the respondentappellate court. As earlier established, Orient Airwas entitled to an overriding commission based ontotal flown revenue. American Air's perception thatOrient Air was remiss or in default of its obligationsunder the Agreement was, in fact, a situationwhere the latter acted in accordance with theAgreement—that of retaining from the salesproceeds its accrued commissions before remittingthe balance to American Air. Since the latter wasstill obligated to Orient Air by way of suchcommissions. Orient Air was clearly justified inretaining and refusing to remit the sums claimed byAmerican Air. The latter's termination of theAgreement was, therefore, without cause andbasis, for which it should be held liable to OrientAir.On the matter of damages, the respondentappellate court modified by reduction the trialcourt's award of exemplary damages andattorney's fees. This Court sees no error in suchmodification and, thus, affirms the same.It is believed, however, that respondent appellatecourt erred in affirming the rest of the decision ofthe trial court.1âwphi1We refer particularly to thelower court's decision ordering American Air to"reinstate defendant as its general sales agent forpassenger transportation in the Philippines inaccordance with said GSA Agreement."By affirming this ruling of the trial court,respondent appellate court, in effect, compelsAmerican Air to extend its personality to Orient Air.Such would be violative of the principles andessence of agency, defined by law as a contractwhereby "a person binds himself to render someservice or to do something in representation or onbehalf of another, WITH THE CONSENT ORAUTHORITY OF THE LATTER . 17 (emphasis supplied)In an agent-principal relationship, the personality ofthe principal is extended through the facility of theagent. In so doing, the agent, by legal fiction,becomes the principal, authorized to perform allacts which the latter would have him do. Such arelationship can only be effected with the consentof the principal, which must not, in any way, becompelled by law or by any court. The Agreementitself between the parties states that "either partymay terminate the Agreement without cause bygiving the other 30 days' notice by letter, telegramor cable." (emphasis supplied) We, therefore, setaside the portion of the ruling of the respondentappellate court reinstating Orient Air as generalsales agent of American Air.WHEREFORE, with the foregoing modification, theCourt AFFIRMS the decision and resolution of the

respondent Court of Appeals, dated 27 January1986 and 17 December 1986, respectively. Costsagainst petitioner American Air.SO ORDERED.

G.R. No. 85494 May 7, 1991CHOITHRAM JETHMAL RAMNANI AND/ORNIRMLA V. RAMNANI and MOTI G.RAMNANI, petitioners, vs.COURT OF APPEALS, SPOUSES ISHWARJETHMAL RAMNANI, SONYA JETHMALRAMNANI and OVERSEAS HOLDING CO.,LTD., respondents.G.R. No. 85496 May 7, 1991SPOUSES ISHWAR JETHMAL RAMNANI ANDSONYA JET RAMNANI, petitioners, vs.THE HONORABLE COURT OF APPEALS,ORTIGAS & CO., LTD. PARTNERSHIP, andOVERSEAS HOLDING CO., LTD., respondents.Quasha, Asperilla Ancheta, Peña and Nolasco forpetitioners Ishwar Jethmal Ramnani & SonyaRamnani.Salonga, Andres, Hernandez & Allado forChoithram Jethmal Ramnani, Nirmla Ramnani &Moti Ramnani.Rama Law Office for private respondents incollaboration with Salonga, Andres, Hernandez &Allado.Eulogio R. Rodriguez for Ortigas & Co., Ltd.

GANCAYCO, J.:This case involves the bitter quarrel of two brothersover two (2) parcels of land and its improvementsnow worth a fortune. The bone of contention is theapparently conflicting factual findings of the trialcourt and the appellate court, the resolution ofwhich will materially affect the result of thecontest.The following facts are not disputed.Ishwar, Choithram and Navalrai, all surnamedJethmal Ramnani, are brothers of the full blood.Ishwar and his spouse Sonya had their mainbusiness based in New York. Realizing the difficultyof managing their investments in the Philippinesthey executed a general power of attorney onJanuary 24, 1966 appointing Navalrai andChoithram as attorneys-in-fact, empowering themto manage and conduct their business concern inthe Philippines. 1

On February 1, 1966 and on May 16, 1966,Choithram, in his capacity as aforesaid attorney-in-fact of Ishwar, entered into two agreements for thepurchase of two parcels of land located in BarrioUgong, Pasig, Rizal, from Ortigas & Company, Ltd.Partnership (Ortigas for short) with a total area ofapproximately 10,048 square meters.2 Peragreement, Choithram paid the down payment andinstallments on the lot with his personal checks. Abuilding was constructed thereon by Choithram in

1966 and this was occupied and rented by JethmalIndustries and a wardrobe shop called Eppie'sCreation. Three other buildings were built thereonby Choithram through a loan of P100,000.00obtained from the Merchants Bank as well as theincome derived from the first building. Thebuildings were leased out by Choithram asattorney-in-fact of Ishwar. Two of these buildingswere later burned.Sometime in 1970 Ishwar asked Choithram toaccount for the income and expenses relative tothese properties during the period 1967 to 1970.Choithram failed and refused to render suchaccounting. As a consequence, on February 4,1971, Ishwar revoked the general power ofattorney. Choithram and Ortigas were duly notifiedof such revocation on April 1, 1971 and May 24,1971, respectively. 3 Said notice was also registeredwith the Securities and Exchange Commission onMarch 29, 1971 4 and was published in the April 2,1971 issue of The Manila Times for the informationof the general public. 5

Nevertheless, Choithram as such attorney-in-fact ofIshwar, transferred all rights and interests of Ishwarand Sonya in favor of his daughter-in-law, NirmlaRamnani, on February 19, 1973. Her husband isMoti, son of Choithram. Upon complete payment ofthe lots, Ortigas executed the corresponding deedsof sale in favor of Nirmla. 6 Transfer Certificates ofTitle Nos. 403150 and 403152 of the Register ofDeeds of Rizal were issued in her favor.Thus, on October 6, 1982, Ishwar and Sonya(spouses Ishwar for short) filed a complaint in theCourt of First Instance of Rizal against Choithramand/or spouses Nirmla and Moti (Choithram et al.for brevity) and Ortigas for reconveyance of saidproperties or payment of its value and damages.An amended complaint for damages was thereafterfiled by said spouses.After the issues were joined and the trial on themerits, a decision was rendered by the trial courton December 3, 1985 dismissing the complaint andcounterclaim. A motion for reconsideration thereoffiled by spouses Ishwar was denied on March 3,1986.An appeal therefrom was interposed by spousesIshwar to the Court of Appeals wherein in duecourse a decision was promulgated on March 14,1988, the dispositive part of which reads as follows:

WHEREFORE, judgment is herebyrendered reversing and setting aside theappealed decision of the lower court datedDecember 3, 1985 and the Order datedMarch 3, 1986 which denied plaintiffs-appellants' Motion for Reconsiderationfrom aforesaid decision. A new decision ishereby rendered sentencing defendants-

appellees Choithram Jethmal Ramnani,Nirmla V. Ramnani, Moti C. Ramnani, andOrtigas and Company Limited Partnershipto pay, jointly and severally, plaintiffs-appellants the following:1. Actual or compensatory damages to theextent of the fair market value of theproperties in question and allimprovements thereon covered byTransfer Certificate of Title No. 403150and Transfer Certificate of Title No.403152 of the Registry of Deeds of Rizal,prevailing at the time of the satisfaction ofthe judgment but in no case shall suchdamages be less than the value of saidproperties as appraised by AsianAppraisal, Inc. in its Appraisal Reportdated August 1985 (Exhibits T to T-14,inclusive).2. All rental incomes paid or ought to bepaid for the use and occupancy of theproperties in question and allimprovements thereon consisting ofbuildings, and to be computed as follows:

a) On Building C occupied byEppie's Creation and JethmalIndustries from 1967 to 1973,inclusive, based on the 1967 to1973 monthly rentals paid byEppie's Creation;b) Also on Building C above,occupied by Jethmal Industriesand Lavine from 1974 to 1978,the rental incomes based on thenrates prevailing as shown underExhibit "P"; and from 1979 to1981, based on then prevailingrates as indicated under Exhibit"Q";c) On Building A occupied byTransworld Knitting Mills from1972 to 1978, the rental incomesbased upon then prevailing ratesshown under Exhibit "P", andfrom 1979 to 1981, based onprevailing rates per Exhibit "Q";d) On the two Bays Buildingsoccupied by Sigma-Mariwasafrom 1972 to 1978, the rentalsbased on the Lease Contract,Exhibit "P", and from 1979 to1980, the rentals based on theLease Contract, Exhibit "Q",

and thereafter commencing 1982, toaccount for and turn over the rentalincomes paid or ought to be paid for theuse and occupancy of the properties and

all improvements totalling 10,048 sq. mbased on the rate per square meterprevailing in 1981 as indicated annuallycumulative up to 1984. Then, commencing1985 and up to the satisfaction of thejudgment, rentals shall be computed atten percent (10%) annually of the fairmarket values of the properties asappraised by the Asian Appraisal, Inc. inAugust 1985 (Exhibits T to T-14, inclusive.)3. Moral damages in the sum ofP200,000.00;4. Exemplary damages in the sum ofP100,000.00;5. Attorney's fees equivalent to 10% of theaward herein made;6. Legal interest on the total amountawarded computed from first demand in1967 and until the full amount is paid andsatisfied; and7. The cost of suit. 7

Acting on a motion for reconsideration filed byChoithram, et al. and Ortigas, the appellate courtpromulgated an amended decision on October 17,1988 granting the motion for reconsideration ofOrtigas by affirming the dismissal of the case bythe lower court as against Ortigas but denying themotion for reconsideration of Choithram, et al. 8

Choithram, et al. thereafter filed a petition forreview of said judgment of the appellate courtalleging the following grounds:

1. The Court of Appeals gravely abused itsdiscretion in making a factual finding notsupported by and contrary, to theevidence presented at the Trial Court.2. The Court of Appeals acted in excess ofjurisdiction in awarding damages based onthe value of the real properties in questionwhere the cause of action of privaterespondents is recovery of a sum ofmoney.ARGUMENTSITHE COURT OF APPEALS ACTED IN GRAVEABUSE OF ITS DISCRETION IN MAKING AFACTUAL FINDING THAT PRIVATERESPONDENT ISHWAR REMITTED THEAMOUNT OF US $150,000.00 TOPETITIONER CHOITHRAM IN THE ABSENCEOF PROOF OF SUCH REMITTANCE.IITHE COURT OF APPEALS ACTED WITHGRAVE ABUSE OF DISCRETION ANDMANIFEST PARTIALITY IN DISREGARDINGTHE TRIAL COURTS FINDINGS BASED ONTHE DIRECT DOCUMENTARY ANDTESTIMONIAL EVIDENCE PRESENTED BY

CHOITHRAM IN THE TRIAL COURTESTABLISHING THAT THE PROPERTIESWERE PURCHASED WITH PERSONALFUNDS OF PETITIONER CHOITHRAM ANDNOT WITH MONEY ALLEGEDLY REMITTEDBY RESPONDENT ISHWAR.IIITHE COURT OF APPEALS ACTED IN EXCESSOF JURISDICTION IN AWARDING DAMAGESBASED ON THE VALUE OF THE PROPERTIESAND THE FRUITS OF THE IMPROVEMENTSTHEREON. 9

Similarly, spouses Ishwar filed a petition for reviewof said amended decision of the appellate courtexculpating Ortigas of liability based on thefollowing assigned errors

ITHE RESPONDENT HONORABLE COURT OFAPPEALS COMMITTED GRAVE ERROR ANDHAS DECIDED A QUESTION OF SUBSTANCENOT IN ACCORD WITH LAW AND/OR WITHAPPLICABLE DECISIONS OF THISHONORABLE COURT—

A) IN PROMULGATING THEQUESTIONED AMENDEDDECISION (ANNEX "A") RELIEVINGRESPONDENT ORTIGAS FROMLIABILITY AND DISMISSINGPETITIONERS' AMENDEDCOMPLAINT IN CIVIL CASE NO.534-P, AS AGAINST SAIDRESPONDENT ORTIGAS;B) IN HOLDING IN SAID AMENDEDDECISION THAT AT ANY RATE NOONE EVER TESTIFIED THATORTIGAS WAS A SUBSCRIBER TOTHE MANILA TIMES PUBLICATIONOR THAT ANY OF ITS OFFICERSREAD THE NOTICE AS PUBLISHEDIN THE MANILA TIMES, THEREBYERRONEOUSLY CONCLUDINGTHAT FOR RESPONDENT ORTIGASTO BE CONSTRUCTIVELY BOUNDBY THE PUBLISHED NOTICE OFREVOCATION, ORTIGAS AND/ORANY OF ITS OFFICERS MUST BE ASUBSCRIBER AND/OR THAT ANYOF ITS OFFICERS SHOULD READTHE NOTICE AS ACTUALLYPUBLISHED;C) IN HOLDING IN SAID AMENDEDDECISION THAT ORTIGAS COULDNOT BE HELD LIABLE JOINTLYAND SEVERALLY WITH THEDEFENDANTS-APPELLEESCHOITHRAM, MOTI AND NIRMLARAMNANI, AS ORTIGAS RELIED

ON THE WORD OF CHOITHRAMTHAT ALL ALONG HE WAS ACTINGFOR AND IN BEHALF OF HISBROTHER ISHWAR WHEN ITTRANSFERRED THE RIGHTS OFTHE LATTER TO NIRMLA V.RAMNANI;D) IN IGNORING THE EVIDENCEDULY PRESENTED AND ADMITTEDDURING THE TRIAL THATORTIGAS WAS PROPERLYNOTIFIED OF THE NOTICE OFREVOCATION OF THE GENERALPOWER OF ATTORNEY GIVEN TOCHOITHRAM, EVIDENCED BY THEPUBLICATION IN THE MANILATIMES ISSUE OF APRIL 2, 1971(EXH. F) WHICH CONSTITUTESNOTICE TO THE WHOLE WORLD;THE RECEIPT OF THE NOTICE OFSUCH REVOCATION WHICH WASSENT TO ORTIGAS ON MAY 22,1971 BY ATTY. MARIANO P.MARCOS AND RECEIVED BYORTIGAS ON MAY 24, 1971 (EXH.G) AND THE FILING OF THENOTICE WITH THE SECURITIESAND EXCHANGE COMMISSION ONMARCH 29,1971 (EXH. H);E) IN DISCARDING ITS FINDINGSCONTAINED IN ITS DECISION OF14 MARCH 1988 (ANNEX B) THATORTIGAS WAS DULY NOTIFIED OFTHE REVOCATION OF THE POWEROF ATTORNEY OF CHOITHRAM,HENCE ORTIGAS ACTED IN BADFAITH IN EXECUTING THE DEEDOF SALE TO THE PROPERTIES INQUESTION IN FAVOR OF NIRMLAV. RAMNANI;F) IN SUSTAINING RESPONDENTORTIGAS VACUOUS REHASHEDARGUMENTS IN ITS MOTION FORRECONSIDERATION THAT ITWOULD NOT GAIN ONE CENTAVOMORE FROM CHOITHRAM FORTHE SALE OF SAID LOTS AND THESUBSEQUENT TRANSFER OF THESAME TO THE MATTER'SDAUGHTER-IN-LAW, AND THAT ITWAS IN GOOD FAITH WHEN ITTRANSFERRED ISHWAR'S RIGHTSTO THE LOTS IN QUESTION.

IITHE RESPONDENT HONORABLE COURT OFAPPEALS HAS SO FAR DEPARTED FROMTHE ACCEPTED AND USUAL COURSE OF

JUDICIAL PROCEEDING WHEN IT HELD INTHE QUESTIONED AMENDED DECISION OF17 NOVEMBER 1988 (ANNEX A) THATRESPONDENT ORTIGAS & CO., LTD., IS NOTJOINTLY AND SEVERALLY LIABLE WITHDEFENDANTS-APPELLEES CHOITHRAM,MOTI AND NIRMLA RAMNANI IN SPITE OFITS ORIGINAL DECISION OF 14 MARCH1988 THAT ORTIGAS WAS DULY NOTIFIEDOF THE REVOCATION OF THE POWER OFATTORNEY OF CHOITHRAM RAMNANI. 10

The center of controversy is the testimony ofIshwar that during the latter part of 1965, he sentthe amount of US $150,000.00 to Choithram in twobank drafts of US$65,000.00 and US$85,000.00 forthe purpose of investing the same in real estate inthe Philippines. The trial court considered this lonetestimony unworthy of faith and credit. On theother hand, the appellate court found that the trialcourt misapprehended the facts in completedisregard of the evidence, documentary andtestimonial.Another crucial issue is the claim of Choithram thatbecause he was then a British citizen, as atemporary arrangement, he arranged the purchaseof the properties in the name of Ishwar who was anAmerican citizen and who was then qualified topurchase property in the Philippines under the thenParity Amendment. The trial court believed thisaccount but it was debunked by the appellatecourt.As to the issue of whether of not spouses Ishwaractually sent US$150,000.00 to Choithramprecisely to be used in the real estate business, thetrial court made the following disquisition —

After a careful, considered andconscientious examination of the evidenceadduced in the case at bar, plaintiff IshwarJethmal Ramanani's main evidence, whichcenters on the alleged payment bysending through registered mail from NewYork two (2) US$ drafts of $85,000.00 and$65,000.00 in the latter part of 1965 (TSN28 Feb. 1984, p. 10-11). The sending ofthese moneys were before the executionof that General Power of Attorney, whichwas dated in New York, on January 24,1966. Because of these allegedremittances of US $150,000.00 and thesubsequent acquisition of the properties inquestion, plaintiffs averred that theyconstituted a trust in favor of defendantChoithram Jethmal Ramnani. This Courtcan be in full agreement if the plaintiffswere only able to prove preponderantlythese remittances. The entire record ofthis case is bereft of even a shred of proof

to that effect. It is completely barren. Hisuncorroborated testimony that heremitted these amounts in the "later partof 1965" does not engender enough faithand credence. Inadequacy of details ofsuch remittance on the two (2) US dollardrafts in such big amounts is completelynot positive, credible, probable andentirely not in accord with humanexperience. This is a classic situation,plaintiffs not exhibiting any commercialdocument or any document and/or paperas regard to these alleged remittances.Plaintiff Ishwar Ramnani is not an ordinarybusinessman in the strict sense of theword. Remember his main business isbased in New York, and he should knowbetter how to send these allegedremittances. Worst, plaintiffs did notpresent even a scum of proof, thatdefendant Choithram Ramnani receivedthe alleged two US dollar drafts.Significantly, he does not know even thebank where these two (2) US dollar draftswere purchased. Indeed, plaintiff IshwarRamnani's lone testimony is unworthy offaith and credit and, therefore, deservesscant consideration, and since theplaintiffs' theory is built or based on suchtestimony, their cause of action collapsesor falls with it.Further, the rate of exchange that time in1966 was P4.00 to $1.00. The alleged twoUS dollar drafts amounted to $150,000.00or about P600,000.00. Assuming the cashprice of the two (2) lots was onlyP530,000.00 (ALTHOUGH he said: "Basedon my knowledge I have no evidence,"when asked if he even knows the cashprice of the two lots). If he were really thetrue and bonafide investor and purchaserfor profit as he asserted, he could havepaid the price in full in cash directly andobtained the title in his name and not thru"Contracts To Sell" in installments payinginterest and thru an attorney-in fact (TSNof May 2, 1984, pp. 10-11) and, again,plaintiff Ishwar Ramnani told thisCourt that he does not know whether ornot his late father-in-law borrowed the twoUS dollar drafts from the Swiss Bank orwhether or not his late father-in-law hadany debit memo from the Swiss Bank (TSNof May 2, 1984, pp. 9-10). 11

On the other hand, the appellate court, in givingcredence to the version of Ishwar, had this to say—

While it is true, that generally the findingsof fact of the trial court are binding uponthe appellate courts, said rule admits ofexceptions such as when (1) theconclusion is a finding grounded entirelyon speculations, surmises andconjectures; (2) when the inferences madeis manifestly mistaken, absurd andimpossible; (3) when there is grave abuseof discretion; (4) when the judgment isbased on a misapprehension of facts andwhen the court, in making its findings,went beyond the issues of the case andthe same are contrary to the admissionsof both appellant and appellee (Ramos vs.Court of Appeals, 63 SCRA 33; PhilippineAmerican Life Assurance Co. vs.Santamaria, 31 SCRA 798; Aldaba vs.Court of Appeals, 24 SCRA 189).The evidence on record shows that the tcourt acted under a misapprehension offacts and the inferences made on theevidence palpably a mistake.The trial court's observation that "theentire records of the case is bereft of evena shred of proof" that plaintiff-appellantshave remitted to defendant-appelleeChoithram Ramnani the amount of US $150,000.00 for investment in real estatein the Philippines, is not borne by theevidence on record and shows the trialcourt's misapprehension of the facts if nota complete disregard of the evidence,both documentary and testimonial.Plaintiff-appellant Ishwar Jethmal Ramnanitestifying in his own behalf, declared thatduring the latter part of 1965, he sent theamount of US $150,000.00 to his brotherChoithram in two bank drafts of US$65,000.00 and US $85,000.00 for thepurpose of investing the same in realestate in the Philippines. His testimony isas follows:

ATTY. MARAPAO:Mr. Witness, you said that yourattorney-in-fact paid in yourbehalf. Can you tell thisHonorable Court where yourattorney-in-fact got the money topay this property?ATTY. CRUZ:Wait. It is now clear it becomesincompetent or hearsay.COURT:Witness can answer.

A I paid through my attorney-in-fact. I am the one who gave himthe money.ATTY. MARAPAO:Q You gave him the money?A That's right.Q How much money did you givehim?A US $ 150,000.00.Q How was it given then?A Through Bank drafts. US$65,000.00 and US $85,000.00bank drafts. The total amountwhich is $ 150,000.00 (TSN, 28February 1984, p. 10; Emphasissupplied.)

x x x x x x x x xATTY. CRUZ:Q The two bank drafts which yousent I assume you bought thatfrom some banks in New York?A No, sir.Q But there is no question thosetwo bank drafts were for thepurpose of paying down paymentand installment of the twoparcels of land?A Down payment,installment and to put up thebuilding.Q I thought you said that thebuildings were constructed . . .subject to our continuingobjection from rentals of firstbuilding?ATTY. MARAPAO:Your Honor, that is misleading.COURT;Witness (may) answer.A Yes, the first building wasimmediately put up after thepurchase of the two parcels ofland that was in 1966 and thefinds were used for theconstruction of the building fromthe US $150,000.00 (TSN, 7March 1984, page 14; Emphasissupplied.)

x x x x x x x x xQ These two bank drafts whichyou mentioned and the use for ityou sent them by registered mail,did you send them from NewYour?A That is right.Q And the two bank drafts whichwere put in the registered mail,

the registered mail wasaddressed to whom?A Choithram Ramnani. (TSN, 7March 1984, pp. 14-15).

On cross-examination, the witnessreiterated the remittance of the money tohis brother Choithram, which was sent tohim by his father-in-law, Rochiram L.Mulchandoni from Switzerland, a man ofimmense wealth, which even defendants-appellees' witness Navalrai Ramnaniadmits to be so (tsn., p. 16, S. Oct. 13,1985). Thus, on cross-examination, Ishwartestified as follows:

Q How did you receive these twobank drafts from the bank thename of which you cannotremember?A I got it from my father-in-law.Q From where did your father- in-law sent these two bank drafts?A From Switzerland.Q He was in Switzerland.A Probably, they sent out thesetwo drafts from Switzerland.

(TSN, 7 March 1984, pp. 16-17; Emphasissupplied.)This positive and affirmative testimony ofplaintiff-appellant that he sent the two (2)bank drafts totalling US $ 150,000.00 tohis brother, is proof of said remittance.Such positive testimony has greaterprobative force than defendant-appellee'sdenial of receipt of said bank drafts, for awitness who testifies affirmatively thatsomething did happen should be believedfor it is unlikely that a witness willremember what never happened(Underhill's Cr. Guidance, 5th Ed., Vol. 1,pp. 10-11).That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed aGeneral Power of Attorney (Exhibit "A")dated January 24, 1966 appointing hisbrothers, defendants-appellees Navalraiand Choithram as attorney-in-factempowering the latter to conduct andmanage plaintiffs-appellants' businessaffairs in the Philippines and specifically—

No. 14. To acquire, purchase forus, real estates andimprovements for the purpose ofreal estate business anywhere inthe Philippines and to develop,subdivide, improve and to resellto buying public (individual, firmor corporation); to enter in any

contract of sale in oar behalf andto enter mortgages between thevendees and the herein grantorsthat may be needed to financethe real estate business beingundertaken.

Pursuant thereto, on February 1, 1966 andMay 16, 1966, Choithram JethmalRamnani entered into Agreements(Exhibits "B' and "C") with the otherdefendant. Ortigas and Company, Ltd., forthe purchase of two (2) parcels of landsituated at Barrio Ugong, Pasig, Rizal, withsaid defendant-appellee signing theAgreements in his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.Again, on January 5, 1972, almost seven(7) years after Ishwar sent the US $150,000.00 in 1965, ChoithramRamnani, as attorney-in fact of Ishwarentered into a Contract of Lease withSigma-Mariwasa (Exhibit "P") thereby re-affirming the ownership of Ishwar over thedisputed property and the trustrelationship between the latter asprincipal and Choithram as attorney-in-fact of Ishwar.All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent theUS $ 150,000.00 to his brother,Choithram, there would be no purpose forhim to execute a power of attorneyappointing his brothers as s attorney-in-fact in buying real estate in thePhilippines.As against Choithram's denial that he didnot receive the US $150,000.00 remittedby Ishwar and that the Power of Attorney,as well as the Agreements entered intowith Ortigas & Co., were only temporaryarrangements, Ishwar's testimony that hedid send the bank drafts to Choithram andwas received by the latter, is the morecredible version since it is natural,reasonable and probable. It is in accordwith the common experience, knowledgeand observation of ordinary men (Gardnervs. Wentors 18 Iowa 533). And indetermining where the superior weight ofthe evidence on the issues involved lies,the court may consider the probability orimprobability of the testimony of thewitness (Sec. 1, Rule 133, Rules of Court).Contrary, therefore, to the trial court'ssweeping observation that 'the entirerecords of the case is bereft of even ashred of proof that Choithram received the

alleged bank drafts amounting to US $150,000.00, we have not only testimonialevidence but also documentary andcircumstantial evidence proving saidremittance of the money and the fiduciaryrelationship between the former andIshwar.12

The Court agrees. The environmentalcircumstances of this case buttress the claim ofIshwar that he did entrust the amount of US $150,000.00 to his brother, Choithram, which thelatter invested in the real property business subjectof this litigation in his capacity as attorney-in-factof Ishwar.True it is that there is no receipt whatever in thepossession of Ishwar to evidence the same, but it isnot unusual among brothers and close familymembers to entrust money and valuables to eachother without any formalities or receipt due to thespecial relationship of trust between them.And another proof thereof is the fact that Ishwar,out of frustration when Choithram failed to accountfor the realty business despite his demands,revoked the general power of attorney he extendedto Choithram and Navalrai. Thereafter, Choithramwrote a letter to Ishwar pleading that the power ofattorney be renewed or another authority to thesame effect be extended, which reads as follows:

June 25,1971MR. ISHWAR JETHMALNEW YORK

(1) Send power of Atty.immediately, because the casehas been postponed for twoweeks. The same way as it hasbeen send before in favor of bothnames. Send it immediatelyotherwise everything will be lostunnecessarily, and then it willtake us in litigation. Now that wehave gone ahead with a case andwould like to end it immediatelyotherwise squatters will take theentire land. Therefore, send itimmediately.(2) Ortigas also has sued usbecause we are holding theinstallments, because they haverefused to give a rebate of P5.00per meter which they have togive us as per contract. Theyhave filed the law suit that sincewe have not paid the installmentthey should get back the land.The hearing of this case is in themonth of July. Therefore, pleasesend the power immediately. In

one case DADA (Elder Brother)will represent and in another one,I shall.(3) In case if you do not want togive power then make one letterin favor of Dada and the otherone in my favor showing that inany litigation we can representyou and your wife, and whateverthe court decide it will beacceptable by me. You can askany lawyer, he will be able toprepare these letters. After thatyou can have these letters ratifybefore P.I. Consulate. It should bedated April 15, 1971.(4) Try to send the powerbecause it will be more useful.Make it in any manner whateverway you have confident in it. Butplease send it immediately.

You have cancelled the power. Therefore, you havelost your reputation everywhere. What can I furtherwrite you about it. I have told everybody that dueto certain reasons I have written you to do this thatis why you have done this. This way yourreputation have been kept intact. Otherwise if Iwant to do something about it, I can show you thatinspite of the power you have cancelled you cannot do anything. You can keep this letter becausemy conscience is clear. I do not have anything inmy mind.I should not be writing you this, but because myconscience is clear do you know that if I hadpredated papers what could you have done? Or doyou know that I have many paper signed by youand if had done anything or do then what can youdo about it? It is not necessary to write furtherabout this. It does not matter if you have cancelledthe power. At that time if I had predated and donesomething about it what could you have done? Youdo not know me. I am not after money. I can earnmoney anytime. It has been ten months since Ihave not received a single penny for expenses fromDada (elder brother). Why there are no expenses?We can not draw a single penny from knitting(factory). Well I am not going to write you further,nor there is any need for it. This much I am writingyou because of the way you have conductedyourself. But remember, whenever I hale themoney I will not keep it myself Right now I havenot got anything at all.I am not going to write any further.Keep your business clean with Naru. Otherwise hewill discontinue because he likes to keep hisbusiness very clean. 13

The said letter was in Sindhi language. It wastranslated to English by the First Secretary of theEmbassy of Pakistan, which translation was verifiedcorrect by the Chairman, Department of Sindhi,University of Karachi. 14

From the foregoing letter what could be gleaned isthat—

1. Choithram asked for the issuance ofanother power of attorney in their favor sothey can continue to represent Ishwar asOrtigas has sued them for unpaidinstallments. It also appears therefromthat Ortigas learned of the revocation ofthe power of attorney so the request toissue another.2. Choithram reassured Ishwar to haveconfidence in him as he was not aftermoney, and that he was not interested inIshwar's money.3. To demonstrate that he can be reliedupon, he said that he could have ante-dated the sales agreement of the Ortigaslots before the issuance of the powers ofattorney and acquired the same in hisname, if he wanted to, but he did not doso.4. He said he had not received a singlepenny for expenses from Dada (their elderbrother Navalrai). Thus, confirming that ifhe was not given money by Ishwar to buythe Ortigas lots, he could not haveconsummated the sale.5. It is important to note that in said letterChoithram never claimed ownership of theproperty in question. He affirmed the factthat he bought the same as mere agentand in behalf of Ishwar. Neither did hemention the alleged temporaryarrangement whereby Ishwar, being anAmerican citizen, shall appear to be thebuyer of the said property, but that afterChoithram acquires Philippine citizenship,its ownership shall be transferred toChoithram.

This brings us to this temporary arrangementtheory of Choithram.The appellate court disposed of this matter in thiswise

Choithram's claim that he purchased thetwo parcels of land for himself in 1966 butplaced it in the name of his youngerbrother, Ishwar, who is an Americancitizen, as a temporary arrangement,'because as a British subject he isdisqualified under the 1935 Constitution toacquire real property in the Philippines,which is not so with respect to American

citizens in view of the OrdinanceAppended to the Constitution grantingthem parity rights, there is nothing in therecords showing that Ishwar ever agreedto such a temporary arrangement.During the entire period from 1965, whenthe US $ 150,000. 00 was transmitted toChoithram, and until Ishwar filed acomplaint against him in 1982, or over 16years, Choithram never mentioned of atemporary arrangement nor can hepresent any memorandum or writingevidencing such temporary arrangement,prompting plaintiff-appellant to observe:

The properties in question whichare located in a prime industrialsite in Ugong, Pasig, Metro Manilahave a present fair market valueof no less than P22,364,000.00(Exhibits T to T-14, inclusive), andyet for such valuable pieces ofproperty, Choithram who nowbelatedly that he purchased thesame for himself did notdocument in writing or in amemorandum the allegedtemporary arrangement withIshwar' (pp. 4-41, Appellant'sBrief).

Such verbal allegation of a temporaryarrangement is simply improbable andinconsistent. It has repeatedly been heldthat important contracts made withoutevidence are highly improbable.The improbability of such temporaryarrangement is brought to fore when weconsider that Choithram has a son(Haresh Jethmal Ramnani) who is anAmerican citizen under whose name theproperties in question could be registered,both during the time the contracts to sellwere executed and at the time absolutetitle over the same was to be delivered. Atthe time the Agreements were enteredinto with defendant Ortigas & Co. in 1966,Haresh, was already 18 years old andconsequently, Choithram could haveexecuted the deeds in trust for his minorson. But, he did not do this. Three (3)years, thereafter, or in 1968 after Hareshhad attained the age of 21, Choithramshould have terminated the temporaryarrangement with Ishwar, which accordingto him would be effective only pending theacquisition of citizenship papers. Again, hedid not do anything.

Evidence to be believed, saidVice Chancellor Van Fleet of NewJersey, must not only proceedfrom the mouth of a crediblewitness, but it must be credible initself—such as the commonexperience and observation ofmankind can approve as probableunder the circumstances. Wehave no test of the truth ofhuman testimony, except itsconformity to our knowledge,observation and experience.Whatever is repugnant to thesebelongs to the miraculous and isoutside of judicial cognizance.(Daggers vs. Van Dyek 37 M.J. Eq.130, 132).

Another factor that can be countedagainst the temporary arrangementexcuse is that upon the revocation onFebruary 4, 1971 of the Power of attorneydated January 24, 1966 in favor ofNavalrai and Choithram by Ishwar,Choithram wrote (tsn, p. 21, S. July 19,1985) a letter dated June 25, 1971(Exhibits R, R-1, R-2 and R-3) imploringIshwar to execute a new power ofattorney in their favor. That if he did notwant to give power, then Ishwar couldmake a letter in favor of Dada andanother in his favor so that in anylitigation involving the properties inquestion, both of them could representIshwar and his wife. Choithram tried toconvince Ishwar to issue the power ofattorney in whatever manner he maywant. In said letter no mention was madeat all of any temporary arrangement.On the contrary, said letter recognize(s)the existence of principal and attorney-in-fact relationship between Ishwar andhimself. Choithram wrote: . . . do you knowthat if I had predated papers what couldyou have done? Or do you know that Ihave many papers signed by you and if Ihad done anything or do then what canyou do about it?' Choithram was sayingthat he could have repudiated the trustand ran away with the properties of Ishwarby predating documents and Ishwar wouldbe entirely helpless. He was bitter as aresult of Ishwar's revocation of the powerof attorney but no mention was made ofany temporary arrangement or a claim ofownership over the properties in questionnor was he able to present any

memorandum or document to prove theexistence of such temporary arrangement.Choithram is also estopped in pais or bydeed from claiming an interest over theproperties in question adverse to that ofIshwar. Section 3(a) of Rule 131 of theRules of Court states that whenever aparty has, by his own declaration, act, oromission intentionally and deliberately ledanother to believe a particular thing trueand act upon such belief, he cannot in anylitigation arising out of such declaration,act or omission be permitted to falsify it.'While estoppel by deed is a bar whichprecludes a party to a deed and his priviesfrom asserting as against the other andhis privies any right of title in derogationof the deed, orfrom denying the truth ofany material fact asserted in it (31 C.J.S.195; 19 Am. Jur. 603).Thus, defendants-appellees are notpermitted to repudiate their admissionsand representations or to assert any rightor title in derogation of the deeds or fromdenying the truth of any material factasserted in the (1) power of attorneydated January 24, 1966 (Exhibit A); (2) theAgreements of February 1, 1966 and May16, 1966 (Exhibits B and C); and (3) theContract of Lease dated January 5, 1972(Exhibit P).

. . . The doctrine of estoppel isbased upon the grounds of publicpolicy, fair dealing, good faithand justice, and its purpose is toforbid one to speak against hisown act, representations, orcommitments to the injury of oneto whom they were directed andwho reasonably relied thereon.The doctrine of estoppel springsfrom equitable principles and theequities in the case. It isdesigned to aid the law in theadministration of justice wherewithout its aid injustice mightresult. It has been applied bycourt wherever and wheneverspecial circumstances of a caseso demands' (Philippine NationalBank vs. Court of Appeals, 94SCRA 357, 368 [1979]).

It was only after the services of counselhas been obtained that Choithram allegedfor the first time in his Answer that theGeneral Power of attorney (Annex A) withthe Contracts to Sell (Annexes B and C)

were made only for the sole purpose ofassuring defendants' acquisition andownership of the lots described thereon indue time under the law; that saidinstruments do not reflect the trueintention of the parties (par. 2, Answerdated May 30, 1983), seventeen (17) longyears from the time he received themoney transmitted to him by his brother,Ishwar.Moreover, Choithram's 'temporaryarrangement,' by which he claimedpurchasing the two (2) parcels in questionin 1966 and placing them in the name ofIshwar who is an American citizen, tocircumvent the disqualification provisionof aliens acquiring real properties in thePhilippines under the 1935 PhilippineConstitution, as Choithram was then aBritish subject, show a palpable disregardof the law of the land and to sustain thesupposed "temporary arrangement" withIshwar would be sanctioning theperpetration of an illegal act and culpableviolation of the Constitution.Defendants-appellees likewise violatedthe Anti-Dummy Law (Commonwealth Act108, as amended), which provides inSection 1 thereof that:

In all cases in which anyconstitutional or legal provisionrequires Philippine or any otherspecific citizenship as a requisitefor the exercise or enjoyment of aright, franchise or privilege, . . .any alien or foreigner profitingthereby, shall be punished . . . byimprisonment . . . and of a fine ofnot less than the value of theright, franchise or privileges,which is enjoyed or acquired inviolation of the provisionshereof . . .

Having come to court with unclean hands,Choithram must not be permitted foist his'temporary arrangement' scheme as adefense before this court. Being in delicto,he does not have any right whatsoeverbeing shielded from his own wrong-doing,which is not so with respect to Ishwar, whowas not a party to such an arrangement.The falsity of Choithram's defense isfurther aggravated by the materialinconsistencies and contradictions in histestimony. While on January 23, 1985 hetestified that he purchased the land inquestion on his own behalf (tsn, p. 4, S.

Jan. 23, 1985), in the July 18, 1985hearing, forgetting probably what hestated before, Choithram testified that hewas only an attorney-in-fact of Ishwar (tsn,p. 5, S. July 18, 1985). Also in the hearingof January 23, 1985, Choithram declaredthat nobody rented the building that wasconstructed on the parcels of land inquestion (tsn, pp. 5 and 6), only to admitin the hearing of October 30, 1985, thathe was in fact renting the building forP12,000. 00 per annum (tsn, p. 3). Again,in the hearing of July 19, 1985, Choithramtestified that he had no knowledge of therevocation of the Power of Attorney (tsn,pp. 20- 21), only to backtrack whenconfronted with the letter of June 25, 1971(Exhibits R to R-3), which he admitted tobe in "his own writing," indicatingknowledge of the revocation of the Powerof Attorney.These inconsistencies are not minor butgo into the entire credibility of thetestimony of Choithram and the rule isthat contradictions on a very crucial pointby a witness, renders s testimonyincredible People vs. Rafallo, 80 Phil. 22).Not only this the doctrine of falsus in uno,falsus in omnibus is fully applicable as faras the testimony of Choithram isconcerned. The cardinal rule, which hasserved in all ages, and has been applied toall conditions of men, is that a witnesswillfully falsifying the truth in oneparticular, when upon oath, ought neverto be believed upon the strength of hisown testimony, whatever he may assert(U.S. vs. Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil,728), for what ground of judicial relief canthere be left when the party has shownsuch gross insensibility to the differencebetween right and wrong, between truthand falsehood? (The Santisima Trinidad, 7Wheat, 283, 5 U.S. [L. ed.] 454).True, that Choithram's testimony findscorroboration from the testimony of hisbrother, Navalrai, but the same would notbe of much help to Choithram. Not only isNavalrai an interested and biased witness,having admitted his close relationship withChoithram and that whenever he orChoithram had problems, they ran to eachother (tsn, pp. 17-18, S. Sept. 20, 1985),Navalrai has a pecuniary interest in thesuccess of Choithram in the case inquestion. Both he and Choithram are

business partners in Jethmal and Sonsand/or Jethmal Industries, wherein heowns 60% of the company and Choithram,40% (p. 62, Appellant's Brief). Since theacquisition of the properties in question in1966, Navalrai was occupying 1,200square meters thereof as a factory siteplus the fact that his son (Navalrais) wasoccupying the apartment on top of thefactory with his family rent free except theamount of P l,000.00 a month to pay fortaxes on said properties (tsn, p. 17, S. Oct.3, 1985).Inherent contradictions also markedNavalrai testimony. "While the latter wasvery meticulous in keeping a receipt forthe P 10,000.00 that he paid Ishwar assettlement in Jethmal Industries, yet in thealleged payment of P 100,000.00 toIshwar, no receipt or voucher was everissued by him (tsn, p. 17, S. Oct. 3,1983). 15

We concur.The foregoing findings of facts of the Court ofAppeals which are supported by the evidence isconclusive on this Court. The Court finds thatIshwar entrusted US$150,000.00 to Choithram in1965 for investment in the realty business. Soonthereafter, a general power of attorney wasexecuted by Ishwar in favor of both Navalrai andChoithram. If it is true that the purpose only is toenable Choithram to purchase realty temporarily inthe name of Ishwar, why the inclusion of their elderbrother Navalrai as an attorney-in-fact?Then, acting as attorney-in-fact of Ishwar,Choithram purchased two parcels of land located inBarrio Ugong Pasig, Rizal, from Ortigas in 1966.With the balance of the money of Ishwar,Choithram erected a building on said lot.Subsequently, with a loan obtained from a bankand the income of the said property, Choithramconstructed three other buildings thereon. Hemanaged the business and collected the rentals.Due to their relationship of confidence it was onlyin 1970 when Ishwar demanded for an accountingfrom Choithram. And even as Ishwar revoked thegeneral power of attorney on February 4, 1971, ofwhich Choithram was duly notified, Choithramwrote to Ishwar on June 25, 1971 requesting thathe execute a new power of attorney in theirfavor. 16 When Ishwar did not respond thereto,Choithram nevertheless proceeded as suchattorney-in-fact to assign all the rights and interestof Ishwar to his daughter-in-law Nirmla in 1973without the knowledge and consent of Ishwar.Ortigas in turn executed the corresponding deeds

of sale in favor of Nirmla after full payment of thepurchase accomplice of the lots.In the prefatory statement of their petition,Choithram pictured Ishwar to be so motivated bygreed and ungratefulness, who squandered thefamily business in New York, who had to turn to hiswife for support, accustomed to living inostentation and who resorted to blackmail in filingseveral criminal and civil suits against them. Thesestatements find no support and should be strickenfrom the records. Indeed, they are irrelevant to theproceeding.Moreover, assuming Ishwar is of such a lowcharacter as Choithram proposes to make thisCourt to believe, why is it that of all persons, underhis temporary arrangement theory, Choithramopted to entrust the purchase of valuable realestate and built four buildings thereon all in thename of Ishwar? Is it not an unconsciousemergence of the truth that this otherwisewayward brother of theirs was on the contrary ableto raise enough capital through the generosity ofhis father-in-law for the purchase of the veryproperties in question? As the appellate court aptlyobserved if truly this temporary arrangement storyis the only motivation, why Ishwar of all people?Why not the own son of Choithram, Haresh who isalso an American citizen and who was already 18years old at the time of purchase in 1966? TheCourt agrees with the observation that this theoryis an afterthought which surfaced only whenChoithram, Nirmla and Moti filed their answer.When Ishwar asked for an accounting in 1970 andrevoked the general power of attorney in 1971,Choithram had a total change of heart. He decidedto claim the property as his. He caused the transferof the rights and interest of Ishwar to Nirmla. Onhis representation, Ortigas executed the deeds ofsale of the properties in favor of Nirmla. Choithramobviously surmised Ishwar cannot stake a validclaim over the property by so doing.Clearly, this transfer to Nirmla is fictitious and, asadmitted by Choithram, was intended only to placethe property in her name until Choithram acquiresPhilippine citizenship. 17 What appears certain isthat it appears to be a scheme of Choithram toplace the property beyond the reach of Ishwarshould he successfully claim the same. Thus, itmust be struck down.Worse still, on September 27, 1990 spouses Ishwarfiled an urgent motion for the issuance of a writ ofpreliminary attachment and to require Choithram,et al. to submit certain documents, inviting theattention of this Court to the following:

a) Donation by Choithram of his 2,500shares of stock in General Garments

Corporation in favor of his children onDecember 29, 1989; 18

b) Sale on August 2, 1990 by Choithram ofhis 100 shares in Biflex (Phils.), Inc., infavor of his children; 19andc) Mortgage on June 20, 1989 by Nirmlathrough her attorney-in-fact, Choithram, ofthe properties subject of this litigation, forthe amount of $3 Million in favor ofOverseas Holding, Co. Ltd., (Overseas forbrevity), a corporation which appears tobe organized and existing under and byvirtue of the laws of Cayman Islands, witha capital of only $100.00 divided into 100shares of $1.00 each, and with address atP.O. Box 1790, Grand Cayman, CaymanIslands. 20

An opposition thereto was filed by Choithram, et al.but no documents were produced. A manifestationand reply to the opposition was filed by spousesIshwar.All these acts of Choithram, et al. appear to befraudulent attempts to remove these properties tothe detriment of spouses Ishwar should the latterprevail in this litigation.On December 10, 1990 the court issued aresolution that substantially reads as follows:

Considering the allegations of petitionersIshwar Jethmal Ramnani and SonyaRamnani that respondents ChoithramJethmal Ramnani, Nirmla Ramnani andMoti G. Ramnani have fraudulentlyexecuted a simulated mortgage of theproperties subject of this litigation datedJune 20, 1989, in favor of OverseasHolding Co., Ltd. which appears to be acorporation organized in Cayman Islands,for the amount of $ 3,000,000.00, which ismuch more than the value of theproperties in litigation; that said allegedmortgagee appears to be a "shell"corporation with a capital of only $100.00;and that this alleged transaction appearsto be intended to defraud petitionersIshwar and Sonya Jethmal Ramnani of anyfavorable judgment that this Court mayrender in this case;Wherefore the Court Resolved to issue awrit of preliminary injunction enjoining andprohibiting said respondents ChoithramJethmal Ramnani, Nirmla V. Ramnani, MotiG. Ramnani and the Overseas Holding Co.,Ltd. from encumbering, selling orotherwise disposing of the properties andimprovements subject of this litigationuntil further orders of the Court.Petitioners Ishwar and Sonya Jethmal

Ramnani are hereby required to post abond of P 100,000.00 to answer for anydamages d respondents may suffer byway of this injunction if the Court finallydecides the said petitioners are notentitled thereto.The Overseas Holding Co., Ltd. withaddress at P.O. Box 1790 Grand Cayman,Cayman Islands, is hereby IMPLEADED asa respondent in these cases, and is herebyrequired to SUBMIT its comment on theUrgent Motion for the Issuance of a Writ ofPreliminary Attachment and Motion forProduction of Documents, theManifestation and the Reply to theOpposition filed by said petitioners, withinSixty (60) days after service by publicationon it in accordance with the provisions ofSection 17, Rule 14 of the Rules of Court,at the expense of petitioners Ishwar andSonya Jethmal Ramnani.Let copies of this resolution be served onthe Register of Deeds of Pasig, Rizal, andthe Provincial Assessor of Pasig, Rizal,both in Metro Manila, for its annotation onthe transfer Certificates of Titles Nos.403150 and 403152 registered in thename of respondent Nirmla V. Ramnani,and on the tax declarations of the saidproperties and its improvements subjectof this litigation. 21

The required injunction bond in the amount of P100,000.00 was filed by the spouses Ishwar whichwas approved by the Court. The above resolution ofthe Court was published in the Manila Bulletin issueof December 17, 1990 at the expense of saidspouses. 22 On December 19, 1990 the saidresolution and petition for review with annexes inG.R. Nos. 85494 and 85496 were transmitted torespondent Overseas, Grand Cayman Islands at itsaddress c/o Cayman Overseas Trust Co. Ltd.,through the United Parcel Services Bill ofLading 23 and it was actually delivered to saidcompany on January 23, 1991. 24

On January 22, 1991, Choithram, et al., filed amotion to dissolve the writ of preliminary injunctionalleging that there is no basis therefor as in theamended complaint what is sought is actualdamages and not a reconveyance of the property,that there is no reason for its issuance, and thatacts already executed cannot be enjoined. Theyalso offered to file a counterbond to dissolve thewrit.A comment/opposition thereto was filed by spousesIshwar that there is basis for the injunction as thealleged mortgage of the property is simulated andthe other donations of the shares of Choithram to

his children are fraudulent schemes to negate anyjudgment the Court may render for petitioners.No comment or answer was filed by Overseasdespite due notice, thus it is and must beconsidered to be in default and to have lost theright to contest the representations of spousesIshwar to declare the aforesaid alleged mortgagenun and void.This purported mortgage of the subject propertiesin litigation appears to be fraudulent andsimulated. The stated amount of $3 Million forwhich it was mortgaged is much more than thevalue of the mortgaged properties and itsimprovements. The alleged mortgagee-company(Overseas) was organized only on June 26,1989 butthe mortgage was executed much earlier, on June20, 1989, that is six (6) days before Overseas wasorganized. Overseas is a "shelf" company worthonly $100.00. 25 In the manifestation of spousesIshwar dated April 1, 1991, the Court was informedthat this matter was brought to the attention of theCentral Bank (CB) for investigation, and that in aletter of March 20, 1991, the CB informed counselfor spouses Ishwar that said alleged foreign loan ofChoithram, et al. from Overseas has not beenpreviously approved/registered with the CB. 26

Obviously, this is another ploy of Choithram, et al.to place these properties beyond the reach ofspouses Ishwar should they obtain a favorablejudgment in this case. The Court finds and sodeclares that this alleged mortgage should be as itis hereby declared null and void.All these contemporaneous and subsequent acts ofChoithram, et al., betray the weakness of theircause so they had to take an steps, even as thecase was already pending in Court, to renderineffective any judgment that may be renderedagainst them.The problem is compounded in that respondentOrtigas is caught in the web of this bitter fight. Ithad all the time been dealing with Choithram asattorney-in-fact of Ishwar. However, evidence hadbeen adduced that notice in writing had beenserved not only on Choithram, but also on Ortigas,of the revocation of Choithram's power of attorneyby Ishwar's lawyer, on May 24, 1971. 27 Apublication of said notice was made in the April 2,1971 issue of The Manila Times for the informationof the general public. 28 Such notice of revocation ina newspaper of general circulation is sufficientwarning to third persons including Ortigas. 29 Anotice of revocation was also registered with theSecurities and Exchange Commission on March 29,1 971. 30

Indeed in the letter of Choithram to Ishwar of June25, 1971, Choithram was pleading that Ishwarexecute another power of attorney to be shown to

Ortigas who apparently learned of the revocation ofChoithram's power of attorney. 31 Despite saidnotices, Ortigas nevertheless acceded to therepresentation of Choithram, as alleged attorney-in-fact of Ishwar, to assign the rights of petitionerIshwar to Nirmla. While the primary blame shouldbe laid at the doorstep of Choithram, Ortigas is notentirely without fault. It should have requiredChoithram to secure another power of attorneyfrom Ishwar. For recklessly believing the pretensionof Choithram that his power of attorney was stillgood, it must, therefore, share in the latter'sliability to Ishwar.In the original complaint, the spouses Ishwar askedfor a reconveyance of the properties and/orpayment of its present value and damages. 32 Inthe amended complaint they asked, among others,for actual damages of not less than the presentvalue of the real properties in litigation, moral andexemplary damages, attorneys fees, costs of thesuit and further prayed for "such other reliefs asmay be deemed just and equitable in thepremises .33 The amended complaint contain thefollowing positive allegations:

7. Defendant Choithram Ramnani, inevident bad faith and despite due noticeof the revocation of the General Power ofAttorney, Annex 'D" hereof, caused thetransfer of the rights over the said parcelsof land to his daughter-in-law, defendantNirmla Ramnani in connivance withdefendant Ortigas & Co., the latter havingagreed to the said transfer despitereceiving a letter from plaintiffs' lawyerinforming them of the said revocation;copy of the letter is hereto attached andmade an integral part hereof as Annex"H";8. Defendant Nirmla Ramnani havingacquired the aforesaid property by fraudis, by force of law, considered a trustee ofan implied trust for the benefit of plaintiffand is obliged to return the same to thelatter:9. Several efforts were made to settle thematter within the family but defendants(Choithram Ramnani, Nirmla Ramnani andMoti Ramnani) refused and up to now failand still refuse to cooperate and respondto the same; thus, the present case;10. In addition to having been deprived oftheir rights over the properties (describedin par. 3 hereof), plaintiffs, by reason ofdefendants' fraudulent act, suffered actualdamages by way of lost rental on theproperty which defendants (Choithram

Ramnani, Nirmla Ramnani and MotiRamnani have collected for themselves; 34

In said amended complaint, spouses Ishwar, amongothers, pray for payment of actual damages in anamount no less than the value of the properties inlitigation instead of a reconveyance as sought inthe original complaint. Apparently they opted notto insist on a reconveyance as they are Americancitizens as alleged in the amended complaint.The allegations of the amended complaint abovereproduced clearly spelled out that the transfer ofthe property to Nirmla was fraudulent and that itshould be considered to be held in trust by Nirmlafor spouses Ishwar. As above-discussed, thisallegation is well-taken and the transfer of theproperty to Nirmla should be considered to havecreated an implied trust by Nirmla as trustee of theproperty for the benefit of spouses Ishwar. 35

The motion to dissolve the writ of preliminaryinjunction filed by Choithram, et al. should bedenied. Its issuance by this Court is proper andwarranted under the circumstances of the case.Under Section 3(c) Rule 58 of the Rules of Court, awrit of preliminary injunction may be granted atany time after commencement of the action andbefore judgment when it is established:

(c) that the defendant is doing, threatens,or is about to do, or is procuring orsuffering to be done, some act probably inviolation of plaintiffs's rights respectingthe subject of the action, and tending torender the judgment ineffectual.

As above extensively discussed, Choithram, et al.have committed and threaten to commit furtheracts of disposition of the properties in litigation aswell as the other assets of Choithram, apparentlydesigned to render ineffective any judgment theCourt may render favorable to spouses Ishwar.The purpose of the provisional remedy ofpreliminary injunction is to preserve the statusquo of the things subject of the litigation and toprotect the rights of the spouses Ishwar respectingthe subject of the action during the pendency ofthe Suit 36 and not to obstruct the administration ofjustice or prejudice the adverse party. 37 In this casefor damages, should Choithram, et al. continue tocommit acts of disposition of the properties subjectof the litigation, an award of damages to spousesIshwar would thereby be rendered ineffectual andmeaningless. 38

Consequently, if only to protect the interest ofspouses Ishwar, the Court hereby finds and holdsthat the motion for the issuance of a writ ofpreliminary attachment filed by spouses Ishwarshould be granted covering the properties subjectof this litigation.

Section 1, Rule 57 of the Rules of Court providesthat at the commencement of an action or at anytime thereafter, the plaintiff or any proper partymay have the property of the adverse partyattached as security for the satisfaction of anyjudgment that may be recovered, in, among others,the following cases:

(d) In an action against a party who hasbeen guilty of a fraud in contracting thedebt or incurring the obligation uponwhich the action is brought, or inconcealing or disposing of the property forthe taking, detention or conversion ofwhich the action is brought;(e) In an action against a party who hasremoved or disposed of his property, or isabout to do so, with intent to defraud hiscreditors; . . .

Verily, the acts of Choithram, et al. of disposing theproperties subject of the litigation disclose ascheme to defraud spouses Ishwar so they may notbe able to recover at all given a judgment in theirfavor, the requiring the issuance of the writ ofattachment in this instance.Nevertheless, under the peculiar circumstances ofthis case and despite the fact that Choithram, etal., have committed acts which demonstrate theirbad faith and scheme to defraud spouses Ishwarand Sonya of their rightful share in the propertiesin litigation, the Court cannot ignore the fact thatChoithram must have been motivated by a strongconviction that as the industrial partner in theacquisition of said assets he has as much claim tosaid properties as Ishwar, the capitalist partner inthe joint venture.The scenario is clear. Spouses Ishwar supplied thecapital of $150,000.00 for thebusiness.1âwphi1 They entrusted the money toChoithram to invest in a profitable business venturein the Philippines. For this purpose they appointedChoithram as their attorney-in-fact.Choithram in turn decided to invest in the realestate business. He bought the two (2) parcels ofland in question from Ortigas as attorney-in-fact ofIshwar- Instead of paying for the lots in cash, hepaid in installments and used the balance of thecapital entrusted to him, plus a loan, to build twobuildings. Although the buildings were burned later,Choithram was able to build two other buildings onthe property. He rented them out and collected therentals. Through the industry and genius ofChoithram, Ishwar's property was developed andimproved into what it is now—a valuable assetworth millions of pesos. As of the last estimate in1985, while the case was pending before the trialcourt, the market value of the properties is no less

than P22,304,000.00. 39 It should be worth muchmore today.We have a situation where two brothers engaged ina business venture. One furnished the capital, theother contributed his industry and talent. Justiceand equity dictate that the two share equally thefruit of their joint investment and efforts. Perhapsthis Solomonic solution may pave the way towardstheir reconciliation. Both would stand to gain. Noone would end up the loser. After all, blood isthicker than water.However, the Court cannot just close its eyes to thedevious machinations and schemes that Choithramemployed in attempting to dispose of, if notdissipate, the properties to deprive spouses Ishwarof any possible means to recover any award theCourt may grant in their favor. Since Choithram, etal. acted with evident bad faith and malice, theyshould pay moral and exemplary damages as wellas attorney's fees to spouses Ishwar.WHEREFORE, the petition in G.R. No. 85494 isDENIED, while the petition in G.R. No. 85496 ishereby given due course and GRANTED. Thejudgment of the Court of Appeals dated October18, 1988 is hereby modified as follows:1. Dividing equally between respondents spousesIshwar, on the one hand, and petitioner ChoithramRamnani, on the other, (in G.R. No. 85494) the twoparcels of land subject of this litigation, includingall the improvements thereon, presently covered bytransfer Certificates of Title Nos. 403150 and403152 of the Registry of Deeds, as well as therental income of the property from 1967 to thepresent.2. Petitioner Choithram Jethmal Ramnani, Nirmla V.Ramnani, Moti C. Ramnani and respondent Ortigasand Company, Limited Partnership (in G.R. No.85496) are ordered solidarily to pay in cash thevalue of said one-half (1/2) share in the said landand improvements pertaining to respondentsspouses Ishwar and Sonya at their fair marketvalue at the time of the satisfaction of thisjudgment but in no case less than their value asappraised by the Asian Appraisal, Inc. in itsAppraisal Report dated August 1985 (Exhibits T toT-14, inclusive).3. Petitioners Choithram, Nirmla and Moti Ramnaniand respondent Ortigas & Co., Ltd. Partnership shallalso be jointly and severally liable to pay to saidrespondents spouses Ishwar and Sonya Ramnanione-half (1/2) of the total rental income of saidproperties and improvements from 1967 up to thedate of satisfaction of the judgment to becomputed as follows:

a. On Building C occupied by Eppie'sCreation and Jethmal Industries from1967 to 1973, inclusive, based on the

1967 to 1973 monthly rentals paid byEppie's Creation;b. Also on Building C above, occupied byJethmal Industries and Lavine from 1974to 1978, the rental incomes based onthen rates prevailing as shown underExhibit "P"; and from 1979 to 1981,based on then prevailing rates asindicated under Exhibit "Q";c. On Building A occupied by TransworldKnitting Mills from 1972 to 1978, therental incomes based upon thenprevailing rates shown under Exhibit "P",and from 1979 to 1981, based onprevailing rates per Exhibit "Q";d. On the two Bays Buildings occupied bySigma-Mariwasa from 1972 to 1978, therentals based on the Lease Contract,Exhibit "P", and from 1979 to 1980, therentals based on the Lease Contract,Exhibit "Q".

and thereafter commencing 1982, to account forand turn over the rental incomes paid or ought tobe paid for the use and occupancy of the propertiesand all improvements totalling 10,048 sq. m.,based on the rate per square meter prevailing in1981 as indicated annually cumulative up to 1984.Then, commencing 1985 and up to the satisfactionof the judgment, rentals shall be computed at tenpercent (10%) annually of the fair market values ofthe properties as appraised by the AsianAppraisals, Inc. in August 1985. (Exhibits T to T-14,inclusive.)4. To determine the market value of the propertiesat the time of the satisfaction of this judgment andthe total rental incomes thereof, the trial court ishereby directed to hold a hearing with deliberatedispatch for this purpose only and to have thejudgment immediately executed after suchdetermination.5. Petitioners Choithram, Nirmla and Moti, allsurnamed Ramnani, are also jointly and severallyliable to pay respondents Ishwar and SonyaRamnani the amount of P500,000.00 as moraldamages, P200,000.00 as exemplary damages andattorney's fees equal to 10% of the total award. tosaid respondents spouses.6. The motion to dissolve the writ of preliminaryinjunction dated December 10, 1990 filed bypetitioners Choithram, Nirmla and Moti, allsurnamed Ramnani, is hereby DENIED and the saidinjunction is hereby made permanent. Let a writ ofattachment be issued and levied against theproperties and improvements subject of thislitigation to secure the payment of the aboveawards to spouses Ishwar and Sonya.

7. The mortgage constituted on the subjectproperty dated June 20, 1989 by petitionersChoithram and Nirmla, both surnamed Ramnani infavor of respondent Overseas Holding, Co. Ltd. (inG.R. No. 85496) for the amount of $3-M is herebydeclared null and void. The Register of Deeds ofPasig, Rizal, is directed to cancel the annotation ofd mortgage on the titles of the properties inquestion.8. Should respondent Ortigas Co., Ltd. Partnershippay the awards to Ishwar and Sonya Ramnaniunder this judgment, it shall be entitled toreimbursement from petitioners Choithram, Nirmlaand Moti, all surnamed Ramnani.9. The above awards shag bear legal rate ofinterest of six percent (6%) per annum from thetime this judgment becomes final until they arefully paid by petitioners Choithram Ramnani,Nirmla V. Ramnani, Moti C. Ramnani and Ortigas,Co., Ltd. Partnership. Said petitioners Choithram, etal. and respondent Ortigas shall also pay the costs.SO ORDERED.

G.R. No. L-41420 July 10, 1992

CMS LOGGING, INC., petitioner, vs.THE COURT OF APPEALS and D.R. AGUINALDOCORPORATION, respondents.

NOCON, J.:

This is a petition for review on certiorari from thedecision dated July 31, 1975 of the Court ofAppeals in CA-G.R. No. 47763-R which affirmed intoto the decision of the Court of First Instance ofManila, Branch VII, in Civil Case No. 56355dismissing the complaint filed by petitioner CMSLogging, Inc. (CMS, for brevity) against privaterespondent D.R. Aguinaldo Corporation (DRACOR,for brevity) and ordering the former to pay thelatter attorney's fees in the amount of P1,000.00and the costs.

The facts of the case are as follows: Petitioner CMSis a forest concessionaire engaged in the loggingbusiness, while private respondent DRACOR isengaged in the business of exporting and sellinglogs and lumber. On August 28, 1957, CMS andDRACOR entered into a contract ofagency 1 whereby the former appointed the latteras its exclusive export and sales agent for all logsthat the former may produce, for a period of five(5) years. The pertinent portions of the agreement,which was drawn up by DRACOR, 2 are as follows:

1. SISON [CMS] hereby appointsDRACOR as his sole and exclusiveexport sales agent with fullauthority, subject to theconditions and limitationshereinafter set forth, to sell andexport under a firm salescontract acceptable to SISON, alllogs produced by SISON for aperiod of five (5) yearscommencing upon the executionof the agreement and upon theterms and conditions hereinafterprovided and DRACOR herebyaccepts such appointment;

xxx xxx xxx

3. It is expressly agreed thatDRACOR shall handle exclusivelyall negotiations of all export salesof SISON with the buyers andarrange the procurement andschedules of the vessel or vesselsfor the shipment of SISON's logsin accordance with SISON'swritten requests, but DRACORshall not in anyway [sic] be liableor responsible for any delay,default or failure of the vessel orvessels to comply with theschedules agreed upon;

xxx xxx xxx

9. It is expressly agreed by theparties hereto that DRACOR shallreceive five (5%) per centcommission of the gross sales oflogs of SISON based on F.O.B.invoice value which commissionshall be deducted from theproceeds of any and/or allmoneys received by DRACOR forand in behalf and for the accountof SISON;

By virtue of the aforesaid agreement, CMS was ableto sell through DRACOR a total of 77,264,672 boardfeet of logs in Japan, from September 20, 1957 toApril 4, 1962.

About six months prior to the expiration of theagreement, while on a trip to Tokyo, Japan, CMS'spresident, Atty. Carlos Moran Sison, and generalmanager and legal counsel, Atty. Teodoro R.Dominguez, discovered that DRACOR had usedShinko Trading Co., Ltd. (Shinko for brevity) asagent, representative or liaison officer in sellingCMS's logs in Japan for which Shinko earned acommission of U.S. $1.00 per 1,000 board feet fromthe buyer of the logs. Under this arrangement,Shinko was able to collect a total of U.S.$77,264.67. 3

CMS claimed that this commission paid to Shinkowas in violation of the agreement and that it (CMS)is entitled to this amount as part of the proceeds ofthe sale of the logs. CMS contended that sinceDRACOR had been paid the 5% commission underthe agreement, it is no longer entitled to theadditional commission paid to Shinko as thistantamount to DRACOR receiving doublecompensation for the services it rendered.

After this discovery, CMS sold and shipped logsvalued at U.S. $739,321.13 orP2,883,351.90, 4 directly to several firms in Japanwithout the aid or intervention of DRACOR.

CMS sued DRACOR for the commission received byShinko and for moral and exemplary damages,while DRACOR counterclaimed for its commission,amounting to P144,167.59, from the sales made byCMS of logs to Japanese firms. In its reply, CMSaverred as a defense to the counterclaim thatDRACOR had retained the sum of P101,167.59 aspart of its commission for the sales made byCMS. 5 Thus, as its counterclaim to DRACOR'scounterclaim, CMS demanded DRACOR return theamount it unlawfully retained. DRACOR later filedan amended counterclaim, alleging that thebalance of its commission on the sales made byCMS was P42,630.82, 6 thus impliedly admittingthat it retained the amount alleged by CMS.

In dismissing the complaint, the trial court ruledthat no evidence was presented to show thatShinko received the commission of U.S. $77,264.67arising from the sale of CMS's logs in Japan, thoughthe trial court stated that "Shinko was able tocollect the total amount of $77,264.67 US Dollars(Exhs. M and M-1)." 7 The counterclaim waslikewise dismissed, as it was shown that DRACORhad waived its rights to the balance of itscommission in a letter dated February 2, 1963 toAtty. Carlos Moran Sison, president of CMS. 8 Fromsaid decision, only CMS appealed to the Court ofAppeals.

The Court of Appeals, in a 3 to 2decision, 9 affirmed the dismissal of the complaintsince "[t]he trial court could not have made acategorical finding that Shinko collectedcommissions from the buyers of Sison's logs inJapan, and could not have held that Sison is

entitled to recover from Dracor the amountcollected by Shinko as commissions, plaintiff-appellant having failed to prove by competentevidence its claims." 10

Moreover, the appellate court held:

There is reason to believe thatShinko Trading Co. Ltd., was paidby defendant-appellee out of itsown commission of 5%, asindicated in the letter of itspresident to the president ofSison, dated February 2, 1963(Exhibit "N"), and in theAgreement between AguinaldoDevelopment Corporation(ADECOR) and Shinko TradingCo., Ltd. (Exhibit "9"). Daniel R.Aguinaldo stated in his saidletter:

. . . , I informed you that if youwanted to pay me for the service,then it would be no more than atthe standard rate of 5%commission because in our owncase, we pay our Japaneseagents 2-1/2%. Accordingly, wewould only add a similar amountof 2-1/2% for the service whichwe would render you in thePhilippines. 11

Aggrieved, CMS appealed to this Court by way of apetition for review on certiorari, alleging (1) thatthe Court of Appeals erred in not making acomplete findings of fact; (2) that the testimony ofAtty. Teodoro R. Dominguez, regarding theadmission by Shinko's president and director that itcollected a commission of U.S. $1.00 per 1,000board feet of logs from the Japanese buyers, isadmissible against DRACOR; (3) that the statementof DRACOR's chief legal counsel in hismemorandum dated May 31, 1965, Exhibit "K", isan admission that Shinko was able to collect thecommission in question; (4) that the fact thatShinko received the questioned commissions isdeemed admitted by DRACOR by its silence underSection 23, Rule 130 of the Rules of Court when itfailed to reply to Atty. Carlos Moran Sison's letterdated February 6, 1962; (5) that DRACOR is not

entitled to its 5% commission arising from thedirect sales made by CMS to buyers in Japan; and(6) that DRACOR is guilty of fraud and bad faith inits dealings with CMS.

With regard to CMS's arguments concerningwhether or not Shinko received the commission inquestion, We find the same unmeritorious.

To begin with, these arguments question thefindings of fact made by the Court of Appeals,which are final and conclusive and can not bereviewed on appeal to the Supreme Court. 12

Moreover, while it is true that the evidenceadduced establishes the fact that Shinko isDRACOR's agent or liaison in Japan, 13 there is noevidence which established the fact that Shinko didreceive the amount of U.S. $77,264.67 ascommission arising from the sale of CMS's logs tovarious Japanese firms.

The fact that Shinko received the commissions inquestion was not established by the testimony ofAtty. Teodoro R. Dominguez to the effect thatShinko's president and director told him that Shinkoreceived a commission of U.S. $1.00 for every1,000 board feet of logs sold, since the same ishearsay. Similarly, the letter of Mr. K. Shibata ofToyo Menka Kaisha, Ltd. 14 is also hearsay since Mr.Shibata was not presented to testify on his letter.

CMS's other evidence have little or no probativevalue at all. The statements made in thememorandum of Atty. Simplicio R. Ciocon toDRACOR dated May 31, 1965, 15 the letter datedFebruary 2, 1963 of DanielR. Aguinaldo, 16 president of DRACOR, and thereply-letter dated January 9, 1964 17 by DRACOR'scounsel Atty. V. E. Del Rosario to CMS's demandletter dated September 25, 1963 can not becategorized as admissions that Shinko did receivethe commissions in question.

The alleged admission made by Atty. Ciocon, to wit—

Furthermore, as per our records,our shipment of logs to ToyoMenka Kaisha, Ltd., is only for anet volume of 67,747,732 board

feet which should enable Shinkoto collect a commission of US$67,747.73 only

can not be considered as such since thestatement was made in the context ofquestioning CMS's tally of logs deliveredto various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, towit —

. . . Knowing as we do that ToyoMenka is a large and reputablecompany, it is obvious that theypaid Shinko for certain serviceswhich Shinko must havesatisfactorily performed for themin Japan otherwise they would nothave paid Shinko

and that of Atty. V. E. Del Rosario,

. . . It does not seem proper,therefore, for CMS Logging, Inc.,as principal, to concern itselfwith, much less question, theright of Shinko Trading Co., Ltd.with which our client debtdirectly, to whatever benefits itmight have derived form theultimate consumer/buyer of theselogs, Toyo Menka Kaisha, Ltd.There appears to be nojustification for your client'scontention that these benefits,whether they can be consideredas commissions paid by ToyoMenka Kaisha to Shinko Trading,are to be regarded part of thegross sales.

can not be considered admissions thatShinko received the questionedcommissions since neither statementsdeclared categorically that Shinko did infact receive the commissions and thatthese arose from the sale of CMS's logs.

As correctly stated by the appellate court:

It is a rule that "a statement isnot competent as an admissionwhere it does not, under areasonable construction, appearto admit or acknowledge the factwhich is sought to be proved byit". An admission or declarationto be competent must have beenexpressed in definite, certain andunequivocal language (Bank ofthe Philippine Islands vs. Fidelity& Surety Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by itssilence the allegation that Shinko received thecommissions in question when it failed to respondto Atty. Carlos Moran Sison's letter dated February6, 1963, is not supported by the evidence. DRACORdid in fact reply to the letter of Atty. Sison, throughthe letter dated March 5, 1963 of F.A.Novenario, 19 which stated:

This is to acknowledge receipt ofyour letter dated February 6,1963, and addressed to Mr. D. R.Aguinaldo, who is at present outof the country.

xxx xxx xxx

We have no record or knowledgeof any such payment ofcommission made by Toyo Menkato Shinko. If the payment wasmade by Toyo Menka to Shinko,as stated in your letter, we knewnothing about it and had nothingto do with it.

The finding of fact made by the trial court, i.e., that"Shinko was able to collect the total amount of$77,264.67 US Dollars," can not be given weightsince this was based on the summary prepared byCMS itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did infact receive the commissions in question, CMS isnot entitled thereto since these were apparentlypaid by the buyers to Shinko for arranging the sale.This is therefore not part of the gross sales ofCMS's logs.

However, We find merit in CMS's contention thatthe appellate court erred in holding that DRACORwas entitled to its commission from the sales madeby CMS to Japanese firms.

The principal may revoke a contract of agency atwill, and such revocation may be express, orimplied, 20 and may be availed of even if the periodfixed in the contract of agency as not yetexpired. 21 As the principal has this absolute rightto revoke the agency, the agent can not objectthereto; neither may he claim damages arisingfrom such revocation, 22unless it is shown that suchwas done in order to evade the payment of agent'scommission. 23

In the case at bar, CMS appointed DRACOR as itsagent for the sale of its logs to Japanese firms. Yet,during the existence of the contract of agency,DRACOR admitted that CMS sold its logs directly toseveral Japanese firms. This act constituted animplied revocation of the contract of agency underArticle 1924 of the Civil Code, which provides:

Art. 1924 The agency is revokedif the principal directly managesthe business entrusted to theagent, dealing directly with thirdpersons.

In New Manila Lumber Company, Inc. vs. Republicof the Philippines, 24 this Court ruled that the act ofa contractor, who, after executing powers ofattorney in favor of another empowering the latterto collect whatever amounts may be due to himfrom the Government, and thereafter demandedand collected from the government the money thecollection of which he entrusted to his attorney-in-fact, constituted revocation of the agency in favorof the attorney-in-fact.

Since the contract of agency was revoked by CMSwhen it sold its logs to Japanese firms without theintervention of DRACOR, the latter is no longerentitled to its commission from the proceeds ofsuch sale and is not entitled to retain whatevermoneys it may have received as its commission forsaid transactions. Neither would DRACOR beentitled to collect damages from CMS, sincedamages are generally not awarded to the agentfor the revocation of the agency, and the case atbar is not one falling under the exception

mentioned, which is to evade the payment of theagent's commission.

Regarding CMS's contention that the Court ofAppeals erred in not finding that DRACOR hadcommitted acts of fraud and bad faith, We find thesame unmeritorious. Like the contention involvingShinko and the questioned commissions, thefindings of the Court of Appeals on the matter werebased on its appreciation of the evidence, andthese findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appealsthat there is no evidence to support CMS'scontention that Shinko earned a separatecommission of U.S. $1.00 for every 1,000 boardfeet of logs from the buyer of CMS's logs. However,We reverse the ruling of the Court of Appeals withregard to DRACOR's right to retain the amount ofP101,536.77 as part of its commission from thesale of logs by CMS, and hold that DRACOR has noright to its commission. Consequently, DRACOR ishereby ordered to remit to CMS the amount ofP101,536.77.

WHEREFORE, the decision appealed from is herebyMODIFIED as stated in the preceding paragraph.Costs de officio.

SO ORDERED.

G.R. No. 141525 September 2, 2005

CARLOS SANCHEZ, Petitioners, vs.MEDICARD PHILIPPINES, INC., DR. NICANORMONTOYA and CARLOS EJERCITO, Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

This petition for review on certiorari seeks toreverse the Decision1 of the Court of Appeals datedFebruary 24, 1999 and its Resolution dated January12, 2000 in CA-G.R. CV No. 47681.

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

Sometime in 1987, Medicard Philippines, Inc.(Medicard), respondent, appointed petitioner as itsspecial corporate agent. As such agent, Medicardgave him a commission based on the "cash broughtin."

In September, 1988, through petitioner’s efforts,Medicard and United Laboratories Group ofCompanies (Unilab) executed a Health CareProgram Contract. Under this contract, Unilab shallpay Medicard a fixed monthly premium for thehealth insurance of its personnel. Unilab paidMedicard P4,148,005.00 representing the premiumfor one (1) year. Medicard then handed petitioner18% of said amount or P746,640.90 representinghis commission.

Again, through petitioner’s initiative, the agencycontract between Medicard and Unilab wasrenewed for another year, or from October 1, 1989to September 30, 1990, incorporating therein theincrease of premium fromP4,148,005.00to P7,456,896.00. Medicard paidpetitioner P1,342,241.00 as his commission.

Prior to the expiration of the renewed contract,Medicard proposed to Unilab, through petitioner, anincrease of the premium for the next year. Unilabrejected the proposal "for the reason that it was toohigh," prompting Dr. Nicanor Montoya (Medicard’s

president and general manager), also arespondent, to request petitioner to reduce hiscommission, but the latter refused.

In a letter dated October 3, 1990, Unilab, throughCarlos Ejercito, another respondent, confirmed itsdecision not to renew the health program contractwith Medicard.

Meanwhile, in order not to prejudice its personnelby the termination of their health insurance, Unilab,through respondent Ejercito, negotiated with Dr.Montoya and other officers of Medicard, to discussways in order to continue the insurance coverageof those personnel.

Under the new scheme, Unilab shall pay Medicardonly the amount corresponding to the actualhospitalization expenses incurred by eachpersonnel plus 15% service fee for using Medicardfacilities, which amount shall not be lessthan P780,000.00.

Medicard did not give petitioner any commissionunder the new scheme.

In a letter dated March 15, 1991, petitionerdemanded from Medicard payment of P338,000.00as his commission plus damages, but the latterrefused to heed his demand.

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

After hearing, the RTC rendered its Decisiondismissing petitioner’s complaint and respondents’counterclaim.

On appeal, the Court of Appeals affirmed the trialcourt’s assailed Decision. The Appellate Court heldthat there is no proof that the execution of the newcontract between the parties under the "cost plus"system is a strategy to deprive petitioner of hiscommission; that Medicard did not commit anyfraudulent act in revoking its agency contract withSanchez; that when Unilab rejected Medicard’sproposal for an increase of premium, their Health

Care Program Contract on its third year waseffectively revoked; and that where the contract isineffectual, then the agent is not entitled to acommission.

Petitioner filed a motion for reconsideration, butthis was denied by the Court of Appeals on January12, 2000.

Hence, the instant petition for review on certiorari.

The basic issue for our resolution is whether theCourt of Appeals erred in holding that the contractof 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 entitledto a commission, he must be the procuring causeof the sale, which simply means that the measuresemployed by him and the efforts he exerted mustresult in a sale.2 In other words, an agent receiveshis commission only upon the successful conclusionof a sale.3 Conversely, it follows that where hisefforts are unsuccessful, or there was no effort onhis part, he is not entitled to a commission.

In Prats vs. Court of Appeals,4 this Court held thatfor the purpose of equity, an agent who is not theefficient procuring cause is nonetheless entitled tohis commission, where said agent, notwithstandingthe expiration of his authority, nonetheless, tookdiligent steps to bring back together theparties, such that a sale was finalized andconsummated between them. In ManotokBorthers vs. Court of Appeals,5 where the Deed ofSale was only executed after the agent’s extendedauthority had expired, this Court, applying its rulingin Prats, held that the agent (in Manotok) is entitledto a commission since he was the efficientprocuring cause of the sale, notwithstanding thatthe sale took place after his authority had lapsed.The proximate, close, and causal connectionbetween the agent’s efforts and the principal’s saleof his property can not be ignored.

It may be recalled that through petitioner’s efforts,Medicard was able to enter into a one-year HealthCare 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 theexpiration of the renewed contract, Medicard,through petitioner, proposed an increase inpremium, but Unilab rejected this proposal.Medicard then requested petitioner to reduce hiscommission should the contract be renewed on itsthird year, but he was obstinate. Meantime, onOctober 3, 1990, Unilab informed Medicard it wasno longer renewing the Health Care Programcontract.

In order not to prejudice its personnel, Unilab,through respondent Ejercito, negotiated withrespondent Dr. Montoya of Medicard, in order tofind mutually beneficial ways of continuing theHealth Care Program. The negotiations resulted in anew contract wherein Unilab shall pay Medicard thehospitalization expenses actually incurred by eachemployees, plus a service fee. Under the "costplus" system which replaced the premium scheme,petitioner was not given a commission.

It is clear that since petitioner refused to reduce hiscommission, Medicard directly negotiated withUnilab, thus revoking its agency contract withpetitioner. We hold that such revocation isauthorized by Article 1924 of the Civil Code whichprovides:

"Art. 1924. The agency is revoked if the principaldirectly manages the business entrusted to theagent, dealing directly with third persons."

Moreover, as found by the lower courts, petitionerdid not render services to Medicard, his principal,to entitle him to a commission. There is noindication from the records that he exerted anyeffort in order that Unilab and Medicard, after theexpiration of the Health Care Program Contract,can renew it for the third time. In fact, his refusal toreduce his commission constrained Medicard tonegotiate directly with Unilab. We find no reason inlaw or in equity to rule that he is entitled to acommission. Obviously, he was not the agent orthe "procuring cause" of the third Health CareProgram Contract between Medicard and Unilab.

WHEREFORE, the petition is DENIED. Thechallenged Decision and Resolution of the Court ofAppeals in CA-G.R. CV No. 47681are AFFIRMED IN TOTO. Costs against petitioner.

SO ORDERED.

G.R. No. 161757 January 25, 2006SUNACE INTERNATIONAL MANAGEMENTSERVICES, INC.Petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION,Second Division; HON. ERNESTO S. DINOPOL,in his capacity as Labor Arbiter, NLRC; NCR,Arbitration Branch, Quezon City and DIVINAA. MONTEHERMOZO,Respondents.D E C I S I O NCARPIO MORALES, J.:Petitioner, Sunace International ManagementServices (Sunace), a corporation duly organizedand existing under the laws of the Philippines,deployed to Taiwan Divina A. Montehermozo(Divina) as a domestic helper under a 12-monthcontract effective February 1, 1997.1 Thedeployment was with the assistance of a Taiwanesebroker, Edmund Wang, President of Jet CrownInternational Co., Ltd.After her 12-month contract expired on February 1,1998, Divina continued working for her Taiwaneseemployer, Hang Rui Xiong, for two more years,after which she returned to the Philippines onFebruary 4, 2000.Shortly after her return or on February 14, 2000,Divina filed a complaint2 before the National LaborRelations Commission (NLRC) against Sunace, oneAdelaide Perez, the Taiwanese broker, and theemployer-foreign principal alleging that she wasjailed for three months and that she was underpaid.The following day or on February 15, 2000, LaborArbitration Associate Regina T. Gavin issuedSummons3 to the Manager of Sunace, furnishing itwith a copy of Divina’s complaint and directing it toappear for mandatory conference on February 28,2000.The scheduled mandatory conference was reset. Itappears to have been concluded, however.On April 6, 2000, Divina filed her PositionPaper4 claiming that under her original one-yearcontract and the 2-year extended contract whichwas with the knowledge and consent of Sunace,the following amounts representing income tax andsavings were deducted:

Year

Deduction forIncome Tax

Deduction forSavings

1997

NT10,450.00 NT23,100.00

1998

NT9,500.00 NT36,000.00

1999

NT13,300.00 NT36,000.00;5

and while the amounts deducted in 1997 wererefunded to her, those deducted in 1998 and 1999were not. On even date, Sunace, by itsProprietor/General Manager Maria Luisa Olarte,

filed its Verified Answer and PositionPaper,6 claiming as follows, quoted verbatim:COMPLAINANT IS NOT ENTITLED FOR THEREFUND OF HER 24 MONTHS SAVINGS3. Complainant could not anymore claim norentitled for the refund of her 24 months savings asshe already took back her saving already last yearand the employer did not deduct any money fromher salary, in accordance with a FascimileMessage from the respondent SUNACE’semployer, Jet Crown International Co. Ltd., axerographic copy of which is herewith attachedas ANNEX "2" hereof;COMPLAINANT IS NOT ENTITLED TO REFUNDOF HER 14 MONTHS TAX AND PAYMENT OFATTORNEY’S FEES4. There is no basis for the grant of tax refund tothe complainant as the she finished her one yearcontract and hence, was not illegally dismissed byher employer. She could only lay claim over the taxrefund or much more be awarded of damages suchas attorney’s fees as said reliefs are available onlywhen the dismissal of a migrant worker is withoutjust valid or lawful cause as defined by law orcontract.The rationales behind the award of tax refund andpayment of attorney’s fees is not to enrich thecomplainant but to compensate him for actualinjury suffered. Complainant did not suffer injury,hence, does not deserve to be compensated forwhatever kind of damages.Hence, the complainant has NO cause of actionagainst respondent SUNACE for monetary claims,considering that she has been totally paid of all themonetary benefits due her under her EmploymentContract to her full satisfaction.6. Furthermore, the tax deducted from her salary isin compliance with the Taiwanese law, whichrespondent SUNACE has no control andcomplainant has to obey and this Honorable Officehas no authority/jurisdiction to intervene becausethe power to tax is a sovereign power which theTaiwanese Government is supreme in its ownterritory. The sovereign power of taxation of a stateis recognized under international law and amongsovereign states.7. That respondent SUNACE respectfully reservesthe right to file supplemental Verified Answerand/or Position Paper to substantiate its prayer forthe dismissal of the above case against the hereinrespondent. AND BY WAY OF -x x x x (Emphasis and underscoring supplied)Reacting to Divina’s Position Paper, Sunace filed onApril 25, 2000 an ". . . answer to complainant’sposition paper"7 alleging that Divina’s 2-yearextension of her contract was without itsknowledge and consent, hence, it had no liability

attaching to any claim arising therefrom, andDivina in fact executed a Waiver/Quitclaim andRelease of Responsibility and an Affidavit ofDesistance, copy of each document was annexedto said ". . . answer to complainant’s positionpaper."To Sunace’s ". . . answer to complainant’s positionpaper," Divina filed a 2-page reply,8 without,however, refuting Sunace’s disclaimer ofknowledge of the extension of her contract andwithout saying anything about the Release, Waiverand Quitclaim and Affidavit of Desistance.The Labor Arbiter, rejected Sunace’s claim that theextension of Divina’s contract for two more yearswas without its knowledge and consent in this wise:We reject Sunace’s submission that it should not beheld responsible for the amount withheld becauseher contract was extended for 2 more yearswithout its knowledge and consent because asAnnex "B" 9 shows, Sunace and Edmund Wang havenot stopped communicating with each other andyet the matter of the contract’s extensionand Sunace’s alleged non-consent thereto has notbeen categorically established.What Sunace should have done was to write toPOEA about the extension and its objection thereto,copy furnished the complainant herself, her foreignemployer, Hang Rui Xiong and the Taiwanesebroker, Edmund Wang.And because it did not, it is presumed to haveconsented to the extension and should be liable foranything that resulted thereform(sic).10 (Underscoring supplied)The Labor Arbiter rejected too Sunace’s argumentthat it is not liable on account of Divina’s executionof a Waiver and Quitclaim and an Affidavit ofDesistance. Observed the Labor Arbiter:Should the parties arrive at any agreement as tothe whole or any part of the dispute, the same shallbe reduced to writing and signed by the parties andtheir respective counsel (sic), if any, before theLabor Arbiter.The settlement shall be approved by the LaborArbiter after being satisfied that it was voluntarilyentered into by the parties and after havingexplained to them the terms and consequencesthereof.A compromise agreement entered into by theparties not in the presence of the Labor Arbiterbefore whom the case is pending shall be approvedby him, if after confronting the parties, particularlythe complainants, he is satisfied that theyunderstand the terms and conditions of thesettlement and that it was entered into freelyvoluntarily (sic) by them and the agreement is notcontrary to law, morals, and public policy.

And because no consideration is indicated in thedocuments, we strike them down as contrary tolaw, morals, and public policy.11

He accordingly decided in favor of Divina, bydecision of October 9, 2000,12 the dispositiveportion of which reads:Wherefore, judgment is hereby rendered orderingrespondents SUNACE INTERNATIONAL SERVICESand its owner ADELAIDA PERGE, both in theirpersonal capacities and as agent of Hang RuiXiong/Edmund Wang to jointly and severally paycomplainant DIVINA A. MONTEHERMOZO the sumof NT91,950.00 in its peso equivalent at the date ofpayment, as refund for the amounts which she ishereby adjudged entitled to as earlier discussedplus 10% thereof as attorney’s fees sincecompelled to litigate, complainant had to engagethe services of counsel.SO ORDERED.13 (Underescoring supplied)On appeal of Sunace, the NLRC, by Resolution ofApril 30, 2002,14 affirmed the Labor Arbiter’sdecision.Via petition for certiorari,15 Sunace elevated thecase to the Court of Appeals which dismissed itoutright by Resolution of November 12, 2002,16 thefull text of which reads:The petition for certiorari faces outright dismissal.The petition failed to allege facts constitutive ofgrave abuse of discretion on the part of the publicrespondent amounting to lack of jurisdiction whenthe NLRC affirmed the Labor Arbiter’s finding thatpetitioner Sunace International ManagementServices impliedly consented to the extension ofthe contract of private respondent Divina A.Montehermozo. It is undisputed that petitioner wascontinually communicating with privaterespondent’s foreign employer (sic). As agent ofthe foreign principal, "petitioner cannot professignorance of such extension as obviously, the actof the principal extendingcomplainant (sic) employment contractnecessarily bound it." Grave abuse of discretionis not present in the case at bar.ACCORDINGLY, the petition is hereby DENIEDDUE COURSE and DISMISSED.17

SO ORDERED.(Emphasis on words in capital letters in theoriginal; emphasis on words in small letters andunderscoring supplied)Its Motion for Reconsideration having been deniedby the appellate court by Resolution of January 14,2004,18Sunace filed the present petition for reviewon certiorari.The Court of Appeals affirmed the Labor Arbiter andNLRC’s finding that Sunace knew of and impliedlyconsented to the extension of Divina’s 2-yearcontract. It went on to state that "It is undisputed

that [Sunace] was continually communicating with[Divina’s] foreign employer." It thus concluded that"[a]s agent of the foreign principal, ‘petitionercannot profess ignorance of such extension asobviously, the act of the principal extendingcomplainant (sic) employment contract necessarilybound it.’"Contrary to the Court of Appeals finding, thealleged continuous communication was with theTaiwanese brokerWang, not with the foreignemployer Xiong.The February 21, 2000 telefax message from theTaiwanese broker to Sunace, the only basis of afinding of continuous communication,reads verbatim:x x x xRegarding to Divina, she did not say anythingabout her saving in police station. As we contactwith her employer, she took back her savingalready last years. And they did not deduct anymoney from her salary. Or she will call back heremployer to check it again. If her employer saidyes! we will get it back for her.Thank you and best regards.(Sgd.)Edmund WangPresident19

The finding of the Court of Appeals solely on thebasis of the above-quoted telefax message, thatSunace continually communicated with the foreign"principal" (sic) and therefore was aware of andhad consented to the execution of the extension ofthe contract is misplaced. The message does notprovide evidence that Sunace was privy to the newcontract executed after the expiration on February1, 1998 of the original contract. That Sunace andthe Taiwanese broker communicated regardingDivina’s allegedly withheld savings does notnecessarily mean that Sunace ratified theextension of the contract. As Sunace points out inits Reply20 filed before the Court of Appeals,As can be seen from that letter communication, itwas just an information given to the petitioner thatthe private respondent had t[aken] already hersavings from her foreign employer and that nodeduction was made on her salary. It containsnothing about the extension or the petitioner’sconsent thereto.21

Parenthetically, since the telefax message is datedFebruary 21, 2000, it is safe to assume that it wassent to enlighten Sunace who had been directed,by Summons issued on February 15, 2000, toappear on February 28, 2000 for a mandatoryconference following Divina’s filing of the complainton February 14, 2000.Respecting the Court of Appeals following dictum:

As agent of its foreign principal, [Sunace] cannotprofess ignorance of such an extension asobviously, the act of its principal extending[Divina’s] employment contract necessarily boundit,22

it too is a misapplication, a misapplication of thetheory of imputed knowledge.The theory of imputed knowledge ascribes theknowledge of the agent, Sunace, to the principal,employer Xiong,not the other way around.23 Theknowledge of the principal-foreign employercannot, therefore, be imputed to its agent Sunace.There being no substantial proof that Sunace knewof and consented to be bound under the 2-yearemployment contract extension, it cannot be saidto be privy thereto. As such, it and its "owner"cannot be held solidarily liable for any of Divina’sclaims arising from the 2-year employmentextension. As the New Civil Code provides,Contracts take effect only between the parties,their assigns, and heirs, except in case where therights and obligations arising from the contract arenot transmissible by their nature, or by stipulationor by provision of law.24

Furthermore, as Sunace correctly points out, therewas an implied revocation of its agencyrelationship with its foreign principal when, afterthe termination of the original employmentcontract, the foreign principal directly negotiatedwith Divina and entered into a new and separateemployment contract in Taiwan. Article 1924 of theNew Civil Code readingThe agency is revoked if the principal directlymanages the business entrusted to the agent,dealing directly with third persons.thus applies.In light of the foregoing discussions, considerationof the validity of the Waiver and Affidavit ofDesistance which Divina executed in favor ofSunace is rendered unnecessary.WHEREFORE, the petition is GRANTED. Thechallenged resolutions of the Court of Appeals areherebyREVERSED and SET ASIDE. The complaintof respondent Divina A. Montehermozo againstpetitioner isDISMISSED.SO ORDERED.

G.R. No. 175885 February 13, 2009

ZENAIDA G. MENDOZA, Petitioner, vs.ENGR. EDUARDO PAULE, ENGR. ALEXANDERCOLOMA and NATIONAL IRRIGATIONADMINISTRATION (NIA MUÑOZ, NUEVAECIJA), Respondents.

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

G.R. No. 176271 February 13, 2009

MANUEL DELA CRUZ Petitioner, vs.ENGR. EDUARDO M. PAULE, ENGR.ALEXANDER COLOMA and NATIONALIRRIGATION 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 CivilCase 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 proprietorof E.M. Paule Construction and Trading (EMPCT). OnMay 24, 1999, PAULE executed a special power ofattorney (SPA) authorizing Zenaida G. Mendoza(MENDOZA) to participate in the pre-qualificationand bidding of a National Irrigation Administration(NIA) project and to represent him in alltransactions related thereto, to wit:

1. To represent E.M. PAULECONSTRUCTION & TRADING of which I(PAULE) am the General Manager in all mybusiness transactions with NationalIrrigation Authority, Muñoz, Nueva Ecija.

2. To participate in the bidding, to securebid bonds and other documents pre-

requisite in the bidding of Casicnan Multi-Purpose Irrigation and Power Plant(CMIPPL 04-99), National IrrigationAuthority, Muñoz, Nueva Ecija.

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

4. To do and perform such acts and thingsthat may be necessary and/or required tomake the herein authority effective.4

On September 29, 1999, EMPCT, throughMENDOZA, participated in the bidding of the NIA-Casecnan Multi-Purpose Irrigation and PowerProject (NIA-CMIPP) and was awarded Packages A-10 and B-11 of the NIA-CMIPP Schedule A. OnNovember 16, 1999, MENDOZA received the Noticeof Award which was signed by Engineer AlexanderM. Coloma (COLOMA), then Acting Project Managerfor the NIA-CMIPP. Packages A-10 and B-11 involvedthe construction of a road system, canal structuresand drainage box culverts with a project cost ofP5,613,591.69.

When Manuel de la Cruz (CRUZ) learned thatMENDOZA is in need of heavy equipment for use inthe NIA project, he met up with MENDOZA inBayuga, Muñoz, Nueva Ecija, in an apartmentwhere the latter was holding office under an EMPCTsignboard. A series of meetings followed in saidEMPCT office among CRUZ, MENDOZA and PAULE.

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

On April 27, 2000, PAULE revoked6 the SPA hepreviously issued in favor of MENDOZA;consequently, NIA refused to make payment toMENDOZA on her billings. CRUZ, therefore, couldnot be paid for the rent of the equipment. Uponadvice of MENDOZA, CRUZ addressed his demandsfor payment of lease rentals directly to NIA but thelatter refused to acknowledge the same andinformed CRUZ that it would be remitting paymentonly to EMPCT as the winning contractor for theproject.

In a letter dated April 5, 2000, CRUZ demandedfrom MENDOZA and/or EMPCT payment of theoutstanding rentals which amounted toP726,000.00 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 ofNueva Ecija, for collection of sum of money withdamages and a prayer for the issuance of a writ ofpreliminary injunction against PAULE, COLOMA andthe NIA. PAULE in turn filed a third-party complaintagainst MENDOZA, who filed her answer thereto,with a cross-claim against PAULE.

MENDOZA alleged in her cross-claim that becauseof PAULE’s "whimsical revocation" of the SPA, shewas barred from collecting payments from NIA,thus resulting in her inability to fund her checkswhich she had issued to suppliers of materials,equipment and labor for the project. She claimedthat estafa and B.P. Blg. 22 cases were filed againsther; that she could no longer finance her children’seducation; that she was evicted from her home;that her vehicle was foreclosed upon; and that herreputation was destroyed, thus entitling her toactual and moral damages in the respectiveamounts of P3 million and P1 million.

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

1. To represent me (PAULE), in mycapacity as General Manager of the E.M.PAULE CONSTRUCTION AND TRADING, inall meetings, conferences and transactionsexclusively for the construction of theprojects known as Package A-10 ofSchedule A and Package No. B-11Schedule B, which are 38.61% and 63.18%finished as of June 21, 2000, per attachedAccomplishment Reports x x x;

2. To implement, execute, administer andsupervise the said projects in whateverstage they are in as of to date, to collectchecks and other payments due on saidprojects and act as the Project Managerfor E.M. PAULE CONSTRUCTION ANDTRADING;

3. To do and perform such acts and thingsthat may be necessary and required tomake the herein power and authorityeffective.7

At the pre-trial conference, the other parties weredeclared as in default and CRUZ was allowed topresent his evidence ex parte. Among thewitnesses he presented was MENDOZA, who wasimpleaded as defendant in PAULE’s third-partycomplaint.

On March 6, 2003, MENDOZA filed a motion todeclare third-party plaintiff PAULE non-suited withprayer that she be allowed to present herevidence ex parte.

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

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

1. Ordering defendant Paule to pay theplaintiff the sum of P726,000.00 by way ofactual damages or compensation for theservices rendered by him;

2. Ordering defendant Paule to payplaintiff the sum of P500,000.00 by way ofmoral damages;

3. Ordering defendant Paule to payplaintiff the sum of P50,000.00 by way ofreasonable attorney’s fees;

4. Ordering defendant Paule to pay thecosts of suit; and

5. Ordering defendant National IrrigationAdministration (NIA) to withhold thebalance still due from it to defendantPaule/E.M. Paule Construction and Tradingunder NIA-CMIPP Contract Package A-10and to pay plaintiff therefrom to the

extent of defendant Paule’s liability hereinadjudged.

SO ORDERED.8

In holding PAULE liable, the trial court found thatMENDOZA was duly constituted as EMPCT’s agentfor purposes of the NIA project and that MENDOZAvalidly contracted with CRUZ for the rental ofheavy equipment that was to be used therefor. Itfound unavailing PAULE’s assertion that MENDOZAmerely borrowed and used his contractor’s licensein exchange for a consideration of 3% of theaggregate amount of the project. The trial courtheld that through the SPAs he executed, PAULEclothed MENDOZA with apparent authority and heldher out to the public as his agent; as principal,PAULE must comply with the obligations whichMENDOZA contracted within the scope of herauthority and for his benefit. Furthermore, PAULEknew of the transactions which MENDOZA enteredinto since at various times when she and CRUZ metat the EMPCT office, PAULE was present and offeredno objections. The trial court declared that it wouldbe unfair to allow PAULE to enrich himself anddisown his acts at the expense of CRUZ.

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

PAULE claimed that he did not receive a copy of theorder of default; that it was improper forMENDOZA, as third-party defendant, to have takenthe stand as plaintiff CRUZ’s witness; and that thetrial court erred in finding that an agency wascreated between him and MENDOZA, and that hewas liable as principal thereunder.

On the other hand, MENDOZA argued that the trialcourt erred in deciding the case without affordingher the opportunity to present evidence on hercross-claim against PAULE; that, as a result, hercross-claim against PAULE was not resolved,leaving her unable to collect the amounts ofP3,018,864.04, P500,000.00, and P839,450.88which allegedly represent the unpaid costs of theproject and the amount PAULE received in excessof payments made by NIA.

On August 28, 2006, the Court of Appeals renderedthe assailed Decision which dismissed CRUZ’s

complaint, as well as MENDOZA’s appeal. Theappellate court held that the SPAs issued inMENDOZA’s favor did not grant the latter theauthority to enter into contract with CRUZ forhauling services; the SPAs limit MENDOZA’sauthority to only represent EMPCT in its businesstransactions with NIA, to participate in the biddingof the project, to receive and collect payment inbehalf of EMPCT, and to perform such acts as maybe necessary and/or required to make the saidauthority effective. Thus, the engagement ofCRUZ’s hauling services was done beyond thescope of MENDOZA’s authority.

As for CRUZ, the Court of Appeals held that heknew the limits of MENDOZA’s authority under theSPAs yet he still transacted with her. Citing ManilaMemorial Park Cemetery, Inc. v. Linsangan,9 theappellate 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 wasacting beyond the scope of her power or authorityunder the agency.

With respect to MENDOZA’s appeal, the Court ofAppeals held that when the trial court renderedjudgment, not only did it rule on the plaintiff’scomplaint; in effect, it resolved the third-partycomplaint as well;10 that the trial court correctlydismissed the cross-claim and did not undulyignore or disregard it; that MENDOZA may notclaim, on appeal, the amounts of P3,018,864.04,P500,000.00, and P839,450.88 which allegedlyrepresent the unpaid costs of the project and theamount PAULE received in excess of paymentsmade by NIA, as these are not covered by hercross-claim in the court a quo, which seeksreimbursement only of the amounts of P3 millionand P1 million, respectively, for actual damages(debts to suppliers, laborers, lessors of heavyequipment, lost personal property) and moraldamages she claims she suffered as a result ofPAULE’s revocation of the SPAs; and that therevocation of the SPAs is a prerogative that isallowed to PAULE under Article 192011 of the CivilCode.

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

G.R. No. 175885 (MENDOZA PETITION)

a) The Court of Appeals erred in sustainingthe trial court’s failure to resolve hermotion praying that PAULE be declarednon-suited on his third-party complaint, aswell as her motion seeking that she beallowed to present evidence ex parte onher cross-claim;

b) The Court of Appeals erred when itsanctioned the trial court’s failure toresolve her cross-claim against PAULE;and,

c) The Court of Appeals erred in itsapplication of Article 1920 of the CivilCode, and in adjudging that MENDOZAhad no right to claim actual damages fromPAULE for debts incurred on account of theSPAs issued to her.

G.R. No. 176271 (CRUZ PETITION)

CRUZ argues that the decision of the Court ofAppeals is contrary to the provisions of law onagency, and conflicts with the Resolution of theCourt in G.R. No. 173275, which affirmed the Courtof Appeals’ decision in CA-G.R. CV No. 81175,finding the existence of an agency relation andwhere PAULE was declared as MENDOZA’s principalunder the subject SPAs and, thus, liable forobligations (unpaid construction materials, fuel andheavy equipment rentals) incurred by the latter forthe purpose of implementing and carrying out theNIA project awarded to EMPCT.

CRUZ argues that MENDOZA was acting within thescope of her authority when she hired his servicesas hauler of debris because the NIA project (bothPackages A-10 and B-11 of the NIA-CMIPP)consisted of construction of canal structures, whichinvolved the clearing and disposal of waste, actsthat are necessary and incidental to PAULE’sobligation under the NIA project; and that thedecision in a civil case involving the same SPAs,where PAULE was found liable as MENDOZA’sprincipal already became final and executory; thatin Civil Case No. 90-SD filed by MENDOZA againstPAULE,12 the latter was adjudged liable to theformer for unpaid rentals of heavy equipment andfor construction materials which MENDOZAobtained for use in the subject NIA project. On

September 15, 2003, judgment was rendered insaid civil case against PAULE, to wit:

WHEREFORE, judgment is hereby rendered in favorof the plaintiff (MENDOZA) and against thedefendant (PAULE) as follows:

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

2. Ordering defendant Paule to payplaintiff the sum of P200,000.00representing the balance of the obligationincurred by the plaintiff with ArtemioAlejandrino;

3. Ordering defendant Paule to payplaintiff the sum of P520,000.00 by way ofmoral damages, and further sum ofP100,000.00 by way of exemplarydamages;

4. Ordering defendant Paule to payplaintiff the sum of P25,000.00 as forattorney’s fees; and

5. To pay the cost of suit.13

PAULE appealed14 the above decision, but it wasdismissed by the Court of Appeals in aDecision15 which reads, in part:

As to the finding of the trial court that the principleof agency is applicable in this case, this Courtagrees therewith. It must be emphasized thatappellant (PAULE) authorized appellee (MENDOZA)to perform any and all acts necessary to make thebusiness transaction of EMPCT with NIA effective.Needless to state, said business transactionpertained to the construction of canal structureswhich necessitated the utilization of constructionmaterials and equipments.1avvphi1 Having givensaid authority, appellant cannot be allowed to turnits back on the transactions entered into byappellee in behalf of EMPCT.

The amount of moral damages and attorney’s feesawarded by the trial court being justifiable and

commensurate to the damage suffered byappellee, this Court shall not disturb the same. It iswell-settled that the award of damages as well asattorney’s fees lies upon the discretion of the courtin the context of the facts and circumstances ofeach case.

WHEREFORE, the appeal is DISMISSED and theappealed 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 onSeptember 13, 2006.

MENDOZA, for her part, claims that she has a rightto be heard on her cause of action as stated in hercross-claim against PAULE; that the trial court’sfailure to resolve the cross-claim was a violation ofher constitutional right to be apprised of the factsor the law on which the trial court’s decision isbased; that PAULE may not revoke her appointmentas attorney-in-fact for and in behalf of EMPCTbecause, as manager of their partnership in the NIAproject, she was obligated to collect from NIA thefunds to be used for the payment of suppliers andcontractors with whom she had earlier contractedfor labor, materials and equipment.

PAULE, on the other hand, argues in his Commentthat MENDOZA’s authority under the SPAs was forthe limited purpose of securing the NIA project;that MENDOZA was not authorized to contract withother parties with regard to the works and servicesrequired for the project, such as CRUZ’s haulingservices; that MENDOZA acted beyond herauthority in contracting with CRUZ, and PAULE, asprincipal, should not be made civilly liable to CRUZunder the SPAs; and that MENDOZA has no causeof action against him for actual and moral damagessince the latter exceeded her authority under theagency.

We grant the consolidated petitions.

Records show that PAULE (or, more appropriately,EMPCT) and MENDOZA had entered into apartnership in regard to the NIA project. PAULE‘scontribution thereto is his contractor’s license andexpertise, while MENDOZA would provide and

secure the needed funds for labor, materials andservices; deal with the suppliers and sub-contractors; and in general and together withPAULE, oversee the effective implementation of theproject. For this, PAULE would receive as his sharethree per cent (3%) of the project cost while therest of the profits shall go to MENDOZA. PAULEadmits to this arrangement in all his pleadings.17

Although the SPAs limit MENDOZA’s authority tosuch acts as representing EMPCT in its businesstransactions with NIA, participating in the biddingof the project, receiving and collecting payment inbehalf of EMPCT, and performing other acts infurtherance thereof, the evidence shows that whenMENDOZA and CRUZ met and discussed (at theEMPCT office in Bayuga, Muñoz, Nueva Ecija) thelease of the latter’s heavy equipment for use in theproject, PAULE was present and interposed noobjection to MENDOZA’s actuations. In hispleadings, PAULE does not even deny this. Quitethe contrary, MENDOZA’s actions were in accordwith what she and PAULE originally agreed upon, asto division of labor and delineation of functionswithin their partnership. Under the Civil Code,every partner is an agent of the partnership for thepurpose of its business;18 each one may separatelyexecute all acts of administration, unless aspecification of their respective duties has beenagreed upon, or else it is stipulated that any one ofthem shall not act without the consent of all theothers.19 At any rate, PAULE does not have anyvalid cause for opposition because his only role inthe partnership is to provide his contractor’slicense and expertise, while the sourcing of funds,materials, labor and equipment has been relegatedto MENDOZA.

Moreover, it does not speak well for PAULE that hereinstated MENDOZA as his attorney-in-fact, thistime with broader powers to implement, execute,administer and supervise the NIA project, to collectchecks and other payments due on said project,and act as the Project Manager for EMPCT, evenafter CRUZ has already filed his complaint. Despiteknowledge that he was already being sued on theSPAs, he proceeded to execute another inMENDOZA’s favor, and even granted her broaderpowers of administration than in those being suedupon. If he truly believed that MENDOZA exceededher authority with respect to the initial SPA, then hewould not have issued another SPA. If he thoughtthat 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 causeof action against PAULE and MENDOZA. Thus, theCourt of Appeals erred in dismissing CRUZ’scomplaint on a finding of exceeded agency.Besides, that PAULE could be held liable under theSPAs for transactions entered into by MENDOZAwith laborers, suppliers of materials and servicesfor use in the NIA project, has been settled withfinality in G.R. No. 173275. What has beenadjudged in said case as regards the SPAs shouldbe made to apply to the instant case. Although thesaid case involves different parties andtransactions, it finally disposed of the matterregarding the SPAs – specifically their effect asamong PAULE, MENDOZA and third parties withwhom MENDOZA had contracted with by virtue ofthe SPAs – a disposition that should apply to CRUZas well. If a particular point or question is in issuein the second action, and the judgment will dependon the determination of that particular point orquestion, a former judgment between the sameparties or their privies will be final and conclusivein the second if that same point or question was inissue and adjudicated in the first suit. Identity ofcause of action is not required but merely identityof issues.20

There was no valid reason for PAULE to revokeMENDOZA’s SPAs. Since MENDOZA took care of thefunding and sourcing of labor, materials andequipment for the project, it is only logical that shecontrols the finances, which means that the SPAsissued to her were necessary for the properperformance of her role in the partnership, and todischarge the obligations she had alreadycontracted prior to revocation. Without the SPAs,she could not collect from NIA, because as far as itis concerned, EMPCT – and not the PAULE-MENDOZA partnership – is the entity it hadcontracted with. Without these payments from NIA,there would be no source of funds to complete theproject and to pay off obligations incurred. AsMENDOZA correctly argues, an agency cannot berevoked if a bilateral contract depends upon it, or ifit is the means of fulfilling an obligation alreadycontracted, or if a partner is appointed manager ofa partnership in the contract of partnership and hisremoval from the management is unjustifiable.21

PAULE’s revocation of the SPAs was done in evidentbad faith. Admitting all throughout that his onlyentitlement in the partnership with MENDOZA is his3% royalty for the use of his contractor’s license,he knew that the rest of the amounts collectedfrom NIA was owing to MENDOZA and suppliers ofmaterials and services, as well as the laborers. Yet,he deliberately revoked MENDOZA’s authority suchthat the latter could no longer collect from NIA theamounts necessary to proceed with the project andsettle outstanding obligations.lawphil.net

From the way he conducted himself, PAULEcommitted a willful and deliberate breach of hiscontractual duty to his partner and those withwhom the partnership had contracted. Thus, PAULEshould be made liable for moral damages.

Bad faith does not simply connote bad judgment ornegligence; it imputes a dishonest purpose or somemoral obliquity and conscious doing of a wrong; abreach of a sworn duty through some motive orintent 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 mindaffirmatively operating with furtive design or somemotive of self-interest or ill will for ulterior purposes(Air France v. Carrascoso, 18 SCRA 155, 166-167).Evident bad faith connotes a manifest deliberateintent on the part of the accused to do wrong orcause damage.22

Moreover, PAULE should be made civilly liable forabandoning the partnership, leaving MENDOZA tofend for her own, and for unduly revoking herauthority to collect payments from NIA, paymentswhich were necessary for the settlement ofobligations contracted for and already owing tolaborers and suppliers of materials and equipmentlike CRUZ, not to mention the agreed profits to bederived from the venture that are owing toMENDOZA by reason of their partnershipagreement. Thus, the trial court erred indisregarding and dismissing MENDOZA’s cross-claim – which is properly a counterclaim, since it isa claim made by her as defendant in a third-partycomplaint – against PAULE, just as the appellatecourt erred in sustaining it on the justification thatPAULE’s revocation of the SPAs was within thebounds of his discretion under Article 1920 of theCivil Code.

Where the defendant has interposed acounterclaim (whether compulsory or permissive)or is seeking affirmative relief by a cross-complaint,the plaintiff cannot dismiss the action so as toaffect the right of the defendant in his counterclaimor prayer for affirmative relief. The reason for thatexception is clear. When the answer sets up anindependent action against the plaintiff, it thenbecomes an action by the defendant against theplaintiff, and, of course, the plaintiff has no right toask for a dismissal of the defendant’s action. Thepresent rule embodied in Sections 2 and 3 of Rule17 of the 1997 Rules of Civil Procedure ordains amore equitable disposition of the counterclaims byensuring that any judgment thereon is based onthe merit of the counterclaim itself and not on thesurvival of the main complaint. Certainly, if thecounterclaim is palpably without merit or suffersjurisdictional flaws which stand independent of thecomplaint, the trial court is not precluded fromdismissing it under the amended rules, providedthat the judgment or order dismissing thecounterclaim is premised on those defects. At thesame time, if the counterclaim is justified, theamended rules now unequivocally protect suchcounterclaim from peremptory dismissal by reasonof the dismissal of the complaint.23

Notwithstanding the immutable character ofPAULE’s liability to MENDOZA, however, the exactamount thereof is yet to be determined by the trialcourt, after receiving evidence for and in behalf ofMENDOZA on her counterclaim, which must beconsidered pending and unresolved.

WHEREFORE, the petitions are GRANTED. TheAugust 28, 2006 Decision of the Court of Appeals inCA-G.R. CV No. 80819 dismissing the complaint inCivil Case No. 18-SD (2000) and its December 11,2006 Resolution denying the motion forreconsideration are REVERSED and SET ASIDE. TheAugust 7, 2003 Decision of the Regional Trial Courtof Nueva Ecija, Branch 37 in Civil Case No. 18-SD(2000) finding PAULE liable is REINSTATED, with theMODIFICATION that the trial court is ORDERED toreceive evidence on the counterclaim of petitionerZenaida G. Mendoza.

SO ORDERED.

G.R. No. 83122 October 19, 1990

ARTURO P. VALENZUELA and HOSPITALITA N.VALENZUELA, petitioners, vs.THE HONORABLE COURT OF APPEALS,BIENVENIDO M. ARAGON, ROBERT E.PARNELL, CARLOS K. CATOLICO and THEPHILIPPINE AMERICAN GENERAL INSURANCECOMPANY, INC., respondents.

Albino B. Achas for petitioners.

Angara, Abello, Concepcion, Regala & Cruz forprivate respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988decision of the Court of Appeals and the April 27,1988 resolution denying the petitioners' motion forreconsideration, which decision and resolutionreversed the decision dated June 23,1986 of theCourt of First Instance of Manila, Branch 34 in CivilCase No. 121126 upholding the petitioners' causesof action and granting all the reliefs prayed for intheir complaint against private respondents.

The antecedent facts of the case are as follows:

Petitioner Arturo P. Valenzuela (Valenzuela forshort) is a General Agent of private respondentPhilippine American General Insurance Company,Inc. (Philamgen for short) since 1965. As such, hewas authorized to solicit and sell in behalf ofPhilamgen all kinds of non-life insurance, and inconsideration of services rendered was entitled toreceive the full agent's commission of 32.5% fromPhilamgen under the scheduled commission rates(Exhibits "A" and "1"). From 1973 to 1975,Valenzuela solicited marine insurance from one ofhis clients, the Delta Motors, Inc. (Division ofElectronics Airconditioning and Refrigeration) in theamount of P4.4 Million from which he was entitledto a commission of 32% (Exhibit "B"). However,Valenzuela did not receive his full commissionwhich amounted to P1.6 Million from the P4.4

Million insurance coverage of the Delta Motors.During the period 1976 to 1978, premiumpayments amounting to P1,946,886.00 were paiddirectly to Philamgen and Valenzuela's commissionto which he is entitled amounted to P632,737.00.

In 1977, Philamgen started to become interested inand expressed its intent to share in the commissiondue Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit"D").

On February 8, 1978 Philamgen and its President,Bienvenido M. Aragon insisted on the sharing of thecommission with Valenzuela (Exhibit E). This wasfollowed by another sharing proposal dated June 1,1978. On June 16,1978, Valenzuela firmly reiteratedhis objection to the proposals of respondentsstating that: "It is with great reluctance that I haveto decline upon request to signify my conformity toyour alternative proposal regarding the payment ofthe commission due me. However, I have no choicefor to do otherwise would be violative of theAgency Agreement executed between ourgoodselves." (Exhibit B-1)

Because of the refusal of Valenzuela, Philamgenand its officers, namely: Bienvenido Aragon, CarlosCatolico and Robert E. Parnell took drastic actionagainst Valenzuela. They: (a) reversed thecommission due him by not crediting in his accountthe commission earned from the Delta Motors, Inc.insurance (Exhibit "J" and "2"); (b) placed agencytransactions on a cash and carry basis; (c)threatened the cancellation of policies issued by hisagency (Exhibits "H" to "H-2"); and (d) started toleak out news that Valenzuela has a substantialaccount with Philamgen. All of these acts resultedin the decline of his business as insurance agent(Exhibits "N", "O", "K" and "K-8"). Then onDecember 27, 1978, Philamgen terminated theGeneral Agency Agreement of Valenzuela (Exhibit"J", pp. 1-3, Decision Trial Court dated June 23,1986, Civil Case No. 121126, Annex I, Petition).

The petitioners sought relief by filing the complaintagainst the private respondents in the court aquo (Complaint of January 24, 1979, Annex "F"Petition). After due proceedings, the trial courtfound:

xxx xxx xxx

Defendants tried to justify thetermination of plaintiff Arturo P.Valenzuela as one of defendantPHILAMGEN's General Agent bymaking it appear that plaintiffArturo P. Valenzuela has asubstantial account withdefendant PHILAMGENparticularly Delta Motors, Inc.'sAccount, thereby prejudicingdefendant PHILAMGEN's interest(Exhibits 6,"11","11- "12-A"and"13-A").

Defendants also invoked theprovisions of the Civil Code of thePhilippines (Article 1868) and theprovisions of the General AgencyAgreement as their basis forterminating plaintiff Arturo P.Valenzuela as one of theirGeneral Agents.

That defendants' position couldhave been justified had thetermination of plaintiff Arturo P.Valenzuela was (sic) based solelyon the provisions of the CivilCode and the conditions of theGeneral Agency Agreement. Butthe records will show that theprincipal cause of the terminationof the plaintiff as General Agentof defendant PHILAMGEN was hisrefusal to share his Deltacommission.

That it should be noted that therewere several attempts made bydefendant Bienvenido M. Aragonto share with the Deltacommission of plaintiff Arturo P.Valenzuela. He had persistentlypursued the sharing scheme tothe point of terminating plaintiffArturo P. Valenzuela, and to makematters worse, defendants madeit appear that plaintiff Arturo P.Valenzuela had substantial

accounts with defendantPHILAMGEN.

Not only that, defendants havealso started (a) to treatseparately the Delta Commissionof plaintiff Arturo P. Valenzuela,(b) to reverse the Deltacommission due plaintiff Arturo P.Valenzuela by not crediting orapplying said commission earnedto the account of plaintiff ArturoP. Valenzuela, (c) placed plaintiffArturo P. Valenzuela's agencytransactions on a "cash and carrybasis", (d) sending threats tocancel existing policies issued byplaintiff Arturo P. Valenzuela'sagency, (e) to divert plaintiffArturo P. Valenzuela's insurancebusiness to other agencies, and(f) to spread wild and maliciousrumors that plaintiff Arturo P.Valenzuela has substantialaccount with defendantPHILAMGEN to force plaintiffArturo P. Valenzuela into agreeingwith the sharing of his Deltacommission." (pp. 9-10, Decision,Annex 1, Petition).

xxx xxx xxx

These acts of harrassment doneby defendants on plaintiff ArturoP. Valenzuela to force him toagree to the sharing of his Deltacommission, which culminated inthe termination of plaintiff ArturoP. Valenzuela as one of defendantPHILAMGEN's General Agent, donot justify said termination of theGeneral Agency Agreemententered into by defendantPHILAMGEN and plaintiff Arturo P.Valenzuela.

That since defendants are notjustified in the termination ofplaintiff Arturo P. Valenzuela asone of their General Agents,defendants shall be liable for the

resulting damage and loss ofbusiness of plaintiff Arturo P.Valenzuela. (Arts. 2199/2200,Civil Code of the Philippines).(Ibid, p. 11)

The court accordingly rendered judgment, thedispositive portion of which reads:

WHEREFORE, judgment is herebyrendered in favor of the plaintiffsand against defendants orderingthe latter to reinstate plaintiffArturo P. Valenzuela as itsGeneral Agent, and to payplaintiffs, jointly and severally,the following:

1. The amount of five hundredtwenty-one thousand ninehundred sixty four and 16/100pesos (P521,964.16) representingplaintiff Arturo P. Valenzuela'sDelta Commission with interest atthe legal rate from the time ofthe filing of the complaint, whichamount shall be adjusted inaccordance with Article 1250 ofthe Civil Code of the Philippines;

2. The amount of seventy-fivethousand pesos (P75,000.00) permonth as compensatorydamages from 1980 until suchtime that defendant Philamgenshall reinstate plaintiff Arturo P.Valenzuela as one of its generalagents;

3. The amount of three hundredfifty thousand pesos(P350,000.00) for each plaintiffas moral damages;

4. The amount of seventy-fivethousand pesos (P75,000.00) asand for attorney's fees;

5. Costs of the suit. (Ibid., P. 12)

From the aforesaid decision of thetrial court, Bienvenido Aragon,Robert E. Parnell, Carlos K.Catolico and PHILAMGENrespondents herein, anddefendants-appellants below,interposed an appeal on thefollowing:

ASSIGNMENT OF ERRORS

I

THE LOWER COURT ERRED INHOLDING THAT PLAINTIFFARTURO P. VALENZUELA HAD NOOUTSTANDING ACCOUNT WITHDEFENDANT PHILAMGEN AT THETIME OF THE TERMINATION OFTHE AGENCY.

II

THE LOWER COURT ERRED INHOLDING THAT PLAINTIFFARTURO P. VALENZUELA ISENTITLED TO THE FULLCOMMISSION OF 32.5% ON THEDELTA ACCOUNT.

III

THE LOWER COURT ERRED INHOLDING THAT THETERMINATION OF PLAINTIFFARTURO P. VALENZUELA WASNOT JUSTIFIED AND THATCONSEQUENTLY DEFENDANTSARE LIABLE FOR ACTUAL ANDMORAL DAMAGES, ATTORNEYSFEES AND COSTS.

IV

ASSUMING ARGUENDO THAT THEAWARD OF DAMAGES AGAINSTDEFENDANT PHILAMGEN WASPROPER, THE LOWER COURTERRED IN AWARDING DAMAGESEVEN AGAINST THE INDIVIDUAL

DEFENDANTS WHO ARE MERECORPORATE AGENTS ACTINGWITHIN THE SCOPE OF THEIRAUTHORITY.

V

ASSUMING ARGUENDO THAT THEAWARD OF DAMAGES IN FAVOROF PLAINTIFF ARTURO P.VALENZUELA WAS PROPER, THELOWER COURT ERRED INAWARDING DAMAGES IN FAVOROF HOSPITALITA VALENZUELA,WHO, NOT BEING THE REALPARTY IN INTEREST IS NOT TOOBTAIN RELIEF.

On January 29, 1988, respondent Court of Appealspromulgated its decision in the appealed case. Thedispositive portion of the decision reads:

WHEREFORE, the decisionappealed from is hereby modifiedaccordingly and judgment ishereby rendered ordering:

1. Plaintiff-appellee Valenzuela topay defendant-appellantPhilamgen the sum of one millionnine hundred thirty two thousandfive hundred thirty-two pesos andseventeen centavos(P1,902,532.17), with legalinterest thereon from the date offinality of this judgment until fullypaid.

2. Both plaintiff-appellees to payjointly and severally defendants-appellants the sum of fiftythousand pesos (P50,000.00) asand by way of attorney's fees.

No pronouncement is made as tocosts. (p. 44, Rollo)

There is in this instance irreconcilable divergence inthe findings and conclusions of the Court ofAppeals, vis-a-visthose of the trial court particularly

on the pivotal issue whether or not Philamgenand/or its officers can be held liable for damagesdue to the termination of the General AgencyAgreement it entered into with the petitioners. Inits questioned decision the Court of Appealsobserved that:

In any event the principal's powerto revoke an agency at will is sopervasive, that the SupremeCourt has consistently held thattermination may be effectedeven if the principal acts in badfaith, subject only to theprincipal's liability for damages(Danon v. Antonio A. Brimo & Co.,42 Phil. 133; Reyes v. Mosqueda,53 O.G. 2158 and Infante V.Cunanan, 93 Phil. 691, cited inParas, Vol. V, Civil Code of thePhilippines Annotated [1986]696).

The lower court, however,thought the termination ofValenzuela as General Agentimproper because the record willshow the principal cause of thetermination of the plaintiff asGeneral Agent of defendantPhilamgen was his refusal toshare his Delta commission.(Decision, p. 9; p. 13, Rollo, 41)

Because of the conflicting conclusions, this Courtdeemed it necessary in the interest of substantialjustice to scrutinize the evidence and records of thecases. While it is an established principle that thefactual findings of the Court of Appeals are finaland may not be reviewed on appeal to this Court,there are however certain exceptions to the rulewhich this Court has recognized and accepted,among which, are when the judgment is based on amisapprehension of facts and when the findings ofthe appellate court, are contrary to those of thetrial court (Manlapaz v. Court of Appeals, 147 SCRA236 [1987]); Guita v. Court of Appeals, 139 SCRA576 [1986]). Where the findings of the Court ofAppeals and the trial court are contrary to eachother, this Court may scrutinize the evidence onrecord (Cruz v. Court of Appeals, 129 SCRA 222[1984]; Mendoza v. Court of Appeals, 156 SCRA 597

[1987]; Maclan v. Santos, 156 SCRA 542 [1987]).When the conclusion of the Court of Appeals isgrounded entirely on speculation, surmises orconjectures, or when the inference made ismanifestly mistaken, absurd or impossible, or whenthere is grave abuse of discretion, or when thejudgment is based on a misapprehension of facts,and when the findings of facts are conflict theexception also applies (Malaysian Airline SystemBernad v. Court of Appeals, 156 SCRA 321 [1987]).

After a painstaking review of the entire records ofthe case and the findings of facts of both thecourt a quo and respondent appellate court, we areconstrained to affirm the trial court's findings andrule for the petitioners.

We agree with the court a quo that the principalcause of the termination of Valenzuela as GeneralAgent of Philamgen arose from his refusal to sharehis Delta commission. The records sustain theconclusions of the trial court on the apparent badfaith of the private respondents in terminating theGeneral Agency Agreement of petitioners. It isaxiomatic that the findings of fact of a trial judgeare entitled to great weight (People v. Atanacio,128 SCRA 22 [1984]) and should not be disturbedon appeal unless for strong and cogent reasons,because the trial court is in a better position toexamine the evidence as well as to observe thedemeanor of the witnesses while testifying (Chasev. Buencamino, Sr., 136 SCRA 365 [1985]; People v.Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans.,Inc. v. Court of Appeals, 147 SCRA 82 [1987]). Inthe case at bar, the records show that the findingsand conclusions of the trial court are supported bysubstantial evidence and there appears to be nocogent reason to disturb them (Mendoza v. Court ofAppeals. 156 SCRA 597 [1987]).

As early as September 30,1977, Philamgen told thepetitioners of its desire to share the DeltaCommission with them. It stated that should Deltaback out from the agreement, the petitioners wouldbe charged interests through a reducedcommission after full payment by Delta.

On January 23, 1978 Philamgen proposed reducingthe petitioners' commissions by 50% thus givingthem an agent's commission of 16.25%. OnFebruary 8, 1978, Philamgen insisted on thereduction scheme followed on June 1, 1978 by still

another insistence on reducing commissions andproposing two alternative schemes for reduction.There were other pressures. Demands to settleaccounts, to confer and thresh out differencesregarding the petitioners' income and the threat toterminate the agency followed. The petitionerswere told that the Delta commissions would not becredited to their account (Exhibit "J"). They wereinformed that the Valenzuela agency would beplaced on a cash and carry basis thus removing the60-day credit for premiums due. (TSN., March 26,1979, pp. 54-57). Existing policies were threatenedto be cancelled (Exhibits "H" and "14"; TSN., March26, 1979, pp. 29-30). The Valenzuela business wasthreatened with diversion to other agencies.(Exhibit "NNN"). Rumors were also spread aboutalleged accounts of the Valenzuela agency (TSN.,January 25, 1980, p. 41). The petitionersconsistently opposed the pressures to hand overthe agency or half of their commissions and for atreatment of the Delta account distinct from otheraccounts. The pressures and demands, however,continued until the agency agreement itself wasfinally terminated.

It is also evident from the records that the agencyinvolving petitioner and private respondent is one"coupled with an interest," and, therefore, shouldnot be freely revocable at the unilateral will of thelatter.

In the insurance business in the Philippines, themost difficult and frustrating period is thesolicitation and persuasion of the prospectiveclients to buy insurance policies. Normally, agentswould encounter much embarrassment, difficulties,and oftentimes frustrations in the solicitation andprocurement of the insurance policies. To sellpolicies, an agent exerts great effort, patience,perseverance, ingenuity, tact, imagination, timeand money. In the case of Valenzuela, he was ableto build up an Agency from scratch in 1965 to ahighly productive enterprise with gross billings ofabout Two Million Five Hundred Thousand Pesos(P2,500,000.00) premiums per annum. The recordssustain the finding that the private respondentstarted to covet a share of the insurance businessthat Valenzuela had built up, developed andnurtured to profitability through over thirteen (13)years of patient work and perseverance. WhenValenzuela refused to share his commission in theDelta account, the boom suddenly fell on him.

The private respondents by the simple expedient ofterminating the General Agency Agreementappropriated the entire insurance business ofValenzuela. With the termination of the GeneralAgency Agreement, Valenzuela would no longer beentitled to commission on the renewal of insurancepolicies of clients sourced from his agency. Worse,despite the termination of the agency, Philamgencontinued to hold Valenzuela jointly and severallyliable with the insured for unpaid premiums. Underthese circumstances, it is clear that Valenzuela hadan interest in the continuation of the agency whenit was unceremoniously terminated not onlybecause of the commissions he should continue toreceive from the insurance business he hassolicited and procured but also for the fact that bythe very acts of the respondents, he was madeliable to Philamgen in the event the insured fail topay the premiums due. They are estopped by theirown positive averments and claims for damages.Therefore, the respondents cannot state that theagency relationship between Valenzuela andPhilamgen is not coupled with interest. "There maybe cases in which an agent has been induced toassume a responsibility or incur a liability, inreliance upon the continuance of the authorityunder such circumstances that, if the authority bewithdrawn, the agent will be exposed to personalloss or liability" (See MEC 569 p. 406).

Furthermore, there is an exception to the principlethat an agency is revocable at will and that is whenthe agency has been given not only for the interestof the principal but for the interest of third personsor for the mutual interest of the principal and theagent. In these cases, it is evident that the agencyceases to be freely revocable by the sole will of theprincipal (See Padilla, Civil Code Annotated, 56 ed.,Vol. IV p. 350). The following citations are apropos:

The principal may not defeat theagent's right to indemnificationby a termination of the contractof agency (Erskine v. ChevroletMotors Co. 185 NC 479, 117 SE706, 32 ALR 196).

Where the principal terminates orrepudiates the agent'semployment in violation of thecontract of employment andwithout cause ... the agent is

entitled to receive either theamount of net losses caused andgains prevented by the breach, orthe reasonable value of theservices rendered. Thus, theagent is entitled to prospectiveprofits which he would havemade except for such wrongfultermination provided that suchprofits are not conjectural, orspeculative but are capable ofdetermination upon some fairlyreliable basis. And a principal'srevocation of the agencyagreement made to avoidpayment of compensation for aresult which he has actuallyaccomplished (Hildendorf v.Hague, 293 NW 2d 272; Newhallv. Journal Printing Co., 105 Minn44,117 NW 228; GaylenMachinery Corp. v. Pitman-MooreCo. [C.A. 2 NY] 273 F 2d 340)

If a principal violates acontractual or quasi-contractualduty which he owes his agent,the agent may as a rule bring anappropriate action for the breachof that duty. The agent may in aproper case maintain an action atlaw for compensation or damages... A wrongfully discharged agenthas a right of action for damagesand in such action the measureand element of damages arecontrolled generally by the rulesgoverning any other action forthe employer's breach of anemployment contract. (Riggs v.Lindsay, 11 US 500, 3L Ed 419;Tiffin Glass Co. v. Stoehr, 54 Ohio157, 43 NE 2798)

At any rate, the question of whether or not theagency agreement is coupled with interest ishelpful to the petitioners' cause but is not theprimary and compelling reason. For the pivotalfactor rendering Philamgen and the other privaterespondents liable in damages is that thetermination by them of the General AgencyAgreement was tainted with bad faith. Hence, if aprincipal acts in bad faith and with abuse of right in

terminating the agency, then he is liable indamages. This is in accordance with the precepts inHuman Relations enshrined in our Civil Code that"every person must in the exercise of his rights andin the performance of his duties act with justice,give every one his due, and observe honesty andgood faith: (Art. 19, Civil Code), and every personwho, contrary to law, wilfully or negligently causesdamages to another, shall indemnify the latter forthe same (Art. 20, id). "Any person who wilfullycauses loss or injury to another in a mannercontrary to morals, good customs and public policyshall compensate the latter for the damages" (Art.21, id.).

As to the issue of whether or not the petitioners areliable to Philamgen for the unpaid and uncollectedpremiums which the respondent court orderedValenzuela to pay Philamgen the amount of OneMillion Nine Hundred Thirty-Two Thousand FiveHundred Thirty-Two and 17/100 Pesos(P1,932,532,17) with legal interest thereon untilfully paid (Decision-January 20, 1988, p. 16;Petition, Annex "A"), we rule that the respondentcourt erred in holding Valenzuela liable. We find nofactual and legal basis for the award. Under Section77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to andrender the insurance policy not binding —

Sec. 77 ... [N]otwithstanding anyagreement to the contrary, nopolicy or contract of insurance isvalid and binding unless and untilthe premiums thereof have beenpaid except in the case of a life orindustrial life policy whenever thegrace period provision applies(P.D. 612, as amended otherwiseknown as the Insurance Code of1974)

In Philippine Phoenix Surety and Insurance, Inc. v.Woodworks, Inc. (92 SCRA 419 [1979]) we held thatthe non-payment of premium does not merelysuspend but puts an end to an insurance contractsince the time of the payment is peculiarly of theessence of the contract. And in Arce v. The CapitalInsurance and Surety Co. Inc.(117 SCRA 63,[1982]), we reiterated the rule that unless premiumis paid, an insurance contract does not take effect.Thus:

It is to be noted that Delgado(Capital Insurance & Surety Co.,Inc. v. Delgado, 9 SCRA 177[1963] was decided in the light ofthe Insurance Act before Sec. 72was amended by the underscoredportion. Supra. Prior to theAmendment, an insurancecontract was effective even if thepremium had not been paid sothat an insurer was obligated topay indemnity in case of loss andcorrelatively he had also the rightto sue for payment of thepremium. But the amendment toSec. 72 has radically changed thelegal regime in that unless thepremium is paid there is noinsurance. " (Arce v. CapitolInsurance and Surety Co., Inc.,117 SCRA 66; Emphasis supplied)

In Philippine Phoenix Surety case, we held:

Moreover, an insurer cannot treata contract as valid for thepurpose of collecting premiumsand invalid for the purpose ofindemnity. (Citing Insurance Lawand Practice by John AlanAppleman, Vol. 15, p. 331;Emphasis supplied)

The foregoing findings arebuttressed by Section 776 of theinsurance Code (PresidentialDecree No. 612, promulgated onDecember 18, 1974), which nowprovides that no contract ofInsurance by an insurancecompany is valid and bindingunless and until the premiumthereof has been paid,notwithstanding any agreementto the contrary (Ibid., 92 SCRA425)

Perforce, since admittedly the premiums have notbeen paid, the policies issued have lapsed. Theinsurance coverage did not go into effect or did notcontinue and the obligation of Philamgen as insurerceased. Hence, for Philamgen which had no more

liability under the lapsed and inexistent policies todemand, much less sue Valenzuela for the unpaidpremiums would be the height of injustice andunfair dealing. In this instance, with the lapsing ofthe policies through the nonpayment of premiumsby the insured there were no more insurancecontracts to speak of. As this Court held inthe Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely suspend butputs an end to an insurance contract since the timeof the payment is peculiarly of the essence of thecontract."

The respondent appellate court also seriously erredin according undue reliance to the report of Banariaand Banaria and Company, auditors, that as ofDecember 31, 1978, Valenzuela owed PhilamgenP1,528,698.40. This audit report of Banaria wascommissioned by Philamgen after Valenzuela wasalmost through with the presentation of hisevidence. In essence, the Banaria report startedwith an unconfirmed and unaudited beginningbalance of account of P1,758,185.43 as of August20, 1976. But even with that unaudited andunconfirmed beginning balance of P1,758,185.43,Banaria still came up with the amount of P3,865.49as Valenzuela's balance as of December 1978 withPhilamgen (Exh. "38-A-3"). In fact, as of December31, 1976, and December 31, 1977, Valenzuela hadno unpaid account with Philamgen (Ref: Annexes"D", "D-1", "E", Petitioner's Memorandum). Buteven disregarding these annexes which are recordsof Philamgen and addressed to Valenzuela in duecourse of business, the facts show that as of July1977, the beginning balance of Valenzuela'saccount with Philamgen amounted to P744,159.80.This was confirmed by Philamgen itself not onlyonce but four (4) times on different occasions, asshown by the records.

On April 3,1978, Philamgen sent Valenzuela astatement of account with a beginning balance ofP744,159-80 as of July 1977.

On May 23, 1978, another statement of accountwith exactly the same beginning balance was sentto Valenzuela.

On November 17, 1978, Philamgen sent stillanother statement of account with P744,159.80 asthe beginning balance.

And on December 20, 1978, a statement ofaccount with exactly the same figure was sent toValenzuela.

It was only after the filing of the complaint that aradically different statement of accounts surfacedin court. Certainly, Philamgen's own statementsmade by its own accountants over a long period oftime and covering examinations made on fourdifferent occasions must prevail over unconfirmedand unaudited statements made to support aposition made in the course of defending against alawsuit.

It is not correct to say that Valenzuela should havepresented its own records to refute theunconfirmed and unaudited finding of the Banariaauditor. The records of Philamgen itself are the bestrefutation against figures made as an afterthoughtin the course of litigation. Moreover, Valenzuelaasked for a meeting where the figures would bereconciled. Philamgen refused to meet with himand, instead, terminated the agency agreement.

After off-setting the amount of P744,159.80,beginning balance as of July 1977, by way ofcredits representing the commission due fromDelta and other accounts, Valenzuela had overpaidPhilamgen the amount of P530,040.37 as ofNovember 30, 1978. Philamgen cannot later beheard to complain that it committed a mistake inits computation. The alleged error may be givencredence if committed only once. But as earlierstated, the reconciliation of accounts was arrived atfour (4) times on different occasions wherePhilamgen was duly represented by its accountexecutives. On the basis of these admissions andrepresentations, Philamgen cannot later on assumea different posture and claim that it was mistakenin its representation with respect to the correctbeginning balance as of July 1977 amounting toP744,159.80. The Banaria audit reportcommissioned by Philamgen is unreliable since itsresults are admittedly based on an unconfirmedand unaudited beginning balance of P1,758,185.43as of August 20,1976.

As so aptly stated by the trial court in its decision:

Defendants also conducted anaudit of accounts of plaintiffArturo P. Valenzuela after the

controversy has started. In fact,after hearing plaintiffs havealready rested their case.

The results of said audit werepresented in Court to showplaintiff Arturo P. Valenzuela'saccountability to defendantPHILAMGEN. However, theauditor, when presented aswitness in this case testified thatthe beginning balance of theiraudit report was based on anunaudited amount ofP1,758,185.43 (Exhibit 46-A) asof August 20, 1976, which wasunverified and merely suppliedby the officers of defendantPHILAMGEN.

Even defendants very ownExhibit 38- A-3, showed thatplaintiff Arturo P. Valenzuela'sbalance as of 1978 amounted toonly P3,865.59, not P826,128.46as stated in defendantBienvenido M. Aragon's letterdated December 20,1978 (Exhibit14) or P1,528,698.40 as reflectedin defendant's Exhibit 46 (AuditReport of Banaria datedDecember 24, 1980).

These glaring discrepancy (sic) inthe accountability of plaintiffArturo P. Valenzuela to defendantPHILAMGEN only lends credenceto the claim of plaintiff Arturo P.Valenzuela that he has nooutstanding account withdefendant PHILAMGEN when thelatter, thru defendant BienvenidoM. Aragon, terminated theGeneral Agency Agreemententered into by plaintiff (ExhibitA) effective January 31, 1979(see Exhibits "2" and "2-A").Plaintiff Arturo P. Valenzuela hasshown that as of October 31,1978, he has overpaid defendantPHILAMGEN in the amount ofP53,040.37 (Exhibit "EEE", which

computation was based ondefendant PHILAMGEN's balanceof P744,159.80 furnished onseveral occasions to plaintiffArturo P. Valenzuela by defendantPHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZand , ZZ-2).

Prescinding from the foregoing, and consideringthat the private respondents terminated Valenzuelawith evidentmala fide it necessarily follows that theformer are liable in damages. RespondentPhilamgen has been appropriating for itself allthese years the gross billings and income that itunceremoniously took away from the petitioners.The preponderance of the authorities sustain thepreposition that a principal can be held liable fordamages in cases of unjust termination of agency.In Danon v. Brimo, 42 Phil. 133 [1921]), this Courtruled that where no time for the continuance of thecontract is fixed by its terms, either party is atliberty to terminate it at will, subject only to theordinary requirements of good faith. The right ofthe principal to terminate his authority is absoluteand unrestricted, except only that he may not doso in bad faith.

The trial court in its decision awarded to Valenzuelathe amount of Seventy Five Thousand Pesos(P75,000,00) per month as compensatory damagesfrom June 1980 until its decision becomes final andexecutory. This award is justified in the light of theevidence extant on record (Exhibits "N", "N-10","0", "0-1", "P" and "P-1") showing that the averagegross premium collection monthly of Valenzuelaover a period of four (4) months from December1978 to February 1979, amounted to overP300,000.00 from which he is entitled to acommission of P100,000.00 more or less permonth. Moreover, his annual sales productionamounted to P2,500,000.00 from where he wasgiven 32.5% commissions. Under Article 2200 ofthe new Civil Code, "indemnification for damagesshall comprehend not only the value of the losssuffered, but also that of the profits which theobligee failed to obtain."

The circumstances of the case, however, requirethat the contractual relationship between theparties shall be terminated upon the satisfaction ofthe judgment. No more claims arising from or as a

result of the agency shall be entertained by thecourts after that date.

ACCORDINGLY, the petition is GRANTED. Theimpugned decision of January 29, 1988 andresolution of April 27, 1988 of respondent court arehereby SET ASIDE. The decision of the trial courtdated January 23, 1986 in Civil Case No. 121126 isREINSTATED with the MODIFICATIONS that theamount of FIVE HUNDRED TWENTY ONETHOUSAND NINE HUNDRED SIXTY-FOUR AND16/100 PESOS (P521,964.16) representing thepetitioners Delta commission shall earn only legalinterests without any adjustments under Article1250 of the Civil Code and that the contractualrelationship between Arturo P. Valenzuela andPhilippine American General Insurance Companyshall be deemed terminated upon the satisfactionof the judgment as modified.

SO ORDERED.

G.R. No. 163720 December 16, 2004GENEVIEVE LIM, petitioner, vs.FLORENCIO SABAN, respondents.

D E C I S I O N

TINGA, J.:Before the Court is a Petition for Review onCertiorari assailing the Decision1 dated October 27,2003 of the Court of Appeals, Seventh Division, inCA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a1,000-square meter lot in Cebu City (the "lot"),entered into anAgreement and Authority toNegotiate and Sell (Agency Agreement) withrespondent Florencio Saban (Saban) on February 8,1994. Under the Agency Agreement, Ybañezauthorized Saban to look for a buyer of the lot forTwo Hundred Thousand Pesos (P200,000.00) and tomark up the selling price to include the amountsneeded for payment of taxes, transfer of title andother expenses incident to the sale, as well asSaban’s commission for the sale.3

Through Saban’s efforts, Ybañez and his wife wereable to sell the lot to the petitioner Genevieve Lim(Lim) and the spouses Benjamin and Lourdes Lim(the Spouses Lim) on March 10, 1994. The price ofthe lot as indicated in the Deed of Absolute Sale isTwo Hundred Thousand Pesos (P200,000.00).4 Itappears, however, that the vendees agreed topurchase the lot at the price of Six HundredThousand Pesos (P600,000.00), inclusive of taxesand other incidental expenses of the sale. After thesale, Lim remitted to Saban the amounts of OneHundred Thirteen Thousand Two Hundred FiftySeven Pesos (P113,257.00) for payment of taxesdue on the transaction as well as Fifty ThousandPesos (P50,000.00) as broker’s commission.5 Limalso issued in the name of Saban four postdatedchecks in the aggregate amount of Two HundredThirty Six Thousand Seven Hundred Forty ThreePesos (P236,743.00). These checks were Bank ofthe Philippine Islands (BPI) Check No. 1112645dated June 12, 1994 for P25,000.00; BPI Check No.1112647 dated June 19, 1994 for P18,743.00; BPICheck No. 1112646 dated June 26, 1994for P25,000.00; and Equitable PCI Bank Check No.021491B dated June 20, 1994 forP168,000.00.Subsequently, Ybañez sent a letter dated June 10,1994 addressed to Lim. In the letter Ybañez askedLim to cancel all the checks issued by her inSaban’s favor and to "extend another partialpayment" for the lot in his (Ybañez’s) favor.6

After the four checks in his favor were dishonoredupon presentment, Saban filed a Complaint forcollection of sum of money and damages againstYbañez and Lim with the Regional Trial Court (RTC)of Cebu City on August 3, 1994.7 The case wasassigned to Branch 20 of the RTC.In his Complaint, Saban alleged that Lim and theSpouses Lim agreed to purchase the lotfor P600,000.00, i.e.,with a mark-up of FourHundred Thousand Pesos (P400,000.00) from theprice set by Ybañez. Of the total purchase priceof P600,000.00, P200,000.00 went toYbañez, P50,000.00 allegedly went to Lim’s agent,andP113,257.00 was given to Saban to cover taxesand other expenses incidental to the sale. Lim alsoissued four (4) postdated checks8 in favor of Sabanfor the remaining P236,743.00.9

Saban alleged that Ybañez told Lim that he (Saban)was not entitled to any commission for the salesince he concealed the actual selling price of thelot from Ybañez and because he was not a licensedreal estate broker. Ybañez was able to convince Limto cancel all four checks.Saban further averred that Ybañez and Limconnived to deprive him of his sales commission bywithholding payment of the first three checks. Healso claimed that Lim failed to make good thefourth check which was dishonored because theaccount against which it was drawn was closed.In his Answer, Ybañez claimed that Saban was notentitled to any commission because he concealedthe actual selling price from him and because hewas not a licensed real estate broker.Lim, for her part, argued that she was not privy tothe agreement between Ybañez and Saban, andthat she issued stop payment orders for the threechecks because Ybañez requested her to pay thepurchase price directly to him, instead of coursingit through Saban. She also alleged that she agreedwith Ybañez that the purchase price of the lot wasonly P200,000.00.Ybañez died during the pendency of the casebefore the RTC. Upon motion of his counsel, thetrial court dismissed the case only against himwithout any objection from the other parties.10

On May 14, 1997, the RTC renderedits Decision11 dismissing Saban’s complaint,declaring the four (4) checks issued by Lim as staleand non-negotiable, and absolving Lim from anyliability towards Saban.Saban appealed the trial court’s Decision to theCourt of Appeals.On October 27, 2003, the appellate courtpromulgated its Decision12 reversing the trialcourt’s ruling. It held that Saban was entitled to hiscommission amounting to P236,743.00.13

The Court of Appeals ruled that Ybañez’srevocation of his contract of agency with Sabanwas invalid because the agency was coupled withan interest and Ybañez effected the revocation inbad faith in order to deprive Saban of hiscommission and to keep the profits for himself.14

The appellate court found that Ybañez and Limconnived to deprive Saban of his commission. Itdeclared that Lim is liable to pay Saban the amountof the purchase price of the lot corresponding to hiscommission because she issued the four checksknowing that the total amount thereofcorresponded to Saban’s commission for the sale,as the agent of Ybañez. The appellate court furtherruled that, in issuing the checks in payment ofSaban’s commission, Lim acted as anaccommodation party. She signed the checks asdrawer, without receiving value therefor, for thepurpose of lending her name to a third person. Assuch, she is liable to pay Saban as the holder forvalue of the checks.15

Lim filed a Motion for Reconsideration of theappellate court’s Decision, but her Motion wasdenied by the Court of Appeals ina Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court ofAppeals, Lim filed the present petition.Lim argues that the appellate court ignored the factthat after paying her agent and remitting to Sabanthe amounts due for taxes and transfer of title, shepaid the balance of the purchase price directly toYbañez.17

She further contends that she is not liable forYbañez’s debt to Saban under the AgencyAgreement as she is not privy thereto, and thatSaban has no one but himself to blame forconsenting to the dismissal of the case againstYbañez and not moving for his substitution by hisheirs.18

Lim also assails the findings of the appellate courtthat she issued the checks as an accommodationparty for Ybañez and that she connived with thelatter to deprive Saban of his commission.19

Lim prays that should she be found liable to paySaban the amount of his commission, she shouldonly be held liable to the extent of one-third (1/3)of the amount, since she had two co-vendees (theSpouses Lim) who should share such liability.20

In his Comment, Saban maintains that Lim agreedto purchase the lot for P600,000.00, whichconsisted of theP200,000.00 which would be paidto Ybañez, the P50,000.00 due to her broker,the P113,257.00 earmarked for taxes and otherexpenses incidental to the sale and Saban’scommission as broker for Ybañez. According toSaban, Lim assumed the obligation to pay him hiscommission. He insists that Lim and Ybañez

connived to unjustly deprive him of his commissionfrom the negotiation of the sale.21

The issues for the Court’s resolution are whetherSaban is entitled to receive his commission fromthe sale; and, assuming that Saban is entitledthereto, whether it is Lim who is liable to paySaban his sales commission.The Court gives due course to the petition, butagrees with the result reached by the Court ofAppeals.The Court affirms the appellate court’s finding thatthe agency was not revoked since Ybañezrequested that Lim make stop payment orders forthe checks payable to Saban only after theconsummation of the sale on March 10, 1994. Atthat time, Saban had already performed hisobligation as Ybañez’s agent when, through his(Saban’s) efforts, Ybañez executed the Deed ofAbsolute Sale of the lot with Lim and the SpousesLim.To deprive Saban of his commission subsequent tothe sale which was consummated through hisefforts would be a breach of his contract of agencywith Ybañez which expressly states that Sabanwould be entitled to any excess in the purchaseprice after deducting the P200,000.00 due toYbañez and the transfer taxes and other incidentalexpenses of the sale.22

In Macondray & Co. v. Sellner,23 the Courtrecognized the right of a broker to his commissionfor finding a suitable buyer for the seller’s propertyeven though the seller himself consummated thesale with the buyer.24The Court held that it wouldbe in the height of injustice to permit the principalto terminate the contract of agency to theprejudice of the broker when he had already reapedthe benefits of the broker’s efforts.In Infante v. Cunanan, et al.,25 the Court upheld theright of the brokers to their commissions althoughthe seller revoked their authority to act in hisbehalf after they had found a buyer for hisproperties and negotiated the sale directly with thebuyer whom he met through the brokers’ efforts.The Court ruled that the seller’s withdrawal in badfaith of the brokers’ authority cannot unjustlydeprive the brokers of their commissions as theseller’s duly constituted agents.The pronouncements of the Court in the aforecitedcases are applicable to the present case, especiallyconsidering that Saban had completely performedhis obligations under his contract of agency withYbañez by finding a suitable buyer to preparingthe Deed of Absolute Sale between Ybañez and Limand her co-vendees. Moreover, the contract ofagency very clearly states that Saban is entitled tothe excess of the mark-up of the price of the lot

after deducting Ybañez’s share of P200,000.00 andthe taxes and other incidental expenses of the sale.However, the Court does not agree with theappellate court’s pronouncement that Saban’sagency was one coupled with an interest. UnderArticle 1927 of the Civil Code, an agency cannot berevoked if a bilateral contract depends upon it, or ifit is the means of fulfilling an obligation alreadycontracted, or if a partner is appointed manager ofa partnership in the contract of partnership and hisremoval from the management is unjustifiable.Stated differently, an agency is deemed as onecoupled with an interest where it is established forthe mutual benefit of the principal and of theagent, or for the interest of the principal and ofthird persons, and it cannot be revoked by theprincipal so long as the interest of the agent or of athird person subsists. In an agency coupled with aninterest, the agent’s interest must be in the subjectmatter of the power conferred and not merely aninterest in the exercise of the power because itentitles him to compensation. When an agent’sinterest is confined to earning his agreedcompensation, the agency is not one coupled withan interest, since an agent’s interest in obtaininghis compensation as such agent is an ordinaryincident of the agency relationship.26

Saban’s entitlement to his commission having beensettled, the Court must now determine whether Limis the proper party against whom Saban shouldaddress his claim.Saban’s right to receive compensation fornegotiating as broker for Ybañez arises from theAgency Agreement between them. Lim is not aparty to the contract. However, the record revealsthat she had knowledge of the fact that Ybañez setthe price of the lot at P200,000.00 and thatthe P600,000.00—the price agreed upon by herand Saban—was more than the amount set byYbañez because it included the amount forpayment of taxes and for Saban’s commission asbroker for Ybañez.According to the trial court, Lim made the followingpayments for the lot: P113,257.00 fortaxes, P50,000.00 for her broker, and P400.000.00directly to Ybañez, or a total of Five Hundred SixtyThree Thousand Two Hundred Fifty Seven Pesos(P563,257.00).27 Lim, on the other hand, claimsthat on March 10, 1994, the date of execution ofthe Deed of Absolute Sale, she paid directly toYbañez the amount of One Hundred ThousandPesos (P100,000.00) only, and gave toSaban P113,257.00 for payment of taxesand P50,000.00 as his commission,28and OneHundred Thirty Thousand Pesos (P130,000.00) onJune 28, 1994,29 or a total of Three Hundred NinetyThree Thousand Two Hundred Fifty Seven Pesos

(P393,257.00). Ybañez, for his part, acknowledgedthat Lim and her co-vendees paid him P400,000.00which he said was the full amount for the sale ofthe lot.30 It thus appears that hereceived P100,000.00 on March 10, 1994,acknowledged receipt (through Saban) oftheP113,257.00 earmarked for taxesand P50,000.00 for commission, and received thebalance of P130,000.00 on June 28, 1994. Thus, atotal of P230,000.00 went directly to Ybañez.Apparently, although the amount actually paid byLim was P393,257.00, Ybañez rounded off theamount to P400,000.00 and waived the difference.Lim’s act of issuing the four checks amountingto P236,743.00 in Saban’s favor belies her claimthat she and her co-vendees did not agree topurchase the lot at P600,000.00. If she did notagree thereto, there would be no reason for her toissue those checks which is the balanceof P600,000.00 less the amounts of P200,000.00(due to Ybañez), P50,000.00 (commission), andthe P113,257.00 (taxes). The only logicalconclusion is that Lim changed her mind aboutagreeing to purchase the lot at P600,000.00 aftertalking to Ybañez and ultimately realizing thatSaban’s commission is even more than whatYbañez received as his share of the purchase priceas vendor. Obviously, this change of mind resultedto the prejudice of Saban whose efforts led to thecompletion of the sale between the latter, and Limand her co-vendees. This the Court cannotcountenance.The ruling of the Court in Infante v. Cunanan, etal., cited earlier, is enlightening for the factstherein are similar to the circumstances of thepresent case. In that case, Consejo Infante askedJose Cunanan and Juan Mijares to find a buyer forher two lots and the house built thereon for ThirtyThousand Pesos (P30,000.00) . She promised topay them five percent (5%) of the purchase priceplus whatever overprice they may obtain for theproperty. Cunanan and Mijares offered theproperties to Pio Noche who in turn expressedwillingness to purchase the properties. Cunananand Mijares thereafter introduced Noche to Infante.However, the latter told Cunanan and Mijares thatshe was no longer interested in selling the propertyand asked them to sign a document stating thattheir written authority to act as her agents for thesale of the properties was already cancelled.Subsequently, Infante sold the properties directlyto Noche for Thirty One Thousand Pesos(P31,000.00). The Court upheld the right ofCunanan and Mijares to their commission,explaining that—

…[Infante] had changed her mind even ifrespondent had found a buyer who was

willing to close the deal, is a matter thatwould not give rise to a legal consequenceif [Cunanan and Mijares] agreed to call offthe transaction in deference to therequest of [Infante]. But the situationvaries if one of the parties takesadvantage of the benevolence of the otherand acts in a manner that would promotehis own selfish interest. This act is unfairas would amount to bad faith. This actcannot be sanctioned without accordingthe party prejudiced the reward which isdue him. This is the situation in which[Cunanan and Mijares] were placed by[Infante]. [Infante] took advantage of theservices rendered by [Cunanan andMijares], but believing that she couldevade payment of their commission, shemade use of a ruse by inducing them tosign the deed of cancellation….This act ofsubversion cannot be sanctioned andcannot serve as basis for [Infante] toescape payment of the commissionagreed upon.31

The appellate court therefore had sufficient basisfor concluding that Ybañez and Lim connived todeprive Saban of his commission by dealing witheach other directly and reducing the purchase priceof the lot and leaving nothing to compensate Sabanfor his efforts.Considering the circumstances surrounding thecase, and the undisputed fact that Lim had not yetpaid the balance of P200,000.00 of the purchaseprice of P600,000.00, it is just and proper for her topay Saban the balance of P200,000.00.Furthermore, since Ybañez received a totalof P230,000.00 from Lim, or an excessof P30,000.00 from his asking price of P200,000.00,Saban may claim such excess from Ybañez’sestate, if that remedy is still available,32 in view ofthe trial court’s dismissal of Saban’s complaint asagainst Ybañez, with Saban’s express consent, dueto the latter’s demise on November 11, 1994.33

The appellate court however erred in ruling thatLim is liable on the checks because she issuedthem as an accommodation party. Section 29 of theNegotiable Instruments Law defines anaccommodation party as a person "who has signedthe negotiable instrument as maker, drawer,acceptor or indorser, without receiving valuetherefor, for the purpose of lending his name tosome other person." The accommodation party isliable on the instrument to a holder for value eventhough the holder at the time of taking theinstrument knew him or her to be merely anaccommodation party. The accommodation party

may of course seek reimbursement from the partyaccommodated.34

As gleaned from the text of Section 29 of theNegotiable Instruments Law, the accommodationparty is one who meets all these threerequisites, viz: (1) he signed the instrument asmaker, drawer, acceptor, or indorser; (2) he did notreceive value for the signature; and (3) he signedfor the purpose of lending his name to some otherperson. In the case at bar, while Lim signed asdrawer of the checks she did not satisfy the twoother remaining requisites.The absence of the second requisite becomespellucid when it is noted at the outset that Limissued the checks in question on account of hertransaction, along with the other purchasers, withYbañez which was a sale and, therefore, areciprocal contract. Specifically, she drew thechecks in payment of the balance of the purchaseprice of the lot subject of the transaction. And shehad to pay the agreed purchase price inconsideration for the sale of the lot to her and herco-vendees. In other words, the amounts coveredby the checks form part of the cause orconsideration from Ybañez’s end, as vendor, whilethe lot represented the cause or consideration onthe side of Lim, as vendee.35 Ergo, Lim receivedvalue for her signature on the checks.Neither is there any indication that Lim issued thechecks for the purpose of enabling Ybañez, or anyother person for that matter, to obtain credit or toraise money, thereby totally debunking thepresence of the third requisite of anaccommodation party.WHEREFORE, in view of the foregoing, the petitionis DISMISSED.SO ORDERED.

G.R. No. 151218 January 28, 2003NATIONAL SUGAR TRADING and/or the SUGARREGULATORY ADMINISTRATION, petitioners, vs.PHILIPPINE NATIONAL BANK, respondent.YNARES-SANTIAGO, J.:This is a petition for review which seeks to setaside the decision of the Court of Appeals datedAugust 10, 2001 in CA-G.R. SP. No.58102, 1 upholding the decision of the Office of thePresident dated September 17, 1999, 2 as well asthe resolution dated December 12, 2001 denyingpetitioners' motion for reconsideration.The antecedent facts, as culled from the records,are as follows:Sometime in February 1974, then PresidentFerdinand E. Marcos issued Presidential Decree No.388 3constituting the Philippine Sugar Commission(PHILSUCOM), as the sole buying and selling agentof sugar on the quedan permit level. In Novemberof the same year, PD 579 4 was issued, authorizingthe Philippine Exchange Company, Inc.(PHILEXCHANGE), a wholly owned subsidiary ofPhilippine National Bank (PNB) to serve as themarketing agent of PHILSUCOM. Pursuant to PD579, PHILEXCHANGE's purchases of sugar shall befinanced by PNB and the proceeds of sugar tradingoperations of PHILEXCHANGE shall be used to payits liabilities with PNB.5

Similarly, in February 1975, PD 659 was issued,constituting PHILEXCHANGE and/or PNB as theexclusive sugar trading agencies of thegovernment for buying sugar from planters ormillers and selling or exporting them. 6 PNB thenextended loans to PHILEXCHANGE for the latter'ssugar trading operations. At first, PHILEXCHANGEreligiously paid its obligations to PNB by depositingthe proceeds of the sale of sugar with the bank.Subsequently, however, with the fall of sugar pricesin the world market, PHILEXCHANGE defaulted inthe payments of its loans amounting toP206,070,172.57. 7

In July 1977, the National Sugar TradingCorporation (NASUTRA) replaced PHILEXCHANGE asthe marketing agent of PHILSUCOM. Accordingly,PHILEXCHANGE sold and turned over all sugarquedans to NASUTRA. However, no physicalinventory of the sugar covered by the quedans wasmade. 8 Neither NASUTRA nor PHILSUCOM wasrequired to immediately pay PHILEXCHANGE.Notwithstanding this concession, NASUTRA andPHILSUCOM still failed to pay the sugar stockscovered by quedans to PHILEXCHANGE which, as ofJune 30, 1984, amounted to P498,828,845.03. As aconsequence, PHILEXCHANGE was not able to payits obligations to PNB.

To finance its sugar trading operations, NASUTRAapplied for and was granted 9 a P408 MillionRevolving Credit Line by PNB in 1981. Every timeNASUTRA availed of the credit line, 10 its ExecutiveVice-President, Jose Unson, executed a promissorynote in favor of PNB.In order to stabilize sugar liquidation prices at aminimum of P300.00 per picul, PHILSUCOM issuedon March 15, 1985 Circular Letter No. EC-4-85,considering all sugar produced during crop year1984–1985 as domestic sugar. Furthermore,PHILSUCOM's Chairman of Executive Committee,Armando C. Gustillo proposed on May 14, 1985 thefollowing liquidation scheme of the sugarquedans 11 assigned to PNB by the sugar planters:Upon notice from NASUTRA, PNB shall credit theindividual producer and millers loan accounts fortheir sugar proceeds and shall treat the same asloans of NASUTRA.Such loans shall be charged interest at theprevailing rates and it shall commence five (5) daysafter receipt by PNB of quedans from NASUTRA. 12

PNB, for its part, issued Resolution No. 353 datedMay 20, 1985 approving 13 thePHILSUCOM/NASUTRA proposal for the payment ofthe sugar quedans assigned to it. Pursuant to saidresolution, NASUTRA would assume the interest onthe planter/mill loan accounts. The pertinentportion of the Resolution states:Five (5) days after receipt of the quedans,NASUTRA shall absorb the accruing interest on thatportion of the planter/mill loan with PNBcommensurate to the net liquidation value of thesugar delivered, or in other words, NASUTRAproposes to assume interest that will run on theplanter/mill loan equivalent to the net proceeds ofthe sugar quedans, reckoned five (5) days afterquedan delivery to PNB. 14

Despite such liquidation scheme,NASUTRA/PHILSUCOM still failed to remit theinterest payments to PNB and its branches, whichinterests amounted to P65,412,245.84 in1986. 15 As a result thereof, then President Marcosissued PD 2005 dissolving NASUTRA effectiveJanuary 31, 1986. NASUTRA's records of its sugartrading operations, however, were destroyedduring the Edsa Revolution in February 1986.On May 28, 1986, then President Corazon C. Aquinoissued Executive Order (EO) No. 18 creating theSugar Regulatory Administration (SRA) andabolishing PHILSUCOM. All the assets and recordsof PHILSUCOM 16including its beneficial interestsover the assets of NASUTRA were transferred toSRA. 17 On January 24, 1989, before the completionof the three-year winding up period, NASUTRAestablished a trusteeship to liquidate and settle itsaccounts. 18 This notwithstanding, NASUTRA still

defaulted in the payment of its loans amounting toP389,246,324.60 (principal and accrued interest) toPNB.In the meantime, PNB received remittances fromforeign banks totaling US$36,564,558.90 or theequivalent of P696,281,405.09 representing theproceeds of NASUTRA's sugar exports. 19 Saidremittances were then applied by PNB to theunpaid accounts of NASUTRA/PHILSUCOM with PNBand PHILEXCHANGE. The schedule of remittancesand applications are as follows:SCHEDULE OF REMITTANCES & APPLICATIONSAccount of NASUTRAJuly 31, 1988

REMITTANCES

Date Remitting Bank Amount

11-19-85 Bankers Trust-New York

P259,253,573.46

11-26-85 Bankers Trust-New York 144,459,242.84

03-06-86 Credit Lyonnais-Manila 209,880,477.07

04-22-86 Societé Generalé-Manila 82,151,953.10

06-09-86 Credit Lyonnais-Manila 536,158.62

TotalP696,281,405.09

APPLICATIONS

Date Applied to Amount

1986 NASUTRA account with PNBP389,246,324.60

1986 Claims of various CAB planters 15,863,898.79

1987

Claims of various PNB branchesfor interest or the unpaid CY1984–85 sugar proceeds 65,412,245.84

1987& Philsucom account carried in

the books of Philexchange206,070,172.57

1988P676,592,641.80

Unapplied Remittance P19,688,763.29" 20

Subsequently, PNB applied the P19,688,763.29 toPHILSUCOM's account with PHILEXCHANGE which in

turn was applied to PHILEXCHANGE's account withPNB. 21

Accordingly, NASUTRA requested 22 PNB to furnish itwith the necessary documents and/orexplanation 23concerning thedisposition/application, accounting and restitutionof the remittances in question. Dissatisfied, andbelieving that PNB failed to provide them with saiddocuments, NASUTRA and SRA filed a petition forarbitration24 with the Department of Justice onAugust 13, 1991.After due proceedings, the Secretary of Justicerendered a decision, to wit:

WHEREFORE, judgment is herebyrendered —1. Declaring that of the amount of SixHundred Ninety Six Million Two HundredEighty One Thousand Four Hundred Fiveand 09/100 Pesos (P696,281,405.09)equivalent of US$36,564,558.90, foreignremittances received by respondent PNB,for and in behalf of petitioner NASUTRA—

a) the amount of Three HundredEighty Nine Million Two HundredForty Six Thousand ThreeHundred Twenty Four and 60/100Pesos (P389,246,324.60) wasvalidly applied to outstandingaccount of NASUTRA to PNB;b) the amount of Sixty Five BillionFour Hundred Twelve ThousandTwo Hundred Forty Five and84/100 Pesos (P65,412,245.84)was validly applied to claims ofvarious PNB branches for intereston the unpaid CY 1984–85 sugarproceeds;

Or a total of Four Hundred Fifty FourMillion Six Hundred Fifty Eight ThousandFive Hundred Seventy and 44/100 Pesos(P454,658,570.44).2. Ordering respondent PNB to paypetitioners —

a) the amount of Two Hundred SixMillion Seventy Thousand OneHundred Seventy Two and 57/100Pesos (P206,070,172.57)representing the amount ofremittance applied to PHILSUCOMaccount carried in the books ofPhilexchange;b) the amount of Fifteen MillionEight Hundred Sixty ThreeThousand Eight Hundred NinetyEight and 79/100 Pesos(P15,863,898.79) representingthe amount applied to settle

Claims of Various CAB Planters;and to pay interest on bothitems, at legal rate from date offiling of this case.

Costs of suit will be shared equally by theparties.SO ORDERED. 25

Both parties appealed before the Office of thePresident. On September 17, 1999, the Office ofthe President modified the decision of theSecretary of Justice, to wit:

IN VIEW OF ALL THE FOREGOING, thedecision of the Secretary of Justice ishereby AFFIRMED with the MODIFICATIONthat the application by the PhilippineNational Bank of the amounts ofP225,758,935.86 and P15,863,898.79 aspayment of the Philippine SugarCommission's account carried in the booksof Philippine Exchange Co., Inc. and theclaims of various CAB planters,respectively, is hereby declared legal andvalid.SO ORDERED. 26

Petitioners' subsequent Motion for Reconsiderationwas denied by the Office of thePresident. 27 Thereafter, petitioners filed a petitionfor review with the Court of Appeals, alleging, interalia, that the Office of the President erred when itrelied solely on the documents submitted by PNB todetermine the amount of the subject remittancesand in not ordering PNB to render an accounting ofthe said remittances; in declaring as valid and legalPNB's application of the subject remittances toalleged NASUTRA's accounts with PNB andPHILEXCHANGE without NASUTRA's knowledge,consent and authority.On August 10, 2001, Court of Appeals renderedjudgment dismissing the petition. 28 Petitioners fileda Motion for Reconsideration, which was denied onDecember 12, 2001.Hence this petition, raising the lone issue:

THE CA DECIDED NOT IN ACCORD WITHLAW AND WITH THE APPLICABLE DECISIONOF THIS HONORABLE COURT, ANDGRAVELY ABUSED ITS DISCRETION, WHENIT UPHELD THE LEGALITY AND VALIDITYOF THE OFFSETTING OR COMPENSATIONOF THE SUBJECT REMITTANCES TOALLEGED ACCOUNTS OF NASUTRA WITHPNB AND PHILEX DESPITE THE FACT THATNO CREDITOR-DEBTOR RELATIONSHIPEXISTED BETWEEN PNB AND NASUTRAWITH RESPECT TO THE SAIDREMITTANCES.

In essence, NASUTRA and SRA aver that nocompensation involving the subject remittances

can take effect by operation of law since therelationship created between PNB and NASUTRAwas one of trustee-beneficiary and not one ofcreditor and debtor. They also claim that no legalcompensation can take place in favor ofPHILEXCHANGE since the subject remittances werereceived by PNB and not PHILEXCHANGE, acorporation clothed with a separate and distinctcorporate personality from PNB. They added thatPHILEXCHANGE's account had already prescribed.Moreover, NASUTRA and SRA contend that,assuming arguendo that creditor-debtorrelationship existed between PNB and NASUTRA,compensation was still illegal, since PNB has notproven the existence of the P408 million revolvingcredit line and the CAB Planters Account.Petitioners also assert that the CAB PlantersAccount is an unliquidated account considering thatit still has to be recomputed pursuant to the SugarReconstitution Law.29

Respondent PNB counters that it can apply theforeign remittances on the long-overdueobligations of NASUTRA. They were entered into byNASUTRA with the blessing, if not with expressmandate, of the National Government in thepursuit of national interest and policy. PNB invokesalso the Letter of Intent submitted by the NationalGovernment to the International Monetary Fund(IMF), wherein the government made specificreference to the immediate payment by NASUTRAand PHILSUCOM of their outstanding obligationswith PNB to buoy up the country's saggingeconomy. 30

Petitioners' arguments are specious.Article 1306 of the New Civil Code provides:Contracting parties may establish such stipulations,clauses terms and conditions as they may deemconvenient provided they are not contrary to law,morals, good customs, public order or public policy.In the instant case, NASUTRA applied for a P408million credit line with PNB in order to finance itstrading operations. PNB, on the other hand,approved said credit line in its Resolution No. 68.Thereafter, NASUTRA availed of the credit and infact drew P389,246,324.60, in principal andaccrued interest, from the approved credit line.Evidence shows that every time NASUTRA availedof the credit, its Executive Vice President, JoseUnson, executed a promissory note 31 in favor ofPNB with the following proviso:In the event that this note is not paid at maturity orwhen the same becomes due under any of theprovisions hereof, I/We hereby authorize the Bank,at its option and without notice, to apply to thepayment of this note, any and all moneys,securities and things of values which may be in thehands on deposit or otherwise belonging to me/us

and for this purpose, I/We hereby, jointly andseverally, irrevocably constitute and appoint theBank to be my/our true Attorney-in-Fact with fullpower and authority for me/us and in my/our nameand behalf and without prior notice to negotiate,sell and transfer any moneys, securities and thingsof value which it may hold, by public or private saleand apply the proceeds thereof to the payment ofthis note. (Italics ours)While we agree with petitioners that the applicationof subject remittances cannot be justified underArticle 1278 in relation to Article 1279 of the CivilCode, considering that some elements of legalcompensation were lacking, application of thesubject remittances to NASUTRA's account withPNB and the claims of various PNB branches forinterest on the unpaid CY 1984–1985 sugarproceeds is authorized under the above-quotedstipulation. PNB correctly treated the subjectremittances for the account of NASUTRA as moneysin its hands which may be applied for the paymentof the note.Also, the relationship between NASUTRA/SRA andPNB when the former constituted the latter as itsattorney-in-fact is not a simple agency.NASUTRA/SRA has assigned and practicallysurrendered its rights in favor of PNB for asubstantial consideration. 32 To reiterate,NASUTRA/SRA executed promissory notes in favorof PNB every time it availed of the credit line. Theagency established between the parties is onecoupled with interest which cannot be revoked orcancelled at will by any of the parties. 33

Notwithstanding its availment of the approvedcredit, NASUTRA, for reasons only known to itself,insisted in claiming for refund of the remittances.NASUTRA's posture is untenable. NASUTRA'sactuation runs counter to the good faith covenantin contractual relations, required under Article 1159of the Civil Code, to wit:Obligations arising from contract have the force oflaw between the contracting parties and should becomplied with in good faith.Verily, parties may freely stipulate their duties andobligations which perforce would be binding onthem. Not being repugnant to any legalproscription, the agreement entered into byNASUTRA/SRA and PNB must be respected andhave the force of law between them.With respect to the application of the sum ofP65,412,245.84, 34 the record shows that NASUTRAfailed to remit the interest payments to PNBdespite its obligation under the liquidation schemeproposed by the Chairman of its ExecutiveCommittee, Armando C. Gustillo, to stabilize sugarliquidation prices. Certainly, the authority grantedby NASUTRA to Armando Gustillo to propose such

liquidation scheme was an authority to representNASUTRA. Undisputedly, any obligation or liabilityarising from such agreement shall be binding onthe parties. NASUTRA, for its part, cannot nowrenege on its duties, considering that it tookadvantage of the loan.Having established that PNB validly applied thesubject remittances to the interest of NASUTRA'sloan in the amount of P65,412,245.84, theapplication of the remainder of the remittanceamounting to P15,863,898.79 to the principal isproper.With respect to the Central Azucarera de Bais (CAB)Planters account, petitioners maintained that thesubject remittances cannot be applied to paymentthereof, considering that it is unliquidated andneeds recomputation, pursuant to Section 3 ofRepublic Act No. 7202 or the Sugar ReconstitutionLaw, which provides:The Philippine National Bank of the Philippines andother government-owned and controlled financialinstitutions which have granted loans to the sugarproducers shall extend to accounts of said sugarproducers incurred from Crop Year 1974–1975 up toand including Crop Year 1984–1985 the following:

(a) Condonation of interest charged by thebanks in excess of twelve percent (12%)per annum and all penalties andsurcharges:(b) The recomputed loans shall beamortized for a period of thirteen (13)years inclusive of a three-year graceperiod on principal portion of the loan willcarry an interest rate of twelve (12%) andon the outstanding balance effective whenthe original promissory notes were signedand funds released to the producer.

Section 6 of Rules and Regulations implementingRA No. 7202 also provides:

SECTION 2. In cases, however, wheresugar producers have no outstanding loanbalance with said financial institutions asof the date of effectivity of RA No. 7202(i.e. sugar producers who have fully paidtheir loans either through actual paymentor foreclosure of collateral, or who havepartially paid their loans and after thecomputation of the interest charges, theyend up with excess payment to saidfinancial institutions), said producers shallbe entitled to the benefits ofrecomputation in accordance withSections 3 and 4 of RA No. 7202, but thesaid financial institutions, instead ofrefunding the interest in excess of twelve(12%) percent per annum, interests,penalties and surcharges apply the excess

payment as an offset and/or as paymentfor the producers' outstanding loanobligations. Applications of restructuringbanks under Section 6 of RA No. 7202shall be filed with the Central MonetaryAuthority of the Philippines within one (1)year from application of excess payment.

Although it appears from said provision that PNBwas directed to condone interest, penalties andsurcharges charged in excess of 12% per annum,the passage of said law did not forestall legalcompensation that had taken place before itseffectivity. The loan had been definitelyascertained, assessed and determined by PNB.Pursuant to Section 4 35 of RA 7202, there would becondonation of interest whether the accounts werefully or partially paid.With regard to the application of the amount ofP206,070,172.57 to the PHILSUCOM accountcarried in the books of PHILEXCHANGE, petitionersmaintain that there could be no application of thesubject remittance, considering that theremittances were received by PNB and notPHILEXCHANGE which has a personality separateand distinct from PNB.Petitioners' contention is not well-taken.There exist clear indications that insofar as sugartrading was concerned, PHILEXCHANGE and PNBwere treated as one entity. Purchases of sugar ofPHILEXCHANGE as the exclusive sugar trading armof PHILSUCOM were financed by PNB pursuant toPD 579. More importantly, PNB, a wholly ownedbank of the government at that time, in turn whollyowned and controlled PHILEXCHANGE. Also, Section2 (a), PD 659 declared as illegal the sale, transferand assignment of sugar by any planter, producer,miller, central, or refinery to any person or entityother than Philippine Exchange, Inc. and/or thePNB. To reiterate, PHILEXCHANGE failed to pay itsloans with PNB because of the fall of the sugarprices in the world market. When NASUTRAsubstituted PHILEXCHANGE as marketing agent ofPHILSUCOM, 1,485,532.47 metric tons 36 of exportsugar were turned over by PHILEXCHANGE toNASUTRA. To reiterate, the foreign remittancesconstituted proceeds of the sale of the sugarcovered by quedans transferred by PHILEXCHANGEto NASUTRA.WHEREFORE, in view of the foregoing, the instantpetition for review is DENIED. The decision of theCourt of Appeals dated August 10, 2001is AFFIRMED.SO ORDERED.

A.C. No. 5182 August 12, 2004SUSANA DE GUZMAN BUADO and NENALISING, complainants, vs.ATTY. EUFRACIO T. LAYAG, respondent.R E S O L U T I O NPER CURIAM:The instant case arose from a verified Letter-Complaint1 for malpractice filed with this Court onDecember 9, 1999, against respondent Atty.Eufracio T. Layag by Susana de Guzman Buado andNena Lising. The complaint stated that de GuzmanBuado and Lising had instituted a criminal actionfor estafa2 against Atty. Layag with the Office of theCity Prosecutor of Caloocan City and that the CityProsecutor had resolved that there was primafacie evidence to justify the filing in court ofinformations for two (2) counts of estafa againstAtty. Layag.3Accordingly, two cases for estafa,docketed as Criminal Cases Nos. C-58087 and C-58088 were filed with the Regional Trial Court (RTC)of Caloocan City, Branch 124.4

In our Resolution of January 31, 2000, we directedthat Atty. Layag be furnished a copy of thecomplaint for his comment.In his Comment dated April 11, 2000, Atty. Layagdenied committing any malpractice, saying that hemerely complied with the wishes of his client, thelate Rosita de Guzman, to deliver any moneyjudgment in Civil Case No. C-14265 before the RTCof Caloocan City, Branch 121, to her attorney-in-fact, one Marie Paz P. Gonzales. Respondent prayedthat the complaint be dismissed for want of merit.Thereafter, this Court resolved on July 10, 2000 torefer the matter to the Integrated Bar of thePhilippines (IBP) for investigation, report, andrecommendation.5

As culled from the report andrecommendation6 dated September 25, 2003 of theIBP Investigating Commissioner, Atty. Milagros V.San Juan, the facts in this case are as follows:Herein complainant Lising and her sister, Rosita deGuzman (mother of herein complainant Susana deGuzman Buado), were the plaintiffs in Civil CaseNo. C-14265, entitled Rosita de Guzman, et al., v.Inland Trailways, Inc.,which was decided by the RTCof Caloocan City, Branch 121, in favor of theplaintiffs on May 16, 1991. Both Lising and deGuzman were represented in said case by hereinrespondent, Atty. Layag. The losing party, InlandTrailways, Inc., appealed the trial court's judgmentto the Court of Appeals, said appeal being docketedas CA-G.R. CV No. 34012.In its decision dated January 5, 1995, the appellatecourt affirmed the judgment of the trial court.However, on July 3, 1993, or while CA-G.R. CV No.

34012 was pending before the appellate court, deGuzman died.Pursuant to the judgment against it, InlandTrailways, Inc., issued the following checks: (1)Traders Royal Bank Check No. 0000790549 datedFebruary 15, 1996 for P15,000 payable to Atty.Layag; (2) Traders Royal Bank Check No.0000790548 dated March 8, 1996 in the amountof P30,180 payable to Lising; and (3) Traders RoyalBank Check No. 0000790547 dated March 8, 1996for the sum of P49,000 payable to de Guzman whohad by then already passed away. Theaforementioned checks were received byrespondent lawyer from Pablo Gernale, Jr., thedeputy sheriff of the RTC in February 1996. Atty.Layag did not inform Lising and the heirs of deGuzman about the checks. Instead he gave thechecks to one Marie Paz Gonzales for encashmenton the strength of a Special Power of Attorney,purportedly executed by de Guzman constitutingGonzales as her attorney-in-fact. The Special Powerof Attorney supposedly authorized Gonzales,among others, to encash, indorse, and/or depositany check or bill of exchange received insettlement of Civil Case No. C-14265.It was only in February 1998 that Lising and deGuzman Buado, while checking the status of CivilCase No. C-14265, found that judgment had beenrendered in the said case and that the losing partyhad paid the damages awarded by issuing checkswhich were received by their counsel, Atty. Layag,two years earlier. De Guzman Buado and Lisingthen made demands upon Atty. Layag to give themthe proceeds of the checks, but to no avail. MariePaz Gonzales eventually gave Lising P10,000. Nofurther amounts were remitted to either Lising orde Guzman Buado despite demands by them.After the parties presented their oral anddocumentary evidence before the IBPCommissioner, the matter was deemed submittedfor resolution. On September 25, 2003, the IBPInvestigating Commissioner made the followingrecommendations:

It is submitted that respondent hasbetrayed the trust of her (sic) clients. It isrecommended that respondent besuspended from the practice of law for themaximum period allowed under the lawand that he be ordered to turn over to theComplainants the amounts he received inbehalf of the complainants Susana deGuzman Buado and Nena Lising.Respectfully submitted.7

The IBP Investigating Commissioner, in herrecommendation, found that in giving the checks toa party not entitled to them, Atty. Layagdisregarded the rights and interests of his clients in

violation of Canons 15,8 16,9 and 1710 of the Codeof Professional Responsibility.On the Special Power of Attorney11 purportedlyexecuted by Rosita de Guzman in favor of MariePaz Gonzales, the Investigating Commissioner heldthat even assuming arguendo that there wasindeed a Special Power of Attorney, it nonethelesshad no force and effect after the death of Rosita deGuzman. Hence, any authority she had conferredupon Gonzales was already extinguished.According to the IBP Investigating Commissioner,since respondent represented de Guzman in CivilCase No. C-14265, upon her death, respondent hadthe obligation to preserve whatever benefitsaccrued to the decedent on behalf of and for thebenefit of her lawful heirs.On October 25, 2003, the IBP Board of Governorspassed its resolution on the case, affirming withmodification the recommendation by theInvestigating Commissioner, thus:

RESOLVED to ADOPT and APPROVE, as it ishereby ADOPTED and APPROVED, theReport and Recommendation of theInvestigating Commissioner of the above-entitled case, herein made part of thisResolution/Decision as Annex "A"; and,finding the recommendation fullysupported by the evidence on record andthe applicable laws and rules, withmodification, and considering thatRespondent has betrayed the trust of her(sic) clients in violation of Canon 15, 16and 17 of the Code of ProfessionalResponsibility, Atty. Eufracio T. Layag ishereby DISBARRED and Ordered to turnover immediately to the Complainants theamounts received in their behalf.12

Respondent then moved for reconsideration of theforegoing resolution before this Court. In view ofthe recommended penalty of disbarment, theCourt En Banc accepted the respondent's motionfor our consideration.Placed in issue are: (1) the sufficiency of theevidence to prove the respondent's liability forviolation of the Code of Professional Responsibility;and (2) the propriety of the recommended penalty.After careful scrutiny of the proceedings conductedby the IBP Investigating Commissioner, we find thatthe factual findings made in her report andrecommendation are well supported by theevidence on record. Respondent Atty. Layag doesnot deny receiving the checks in question, but heclaimed he turned over said checks to Marie PazGonzales, pursuant to the alleged Special Power ofAttorney executed by Rosita de Guzman in favor ofGonzales, authorizing the latter to encash, indorse,or deposit any check received as a result of the

judgment in Civil Case No. C-14265. Respondentcontended that in so doing, he was being true tothe wishes and desires of his client, the late Rositade Guzman.The respondent's arguments fail to persuade us. Asa lawyer, with more than thirty (30) years inpractice, respondent is charged with knowledge ofthe law. He should know that it was error for him torely on a Special Power of Attorney after the deathof the principal, Rosita de Guzman. As pointed outby the IBP Investigating Commissioner, evenassuming there was a Special Power of Attorney,although respondent could not produce a copy norprove its existence, when de Guzman died thatdocument ceased to be operative. This is clearfrom Article 191913 of the Civil Code. While thereare instances, as provided in Article 1930, 14 wherethe agency is not extinguished by the death of theprincipal, the instant case does not fall under theexceptions. Clearly, at the time Atty. Layagreceived and turned over the checks correspondingto the award of damages in Civil Case No. C-14265in February 1996, there was no longer any validSpecial Power of Attorney. Again, as pointed out bythe IBP Investigating Commissioner, respondent'sduty when the award of damages was made, wasto preserve and deliver the amount received to theheirs of his client, de Guzman, and not to any otherperson.With respect to the check from Inland Trailways,Inc., and made payable to Lising, respondentshould have delivered it directly to Lising. TheSpecial Power of Attorney, which he keeps onharping on, did not cover Lising's case. Itscoverage -- assuming again that the documentexisted -- pertained only to de Guzman.Respondent certainly could not take refuge in anyprovision of said Special Power of Attorney insofaras Lising's check is concerned.Respondent now denies any attorney-clientrelationship with Lising because, as he insists, hewas only engaged by de Guzman. But inhis Comment to the Complaint, respondentadmits that he included Lising when they filed suitagainst Inland Trailways, Inc., before the RTC ofCaloocan City, upon the request of de Guzman.Absent any showing on record that Lising wasrepresented by another counsel in Civil Case No. C-14265 and the subsequent appeal, CA-G.R. CV No.34012, the only conclusion we could reach is thatshe was also represented by Atty. Layag. But evenif granted the opposite conclusion that he was notLising's lawyer, it cannot exonerate the respondentwith respect to Lising's check. It would only makethings worse for him, for it would show that hemisappropriated the monetary award of a partywhom he did not represent. In our view,

respondent's insistence that Lising was not hisclient is more damaging to his cause.In the course of his professional relationship withhis client, a lawyer may receive money or propertyfor or from the client. He shall hold such property intrust, and he is under obligation to make anaccounting thereof as required by Rule 16.0115 ofthe Code of Professional Responsibility. Thisobligation to hold property in trust includes moneyreceived by a lawyer as a result of a judgmentfavorable to his client.16 In the present case, Atty.Layag did not make an accounting of the judgmentawards he received and the checks he allegedlyturned over to Marie Paz Gonzales. Further, whencomplainants demanded that he deliver to themthe checks pertaining to de Guzman Buado andLising for the judgment in Civil Case No. C-14265,Atty. Layag did not do so, in violation of Rule16.03.17

The inescapable conclusion we can make, given thecircumstances in this case, is that by his actions,respondent failed to observe the utmost good faith,loyalty, candor and fidelity required of an attorneyin his dealings with his clients. His acts ofmisappropriating the money of his clients aregrossly immoral and unprofessional. There is nodoubt in our mind that he deserves severepunishment.But is disbarment the proper penalty for Atty.Layag?Disbarment is the most severe form of disciplinarysanction. The power to disbar must always beexercised with great caution, for only the mostimperative reasons,18 and in clear cases ofmisconduct affecting the standing and moralcharacter of the lawyer as an officer of the court

and a member of the bar.19 Accordingly, disbarmentshould not be decreed where any punishment lesssevere – such as a reprimand, suspension, or fine -would accomplish the end desired.20 In the instantcase, what we seek to exact from the respondent isstrict compliance and fidelity with his duties to hisclients. Accordingly, we agree with therecommendation of the IBP InvestigatingCommissioner that suspension, rather thandisbarment, of respondent would suffice. In ourview, however, such suspension should beindefinite, subject to further orders by this Court.WHEREFORE, the IBP Board of GovernorsResolution No. XVI-2003-230 in Administrative CaseNo. 5182 finding respondent LIABLE for violation ofthe Canons 15, 16, and 17 of the Code ofProfessional Responsibility is hereby AFFIRMED withthe MODIFICATION that instead of therecommended penalty of disbarment, respondentAtty. Eufracio T. Layag is hereby INDEFINITELYSUSPENDED from the practice of law. Respondent isfurther DIRECTED to immediately turn over tocomplainants Susana de Guzman Buado and NenaLising the amounts ofP49,000.00 and P30,180.00,respectively, as well as all other amounts if any, hemight have received for and on their behalf.Respondent is also ORDERED to REPORT to theOffice of the Bar Confidant his compliance withinfifteen (15) days from receipt hereof. Let a copy ofthis Resolution be attached to the personal recordof Atty. Eufracio T. Layag and copies be furnishedthe Integrated Bar of the Philippines and the Officeof the Court Administrator for dissemination to alllower courts. This Resolution is immediatelyexecutory.SO ORDERED.