G.R. No.

137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner, vs. FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents. PANGANIBAN, J.: When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract which it had authorized. The Case Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows: Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs against the respondent-appellant. 3 The dispositive portion of the judgment affirmed by the CA ruled in this wise: WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the [petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it executed in favor of Renato Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents] the sum of FIVE HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND (P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral damages; THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the costs. 4 Also assailed is the February 26, 1999 CA Resolution Motion for Reconsideration. The Facts The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows: This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was declared in default on motion of the [respondents] for failure to file an answer
5

within the reglementary-period after it was duly served with summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the order of default with objection thereto filed by [herein respondents]. On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of default. On July 10, 1996, the defendant filed a motion for reconsideration of the order of June 17, 1996 with objection thereto by [respondents]. On July 12, 1996, an order was issued denying [petitioner's] motion for reconsideration. On July 31, 1996, [respondents] filed a motion to set case for hearing. A copy thereof was duly furnished the [petitioner] but the latter did not file any opposition and so [respondents] were allowed to present their evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of Appeals docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on March 31, 1997 and the same is now final. The evidence presented by the [respondents] through the testimony of Marife O. Nio, one of the [respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.1wphi1.nt Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition which are located in Bombon, Camarines Sur and that they are the ones possessing them which [were] originally owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5) parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B). The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged properties consisting of seven (7) parcels of land and so the mortgage was foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. Out of the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the [respondents] because these five (5) parcels of land described in paragraph 6 of the petition were sold by the [petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of Sale executed in January 1988 (Exhs. C, C-1 and C-2). The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not been, however transferred in the name of the parents of Merife O. Nio after they were sold to her parents by the [petitioner] bank because according to the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there is a need to have the document of sale registered with the Register of Deeds of Camarines Sur. In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines

which denied petitioner's

Sur with the Deed of Sale (Exh. C) in order to have the same registered. The Register of Deeds, however, informed her that the document of sale cannot be registered without a board resolution of the [petitioner] Bank. Marife Nio then went to the bank, showed to if the Deed of Sale (Exh. C), the tax declaration and receipt of tax payments and requested the [petitioner] for a board resolution so that the property can be transferred to the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other [respondents] having died already. The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She was asked and she complied with the request of the [petitioner] for a copy of the deed of sale and receipt of payment. The president of the [petitioner] bank told her to get an authority from her parents and other [respondents] and receipts evidencing payment of the consideration appearing in the deed of sale. She complied with said requirements and after she gave all these documents, Marife O. Nio was again told to wait for two (2) weeks because the [petitioner] bank would still study the matter. After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that the resolution of the board would not be released because the [petitioner] bank ha[d] no records from the old manager. Because of this, Marife O. Nio brought the matter to her lawyer and the latter wrote a letter on December 22, 1995 to the [petitioner] bank inquiring why no action was taken by the board of the request for the issuance of the resolution considering that the bank was already fully paid [for] the consideration of the sale since January 1988 as shown by the deed of sale itself (Exh. D and D-1 ). On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D and D-1) informing the latter that the request for board resolution ha[d] already been referred to the board of directors of the [petitioner] bank with another request that the latter should be furnished with a certified machine copy of the receipt of payment covering the sale between the [respondents] and the [petitioner] (Exh. E). This request of the [petitioner] bank was already complied [with] by Marife O. Nio even before she brought the matter to her lawyer. On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner] bank informing the latter that they were already furnished the receipts the bank was asking [for] and that the [respondents] want[ed] already to know the stand of the bank whether the board [would] issue the required board resolution as the deed of sale itself already show[ed] that the [respondents were] clearly entitled to the land subject of the sale (Exh. F). The manager of the [petitioner] bank received the letter which was served personally to him and the latter told Marife O. Nio that since he was the one himself who received the letter he would not sign anymore a copy showing him as having already received said letter (Exh. F). After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the [petitioner] again and reiterated her request, the manager of the [petitioner] bank told her that they could not issue the required board resolution as the [petitioner] bank

ha[d] no records of the sale. Because of this Merife O. Nio already went to their lawyer and ha[d] this petition filed. The [respondents] are interested in having the property described in paragraph 6 of the petition transferred to their names because their mother and co-petitioner, Francisca Ocfemia, is very sickly and they want to mortgage the property for the medical expenses of Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after her husband died and her suffering from arthritis and pulmonary disease already became serious before December 1995. Marife O. Nio declared that her mother is now in serious condition and they could not have her hospitalized for treatment as they do not have any money and this is causing the family sleepless nights and mental anguish, thinking that their mother may die because they could not submit her for medication as they do not have money. 6 The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision. Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the decision dated May 20, 1997 in Civil Case No. RTC8 96-3513, effective immediately until further orders from this Court." Ruling of the Court of Appeals The CA held that herein respondents were "able to prove their present cause of action" against petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3) assuming that the action was for specific performance as argued by the petitioner, it was still cognizable by the said court. Issues In its Memorandum, 9 the bank posed the following questions: 1. Question of Jurisdiction of the Regional Trial Court . Has a Regional Trial Court original jurisdiction over an action involving title to real property with a total assessed value of less than P20,000.00? 2. Question of Law. May the board of directors of a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation? 10 This Court's Ruling

The present Petition has no merit. First Issue: Jurisdiction of the Regional Trial Court Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the appellate court that the present action was incapable of pecuniary estimation, petitioner argues that the matter in fact involved title to real property worth less than P20,000. Thus, under RA 7691, the case should have been filed before a metropolitan trial court, a municipal trial court or a municipal circuit trial court. We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the complaint. 11 In the present case, the Petition for Mandamus filed by respondents before the trial court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale covering five parcels of unregistered land, which the bank manager had executed in their favor. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129, which provides: Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original jurisdiction; (1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction which may be enforced in any part of their respective regions; and (2) In actions affecting ambassadors and other public ministers and consuls. A perusal of the Petition shows that the respondents did not raise any question involving the title to the property, but merely asked that petitioner's board of directors be directed to issue the subject resolution. Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the issue therein was not the title to the property; it was respondents' right to compel the bank to issue a board resolution confirming the Deed of Sale. Second Issue: Authority of the Bank Manager Respondents initiated the present proceedings, so that they could transfer to their names the subject five parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother. For the property to be transferred in their names, however, the register of deeds required the submission of a board resolution from the bank confirming both the Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into such transaction. Petitioner refused. After being given the runaround by the bank, respondents sued in exasperation. Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed of Sale, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default. Pertinent provisions of the Rules of Court read: Sec. 7. Action or defense based on document. Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading. Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. 12 In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due execution of the said contract. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due execution and the genuineness of the written instrument are cut off by an admission implied from a failure to make a verified specific denial. Other Acts of the Bank In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had title to the property, it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena, even though such agent is abusing her authority. 14 Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw: 15 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager

may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also, . . . authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. . . . Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner has failed to file an answer to the Petition below within the reglementary period, let alone present evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. This Court stresses the following: . . . Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits this means the same as "if the thing is permitted by the directing power of the corporation." 16 In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will,

as against anyone who has in good faith dealt with it through such agent, be 17 estopped from denying the agent's authority. Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use. The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the orderly operations of the register of deeds and the full enjoyment of respondents' rights. Petitioner-bank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in dealing with respondents regarding this matter. In this light, the Court finds it proper to assess the bank treble costs, in addition to the award of damages. WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs against petitioner. SO ORDERED. Melo, Purisima and Gonzaga-Reyes, JJ., concur. Vitug, J., please see concurring opinion.

Separate Opinions VITUG, J., concurring opinion; I share the views expressed in the ponencia written for the Court by our esteemed colleague Mr. Justice Artemio V. Panganiban. There is just a brief clarificatory statement that I thought could be made. The Civil Code, being a law of general application, can be suppletory to special laws and certainly not preclusive of those that govern commercial transactions. Indeed, in its generic sense, civil law can rightly be said to encompass commercial law. Jus civile, in ancient Rome, was merely used to distinguish it from jus gentium or the law common to all the nations within the empire and, at some time later, only in contrast to international law. In more recent times, civil law is so referred to as private law in distinction from public law and criminal law. Today, it may not be totally inaccurate to consider commercial law, among some other special laws, as being a branch of civil law. Sec. 45 of the Corporation Code provides: Sec. 45. Ultra vires acts of corporations. No corporation under this Code shall

possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. The language of the Code appears to confine the term ultra vires to an act outside or beyond express, implied and incidental corporate powers. Nevertheless, the concept can also include those acts that may ostensibly be within such powers but are, by general or special laws, either proscribed or declared illegal. In general, although perhaps loosely, ultra vires has also been used to designate those acts of the board of directors or of corporate officers when acting beyond their respective spheres of authority. In the context that the law has used the term in Article 45 of the Corporation Code, an ultra vires act would be void and not susceptible to ratification. 1 In determining whether or not a corporation may perform an act, one considers the logical and necessary relation between the act assailed and the corporate purpose expressed by the law or in the charter. For if the act were one which is lawful in itself or not otherwise prohibited and done for the purpose of serving corporate ends or reasonably contributes to the promotion of those ends in a substantial and not merely in a remote and fanciful sense, it may be fairly considered within corporate powers. 2 Sec. 23 of the Corporation Code states that the corporate powers are to be exercised, all business conducted, and all property of corporations controlled and held, by the Board of Directors. When the act of the board is within corporate powers but it is done without the concurrence of the shareholders as and when such approval is required by law 3 or when the act is beyond its competence to do, 4 the 5 6 act has been described as void or, as unenforceable, or as ineffective and not legally binding. 7 These holdings notwithstanding, the act cannot accurately be likened to an ultra vires act of the corporation itself defined in Section 45 of the Code. Where the act is within corporate powers but the board has acted without being competent to independently do so, the action is not necessarily and totally devoid of effects, and it may generally be ratified expressly or impliedly. Thus, an acceptance of benefits derived by the shareholders from an outside investment made by the board without the required concurrence of the stockholders may, 8 nonetheless, be so considered as an effective investment. It may be said, however, that when the board resolution is yet executory, the act should aptly be deemed inoperative and specific performance cannot be validly demanded but, if for any reason, the contemplated action is carried out, such principles as ratification or prescription when applicable, normally unknown in void contracts, can serve to negate a claim for the total nullity thereof. Corporate officers, in their case, may act on such matters as may be authorized either expressly by the By-laws or Board Resolutions or impliedly such as by general practice or policy or as are implied by express powers. When officers are allowed to act in certain particular cases, their acts conformably therewith can bind the company. Hence, a corporate officer entrusted with general management and control of the business has the implied authority to act or contract for the corporation 9 which may be necessary or appropriate to conduct the ordinary business. If the act of corporate officers comes within corporate powers but it is done without any express or implied authority therefor from the by-laws, board resolutions or corporate

practices, such an act does not bind the corporation. The Board, however, acting within its competence, may ratify the unauthorized act of the corporate officer. So, too, a corporation may be held in estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed by it with 10 ostensible or apparent authority. The Corporation Code itself has not been that explicit with respect to the consequences of ultra vires acts; hence, the varied ascriptions to its effects heretofore expressed. It may well be to consider futile any further attempt to have these situations bear any exact equivalence to the civil law precepts of defective contracts. Nevertheless, general statements could be made. Here reiterated, while an act of the corporation which is either illegal or outside of express, implied or incidental powers as so provided by law or the charter would be void under Article 5 11 of the Civil Code, and the act is not susceptible to ratification, an unauthorized act (if within corporate powers) of the board or a corporate officer, however, would only be unenforceable conformably with Article 1403 12 of the Civil Code but, if the party with whom the agent has contracted is aware of the latter's limits of powers, the 13 unauthorized act is declared void by Article 1898 of the same Code, although still susceptible thereunder to ratification by the principal. Any person dealing with corporate boards and officers may be said to be charged with the knowledge that the latter can only act within their respective limits of power, and he is put to notice accordingly. Thus, it would generally behoove such a person to look into the extent of the authority of corporate agents since the onus would ordinarily be with him.1wphi1.nt

G.R. No. 108957 June 14, 1993 PRUDENTIAL BANK, petitioner, vs. THE COURT OF APPEALS, AURORA CRUZ, respondents. Monique Q. Ignacio for petitioner. Eduardo C. Tutaan for private respondent. CRUZ, J.: We deal here with another controversy involving the integrity of a bank. The complaint in this case arose when private respondent Aurora F. Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63 days at 13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 and applied to the investment. The difference of P3,877.07 represented the pre-paid interest. The transaction was evidenced by a Confirmation of Sale delivered to Cruz two days later, together with a Debit Memo 2 in the amount withdrawn and applied to the confirmed sale. These documents were issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was apparently in charge of such transactions. 3 Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew her investment. Quimbo, who again attended to her, prepared a Credit Memo 4 crediting the amount of P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02. 5 This time, Cruz was asked to sign a Withdrawal Slip for P196,122.98, representing the amount to be re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the bank. Several days later, Cruz received another Confirmation of Sale 7 and a copy of the Debit Memo. 8 On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After verification of her records, however, she was informed that the investment appeared to have been already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she had not been reporting for the past week. Shocked by this information, Cruz became hysterical and burst into tears. The branch manager, Roman Santos, assured her 9 that he would look into the matter.
6 1

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment. She received no definite answer, not even to the letter she wrote the 10 bank which was received by Santos himself. Finally, Cruz sent the bank a demand 11 letter dated November 12, 1986 for the amount of P200,000.00 plus interest. In a reply dated November 20, 1986, the bank's Vice President Lauro J. Jocson said that there appeared to be an anomaly and requested Cruz to defer court action as they hoped to settle the matter amicably. 12 Increasingly worried, Cruz sent another letter reiterating her demand. 13 This time the reply of the bank was unequivocal and negative. She was told that her request had to be denied because she had already withdrawn the amount she was claiming. 14 Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her investment. The bank also instituted a third-party complaint against Quimbo, who did not file an answer and was declared 15 in default. The bank, however, did not present any evidence against her. After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows: ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff to pay to the plaintiffs the following amounts: 1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27, 1986, until fully paid; 2. P30,000.00, as moral damages; 3. P20,000.00, as exemplary damages; and 4. P25,000.00, as reasonable attorney's fees. The counterclaim and the third-party complaint of the defendant/third-party plaintiff are dismissed. With costs against the defendant/third-party plaintiff. The decision was affirmed in toto on appeal to the respondent court. The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the ground that the bank should not have been found liable for a quasi-delict when it was sued for breach of contract. The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet collected her investment of P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that the Confirmation of Sale and the Debit Memo are fake and should not have been given credence by the lower courts. The findings of the trial court on these issues have been affirmed by the respondent court and we see no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that the private respondents signed the Withdrawal Slip only as part of the bank's new procedure of reinvestment. She did not actually receive the amount indicated therein, which she was made to understand was being re-invested in her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo later issued to her by Quimbo. Especially persuasive are the following observations of the trial court:
17

It is also worthy of note and wonder that although the bank impleaded Quimbo in a third-party complaint, it did not pursue its suit even when she failed to answer and was declared in default. The bank did not introduce evidence against her although it could have done so under the rules. No less remarkably, it did not call on her to testify on its behalf, considering that under the circumstances claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony was less direct and categorical than the testimony Quimbo could have given. We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the article cited by the respondent court on the agent's liability falls under the heading in the Civil Code on quasi-delicts. On the other hand, the respondent court clearly declared that: The defendant/third-party plaintiff being liable for the return of the P200,000.00 placement of the plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof, which is contractual, is for all damages which may be reasonably attributed to the non-performance of the obligation, . . . xxx xxx xxx Because of the bad faith of the defendant/third-party plaintiff in its breach of its contract with the plaintiffs, the latter are, therefore, entitled to an award of moral damages . . . (Emphasis supplied) There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the amount she had deposited with it and which she had a right to withdraw upon its maturity. That investment was acknowledged by its own employees, who had the apparent authority to do so and so could legally bind it by its acts vis-a-vis Cruz. Whatever might have happened to the investment whether it was lost or stolen by whoever was not the concern of the depositor. It was the concern of the bank. As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation of Sale. The failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale constituted its breach of their contract, for which it should be held liable. The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are clearly and absolutely against the petitioner. Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code thus:

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98 from their savings account, if her only intention was to make such a withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money from the defendant/third-party plaintiff, they could have withdrawn an amount in round figures. Certainly, it is unbelievable that their withdrawal was in the irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did not receive this money, but it was left by her with the defendant/third-party plaintiff in order to buy Central Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at the instance of thirdparty defendant Susan Quimbo who told her that it was a new bank requirement for the roll-over of a matured placement which she trustingly believed. Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the withdrawal slip is exactly the same amount Cruz was re-investing after deducting therefrom the pre-paid interest. The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the Debit Memo which were made on its official, forms. These are admittedly not available to the general public or even its depositors and are handled only by its personnel. Even assuming that they were not signed by its authorized officials, as it claims, there was no obligation on the part of Cruz to verify their authority because she had the right to presume it. The documents had been issued in the office of the bank itself and by its own employees with whom she had previously dealt. Such dealings had not been questioned before, much leas invalidated. There was absolutely no reason why she should not have accepted their authority to act on behalf of their employer.

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person. 18 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.) Application of these principles in especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors. It would appear from the facts established in the case before us that the petitioner was less than eager to present Quimbo at the trial or even to establish her liability although it made the initial effort which it did not pursue to hold her answerable in the third-party complaint. What ever happened to her does not appear in the record. Her absence from the proceedings feeds the suspicion of her possible misdeed, which the bank seems to have studiously ignored by its insistence that the missing money had been actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, in effect and by extension, the disappeared Quimbo who apparently has much to explain. We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she was claiming against it. It was obvious that an irregularity had been committed by the bank's personnel, but instead of repairing the injury to Cruz by immediately restoring her money to her, it sought to gloss over the anomaly in its own operations.

Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her on the unproved defense that she had already withdrawn it, the bank violated the trust she had reposed in it and thus subjected itself to further liability for moral and exemplary damages. If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit (and so himself extending the loan to the bank) does not bother with the red tape requirements and the finicky conditions in the documents he signs. His feeling is that he does not have to be wary of the bank because it will deal with him fairly and there is no reason to suspect its motives. This is an attitude the bank must justify. While this is not to say that bank regulations are meaningless or have no binding effect, they should, however, not be used for covering up the fault of bank employees when they blunder or, worse, intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified without delay. The bank must always act in good faith. The ordinary customer does not feel the need for a lawyer by his side every time he deals with a bank because he is certain that it is not a predator or a potential adversary. The bank should show that there is really no reason for any apprehension because it truly deserves his faith in it. WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against the petitioner. It is so ordered. Grio-Aquino, Bellosillo and Quiason, JJ., concur.

G.R. No. 95641 September 22, 1994 SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees. Gutierrez, Cortes & Gonzales for petitioners. Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent. ROMERO, J.: On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitionerinsured failed to pay his premiums. On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager. These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company. There are two issues for resolution in this case: (1) Did the erroneous act of cancelling subject insurance policy entitle petitionerinsured to payment of damages? (2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account. If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you within 7 days please notify us. If payment is made to our office, demand for an OFFICIAL RECEIPT. On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured for the amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters: Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us. 4 On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured. Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential. Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages. On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7 In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to

believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the 8 terms of the referenced policy until such time that this matter is cleared." On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9 The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court. In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation. The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following: a) P1,703.65 as actual damages; b) P200,000.00 as moral damages; and c) P50,000.00 as exemplary damages; 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and 3. To pay the costs.

at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for. This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy. After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or illwill; a furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign. Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments: I Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers. II

In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident

Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith. III

Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation. IV Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants. It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitionerinsured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same. Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable. We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the

province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Article 1910 thus reads: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the nonaccrual of said premiums to its account, does not free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.
15

Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16

the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts. The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18 WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof. SO ORDERED. Feliciano, Melo and Vitug, JJ., concur. Bidin, J., is on leave.

[G.R. No. 153743. March 18, 2005]

discontinued the construction of her house allegedly for failure of her husband to send the necessary financial support. So, she decided to dispose of the property. A friend, Flor Bacani, volunteered to act as [petitioners] agent in selling the lot. Trusting Bacani, [petitioner] delivered their owners copy of Transfer Certif icate of Title No. 53412 to him (Bacani). Later, the title was said to have been lost. In the petition for its reconstitution, [petitioner] gave Bacani all her receipts of payment for real estate taxes. At the same time, Bacani asked [petitioner] to sign what she recalled was a record of exhibits. Thereafter, [petitioner] waited patiently but Bacani did not show up any more. On November 1, 1994, [Petitioner] Norma Domingo visited the lot and was surprised to see the [respondents] (Robles, for short) starting to build a house on the subject lot. A verification with the Register of Deeds revealed that the reconstituted Transfer Certificate of Title No. 53412 had already been cancelled with the registration of a Deed of Absolute Sale dated May 9, 1991 signed by Norma B. Domingo and her husband Valentino Domingo, as sellers, and [Respondent] Yolanda Robles, for herself and representing the other minor [respondents], as buyers. As a consequence, Transfer Certificate of Title No. 201730 was issued on June 10, 1991 in the name of [Respondent] Robles. Claiming not to have met any of the [respondents] nor having signed any sale over the property in favor of anybody (her husband being abroad at the time), [petitioner] assumed that the Deed of Absolute Sale dated May 9, 1991 is a forgery and, therefore, could not validly transfer ownership of the lot to the [respondents]. Hence, the case for the nullity thereof and its reconveyance. [Respondents] Robles responded alleging to be buyers in good faith and for value. They narrate that the subject lot was offered to them by Flor Bacani, as the agent of the owners; that after some time when they were already prepared to buy the lot, Bacani introduced to them the supposed owners and agreed on the sale; then, on May 9, 1991, Bacani and the introduced seller presented a Deed of Absolute Sale already signed by Valentino and Norma Domingo needing only her (Robles) signature. Presented likewise at that meeting, where she paid full purchase price, was the original of the owners duplicate of Transfer Certificate of Title No. 53412. Then sometime later, [Respondents] Robles contracted to sell the lot in issue in favor of spouses Danilo and Herminigilda Deza for P250,000.00. [Respondent] Yolanda Robles even had to secure a guardianship authority over the persons and properties of her minor children from the Regional Trial Court of Pasig in JDRC No. 2614. When only P20,000.00 remained unpaid of the total purchase price under the contract to sell, payment was stopped because of the letter received by Yolanda Robles that [petitioner] intends to sue her. After due proceedings, the [Regional Trial Court] rendered its Decision dated May 13, 1996, dismissing the complaint.[7]

NORMA B. DOMINGO, petitioner, vs. YOLANDA ROBLES; and MICHAEL MALABANAN ROBLES, MARICON MALABANAN ROBLES, MICHELLE MALABANAN ROBLES, All Minors Represented by Their Mother, YOLANDA ROBLES, respondents. DECISION PANGANIBAN, J.: Forgery must be proven by the party alleging it; it cannot be presumed. To prevent a forged transfer from being registered, the Torrens Act requires, as a prerequisite to registration, the production of the owners certificate of title and the instrument of conveyance. A registered owner who places in the hands of another an executed document of transfer of registered land effectively represents to a third party that the holder of such document is authorized to deal with the property.[1] The Case

Before us is a Petition for Review[2] under Rule 45 of the Rules of Court, challenging the May 27, 2002 Decision[3] of the Court of Appeals (CA) in CA-GR CV No. 53842. The decretal portion of the assailed Decision reads: IN VIEW OF ALL THE FOREGOING, [there being] no reversible error in the challenged decision, the same is hereby AFFIRMED, in toto, and the instant appeal ordered DISMISSED. Costs against the [petitioner].[4] On the other hand, the affirmed Decision[5] of the Regional Trial Court (RTC), Branch 272 of Marikina, disposed as follows: WHEREFORE, premises considered, the complaint subject of this decision is hereby DISMISSED.[6] The Facts

The facts are narrated by the CA as follows: The historical backdrop shows that [petitioner] and her husband, Valentino Domingo, were the registered owners of Lot 19, Block 1, subdivision plan (LRC) Psd-15706 located at Cristina Subdivision, Concepcion, Marikina and covered by Transfer Certificate of Title No. 53412. On this lot, [Petitioner] Norma B. Domingo

Ruling of the Court of Appeals

The CA held that respondents were purchasers in good faith and for value. According to its findings, (a) the sale was admittedly made through petitioners agent; (b) as Domingos agent, Bacani brought with him the original of the owners duplicate Certificate of Title of the property and some receipts; (c) the reconstituted title presented to the buyers was free from any liens, encumbrances or adverse interests of other persons; and (d) the land was unoccupied. Petitioner was not able to present, against these established facts, any evidence to prove that respondents had prior knowledge of any other persons right to or interest over the property in question. Hence, this Petition.[8] Issue

Norma Domingo in the Deed of Absolute Sale in favor of the appellees and the signature in the verification of the complaint manifest a striking similarity to the point that without any contrary proof, it would be safe to conclude that said signatures were written by one and the same person. Sadly, appellant left that matter that way without introducing counteracting evidence. x x x[14] Petitioner also failed to convince the trial court that the person with whom Respondent Yolanda Robles transacted was in fact not Valentino Domingo. Except for her insistence that her husband was out of the country, petitioner failed to present any other clear and convincing evidence that Valentino was not present at the time of the sale. Bare allegations, unsubstantiated by evidence, are not equivalent to proof.[15] Petitioner now stresses the issue of good faith on the part of respondents. In the absence of a finding of fraud and a consequent finding of authenticity and due execution of the Deed of Absolute Sale, a discussion of whether respondents were purchasers in good faith is wholly unnecessary. Without a clear and persuasive substantiation of bad faith, a presumption of good faith in their favor stands.[16] The sale was admittedly made with the aid of Bacani, petitioners agent, who had with him the original of the owners duplicate Certificate of Title to the property, free from any liens or encumbrances. The signatures of Spouses Domingo, the registered owners, appear on the Deed of Absolute Sale. Petitioners husband met with Respondent Yolanda Robles and received payment for the property. The Torrens Act requires, as a prerequisite to registration, the production of the owners certificate of title and the instrument of conveyance. The registered owner who places in the hands of another an executed document of transfer of registered land effectively represents to a third party that the holder of such document is authorized to deal with the property.[17] WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

Petitioner submits this sole issue for our consideration: To determine whether or not the petitioner is entitled to her claims, the issue worthy of consideration by the Honorable Court in the instant case is WHO IS A PURCHASER IN GOOD FAITH?[9] The Courts Ruling

The Petition has no merit. Sole Issue: Acquisition of Valid Title It is a well-established principle that factual findings of the trial court, when affirmed by the Court of Appeals, are binding on this Court.[10] Petitioner has given this Court no cogent reason to deviate from this rule; on the contrary, the findings of the courts a quo are amply supported by the evidence on record. Petitioner claims that her signature and that of her husband were forged in the Deed of Absolute Sale transferring the property from the Domingo spouses to respondent. Relying on the general rule that a forged deed is void and conveys no title,[11] she assails the validity of the sale. It is a well-settled rule, however, that a notarized instrument enjoys a prima facie presumption of authenticity and due execution.[12] Clear and convincing evidence must be presented to overcome such legal presumption. Forgery cannot be presumed; hence, it was incumbent upon petitioner to prove it.[13] This, she failed to do. On this point, the CA observed: x x x. What surprises the Court is that a comparison of the signature of appellant

Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.

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. Renato S. Corpuz for private respondents.1991 Nov 211st DivisionG.R. No. 94050 CRUZ, J.: The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as an agent. The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows: THE STATE FAIR OF TEXAS '80 PARTICIPATION CONTRACT PARTICIPANT (COMPANY NAME) EMILY WHITE ENTERPRISES. I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to October 19, 1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars. I/We further understand that this participation contract shall be deemed noncancelable after payment of the said down payment, and that any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS, INC. FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and materials but does not include interior designs which will be per our specifications and expenses. PARTICIPANT'S AUTHORIZED SIGNATURE: (SGD.) EMILY WHITE DATE: 8/13/80 PARTICIPATION ACCEPTED BY: (SGD.) SYLVIA H. BEDIA DATE: Aug. 1, 1980.

Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her name, nor were they authorized by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2 In their joint answer, the defendants denied the plaintiffs allegation that they had deceived her and explained that no display space was registered in her name as she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3 In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4 In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees and the costs. The court said: In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code) Sustaining the trial court on this point, the respondent court 5 declared in its decision dated March 30, 1990: The evidence, on the whole, shows that the definitely acted on her own. She represented herself as authorized by the State of Texas to solicit and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted.

We do not share these views.

On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated

It is noteworthy that in her letter to the Minister of Trade dated December 23, 1984, Emily White began:

I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associates charged me US $150.00 per square meter for display booth of said fair. I have paid an advance of US $500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6 As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of cancellation of her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia. Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation. If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal. The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros. Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her authority when she entered into the Participation Contract on behalf of Hontiveros, it is the latter that should be held answerable for any obligation arising from that agreement. By moving to dismiss the complaint against Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims they might have proved against the latter under the contract signed for it by Bedia. It should be obvious that having waived these claims against the principal, they cannot now assert them against the agent. WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay City.

Narvasa (Chairman), Feliciano, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. L-8169

January 29, 1957

Q. Who released the valve? A. The greasemen, for the escape of the air. As the escape of the air is too strong for my ear I faced backward. I faced toward Isaac Peral Street, and covered my ear. After the escaped of the air has been finished, the air coming out from the valve, I turned to face the car and I saw the car swaying at that time, and just for a few second the car fell., (t.s.n. pp. 22-23.) The case was immediately reported to the Manila Adjustor Company, the adjustor of the firemen's Insurance Company and the Commercial Casualty Insurance Company, as the car was insured with these insurance companies. After having been inspected by one Mr. Baylon, representative of the Manila Adjustor Company, the damaged car was taken to the shops of the Philippine Motors, Incorporated, for repair upon order of the Firemen's Insurance Company and the Commercial Casualty Company, with the consent of Salvador R. Sison. The car was restored to running condition after repairs amounting to P1,651.38, and was delivered to Salvador R. Sison, who, in turn made assignments of his rights to recover damages in favor of the Firemen's Insurance Company and the Commercial Casualty Insurance Company. On the other hand, the fall of the car from the hydraulic lifter has been explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline and Service Station, as follows: Q. Were you able to lift the car on the hydraulic lifter on the occasion, September 3, 1947? A. Yes, sir. Q. To what height did you raise more or less? A. More or less five feet, sir. Q. After lifting that car that height, what did you do with the car? A. I also washed it, sir. Q. And after washing? A. I greased it. Q. On that occasion, have you been able to finish greasing and washing the car? A. There is one point which I could not reach.

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner, vs. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First Division), respondents. Ross, Selph, Carrascoso & Janda for petitioner. J. A. Wolfson and Manuel Y. Macias for respondents. PADILLA, J.: Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which reversed that of the Court of First Instance of Manila and sentenced ". . . the defendants-appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances." The Court of Appeals found the following: Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell Company of the Philippine Islands, Ltd. accept the statement of facts made by the trial court in its decision and appearing on pages 23 to 37 of the Record on Appeal, we quote hereunder such statement: This is an action for recovery of sum of money, based on alleged negligence of the defendants. It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on September 3, 1947 to the Shell Gasoline and Service Station, located at the corner of Marques de Comillas and Isaac Peral Streets, Manila, for washing, greasing and spraying. The operator of the station, having agreed to do service upon payment of P8.00, the car was placed on a hydraulic lifter under the direction of the personnel of the station. What happened to the car is recounted by Perlito Sison, as follows: Q. Will you please describe how they proceeded to do the work? A. Yes, sir. The first thing that was done, as I saw, was to drive the car over the lifter. Then by the aid of the two grease men they raised up my car up to six feet high, and then washing was done. After washing, the next step was greasing. Before greasing was finished, there is a part near the shelf of the right fender, right front fender, of my car to be greased, but the the grease men cannot reached that part, so the next thing to be done was to loosen the lifter just a few feet lower. Then upon releasing the valve to make the car lower, a little bit lower . . .

Q. And what did you do then? A. I lowered the lifter in order to reach that point. Q. After lowering it a little, what did you do then? A. I pushed and pressed the valve in its gradual pressure. Q. Were you able to reach the portion which you were not able to reach while it was lower? A. No more, sir. Q. Why? A. Because when I was lowering the lifter I saw that the car was swinging and it fell. THE COURT. Why did the car swing and fall? WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.) The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts which is hereunder also reproduced: In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila, Philippines, owned by the defendant The Shell Company of the Philippine Islands, Limited, but operated by the defendant Porfirio de la Fuente, for the purpose of having said car washed and greased for a consideration of P8.00 (t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen's Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the sum of P10,000 (Exhibits "A', "B", and "D"). The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his two employees, Alfonso M. Adriano, as greaseman and one surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job the car was carefully and centrally placed on the platform of the lifter in the gasoline and service station aforementioned before raising up said platform to a height of about 5 feet and then the servicing job was started. After more than one hour of washing and greasing, the job was about to be completed except for an ungreased portion underneath the vehicle which could not be reached by the greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and while doing so, the car for unknown reason accidentally fell and suffered damage to the value of P1, 651.38 (t.s.n., pp. 65-67).

The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance of P100.00 to Salvador Sison in accordance with the terms of the insurance contract, have filed this action together with said Salvador Sison for the recovery of the total amount of the damage from the defendants on the ground of negligence (Record on Appeal, pp. 1-6). The defendant Porfirio de la Fuente denied negligence in the operation of the lifter in his separate answer and contended further that the accidental fall of the car was caused by unforseen event (Record on Appeal, pp. 17-19). The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila Adjustor Company, to investigate the incident and after such investigation the damaged car, upon order of the insures and with the consent of the owner, was brought to the shop of the Philippine Motors, Inc. The car was restored to running condition after thereon which amounted to P1,651.38 and returned to the owner who assigned his right to collect the aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty Insurance Company. On 6 December 1947 the insures and the owner of the car brought an action in the Court of First Instance of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la Fuente to recover from them, jointly and severally, the sum of P1,651.38, interest thereon at the legal rate from the filing of the complaint until fully paid, the costs. After trial the Court dismissed the complaint. The plaintiffs appealed. The Court of Appeals reversed the judgment and sentenced the defendant to pay the amount sought to be recovered, legal interest and costs, as stated at the beginning of this opinion. In arriving at the conclusion that on 3 September 1947 when the car was brought to the station for servicing Profirio de la Fuente, the operator of the gasoline and service station, was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found that . . . De la Fuente owned his position to the Shell Company which could remove him terminate his services at any time from the said Company, and he undertook to sell the Shell Company's products exculusively at the said Station. For this purpose, De la Fuente was placed in possession of the gasoline and service station under consideration, and was provided with all the equipments needed to operate it, by the said Company, such as the tools and articles listed on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the date in question (Exhibit 1 and 2). These equipments were delivered to De la Fuente on a so-called loan basis. The Shell Company took charge of its care and maintenance and rendered to the public or its customers at that station for the proper functioning of the equipment. Witness Antonio Tiongson, who was sales superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the same Company, supervised the operators and conducted periodic inspection of the Company's gasoline and service station, the service station in question inclusive. Explaining his duties and responsibilities and the reason for the loan, Tiongson said: "mainly of the supervision of sales or (of) our dealers and rountinary inspection of the equipment loaned by the Company" (t.s.n., 107); "we merely inquire about how the equipments

are, whether they have complaints, and whether if said equipments are in proper order . . .", (t.s.n., 110); station equipments are "loaned for the exclusive use of the dealer on condition that all supplies to be sold by said dealer should be exclusively Shell, so as a concession we loan equipments for their use . . .," "for the proper functioning of the equipments, we answer and see to it that the equipments are in good running order usable condition . . .," "with respect to the public." (t.s.n., 111112). De la Fuente, as operator, was given special prices by the Company for the gasoline products sold therein. Exhibit 1 Shell, which was a receipt by Antonio Tiongson and signed by the De la Fuente, acknowledging the delivery of equipments of the gasoline and service station in question was subsequently replaced by Exhibit 2 Shell, an official from of the inventory of the equipment which De la Fuente signed above the words: "Agent's signature" And the service station in question had been marked "SHELL", and all advertisements therein bore the same sign. . . . . . . De la Fuente was the operator of the station "by grace" of the Defendant Company which could and did remove him as it pleased; that all the equipments needed to operate the station was owned by the Defendant Company which took charge of their proper care and maintenance, despite the fact that they were loaned to him; that the Defendant company did not leave the fixing of price for gasoline to De la Fuente; on the other hand, the Defendant company had complete control thereof; and that Tiongson, the sales representative of the Defendant Company, had supervision over De la Fuente in the operation of the station, and in the sale of Defendant Company's products therein. . . . Taking into consideration the fact that the operator owed his position to the company and the latter could remove him or terminate his services at will; that the service station belonged to the company and bore its tradename and the operator sold only the products of the company; that the equipment used by the operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance; that an employee of the company supervised the operator and conducted periodic inspection of the company's gasoline and service station; that the price of the products sold by the operator was fixed by the company and not by the operator; and that the receipt signed by the operator indicated that he was a mere agent, the finding of the Court of Appeals that the operator was an agent of the company and not an independent contractor should not be disturbed. To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligation stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter. It was admitted by the operator of the gasoline and service station that "the car was carefully and centrally placed on the platform of the lifter . . ." and the Court of Appeals found that . . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused therefor, were the result of the jerking and swaying of the lift when the valve was

released, and that the jerking was due to some accident and unforeseen shortcoming of the mechanism itself, which caused its faulty or defective operation or functioning, . . . the servicing job on Appellant Sison's automobile was accepted by De la Fuente in the normal and ordinary conduct of his business as operator of his co-appellee's service station, and that the jerking and swaying of the hydraulic lift which caused the fall of the subject car were due to its defective condition, resulting in its faulty operation. . . . As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the breach of the undertaking by the agent is one for which the principal is answerable. Moreover, the company undertook to "answer and see to it that the equipments are in good running order and usable condition;" and the Court of Appeals found that the Company's mechanic failed to make a thorough check up of the hydraulic lifter and the check up made by its mechanic was "merely routine" by raising "the lifter once or twice and after observing that the operator was satisfactory, he (the mechanic) left the place." The latter was negligent and the company must answer for the negligent act of its mechanic which was the cause of the fall of the car from the hydraulic lifter. The judgment under review is affirmed, with costs against the petitioner. Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

G.R. No. 88539 October 26, 1993 KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER SUPPLY," petitioner, vs. THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents. Leighton R. Siazon for petitioner. Melanio L. Zoreta for private respondent. BIDIN, J.: This petition for review assails the decision of the respondent Court of Appeals ordering petitioner to pay private respondent, among others, the sum of P297,482.30 with interest. Said decision reversed the appealed decision of the trial court rendered in favor of petitioner. The case involves an action for a sum of money filed by respondent against petitioner anchored on the following antecedent facts: Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on the other hand, is a partnership duly organized and existing under the laws of the Philippines with business address at Kalookan City. From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private respondent as payment for the paper products. Unfortunately, sad checks were later dishonored by the drawee bank. Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner denied any involvement in the transaction entered into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to the selling price of the subject merchandise. Left with no recourse, private respondent filed an action against petitioner for the collection of P297,487.30 representing the price of the merchandise. After due hearing, the trial court dismissed the complaint against petitioner for lack of merit.

On appeal, however, the decision of the trial court was modified, but was in effect reversed by the Court of Appeals, the dispositive portion of which reads: WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant Kue Cuison is hereby ordered to pay plaintiff-appellant Valiant Investment Associates the sum of P297,487.30 with 12% interest from the filing of the complaint until the amount is fully paid, plus the sum of 7% of the total amount due as attorney's fees, and to pay the costs. In all other respects, the decision appealed from is affirmed. (Rollo, p. 55) In this petition, petitioner contends that: THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES. THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC. THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE TRIAL COURT, (Rollo, p, 19) The issue here is really quite simple whether or not Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction. This petition ought to have been denied outright, forin the final analysis, it raises a factual issue. It is elementary that in petitions for review under Rule 45, this Court only passes upon questions of law. An exception thereto occurs where the findings of fact of the Court of Appeals are at variance with the trial court, in which case the Court reviews the evidence in order to arrive at the correct findings based on the records. As to the merits of the case, it is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must therefore fail. It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business

with petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner admitted his close relationship with Tiu Huy Tiac when he said that they are "like brothers" ( Rollo, p. 54). There was thus no reason for anybody especially those transacting business with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch. In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is clearly self-serving inasmuch as Villanueva worked for private respondent as its manager. We disagree, The argument that Villanueva's testimony is self-serving and therefore inadmissible on the lame excuse of his employment with private respondent utterly misconstrues the nature of "'self-serving evidence" and the specific ground for its exclusion. As pointed out by this Court in Co v. Court of Appeals et, al., (99 SCRA 321 [1980]): Self-serving evidence is evidence made by a party out of court at one time; it does not include a party's testimony as a witness in court. It is excluded on the same ground as any hearsay evidence, that is the lack of opportunity for crossexamination by the adverse party, and on the consideration that its admission would open the door to fraud and to fabrication of testimony. On theother hand, a party's testimony in court is sworn and affords the other party the opportunity for crossexamination (emphasis supplied) Petitioner cites Villanueva's failure, despite his commitment to do so on crossexamination, to produce the very first invoice of the transaction between petitioner and private respondent as another ground to discredit Villanueva's testimony. Such failure, proves that Villanueva was not only bluffing when he pretended that he can produce the invoice, but that Villanueva was likewise prevaricating when he insisted that such prior transactions actually took place. Petitioner is mistaken. In fact, it was petitioner's counsel himself who withdrew the reservation to have Villanueva produce the document in court. As aptly observed by the Court of Appeals in its decision: . . . However, during the hearing on March 3, 1981, Villanueva failed to present the document adverted to because defendant-appellant's counsel withdrew his reservation to have the former (Villanueva) produce the document or invoice, thus prompting plaintiff-appellant to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3, 1981). Now, defendant-appellant assails the credibility of Villanueva for having allegedly failed to produce even one single document to show that plaintiffappellant have had transactions before, when in fact said failure of Villanueva to produce said document is a direct off-shoot of the action of defendant-appellant's counsel who withdrew his reservation for the production of the document or invoice and which led plaintiff-appellant to rest its case that very day. (Rollo, p.52)

In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan was part of an intricate plot to defraud him. However, petitioner failed to substantiate or prove that the subject transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's daughter and assistant manager Imelda Kue Cuison which confirmed the credibility of Tan as a witness. On the witness stand, Imelda testified that she knew for a fact that prior to the transaction in question, Tan regularly transacted business with her father (petitioner herein), thereby corroborating Tan's testimony to the same effect. As correctly found by the respondent court, there was no logical explanation for Tan to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison only served to add credence to Tan's testimony as regards the transaction, the liability for which petitioner wishes to be absolved. But of even greater weight than any of these testimonies, is petitioner's categorical admission on the witness stand that Tiu Huy Tiac was the manager of his store in Sto. Cristo, Binondo, to wit: Court: xxx xxx xxx Q And who was managing the store in Sto. Cristo? A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember the exact year. Q So, Mr. Tiu Huy Tiac took over the management,. A Not that was because every afternoon, I was there, sir. Q But in the morning, who takes charge? A Tiu Huy Tiac takes charge of management and if there (sic) orders for newsprint or bond papers they are always referred to the compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p. 50, emphasis supplied). Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the denials made by petitioner regarding the capacity of Tiu Huy Tiac to enter into the transaction in question. Furthermore, consistent with and as an obvious indication of the fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch, three (3) months after Tiu Huy Tiac left petitioner's employ, petitioner even sent, communications to its customers notifying them that Tiu Huy Tiac is no longer connected with petitioner's business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's manager than any uttered disclaimer. More than anything else, this act taken together with the declaration of petitioner in open court amount to admissions under Rule 130 Section 22 of the Rules of Court, to wit : "The act, declaration or omission of a party as to a relevant fact may be given

in evidence against him." For well-settled is the rule that "a man's acts, conduct, and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not. If a man's extrajudicial admissions are admissible against him, there seems to be no reason 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 in disowning the transactions entered into by Tiu Huy Tiac despite several attempts made by respondent to collect the amount from him, proved all the more that petitioner was aware of the questioned commission was tantamount to an admission by silence under Rule 130 Section 23 of the Rules of Court, thus: "Any act or declaration made in the presence of and within the observation of a party who does or says nothing when the act or declaration is such as naturally to call for action or comment if not true, may be given in evidence against him." All of these point to the fact that at the time of the transaction Tiu Huy Tiac was admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently, the transaction in question as well as the concomitant obligation is valid and binding upon petitioner. By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the representations are intentional or merely negligent so long as innocent, third persons relied upon such representations in good faith and for value As held in the case of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]): More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal issolidarily liable with the agent if the former allowed the latter to act as though he had full powers." (Emphasis supplied). The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as joint tortfeasors whose liability is joint and solidary. Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the principal might not have had actual knowledge of theagent's misdeed is of no moment. Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations, became an agent of petitioner by estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon (Article 1431, Civil Code of the Philippines). A

party cannot be allowed to go back on his own acts and representations to the prejudice of the other party who, in good faith, relied upon them (Philippine National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]). Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac on his behalf. Thus, even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar. Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in not turning over the proceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate petitioner of his liability to private respondent. For it is an equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss (Francisco vs. Government Service Insurance System, 7 SCRA 577 [1963]). Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary to resolve the other peripheral issues raised by petitioner. WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against petitioner. SO ORDERED. Feliciano, Romero, Melo and Vitug, JJ., concur.

Woodchild Holdings, Inc. v. Roxas Electric & Construction, Co. CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 56125 reversing the Decision[2] of the Regional Trial Court of Makati, Branch 57, which ruled in favor of the petitioner. The Antecedents The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and Construction Company, was the owner 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 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal. At a special meeting on May 17, 1991, the respondents Board of Directors approved a resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square meters, at a price and under such terms and conditions which he deemed most reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on behalf of the company.[3] Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A3-B-2 covered by TCT No. 78086 on which it planned to construct its warehouse building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the price of P7,213,000.[4] One of the terms incorporated in Dys offer was the following provision: 5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he holds a good and registrable title to the property, which shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the subject property already includes the area on which the right of way traverses from the main lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished by the Owner/Seller to the buyer. Furthermore, in the event that the right of way is insufficient for the buyers purposes (example: entry of a 45-foot container), the seller agrees to sell additional square meter from his current adjacent property to allow the

buyer to full access and full use of the property.[5] Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.[6] On September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and conditions: The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide to be used as the latters egress from and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendees vehicles. The Vendor agrees that in the event that the right of way is insufficient for the Vendees use (ex entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current adjacent property to allow the Vendee full access and full use of the property. The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the parcel of land and improvements herein conveyed, against all claims of any and all persons or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of land and improvements thereon and will defend the Vendee against all present and future claims and/or action in relation thereto, judicial and/or administrative. In particular, the Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of failure on the part of the Vendor to eject all occupants and squatters within the two-week period or breach of any of the stipulations, covenants and terms and conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall have the right to cancel the sale and demand reimbursement for all payments made to the Vendor with interest thereon at 36% per annum.[8] On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for the construction of the warehouse building on a portion of the property with an area of 5,088 square meters.[9] WBI proposed to start the project on October 1, 1991 and to turn over the building to WHI on February

29, 1992.[10] In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1, 1992.[11] WHI accepted the offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991 as planned because of the presence of squatters in the property and suggested a renegotiation of the contract after the squatters shall have been evicted.[12] Subsequently, the squatters were evicted from the property. On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for P11,804,160.[13] The contractor started construction in April 1992 even before the building officials of Antipolo City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the property for a monthly rental of P300,000 for a period of three years from March 1, 1993 up to February 28, 1996.[14] In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of the property over which WHI had been granted a right of way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided for in the deed of absolute sale, and complained about the latters failure to eject the sq uatters within the three-month period agreed upon in the said deed. The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B1 covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response from RECCI. On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the following in its complaint: 5. The current adjacent property referred to in the aforequoted paragraph of the Deed of Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric. 6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of Absolute Sale unjustifiably

refused to deliver to Woodchild Holdings the stipulated beneficial use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the plaintiff. 7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of Sale to purchase additional square meters from Roxas Electric to allow it full access and use of the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings request contrary to defendant Roxas Electrics obligation under the Deed of Absolute Sale (Annex A). 8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the premises within the stipulated time frame and as a consequence thereof, plaintiffs planned construction has been considerably delayed for seven (7) months due to the squatters who continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction materials and labor. 9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation under Annex A, Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00 supposed income from rentals of the subject property for seven (7) months. 10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its obligations and warranties under the Deed of Absolute Sale but notwithstanding such demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiffs demand for compliance. Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and made an integral part hereof. 11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the agreement under Annex A with respect to the beneficial use and right of way, however, Roxas Electric unjustifiably ignored and disregarded the same. Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and made an integral part hereof. 12. By reason of Roxas Electrics continuous refusal and failure to comply with Woodchild Holdings valid demand for compliance under Annex A, the latter was constrained to litigate,

thereby incurring damages as and by way of attorneys fees in the amount of P100,000.00 plus costs of suit and expenses of litigation.[15] The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus: WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings and ordering Roxas Electric the following: a) b) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square meters and 55 square meters; to sell to Woodchild Holdings additional 25 and 100 square meters to allow it full access and use of the purchased property pursuant to para. 5 of the Deed of Absolute Sale; to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way granted to Woodchild Holdings under the Deed of Absolute Sale; to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and unrealized income; to pay attorneys fees in the amount of P100,000.00; and to pay the costs of suit.

On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which reads: WHEREFORE, judgment is hereby rendered directing defendant: (1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 sq. m.; (2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of Absolute Sale; (3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their Deed of Absolute Sale; (4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiffs unrealized income; (5) and To pay the costs of suit. SO ORDERED.[19] The trial court ruled that the RECCI was estopped from disowning the apparent authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court reasoned that to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he had the authority to bind the WHI relating to the easement of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085. The RECCI appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the trial court, and ordering the dismissal of the complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate court also ruled that the grant of a right of way and an option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix the location as well as the price of the portion of its property to be sold to the respondent. Hence, such provisions contained in the deed of absolute sale were not binding on the RECCI. The appellate court ruled that the delay in the construction of WHIs warehouse was due to its fault. The Present Petition To pay plaintiff P100,000 representing attorneys fees;

c)

d) e) f)

Other reliefs just and equitable are prayed for.[16] In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A3-B-1 to the WHI lacked the essential elements of a binding contract.[17] In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse building was due to the failure of the WHIs contractor to secure a building permit thereon.[18] During the trial, Dy testified that he told Roxas that the 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.

The petitioner now comes to this Court asserting that: I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. C) IS ULTRA VIRES. II. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO ALLOWING THE PLAINTIFFAPPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. C). III. THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. C) WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS. IV. IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE ASSAILED DECISION. V. THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH. C). VI. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL AS ATTORNEYS FEES.[20] The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable against the respondent; (b) whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale; and, (c) whether the respondent is liable to the petitioner for damages. On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said property. The petitioner contends that when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or egress from the property to the Sumulong Highway, since the latter had no

adequate outlet to the public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085 because of the grant by the respondent of a right of way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It contends that the respondent never objected to Roxas acceptance of its offer to purchase the property and the terms and conditions therein; the respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The petitioner asserts that the respondent even received the purchase price of the property without any objection to the terms and conditions of the said deed of sale. The petitioner claims that it acted in good faith, and contends that after having been benefited by the said sale, the respondent is estopped from assailing its terms and conditions. The petitioner notes that the respondents Board of Directors never approved any resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the New Civil Code. For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed of absolute sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute sale on the price thereof as well as the specific portion 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 separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporations board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides: SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their

successors are elected and qualified. Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. [22] Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.[23] In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon. Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which is worded as follows: RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he deems most reasonable and advantageous 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 of sale for and on behalf of the company.[25] Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on such terms and conditions which he deems most reasonable and advantageous. Under paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is required to convey real rights over immovable property.[26] Article 1358 of the New Civil Code requires that contracts which have for their object the creation of real rights over immovable property must appear in a public document.[27] The petitioner cannot feign ignorance of the need for Roxas to have been specifically authorized in writing by the Board of Directors to be able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which requires authority in writing, those dealing with him are charged with notice of that fact.[28] Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.[29] The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done.[30] In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it. We reject the petitioners submission that, in allowing Roxas to execute the contract to sell and the deed of absolute sale and failing to reject or disapprove the same, the respondent thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of the written power required under the statement of frauds.[31] In addition, the petitioners fallacy is its wrong assumption of the unproved premise that the respondent had full knowledge of all the terms and conditions contained in the deed of absolute sale when Roxas executed it. It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority.[32] There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. The apparent

power of an agent is to be determined by the acts of the principal and not by the acts of the agent.[33] For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence.[34] In this case, there is no evidence on record of specific acts made by the respondent[35] showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or that the respondent allowed him to do so. The petitioners contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the property. As such, the respondent had the right to retain the P5,000,000, the purchase price of the property it had sold to the petitioner. For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name.[36] Ratification is based on waiver the intentional relinquishment of a known right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification of that act must also be in writing.[37] Since the respondent had not ratified the unauthorized acts of Roxas, the same are unenforceable.[38] Hence, by the respondents retention of the amount, it cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas. On the last issue, the petitioner contends that the CA erred in dismissing its complaint for damages against the respondent on its finding that the delay in the construction of its warehouse was due to its (petitioners) fault. The petitioner asserts that the CA should have affirmed the ruling of the trial court that the respondent failed to cause the eviction of the squatters from the property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the petitioners warehouse was due to its late filing of an application for a building permit, only on May 28, 1992. The petitioners contention is meritorious. The respondent does not deny that it failed to cause the eviction of the squatters on or before September 29, 1991. Indeed, the respondent does not deny the fact that when the petitioner wrote the respondent demanding that the latter cause the eviction of the squatters on April 15, 1992, the latter were still in the premises. It was only after receiving the said letter in April 1992 that the respondent caused the eviction of the squatters, which thus cleared the way for the petitioners contractor to commence the construction of its warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property. Because of the respondents failure to cause their eviction as agreed upon, the petitioners contractor failed to commence the construction of the warehouse in October 1991 for the agreed price of P8,649,000. In the meantime, costs of construction materials spiraled. Under the construction contract entered into between the petitioner and the contractor, the petitioner was obliged to pay P11,804,160,[39] including the additional work costing P1,441,500, or a net increase of P1,712,980.[40] The respondent is liable for the difference between the original cost of construction and the increase thereon, conformably to Article 1170 of the New Civil Code, which reads: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the lease of the property to the Ponderosa Leather Goods Company. The respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil Code: Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. In sum, we affirm the trial courts award of damages and attorneys fees to the petitioner. IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by way of attorneys fees. No costs. SO ORDERED.

[G.R. No. 151319. November 22, 2004]

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as discounted to conform to the previous price as previously agreed upon. --- P95,000.00 Prepared by:

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN, respondent. DECISION TINGA, J.: For resolution in this case is a classic and interesting texbook question in the law on agency. This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22 June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802 entitled Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al., finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. 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 the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the down payment to MMPCI.[3] Baluyot issued handwritten and typewritten 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 in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.[5] Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a document[6] confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00. The document reads in part:

(Signed) (MRS.) FLORENCIA C. BALUYOT Agency Manager Holy Cross Memorial Park 4/18/85 Dear Atty. Linsangan: This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges for a period of five (5) years.

(Signed) FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI. On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking. For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint[7] for Breach of Contract and Damages against the former. Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the contract[8] because of non-payment of arrearages.[9] MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement.[10] Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract.[11] Official receipts showing the application of payment were turned over to Baluyot whom Atty. Linsangan had

from the beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he expressly admits that Contract No. 28660 on account of serious delinquencyis now due for cancellation under its terms and conditions.[12] The trial court held MMPCI and Baluyot jointly and severally liable.[13] It found that Baluyot was an agent of MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.[14] The dispositive portion of the decision reads: WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEYS FEES but with costs against the defendants. The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is GRANTED up to the extent of the costs. SO ORDERED.[15] MMPCI appealed the trial courts decision to the Court of Appeals.[16] It claimed that Atty. Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read, understood, and signed by the former.[17] It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant to its clear terms. In view thereof, because of Atty. Linsangan s delinquency, MMPCI validly cancelled the contract. MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyots acts. It added that it cannot be charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the written contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI merely enforced the terms and conditions imposed therein.[18] Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the formers obligation, as a party knowingly dealing with an alleged agent, to

determine the limitations of such agents authority, particularly when such alleged agents actions were patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyots authority or ask copies of official receipts for his payments.[19] The Court of Appeals affirmed the decision of the trial court. It upheld the trial courts finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCIs interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority.[20] The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyots authority may not have been expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice in the company for a long period of time.[21] Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot at the same time deny responsibility for such misrepresentation.[22] Finally, the Court of Appeals declared: There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should not be disturbed by this Court on appeal. WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto. SO ORDERED.[23] MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25] In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in disregarding the plain terms of the written contract and Atty. Linsangans failure to abide by the terms thereof, which justified its cancell ation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do not support a judgment against Baluyot only up to the extent of costs.[26] Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact faithfully performed his contractual obligations and complied with them in good faith for at least two years.[27] He claims that contrary to MMPCIs position, his profession as a lawyer is immaterial to the validity of the subject contract and the case at bar.[28] According to him, MMPCI had practically admitted

in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter.[29] We find for the petitioner MMPCI. The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.[30] In BPI Investment Corporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled: There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[32] In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[33] Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority.[34] In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an agent.[35] However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the latter.[36] Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its clients/prospective buyers. Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties. The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that Purchaser agrees that he has read or has had read to him this agreement, that he understands its terms and conditions, and that there are no covenants, conditions, warranties or representations other than those contained herein.[37] By signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside Baluyots authority. To repeat, Baluyots authority was limited only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by MMPCI. The document/letter confirming the agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers. It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.[38] The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.[39] If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse.[40] As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latters authority is no excuse to such person and the fault cannot be thrown upon the principal.[41] A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.[42] In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangans friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent of her authority.[43] Atty. Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater

degree of caution should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the written contract, knew the meaning and value of every word or phrase used in the contract, and more importantly, knew the legal effects which said document produced. He is bound to accept responsibility for his negligence. The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court, MMPCIs acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view of MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no longer deny responsibility therefor. The Court does not agree. Pertinent to this case are the following provisions of the Civil Code: Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification. Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.[44] Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of

ratification may arise.[45] Nevertheless, this principle does not apply if the p rincipals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts.[46] However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[47] No ratification can be implied in the instant case. A perusal of Baluyots Answer[48] reveals that the real arrangement between her and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, it appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyots statements in her letter[50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangans proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed. Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan and MMPCIs authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyots failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of the contract, if not for MMPCIs application of some of the checks to his account. However, the checks alone were not sufficient to cover his obligations. If MMPCI was aware of the arrangement, it would have refused the latters check payments for being insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to MMPCIs Sales Manager the details of her arrangement with Atty. Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the agreement. Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by,

or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real facts.[51] While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care and circumspection.[52] Even assuming that Atty. Linsangan was misled by MMPCIs actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent, whether said agent was clothed with the authority to change the terms of the principals written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most convenient and effective means of injustice.[53] In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score. Likewise, this Court does not find favor in the Court of Appeals findings that the authority of defendant Baluyot may not have been expressly conferred upon her; however, the same may have been derived impliedly by habit or custom which may have been an accepted practice in their company in a long period of time. A perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever presented to this effect. As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in the formers cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price. To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals ratification.[54] This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract by canceling the same. Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist

on what he claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same contract, since there is no evidence showing that Baluyot undertook to secure MMPCIs ratification. At best, the agreement between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with the same contract. If the contract was cancelled due to arrearages, Atty. Linsangans recourse should only be against Baluyot who personally undertook to pay the difference between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not antithetical to its business interests. However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from Baluyot, not as an agent of MMPCI, but in view of the latters breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangans P1,800.00 to complete the monthly installment payment under the contract, which, by her own admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyots failure to provide the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case. WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its Resolution dated 12 December 2001 in CAG.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Country Bankers v. Keppel Cebu Shipyard LEONARDO-DE CASTRO, J.: This is a petition for review on certiorari[1] to reverse and set aside the January 29, 2004 Decision[2] and October 28, 2004 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with modification the February 10, 1997 Decision[4] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-13447. Hereunder are the undisputed facts as culled from the records of the case. On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in the shipping industry, contracted the services of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship repair works on its vessel, the M/V Pacific Fortune.[5] On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its services, which amounted to P4,486,052.00.[6] Negotiations between Cebu Shipyard and Unimarine led to the reduction of this amount to P3,850,000.00. The terms of this agreement were embodied in Cebu Shipyards February 18, 1992 letter to the President/General Manager of Unimarine, Paul Rodriguez, who signed his conformity to said letter, quoted in full below: 18 February 1992 Ref No.: LL92/0383 UNIMARINE SHIPPING LINES, INC. C/O Autographics, Inc. Gorordo Avenue, Lahug, Cebu City Attention: Mr. Paul Rodriguez President/General Manager

above amounts in Philippine Peso and an additional check amount of P385,000.00, representing 10% [Value Added Tax] VAT on the above bill of P3,850,000.00. In the event that Unimarine fails to make full payment on the above due dates in US Dollars, the post-dated checks will be deposited by CSEW in payment of the amounts owned by Unimarine and Unimarine agree that the 10% VAT (P385,000.00) shall also become payable to CSEW. Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel before full payment of the above debt, agree to present CSEW surety bonds equal to 120% of the value of the credit extended. The total bond amount shall be P4,620,000.00. Yours faithfully, CEBU SHIPYARD & ENGG WORKS, INC (SGD) SEET KENG TAT Treasurer/VP-Admin. Conforme:

(SGD)______ PAUL RODRIGUEZ Unimarine Shipping Lines, Inc.

In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country Bankers Insurance Corp. (CBIC), through the latters agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety bond) on January 15, 1992 in the amount of P3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through Endorsement No. 33152[9] (the endorsement), which was later on attached to and formed part of the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-00365[10] in the amount of P1,620,000.00. On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. The pertinent portions of the contract read as follows: Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue, Cebu City hereby acknowledges that in consideration of Cebu Shipyard & Engineering Works, Inc. (Cebu Shipyard) at our request agreeing to release the vessel specified in part A of the Schedule (name of vessel) prior to the receipt of the sum specified in part B of the Schedule (Moneys Payable) payable in respect of certain works performed or to be performed by Cebu Shipyard and/or its subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its subcontractors in connection with the vessel for the party specified in part C of the Schedule (the Debtor),

This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific Fortune, our invoice no. 26035. The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 excluding VAT. Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of [P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to Philippine Peso exchange rate at the time of payment. The payment terms to be extended to Unimarine is as follows: Installments Amount Due Date 1 Installment 2 Installment
nd st

P2,350,000.00 P1,500,000.00

30 May 1992 30 Jun 1992

Unimarine will deposit post-dated checks equivalent to the

we hereby unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of the Moneys Payable on the terms and conditions as set out in part B of the Schedule. We likewise hereby expressly waive whatever right of excussion we may have under the law and equity. This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors, administrators, successors, and assigns and shall not be discharged until all obligation of this contract shall have been faithfully and fully performed by the Debtor.[11] Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu Shipyard was constrained to deposit the peso check corresponding to the initial installment of P2,350,000.00. The check, however, was dishonored by the bank due to insufficient funds.[12] Cebu Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to settle its account immediately.[13] On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to confirm Paul Rodriguezs promise that Unimarine will pay in full the P3,850,000.00, in US Dollars on July 1, 1992. Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a faxed letter, asked Unimarine if the payment could be picked up the next day. This was followed by another faxed message on July 6, 1992, wherein Cebu Shipyard reminded Unimarine of its promise to pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed[15] Unimarine, to inform it that interest charges will have to be imposed on their outstanding debt, and if it still fails to pay before August 28, 1992, Cebu Shipyard will have to enforce payment against the sureties and take legal action. On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter,[16] demanding payment, within seven days from receipt of the letter, the amount of P4,859,458.00, broken down as follows: B#26035 MV PACIFIC FORTUNE 4,486,052.00 LESS: ADJUSTMENT: CN#0051503/19/92 Add: VAT on repair bill no. 26035 Add: Interest/penalty charges: Debit Note No. 02381 Debit Note No. 02382 (636,052.00) 3,850,000.00 385,000.00 4,235,000.00 189,888.00 434,570.00 4,859,458.00

Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu Shipyard, through counsel, wrote the sureties CBIC[18] on November 18, 1992, and Plaridel,[19] on November 19, 1992, to inform them of Unimarines nonpayment, and to ask them to fulfill their obligations as sureties, and to respond within seven days from receipt of the demand. However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a Complaint dated January 8, 1993, before the RTC, Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil Case No. CBB-13447. CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of action. CBIC alleged that the surety bond was issued by its agent, Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should have doubted the authority of Quinain to issue the surety bond based on the following: 1. 2. The nature of the bond undertaking (guarantee payment), and the amount involved. The surety bond could only be issued in favor of the Department of Public Works and Highways, as stamped on the upper right portion of the face of the bond.[21] This stamp was covered by documentary stamps. The issuance of the surety bond was not reported, and the corresponding premiums were not remitted to CBIC.[22]

3.

CBIC added that its liability was extinguished when, without its knowledge and consent, Cebu Shipyard and Unimarine novated their agreement several times. Furthermore, CBIC stated that Cebu Shipyards claim had already been paid or extinguished when Unimarine executed an Assignment of Claims[23] of the proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that Cebu Shipyards claim had already prescribed as the endorsement that extended the surety bonds expiry date, was not reported to CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability should be limited to the face value of the bond and not for exemplary damages, attorneys fees, and costs of litigation.[24] Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint[25] against Unimarine, as cross defendant; Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement they executed in favor of CBIC; and Bethoven Quinain, as the agent who issued the surety bond and endorsement in excess of his authority, as third party defendants.[26] CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez executed an Indemnity Agreement, wherein they bound themselves, jointly and severally, to indemnify CBIC for any amount it may sustain or incur in connection with the issuance of the surety bond and the endorsement.[27] As for Quinain, CBIC alleged that he exceeded his authority as stated in the Special Power

of Attorney, wherein he was authorized to solicit business and issue surety bonds not exceeding P500,000.00 but only in favor of the Department of Public Works and Highways, National Power Corporation, and other government agencies.[28] On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the Cross and Third Party Complaint. Hontanosas claimed that he had no financial interest in Unimarine and was neither a stockholder, director nor an officer of Unimarine. He asseverated that his relationship to Unimarine was limited to his capacity as a lawyer, being its retained counsel. He further denied having any participation in the Indemnity Agreement executed in favor of CBIC, and alleged that his signature therein was forged, as he neither signed it nor appeared before the Notary Public who acknowledged such undertaking.[29] Various witnesses were presented by the parties during the course of the trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She was the Chief Accountant in charge of the custody of the documents of the company. She corroborated Cebu Shipyards allegations and produced in court the documents to support Cebu Shipyards claim. She also testified that while it was true that the proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to Cebu Shipyard, nothing was turned over to them.[30] Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V Pacific Fortune, despite the extensions granted to Unimarine. He claimed that he signed the Indemnity Agreement because he trusted Quinain that it was a mere pre-requisite for the issuance of the surety bond. He added that he did not bother to read the documents and he was not aware of the consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having noticed the limitation Valid only in favor of DPWH stamped on the surety bond.[31] However, Paul Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its obligation.[32] CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties included the evaluation and approval of all applications for and reviews of bonds issued by their agents, as authorized under the Special Power of Attorney and General Agency Contract of CBIC. Rianzares testified that she only learned of the existence of CBIC Surety Bond No. G (16) 29419 when she received the summons for this case. Upon investigation, she found out that the surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of their General Agency Contract, which provides that all bonds issued by the agent be reported to CBICs office within one week from the date of issuance. She further stated that the surety bond issued in favor of Unimarine was issued beyond Quinains authority. Rianzares added that she was not aware that an endorsement pertaining to the surety bond was also issued by Quinain.[33] After the trial, the RTC was faced with the lone issue of whether or not CBIC was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.[34] On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering Works, Incorporated and against the defendants: 1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers Insurance Corporation and Plaridel Surety and Insurance Corporation to pay plaintiff jointly and severally the amount of P4,620,000.00 equivalent to the value of the surety bonds; 2. Ordering further defendant Unimarine to pay plaintiff the amount of P259,458.00 to complete its entire obligation of P4,859,458.00; 3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorneys fees and litigation expenses; 4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff and third party plaintiff Country Bankers Insurance Corporation whatever amount the latter is made to pay to plaintiff.[35] The RTC held that CBIC, in its capacity as surety is bound with its principal jointly and severally to the extent of the surety bond it issued in favor of [Cebu Shipyard] because although the contract of surety is in essence secondary only to a valid principal obligation, his liability to [the] creditor is said to be direct, primary[,] and absolute, in other words, he is bound by the principal.[36] The RTC added: Solidary obligations on the part of Unimarine and CBIC having been established and expressly stated in the Surety Bond No. 29419 (Exh. C), [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation against any and or both of them, and if and when CBIC pays, it can compel its co-defendant Unimarine to reimburse to it the amount it has paid.[37] The RTC found CBICs contention that Quinain acted in excess of his authority in issuing the surety bond untenable. The RTC held that CBIC is bound by the surety bond issued by its agent who acted within the apparent scope of his authority. The RTC said: [A]s far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the powers of

attorney as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.[38] All the defendants appealed this Decision to the Court of Appeals. Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that Unimarines obligation under Bill No. 26035 had been extinguished by novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of the M/V Headline as payment for the ship repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter Rodriguez added that such novation also freed them from their liability under the Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity Agreement.[39][SC1] CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its liability on the surety bond as it was issued in excess of Quinains authority. Moreover, CBIC averred, its liability under such surety had been extinguished by reasons of novation, payment, and prescription. CBIC also questioned the RTCs order, holding it jointly and severally liable with Unimarine and Plaridel for the amount of P4,620,000.00, a sum larger than the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable to indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard. On January 29, 2004, the Court of Appeals promulgated its decision, with the following dispositive portion: WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants Unimarine Shipping Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping Lines, Inc. and; Third-Party DefendantsAppellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are hereby DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with modification that Mr. Bethoven Quinain, CBICs agent is hereby held jointly and severally liable with CBIC by virtue of Surety Bond No. 29419 executed in favor of plaintiff-appellee CSEW.[41] In its decision, the Court of Appeals resolved the following issues, as it had summarized from the parties pleadings: I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from the ship-repair contract; II. Whether or not the obligation of UNIMARINE to

[Cebu Shipyard] has been extinguished by novation; III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is liable under Surety Bond No. 29419[;] IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and ThirdParty Defendant Bethoven Quinain are liable by virtue of the Indemnity Agreement executed between them and Cross and Third Party Plaintiff CBIC; V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of P100,000.00 in attorneys fees and litigation expenses.[42] The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for the ship repair works it did on the formers M/V Pacific Fortune. The Court of Appeals dismissed CBICs contention of novation for lack of merit.[43] CBIC was held liable under the surety bond as there was no novation on the agreement between Unimarine and Cebu Shipyard that would discharge CBIC from its obligation. The Court of Appeals also did not allow CBIC to disclaim liability on the ground that Quinain exceeded his authority because third persons had relied upon Quinains representation, as CBICs agent.[44] Quinain was, however, held solidarily liable with CBIC under Article 1911 of the Civil Code.[45] Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly and severally liable thereunder. The Court of Appeals rejected Hontanosass claim that his signature in the Indemnity Agreement was forged, as he was not able to prove it.[46] The Court of Appeals affirmed the award of attorneys fees and litigation expenses to Cebu Shipyard since it was able to clearly establish the defendants liability, which they tried to dodge by setting up defenses to release themselves from their obligation.[47] CBIC[48]and Unimarine, together with third party defendants-appellants[49] filed their respective Motions for Reconsideration. This was, however, denied by the Court of Appeals in its October 28, 2004 Resolution for lack of merit. Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No. 166023, which was denied in a Resolution dated January 19, 2005.[50] The lone petitioner in this case, CBIC, is now before this Court, seeking the reversal of the Court of Appeals decision and resolution on the following grounds:

A. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS AGENT IN EXCESS OF AUTHORITY. B. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY. C. ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER BEYOND THE VALUE OF THE BOND. D. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51] Issue The crux of the controversy lies in CBICs liability on the surety bond Quinain issued to Unimarine, in favor of Cebu Shipyard. CBIC avers that the Court of Appeals erred in interpreting and applying the rules governing the contract of agency. It argued that the Special Power of Attorney granted to Quinain clearly set forth the extent and limits of his authority with regard to businesses he can transact for and in behalf of CBIC. CBIC added that it was incumbent upon Cebu Shipyard to inquire and look into the power of authority conferred to Quinain. CBIC said: The authority to bind a principal as a guarantor or surety is one of those powers which requires a Special Power of Attorney pursuant to Article 1878 of the Civil Code. Such power could not be simply assumed or inferred from the mere existence of an agency. A person who enters into a contract of suretyship with an agent without confirming the extent of the latters authority does so at his peril. x x x.[52] CBIC claims that the foregoing is true even if Quinain was granted the

authority to transact in the business of insurance in general, as the authority to bind the principal in a contract of suretyship could nonetheless never be presumed.[53] Thus, CBIC claims, that: [T]hird persons seeking to hold the principal liable for transactions entered into by an agent should establish the following, in case the same is controverted: 6.6.1. The fact or existence of the agency. 6.6.2. The nature and extent of authority.[54] To go a little further, CBIC said that the correct Civil Code provision to apply in this case is Article 1898. CBIC asserts that Cebu Shipyard was charged with knowledge of the extent of the authority conferred on Mr. Quinain by its failure to perform due diligence investigations.[55] Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition for raising factual issues. In support, Cebu Shipyard claimed that the Court of Appeals application of Article 1911 of the Civil Code was founded on findings of facts that CBIC now disputes. Thus, the question is not purely of law. Discussion The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated by the parties is the extent of authority or, at the very least, apparent authority, extended to Quinain by CBIC to transact insurance business for and in its behalf. In a contract of agency, a person, the agent, binds himself to represent another, the principal, with the latters consent or authority.[57] Thus, agency is based on representation, where the agent acts for and in behalf of the principal on matters within the scope of the authority conferred upon him.[58] Such acts have the same legal effect as if they were personally done by the principal. By this legal fiction of representation, the actual or legal absence of the principal is converted into his legal or juridical presence.[59] The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety bond. It held that CBIC could not be allowed to disclaim liability because Quinains actions were within the terms of the special power of attorney given to him.[60] The Court of Appeals agreed that CBIC could not be permitted to abandon its obligation especially since third persons had relied on Quinains representations. It based its decision on Article 1911 of the Civil Code and found CBIC to have been negligent and less than prudent in conducting its insurance business for its failure to supervise and monitor the acts of its agents, to regulate the distribution of its insurance forms, and to devise schemes to prevent fraudulent misrepresentations of its agents.[61] This Court does not agree. Pertinent to this case are the following provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification. Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown to them. Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.

accorded to Quinain clearly states the limits of his authority and particularly provides that in case of surety bonds, it can only be issued in favor of the Department of Public Works and Highways, the National Power Corporation, and other government agencies; furthermore, the amount of the surety bond is limited to P500,000.00, to wit: SPECIAL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as the Company hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General Agent and Attorneyin-Fact, for and in its place, name and stead, and for its own use and benefit, to do and perform the following acts and things: 1. To conduct, manage, carry on and transact insurance business as usually pertains to a General Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer). 2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under the terms and conditions specified in the General Agency Contract executed and entered into by and between it and its said Attorney-in-Fact subject to the following Schedule of Limits: a. SCHEDULE OF LIMITS -

Our law mandates an agent to act within the scope of his authority.[62] The scope of an agents authority is what appears in the written terms of the power of attorney granted upon him.[63] Under Article 1878(11) of the Civil Code, a special power of attorney is necessary to obligate the principal as a guarantor or surety. In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority only if Quinains act of issuing Surety Bond No. G (16) 29419 is deemed to have been performed within the written terms of the power of attorney he was granted.[64] However, contrary to what the RTC held, the Special Power of Attorney

b. c. d. e.

FIRE: xxxx PERSONAL ACCIDENT: xxxx MOTOR CAR: xxxx MARINE: xxxx BONDS: xxxx Surety Bond (in favor of Dept. of Pub. Works and Highways, Natl. Power Corp. & other. 500,000.00 Government agencies)

2. CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal instruction to Quinain. CBICs stance is grounded on its contract with Quinain, and the clear, written terms therein. This Court finds that the terms of the foregoing contract specifically provided for the extent and scope of Quinains authority, and Quinain has indeed exceeded them. Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which the principal must have knowledge of.[66] Expounding on the concept and doctrine of ratification in agency, this Court said: Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[67] (Emphases supplied.) Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard to Quinains business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case, whether express or implied. Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established: 1. The principal manifested a representation of the agents authority 3.

or knowingly allowed the agent to assume such authority; The third person, in good faith, relied upon such representation; and Relying upon such representation, such third person has changed his position to his detriment.[68]

In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.[70] This Court cannot agree with the Court of Appeals pronouncement of negligence on CBICs part. CBIC not only clearly stated the limits of its agents powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance contracts issued by its agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by Unimarine to Quinain. Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine, believe that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and Highways, the National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the surety bond before the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground that he has been misled by the representations of another, he must show that he was not misled through his own want of reasonable care and circumspection.[71] It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v. Linsangan,[72] this Court held: It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of that authority will not be any excuse. In the same case, this Court added: [T]he ignorance of a person dealing with an agent as to the

scope of the latters authority is no excuse to such person and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency.[73] Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized to agree to terms beyond the limits indicated in his special power of attorney. While Paul Rodriguez stated that he has done business with Quinain more than once, he was not able to show that he was misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez did not even allege that he asked for documents to prove Quinains authority to contract business for CBIC, such as their contract of agency and power of attorney. It is also worthy to note that even with the Indemnity Agreement, Paul Rodriguez signed it on Quinains mere assurance and without truly understanding the consequences of the terms of the said agreement. Moreover, both Unimarine and Paul Rodriguez could have inquired directly from CBIC to verify the validity and effectivity of the surety bond and endorsement; but, instead, they blindly relied on the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit Corp.[74]: A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it. In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.[75] In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152. This Court sees no need to dwell on the other grounds propounded by CBIC in support of its prayer. WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC is DISMISSED for lack of merit. The January 29, 2004 Decision and October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 58001 is MODIFIED insofar as it affirmed CBICs liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152.

SO ORDERED.

G.R. No. L-27832 May 28, 1970 TESTATE ESTATE OF AMADEO MATUTE OLAVE, Deceased, CARLOS V. MATUTE, general administrator-appellant, MATIAS S. MATUTE, co-administrativeappellant, PATERNO R. CANLAS, appellant, vs. JOSE S. MATUTE, ANUNCIACION CANDELARIO, ELENA MATUTE Y CANDELARIO and AMADEO MATUTE Y CANDELARIO, JR., appellees. Paterno R. Canlas in his own behalf and for all other appellants. Antonio Enrile Inton, Jose W. Diokno and Ledesma & Associates for appellees. REYES, J.B.L., J.: Perfected prior to the effectivity of Republic Act No. 5440, this appeal by Carlos V. Matute and Matias V. Matute, co-administrators of the Testate Estate of the late Amadeo Matute Olave (Special Proceedings No. 25876 of the Court of First Instance of Manila), and by their attorney-at-law, Paterno Canlas, was interposed to seek reversal, on points of law, of the probate court's order of 22 April 1967 requiring these appellants to surrender seventeen (17) titles to diverse properties of the estate to the assistant clerk of court for safekeeping. The incident originated in a motion filed by respondents Jose S. Matute, Anunciacion Candelario, and Elena and Amadeo, both surnamed Matute y Candelario, praying that the former administrator, Matias S. Matute, be ordered to surrender 17 titles to various properties of the Estate to the assistant clerk of court, from whom said Matias had received them on 28 September 1966. The motion was vigorously resisted by the co-administrators Matias and Carlos Matute and several other heirs (through counsel Paterno Canlas), who pleaded that the removal of Matias as administrator and his replacement by Jose S. Matute were still under appeal; that the titles aforesaid had been delivered to both Matias and Carlos Matute; that the latter "is at present and from time to time in possession of the said seventeen (17) titles", and "the co-administrator Matias S. Matute is no longer in possession of said titles" (Record on Appeal, page 6); that Attorney Paterno Canlas had a pending claim for P261,000.00, on account of legal services rendered to the estate for the study, preparation, drafting, due execution and probate of the 1952 testament of the deceased; that the claim was later compromised for P2,000,000.00; that the undersigned who is from time to time also in possession of the seventeen (17) titles belonging to the Estate in his capacity as counsel for the Estate is also retaining said titles in the exercise of his retention lien for services rendered to the estate (not to the Administrators) ...; (Record on Appeal, pages 7-8) and invoked Rule 138, Section 37, of the Rules of Court. As aforesaid, the probate court granted the motion to surrender the documents to the clerk of court for safekeeping, "in order to prevent any possible controversy

regarding any transaction involving the remaining properties of the estate" (Record on Appeal, page 18). Reconsideration of the order was sought and denied 29 May 1967, the Court ordering Attorney Paterno S. Canlas to surrender said documents "immediately ... upon receipt hereof." Wherefore, the oppositors duly perfected the present appeal, insisting that it was error for the court below to have granted the motion to surrender the titles in question in view of Rule 138, Section 37, of the Rules of Court, specifically prescribing that SEC. 37. Attorneys' liens. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his possession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. ... The explicit terms of this section afford no alternative but to uphold the claim of appellant Paterno Canlas with respect to the seventeen documents in his possession. His right, as counsel for the deceased and his estate, "to retain the same until his lawful fees and disbursements have been paid "is incontestable, and under the rule and section aforesaid, the attorney can not be compelled to surrender the muniments of title mentioned without prior proof that his fees have been duly satisfied. 1 The courts, in the exercise of their supervisory authority over attorneys as officers of the court, are bound to respect and protect the attorney's lien as a necessary means to preserve the decorum and respectability of the profession. 2 But if it be entirely indispensable for the court to gain possession of the documents that have come to the attorney and are held by him in the course of his employment as counsel, it can require surrender thereof by requiring the client or claimant to first file proper and adequate security for the lawyers' compensation (Rustia vs. Abeto 72 Phil. 139). We are aware of the inconvenience that may accrue to the client because of the retention of important papers by an attorney claiming fees for services rendered, but this is the reason and essence of the lien. Withal, the courts may require the attorney to deliver up the papers in his possession which may serve to embarrass his client, provided the client files proper security for the attorney's compensation. This proceeds from the power of the courts to control its own officers and to compel attorneys to act equitably and fairly towards their clients. (Chitton v. Pardon, Turner & Russel's Reports, 301; Richards v. Platel Craig & Philipps Report, 79; Matter of Jewitt, 34 Beav. 22; Matter of Galland, 31 Chancery Division, 296; Robinson v. Rogers, 237 N. Y. 467, 472- 473.) In so far as the court below required surrender of the documents here in question without first providing for satisfaction of his fees or, at least, proper security for their payment, the appealed order is plainly in error.

Whatever doubt may have arisen on account of the lawyer's ambiguous expression that he "is from time to time also in possession of the seventeen (17) titles belonging to the Estate" (Record on Appeal, page 7) is set at rest by the finding of the probate court, in its order of 29 May 1967, that Attorney Paterno Canlas "has admitted the fact that he is in possession of the 17 titles of the properties of the estate" (Record on Appeal, page 30). In the light of this order, it is patent that the stated possession "from time to time" of the documents in question should be construed to mean that the attorney came into possession thereof at different times, a circumstance that does not impair his right of retention until payment. Our ruling in Inton vs. Matute, L-21283, 31 August 1966, 17 SCRA 1010, is not in conflict with the present decision. In that case, the retention of documents belonging to the estate was denied because the counsel had served not the estate but the administrator in his individual capacity. IN VIEW OF THE FOREGOING, the orders of the probate court dated 22 April 1967 and 29 May 1967, in so far as denying appellant Attorney Paterno Canlas' right to retain the seventeen (17) documents in his hands, as counsel for the estate, and requiring him to surrender the same without his claim for fees being first satisfied, are hereby reversed and set aside. Costs against appellees. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur. Castro, J., took no part.

G.R. No. L-27394 July 31, 1970 ARMANDO V. AMPIL, petitioner, vs. THE HONORABLE JUDGE CORAZON JULIANO-AGRAVA, ANTONIO M. PEREZ and BENIGNO PEREZ Y TUASON, respondents. Antonio P. Coronel for petitioner. Alfonso Felix, Jr. for respondent Antonio M. Perez. Leonardo Abolo for respondent, Benigno Perez y Tuason.

amicably. But the said case was dismiss by that Court for lack of jurisdiction, and as its decision was affirmed by the Supreme Court, there was no more case to be settled by compromise because the three causes of action involved therein had not 2 been refiled in this Court." G.R. No. L-19711, the appeal to the Supreme Court taken in turn by respondents Perezes from the domestic court's dismissal of their second action. Petitioner asserts and it is not disputed, that sometime in November, 1966, Angela, acting through a new attorney-in-fact in the person of her daughter, Angela Perez y Tuason de Stanley, terminated his services as counsel without just and lawful cause and without paying him for his professional services, for which he presented his bill in due course, as well as asserted his retaining lien over ,the three titles entrusted to him by Angela in the course of his professional employment in his letter of February 16, 1967 to respondents' counsel. 3 After petitioner's discharge as counsel, developments ensued which gave rise to the present action. In Case No. L-19711, the pending appeal from the domestic court's order of dismissal of respondents Perezes' action, the very same compromise agreement of May 2, 1958 was submitted anew to this Court which approved the same in its Resolution of November 17, 1966 as follows: In L-19711 (Antonio M. Perez, et al. vs. Angela Tuason de Perez), the appearance of A. Pison Jr. as counsel for respondent-appellee in substitution of Attys. C. S. Tanjuatco & Associates and Atty. Armando V. Ampil, is NOTED; and considering the motion filed by respondent Angela Tuason de Perez by and through her daughter and attorney-in-fact Angela Perez y Tuason de Staley and assisted by new counsel for said respondent, manifesting (1) that said daughter is her duly authorized attorney-in-fact; (2) that said respondent now confirms the compromise agreement entered into by her husband and her son on May 2, 1958, copy of which is attached to the motion as Annex 'B'; and (3) that said respondent affirms that this compromise agreement was right and proper, THE COURT RESOLVED to approve said compromise agreement. 4 In the said compromise agreement, 5 Angela inter alia, ceded in full ownership to her son, respondent Benigno Perez, the Sampaloc, Manila property covered by T.C.T. No. 34769 and to her husband, respondent Antonio M. Perez, seven other 6 properties all situated in Sampaloc, Manila covered by seven separate titles, among them, T.C.T. Nos. 24927 and 24928 which three titles are the ones involved herein. Angela likewise agreed to pay her husband the sum of P63,000.00 in full settlement of his claim for damages. In turn, respondents Perezes, (with Antonio signing on behalf of his son Benigno as guardian ad litem renounced any and all claims against Angela and acknowledged that "defendant (Angela) owns in full ownership the interests and properties presently in her name in J. M. Tuason and Co. and Gregorio Araneta, Inc., acknowledge that she is fully entitled to administer and/or encumber and/or alienate the said interests and properties as well as such other properties that she may acquire with the proceeds of the sale, exchange or encumbrance of the same."

TEEHANKEE, J.: An original action of certiorari to annul the lower court's questioned order requiring petitioner to surrender three certificates of title, notwithstanding his assertion of his right of an attorney's retaining lien over them. Petitioner, for a considerable period of time, was the counsel for Angela Tuason de Perez in several cases, The principal cases so handled successfully by petitioner for Angela were the following: Civil Case No. 34626 of the Court of First Instance of Manila filed against Angela by herein respondents Antonio M. Perez and Benigno Perez y Tuason, her husband and son, respectively, asking principally that Angela be placed under guardianship because of her alleged prodigality and that a suitable person be appointed to administer her properties. On May 2, 1958, the parties submitted to the said court a compromise agreement, of the same date, which shortly afterwards was denounced by Angela. On September 30, 1958, without passing on the validity of the compromise agreement, the said court dismissed the action for lack of jurisdiction. 1 Case G.R. No. L-14874 was the appeal to the Supreme Court taken by respondents Perezes from the court of first instance's dismissal of their action. This Court in its decision handed down on September 30, 1960, affirmed the dismissal holding that jurisdiction properly pertained to the Juvenile and Domestic Relations Court of Manila. Special Proceedings No. 03123 of the domestic court of Manila was then filed on November 10, 1960 by respondents Perezes, whose objective was limited to seeking the said court's approval of the above compromise agreement submitted on May 2, 1958 to the Manila court of first instance. Upon motion on behalf of Angela, the domestic relations court dismissed the proceeding on the ground of lack of jurisdiction over the subject matter, holding that "(T)he compromise agreement herein sought to be approved was allegedly entered into during the pendency of Civil Case No. 34626 of the Court of First Instance of Manila presumably to settle it

Thereafter, respondents Perezes having failed to obtain from petitioner the three titles to the properties ceded to them as above stated in the compromise agreement, as petitioner asserted his retaining lien over them, filed on February 22, 1967 with respondent domestic court a so-called motion for partial execution disputing petitioner's asserted lien of retention and asking the court to order petitioner to surrender the three titles to them. Overruling petitioner's opposition asking the court to respect his right to retain the titles until the value of the professional services rendered by him to Angela shall have been paid in full by the latter, respondent court ordered under date of March 8, 1967 petitioner to surrender the titles to respondents Perezes within five days from notice, holding that "(A)s the Compromise Agreement has already been approved, it is believed that the Court can have it enforced and, in connection therewith, can compel Atty. Ampil to deliver the owners duplicates of T.C.T.'s Nos. 24927, 24928 and 34769 to the Perezes ... Any attorney's lien in favor Of Mr. Ampil, as attorney of Tuason should be enforced against his client, and not against the Perezes." 7 Petitioner thereupon, sought the present recourse and the Court in a resolution of April 13, 1967 issued a writ of preliminary injunction against the enforcement of respondent court's questioned order. Petitioner urges that respondent court acted with grave abuse of discretion in having granted the motion to surrender the titles in his possession, notwithstanding the provisions of the first part of Rule 138, section 37 of the Rules of Court, expressly recognizing his right of retaining lien: SEC. 37. Attorneys' liens. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his possession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. ... Petitioner must prevail. 1. Full recognition of an attorney's retaining lien, present the elements of lawyerclient relationship, lawful possession of the client's funds, documents and papers and unsatisfied claim for attorney's fees, has invariably been extended by the Court in view of the categorical term of the cited Rule. 8 In the latest case of Matute vs. Matute, 9 the Court again emphasized, speaking through Mr. Justice J.B.L. Reyes, that a counsel's right to retain muniments of title in his possession until payment of his lawful fees and disbursements is effected "is incontestable, and under the rule and section aforesaid, the attorney can not be compelled to surrender the muniments of title mentioned without prior proof that his fees have been duly satisfied. The courts, in the exercise of their supervisory authority over attorneys as officers of the court, are bound to respect and protect the attorneys' lien as a necessary means to preserve the decorum and respectability of the profession." 2. The Court cited therein the late Justice Laurel's opinion in Rustia vs. Abetolo, 1 0 with regard to the inconvenience that may accrue to the client, and to the client's adversary for that matter as in the case at bar, because of the retaining lien thus exercised by an attorney, that such inconvenience "is the reason and essence of the

lien." But as in Rustia, we pointed out that "if it be entirely indispensable for the court to gain possession of the documents that have come to the attorney and are held by him in the course of his employment as counsel, it can require the surrender thereof by requiring the client or claimant to first file proper and adequate security for the 1 lawyers' compensation." 1 This alternative was in fact availed of by respondent Antonio M. Perez, who, upon motion filed on August 10, 1967 alleging that "the properties in question awarded to Antonio Perez have a market value of easily a quarter of a million pesos and the property awarded to Benigno Perez easily has an equal value secured from the Court its resolution of October 13, 1967 lifting the preliminary injunction as to Titles Nos. 24927 and 24928 of Manila upon his filing and the approval of bond in the sum of P25,000.00 answerable for whatever damages may be suffered by petitioner. 3. It should be underscored that the retaining lien of an attorney is only a passive right and cannot be actively enforced. It amounts to a mere right to retain the documents and papers as against the client, until the attorney is fully paid, the exception being that funds of the client in the attorney's possession may be applied to the satisfaction of his fees. An attorney's retaining or possessory lien is distinguished from his charging or special lien which is an attorney's specific lien for compensation oil the fund or judgment which he has recovered by means of his professional services for his client in a particular case and is provided in the second part of Rule 138, section 37. 1 2 Such charging lien covers only the services rendered by an attorney in the action in which the judgment was obtained and takes effect under the cited rule after the attorney shall have caused statement of his claim of such lien to be entered upon the records of the particular action with written notice thereof to his client and to the adverse party. It presupposes that the attorney has secured a favorable money judgment for his client and grants the attorney "the same right and power over such judgments and executions as his client would have to enforce his lien and secure the payment of his just fees and disbursements." On the other hand, the attorney's retaininng lien is a general lien for the balance of the account between the attorney and his client, and applies to the documents and funds of the client which may come into the attorney's possession in the course of his employment. 1 3 The attorney's retaining lien attaches to the client's documents and funds in the attorney's possession regardless of the outcome, favorable or adverse, of any cases he may have handled for his client. Called upon at all times to exert utmost zeal with unstinted fidelity in upholding his client's cause and subject to appropriate disciplinary action if he should fail to live up to such exacting standard, the attorney in return is given the assurance through his liens retaining and charging that collection of his lawful fees and disbursements is not rendered difficult, if not altogether thwarted, by an unappreciative client. He is thereby given an effective hold on his client to assure payment of his services in keeping with his dignity as an officer of the Court. 4. The fact that the client Angela, in the compromise agreement, undertook to transfer her properties covered by the titles in question to respondents Perezes would not defeat petitioner's retaining lien over the same. Petitioner's position is similar to that of a creditor who holds an attachment lien over the properties and the client-debtor must discharge the lien before he can dispose the properties to a third person free of such lien. In enforcing his retaining lien over the titles, petitioner was enforcing the same against Angela as his former client who was admittedly the

owner of the properties and not against her adversaries to whom the client had undertaken to transfer the same under the compromise agreement, without first discharging the attorney's lien by payment of the fees due to petitioner. What obviously was lost sight of by respondent court in ruling that petitioner's lien "should be enforced against his client and not against the Perezes" was that petitioner obtained possession of the titles when they did appertain to his then client, Angela. As of that time, petitioner's retaining lien was fastened to the titles and respondent court was bound to respect and protect the same. The situation would be different where title to the properties is the very subject in dispute in the case and the court adjudges the client's adversary to be rightfully entitled thereto. In such a case, the titles to the property could not be said to be properties of the client, over which the attorney may claim a retaining lien. The attorney may enforce his lien only over properties of his client and not against those of his client's adversary. 1 4 And the adversary's right as prevailing party to enforce the judgment for the property adjudged to him should not depend on or be prejudiced by the client's ability or refusal to pay the attorney. The Court, however, has seen no need to make any pronouncement on such a hypothetical situation that is not involved in the issues of the present case. 5. The fact that the properties involved were exclusively paraphernal properties of Angela is undisputed. This fact is admitted in respondents' very petition in the proceedings below, (Annex A, petition) where they alleged that Angela was squandering and liquidating her properties for the benefit of a third party with whom she had fallen in love and that the fruits of these properties belong to her conjugal partnership of gains with respondent Antonio M. Perez and are the main source of income of said partnership. 6. It is error for respondents to contend that petitioner has no right to assert a lien over properties that no longer belong to his client Angela but to them. By virtue of the transfers as seemingly agreed to by Angela in November, 1966, after petitioner's discharge as counsel, the properties thenceforth may be deemed to have been validly transferred to respondents, as stipulated by the contracting parties. And petitioner is in no way interfering with their taking possession of the properties so transferred to them nor with their enjoyment of the fruits thereof. All that petitioner asserts and exercises is his passive lien of retaining the muniments of title thereto. Such retention impedes the corresponding registration and transfer of the titles to respondents, it is true. But rather than enforcing execution of the compromise agreement against petitioner, who is in no way respondents' adversary and disregarding petitioner's valid retaining lien, respondent court is vested with due authority to enforce the same against Angela as the actual adverse party in interest, by requiring her to produce the titles to effect registration of the covenanted transfers and thereby compelling her to satisfy petitioner's just fees or to file proper and adequate security for their payment. (Matute, supra). 7. Respondents' argument that the compromise agreement was executed since May 2, 1958, over eight years before petitioner's discharge as Angela's counsel and that petitioner as Angela's counsel pursued interests adverse to them and "sought to 1 obtain the discharge of the compromise agreement" 5 (which, in fact, petitioner

successfully blocked until his discharge as counsel) implying thereby that petitioner should be held bound by said compromise agreement does not change the legal picture. It should be remembered that the said compromise agreement was executed by one Roberto Della Rosa as Angela's attorney-in-fact to settle Civil Case 1 34626 in the Manila court of first instance; 6 that one of Angela's grounds in denouncing the same was that it was not freely or validly entered into by her representative 1 7 and that this Court, speaking through Mr. Justice Reyes, rejected respondents' contention that the Manila court should have held that Angela was in estoppel, by the execution and submittal of the compromise agreement, to question the jurisdiction of said court. 1 8 Subsequently, when the same compromise agreement was sought to be submitted by respondents in the proceedings below for the limited objective of seeking respondent court's approval thereof, said court dismissed the proceedings on the ground of lack of jurisdiction over the subject-matter, since Civil Case No. 34626 of the Manila court which was presumably to be settled amicably by the compromise agreement was dismissed by final decision of that court as affirmed by this Court and "there was no more case to be settled by compromise." (supra.) The only question then appealed to this Court in the second case, No. 19711, was the correctness of respondent court's order of dismissal; if the same was set aside, the case would be remanded to respondent court for trial and hearing on the myriad built-in issues. When pending said appeal and after petitioner's discharge, the same compromise agreement (of dismissed Civil Case No. 34626) was submitted anew in November, 1966, to this Court by her new attorney-in-fact, assisted by new counsel, manifesting inter alia that Angela "now confirms the (said) compromise agreement," the picture that clearly emerges is that in legal contemplation, Angela and respondents Perezes had then executed a new agreement for the transfer of her said properties to respondents. The transfer of said properties to respondents could in no way be deemed to retroact to over 8 years back on May 2, 1958, when the compromise agreement was originally executed. presumably to settle Case No. 34626 which was eventually dismissed in 1960 for lack of jurisdiction of the Manila court. The transfer of the said properties as provided in the compromise agreement as now confirmed in November, 1966 by Angela and approved by this Court in its Resolution of November 17, 1966 was effective only as of this much later date. There can be no question, then, that these properties were exclusively Angela's prior to November, 1966 and that respondents could lay no claim thereto by virtue of the transfers provided in the compromise agreement until after its confirmation by Angela and approval in November 1966; and that respondents' contention that petitioner could not exercise his retaining lien over the titles which had properly come into his possession during his engagement as Angela's counsel long before November, 1966 is untenable. Even respondent court so understood it correctly, when in its questioned order, it related that "(T)he case has been returned to this Court with a resolution of the appellate tribunal approving the Compromise Agreement. That is now the law of the case. It is as if, after the petition herein had been filed, this Court, acceding to the prayer of the Perezes, had by final order adjudged Tuason to be an incompetent,

had decided to dispense with the appointment of a guardian by directly assuming the functions of one, and lastly had approved the Compromise Agreement on behalf of the ward. Questions of procedural propriety, or of jurisdiction are no longer open because of the final action taken in the premises by the highest tribunal of the land." 1 9 ACCORDINGLY, the writ of certiorari is granted and the order of respondent court of March 8, 1967 is hereby declared null and void and set aside. With costs against private respondents. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando and Villamor, JJ., concur. Barredo, J., reserves the filing of his separate dissenting opinion.

Miranda v. Atty. Macario D. Carpio, A.C. No. 6281, September 26, 2011 PERALTA, J.: This is a disbarment case against Atty. Macario D. Carpio filed by Valentin C. Miranda.[1] The facts, as culled from the records, are as follows: Complainant Valentin C. Miranda is one of the owners of a parcel of land consisting of 1,890 square meters located at Barangay Lupang Uno, Las Pias, Metro Manila. In 1994, complainant initiated Land Registration Commission (LRC) Case No. M-226 for the registration of the aforesaid property. The case was filed before the Regional Trial Court of Las Pias City, Branch 275. During the course of the proceedings, complainant engaged the services of respondent Atty. Carpio as counsel in the said case when his original counsel, Atty. Samuel Marquez, figured in a vehicular accident. In complainant's Affidavit,[2] complainant and respondent agreed that complainant was to pay respondent Twenty Thousand Pesos (PhP20,000.00) as acceptance fee and Two Thousand Pesos (PhP2,000.00) as appearance fee. Complainant paid respondent the amounts due him, as evidenced by receipts duly signed by the latter. During the last hearing of the case, respondent demanded the additional amount of Ten Thousand Pesos (PhP10,000.00) for the preparation of a memorandum, which he said would further strengthen complainant's position in the case, plus twenty percent (20%) of the total area of the subject property as additional fees for his services. Complainant did not accede to respondent's demand for it was contrary to their agreement. Moreover, complainant co-owned the subject property with his siblings, and he could not have agreed to the amount being demanded by respondent without the knowledge and approval of his co-heirs. As a result of complainant's refusal to satisfy respondent's demands, the latter became furious and their relationship became sore. On January 12, 1998, a Decision was rendered in LRC Case No. M-226, granting the petition for registration, which Decision was declared final and executory in an Order dated June 5, 1998. On March 24, 2000, the Land Registration Authority (LRA) sent complainant a copy of the letter addressed to the Register of Deeds (RD) of Las Pias City, which transmitted the decree of registration and the original and owner's duplicate of the title of the property. On April 3, 2000, complainant went to the RD to get the owner's duplicate of the Original Certificate of Title (OCT) bearing No. 0-94. He was surprised to discover that the same had already been claimed by and released to respondent on March 29, 2000. On May 4, 2000, complainant talked to respondent on the phone and asked him to turn over the owner's duplicate of the OCT, which he had claimed without complainant's knowledge, consent and authority. Respondent insisted that complainant first pay him the PhP10,000.00 and the 20% share in the property equivalent to 378 square meters, in exchange for which, respondent would deliver the owner's duplicate of the OCT. Once again, complainant refused the demand, for not having been agreed upon. In a letter[3] dated May 24, 2000, complainant reiterated his demand for the return of the owner's duplicate of the OCT. On June 11, 2000, complainant made the same demand on respondent over the telephone. Respondent reiterated his previous demand and angrily told complainant to comply, and threatened to have the OCT cancelled if the latter refused to pay him. On June 26, 2000, complainant learned that on April 6, 2000, respondent registered an adverse claim on the subject OCT wherein he claimed that the agreement on the payment of his legal services was 20% of the property and/or actual market value. To date, respondent has not returned the owner's duplicate of OCT No. 0-94 to complainant and his co-heirs despite repeated demands to effect the same. In seeking the disbarment or the imposition of the appropriate penalty upon respondent, complainant invokes the following provisions of the Code of Professional Responsibility: Canon 20. A lawyer shall charge only fair and reasonable fees. Canon 16. A lawyer shall hold in trust all moneys and properties of his client that may come into his possession. Canon 16.03. A lawyer shall deliver the funds and properties of his client when due or upon demand. x x x In defense of his actions, respondent relied on his alleged retaining lien over the owner's duplicate of OCT No. 0-94. Respondent admitted that he did not turn over to complainant the owner's duplicate of OCT No. 0-94 because of complainant's refusal, notwithstanding repeated demands, to complete payment of his agreed professional fee consisting of 20% of the total area of the property covered by the title, i.e., 378 square meters out of 1,890 square meters, or its equivalent market value at the rate of PhP7,000.00 per square meter, thus, yielding a sum of PhP2,646,000.00 for the entire 378-square-meter portion and that he was ready and willing to turn over the owner's duplicate of OCT No. 0-94, should complainant pay him completely the aforesaid professional fee. Respondent admitted the receipt of the amount of PhP32,000.00, however, he alleged that the amount earlier paid to him will be deducted from the 20% of the current value of the subject lot. He alleged that the agreement was not reduced into writing, because the parties believed each other based on their mutual trust. He denied that he demanded the payment of PhP10,000.00 for the preparation of a memorandum, since he considered the same unnecessary. In addition to the alleged agreement between him and complainant for the payment of the 20% professional fees, respondent invoked the principle of quantum meruit to justify the amount being demanded by him. In its Report and Recommendation[4] dated June 9, 2005, the Integrated Bar of the Philippines-Commission on Bar Discipline (IBP-CBD) recommended that

respondent be suspended from the practice of law for a period of six (6) months for unjustly withholding from complainant the owner's duplicate of OCT No. 0-94 in the exercise of his so-called attorney's lien. In Resolution No. XVII-2005-173,[5] dated December 17, 2005, the IBP Board of Governors adopted and approved the Report and Recommendation of the IBP-CBD. Respondent filed a motion for reconsideration of the resolution of the IBP Board of Governors adopting the report and recommendation of the IBP-CBD. Pending the resolution of his motion for reconsideration, respondent filed a petition for review[6] with this Court. The Court, in a Resolution[7] dated August 16, 2006, directed that the case be remanded to the IBP for proper disposition, pursuant to this Court's resolution in Noriel J. Ramientas v. Atty. Jocelyn P. Reyala.[8] In Notice of Resolution No. XVIII-2008-672, dated December 11, 2008, the IBP Board of Governors affirmed Resolution No. XVII-2005-173, dated December 17, 2005, with modification that respondent is ordered to return the complainant's owner's duplicate of OCT No. 0-94 within fifteen days from receipt of notice. Hence, the present petition. The Court sustains the resolution of the IBP Board of Governors, which affirmed with modification the findings and recommendations of the IBP-CBD. Respondent's claim for his unpaid professional fees that would legally give him the right to retain the property of his client until he receives what is allegedly due him has been paid has no basis and, thus, is invalid. Section 37, Rule 138 of the Rules of Court specifically provides: Section 37. Attorneys liens. An attorney shall have a lien upon the funds, documents and papers of his client, which have lawfully come into his possession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have a lien to the same extent upon all judgments for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client, from and after the time when he shall have caused a statement of his claim of such lien to be entered upon the records of the court rendering such judgment, or issuing such execution, and shall have caused written notice thereof to be delivered to his client and to the adverse party; and he shall have the same right and power over such judgments and executions as his client would have to enforce his lien and secure the payment of his just fees and disbursements. An attorney's retaining lien is fully recognized if the presence of the following elements concur: (1) lawyer-client relationship; (2) lawful possession of the client's funds, documents and papers; and (3) unsatisfied claim for attorney's fees.[9] Further, the attorney's retaining lien is a general lien for the balance of the account between the attorney and his client, and applies to the documents and funds of the

client which may come into the attorney's possession in the course of his employment.[10] In the present case, complainant claims that there is no such agreement for the payment of professional fee consisting of 20% of the total area of the subject property and submits that their agreement was only for the payment of the acceptance fee and the appearance fees. As correctly found by the IBP-CBD, there was no proof of any agreement between the complainant and the respondent that the latter is entitled to an additional professional fee consisting of 20% of the total area covered by OCT No. 0-94. The agreement between the parties only shows that respondent will be paid the acceptance fee and the appearance fees, which the respondent has duly received. Clearly, there is no unsatisfied claim for attorney's fees that would entitle respondent to retain his client's property. Hence, respondent could not validly withhold the title of his client absence a clear and justifiable claim. Respondent's unjustified act of holding on to complainant's title with the obvious aim of forcing complainant to agree to the amount of attorney's fees sought is an alarming abuse by respondent of the exercise of an attorney's retaining lien, which by no means is an absolute right, and cannot at all justify inordinate delay in the delivery of money and property to his client when due or upon demand.[11] Atty. Carpio failed to live up to his duties as a lawyer by unlawfully withholding and failing to deliver the title of the complainant, despite repeated demands, in the guise of an alleged entitlement to additional professional fees. He has breached Rule 1.01 of Canon 1 and Rule 16.03 of Canon 16 of the Code of Professional Responsibility, which read: CANON 1 - A LAWYER SHALL UPHOLD THE CONSTITUTION, OBEY THE LAWS OF THE LAND AND PROMOTE RESPECT FOR LAW AND LEGAL PROCESS. Rule 1.01 - A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct. CANON 16 - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND PROPERTIES OF HIS CLIENT THAT MAY COME INTO HIS POSSESSION. Rule 16.03 - A lawyer shall deliver the funds and property of his client when due or upon demand. However, he shall have a lien over the funds and may apply so much thereof as may be necessary to satisfy his lawful fees and disbursements, giving notice promptly thereafter to his client. He shall also have a lien to the same extent on all judgments and executions he has secured for his client as provided for in the Rules of Court. Further, in collecting from complainant exorbitant fees, respondent violated

Canon 20 of the Code of Professional Responsibility, which mandates that a lawyer shall charge only fair and reasonable fees. It is highly improper for a lawyer to impose additional professional fees upon his client which were never mentioned nor agreed upon at the time of the engagement of his services. At the outset, respondent should have informed the complainant of all the fees or possible fees that he would charge before handling the case and not towards the near conclusion of the case. This is essential in order for the complainant to determine if he has the financial capacity to pay respondent before engaging his services. Respondent's further submission that he is entitled to the payment of additional professional fees on the basis of the principle of quantum meruit has no merit. "Quantum meruit, meaning `as much as he deserved' is used as a basis for determining the lawyer's professional fees in the absence of a contract but recoverable by him from his client."[12] The principle of quantum meruit applies if a lawyer is employed without a price agreed upon for his services. In such a case, he would be entitled to receive what he merits for his services, as much as he has earned.[13] In the present case, the parties had already entered into an agreement as to the attorney's fees of the respondent, and thus, the principle of quantum meruit does not fully find application because the respondent is already compensated by such agreement. The Court notes that respondent did not inform complainant that he will be the one to secure the owner's duplicate of the OCT from the RD and failed to immediately inform complainant that the title was already in his possession. Complainant, on April 3, 2000, went to the RD of Las Pias City to get the owner's duplicate of OCT No. 0-94, only to be surprised that the said title had already been claimed by, and released to, respondent on March 29, 2000. A lawyer must conduct himself, especially in his dealings with his clients, with integrity in a manner that is beyond reproach. His relationship with his clients should be characterized by the highest degree of good faith and fairness.[14] By keeping secret with the client his acquisition of the title, respondent was not fair in his dealing with his client. Respondent could have easily informed the complainant immediately of his receipt of the owner's duplicate of the OCT on March 29, 2000, in order to save his client the time and effort in going to the RD to get the title. Respondent's inexcusable act of withholding the property belonging to his client and imposing unwarranted fees in exchange for the release of said title deserve the imposition of disciplinary sanction. Hence, the ruling of the IBP Board of Governors, adopting and approving with modification the report and recommendation of the IBP-CBD that respondent be suspended from the practice of law for a period of six (6) months and that respondent be ordered to return the complainant's owner's duplicate of OCT No. 0-94 is hereby affirmed. However, the fifteen-day period from notice given to respondent within which to return the title should be modified and, instead, respondent should return the same immediately upon receipt of the Court's decision. WHEREFORE, Atty. Macario D. Carpio is SUSPENDED from the practice of law for a period of six (6) months, effective upon receipt of this Decision. He is ordered to RETURN to the complainant the owner's duplicate of OCT No. 0-94 immediately upon receipt of this decision. He is WARNED that a repetition of the

same or similar act shall be dealt with more severely. Let a copy of this Decision be furnished to the Office of the Bar Confidant, to be appended to the personal record of Atty. Macario D. Carpio as a member of the Bar; the Integrated Bar of the Philippines; and the Office of the Court Administrator for circulation to all courts in the country for their information and guidance. SO ORDERED.

G.R. No. 86100-03 January 23, 1990 METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. THE HONORABLE COURT OF APPEALS and ARTURO ALAFRIZ and ASSOCIATES, respondents. Bautista, Picazo, Buyco, Tan & Fider for petitioner. Arturo A. Alafriz & Associates for and in their own behalf. REGALADO, J.: This petition for review on certiorari impugns the decision of the Court of Appeals in 1 CA-G.R. Nos. 08265-08268 affirming the order of Branch 168, Regional Trial Court, National Capital Judicial Region, in Civil Cases Nos. 19123-28, 19136 and 19144, fixing attorney's fees and directing herein petitioner Metropolitan Bank and Trust Company (Metrobank, for brevity), as defendant in said civil cases, to pay its attorneys, herein private respondent Arturo Alafriz and Associates, movant therein, the amount of P936,000.00 as attorney's fees on a quantum meruit basis. The records show that from March, 1974 to September, 1983, private respondent handled the above-mentioned civil cases before the then Court of First Instance of Pasig (Branches I, II, VI, X, XIII, XIX, XX AND XXIV) in behalf of petitioner. 2 The civil cases were all for the declaration of nullity of certain deeds of sale, with damages. The antecedental facts which spawned the filing of said actions are undisputed and are hereinunder set forth as found by the trial court and adopted substantially in the decision of respondent court. A certain Celedonio Javier bought seven (7) parcels of land owned by Eustaquio Alejandro, et al., with a total area of about ten (10) hectares. These properties were thereafter mortgaged by Javier with the petitioner to secure a loan obligation of one Felix Angelo Bautista and/or International Hotel Corporation. The obligors having defaulted, petitioner foreclosed the mortgages after which certificates of sale were issued by the provincial sheriff in its favor as purchaser thereof Subsequently, Alejandro, alleging deceit, fraud and misrepresentation committed against him by Javier in the sale of the parcels of land, brought suits against Javier et al., and included petitioner as defendant therein. It was during the pendency of these suits that these parcels of land were sold by petitioner to its sister corporation, Service Leasing Corporation on March 23, 1983 for the purported price of P600,000.00. On the same day, the properties were resold by the latter to Herby Commercial and Construction Corporation for the purported price of P2,500,000.00. Three months later, or on June 7, 1983, Herby mortgaged the same properties with Banco de Oro for P9,200,000.00. The lower court found that private respondent, did not have knowledge of these transfers and transactions.
3

As a consequence of the transfer of said parcels of land to Service Leasing Corporation, petitioner filed an urgent motion for substitution of party on July 28, 1983. Private respondent, on its part, filed on August 16, 1983 a verified motion to enter in the records of the aforesaid civil cases its charging lien, pursuant to Section 37, Rule 138 of the Rules of Court, equivalent to twenty-five percent (25%) of the actual and current market values of the litigated properties as its attorney's fees. Despite due notice, petitioner failed to appear and oppose said motion, as a result of which the lower court granted the same and ordered the, Register of Deeds of Rizal to annotate the attorney's liens on the certificates of title of the parcels of land. Meanwhile, the plaintiffs Alejandro, et al. in the aforesaid civil cases, which had been consolidated and were pending before the Regional Trial Court of Pasig, filed a motion to dismiss their complaints therein, which motion the lower court granted with prejudice in its order dated September 5, 1983. On December 29, 1983, the same court ordered the Register of Deeds to annotate the attorney's liens of private respondent on the derivative titles which cancelled Transfer Certificates of Title Nos. 453093 to 453099 of the original seven (7) parcels of land hereinbefore adverted to. On May 28,1984, private respondent filed a motion to fix its attorney's fees, based on quantum meruit, which motion precipitated an exchange of arguments between the parties. On May 30, 1984, petitioner manifested that it had fully paid private respondent; the latter, in turn, countered that the amount of P50,000.00 given by petitioner could not be considered as full payment but merely a cash advance, including the amount of P14,000.00 paid to it on December 15, 1980. It further appears that private respondent attempted to arrange a compromise with petitioner in order to avoid suit, offering a compromise amount of P600,000.00 but the negotiations were unsuccessful. Finally, on October 15,1984, the court a quo issued the order assailed on appeal before respondent court, granting payment of attorney's fees to private respondent, under the following dispositive portion: PREMISES CONSIDERED, the motion is hereby granted and the Metropolitan Bank and Trust Company (METROBANK) and Herby Commercial and Construction Corporation 4 are hereby ordered to pay the movant Arturo Alafriz and Associates the amount of P936,000.00 as its proper, just and reasonable attorney's fees in these cases. 5 On appeal, respondent court affirmed the order of the trial court in its decision promulgated on February 11, 1988. A motion for reconsideration, dated March 3, 1988, was filed by petitioner but the same was denied in a resolution promulgated on November 19, 1988, hence the present recourse. The issues raised and submitted for determination in the present petition may be formulated thus: (1) whether or not private respondent is entitled to the enforcement of its charging lien for payment of its attorney's fees; (2) whether or not a separate civil suit is necessary for the enforcement of such lien and (3) whether or not private respondent is entitled to twenty-five (25%) of the actual and current market values of

the litigated properties on a quantum meruit basis. On the first issue, petitioner avers that private respondent has no enforceable attorney's charging lien in the civil cases before the court below because the dismissal of the complaints therein were not, in the words of Section 37, Rule 138, judgments for the payment of money or executions issued in pursuance of such judgments. 6 We agree with petitioner. On the matter of attorney's liens Section 37, Rule 138 provides: . . . He shall also have a lien to the same extent upon all judgments for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client, from and after the time when he shall have caused a statement of his claim of such lien to be entered upon the records of the court rendering such judgment, or issuing such execution, and shall have caused written notice thereof to be delivered to his client and to the adverse party; and he shall have the same right and power over such judgments and executions as his client would have to enforce his lien and secure the payment of his just fees and disbursements. Consequent to such provision, a charging lien, to be enforceable as security for the payment of attorney's fees, requires as a condition sine qua non a judgment for money and execution in pursuance of such judgment secured in the main action by the attorney in favor of his client. A lawyer may enforce his right to fees by filing the necessary petition as an incident in the main action in which his services were rendered when something is due his client in the action from which the fee is to be 7 paid. In the case at bar, the civil cases below were dismissed upon the initiative of the plaintiffs "in view of the frill satisfaction of their claims." 8 The dismissal order neither provided for any money judgment nor made any monetary award to any litigant, much less in favor of petitioner who was a defendant therein. This being so, private respondent's supposed charging lien is, under our rule, without any legal basis. It is flawed by the fact that there is nothing to generate it and to which it can attach in the same manner as an ordinary lien arises and attaches to real or personal property. In point is Morente vs. Firmalino, cited by petitioner in support of its position. In that case, movant-appellant attorney sought the payment of his fees from his client who was the defendant in a complaint for injunction which was dismissed by the trial court after the approval of an agreement entered into by the litigants. This Court held: . . . The defendant having suffered no actual damage by virtue of the issuance of a preliminary injunction, it follows that no sum can be awarded the defendant for damages. It becomes apparent, too, that no amount having been awarded the defendant, herein appellant's lien could not be enforced. The appellant, could, by
9

appropriate action, collect his fees as attorney. Private respondent would nevertheless insist that the lien attaches to the "proceeds 10 of a judgment of whatever nature," relying on the case of Bacolod-Murcia Milling 11 Co. Inc. vs. Henares and some American cases holding that the lien attaches to the judgment recovered by an attorney and the proceeds in whatever form they may be. 12 The contention is without merit just as its reliance is misplaced. It is true that there are some American cases holding that the lien attaches even to properties in litigation. However, the statutory rules on which they are based and the factual situations involved therein are neither explained nor may it be said that they are of continuing validity as to be applicable in this jurisdiction. It cannot be gainsaid that legal concepts of foreign origin undergo a number of variegations or nuances upon adoption by other jurisdictions, especially those with variant legal systems. In fact, the same source from which private respondent culled the American cases it cited expressly declares that "in the absence of a statute or of a special agreement providing otherwise, the general rule is that an attorney has no lien on the land of his client, notwithstanding such attorney has, with respect to the land in question, successfully prosecuted a suit to establish the title of his client thereto, recovered title or possession in a suit prosecuted by such client, or defended successfully such client's right and title against an unjust claim or an unwarranted attack," 13 as is the situation in the case at bar. This is an inescapable recognition that a contrary rule obtains in other jurisdictions thereby resulting in doctrinal rulings of converse or modulated import. To repeat, since in our jurisdiction the applicable rule provides that a charging lien attaches only to judgments for money and executions in pursuance of such judgment, then it must be taken in haec verba. The language of the law is clear and unequivocal and, therefore, it must be taken to mean exactly what it says, barring any necessity for elaborate interpretation. 14 Notably, the interpretation, literal as it may appear to be, is not without support in Philippine case law despite the dearth of cases on all fours with the present case. In Caina et al. vs. Victoriano, et al., 15 the Court had the occasion to rule that "the lien of respondent is not of a nature which attaches to the property in litigation but is at most a personal claim enforceable by a writ of execution." In Ampil vs. JulianoAgrava, et al., 16 the Court once again declared that a charging lien "presupposes that the attorney has secured a favorable money judgment for his client . . ." Further, in Director of Lands vs. Ababa, et al., 17 we held that "(a) charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a contract or for delivery of real property as in the instant case." Even in the Bacolod-Murcia Milling case, which we previously noted as cited by private respondent, there was an express declaration that "in this jurisdiction, the lien does not attach to the property in litigation."

Indeed, an attorney may acquire a lien for his compensation upon money due his client from the adverse party in any action or proceeding in which the attorney is employed, but such lien does not extend to land which is the subject matter of the 18 litigation. More specifically, an attorney merely defeating recovery against his client as a defendant is not entitled to a lien on the property involved in litigation for fees and the court has no power to fix the fee of an attorney defending the client's title to property already in the client's possession. 19 While a client cannot defeat an attorney's right to his charging lien by dismissing the case, terminating the services of his counsel, waiving his cause or interest in favor of the adverse party or compromising his action, 20 this rule cannot find application here as the termination of the cases below was not at the instance of private respondent's client but of the opposing party. The resolution of the second issue is accordingly subsumed in the preceding discussion which amply demonstrates that private respondent is not entitled to the enforcement of its charging lien. Nonetheless, it bears mention at this juncture that an enforceable charging lien, duly recorded, is within the jurisdiction of the court trying the main case and this jurisdiction subsists until the lien is settled. 21 There is certainly no valid reason why the trial court cannot pass upon a petition to determine attorney's fees if the rule against multiplicity of suits is to be activated. 22 These decisional rules, however, apply only where the charging lien is valid and enforceable under the rules. On the last issue, the Court refrains from resolving the same so as not to preempt or interfere with the authority and adjudicative facility of the proper court to hear and decide the controversy in a proper proceeding which may be brought by private respondent. A petition for recovery of attorney's fees, either as a separate civil suit or as an incident in the main action, has to be prosecuted and the allegations therein established as any other money claim. The persons who are entitled to or who must pay attorney's fees have the right to be heard upon the question of their propriety or amount. 23 Hence, the obvious necessity of a hearing is beyond cavil. Besides, in fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, the elements to be considered are generally (1) the importance of the subject matter in controversy, (2) the extent of the services 24 rendered, and (3) the professional standing of the lawyer. These are aside from the several other considerations laid down by this Court in a number of decisions as pointed out by respondent court. 25 A determination of all these factors would indispensably require nothing less than a full-blown trial where private respondent can adduce evidence to establish its right to lawful attorney's fees and for petitioner to oppose or refute the same. Nothing in this decision should, however, be misconstrued as imposing an unnecessary burden on private respondent in collecting the fees to which it may

rightfully be entitled. But, as in the exercise of any other right conferred by law, the proper legal remedy should be availed of and the procedural rules duly observed to forestall and obviate the possibility of abuse or prejudice, or what may be misunderstood to be such, often to the undeserved discredit of the legal profession. Law advocacy, it has been stressed, is not capital that yields profits. The returns it births are simple rewards for a job done or service rendered. It is a calling that, unlike mercantile pursuits which enjoy a greater deal of freedom from government interference, is impressed with public interest, for which it is subject to State regulation. 26 ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of respondent Court of Appeals of February 11, 1988 affirming the order of the trial court is hereby REVERSED and SET ASIDE, without prejudice to such appropriate proceedings as may be brought by private respondent to establish its right to attorney's fees and the amount thereof. SO ORDERED. Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

[G.R. No. 115838. July 18, 2002]

lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission. It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance. On the other hand, appellants completely traverse appellees claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellees, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants pure liberality, beneficence and magnanimity, appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lions share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00. Ruling of the Court of Appeals

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents. DECISION CARPIO, J.: The Case

Before us is a Petition for Review on Certiorari[1] seeking to annul the Decision of the Court of Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows: WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of: a) P303,606.24 representing unpaid commission; b) P25,000.00 for and by way of moral damages; c) P45,000.00 for and by way of attorneys fees; d) To pay the cost of this suit. Quezon City, Metro Manila, December 20, 1991. The Antecedent Facts

The Court of Appeals affirmed in toto the decision of the trial court. On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners Constante A. De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for brevity) to collect the unpaid balance of his brokers commission from the De Castros.[4] The Court of Appeals summarized the facts in this wise: x x x. Appellants[5] were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144, Records), appellee[6] was authorized by appellants to act as real estate broker in the sale of these properties for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation (Times Transit for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency. Second. The Court of Appeals ruled that Artigos complaint is not d ismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other coowners since the action is exclusively based on a contract of agency between Artigo

and Constante. Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it. Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial courts finding that the purchase price was P7.05 million and not P3.6 million. Hence, the instant petition. The Issues

The De Castros argue that Artigos complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners. The De Castros contentions are devoid of legal basis. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom no final determination of the case can be had.[7] The joinder of indispensable parties is mandatory and courts cannot proceed without their presence.[8] Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and order the inclusion of such party.[9] However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case. There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full: 24 Jan. 84 To Whom It May Concern: This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City. Asking price P23,000,000.00 with 5% commission as agents fee. C.C. de Castro owner & representing co-owners This authority is on a first-come First serve basis CAC Constante signed the note as owner and as representative of the other coowners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constantes individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of agency,[10] citing Article 1915 of the Civil Code, which

According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-ININTEREST;

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGOS CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT; III. CONSIDERING INCOMPETENT EVIDENCE; IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY; V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES; VI. NOT AWARDING THE DE CASTROS MORAL EXEMPLARY DAMAGES, AND ATTORNEYS FEES. The Courts Ruling AND

The petition is bereft of merit. First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties

reads: Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. The solidary liability of the four co-owners, however, militates against the De Castros theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus The rule in this article applies even when the appointments wer e made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it.[11] When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entire obligation.[12] The agent may recover the whole compensation from any one of the co-principals, as in this case. Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads: Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.[13] that x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously. (Emphasis supplied) Second Issue: whether Artigos claim has been extinguished by full payment, waiver or abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his proportionate share and no longer entitled to any balance. According to them, Artigo was just one of the agents involved in the sale and entitled to a proportionate share in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate 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 custom is a valid contract, and constitutes the law between the parties.[14] The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith. The mere fact that other agents intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These other agents turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe: The alleged `second group of agents came into the picture only during the so called `second negotiation and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to part away with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991). xxx To accept Constantes version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the instant case easily presents itself if one has to consider that the alleged `second group are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million. It is to be noted also that while Constante was too particular about the unrenewed real estate brokers license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40).[15] (Emphasis supplied) In any event, we find that the 5 percent real estate brokers commission is reasonable and within the standard practice in the real estate industry for transactions of this nature.

The De Castros also contend that Artigos inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads: Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise: The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the whole obligation. [16] (Emphasis supplied) There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of. The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigos claim for the balance of his commission is barred by laches. Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.[17] Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but there was no response from Constante.[18] After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989. Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.[19] The right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins to run.[20] The De Castros admit that Artigos claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigos cause of action is barred by laches. Laches does not apply because only four years had

lapsed from the time of the sale in June 1985. Artigo made a demand in July 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 in asserting ones right. The Court has ruled, a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief.[21] In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code.[22] Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence. Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence

The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial. The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial courts reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price. The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits B, C, D and E were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not. Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into

the facts and evidence on record. This we can not do. It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence again.[23] This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals[24] bears reiteration: At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]). We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price. Fourth Issue: whether award of moral damages and attorneys fees is proper

treatment of the plaintiff in refusing to give his due commission deserve censure. This warrants the award of P25,000.00 in moral damages and P45,000.00 in attorneys fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent brokers commission based on the actual purchase price of the two lots. WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO ORDERED. Puno, (Chairman), and Panganiban, JJ., concur. Sandoval-Gutierrez, J., no part due to close family relation with a party.

The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorneys fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them. Law and jurisprudence support the award of moral damages and attorneys fees in favor of Artigo. The award of damages and attorneys fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will not be disturbed on appeal.[25] Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.[26] On the other hand, attorneys fees are awarded in instances where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim.[27] There is no reason to disturb the trial courts finding that the defendants lack of good faith and unkind

[G. R. No. 129919. February 6, 2002]

cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties. On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendants counsel which instructed him to request for postponement. Plaintiffs counsel object ed to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order: ORDER

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents. DECISION PARDO, J.: The Case

This is an appeal via certiorari[1] from the decision of the Court of Appeals[2] affirming the decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominions clients. The Facts

When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice. Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning. The plaintiff and his counsel are notified of this order in open court. SO ORDERED. Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992. On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference was due to an unavoidable circumstance and that counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff. On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense. On September 28, 1992 defendant moved for reconsideration of the aforesaid

The facts, as found by the Court of Appeals, are as follows: On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendants clients. In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit. On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. In due time, third-party defendant Austria filed his answer. Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were

order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion. On November 18, 1992, the court a quo rendered judgment as follows: WHEREFORE, premises considered, judgment is hereby rendered ordering: 1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendants clients; 2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees; 3. The dismissal of the counter-claim of the defendant and the third-party complaint; 4. The defendant to pay the costs of suit. [4] On December 14, 1992, Dominion appealed the decision to the Court of Appeals.[5] On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion.[8] Hence, this appeal.[9] The Issues

inferrable from his words or actions;[13] and on the part of the agent, there must be an intention to accept the appointment and act on it,[14] and in the absence of such intent, there is generally no agency.[15] A perusal of the Special Power of Attorney[16] would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word special in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read: That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and things: 1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents. 2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf. 3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the above-mentioned appointment. 4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation.[19] [Emphasis supplied] The agency comprises all the business of the principal,[20] but, couched in general terms, it is limited only to acts of administration.[21] A general power permits the agent to do all acts for which the law does not require a special power.[22] Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney. Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that: Article 1878. Special powers of attorney are necessary in the following cases:

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured. The Court's Ruling

The petition is without merit. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.[10] The basis for agency is representation.[11] On the part of the principal, there must be an actual intention to appoint[12] or an intention naturally

(1) To make such payments as are not usually considered as acts of administration; xxx xxx xxx (15) Any other act of strict dominion. The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured. Respondent Guevarras authority to settle claims is embodied in the Memorandum of Management Agreement[23] dated February 18, 1987 which enumerates the scope of respondent Guevarras duties and responsibilities as agency manager for San Fernando, Pampanga, as follows: xxx xxx xxx 1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office. 2. Full authority is given you on TPPI claims settlement. xxx xxx xxx[24] In settling the claims mentioned above, respondent Guevarras authority is further limited by the written standard authority to pay,[25] which states that the payment shall come from respondent Guevarras revolving fund or collection. The authority to pay is worded as follows: This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________. It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim. (sgd.) FERNANDO C. AUSTRIA Regional Manager[26] [Emphasis supplied] The instruction of petitioner as the principal could not be any clearer.

Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that: The principal is not liable for the expenses incurred by the agent in the following cases: (1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail himself of the benefits derived from the contract; xxx xxx xxx However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts. Article 1236, second paragraph, Civil Code, provides: Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid. Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts[27] which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95. However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount. The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra. The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appeals[28] and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,[29] in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioners clients. No costs in this instance. SO ORDERED. Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.