MAMARIL V BSP
To pay jointly and severally to the plaintiffs the daily loss
This is a Petition for Review on Certiorari assailing the May 31, 2007
Decision1 and August 16, 2007 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 75978. The dispositive portion of the said
Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the
Order dated June 11, 2002 rendered by the Regional Trial Court of
Manila, Branch 39 is hereby MODIFIED to the effect that only
defendants AIB Security Agency, Inc., Cesario Peña and Vicente
Gaddi are held jointly and severally liable to pay plaintiffs-appellees
Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of
Two Hundred Thousand Pesos (₱200,000.00) representing the cost
of the lost vehicle, and to pay the cost of suit. The other monetary
awards are DELETED for lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from
any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril)
are jeepney operators since 1971. They would park their six (6)
passenger jeepneys every night at the Boy Scout of the Philippines'
(BSP) compound located at 181 Concepcion Street, Malate, Manila
for a fee of ₱300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles with
Plate No. DCG 392 was missing and was never
recovered.4 According to the security guards Cesario Peña (Peña)
and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with
whom BSP had contracted5 for its security and protection, a male
person who looked familiar to them took the subject vehicle out of the
compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for damages
before the Regional Trial Court (RTC) of Manila, Branch 39, against
BSP, AIB, Peña and Gaddi. In support thereof, Sps. Mamaril averred
that the loss of the subject vehicle was due to the gross negligence
of the above-named security guards on-duty who allowed the subject
vehicle to be driven out by a stranger despite their agreement that
only authorized drivers duly endorsed by the owners could do so.
Peña and Gaddi even admitted their negligence during the ensuing
investigation. Notwithstanding, BSP and AIB did not heed Sps.
Mamaril's demands for a conference to settle the matter. They
therefore prayed that Peña and Gaddi, together with AIB and BSP,
be held liable for: (a) the value of the subject vehicle and its
accessories in the aggregate amount of ₱300,000.00; (b) ₱275.00
representing daily loss of income/boundary reckoned from the day
the vehicle was lost; (c) exemplary damages; (d) moral damages; (e)
attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that not only did
Sps. Mamaril directly deal with AIB with respect to the manner by
which the parked vehicles would be handled, but the parking
ticket8 itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB alleged that it has
observed due diligence in the selection, training and supervision of
its security guards while Peña and Gaddi claimed that the person
who drove out the lost vehicle from the BSP compound represented
himself as the owners' authorized driver and had with him a key to
the subject vehicle. Thus, they contended that Sps. Mamaril have no
cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision9 dated
November 28, 2001 in favor of Sps. Mamaril. The dispositive portion
of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants
Boy Scout of the Philippines and AIB Security Agency, with security
guards Cesario Pena and Vicente Gaddi: -
1. To pay the plaintiffs jointly and severally the cost of the
vehicle which is ₱250,000.00 plus accessories of
₱50,000.00;
2.
of the income/boundary of the said jeepney to be reckoned
fromits loss up to the final adjudication of the case, which is
₱275.00 a day;
3. To pay jointly and severally to the plaintiffs moral
damages in the amount of ₱50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary
damages in the amount of ₱50,000.00;
5. To pay jointly and severally the attorney's fees of
₱50,000.00 and appearances in court the amount of
₱1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Peña and Gaddi in allowing the entry
of an unidentified person and letting him drive out the subject vehicle
in violation of their internal agreement with Sps. Mamaril constituted
gross negligence, rendering AIB and its security guards liable for the
former's loss. BSP was also adjudged liable because the Guard
Service Contract it entered into with AIB offered protection to all
properties inside the BSP premises, which necessarily included Sps.
Mamaril's vehicles. Moreover, the said contract stipulated AIB's
obligation to indemnify BSP for all losses or damages that may be
caused by any act or negligence of its security guards. Accordingly,
the BSP, AIB, and security guards Peña and Gaddi were held jointly
and severally liable for the loss suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of
the stolen vehicle from ₱250,000.00 to ₱200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence
on the part of security guards Peña and Gaddi. However, it absolved
BSP from any liability, holding that the Guard Service Contract is
purely between BSP and AIB and that there was nothing therein that
would indicate any obligation and/or liability on the part of BSP in
favor of third persons, such as Sps. Mamaril. Nor was there evidence
sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP
was substantially a contract of lease whereby the former paid parking
fees to the latter for the lease of parking slots. As such, the lessor,
BSP, was not an insurer nor bound to take care and/or protect the
lessees' vehicles.
On the matter of damages, the CA deleted the award of ₱50,000.00
representing the value of the accessories inside the lost vehicle and
the ₱275.00 a day for loss of income in the absence of proof to
support them. It also deleted the award of moral and exemplary
damages and attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the
August 16, 2007 Resolution.13
Issues Before the Court
Hence, the instant petition based on the following assignment of
errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN ABSOLVING RESPONDENT BOY SCOUT OF
THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS MISTAKE WHEN IT RULED THAT THE
GUARD SERVICE CONTRACT IS PURELY BETWEEN
BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND
IN HOLDING THAT THERE IS ABSOLUTELY NOTHING
IN THE SAID CONTRACT THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON THE PART OF THE
PARTIES THEREIN IN FAVOR OF THIRD PERSONS,
SUCH AS PETITIONERS HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR IN THE INTERPRETATION OF LAW
WHEN IT CONSIDERED THE AGREEMENT BETWEEN
BOY SCOUT OF THE PHILIPPINES AND PETITIONERS
A CONTRACT OF LEASE, WHEREBY THE BOY SCOUT
IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF
PETITIONERS' VEHICLES.
IV.
 THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED WHEN IT RULED THAT PETITIONERS ARE NOT
ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for
the loss of their vehicle based on the Guard Service Contract and the
parking ticket it issued; and (2) the CA erred in deleting the RTC
awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary
to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same. Similarly, Article 2176 of the Civil
Code states:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no preexisting contractual
relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of
Sps. Mamaril's vehicle was the negligent act of security guards Peña
and Gaddi in allowing an unidentified person to drive out the subject
vehicle. Proximate cause has been defined as that cause, which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury or loss, and without which the
result would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's
contention16 that they readily admitted being at fault during the
investigation that ensued.
On the other hand, the records are bereft of any finding of negligence
on the part of BSP. Hence, no reversible error was committed by the
CA in absolving it from any liability for the loss of the subject vehicle
based on fault or negligence.
Neither will the vicarious liability of an employer under Article
218017 of the Civil Code apply in this case. It is uncontested that
Peña and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no
employer-employee relationship existed between BSP and the
security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed
to AIB, the true employer of Peña and Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires
and assigns the work of its watchmen or security guards, the agency
is the employer of such guards and watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of such
agency. As a general rule, a client or customer of a security agency
has no hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty
to observe the diligence of a good father of a family in the selection
of the guards cannot, in the ordinary course of events, be demanded
from the client whose premises or property are protected by the
security guards. The fact that a client company may give instructions
or directions to the security guards assigned to it, does not, by itself,
render the client responsible as an employer of the security guards
concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests
commonly envisaged in the contract for services entered into with the
security agency.20]
Nor can it be said that a principal-agent relationship existed between
BSP and the security guards Peña and Gaddi as to make the former
liable for the latter's complained act. Article 1868 of the Civil Code
states that "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." The
basis for agency therefore is representation,21 which element is
absent in the instant case. Records show that BSP merely hired the
services of AIB, which, in turn, assigned security guards, solely for
the protection of its properties and premises. Nowhere can it be
inferred in the Guard Service Contract that AIB was appointed as an
agent of BSP. Instead, what the parties intended was a pure
principal-client relationship whereby for a consideration, AIB
rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be
held liable for their loss on the basis of the Guard Service Contract
that the latter entered into with AIB and their parking agreement with
BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person.
Thus, in order that a third person benefited by the second paragraph
of Article 1311, referred to as a stipulation pour autrui, may demand
its fulfillment, the following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The stipulation is a part, not
the whole, of the contract; (3) The contracting parties clearly and
deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and uncompensated;
(5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third party.22 However, none
of the foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard
Service Contract.1âwphi1 Neither did the subject agreement contain
any stipulation pour autrui. And even if there was, Sps. Mamaril did
not convey any acceptance thereof. Thus, under the principle of
relativity of contracts, they cannot validly claim any rights or favor
under the said agreement.23 As correctly found by the CA:
First, the Guard Service Contract between defendant-appellant BSP
and defendant AIB Security Agency is purely between the parties
therein. It may be observed that although the whereas clause of the
said agreement provides that defendant-appellant desires security
and protection for its compound and all properties therein, as well as
for its officers and employees, while inside the premises, the same
should be correlated with paragraph 3(a) thereof which provides that
the security agency shall indemnify defendant-appellant for all losses
and damages suffered by it attributable to any act or negligence of
the former's guards.
Otherwise stated, defendant-appellant sought the services of
defendant AIB Security Agency for the purpose of the security and
protection of its properties, as well as that of its officers and
employees, so much so that in case of loss of [sic] damage suffered
by it as a result of any act or negligence of the guards, the security
agency would then be held responsible therefor. There is absolutely
nothing in the said contract that would indicate any obligation and/or
liability on the part of the parties therein in favor of third persons such
as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA that the
contract between the parties herein was one of lease25 as defined
under Article 164326 of the Civil Code. It has been held that the act of
parking a vehicle in a garage, upon payment of a fixed amount, is a
lease.27 Even in a majority of American cases, it has been ruled that
where a customer simply pays a fee, parks his car in any available
space in the lot, locks the car and takes the key with him, the
possession and control of the car, necessary elements in bailment,
do not pass to the parking lot operator, hence, the contractual
relationship between the parties is one of lease.28
In the instant case, the owners parked their six (6) passenger
jeepneys inside the BSP compound for a monthly fee of ₱300.00 for
each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP. On this
score, Article 1654 of the Civil Code provides that "the lessor (BSP)
is obliged: (1) to deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended; (2) to make
on the same during the lease all the necessary repairs in order to
keep it suitable for the use to which it has been devoted, unless there
is a stipulation to the contrary; and (3) to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration
of the contract." In relation thereto, Article 1664 of the same Code
states that "the lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing
leased; but the lessee shall have a direct action against the intruder."
Here, BSP was not remiss in its obligation to provide Sps. Mamaril a
suitable parking space for their jeepneys as it even hired security
guards to secure the premises; hence, it should not be held liable for
the loss suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the
negligence of the security guards in allowing a stranger to drive out
plaintiffs-appellants' vehicle despite the latter's instructions that only
their authorized drivers may do so. Moreover, the agreement with
respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards,29 without the
knowledge and consent of BSP. Accordingly, the mishandling of the
parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Peña and Gaddi) and their
employer, AIB; and not against the lessor, BSP.30

Anent Sps. Mamaril's claim that the exculpatory clause:

"Management shall not be responsible for loss of vehicle or any of its
accessories or article left therein"31 contained in the BSP issued
parking ticket was void for being a contract of adhesion and against
public policy, suffice it to state that contracts of adhesion are not void
per se. It is binding as any other ordinary contract and a party who
enters into it is free to reject the stipulations in its entirety. If the terms
thereof are accepted without objection, as in this case, where
plaintiffs-appellants have been leasing BSP's parking space for more
or less 20 years,32 then the contract serves as the law between
them.33 Besides, the parking fee of ₱300.00 per month or ₱10.00 a
day for each unit is too minimal an amount to even create an
inference that BSP undertook to be an insurer of the safety of
plaintiffs-appellants' vehicles.

On the matter of damages, the Court noted that while Sonia P.

Mamaril testified that the subject vehicle had accessories worth
around !J50,000.00, she failed to present any receipt to substantiate
her claim.34 Neither did she submit any record or journal that would
have established the purported ₱275.0035 daily earnings of their
jeepney. It is axiomatic that actual damages must be proved with
reasonable degree of certainty and a party is entitled only to such
compensation for the pecuniary loss that was duly proven. Thus,
absent any competent proof of the amount of damages sustained,
the CA properly deleted the said awards.36

Similarly, the awards of moral and exemplary damages and

attorney's fees were properly disallowed by the CA for lack of factual
and legal bases. While the RTC granted these awards in the
dispositive portion of its November 28, 2001 decision, it failed to
provide sufficient justification therefor.37

WHEREFORE premises considered, the instant petition is DENIED.

The May 31, 2007 Decision and August 16, 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.
SO ORDERED.
[G.R. No. 154499. February 27, 2004]
ALBERTO V. REYES, WILFREDO B. DOMO-ONG and HERMINIO
C. PRINCIPIO, petitioners, vs. RURAL BANK OF SAN
MIGUEL (BULACAN), INC., represented by HILARIO P.
SORIANO, President and Principal
Stockholder, respondent.
RESOLUTION
Tinga, J.:
This deals with the Motion for Reconsideration of petitioners
Alberto V. Reyes and Wilfredo B. Domo-ong, both Bangko Sentral ng
Pilipinas (BSP) officials,[1]and the Motion for Partial
Reconsideration of respondent Rural Bank of San Miguel (Bulacan),
Inc.
In the Decision[2] of March 14, 2003, this Court found Deputy
Governor Reyes and Director Domo-ong liable for violation of the
standards of professionalism prescribed by the Code of Conduct and
Ethical Standards for Public Officials and Employees (Republic Act
No. 6713) in that they used the distressed financial condition of
respondent Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the
subject of a case study in one of the BSP seminars and did the
brokering of the sale of RBSMI. The Court modified the Decision of
the Court of Appeals in CA-GR SP No. 60184[3] by reducing the
penalty imposed by the appellate court from a fine equivalent to six
months salary to a fine of two months salary for Reyes and one
month salary for Domo-ong.
In the Decision, the Court exonerated petitioner Herminio C.
Principio[4] of the administrative charges. The exoneration is the
subject of RBSMIs Motion For Partial Reconsideration.
The Motion for Reconsideration of Reyes and Domo-ong is
anchored on the following grounds: (1) it was not under their
auspices that the seminar which used training materials containing
two case studies on RBSMIs financial distress was conducted but
under that of another department and other officials of BSP; and, (2)
they did not do any act which constituted brokering of the sale of
RBSMI or deviated from the standards of professionalism.
A brief revisit of the operative milieu is warranted to gain the
needed perspective.
In a letter dated May 19, 1999, addressed to then BSP
Governor Singson, RBSMI charged the petitioners with violation
of Republic Act No. 6713 (Code of Conduct and Ethical Standards for
Public Officials and Employees). The Monetary Board (MB) of the
BSP created an Ad Hoc Committee to investigate the matter.
The ensuing investigation disclosed that sometime in
September 1996, RBSMI, which had a history of major
violations/exceptions dating back to 1995, underwent periodic
examination by the BSP. The examination team headed by Principio
noted 20 serious exceptions/violations and deficiencies of RBSMI.[5]
Through Resolution No. 96, the MB required RBSMI to submit
within 15 days a written explanation with respect to the findings of the
examiner. It also directed the Department of Rural Banks (DRB), to
verify, monitor and report to the Deputy Governor, Supervision and
Examination Sector (SES) on the findings/exceptions noted, until the
same shall have been corrected.
As directed by the MB, another examination team conducted a
special examination on RBSMI. RBSMI President Hilario Soriano
claimed that he was pressured into issuing a memorandum to the
bank employees authorizing the team to review the banks accounting
and internal control system.
Soriano also alleged that sometime in March 1997, Reyes
started urging him to consider selling the bank. He specified that on
May 28, 1997, Reyes introduced him through telephone to Mr.
Exequiel Villacorta, President and Chief Executive Officer of the TA
Bank. They agreed to meet on the following day. In
his Affidavit,[6] Villacorta confirmed that he and Soriano indeed met
but the meeting never got past the exploratory stage since he
(Villacorta) immediately expressed disinterest because Soriano
wanted to sell all his equity shares while he was merely
contemplating a possible buy-in.
Soriano further alleged that when the talks with Villacorta
failed, Reyes asked him whether he wanted to meet another buyer,
to which he answered in the affirmative. Thereafter, Reyes
introduced him by telephone to Benjamin P. Castillo of the Export
and Industry Bank (EIB), whom he met on June 26, 1997. No
negotiation took place because Soriano desired a total sale while EIB
merely desired a joint venture arrangement or a buy-in to allow EIB
to gain control of RBSMI.
Meanwhile, on June 13, 1997, the MB approved Resolution No.
724[7] ordering RBSMI to correct the major exceptions noted within
30 days from receipt of the advice, and to remit to the BSP the
amount of P2,538,483.00 as fines and penalties for incurring
deficiencies in reserves against deposit liabilities.
On July 21, 1997, Soriano submitted RBSMIs answers to the
BSP exceptions/findings mentioned. He stated that the actions taken
or to be taken by the bank (RBSMI) were deliberated and ratified by
the Board of Directors in its regular meeting held on July 9, 1997.
Among the board approved actions was the banks request
addressed to Domo-ong for BSP to debit the demand deposit of the
bank in the amount of P2,538,483.00 representing the payment of
fines and penalties.
More than a year after, however, the RBSMI asked for a
reconsideration of MB Resolution No. 724 insofar as the imposition of
fine amounting to P2,538,483.00. On January 21, 1999, the MB
adopted Resolution No. 71,[8] authorizing the conditional reversal of
sixty percent (60%) of the penalty pending resolution of the dispute
on the findings on reserve deficiency. Subsequently, on April 7, 1999,
the MB approved the interim reversal of the entire amount of the
penalty pending the outcome of the study on the legal and factual
basis for the imposition of the penalty.
The above incidents, particularly the alleged brokering by
Reyes and the petitioners unsupported recommendation to impose a
penalty of P2,538,483.00 for legal reserve deficiency, prompted the
respondent to file the letter-complaint charging the petitioners with
unprofessionalism.
The Motion for Reconsideration bid of Reyes and Domo-ong is
meritorious.
In pinning liability on Reyes and Domo-ong for the seminar
which used the rural bank as a case study, the court made this
ratiocination, viz:
(W)hile there was indeed no evidence showing that either petitioner
Reyes or petitioner Domo-ong distributed or used the materials, the
very fact that the seminar was conducted under their auspices is
enough to make them liable to a certain extent. Petitioner Reyes,
as Head of the BSP Supervision and Examination Sector, and
petitioner Domo-ong, as Director of the BSP Department of Rural
Banks, should have exercised their power of control and
supervision so that the incident could have been prevented or at
the very least remedied. (Emphasis supplied)
Plainly, conclusion on petitioners culpability is grounded, not on
an established fact but on a mere inference that the seminar was
conducted under their auspices. Indeed, the pronouncement on the
petitioners role is evidently conjectural and evaluation of the extent of
their responsibility admittedly uncertain.
It is conceded that there was no evidence that the seminar was
conducted under petitioners patronage. And it was assumed, as
indeed there was absolutely paucity of proof, that they exercised
supervision and control over the persons responsible in organizing
the seminar. On the contrary, as shown in the Motion For
Reconsideration, it was the Bangko Sentral ng Pilipinas Institute
(BSPI), an office separate and independent from the SES which is
directly under the control and supervision of another Deputy
Governor, that for the Resource Management Sector (RMS) [9] which
is charged with conducting seminars and lectures for the BSP,
including the seminar involved in this case.
In its Comment,[10] RBSMI argues that since information on the
state of its finances found its way as a training material of RMS, the
event could have transpired only because the SES permitted it. Even
if the subordinates of petitioners were the source of information,
RBSMI further claims in ostensible reference to the principle of
command responsibility, petitioners could be held liable for
negligence.
It is noteworthy again that petitioners alleged role in the
disclosure of information is not anchored on any concrete piece of
evidence. That explains the RBSMIs effort to cast liability vicariously
on the petitioners by a superficial resort to the principle of command
responsibility which this Court did not reject. But neither the principle
itself which is an accepted notion in military or police structural
dynamics or its counterpart of respondent superior in the law on
quasi-delicts[11] would be relevant in this case, involving as it does the
actual performance in office of the petitioners and given the fact that
petitioners are high ranking officers of the countrys central monetary
authority. Indeed, as such officers, petitioners cannot be expected to
monitor the activities of their subalterns. In Arias v.
Sandiganbayan,[12] this Court held that all heads of offices have to
rely to a reasonable extent on the good faith of their
subordinates. The case specifically involved the liability of the head
of office in the preparation of bids, purchase of supplies and contract
negotiations done by his subordinates. In the same fashion,
petitioners in this case owing to their high ranks cannot be expected
to acquaint themselves with such minutiae as the flow of files and
documents which leave their desks. Myriad details such as those are,
by office practice, left to subalterns and minor employees. Delegation
of function is part of sound management.
From another perspective, the negligence of the subordinate
cannot be ascribed to his superior in the absence of evidence of the
latters own negligence.Indeed, the negligence of the subordinate is
not tantamount to negligence of the superior official so the Court
ruled in a case[13] where the mandated responsibilities of the superior
do not include actual monitoring of projects. In another case,[14] this
Court rejected the principle of command responsibility although the
case involved a provincial constabulary commander, aptly noting that
there was neither allegation nor proof that he had been in any way
guilty of fault or negligence in connection with the unlawful raid and
arrest effected by his subordinates.
The immunity of public officers from liability for the non-
feasances, negligence or omissions of duty of their official
subordinates and even for the latters misfeasances or positive
wrongs rests, according to Mechem, upon obvious considerations of
public policy, the necessities of the public service and the perplexities
and embarrassments of a contrary doctrine.[15] These official
subordinates, he notes further, are themselves public officers though
of an inferior grade, and therefore directly liable in the cases in which
any public officer is liable, for their own misdeeds or defaults.[16]
Significantly, Mechems disquisition provides the mooring of the
Administrative Code of 1987 which provides that a head of a
department or a superior officer shall not be civilly liable for the
wrongful acts, omissions of duty, negligence, or misfeasance of his
subordinates, unless he has actually authorized by written order the
specific act or misconduct complained of.[17]
Now, the label of unprofessionalism bestowed by the Court on
the petitioners at the instance of RBSMI.
In the assailed Decision, the Court categorized Reyes
telephone introduction of officials of other banks to RBSMIs
President in connection with the latters expressed desire to sell the
bank as brokering which in turn constitutes, according to the Court,
violation of the standards of professionalism. The standards are set
forth in Section 4 (A) (b) of Republic Act 6713, as follows:
Sec. 4. Norms of Conduct of Public Officials and Employees. (A)
Every public official and employee shall observe the following as
standards of personal conduct in the discharge and execution of
official duties:
...
(b) Professionalism. Public officials and employees shall perform and
discharge their duties with the highest degree of excellence,
professionalism, intelligence and skill. They shall enter public service
with utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or
peddlers of undue patronage.
The Court equates brokering with
unprofessionalism. According to Websters Third New International
Dictionary, professionalism means the conduct, aims, or qualities that
characterize or mark a profession. Any standard thesaurus defines a
professional as a person who engages in an activity with great
competence.Indeed, to call a person a professional is to describe him
as competent, efficient, experienced, proficient or polished.
The crucial question, therefore, is whether Reyes conducted
himself in an unprofessional manner in doing the acts imputed to
him.
The Court rules in the negative.
In the first place, the acts of Reyes do not constitute
brokering. Case law[18] defines a broker as one who is engaged, for
others, on a commission,negotiating contracts relative to property
with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name but in the name of those
who employed him. . . . a broker is one whose occupation is to bring
the parties together, in matters of trade, commerce or
navigation.According to Bouviers Law Dictionary, brokerage refers to
the trade or occupation of a broker; the commissions paid to a broker
for his services, while brokers are those who are engaged for others
on the negotiation of contracts relative to property, with the custody
of which they have no concern.[19]
Thus, the word brokering clearly indicates the performance of
certain acts for monetary consideration or compensation. To give it
another definition such as that imputed by RBSMI to the acts of
Reyes is to distort the accepted jurisprudential meaning of the term.
From the evidence, all that Reyes did was to introduce RBSMIs
President to the President of TA Bank and EIB. Nothing more. There
was not even a hint that he was motivated by monetary consideration
or swayed by any personal interest in doing what he did.
On his part, Soriano who is RBSMIs President himself admitted
that the talks with Villacorta and Castillo never got past the
exploratory stage because the two wanted a buy-in while he was for
a total sell-out. This is an indelible indication that Reyes was not
personally involved in the transaction. If he were, he would at least
have an inkling of the plans of Villacorta and Castillo; otherwise, he
would not have wasted his time introducing them to Soriano.
Indeed, RBSMI miserably failed to establish that Reyes had
breached the standard of professional conduct required of a public
servant. It appears to the Court that in keeping with the standards of
professionalism and heeding the mandate of his position, he made
the telephone introductions for no other purpose but to pave the way
for a possible consolidation or merger of RBSMI with interested
banks. As this Court found in its Decision, it is indeed the policy of
the BSP to promote mergers and consolidations by providing
incentives to banks that would undergo such corporate
combinations.[20] To effectively implement the policy, it was
necessary that the banks be advised and assisted by a person
knowledgeable about the transactions like Reyes. The benefits which
may ultimately arise out of any preliminary facilitation step such as
what Reyes undertook will not accrue to the facilitator but to the
parties to the transaction themselves and, of course, the institution
whose policy initiative is being carried out.
All told, there is neither legal nor factual support for holding
Reyes and Domo-ong liable.
As to the motion for partial reconsideration filed by RBSMI, it is
argued that Principio should be administratively penalized for his
undue haste in submitting his report to the MB, in making an
unsupported recommendation for imposition of penalties for legal
reserve deficiencies, and for taking charge of the examinations of
RBSMI three consecutive times. RBSMIs arguments are not new,
they having been previously presented to and squarely ruled upon by
the Court.
In closing, it cannot be overemphasized that the BSP is an
independent body corporate bestowed under its charter[21] with fiscal
and administrative autonomy. As such, its officials should be granted
a certain degree of flexibility in the performance of their duties and
provided insulation from interference and vexatious suits, especially
when moves of the kind are resorted to as counterfoil to the exercise
of their regulatory mandate. Elsewise, the institutional independence
and autonomy of the BSP as the central mandatory authority would
be rendered illusory.
IN VIEW OF THE FOREGOING, the Court RESOLVES to
GRANT the Motion for Reconsideration of the petitioners Deputy
Governor Alberto V. Reyes and Director Wilfredo B. Domo-
ong. The Decision dated March 14, 2003 is SET ASIDE and another
entered, DISMISSING the administrative complaint and
EXONERATING all the petitioners. The Motion for Partial
Reconsideration of the respondent Rural Bank of San Miguel
(Bulacan), Inc. is DENIED.
SO ORDERED.
ABACUS SECURITIES CORP VS AMPIL
Stock market transactions affect the general public and the national
economy. The rise and fall of stock market indices reflect to a
considerable degree the state of the economy. Trends in stock prices
tend to herald changes in business conditions. Consequently,
securities transactions are impressed with public interest, and are
thus subject
to public regulation. In particular, the laws and regulations requiring
payment of traded shares within specified periods are meant to
protect the economy from excessive stock market speculations, and
are thus mandatory.
In the present case, respondent cannot escape payment of stocks
validly traded by petitioner on his behalf. These transactions took
place before both parties violated the trading law and rules. Hence,
they fall outside the purview of the pari delicto rule.
The Case
Before the Court is a Petition for Review[1] under Rule 45 of the Rules
of Court, challenging the March 21, 2003 Decision [2] and the
September 19, 2003 Resolution[3] of the Court of Appeals (CA) in CA-
GR CV No. 68273. The assailed Decision disposed as follows:
UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is
hereby DISMISSED. With costs.[4]
The CA denied reconsideration in its September 19,
2003 Resolution.
The Facts
The factual antecedents were summarized by the trial court (and
reproduced by the CA in its assailed Decision) in this wise:
Evidence adduced by the [petitioner] has established the fact that
[petitioner] is engaged in business as a broker and dealer of
securities of listed companies at the Philippine Stock Exchange
Center.
Sometime in April 1997, [respondent] opened a cash or regular
account with [petitioner] for the purpose of buying and selling
securities as evidenced by the Account Application Form. The parties
business relationship was governed by the terms and conditions
[stated therein] x x x.
Since April 10, 1997, [respondent] actively traded his account, and as
a result of such trading activities, he accumulated an outstanding
obligation in favor of [petitioner] in the principal sum of P6,617,036.22
as of April 30, 1997.
Despite the lapse of the period within which to pay his account as
well as sufficient time given by [petitioner] for [respondent] to comply
with his proposal to settle his account, the latter failed to do so. Such
that [petitioner] thereafter sold [respondents] securities to set off
against his unsettled obligations.
After the sale of [respondents] securities and application of the
proceeds thereof against his account, [respondents] remaining
unsettled obligation to [petitioner] was P3,364,313.56. [Petitioner]
then referred the matter to its legal counsel for collection purposes.
In a letter dated August 15, 1997, [petitioner] through counsel
demanded that [respondent] settle his obligation plus the agreed
penalty charges accruing thereon equivalent to the average 90-day
Treasury Bill rate plus 2% per annum (200 basis points).
In a letter dated August [26], 1997, [respondent] acknowledged
receipt of [petitioners] demand [letter] and admitted his unpaid
obligation and at the same time request[ed] for 60 days to raise funds
to pay the same, which was granted by [petitioner].
Despite said demand and the lapse of said requested extension,
[respondent] failed and/or refused to pay his accountabilities to
[petitioner].
For his defense, [respondent] claims that he was induced to trade in
a stock security with [petitioner] because the latter allowed offset
settlements wherein he is not obliged to pay the purchase
price. Rather, it waits for the customer to sell. And if there is a loss,
[petitioner] only requires the payment of the deficiency (i.e., the
difference between the higher buying price and the lower selling
price).In addition, it charges a commission for brokering the sale.
However, if the customer sells and there is a profit, [petitioner]
deducts the purchase price and delivers only the surplus after
charging its commission.
[Respondent] further claims that all his trades with [petitioner] were
not paid in full in cash at anytime after purchase or within the T+4 [4
days subsequent to trading] and none of these trades was cancelled
by [petitioner] as required in Exhibit A-1. Neither did [petitioner] apply
with either the Philippine Stock Exchange or the SEC for an
extension of time for the payment or settlement of his cash
purchases. This was not brought to his attention by his broker and so
with the requirement of collaterals in margin account. Thus, his trade
under an offset transaction with [petitioner] is unlimited subject only
to the discretion of the broker. x x x [Had petitioner] followed the
provision under par. 8 of Exh. A-1 which stipulated the liquidation
within the T+3 [3 days subsequent to trading], his net deficit would
only be P1,601,369.59. [Respondent] however affirmed that this is
not in accordance with RSA [Rule 25-1 par. C, which mandates that if
you do not pay for the first] order, you cannot subsequently make any
further order without depositing the cash price in full. So, if RSA Rule
25-1, par. C, was applied, he was limited only to the first
transaction. That [petitioner] did not comply with the T+4 mandated in
cash transaction. When [respondent] failed to comply with the T+3,
[petitioner] did not require him to put up a deposit before it executed
its subsequent orders. [Petitioner] did not likewise apply for extension
of the T+4 rule. Because of the offset transaction, [respondent] was
induced to [take a] risk which resulted [in] the filing of the instant suit
against him [because of which] he suffered sleepless nights, lost
appetite which if quantified in money, would amount to P500,000.00
moral damages and P100,000.00 exemplary damages.[5]
In its Decision[6] dated June 26, 2000, the Regional Trial Court (RTC)
of Makati City (Branch 57) held that petitioner violated Sections 23
and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the
Rules Implementing the Act (RSA Rules) when it failed to: 1) require
the respondent to pay for his stock purchases within three (T+3) or
four days (T+4) from trading; and 2) request from the appropriate
authority an extension of time for the payment of respondents cash
purchases. The trial court noted that despite respondents non-
payment within the required period, petitioner did not cancel the
purchases of respondent. Neither did it require him to deposit cash
payments before it executed the buy and/or sell orders subsequent to
the first unsettled transaction. According to the RTC, by allowing
respondent to trade his account actively without cash, petitioner
effectively induced him to purchase securities thereby incurring
excessive credits.
The trial court also found respondent to be equally at fault, by
incurring excessive credits and waiting to see how his investments
turned out before deciding to invoke the RSA. Thus, the RTC
concluded that petitioner and respondent were in pari delicto and
therefore without recourse against each other.
Ruling of the Court of Appeals
The CA upheld the lower courts finding that the parties were in pari
delicto. It castigated petitioner for allowing respondent to keep on
trading despite the latters failure to pay his outstanding obligations. It
explained that the reason [behind petitioners act] is elemental in its
simplicity. And it is not exactly altruistic. Because whether
[respondents] trading transaction would result in a surplus or deficit,
he would still be liable to pay [petitioner] its commission. [Petitioners]
cash register will keep on ringing to the sound of incoming money, no
matter what happened to [respondent].[7]
The CA debunked petitioners contention that the trial court lacked
jurisdiction to determine violations of the RSA. The court a quoheld
that petitioner was estopped from raising the question, because it
had actively and voluntarily participated in the assailed proceedings.
Hence, this Petition.[8]
Issues
Petitioner submits the following issues for our consideration:
I.
Whether or not the Court of Appeals ruling that petitioner and
respondent are in pari delicto which allegedly bars any recovery, is in
accord with law and applicable jurisprudence considering that
respondent was the first one who violated the terms of the Account
Opening Form, [which was the] agreement between the parties.
II.
Whether or not the Court of Appeals ruling that the petitioner and
respondent are in pari delicto is in accord with law and applicable
jurisprudence considering the Account Opening Form is a valid
agreement.
III.
Whether or not the Court of Appeals ruling that petitioner cannot
recover from respondent is in accord with law and applicable
jurisprudence since the evidence and admission of respondent
proves that he is liable to petitioner for his outstanding obligations
arising from the stock trading through petitioner.
IV.
Whether or not the Court of Appeals ruling on petitioners alleged
violation of the Revised Securities Act [is] in accord with law and
jurisprudence since the lower court has no jurisdiction over violations
of the Revised Securities Act.[9]
Briefly, the issues are (1) whether the pari delicto rule is applicable in
the present case, and (2) whether the trial court had jurisdiction over
the case.
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are
undisputed: (1) on April 8, 1997, respondent opened a cash account
with petitioner for his transactions in securities;[10] (2) respondents
purchases were consistently unpaid from April 10 to 30, 1997;[11] (3)
respondent failed to pay in full, or even just his deficiency, [12] for the
transactions on April 10 and 11, 1997;[13] (4) despite respondents
failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondents account on April 25
and 29;[14](5) petitioner did not cancel or liquidate a substantial
amount of respondents stock transactions until May 6, 1997. [15]
The provisions governing the above transactions are Sections 23 and
25 of the RSA[16] and Rule 25-1 of the RSA Rules, which state as
follows:
SEC. 23. Margin Requirements.
xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or
any broker or dealer, directly or indirectly, to extend or maintain credit
or arrange for the extension or maintenance of credit to or for any
customer
(1) On any security other than an exempted security, in
contravention of the rules and regulations which the Commission
shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than
securities, except (i) to maintain a credit initially extended in
conformity with the rules and regulations of the Commission and (ii)
in cases where the extension or maintenance of credit is not for the
purpose of purchasing or carrying securities or of evading or
circumventing the provisions of subparagraph (1) of this subsection.
xxxxxxxxx
SEC. 25. Enforcement of margin requirements and restrictions on
borrowings. To prevent indirect violations of the margin requirements
under Section 23 hereof, the broker or dealer shall require the
customer in nonmargin transactions to pay the price of the security
purchased for his account within such period as the Commission may
prescribe, which shall in no case exceed three trading days;
otherwise, the broker shall sell the security purchased starting on the
next trading day but not beyond ten trading days following the last
day for the customer to pay such purchase price, unless such sale
cannot be effected within said period for justifiable reasons. The sale
shall be without prejudice to the right of the broker or dealer to
recover any deficiency from the customer. x x x.
RSA RULE 25-1
Purchases and Sales in Cash Account
(a) Purchases by a customer in a cash account shall be paid in full
within three (3) business days after the trade date.
(b) If full payment is not received within the required time period, the
broker or dealer shall cancel or otherwise liquidate the transaction, or
the unsettled portion thereof, starting on the next business day but
not beyond ten (10) business days following the last day for the
customer to pay, unless such sale cannot be effected within said
period for justifiable reasons.
(c) If a transaction is cancelled or otherwise liquidated as a result of
non-payment by the customer, prior to any subsequent purchase
during the next ninety (90) days, the customer shall be required to
deposit sufficient funds in the account to cover each purchase
transaction prior to execution.
xxxxxxxxx
(f) Written application for an extension of the period of time required
for payment under paragraph (a) be made by the broker or dealer to
the Philippine Stock Exchange, in the case of a member of the
Exchange, or to the Commission, in the case of a non-member of the
Exchange. Applications for the extension must be based upon
exceptional circumstances and must be filed and acted upon before
the expiration of the original payment period or the expiration of any
subsequent extension.
Section 23(b) above -- the alleged violation of petitioner which
provides the basis for respondents defense -- makes it unlawful for a
broker to extend or maintain credit on any securities other than in
conformity with the rules and regulations issued by Securities and
Exchange Commission (SEC). Section 25 lays down the rules to
prevent indirect violations of Section 23 by brokers or dealers. RSA
Rule 25-1 prescribes in detail the regulations
governing cash accounts.
The United States, from which our countrys security policies are
patterned,[17] abound with authorities explaining the main purpose of
the above statute on margin[18] requirements. This purpose is to
regulate the volume of credit flow, by way of speculative transactions,
into the securities market and redirect resources into more productive
uses. Specifically, the main objective of the law on margins is
explained in this wise:
The main purpose of these margin provisions xxx is not to increase
the safety of security loans for lenders. Banks and brokers normally
require sufficient collateral to make themselves safe without the help
of law. Nor is the main purpose even protection of the small
speculator by making it impossible for him to spread himself too
thinly although such a result will be achieved as a byproduct of the
main purpose.
xxxxxxxxx
The main purpose is to give a [g]overnment credit agency an
effective method of reducing the aggregate amount of the nations
credit resources which can be directed by speculation into the stock
market and out of other more desirable uses of commerce and
industry x x x.[19]
A related purpose of the governmental regulation of margins is the
stabilization of the economy.[20] Restrictions on margin percentages
are imposed in order to achieve the objectives of the government
with due regard for the promotion of the economy and prevention of
the use of excessive credit.[21]
Otherwise stated, the margin requirements set out in the RSA are
primarily intended to achieve a macroeconomic purpose -- the
protection of the overall economy from excessive speculation in
securities. Their recognized secondary purpose is to protect small
investors.
The law places the burden of compliance with margin requirements
primarily upon the brokers and dealers.[22] Sections 23 and 25 and
Rule 25-1, otherwise known as the mandatory close-out
rule,[23] clearly vest upon petitioner the obligation, not just the right, to
cancel or otherwise liquidate a customers order, if payment is not
received within three days from the date of purchase. The word shall
as opposed to the word may, is imperative and operates to impose a
duty, which may be legally enforced. For transactions subsequent to
an unpaid order, the broker should require its customer to deposit
funds into the account sufficient to cover each purchase transaction
prior to its execution. These duties are imposed upon the broker to
ensure faithful compliance with the margin requirements of the law,
which forbids a broker from extending undue credit to a customer.
It will be noted that trading on credit (or margin trading) allows
investors to buy more securities than their cash position would
normally allow.[24] Investors pay only a portion of the purchase price
of the securities; their broker advances for them the balance of the
purchase price and keeps the securities as collateral for the advance
or loan.[25] Brokers take these securities/stocks to their bank and
borrow the balance on it, since they have to pay in full for the traded
stock. Hence, increasing margins[26] i.e., decreasing the amounts
which brokers may lend for the speculative purchase and carrying of
stocks is the most direct and effective method of discouraging an
abnormal attraction of funds into the stock market and achieving a
more balanced use of such resources.
x x x [T]he x x x primary concern is the efficacy of security credit
controls in preventing speculative excesses that produce
dangerously large and rapid securities price rises and accelerated
declines in the prices of given securities issues and in the general
price level of securities. Losses to a given investor resulting from
price declines in thinly margined securities are not of serious
significance from a regulatory point of view. When forced sales occur
and put pressures on securities prices, however, they may cause
other forced sales and the resultant snowballing effect may in turn
have a general adverse effect upon the entire market.[27]
The nature of the stock brokerage business enables brokers, not the
clients, to verify, at any time, the status of the clients
account.[28]Brokers, therefore, are in the superior position to prevent
the unlawful extension of credit.[29] Because of this awareness, the
law imposes upon them the primary obligation to enforce the margin
requirements.
Right is one thing; obligation is quite another. A right may not be
exercised; it may even be waived. An obligation, however, must be
performed; those who do not discharge it prudently must necessarily
face the consequence of their dereliction or omission.[30]
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these margin requirements are applicable only to
transactions entered into by the present parties subsequent to the
initial trades of April 10 and 11, 1997. Thus, we hold that petitioner
can still collect from respondent to the extent of the difference
between the latters outstanding obligation as of April 11, 1997 less
the proceeds from the mandatory sell out of the shares pursuant to
the RSA Rules.Petitioners right to collect is justified under the
general law on obligations and contracts.[31]
Article 1236 (second paragraph) of the 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. (Emphasis supplied)
Since a brokerage relationship is essentially a contract for the
employment of an agent, principles of contract law also govern the
broker-principal relationship.[32]
The right to collect cannot be denied to petitioner as the initial
transactions were entered pursuant to the instructions of
respondent. The obligation of respondent for stock transactions
made and entered into on April 10 and 11, 1997 remains
outstanding. These transactions were valid and the obligations
incurred by respondent concerning his stock purchases on these
dates subsist. At that time,
there was no violation of the RSA yet. Petitioners fault arose only
when it failed to: 1) liquidate the transactions on the fourth day
following the stock purchases, or on April 14 and 15, 1997; and 2)
complete its liquidation no later than ten days thereafter, applying the
proceeds thereof as payment for respondents outstanding
obligation.[33]
Elucidating further, since the buyer was not able to pay for the
transactions that took place on April 10 and 11, that is at T+4, the
broker was duty-bound to advance the payment to the settlement
banks without prejudice to the right of the broker to collect later from
the client.[34]
In securities trading, the brokers are essentially the counterparties to
the stock transactions at the Exchange.[35] Since the principals of the
broker are generally undisclosed, the broker is personally liable for
the contracts thus made.[36] Hence, petitioner had to advance the
payments for respondents trades. Brokers have a
right to be reimbursed for sums advanced by them with the express
or implied authorization of the principal,[37] in this case, respondent.
It should be clear that Congress imposed the margin requirements to
protect the general economy, not to give the customer a free ride at
the expense of the broker.[38] Not to require respondent to pay for his
April 10 and 11 trades would put a premium on his circumvention of
the laws and would enable him to enrich himself unjustly at the
expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms
and conditions of its Agreement with respondent, specifically
paragraph 8 thereof, purportedly acting on the plea[39] of respondent
to give him time to raise funds therefor. These stipulations, in relation
to paragraph 4,[40] constituted faithful compliance with the RSA. By
failing to ensure respondents payment of his first purchase
transaction within the period prescribed by law, thereby allowing him
to make subsequent purchases, petitioner effectively converted
respondents cash account into a credit account. However, extension
or maintenance of credits on nonmargin transactions, are specifically
prohibited under Section 23(b). Thus, petitioner was remiss in its duty
and cannot be said to have come to court with clean hands insofar as
it intended to collect on transactions subsequent to the initial trades
of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other hand, we find respondent equally guilty in entering into
the transactions in violation of the RSA and RSA Rules. We are not
prepared to accept his self-serving assertions of being an innocent
victim in all the transactions. Clearly, he is not an unsophisticated,
small investor merely prodded by petitioner to speculate on the
market with the possibility of large profits with low -- or no -- capital
outlay, as he pictures himself to be. Rather, he is an experienced and
knowledgeable trader who is well versed in the securities market and
who made his own investment decisions. In fact, in the Account
Opening Form (AOF), he indicated that he had excellent knowledge
of stock investments; had experience in stocks trading, considering
that he had similar accounts with other firms.[41] Obviously, he
knowingly speculated on the market, by taking advantage of the no-
cash-out arrangement extended to him by petitioner.
We note that it was respondent who repeatedly asked for some time
to pay his obligations for his stock transactions. Petitioner acceded to
his requests. It is only when sued upon his indebtedness that
respondent raised as a defense the invalidity of the transactions due
to alleged violations of the RSA. It was respondents privilege to
gamble or speculate, as he apparently did so by asking for
extensions of time and refraining from giving orders to his broker to
sell, in the hope that the prices would rise. Sustaining his argument
now would amount to relieving him of the risk and consequences of
his own speculation and saddling them on the petitioner after the
result was known to be unfavorable.[42] Such contention finds no legal
or even moral justification and must necessarily be
overruled. Respondents conduct is precisely the behavior of an
investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did
not come to court with clean hands with regard to transactions
subsequent to the initial trades made on April 10 and 11, 1997. Thus,
the peculiar facts of the present case bar the application of the pari
delicto rule -- expressed in the maxims Ex dolo malo non oritur
action and In pari delicto potior est conditio defendentis -- to all the
transactions entered into by the parties. The pari delecto rule refuses
legal remedy to either party to an illegal agreement and leaves them
where they were.[43] In this case, the pari delicto rule applies only to
transactions entered into after the initial trades made on April 10 and
11, 1997.
Since the initial trades are valid and subsisting obligations,
respondent is liable for them. Justice and good conscience require all
persons to satisfy their debts. Ours are courts of both law and equity;
they compel fair dealing; they do not abet clever attempts to escape
just obligations. Ineludibly, this Court would not hesitate to grant relief
in accordance with good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the
transaction (sold the stocks) on the fourth day following the
transaction (T+4) and completed its liquidation not later than ten days
following the last day for the customer to pay (effectively
T+14). Respondents outstanding obligation is therefore to be
determined by using the closing prices of the stocks purchased at
T+14 as basis.
We consider the foregoing formula to be just and fair under the
circumstances. When petitioner tolerated the subsequent purchases
of respondent without performing its obligation to liquidate the first
failed transaction, and without requiring respondent to deposit cash
before embarking on trading stocks any further, petitioner, as the
broker, violated the law at its own peril. Hence, it cannot now
complain for failing to obtain the full amount of its claim for
these latter transactions.
On the other hand, with respect to respondents counterclaim for
damages for having been allegedly induced by petitioner to generate
additional purchases despite his outstanding obligations, we hold that
he deserves no legal or equitable relief consistent with our foregoing
finding that he was not an innocent investor as he presented himself
to be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses
set up in the answer or in the motion to dismiss determine which
court has jurisdiction over an action.[44] Were we to be governed by
the latter rule, the question of jurisdiction would depend almost
entirely upon the defendant.[45]
The instant controversy is an ordinary civil case seeking to enforce
rights arising from the Agreement (AOF) between petitioner and
respondent. It relates to acts committed by the parties in the course
of their business relationship. The purpose of the suit is to collect
respondents alleged outstanding debt to petitioner for stock
purchases.
To be sure, the RSA and its Rules are to be read into the Agreement
entered into between petitioner and respondent. Compliance with the
terms of the AOF necessarily means compliance with the laws. Thus,
to determine whether the parties fulfilled their obligations in the AOF,
this Court had to pass upon their compliance with the RSA and its
Rules. This, in no way, deprived the Securities and Exchange
Commission (SEC) of its authority to determine willful violations of
the RSA and impose appropriate sanctions therefor, as provided
under Sections 45 and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
As to the issue of jurisdiction, it is settled that a party cannot invoke
the jurisdiction of a court to secure affirmative relief against his
opponent and after obtaining or failing to obtain such relief, repudiate
or question that same jurisdiction.
Indeed, after voluntarily submitting a cause and encountering an
adverse decision on the merits, it is too late for petitioner to question
the jurisdictional power of the court. It is not right for a party who has
affirmed and invoked the jurisdiction of a court in a particular matter
to secure an affirmative relief, to afterwards deny that same
jurisdiction to escape a penalty.[46]
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals are hereby MODIFIED. Respondent is ordered to pay
petitioner the difference between the formers outstanding obligation
as of April 11, 1997 less the proceeds from the mandatory sell out of
shares pursuant to the RSA Rules, with interest thereon at the legal
rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a
computation of respondents outstanding obligation using the closing
prices of the stocks at T+14 as basis -- counted from April 11, 1997
and to issue the proper order for payment if warranted. It may hold
trial and hear the parties to be able to make this determination.
No finding as to costs in this instance.

SO ORDERED.
MEDRANO VS CA
This is a petition for review of the Decision[1] of the Court of
Appeals (CA) affirming in toto the Decision[2] of the Regional Trial
Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664
which awarded to the respondents their 5% brokers commission.
The facts are as follows:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural
Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano
asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a
foreclosed asset of the bank,[3] a 17-hectare mango plantation priced
at P2,200,000.00, located in Ibaan, Batangas.[4]
Mr. Dominador Lee, a businessman from Makati City, was a
client of respondent Mrs. Pacita G. Borbon, a licensed real estate
broker. The two met through a previous transaction where Lee
responded to an ad in a newspaper put up by Borbon for an 8-
hectare property in Lubo, Batangas, planted with atis trees. Lee
expressed that he preferred a land with mango trees instead. Borbon
promised to get back to him as soon as she would be able to find a
property according to his specifications.
Borbon relayed to her business associates and friends that she
had a ready buyer for a mango orchard. Flor then advised her that
her cousin-in-law owned a mango plantation which was up for sale.
She told Flor to confer with Medrano and to give them a written
authority to negotiate the sale of the property.[5] Thus, on September
3, 1986, Medrano issued the Letter of Authority, as follows:
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio
Campos Rueda Building
Tindalo, Makati, M.M.
Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig
23 Mabini Street
Quezon City, M.M.
Dear Mesdames:
This letter will serve as your authority* to negotiate with any
prospective buyer for the sale of a certain real estate property more
specifically a mango plantation which is described more particularly
therein below:
Location : Barrio Tulay-na-Patpat, Ibaan,
Batangas
Lot Area : 17 hectares (more or less) per
attached Appendix A
Improvements : 720 all fruit-bearing mango trees
(carabao variety) and other
trees
Price : P 2,200,000.00
For your labor and effort in finding a purchaser thereof, I hereby bind
myself to pay you a commission of 5% of the total purchase price to
be agreed upon by the buyer and seller.
Very truly
yours,
( common issues:
S 1. Whether or not the letter of authority is binding and
g enforceable against the defendant Bank only or both
d defendants; and
.
) 2. Whether or not the plaintiffs are entitled to any
B.R.
Medrano
O
w
n
e
r
* Subject to price sale.[6]
The respondents arranged for an ocular inspection of the
property together with Lee which never materialized the first time was
due to inclement weather; the next time, no car was available for the
tripping to Batangas.[7] Lee then called up Borbon and told her that
he was on his way to Lipa City to inspect another property, and might
as well also take a look at the property Borbon was offering. Since
Lee was in a hurry, the respondents could no longer accompany him
at the time. Thus, he asked for the exact address of the property and
the directions on how to reach the lot in Ibaan from Lipa City.
Thereupon, Lee was instructed to get in touch with Medranos
daughter and also an officer of the bank, Mrs. Teresa Ganzon,
regarding the property.[8]
Two days after the visit, respondent Josefina Antonio called
Lee to inquire about the result of his ocular inspection. Lee told her
that the mango trees looked sick so he was bringing an agriculturist
to the property. Three weeks thereafter, Antonio called Lee again to
make a follow-up of the latters visit to Ibaan. Lee informed her that he
already purchased the property and had made a down payment
of P1,000,000.00. The remaining balance of P1,200,000.00 was to
be paid upon the approval of the incorporation papers of the
corporation he was organizing by the Securities and Exchange
Commission. According to Antonio, Lee asked her if they had already
received their commission. She answered no, and Lee expressed
surprise over this.[9]
A Deed of Sale was eventually executed on November 6, 1986
between the bank, represented by its President/General Manager
Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by
Dominador Lee (as Vendee), for the purchase price
of P1,200,000.00.[10] Since the sale of the property was
consummated, the respondents asked from the petitioners their
commission, or 5% of the purchase price. The petitioners refused to
pay and offered a measly sum of P5,000.00 each.[11] Hence, the
respondents were constrained to file an action against herein
petitioners.
The petitioners alleged that Medrano issued the letter of
authority in favor of all the respondents, upon the representation of
Flor that she had a prospective buyer. Flor was the only person
known to Medrano, and he had never met Borbon and Antonio.
Medrano had asked that the name of their prospective buyer be
immediately registered so as to avoid confusion later on, but Flor
failed to do so. Furthermore, the other officers of the bank had never
met nor dealt with the respondents in connection with the sale of the
property. Ganzon also asked Lee if he had an agent and the latter
replied that he had none. The petitioners also denied that the
purchase price of the property was P2,200,000.00 and alleged that
the property only cost P1,200,000.00. The petitioners further
contended that the letter of authority signed by Medrano was not
binding or enforceable against the bank because the latter had a
personality separate and distinct from that of Medrano. Medrano, on
the other hand, denied liability, considering that he was not the
registered owner of the property, but the bank. The petitioners,
likewise, filed a counterclaim as they were constrained to hire the
services of counsel and suffered damages.[12]
After the case was submitted for decision, Medrano died, but
no substitution of party was made at this time.[13]
The trial court resolved the case based on the following
commission for the sale of the subject property.[14]
On September 21, 1994, the trial court rendered a Decision in
favor of the respondents. The petitioners were ordered to pay, jointly
and severally, the 5% brokers commission to herein respondents.
The trial court found that the letter of authority was valid and binding
as against Medrano and the Ibaan Rural bank. Medrano signed the
said letter for and in behalf of the bank, and as owner of the property,
promising to pay the respondents a 5% commission for their efforts in
looking for a purchaser of the property. He is, therefore, estopped
from denying liability on the basis of the letter of authority he issued
in favor of the respondents. The trial court further stated that the sale
of the property could not have been possible without the
representation and intervention of the respondents. As such, they are
entitled to the brokers commission of 5% of the selling price
of P1,200,000.00 as evidenced by the deed of sale.[15] The fallo of
the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiffs and against the defendants, for the latter, jointly
and severally:
1. To pay plaintiffs the sum of P60,000.00 representing their five
percent (5%) commission of the purchase price of the property sold
based on Exh. D or 9 plus legal interest from date of filing of the
herein complaint until fully paid;
2. To pay plaintiffs the sum of P20,000.00 as and for attorneys fees;
3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses;
4. To pay the costs of the proceedings.[16]
Unable to agree with the RTC decision, petitioner Ibaan Rural
Bank filed its notice of appeal.[17]
On October 10, 1994, the heirs of Bienvenido Medrano filed a
Motion for Reconsideration[18] praying that the late Bienvenido
Medrano be substituted by his heirs. They further prayed that the trial
courts decision as far as Medrano was concerned be set aside and
dismissed considering his demise. The trial court denied the motion
for reconsideration.[19] Hence, the heirs of Medrano also filed their
notice of appeal.[20]
On appeal, the petitioners reiterated their stance that the letter
of authority was not binding and enforceable, as the same was
signed by Medrano, who was not actually the owner of the property.
They refused to give the respondents any commission, since the
latter did not perform any act to consummate the sale. The
petitioners pointed out that the respondents (1) did not verify the real
owner of the property; (2) never saw the property in question; (3)
never got in touch with the registered owner of the property; and (4)
neither did they perform any act of assisting their buyer in having the
property inspected and verified.[21] The petitioners further raised the
trial courts error in not dismissing the case against Bienvenido
Medrano considering his death.
On May 3, 2001, the CA promulgated the assailed decision
affirming the finding of the trial court that the letter of authority was
valid and binding. Applying the principle of agency, the appellate
court ruled that Bienvenido Medrano constituted the respondents as
his agents, granting them authority to represent and act on behalf of
the former in the sale of the 17-hectare mango plantation. The CA
also ruled that the trial court did not err in finding that the
respondents were the procuring cause of the sale. Suffice it to state
that were it not for the respondents, Lee would not have known that
there was a mango orchard offered for sale.
The CA further ruled that an action for a sum of money
continues even after the death of the defendant, and shall remain as
a money claim against the estate of the deceased.
Undaunted by the CAs unfavorable decision, the petitioners
filed the instant petition, raising eight (8) assignments of errors, to
wit:
I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE
PRIVATE RESPONDENTS TO BE THE PROCURING
CAUSE OF THE SALE;
II. THE COURT OF APPEALS ERRED IN GIVING
CREDENCE TO THE LETTER-AUTHORITY OF
PETITIONER MR. MEDRANO;
III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT
CORRECTLY RECOGNIZED THE EXTENT OF THE
PRIVATE RESPONDENTS OBLIGATION AND
AUTHORITY CONTAINED IN MEDRANOS LETTER-
AUTHORITY AND YET ERRONEOUSLY GRANTED
THE PRIVATE-RESPONDENTS DEMAND,
NOTWITHSTANDING THE NON-PERFORMANCE OF
THEIR OBLIGATION THEREUNDER;
IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD
FAITH UPON THE PETITIONERS;
V. THE COURT OF APPEALS ERRED IN PLACING THE
BURDEN OF PROOF UPON THE DEFENDANTS-
PETITIONERS;
VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE
ITS CONCLUSION WITH EVIDENCE AND INSTEAD
RELIED ON INFERENCE;
VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE
ITS CONCLUSION WITH EVIDENCE AND MERELY
RELIED ON SPECULATION AND SURMISE;
VIII. THE COURT OF APPEALS MISAPPRECIATED THE
FACTS PRESENTED BEFORE IT, AND
CONSEQUENTLY FAILED TO CONSIDER
REASONABLY THE TWO (2) BASIC ARGUMENTS
OF THE PETITIONERS.[22]
The petition is denied.
The records disclose that respondent Pacita Borbon is a
licensed real estate broker[23] and respondents Josefina Antonio and
Estela A. Flor are her associates.[24] A broker is generally defined as
one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no
concern; the negotiator between other parties, never acting in his
own name but in the name of those who employed him; he is strictly
a middleman and for some purposes the agent of both parties. A
broker is one whose occupation is to bring parties together, in
matters of trade, commerce or navigation.[25] For the respondents
participation in finding a buyer for the petitioners property, the
petitioners refuse to pay them commission, asserting that they are
not the efficient procuring cause of the sale, and that the letter of
authority signed by petitioner Medrano is not binding against the
petitioners.
Procuring cause is meant to be the proximate cause.[26] The
term procuring cause, in describing a brokers activity, refers to a
cause originating a series of events which, without break in their
continuity, result in accomplishment of prime objective of the
employment of the broker producing a purchaser ready, willing and
able to buy real estate on the owners terms.[27] A broker will be
regarded as the procuring cause of a sale, so as to be entitled to
commission, if his efforts are the foundation on which the
negotiations resulting in a sale are begun.[28] The broker must be the
efficient agent or the procuring cause of the sale. The means
employed by him and his efforts must result in the sale. He must find
the purchaser, and the sale must proceed from his efforts acting as
broker.[29]
Indeed, the evidence on record shows that the respondents
were instrumental in the sale of the property to Lee. Without their
intervention, no sale could have been consummated. They were the
ones who set the sale of the subject land in motion.[30] Upon being
informed by Flor that Medrano was selling his mango orchard,
Borbon lost no time in informing Lee that they had found a property
according to his specifications. An ocular inspection of the property
together with Lee was immediately planned; unfortunately, it never
pushed through for reasons beyond the respondents control. Since
Lee was in a hurry to see the property, he asked the respondents the
exact address and the directions on how to reach Ibaan, Batangas.
The respondents thereupon instructed him to look for Teresa
Ganzon, an officer of the Ibaan Rural Bank and the person to talk to
regarding the property. While the letter-authority issued in favor of
the respondents was non-exclusive, no evidence was adduced to
show that there were other persons, aside from the respondents,
who informed Lee about the property for sale. Ganzon testified that
no advertisement was made announcing the sale of the lot, nor did
she give any authority to other brokers/agents to sell the subject
property.[31]The fact that it was Lee who personally called Borbon and
asked for directions prove that it was only through the respondents
that Lee learned about the property for sale.[32] Significantly, too, Ms.
Teresa Ganzon testified that there were no other persons other than
the respondents who inquired from her about the sale of the property
to Lee.[33] It can thus be readily inferred that the respondents were
the only ones who knew about the property for sale and were
responsible in leading a buyer to its consummation. All these
circumstances lead us to the inescapable conclusion that the
respondents were the procuring cause of the sale. When there is a
close, proximate and causal connection between the brokers efforts
and the principals sale of his property, the broker is entitled to a
commission.[34]
The petitioners insist that the respondents are not entitled to
any commission since they did not actually perform any acts of
negotiation as required in the letter-authority. They refuse to pay the
commission since according to them, the respondents participation in
the transaction was not apparent, if not nil. The respondents did not
even look at the property themselves; did not introduce the buyer to
the seller; did not hold any conferences with the buyer, nor take part
in concluding the sale. For the non-compliance of this obligation to
negotiate, the petitioners argue, the respondents are not entitled to
any commission.
We find the argument specious. The letter of authority must be
read as a whole and not in its truncated parts. Certainly, it was not
the intention of Medrano to expect the respondents to do just that (to
negotiate) when he issued the letter of authority. The clear intention
is to reward the respondents for procuring a buyer for the property.
Before negotiating a sale, a broker must first and foremost bring in a
prospective buyer. It has been held that a broker earns his
pay merely by bringing the buyer and the seller together, even if no
sale is eventually made.[35] The essential feature of a brokers
conventional employment is merely to procure a purchaser for a
property ready, able, and willing to buy at the price and on the terms
mutually agreed upon by the owner and the purchaser. And it is not a
prerequisite to the right to compensation that the broker conduct the
negotiations between the parties after they have been brought into
contact with each other through his efforts.[36] The case of Macondray
v. Sellner[37] is quite instructive:
The business of a real estate broker or agent, generally, is only to
find a purchaser, and the settled rule as stated by the courts is that,
in the absence of an express contract between the broker and his
principal, the implication generally is that the broker becomes entitled
to the usual commissions whenever he brings to his principal a party
who is able and willing to take the property and enter into a valid
contract upon the terms then named by the principal, although the
particulars may be arranged and the matter negotiated and
completed between the principal and the purchaser directly.
Notably, there are cases where the right of the brokers to
recover commissions were upheld where they actually took no part in
the negotiations, never saw the customer, and even some in which
they did nothing except advertise the property, as long as it can be
shown that they were the efficient cause of the sale.[38]
In the case at bar, the role of the respondents in the transaction
is undisputed. Whether or not they participated in the negotiations of
the sale is of no moment. Armed with an authority to procure a
purchaser and with a license to act as broker, we see no reason why
the respondents can not recover compensation for their efforts when,
in fact, they are the procuring cause of the sale.[39]
Anent the validity of the letter-authority signed by Medrano, we
find no reversible error with the findings of the appellate and trial
courts that the petitioners are liable thereunder. Such factual findings
deserve this Courts respect in the absence of any cogent reason to
reverse the same. Medranos obligation to pay the respondents
commission for their labor and effort in finding a purchaser or a buyer
for the described parcel of land is unquestionable. In the absence of
fraud, irregularity or illegality in its execution, such letter-authority
serves as a contract, and is considered as the law between the
parties. As such, Medrano can not renege on the promise to pay
commission on the flimsy excuse that he is not the registered owner
of the property. The evidence shows that he comported himself to be
the owner of the property. His testimony is quite telling:
Q Mr. Medrano, do you know any of the plaintiffs in this
case, Pacita Borbon, Josefina Antonio, and Stella
(sic) F. Flor?
WITNESS
A I know only Stella (sic) F. Flor. The rest, I do not know
them. I have never met them, up to now.
Q How about the co-defendant Ibaan Rural Bank?
A I know co-defendant Ibaan Rural Bank, having been
the founder and at one time or another, I have
served several capacities from President to
Chairman of the Board.
Q Are you familiar with a certain parcel of land located at
Barrio Tulay na Patpat, Ibaan, Batangas, with an
area of 17 hectares?
A Yes, Sir. I used to own that property but later on
mortgaged it to Ibaan Rural Bank.
Q And what, if any, [did] the bank do to your property
after you have mortgaged the same to it?
A After many demands for payment or redemption of my
mortgage, which I failed to do so, the Ibaan Rural
Bank sold it.
Q After it was foreclosed?
A Yes, Sir.
Q Do you recall having made any transaction with plaintiff
Stella (sic) F. Flor regarding the property?
A Yes, Sir. Since she is the first cousin of my wife, I
remember [that] she came to my office once and
requested for a letter of authority which I issued [in]
September 1986, I think, and I gave her the letter
of authority.[40]
As to the liability of the bank, we quote with favor the
disquisition of the respondent court, to wit:
Further, the appellants cannot use the flimsy excuse (only to evade
liability) that (w)hat Mr. Medrano represented to the plaintiffs-
appellees, without the knowledge or consent of the defendant Bank,
did not bind the Bank. Res inter alios acta alteri nocere non debet.
(page 8 of the Appellants Brief; page 35 of the Rollo). While it may be
true that technically the Ibaan Rural Bank did not authorize
Bienvenido R. Medrano to sell the land under litigation or that the
latter was no longer an officer of the said bank, still, these
circumstances do not convince this Court fully well to absolve the
bank. Note that, as former President of the said bank, it is improbable
that he (Bienvenido R. Medrano) was completely oblivious of the
developments therein. By reason of his past association with the
officers of the said bank (who are, in fact, his relatives), it is
unbelievable that Bienvenido R. Medrano could simply have issued
the said letter of authority without the knowledge of the said officers.
Granting por aguendo that Bienvenido R. Medrano did not act on
behalf of the bank, however, We doubt that he had no financial
and/or material interest in the said sale a fact that could not possibly
have eluded Our attention.[41]
From all the foregoing, there can be no other conclusion than
the respondents are indeed the procuring cause of the sale. If not for
the respondents, Lee would not have known about the mango
plantation being sold by the petitioners. The sale was consummated.
The bank had profited from such transaction. It would certainly be
iniquitous if the respondents would not be rewarded their commission
pursuant to the letter of authority.
 WHEREFORE, the petition is DENIED due course. The
Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
TAN VS GULLAS
This is a petition for review seeking to set aside the
decision[1] of the Court of Appeals[2] in CA-G.R. CV No. 46539, which
reversed and set aside the decision[3] of the Regional Trial Court of
Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo
R. Gullas and Norma S. Gullas, were the registered owners of a
parcel of land in the Municipality of Minglanilla, Province of Cebu,
measuring 104,114 sq. m., with Transfer Certificate of Title No.
31465.[4] On June 29, 1992, they executed a special power of
attorney[5] authorizing petitioners Manuel B. Tan, a licensed real
estate broker,[6] and his associates Gregg M. Tecson and Alexander
Saldaa, to negotiate for the sale of the land at Five Hundred Fifty
Pesos (P550.00) per square meter, at a commission of 3% of the
gross price. The power of attorney was non-exclusive and effective
for one month from June 29, 1992.[7]
On the same date, petitioner Tan contacted Engineer Edsel
Ledesma, construction manager of the Sisters of Mary of Banneaux,
Inc. (hereafter, Sisters of Mary), a religious organization interested in
acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the
property with Engineer Ledesma. Thereafter, the two men
accompanied Sisters Michaela Kim and Azucena Gaviola,
representing the Sisters of Mary, to see private respondent Eduardo
Gullas in his office at the University of Visayas. The Sisters, who had
already seen and inspected the land, found the same suitable for
their purpose and expressed their desire to buy it. [8] However, they
requested that the selling price be reduced to Five Hundred Thirty
Pesos (P530.00) per square meter instead of Five Hundred Fifty
Pesos (P550.00) per square meter. Private respondent Eduardo
Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private
respondent Eduardo Gullas was the owner of the property. On July 3,
1992, private respondents agreed to sell the property to the Sisters of
Mary, and subsequently executed a special power of attorney [9] in
favor of Eufemia Caete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two Hundred Pesos
(P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Caete executed a
deed of sale in favor of the Sisters of Mary for the price of Twenty
Million Eight Hundred Twenty Two Thousand Eight Hundred Pesos
(P20,822,800.00), or at the rate of Two Hundred Pesos (P200.00)
per square meter.[10] The buyers subsequently paid the
corresponding taxes.[11] Thereafter, the Register of Deeds of Cebu
Province issued TCT No. 75981 in the name of the Sisters of Mary of
Banneaux, Inc.[12]
Earlier, on July 3, 1992, in the afternoon, petitioners went to
see private respondent Eduardo Gullas to claim their commission,
but the latter told them that he and his wife have already agreed to
sell the property to the Sisters of Mary. Private respondents refused
to pay the brokers fee and alleged that another group of agents was
responsible for the sale of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint [13] against the
defendants for recovery of their brokers fee in the sum of One Million
Six Hundred Fifty Five Thousand Four Hundred Twelve and 60/100
Pesos (P1,655,412.60), as well as moral and exemplary damages
and attorneys fees. They alleged that they were the efficient
procuring cause in bringing about the sale of the property to the
Sisters of Mary, but that their efforts in consummating the sale were
frustrated by the private respondents who, in evident bad faith,
malice and in order to evade payment of brokers fee, dealt directly
with the buyer whom petitioners introduced to them. They further
pointed out that the deed of sale was undervalued obviously to evade
payment of the correct amount of capital gains tax, documentary
stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to
petitioners claim, they were not the efficient procuring cause in
bringing about the consummation of the sale because another
broker, Roberto Pacana, introduced the property to the Sisters of
Mary ahead of the petitioners.[14] Private respondents maintained that
when petitioners introduced the buyers to private respondent
Eduardo Gullas, the former were already decided in buying the
property through Pacana, who had been paid his commission.
Private respondent Eduardo Gullas admitted that petitioners were in
his office on July 3, 1992, but only to ask for the reimbursement of
their cellular phone expenses.
In their reply and answer to counterclaim,[15] petitioners alleged
that although the Sisters of Mary knew that the subject land was for
sale through various agents, it was petitioners who introduced them
to the owners thereof.
After trial, the lower court rendered judgment in favor of
petitioners, the dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment
is hereby rendered for the plaintiffs and against the defendants. By
virtue hereof, defendants Eduardo and Norma Gullas are hereby
ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg
Tecson and Alexander Saldaa;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND
SIX HUNDRED EIGHTY FOUR PESOS (P624,684.00) as brokers
fee with legal interest at the rate of 6% per annum from the date of
filing of the complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorneys
fees and costs of litigation.
For lack of merit, defendants counterclaim is hereby DISMISSED.
IT IS SO ORDERED.[16]
Both parties appealed to the Court of Appeals. Private
respondents argued that the lower court committed errors of fact and
law in holding that it was petitioners efforts which brought about the
sale of the property and disregarding the previous negotiations
between private respondent Norma Gullas and the Sisters of Mary
and Pacana. They further alleged that the lower court had no basis
for awarding brokers fee, attorneys fees and the costs of litigation to
petitioners.[17]
Petitioners, for their part, assailed the lower courts basis of the
award of brokers fee given to them. They contended that their 3%
commission for the sale of the property should be based on the price
of P55,180,420.00, or at P530.00 per square meter as agreed upon
and not on the alleged actual selling price of P20,822,800.00 or at
P200.00 per square meter, since the actual purchase price was
undervalued for taxation purposes. They also claimed that the lower
court erred in not awarding moral and exemplary damages in spite of
its finding of bad faith; and that the amount of P50,000.00 as
attorneys fees awarded to them is insufficient. Finally, petitioners
argued that the legal interest imposed on their claim should have
been pegged at 12% per annum instead of the 6% fixed by the
court.[18]
The Court of Appeals reversed and set aside the lower courts
decision and rendered another judgment dismissing the complaint.[19]
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING
THAT THE PETITIONERS ARE NOT ENTITLED TO THE
BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS
DEPRIVED THE PETITIONERS OF MORAL AND EXEMPLARY
DAMAGES, ATTORNEYS FEES AND INTEREST IN THE
FOREBEARANCE OF MONEY.
 The petition is impressed with merit. Having ruled that petitioners are entitled to the brokers
commission, we should now resolve how much commission are
The records show that petitioner Manuel B. Tan is a licensed petitioners entitled to?
real estate broker, and petitioners Gregg M. Tecson and Alexander
Saldaa are his associates. In Schmid and Oberly v. RJL Martinez Following the stipulation in the Special Power of Attorney,
Fishing Corporation,[20] we defined a broker as one who is engaged, petitioners are entitled to 3% commission for the sale of the land in
for others, on a commission, negotiating contracts relative to property question. Petitioners maintain that their commission should be based
with the custody of which he has no concern; the negotiator between on the price at which the land was offered for sale, i.e., P530.00 per
other parties, never acting in his own name but in the name of those square meter. However, the actual purchase price for which the land
who employed him. x x x a broker is one whose occupation is was sold was only P200.00 per square meter. Therefore, equity
to bring the parties together, in matters of trade, commerce or considerations dictate that petitioners commission must be based on
navigation. (Emphasis supplied) this price. To rule otherwise would constitute unjust enrichment on
the part of petitioners as brokers.
During the trial, it was established that petitioners, as brokers,
were authorized by private respondents to negotiate for the sale of In the matter of attorneys fees and expenses of litigation, we
their land within a period of one month reckoned from June 29, 1992. affirm the amount of P50,000.00 awarded by the trial court to the
The authority given to petitioners was non-exclusive, which meant petitioners.
that private respondents were not precluded from granting the same
authority to other agents with respect to the sale of the same WHEREFORE, in view of the foregoing, the petition is
property. In fact, private respondent authorized another agent in the GRANTED. The May 29, 2000 decision of the Court of Appeals is
person of Mr. Bobby Pacana to sell the same property. There was REVERSED and SET ASIDE. The decision of the Regional Trial
nothing illegal or amiss in this arrangement, per se, considering the Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering
non-exclusivity of petitioners authority to sell. The problem arose private respondents Eduardo Gullas and Norma S. Gullas to pay
when it eventually turned out that these agents were entertaining one jointly and severally petitioners Manuel B. Tan, Gregg Tecson and
and the same buyer, the Sisters of Mary. Alexander Saldaa the sum of Six Hundred Twenty-Four Thousand
and Six Hundred Eighty-Four Pesos (P624,684.00) as brokers fee
As correctly observed by the trial court, the argument of the with legal interest at the rate of 6% per annum from the filing of the
private respondents that Pacana was the one entitled to the complaint; and the sum of Fifty Thousand Pesos (P50,000.00) as
stipulated 3% commission is untenable, considering that it was the attorneys fees and costs of litigation, is REINSTATED.
petitioners who were responsible for the introduction of the
representatives of the Sisters of Mary to private respondent Eduardo SO ORDERED.
Gullas. Private respondents, however, maintain that they were not
aware that their respective agents were negotiating to sell said
property to the same buyer.
Private respondents failed to prove their contention that
Pacana began negotiations with private respondent Norma Gullas
way ahead of petitioners. They failed to present witnesses to
substantiate this claim. It is curious that Mrs. Gullas herself was not
presented in court to testify about her dealings with Pacana. Neither
was Atty. Nachura who was supposedly the one actively negotiating
on behalf of the Sisters of Mary, ever presented in court.
Private respondents contention that Pacana was the one
responsible for the sale of the land is also unsubstantiated. There
was nothing on record which established the existence of a previous
negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The
only piece of evidence that the private respondents were able to
present is an undated and unnotarized Special Power of Attorney in
favor of Pacana. While the lack of a date and an oath do not
necessarily render said Special Power of Attorney invalid, it should
be borne in mind that the contract involves a considerable amount of
money. Hence, it is inconsistent with sound business practice that
the authority to sell is contained in an undated and unnotarized
Special Power of Attorney. Petitioners, on the other hand, were given
the written authority to sell by the private respondents.
The trial courts evaluation of the witnesses is accorded great
respect and finality in the absence of any indication that it overlooked
certain facts or circumstances of weight and influence, which if
reconsidered, would alter the result of the case.[21]
Indeed, it is readily apparent that private respondents are trying
to evade payment of the commission which rightfully belong to
petitioners as brokers with respect to the sale. There was no dispute
as to the role that petitioners played in the transaction. At the very
least, petitioners set the sale in motion. They were not able to
participate in its consummation only because they were prevented
from doing so by the acts of the private respondents. In the case
of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW)[22] we ruled that, An agent receives a
commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the
seller together, even if no sale is eventually made. (Underscoring
ours). Clearly, therefore, petitioners, as brokers, should be entitled to
the commission whether or not the sale of the property subject matter
of the contract was concluded through their efforts.
LIM VS SABAN
Before the Court is a Petition for Review on Certiorari assailing
the Decision[1] dated October 27, 2003 of the Court of Appeals,
Seventh Division, in CA-G.R. V No. 60392.[2]
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter
lot in Cebu City (the lot), entered into an Agreement and Authority to
Negotiate and Sell (Agency Agreement) with respondent Florencio
Saban (Saban) on February 8, 1994. Under the Agency Agreement,
Ybaez authorized Saban to look for a buyer of the lot for Two
Hundred Thousand Pesos (P200,000.00) and to mark up the selling
price to include the amounts needed for payment of taxes, transfer of
title and other expenses incident to the sale, as well as Sabans
commission for the sale.[3]
Through Sabans efforts, Ybaez and his wife were able to sell the lot
to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the
lot as indicated in the Deed of Absolute Sale is Two Hundred
Thousand Pesos (P200,000.00).[4] It appears, however, that the
vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim remitted to Saban
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers
commission.[5] Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six
Thousand Seven Hundred Forty Three Pesos (P236,743.00). These
checks were Bank of the Philippine Islands (BPI) Check No. 1112645
dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated
June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June
26, 1994 for P25,000.00; and Equitable PCI Bank Check No.
021491B dated June 20, 1994 for P168,000.00.
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to
Lim. In the letter Ybaez asked Lim to cancel all the checks issued by
her in Sabans favor and to extend another partial payment for the lot
in his (Ybaezs) favor.[6]
After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages
against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu
City on August 3, 1994.[7] The case was assigned to Branch 20 of the
RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim
agreed to purchase the lot for P600,000.00, i.e., with a mark-up of
Four Hundred Thousand Pesos (P400,000.00) from the price set by
Ybaez. Of the total purchase price of P600,000.00, P200,000.00
went to Ybaez, P50,000.00 allegedly went to Lims agent,
and P113,257.00 was given to Saban to cover taxes and other
expenses incidental to the sale. Lim also issued four (4) postdated
checks[8] in favor of Saban for the remaining P236,743.00.[9]
Saban alleged that Ybaez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to cancel all four
checks.
Saban further averred that Ybaez and Lim connived to deprive him of
his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth
check which was dishonored because the account against which it
was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him
and because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders
for the three checks because Ybaez requested her to pay the
purchase price directly to him, instead of coursing it through Saban.
She also alleged that she agreed with Ybaez that the purchase price
of the lot was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.[10]
On May 14, 1997, the RTC rendered its Decision[11] dismissing
Sabans complaint, declaring the four (4) checks issued by Lim as
stale and non-negotiable, and absolving Lim from any liability
towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated
its Decision[12] reversing the trial courts ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybaezs revocation of his contract of
agency with Saban was invalid because the agency was coupled
with an interest and Ybaez effected the revocation in bad faith in
order to deprive Saban of his commission and to keep the profits for
himself.[14]
The appellate court found that Ybaez and Lim connived to deprive
Saban of his commission. It declared that Lim is liable to pay Saban
the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the
total amount thereof corresponded to Sabans commission for the
sale, as the agent of Ybaez. The appellate court further ruled that, in
issuing the checks in payment of Sabans commission, Lim acted as
an accommodation party. She signed the checks as drawer, without
receiving value therefor, for the purpose of lending her name to a
third person. As such, she is liable to pay Saban as the holder for
value of the checks.[15]
Lim filed a Motion for Reconsideration of the appellate
courts Decision, but her Motion was denied by the Court of Appeals
in a Resolution dated May 6, 2004.[16]
Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.
Lim argues that the appellate court ignored the fact that after paying
her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly to
Ybaez.[17]
She further contends that she is not liable for Ybaezs debt to Saban
under the Agency Agreement as she is not privy thereto, and that
Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybaez and not moving for his
substitution by his heirs.[18]
Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybaez and that she
connived with the latter to deprive Saban of his commission.[19]
Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of
one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.[20]
In his Comment, Saban maintains that Lim agreed to purchase the
lot for P600,000.00, which consisted of the P200,000.00 which would
be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and
Sabans commission as broker for Ybaez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that
Lim and Ybaez connived to unjustly deprive him of his commission
from the negotiation of the sale.[21]
The issues for the Courts resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.

The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.
The Court affirms the appellate courts finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his
(Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybaez and the transfer taxes and other
incidental expenses of the sale.[22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a
broker to his commission for finding a suitable buyer for the sellers
property even though the seller himself consummated the sale with
the buyer.[24] The Court held that it would be in the height of injustice
to permit the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the benefits of
the brokers efforts.
In Infante v. Cunanan, et al.,[25] the Court upheld the right of the
brokers to their commissions although the seller revoked their
authority to act in his behalf after they had found a buyer for his
properties and negotiated the sale directly with the buyer whom he
met through the brokers efforts. The Court ruled that the sellers
withdrawal in bad faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the sellers duly
constituted agents.
The pronouncements of the Court in the aforecited cases are
applicable to the present case, especially considering that Saban had
completely performed his obligations under his contract of agency
with Ybaez by finding a suitable buyer to preparing the Deed of
Absolute Sale between Ybaez and Lim and her co-vendees.
Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after
deducting Ybaezs share of P200,000.00 and the taxes and other
incidental expenses of the sale.
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of
fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable. Stated differently, an
agency is deemed as one coupled with an interest where it is
established for the mutual benefit of the principal and of the agent, or
for the interest of the principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the agent or of a
third person subsists. In an agency coupled with an interest, the
agents interest must be in the subject matter of the power conferred
and not merely an interest in the exercise of the power because it
entitles him to compensation. When an agents interest is confined to
earning his agreed compensation, the agency is not one coupled with
an interest, since an agents interest in obtaining his compensation as
such agent is an ordinary incident of the agency relationship.[26]
Sabans entitlement to his commission having been settled, the Court
must now determine whether Lim is the proper party against whom
Saban should address his claim.
Sabans right to receive compensation for negotiating as broker for
Ybaez arises from the Agency Agreement between them. Lim is not
a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot
at P200,000.00 and that the P600,000.00the price agreed upon by
her and Sabanwas more than the amount set by Ybaez because it
included the amount for payment of taxes and for Sabans
commission as broker for Ybaez.
According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker,
and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00).[27] Lim, on the other hand, claims that on March 10,
1994, the date of execution of the Deed of Absolute Sale, she paid
directly to Ybaez the amount of One Hundred Thousand Pesos
(P100,000.00) only, and gave to Saban P113,257.00 for payment of
taxes and P50,000.00 as his commission,[28] and One Hundred Thirty
Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a total of
Three Hundred Ninety Three Thousand Two Hundred Fifty Seven
Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim
and her co-vendees paid him P400,000.00 which he said was the full
amount for the sale of the lot.[30] It thus appears that he
received P100,000.00 on March 10, 1994, acknowledged receipt
(through Saban) of the P113,257.00 earmarked for taxes
and P50,000.00 for commission, and received the balance
of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went
directly to Ybaez. Apparently, although the amount actually paid by
Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00
and waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in
Sabans favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks
which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybaez), P50,000.00 (commission), and
the P113,257.00 (taxes). The only logical conclusion is that Lim
changed her mind about agreeing to purchase the lot at P600,000.00
after talking to Ybaez and ultimately realizing that Sabans
commission is even more than what Ybaez received as his share of
the purchase price as vendor. Obviously, this change of mind
resulted to the prejudice of Saban whose efforts led to the completion
of the sale between the latter, and Lim and her co-vendees. This the
Court cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
enlightening for the facts therein are similar to the circumstances of
the present case. In that case, Consejo Infante asked Jose Cunanan
and Juan Mijares to find a buyer for her two lots and the house built
thereon for Thirty Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares
offered the properties to Pio Noche who in turn expressed willingness
to purchase the properties. Cunanan and Mijares thereafter
introduced Noche to Infante. However, the latter told Cunanan and
Mijares that she was no longer interested in selling the property and
asked them to sign a document stating that their written authority to
act as her agents for the sale of the properties was already
cancelled. Subsequently, Infante sold the properties directly to Noche
for Thirty One Thousand Pesos (P31,000.00). The Court upheld the
right of Cunanan and Mijares to their commission, explaining that
[Infante] had changed her mind even if respondent had found a buyer
who was willing to close the deal, is a matter that would not give rise
to a legal consequence if [Cunanan and Mijares] agreed to call off
the transaction in deference to the request of [Infante]. But the
situation varies if one of the parties takes advantage of the
benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad
faith. This act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation in which
[Cunanan and Mijares] were placed by [Infante]. [Infante] took
advantage of the services rendered by [Cunanan and Mijares], but
believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of
cancellation.This act of subversion cannot be sanctioned and cannot
serve as basis for [Infante] to escape payment of the commission
agreed upon.[31]
The appellate court therefore had sufficient basis for concluding that
Ybaez and Lim connived to deprive Saban of his commission by
dealing with each other directly and reducing the purchase price of
the lot and leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the

undisputed fact that Lim had not yet paid the balance of P200,000.00
of the purchase price of P600,000.00, it is just and proper for her to
pay Saban the balance of P200,000.00.

Furthermore, since Ybaez received a total of P230,000.00 from Lim,

or an excess of P30,000.00 from his asking price of P200,000.00,
Saban may claim such excess from Ybaezs estate, if that remedy is
still available,[32] in view of the trial courts dismissal of Sabans
complaint as against Ybaez, with Sabans express consent, due to
the latters demise on November 11, 1994.[33]

The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party.
Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person who has signed the negotiable
instrument as maker, drawer, acceptor or indorser, without receiving
value therefor, for the purpose of lending his name to some other
person. The accommodation party is liable on the instrument to a
holder for value even though the holder at the time of taking the
instrument knew him or her to be merely an accommodation party.
The accommodation party may of course seek reimbursement from
the party accommodated.[34]

As gleaned from the text of Section 29 of the Negotiable Instruments

Law, the accommodation party is one who meets all these three
requisites, viz: (1) he signed the instrument as maker, drawer,
acceptor, or indorser; (2) he did not receive value for the signature;
and (3) he signed for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as drawer of the checks
she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is

noted at the outset that Lim issued the checks in question on account
of her transaction, along with the other purchasers, with Ybaez which
was a sale and, therefore, a reciprocal contract. Specifically, she
drew the checks in payment of the balance of the purchase price of
the lot subject of the transaction. And she had to pay the agreed
purchase price in consideration for the sale of the lot to her and her
co-vendees. In other words, the amounts covered by the checks form
part of the cause or consideration from Ybaezs end, as vendor, while
the lot represented the cause or consideration on the side of Lim, as
vendee.[35] Ergo, Lim received value for her signature on the checks.

Neither is there any indication that Lim issued the checks for the
purpose of enabling Ybaez, or any other person for that matter, to
obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.
MAXICARE VS ESTRADA
This petition for review on certiorari assails the Decision[1] dated June
16, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 66040
which affirmed in toto the Decision[2] dated October 8, 1999 of the
Regional Trial Court (RTC), Branch 135, of Makati City in an action
for breach of contract and damages filed by respondent Carmela
Estrada, sole proprietor of Cara Health Services, against Philippine
Health-Care Providers, Inc. (Maxicare).
The facts, as found by the CA and adopted by Maxicare in its
petition, follow:
[Maxicare] is a domestic corporation engaged in selling health
insurance plans whose Chairman Dr. Roberto K. Macasaet, Chief
Operating Officer Virgilio del Valle, and Sales/Marketing Manager
Josephine Cabrera were impleaded as defendants-appellants.
On September 15, 1990, [Maxicare] allegedly engaged the services
of Carmela Estrada who was doing business under the name of
CARA HEALTH [SERVICES] to promote and sell the prepaid group
practice health care delivery program called MAXICARE Plan with
the position of Independent Account Executive.[Maxicare] formally
appointed [Estrada] as its General Agent, evidenced by a letter-
agreement dated February 16, 1991. The letter agreement provided
for plaintiff-appellees [Estradas] compensation in the form of
commission, viz.:
Commission
In consideration of the performance of your functions and duties as
specified in this letter-agreement, [Maxicare] shall pay you a
commission equivalent to 15 to 18% from individual, family, group
accounts; 2.5 to 10% on tailored fit plans; and 10% on standard
plans of commissionable amount on corporate accounts from all
membership dues collected and remitted by you to [Maxicare].
[Maxicare] alleged that it followed a franchising system in dealing
with its agents whereby an agent had to first secure permission from
[Maxicare] to list a prospective company as client. [Estrada] alleged
that it did apply with [Maxicare] for the MERALCO account and other
accounts, and in fact, its franchise to solicit corporate accounts,
MERALCO account included, was renewed on February 11, 1991.
Plaintiff-appellee [Estrada] submitted proposals and made
representations to the officers of MERALCO regarding the
MAXICARE Plan but when MERALCO decided to subscribe to the
MAXICARE Plan, [Maxicare] directly negotiated with MERALCO
regarding the terms and conditions of the agreement and left plaintiff-
appellee [Estrada] out of the discussions on the terms and
conditions.
On November 28, 1991, MERALCO eventually subscribed to the
MAXICARE Plan and signed a Service Agreement directly with
[Maxicare] for medical coverage of its qualified members, i.e.: 1) the
enrolled dependent/s of regular MERALCO executives; 2) retired
executives and their dependents who have opted to enroll and/or
continue their MAXICARE membership up to age 65; and 3) regular
MERALCO female executives (exclusively for maternity benefits). Its
duration was for one (1) year from December 1, 1991 to November
30, 1992. The contract was renewed twice for a term of three (3)
years each, the first started on December 1, 1992 while the second
took effect on December 1, 1995.
The premium amounts paid by MERALCO to [Maxicare] were alleged
to be the following: a) P215,788.00 in December 1991;
b) P3,450,564.00 in 1992; c) P4,223,710.00 in 1993;
d) P4,782,873.00 in 1994; e) P5,102,108.00 in 1995;
and P2,394,292.00 in May 1996. As of May 1996, the total amount of
premium paid by MERALCO to [Maxicare] was P20,169,335.00.
On March 24, 1992, plaintiff-appellee [Estrada], through counsel,
demanded from [Maxicare] that it be paid commissions for the
MERALCO account and nine (9) other accounts. In reply, [Maxicare],
through counsel, denied [Estradas] claims for commission for the
MERALCO and other accounts because [Maxicare] directly
negotiated with MERALCO and the other accounts(,) and that no
agent was given the go signal to intervene in the negotiations for the
terms and conditions and the signing of the service agreement with
MERALCO and the other accounts so that if ever [Maxicare] was
indebted to [Estrada], it was only for P1,555.00 and P43.l2 as
commissions on the accounts of Overseas Freighters Co. and Mr.
Enrique Acosta, respectively.
[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and
its officers with the Regional Trial Court (RTC) of Makati City,
docketed as Civil Case No. 93-935, raffled to Branch 135.
Defendants-appellants [Maxicare] and its officers filed their Answer
with Counterclaim on September 13, 1993 and their Amended
Answer with Counterclaim on September 28, 1993, alleging that:
plaintiff-appellee [Estrada] had no cause of action; the cause of
action, if any, should be is against [Maxicare] only and not against its
officers; CARA HEALTHs appointment as agent under the February
16, 1991 letter-agreement to promote the MAXICARE Plan was for a
period of one (1) year only; said agency was not renewed after the
expiration of the one (1) year period; [Estrada] did not intervene in
the negotiations of the contract with MERALCO which was directly
negotiated by MERALCO with [Maxicare]; and [Estradas] alleged
other clients/accounts were not accredited with [Maxicare] as
required, since the agency contract on the MAXICARE health plans
were not renewed. By way of counterclaim, defendants-appellants
[Maxicare] and its officers claimed P100,000.00 in moral damages for
each of the officers of [Maxicare] impleaded as
defendant, P100,000.00 in exemplary damages, P100,000.00 in
attorneys fees, and P10,000.00 in litigation expenses.[3]
After trial, the RTC found Maxicare liable for breach of contract and
ordered it to pay Estrada actual damages in the amount equivalent to
10% of P20,169,335.00, representing her commission for the total
premiums paid by Meralco to Maxicare from the year 1991 to 1996,
plus legal interest computed from the filing of the complaint on March
18, 1993, and attorneys fees in the amount of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for
Estrada, both the trial and appellate courts held that Estrada was the
efficient procuring cause in the execution of the service agreement
between Meralco and Maxicare consistent with our ruling in Manotok
Brothers, Inc. v. Court of Appeals.[4]
Undaunted, Maxicare comes to this Court and insists on the reversal
of the RTC Decision as affirmed by the CA, raising the following
issues, to wit:
1. Whether the Court of Appeals committed serious error in affirming
Estradas entitlement to commissions for the execution of the service
agreement between Meralco and Maxicare.
2. Corollarily, whether Estrada is entitled to commissions for the two
(2) consecutive renewals of the service agreement effective
on December 1, 1992[5] and December 1, 1995.[6]
We are in complete accord with the trial and appellate courts ruling.
Estrada is entitled to commissions for the premiums paid under the
service agreement between Meralco and Maxicare from 1991 to
1996.
Well-entrenched in jurisprudence is the rule that factual findings of
the trial court, especially when affirmed by the appellate court, are
accorded the highest degree of respect and are considered
conclusive between the parties.[7] A review of such findings by this
Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are
grounded entirely on speculation, surmises or conjectures; (2) when
a lower courts inference from its factual findings is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the
appellate court go beyond the issues of the case, or fail to notice
certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6)
when the findings of fact are conclusions without mention of the
specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on
record.[8] None of the foregoing exceptions which would warrant a
reversal of the assailed decision obtains in this instance.
Maxicare urges us that both the RTC and CA failed to take into
account the stipulations contained in the February 19, 1991 letter
agreement authorizing the payment of commissions only upon
satisfaction of twin conditions, i.e., collection and contemporaneous
remittance of premium dues by Estrada to Maxicare. Allegedly, the
lower courts disregarded Estradas admission that the negotiations
with Meralco failed. Thus, the flawed application of the efficient
procuring cause doctrine enunciated in Manotok Brothers, Inc. v.
Court of Appeals,[9] and the erroneous conclusion upholding Estradas
entitlement to commissions on contracts completed without her
participation.
We are not persuaded.
Contrary to Maxicares assertion, the trial and the appellate courts
carefully considered the factual backdrop of the case as borne out by
the records. Both courts were one in the conclusion that Maxicare
successfully landed the Meralco account for the sale of healthcare
plans only by virtue of Estradas involvement and participation in the
negotiations. The assailed Decision aptly states:
There is no dispute as to the role that plaintiff-appellee [Estrada]
played in selling [Maxicares] health insurance plan to Meralco.
Plaintiff-appellee [Estradas] efforts consisted in being the first to offer
the Maxicare plan to Meralco, using her connections with some of
Meralco Executives, inviting said executives to dinner meetings,
making submissions and representations regarding the health plan,
sending follow-up letters, etc.
These efforts were recognized by Meralco as shown by the
certification issued by its Manpower Planning and Research Staff
Head Ruben A. Sapitula on September 5, 1991, to wit:
This is to certify that Ms. Carmela Estrada has initiated talks with us
since November 1990 with regards (sic) to the HMO requirements of
both our rank and file employees, managers and executives, and that
it was favorably recommended and the same be approved by the
Meralco Management Committee.
xxxx
This Court finds that plaintiff-appellee [Estradas] efforts were
instrumental in introducing the Meralco account to [Maxicare] in
regard to the latters Maxicare health insurance plans. Plaintiff-
appellee [Estrada] was the efficient intervening cause in bringing
about the service agreement with Meralco. As pointed out by the trial
court in its October 8, 1999 Decision, to wit:
xxx Had not [Estrada] introduced Maxicare Plans to her bosom
friends, Messrs. Lopez and Guingona of Meralco, PHPI would still be
an anonymity. xxx[10]
Under the foregoing circumstances, we are hard pressed to disturb
the findings of the RTC, which the CA affirmed.
We cannot overemphasize the principle that in petitions for review
on certiorari under Rules 45 of the Rules of Court, only questions of
law may be put into issue. Questions of fact are not cognizable by
this Court. The finding of efficient procuring cause by the CA is a
question of fact which we desist from passing upon as it would entail
delving into factual matters on which such finding was based. To
reiterate, the rule is that factual findings of the trial court, especially
those affirmed by the CA, are conclusive on this Court when
supported by the evidence on record.[11]
The jettisoning of the petition is inevitable even upon a close perusal
of the merits of the case.
First. Maxicares contention that Estrada may only claim commissions
from membership dues which she has collected and remitted to
Maxicare as expressly provided for in the letter-agreement does not
convince us. It is readily apparent that Maxicare is attempting to
evade payment of the commission which rightfully belongs to Estrada
as the broker who brought the parties together. In fact, Maxicares
former Chairman Roberto K. Macasaet testified that Maxicare had
been trying to land the Meralco account for two (2) years prior to
Estradas entry in 1990.[12] Even without that admission, we note that
Meralcos Assistant Vice-President, Donatila San Juan, in a
letter[13] dated January 21, 1992 to then Maxicare President Pedro R.
Sen, categorically acknowledged Estradas efforts relative to the sale
of Maxicare health plans to Meralco, thus:
Sometime in 1989, Meralco received a proposal from Philippine
Health-Care Providers, Inc. (Maxicare) through the initiative and
efforts of Ms. Carmela Estrada, who introduced Maxicare to Meralco.
Prior to this time, we did not know that Maxicare is a major health
care provider in the country. We have since negotiated and signed
up with Maxicare to provide a health maintenance plan for
dependents of Meralco executives, effective December 1,
1991 to November 30, 1992.
At the very least, Estrada penetrated the Meralco market, initially
closed to Maxicare, and laid the groundwork for a business
relationship. The only reason Estrada was not able to participate in
the collection and remittance of premium dues to Maxicare was
because she was prevented from doing so by the acts of Maxicare,
its officers, and employees.
In Tan v. Gullas,[14] we had occasion to define a broker and
distinguish it from an agent, thus:
[O]ne who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no
concern; the negotiator between the other parties, never acting in his
own name but in the name of those who employed him. [A] broker is
one whose occupation is to bring the parties together, in matter of
trade, commerce or navigation.[15]
An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually
made.[16]
In relation thereto, we have held that the term procuring cause in
describing a brokers activity, refers to a cause originating a series of
events which, without break in their continuity, result in the
accomplishment of the prime objective of the employment of the
brokerproducing a purchaser ready, willing and able to buy on the
owners terms.[17] To be regarded as the procuring cause of a sale as
to be entitled to a commission, a brokers efforts must have been the
foundation on which the negotiations resulting in a sale
began.[18] Verily, Estrada was instrumental in the sale of the Maxicare
health plans to Meralco. Without her intervention, no sale could have
been consummated.
Second. Maxicare next contends that Estrada herself admitted that
her negotiations with Meralco failed as shown in Annex F of the
Complaint.
The chicanery and disingenuousness of Maxicares counsel is not lost
on this Court. We observe that this Annex F is, in fact, Maxicares
counsels letter dated April 10, 1992 addressed to Estrada. The letter
contains a unilateral declaration by Maxicare that the efforts initiated
and negotiations undertaken by Estrada failed, such that the service
agreement with Meralco was supposedly directly negotiated by
Maxicare. Thus, the latter effectively declares that Estrada is not the
efficient procuring cause of the sale, and as such, is not entitled to
commissions.

Our holding in Atillo III v. Court of Appeals,[19] ironically the case cited
by Maxicare to bolster its position that the statement in Annex F
amounted to an admission, provides a contrary answer to Maxicares
ridiculous contention. We intoned therein that in spite of the presence
of judicial admissions in a partys pleading, the trial court is still given
leeway to consider other evidence presented.[20] We ruled, thus:
the sale of health plans, we are not wont to disturb Estradas
complete entitlement to commission for the total premiums paid until
May 1996 in the amount of P20,169,335.00.
WHEREFORE, premises considered and finding no reversible error
committed by the Court of Appeals, the petition is hereby DENIED.
Costs against the petitioner.

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

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

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

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

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

In this case, the letter, although part of Estradas Complaint, is

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

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

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

After muddling the issues and representing that Estrada made an

admission that her negotiations with Meralco failed, Maxicares
counsel then proceeds to cite a case which does not, by any stretch
of the imagination, bolster the flawed contention.

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

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

Rule 10.02 A lawyer shall not knowingly misquote or misrepresent

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

Third. Finally, we likewise affirm the uniform ruling of the RTC and
CA that Estrada is entitled to 10% of the total amount of premiums
paid[25] by Meralco to Maxicare as of May 1996. Maxicares argument
that assuming Estrada is entitled to commissions, such entitlement
only covers the initial year of the service agreement and should not
include the premiums paid for the succeeding renewals thereof, fails
to impress. Considering that we have sustained the lower courts
factual finding of Estradas close, proximate and causal connection to
EQUITABLE PCI BANK, formerly EQUITABLE BANKING
CORPORATION, petitioner, vs. ROSITA
KU, respondent.
Can a person be evicted by virtue of a decision rendered in an
ejectment case where she was not joined as a party? This was the
issue that confronted the Court of Appeals, which resolved the issue
in the negative. To hold the contrary, it said, would violate due
process. Given the circumstances of the present case, petitioner
Equitable PCI Bank begs to differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer of
Noddy Dairy Products, Inc., and Ku Giok Heng, as Vice-
President/General Manager of the same corporation, mortgaged the
subject property to the Equitable Banking Corporation, now known as
Equitable PCI Bank to secure Noddy Inc.s loan to Equitable. The
property, a residential house and lot located in La Vista, Quezon City,
was registered in respondents name.
Noddy, Inc. subsequently failed to pay the loan secured by the
mortgage, prompting petitioner to foreclose the property
extrajudicially. As the winning bidder in the foreclosure sale,
petitioner was issued a certificate of sale. Respondent failed to
redeem the property. Thus, on December 10, 1984, the Register of
Deeds canceled the Transfer Certificate of Title in the name of
respondent and a new one was issued in petitioners name.
On May 10, 1989, petitioner instituted an action for ejectment
before the Quezon City Metropolitan Trial Court (MeTC) against
respondents father Ku Giok Heng. Petitioner alleged that it allowed
Ku Giok Heng to remain in the property on the condition that the
latter pay rent. Ku Giok Hengs failure to pay rent prompted the MeTC
to seek his ejectment. Ku Giok Heng denied that there was any lease
agreement over the property.
On December 8, 1994, the MeTC rendered a decision in favor
of petitioner and ordered Ku Giok Heng to, among other things,
vacate the premises. It ruled:
x x x for his failure or refusal to pay rentals despite proper demands,
the defendant had not established his right for his continued
possession of or stay in the premises acquired by the plaintiff thru
foreclosure, the title of which had been duly transferred in the name
of the plaintiff. The absence of lease agreement or agreement for the
payment of rentals is of no moment in the light of the prevailing
Supreme Court ruling on the matter. Thus: It is settled that the buyer
in foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one (1) year after
the registration of the sale is as such he is entitled to the possession
of the property and the demand at any time following the
consolidation of ownership and the issuance to him of a new
certificate of title. The buyer can, in fact, demand possession of the
land even during the redemption period except that he has to post a
bond in accordance with Section 7 of Act No. 3155 as
amended. Possession of the land then becomes an absolute right of
the purchaser as confirmed owner. Upon proper application and
proof of title, the issuance of a writ of possession becomes a
ministerial duty of the court. (David Enterprises vs. IBAA[,] 191 SCRA
116).[1]
Ku Giok Heng did not appeal the decision of the
MeTC. Instead, he and his daughter, respondent Rosita Ku, filed on
December 20, 1994, an action before the Regional Trial Court (RTC)
of Quezon City to nullify the decision of the MeTC. Finding no merit
in the complaint, the RTC on September 13, 1999 dismissed the
same and ordered the execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special civil
action for certiorari assailing the decision of the RTC. She contended
that she was not made a party to the ejectment suit and was,
therefore, deprived of due process. The CA agreed and, on March
31, 2000, rendered a decision enjoining the eviction of respondent
from the premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a
motion for an extension of 30 days from May 10, 2000 or until June
9, 2000 to file its petition for review of the CA decision. The motion
alleged that the Bank received the CA decision on April 25,
2000.[2] The Court granted the motion for a 30-day extension counted
from the expiration of the reglementary period and conditioned upon
the timeliness of the filing of [the] motion [for extension].[3]
On June 13, 2000,[4] Equitable Bank filed its petition,
contending that there was no need to name respondent Rosita Ku as
a party in the action for ejectment since she was not a resident of the
premises nor was she in possession of the property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to
which he is a stranger, and strangers to a case are not bound by
judgment rendered by the court.[5] Nevertheless, a judgment in an
ejectment suit is binding not only upon the defendants in the suit but
also against those not made parties thereto, if they are:
a) trespassers, squatters or agents of the defendant
fraudulently occupying the property to frustrate the judgment;
b) guests or other occupants of the premises with the
permission of the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the
defendant.[6]
Thus, even if respondent were a resident of the property, a
point disputed by the parties, she is nevertheless bound by the
judgment of the MeTC in the action for ejectment despite her being a
non-party thereto. Respondent is the daughter of Ku Giok Heng, the
defendant in the action for ejectment.
Respondent nevertheless claims that the petition is
defective. The bank alleged in its petition that it received a copy of
the CA decision on April 25, 2000. A Certification dated June 6,
2000 issued by the Manila Central Post Office reveals, however, that
the copy was duly delivered to and received by Joel Rosales
(Authorized Representative) on April 24, 2000.[7] Petitioners motion
for extension to file this petition was filed on May 10, 2000, sixteen
(16) days from the petitioners receipt of the CA decision (April 24,
2000) and one (1) day beyond the reglementary period for filing the
petition for review (May 9, 2000).
Petitioner however maintains its honest representation of
having received [a copy of the decision] on April 25,
2000.[8] Appended as Annex A to petitioners Reply is an
Affidavit[9] dated October 27, 2000 and executed by Joel Rosales,
who was mentioned in the Certification as having received the
decision. The Affidavit states:
(1) I am an employee of Unique Industrial & Allied Services, Inc.
(Unique) a corporation duly organized and existing under Philippine
laws with principal place of business at 1206 Vito Cruz St., Malate,
Manila, and I am assigned with the Equitable PCI Bank, Mail and
Courier Department, Equitable PCI Bank Tower II, cor. Makati
Avenue and H.V. dela Costa St., Makati City, Metro Manila;
(2) Under the contract of services between the Bank and Unique, it is
my official duty and responsibility to receive and pick-up from the
Manila Central Post Office (CPO) the various mails, letters,
correspondence, and other mail matters intended for the banks
various departments and offices at Equitable Bank Building, 262
Juan Luna St., Binondo, Manila. This building, however, also houses
various other offices or tenants not related to the Bank.
(3) I am not the constituted agent of Curato Divina Mabilog Niedo
Magturo Pagaduan Law Office whose former address is at Rm. 405
4/F Equitable Bank Bldg., 262 Juan Luna St., Binondo, Manila, for
purposes of receiving their incoming mail matters; neither am I any
such agent of the various other tenants of the said Building. On
occasions when I receive mail matters for said law office, it is only to
help them receive their letters promptly.
(4) On April 24, 2000, I received the registered letter sent by the or took steps to put a stop to it. The facts are, therefore, inadequate
Court of Appeals, covered by Registry Receipt No. 125234 and for the Court to make a ruling in petitioners favor.
Delivery No. 4880 (copy of envelope attached as Annex A) together
with other mail matters, and brought them to the Mail and Courier Assuming the motion for extension was indeed one day late,
Department; petitioner urges the Court, in any event, to suspend its rules and
admit the petition in the interest of justice.Petitioner
invokes Philippine National Bank vs. Court of Appeals,[15] where the
(5) After sorting out these mail matters, on April 25, 2000, I petition was filed three (3) days late. The Court held:
erroneously recorded them on page 422 of my logbook as having
been received by me on said dated April 25, 2000 (copy of page 422 It has been said time and again that the perfection of an appeal
is attached as Annex B). within the period fixed by the rules is mandatory and
jurisdictional. But, it is always in the power of this Court to suspend
(6) On April 27, 2000, this letter was sent by the Mail and Courier its own rules, or to except a particular case from its operation,
Department to said Law Office whose receiving clerk Darwin Bawar whenever the purposes of justice require it. Strong compelling
opened the letter and stamped on the Notice of Judgment their actual reasons such as serving the ends of justice and preventing a grave
date of receipt: April 27, 2000 (copy of the said Notice with the date miscarriage thereof warrant the suspension of the rules.
so stamped is attached as Annex C).
The Court proceeded to enumerate cases where the rules on
(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired reglementary periods were suspended. Republic vs. Court of
from me as to my actual date of receipt of this letter, and I informed Appeals[16] involved a delay of six days; Siguenza vs. Court of
him that based on my logbook, I received it on April 25, 2000. Appeals,[17] thirteen days; Pacific Asia Overseas Shipping
Corporation vs. NLRC,[18] one day; Cortes vs. Court of
(8) I discovered this error only on September 6, 2000, when I was Appeals,[19] seven days; Olacao vs. NLRC,[20]two days; Legasto vs.
informed by Atty. Niedo that Postmaster VI Alfredo C. Mabanag, Jr. Court of Appeals,[21] two days; and City Fair Corporation vs.
of the Central Post Office, Manila, issued a certification that I NLRC,[22] which also concerned a tardy appeal.
received the said mail on April 24, 2000. The Court finds these arguments to be persuasive, especially
in light of the merits of the petition.
(9) I hereby confirm that this error was caused by an honest mistake.
WHEREFORE, the petition is GIVEN DUE
COURSE and GRANTED. The decision of the Court of Appeals
Petitioner argues that receipt on April 25, 2000 by Joel is REVERSED.
Rosales, who was not an agent of its counsels law office, did not
constitute notice to its counsel, as required by Sections 2[10] and SO ORDERED.
10,[11] Rule 13 of the Rules of Court. To support this contention,
petitioner cites Philippine Long Distance Telephone Co. vs.
NLRC.[12] In said case, the bailiff served the decision of the National
Labor Relations Commission at the ground floor of the building of the
petitioner therein, the Philippine Long Distance Telephone Co., rather
than on the office of its counsel, whose address, as indicated in the
notice of the decision, was on the ninth floor of the building. We held
that:
x x x practical considerations and the realities of the situation dictate
that the service made by the bailiff on March 23, 1981 at the ground
floor of the petitioners building and not at the address of record of
petitioners counsel on record at the 9th floor of the PLDT building
cannot be considered a valid service. It was only when the Legal
Services Division actually received a copy of the decision on March
26, 1981 that a proper and valid service may be deemed to have
been made. x x x.

Applying the foregoing provisions and jurisprudence, petitioner

submits that actual receipt by its counsel was on April 27, 2000, not
April 25, 2000. Following the argument to its logical conclusion, the
motion for extension to file the petition for review was even filed two
(2) days before the lapse of the 15-day reglementary period. That
counsel treated April 25, 2000 and not April 27, 2000 as the date of
receipt was purportedly intended to obviate respondents possible
argument that the 15-day period had to be counted from April 25,
2000.
The Court is not wholly convinced by petitioners argument. The
Affidavit of Joel Rosales states that he is not the constituted agent of
Curato Divina Mabilog Nedo Magturo Pagaduan Law Office. An
agency may be express but it may also be implied from the acts of
the principal, from his silence, or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.[13] Likewise, acceptance by the agent may
also be express, although it may also be implied from his acts which
carry out the agency, or from his silence or inaction according to the
circumstances.[14] In this case, Joel Rosales averred that [o]n
occasions when I receive mail matters for said law office, it is only to
help them receive their letters promptly, implying that counsel had
allowed the practice of Rosales receiving mail in behalf of the
former.There is no showing that counsel had objected to this practice
G.R. No. 174978, July 31, 2013
SALLY YOSHIZAKI, Petitioner, v. JOY TRAINING CENTER OF
AURORA, INC., Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner
Sally Yoshizaki to challenge the February 14, 2006 Decision2 and the
October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a
non-stock, non-profit religious educational institution. It was the
registered owner of a parcel of land and the building thereon (real
properties) located in San Luis Extension, Purok No. 1, Barangay
Buhangin, Baler, Aurora. The parcel of land was designated as Lot
No. 125-L and was covered by Transfer Certificate of Title (TCT) No.
T-25334.4cralaw virtualaw library
On November 10, 1998, the spouses Richard and Linda Johnson
sold the real properties, a Wrangler jeep, and other personal
properties in favor of the spouses Sally and Yoshio Yoshizaki. On the
same date, a Deed of Absolute Sale5 and a Deed of Sale of Motor
Vehicle6 were executed in favor of the spouses Yoshizaki. The
spouses Johnson were members of Joy Training�s board of
trustees at the time of sale. On December 7, 1998, TCT No. T-25334
was cancelled and TCT No. T-260527 was issued in the name of the
spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting
Chairperson Reuben V. Rubio, filed an action for the Cancellation of
Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the
spouses Yoshizaki and the spouses Johnson before the Regional
Trial Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training
filed a Motion to Amend Complaint with the attached Amended
Complaint. The amended complaint impleaded Cecilia A. Abordo,
officer-in-charge of the Register of Deeds of Baler, Aurora, as
additional defendant. The RTC granted the motion on the same
date.9cralaw virtualaw library
In the complaint, Joy Training alleged that the spouses Johnson sold
its properties without the requisite authority from the board of
directors.10 It assailed the validity of a board resolution dated
September 1, 199811 which purportedly granted the spouses
Johnson the authority to sell its real properties. It averred that only a
minority of the board, composed of the spouses Johnson and
Alexander Abadayan, authorized the sale through the resolution. It
highlighted that the Articles of Incorporation provides that the board
of trustees consists of seven members, namely: the spouses
Johnson, Reuben, Carmencita Isip, Dominador Isip, Miraflor Bolante,
and Abelardo Aquino.12cralaw virtualaw library
Cecilia and the spouses Johnson were declared in default for their
failure to file an Answer within the reglementary period.13 On the
other hand, the spouses Yoshizaki filed their Answer with
Compulsory Counterclaims on June 23, 1999. They claimed that Joy
Training authorized the spouses Johnson to sell the parcel of land.
They asserted that a majority of the board of trustees approved the
resolution. They maintained that the actual members of the board of
trustees consist of five members, namely: the spouses Johnson,
Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the
corporate secretary, issued a certification dated February 20,
199814 authorizing the spouses Johnson to act on Joy Training�s
behalf. Furthermore, they highlighted that the Wrangler jeep and
other personal properties were registered in the name of the spouses
Johnson.15 Lastly, they assailed the RTC�s jurisdiction over the
case. They posited that the case is an intra-corporate dispute
cognizable by the Securities and Exchange Commission
(SEC).16cralaw virtualaw library
After the presentation of their testimonial evidence, the spouses
Yoshizaki formally offered in evidence photocopies of the resolution
and certification, among others.17 Joy Training objected to the formal
offer of the photocopied resolution and certification on the ground
that they were not the best evidence of their contents.18 In an
Order19 dated May 18, 2004, the RTC denied the admission of the
offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy
Training owned the real properties. However, it held that the sale was
valid because Joy Training authorized the spouses Johnson to sell
the real properties. It recognized that there were only five actual
members of the board of trustees; consequently, a majority of the
board of trustees validly authorized the sale. It also ruled that the
sale of personal properties was valid because they were registered in
the spouses Johnson�s name.20cralaw virtualaw library
Joy Training appealed the RTC decision to the CA.
The CA Ruling
The CA upheld the RTC�s jurisdiction over the case but reversed its
ruling with respect to the sale of real properties. It maintained that the
present action is cognizable by the RTC because it involves recovery
of ownership from third parties.
It also ruled that the resolution is void because it was not approved
by a majority of the board of trustees. It stated that under Section 25
of the Corporation Code, the basis for determining the composition of
the board of trustees is the list fixed in the articles of incorporation.
Furthermore, Section 23 of the Corporation Code provides that the
board of trustees shall hold office for one year and until their
successors are elected and qualified. Seven trustees constitute the
board since Joy Training did not hold an election after its
incorporation.
The CA did not also give any probative value to the certification. It
stated that the certification failed to indicate the date and the names
of the trustees present in the meeting. Moreover, the spouses
Yoshizaki did not present the minutes that would prove that the
certification had been issued pursuant to a board resolution.21 The
CA also denied22 the spouses Yoshizaki�s motion for
reconsideration, prompting Sally23 to file the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points
out that the complaint was principally for the nullification of a
corporate act. The transfer of the SEC�s original and exclusive
jurisdiction to the RTC24 does not have any retroactive application
because jurisdiction is a substantive matter.
She argues that the spouses Johnson were authorized to sell the
parcel of land and that she was a buyer in good faith because she
merely relied on TCT No. T-25334. The title states that the spouses
Johnson are Joy Training�s representatives.
She also argues that it is a basic principle that a party dealing with a
registered land need not go beyond the certificate of title to
determine the condition of the property. In fact, the resolution and the
certification are mere reiterations of the spouses Johnson�s
authority in the title to sell the real properties. She further claims that
the resolution and the certification are not even necessary to clothe
the spouses Johnson with the authority to sell the disputed
properties. Furthermore, the contract of agency was subsisting at the
time of sale because Section 108 of Presidential Decree No. (PD)
1529 requires that the revocation of authority must be approved by a
 court of competent jurisdiction and no revocation was reflected in the the lower courts are conflicting.32Accordingly, we will examine the
certificate of title.25cralaw virtualaw library relevant pieces of evidence presented to the lower court.

The Case for the Respondent There is no contract of agency between Joy
Training and the spouses Johnson to sell the
In its Comment26 and Memorandum,27 Joy Training takes the parcel of land with its improvements
opposite view that the RTC has jurisdiction over the case. It posits
that the action is essentially for recovery of property and is therefore Article 1868 of the Civil Code defines a contract of agency as a
a case cognizable by the RTC. Furthermore, Sally is estopped from contract whereby a person �binds himself to render some service or
questioning the RTC�s jurisdiction because she seeks to reinstate to do something in representation or on behalf of another, with the
the RTC ruling in the present case. consent or authority of the latter.� It may be express, or implied
from the acts of the principal, from his silence or lack of action, or his
Joy Training maintains that it did not authorize the spouses Johnson failure to repudiate the agency, knowing that another person is acting
to sell its real properties. TCT No. T-25334 does not specifically grant on his behalf without authority.
the authority to sell the parcel of land to the spouses Johnson. It
further asserts that the resolution and the certification should not be As a general rule, a contract of agency may be oral. However, it must
given any probative value because they were not admitted in be written when the law requires a specific form.33 Specifically, Article
evidence by the RTC. It argues that the resolution is void for failure to 1874 of the Civil Code provides that the contract of agency must be
comply with the voting requirements under Section 40 of the written for the validity of the sale of a piece of land or any interest
Corporation Code. It also posits that the certification is void because therein. Otherwise, the sale shall be void. A related provision, Article
it lacks material particulars. 1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.
The Issues
The special power of attorney mandated by law must be one that
The case comes to us with the following issues:cralawlibrary expressly mentions a sale or that includes a sale as a necessary
ingredient of the authorized act. We unequivocably declared
in Cosmic Lumber Corporation v. Court of Appeals34 that a special
he present case; and
power of attorney must express the powers of the agent in clear
y to sell the real properties between Joy Training and the spouses Johnson.
and unmistakable language for the principal to confer the right
her or not there was a valid contract of sale of the real properties between Joy Training and the spouses Yoshizaki.
upon an agent to sell real estate. When there is any reasonable
doubt that the language so used conveys such power, no such
construction shall be given the document. The purpose of the law in
Our Ruling requiring a special power of attorney in the disposition of immovable
property is to protect the interest of an unsuspecting owner from
being prejudiced by the unwarranted act of another and to caution
We find the petition unmeritorious. the buyer to assure himself of the specific authorization of the
putative agent.35cralaw virtualaw library
The RTC has jurisdiction over disputes
concerning the application of the In the present case, Sally presents three pieces of evidence which
Civil Code allegedly prove that Joy Training specially authorized the spouses
Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
Jurisdiction over the subject matter is the power to hear and resolution, (3) and the certification. We quote the pertinent
determine cases of the general class to which the proceedings portions of these documents for a thorough examination of Sally�s
before a court belong.28 It is conferred by law. The allegations in the claimuote the pertinent portions of the said documents.. this Court
complaint and the status or relationship of the parties determine becuse es. es Training did not e. TCT No. T-25334, entered in the
which court has jurisdiction over the nature of an action.29 The same Registry of Deeds on March 5, 1998, states:cralawlibrary
test applies in ascertaining whether a case involves an intra-
corporate controversy.30cralaw virtualaw library
A parcel of land x x x is registered in accordance with the provisions
The CA correctly ruled that the RTC has jurisdiction over the present of the Property Registration Decree in the name of JOY TRAINING
case. Joy Training seeks to nullify the sale of the real properties on CENTER OF AURORA, INC., Rep. by Sps. RICHARD A.
the ground that there was no contract of agency between Joy JOHNSON and LINDA S. JOHNSON, both of legal age, U.S.
Training and the spouses Johnson. This was beyond the ambit of the Citizen, and residents of P.O. Box 3246, Shawnee, Ks 66203,
U.S.A.36 (emphasis ours)
SEC�s original and exclusive jurisdiction prior to the enactment of
Republic Act No. 8799 which only took effect on August 3, 2000. The
On the other hand, the fifth paragraph of the certification
determination of the existence of a contract of agency and the validity
provides:cralawlibrary
of a contract of sale requires the application of the relevant
provisions of the Civil Code. It is a well-settled rule that �[d]isputes
concerning the application of the Civil Code are properly cognizable Further, Richard A. and Linda J[.] Johnson were given FULL
by courts of general jurisdiction.�31Indeed, no special skill requiring AUTHORITY for ALL SIGNATORY purposes for the corporation
on ANY and all matters and decisions regarding the property
the SEC�s technical expertise is necessary for the disposition of
and ministry here. They will follow guidelines set forth according to
this issue and of this case.
their appointment and ministerial and missionary training and in that,
they will formulate and come up with by-laws which will address and
The Supreme Court may review questions of
serve as governing papers over the center and corporation. They are
fact in a petition for review on certiorari
to issue monthly and quarterly statements to all members of the
when the findings of fact by the lower courts
corporation.37 (emphasis ours)
are conflicting
The resolution states:cralawlibrary
We are aware that the issues at hand require us to review the pieces
of evidence presented by the parties before the lower courts. As a
general rule, a petition for review on certiorari precludes this Court We, the undersigned Board of Trustees (in majority) have
from entertaining factual issues; we are not duty-bound to analyze authorized the sale of land and building owned by spouses
again and weigh the evidence introduced in and considered by the Richard A. and Linda J[.] Johnson (as described in the title SN No.
lower courts. However, the present case falls under the recognized 5102156 filed with the Province of Aurora last 5th day of March,
exception that a review of the facts is warranted when the findings of 1998. These proceeds are going to pay outstanding loans against the
project and the dissolution of the corporation shall follow the sale. February 14, 2006 and Resolution dated October 3, 2006 of the
This is a religious, non-profit corporation and no profits or stocks are Court of Appeals are hereby AFFIRMED and the petition is
issued.38 (emphasis ours) hereby DENIED for lack of merit.

The above documents do not convince us of the existence of the SO ORDERED.

contract of agency to sell the real properties. TCT No. T-25334
merely states that Joy Training is represented by the spouses
Johnson. The title does not explicitly confer to the spouses Johnson
the authority to sell the parcel of land and the building thereon.
Moreover, the phrase �Rep. by Sps. Richard A. Johnson and
LINDA S. JOHNSON�39only means that the spouses Johnson
represented Joy Training in land registration.

The lower courts should not have relied on the resolution and the
certification in resolving the case. The spouses Yoshizaki did not
produce the original documents during trial. They also failed to show
that the production of pieces of secondary evidence falls under the
exceptions enumerated in Section 3, Rule 130 of the Rules of
Court.40 Thus, the general rule � that no evidence shall be
admissible other than the original document itself when the subject of
inquiry is the contents of a document � applies.41cralaw virtualaw
library

Nonetheless, if only to erase doubts on the issues surrounding this

case, we declare that even if we consider the photocopied resolution
and certification, this Court will still arrive at the same conclusion.

The resolution which purportedly grants the spouses Johnson a

special power of attorney is negated by the phrase �land and
building owned by spouses Richard A. and Linda J[.]
Johnson.�42 Even if we disregard such phrase, the resolution must
be given scant consideration. We adhere to the CA�s position that
the basis for determining the board of trustees� composition is the
trustees as fixed in the articles of incorporation and not the actual
members of the board. The second paragraph of Section 25 43 of the
Corporation Code expressly provides that a majority of the number of
trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business.

Moreover, the certification is a mere general power of attorney which

comprises all of Joy Training�s business.44 Article 1877 of the Civil
Code clearly states that �[a]n agency couched in general terms
comprises only acts of administration, even if the principal should
state that he withholds no power or that the agent may execute
such acts as he may consider appropriate, or even though the
agency should authorize a general and unlimited
management.�45cralaw virtualaw library

The contract of sale is unenforceable

Necessarily, the absence of a contract of agency renders the

contract of sale unenforceable;46 Joy Training effectively did not enter
into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended
the rule that persons dealing with a registered land have the legal
right to rely on the face of the title and to dispense with the need to
inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry.47 This rule applies when the
ownership of a parcel of land is disputed and not when the fact of
agency is contested.

At this point, we reiterate the established principle that persons

dealing with an agent must ascertain not only the fact of agency, but
also the nature and extent of the agent�s authority. 48 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.49 The basis for agency is
representation and a person dealing with an agent is put upon inquiry
and must discover on his own peril the authority of the agent.50 Thus,
Sally bought the real properties at her own risk; she bears the risk of
injury occasioned by her transaction with the spouses Johnson.

WHEREFORE, premises considered, the assailed Decision dated


REMAN RECIO VS HEIRS OF THE SPOUSES AGUEDO AND
MARIA ALTAMIRANO,
This petition for review on certiorari1 under Rule 45 of the Rules of
Court seeks to modify the Decision2 of the Court of Appeals (CA)
dated November 29, 2007 in CA-G.R. CV No. 86001, affirming with
modification the Decision3 dated August 23, 2005 of the Regional
Trial Court (RTC) of Lipa City, Branch 85 in Civil Case No. 97-0107.
The petitioner asks this Court to reinstate in full the said RTC
decision.
The Facts
In the 1950�s, Nena Recio (Nena), the mother of Reman Recio
(petitioner), leased from the respondents Alejandro, Adelaida,
Catalina, Alfredo, Francisco, all surnamed Altamirano, Violeta
Altamirano Olfato, and Loreto Altamirano Vda. De Maralit (referred to
as the Altamiranos) a parcel of land with improvements, situated at
No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City,
Batangas. The said land has an area of more or less eighty-nine
square meters and fifty square decimeters (89.50 sq m), and is found
at the northern portion of two (2) parcels of land covered by Transfer
Certificate of Title (TCT) Nos. 66009 and 66010 of the Registry of
Deeds of Lipa City. The Altamiranos inherited the subject land from
their deceased parents, the spouses Aguedo Altamirano and Maria
Valduvia.4
Nena used the ground floor of the subject property as a retail store
for grains and the upper floor as the family�s residence. The
petitioner claimed that in 1988, the Altamiranos offered to sell the
subject property to Nena for Five Hundred Thousand Pesos
(P500,000.00). The latter accepted such offer, which prompted the
Altamiranos to waive the rentals for the subject property. However,
the sale did not materialize at that time due to the fault of the
Altamiranos. Nonetheless, Nena continued to occupy and use the
property with the consent of the Altamiranos.5
Meanwhile, the Altamiranos consolidated the two (2) parcels of land
covered by TCT Nos. 66009 and 66010. They were eventually
subdivided into three (3) parcels of land which were then
denominated as Lots 1, 2, and 3 of the Consolidation-Subdivision
Plan PCS-04-00367. Subsequently, TCT No. T-102563 of the
Registry of Deeds of Lipa City was issued to cover the subject
property. The petitioner and his family remained in peaceful
possession of Lot No. 3.6
In the latter part of 1994, the petitioner renewed Nena�s option to
buy the subject property. The petitioner conducted a series of
negotiations with respondent Alejandro who introduced himself as
representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale
with the petitioner over the subject property. In January 1995, in view
of the said oral contract of sale, the petitioner made partial payments
to the Altamiranos in the total amount of One Hundred Ten Thousand
Pesos (P110,000.00). Alejandro duly received and acknowledged
these partial payments as shown in a receipt dated January 24,
1995. On April 14, 1995, the petitioner made another payment in the
amount of Fifty Thousand Pesos (P50,000.00), which Alejandro
again received and acknowledged through a receipt of the same
date. Subsequently, the petitioner offered in many instances to pay
the remaining balance of the agreed purchase price of the subject
property in the amount of Three Hundred Forty Thousand Pesos
(P340,000.00), but Alejandro kept on avoiding the petitioner.
Because of this, the petitioner demanded from the Altamiranos,
through Alejandro, the execution of a Deed of Absolute Sale in
exchange for the full payment of the agreed price.7
Thus, on February 24, 1997, the petitioner filed a complaint for
Specific Performance with Damages. On March 14, 1997, the
petitioner also caused to annotate on the TCT No. T-102563 a Notice
of Lis Pendens.8
Pending the return of service of summons to the Altamiranos, the
petitioner discovered that the subject property has been
subsequently sold to respondents Lauro and Marcelina Lajarca
(Spouses Lajarca). TCT No. T-102563 was cancelled and a new title,
TCT No. 112727, was issued in the name of the Spouses Lajarca by
virtue of a Deed of Sale executed by the latter and the Altamiranos
on February 26, 1998. Thus, the petitioner filed an Amended
Complaint impleading the Spouses Lajarca and adding as a cause of
action the annulment of the sale between the Altamiranos and the
Spouses Lajarca.9
Thereafter, trial ensued. Alejandro was called to testify at the
instance of the petitioner but after a brief testimony, he excused
himself and never returned to the witness stand despite several
subpoenas. For the respondents, the Altamiranos manifested that
they would no longer present any witness while the Spouses Lajarca
were considered to have waived their right to present evidence since
they failed to appear on the day set for them to do so.10
The Ruling of the RTC in Civil Case No. 97-0107
On August 23, 2005, the trial court rendered a decision,11 the
dispositive portion of which reads as follows:cralavvonlinelawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiff and against the defendants as
follows:cralavvonlinelawlibrary
1. declaring as NULL AND VOID the Deed of Absolute Sale dated 26
February 1998 between the defendants Altamiranos and the
defendants Lajarcas covering that parcel of land together with all
improvements thereon situated at No. 39 10 de Julio Street (now
Esteban Mayo Street), Lipa City, Batangas, containing an area of
more or less Eighty[-]Nine Square Meters and Fifty Square
Decimeters (89.50 sq. m) then covered by Transfer Certificate of Title
No. T-102563 of the Registry of Deeds of Lipa
City;chanroblesvirtualawlibrary
2. ordering the Register of Deeds of Lipa City to cancel Transfer
Certificate of Title No. T-112727 of the Registry of Deeds of Lipa City
in the name of the defendants Lajarcas and to reinstate Transfer
Certificate of Title No. T-102563;chanroblesvirtualawlibrary
3. directing the defendants Altamiranos to execute a Deed of
Absolute Sale in favor of plaintiff covering the parcel of land together
with all improvements thereon situated at No. 39 10 de Julio Street
(now Esteban Mayo Street), Lipa City, Batangas, containing an area
of more or less Eighty[-]Nine Square Meters and Fifty Square
Decimeters (89.50 sq. m) then covered by Transfer Certificate of Title
No. T-102563 upon payment by said plaintiff of the balance of the
purchase price in the amount of THREE HUNDRED FORTY
THOUSAND PESOS ([P]340,000.00).
4. directing the defendants Altamiranos and Lajarcas, jointly and
severally, to pay plaintiff moral damages in the amount of
[P]100,000.00, actual and compensatory damages in the amount of
[P]100,000.00, [P]50,000.00 as exemplary damages and the sum of
[P]50,000.00 as attorney�s fees plus [P]2,500.00 for every hearing
attended as and for appearance fees, and costs of suit.
SO ORDERED.12
Aggrieved, the Spouses Lajarca filed an appeal assailing the above
RTC decision.
The Ruling of the CA in CA-G.R. CV No. 86001
In its Decision13 dated November 29, 2007, the CA affirmed with
modification, the dispositive portion of which
states:cralavvonlinelawlibrary
WHEREFORE, premises considered, the August 23,
2005 Decision of the Regional Trial Court, Br. 85, Fourth Judicial
Region, Lipa City, in Civil Case No. 97-0107, is hereby AFFIRMED
with MODIFICATION. Concomitantly, judgment is hereby rendered,
as follows:cralavvonlinelawlibrary
1) The complaint, as far as Adelaida Altam[i]rano, Catalina
Altam[i]rano, Alfredo Altam[i]rano, Francisco Altam[i]rano, Violeta
Altam[i]rano Olfato and Loreta Altam[i]rano vda. de Maralit are
concerned, is hereby DISMISSED;chanroblesvirtualawlibrary
2) The contract of sale between Alejandro Altam[i]rano and Reman
Recio is VALID only with respect to the aliquot share of Alejandro
Altam[i]rano in the lot previously covered by TCT No. T-102563 (now
covered by TCT No. 112727);chanroblesvirtualawlibrary
3) The Deed of Sale, dated February 26, 1998, between the
Altam[i]ranos and the Lajarca Spouses is declared NULL and
VOID as far as the aliquot share of Alejandro Altam[i]rano is
concerned;chanroblesvirtualawlibrary
4) Reman Recio is DECLARED a co-owner of the Spouses Lauro
and Marcelina Lajarca over the property previously covered by TCT
No. T-102563 (now TCT No. 112727), his share being that which
previously corresponds to the aliquot share of Alejandro Altam[i]rano;
and
5) The damages awarded below to Reman Recio are AFFIRMED.
No costs.
SO ORDERED.14nadcralavvonlinelawlibrary
In pr�cis, the CA found and ruled as follows:cralavvonlinelawlibrary
1) That the summons to Alejandro is not summons to the other
Altamiranos since Alejandro�s authority to represent his co-heirs is
disputed for lack of a written special power of attorney (SPA).
Furthermore, the CA found that the Altamiranos, save for Alejandro
and Violeta, reside abroad with unknown addresses. Thus, for the
CA, summons to the non-resident Altamiranos should have been
served extraterritorially as provided in Section 15, Rule 14 15 of the
Revised Rules of Court.16
2) That there was a valid contract of sale entered into by Alejandro
and the petitioner considering that: (a) Alejandro did not make any
express reservation of ownership or title to the subject parcel of land,
and that he issued receipts precisely to acknowledge the payments
made for the purchase of Lot No. 3; (b) Alejendro actually delivered
Lot No. 3 to the petitioner and waived the rental payments thereof;
(c) Alejandro did not actually refuse the petitioner�s offer to pay the
balance of the purchase price but instead, merely avoided the
petitioner; and (d) all the elements of a valid contract of sale exist in
the transaction between the petitioner and the Altamiranos.17
3) That Alejandro�s sale of Lot No. 3 did not bind his co-owners
because a sale of real property by one purporting to be an agent of
the owner without any written authority from the latter is null and void.
An SPA from the co-owners pursuant to Article 1878 of the New Civil
Code is necessary. However, the CA held that the contract of sale
between Alejandro and the petitioner is valid because under a regime
of co-ownership, a co-owner can freely sell and dispose his
undivided interest, citing Acabal v. Acabal.18Furthermore, the
Spouses Lajarca were not buyers in good faith because they had
knowledge of the prior sale to the petitioner who even caused the
annotation of the Notice of Lis Pendens on TCT No. T-102563.19
The CA, thereby, held that insofar as the verbal contract of sale
between Alejandro and the petitioner is concerned, Alejandro�s
disposition affects only his pro indiviso share, such that the
transferee (the petitioner) receives only what corresponds to
Alejandro�s undivided share in the subject lot. Likewise, the CA
declared the deed of absolute sale between the Altamiranos and the
Spouses Lajarca valid only insofar as the aliquot shares of the other
Altamiranos are concerned. Thus, in effect, the petitioner and the
Spouses Lajarca are co-owners of the subject property.
Not satisfied with the decision, the petitioner sought reconsideration
but his motion was denied in the CA Resolution20 dated March 18,
2008.
Issue
The petitioner filed the instant petition alleging in the main that the
CA gravely and seriously erred in modifying the RTC decision.
Our Ruling
The petition has no merit.
Under Rule 45 of the Rules of Court, jurisdiction is generally limited
to the review of errors of law committed by the appellate court. The
Supreme Court is not obliged to review all over again the evidence
which the parties adduced in the court a quo. Of course, the general
rule admits of exceptions, such as where the factual findings of the
CA and the trial court are conflicting or contradictory.21 In the instant
case, the findings of the trial court and its conclusion based on the
said findings contradict those of the CA. After a careful review, the
Court finds no reversible error with the decision of the CA.
At the core of the present petition is the validity of the verbal contract
of sale between Alejandro and the petitioner; and the Deed of
Absolute Sale between the Altamiranos and the Spouses Lajarca
involving the subject property.
A valid contract of sale requires: (a) a meeting of minds of the parties
to transfer ownership of the thing sold in exchange for a price; (b) the
subject matter, which must be a possible thing; and (c) the price
certain in money or its equivalent.22
In the instant case, all these elements are present. The records
disclose that the Altamiranos were the ones who offered to sell the
property to Nena but the transaction did not push through due to the
fault of the respondents. Thereafter, the petitioner renewed Nena�s
option to purchase the property to which Alejandro, as the
representative of the Altamiranos verbally agreed. The determinate
subject matter is Lot No. 3, which is covered under TCT No. T-
102563 and located at No. 39 10 de Julio Street (now Esteban Mayo
Street), Lipa City, Batangas.23 The price agreed for the sale of the
property was Five Hundred Thousand Pesos (P500,000.00). 24 It
cannot be denied that the oral contract of sale entered into between
the petitioner and Alejandro was valid.
However, the CA found that it was only Alejandro who agreed to the
sale. There is no evidence to show that the other co-owners
consented to Alejandro�s sale transaction with the petitioner.
Hence, for want of authority to sell Lot No. 3, the CA ruled that
Alejandro only sold his aliquot share of the subject property to the
petitioner.
In Alcantara v. Nido,25 the Court emphasized the requirement of an
SPA before an agent may sell an immovable property. In the said
case, Revelen was the owner of the subject land. Her mother,
respondent Brigida Nido accepted the petitioners� offer to buy
Revelen�s land at Two Hundred Pesos (P200.00) per sq m.
However, Nido was only authorized verbally by Revelen. Thus, the
Court declared the sale of the said land null and void under Articles
1874 and 1878 of the Civil Code.26
Articles 1874 and 1878 of the Civil Code explicitly
provide:cralavvonlinelawlibrary
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following
cases:cralavvonlinelawlibrary
x x x x
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
The petitioner insists that the authority of Alejandro to represent his
co-heirs in the contract of sale entered into with the petitioner had
been adequately proven during the trial. He alleges that the other
Altamiranos are deemed to have knowledge of the contract of sale
entered into by Alejandro with the petitioner since all of them, either
personally or through their authorized representatives participated in
the sale transaction with the Spouses Lajarca involving the same
property covered by TCT No. T-102563. In fact, said TCT even
contained a notice of lis pendens which should have called their
attention that there was a case involving the property. Moreover, the
petitioner points out that Alejandro represented a considerable
majority of the co-owners as can be observed from other transaction
and documents, i.e., three (3) Deeds of Sale executed in favor of the
Spouses Lajarca and the two other buyers of the parcels of land co-
owned by the Altamiranos.27
petitioner, indicating that they fully knew of the representation of
Alejandro. All that the petitioner relied upon were acts that happened
after the sale to him. Absent the consent of Alejandro�s co-owners,
the Court holds that the sale between the other Altamiranos and the
petitioner is null and void. But as held by the appellate court, the sale
between the petitioner and Alejandro is valid insofar as the aliquot
share of respondent Alejandro is concerned. Being a co-owner,
Alejandro can validly and legally dispose of his share even without
the consent of all the other co-heirs.33Since the balance of the full
price has not yet been paid, the amount paid shall represent as
payment to his aliquot share. 34 This then leaves the sale of the lot of
the Altamiranos to the Spouses Lajarca valid only insofar as their
shares are concerned, exclusive of the aliquot part of Alejandro, as
ruled by the CA. The Court finds no reversible error with the decision
of the CA in all respects.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals dated November 29, 2007 in CA-G.R. CV No. 86001
is AFFIRMED.
SO ORDERED.

The petitioner�s contentions are untenable. Given the expressed

requirement under the Articles 1874 and 1878 of the Civil Code that
there must be a written authority to sell an immovable property, the
petitioner�s arguments must fail. The petitioner asserts that since
TCT No. T-102563 contained a notice of lis pendens, the Altamiranos
very well knew of the earlier sale to him by Alejandro. While this may
be true, it does not negate the fact that Alejandro did not have any
SPA. It was a finding that need not be disturbed that Alejandro had
no authority from his co-owners to sell the subject property.

Moreover, the fact that Alejandro allegedly represented a majority of

the co-owners in the transaction with the Spouses Lajarca, is of no
moment. The Court cannot just simply assume that Alejandro had the
same authority when he transacted with the petitioner.

In Woodchild Holdings, Inc. v. Roxas Electric and Construction

Company, Inc.28 the Court stated 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.�29 In other words, when the
petitioner relied only on the words of respondent Alejandro without
securing a copy of the SPA in favor of the latter, the petitioner is
bound by the risk accompanying such trust on the mere assurance of
Alejandro.

The same Woodchild case stressed that apparent authority based on

estoppel can arise from the principal who knowingly permit the agent
to hold himself out with authority and from the principal who clothe
the agent with indicia of authority that would lead a reasonably
prudent person to believe that he actually has such
authority.30 Apparent authority of an agent arises only from �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.�31 In the instant case, the sale to the Spouses Lajarca
and other transactions where Alejandro allegedly represented a
considerable majority of the co-owners transpired after the sale to the
petitioner; thus, the petitioner cannot rely upon these acts or conduct
to believe that Alejandro had the same authority to negotiate for the
sale of the subject property to him.

Indeed, the petitioner can only apply the principle of apparent

authority if he is able to prove the acts of the Altamiranos which
justify his belief in Alejandro�s agency; that the Altamiranos had
such knowledge thereof; and if the petitioner relied upon those acts
and conduct, consistent with ordinary care and prudence.32

The instant case shows no evidence on record of specific acts which

the Altamiranos made before the sale of the subject property to the
COUNTRY BANKERS INSURANCE V KEPPEL CEBU SHIPYARD
This is a petition for review on certiorari[1] to reverse and set aside
the January 29, 2004 Decision[2] and October 28, 2004
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 58001,
wherein the Court of Appeals affirmed with modification the February
10, 1997 Decision[4] of the Regional Trial Court (RTC) of Cebu City,
Branch 7, in Civil Case No. CBB-13447.
Hereunder are the undisputed facts as culled from the records of the
case.
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a
corporation engaged in the shipping industry, contracted the services
of Keppel Cebu Shipyard, formerly known as Cebu Shipyard and
Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship
repair works on its vessel, the M/V Pacific Fortune.[5]
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to
Unimarine in consideration for its services, which amounted
to P4,486,052.00.[6]Negotiations between Cebu Shipyard and
Unimarine led to the reduction of this amount to P3,850,000.00. The
terms of this agreement were embodied in Cebu Shipyards February
18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted in full
below:
18 February 1992
Ref No.: LL92/0383
UNIMARINE SHIPPING LINES, INC.
C/O Autographics, Inc.
Gorordo Avenue, Lahug, Cebu City
Attention: Mr. Paul Rodriguez
President/General Manager
This is to confirm our agreement on the shiprepair bills charged for
the repair of MV Pacific Fortune, our invoice no. 26035.
The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount
of P3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. (Unimarine) will pay the above
amount of [P3,850,000.00] in US Dollars to be fixed at the prevailing
USDollar to Philippine Peso exchange rate at the time of
payment. The payment terms to be extended to Unimarine is as
follows:
Installments Amount Due Date
1st Installment P2,350,000.00 30 May
1992
2nd Installment P1,500,000.00 30 Jun
1992
Unimarine will deposit post-dated checks equivalent to the above
amounts in Philippine Peso and an additional check amount
of P385,000.00, representing 10% [Value Added Tax] VAT on the
above bill of P3,850,000.00. In the event that Unimarine fails to make
full payment on the above due dates in US Dollars, the post-dated
checks will be deposited by CSEW in payment of the amounts owned
by Unimarine and Unimarine agree that the 10% VAT (P385,000.00)
shall also become payable to CSEW.
Unimarine in consideration of the credit terms extended by CSEW
and the release of the vessel before full payment of the above debt,
agree to present CSEW surety bonds equal to 120% of the value of
the credit extended. The total bond amount shall be P4,620,000.00.
Yours faithfully,
CEBU SHIPYARD & ENGG WORKS, INC Conforme:
(SGD) (SGD)______
SEET KENG TAT PAUL RODRIGUEZ
Treasurer/VP-Admin. Unimarine Shipping
Lines, Inc.[7]
In compliance with the agreement, Unimarine, through Paul
Rodriguez, secured from Country Bankers Insurance Corp. (CBIC),
through the latters agent, Bethoven Quinain (Quinain), CBIC Surety
Bond No. G (16) 29419[8] (the surety bond) on January 15, 1992 in
the amount of P3,000,000.00. The expiration of this surety bond was
extended to January 15, 1993, through Endorsement No.
33152[9] (the endorsement), which was later on attached to and
formed part of the surety bond. In addition to this, Unimarine, on
February 19, 1992, obtained another bond from Plaridel Surety and
Insurance Co. (Plaridel), PSIC Bond No. G (16)-00365[10] in the
amount of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of
Undertaking in favor of Cebu Shipyard. The pertinent portions of the
contract read as follows:
Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo
Avenue, Cebu City hereby acknowledges that in consideration
of Cebu Shipyard & Engineering Works, Inc. (Cebu Shipyard) at
our request agreeing to release the vessel specified in part A of the
Schedule (name of vessel) prior to the receipt of the sum specified in
part B of the Schedule (Moneys Payable) payable in respect of
certain works performed or to be performed by Cebu Shipyard and/or
its subcontractors and/or material and equipment supplied or to be
supplied by Cebu Shipyard and/or its subcontractors in connection
with the vessel for the party specified in part C of the Schedule (the
Debtor), we hereby unconditionally, irrevocably undertake to make
punctual payment to Cebu Shipyard of the Moneys Payable on the
terms and conditions as set out in part B of the Schedule. We
likewise hereby expressly waive whatever right of excussion we may
have under the law and equity.
This contract shall be binding upon Uni-Marine Shipping Lines, Inc.,
its heirs, executors, administrators, successors, and assigns and
shall not be discharged until all obligation of this contract shall have
been faithfully and fully performed by the Debtor.[11]
Because Unimarine failed to remit the first installment when it
became due on May 30, 1992, Cebu Shipyard was constrained to
deposit the peso check corresponding to the initial installment
of P2,350,000.00. The check, however, was dishonored by the bank
due to insufficient funds.[12] Cebu Shipyard faxed a message to
Unimarine, informing it of the situation, and reminding it to settle its
account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message [14] to
Unimarine, to confirm Paul Rodriguezs promise that Unimarine will
pay in full the P3,850,000.00, in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise, Cebu
Shipyard, on July 2, 1992, through a faxed letter, asked Unimarine if
the payment could be picked up the next day. This was followed by
another faxed message on July 6, 1992, wherein Cebu Shipyard
reminded Unimarine of its promise to pay in full on July 28, 1992. On
August 24, 1992, Cebu Shipyard again faxed[15] Unimarine, to inform
it that interest charges will have to be imposed on their outstanding
debt, and if it still fails to pay before August 28, 1992, Cebu Shipyard
will have to enforce payment against the sureties and take legal
action.
On November 18, 1992, Cebu Shipyard, through its counsel, sent
Unimarine a letter,[16] demanding payment, within seven days from
receipt of the letter, the amount of P4,859,458.00, broken down as
follows:
B#26035 MV PACIFIC FORTUNE 4,486,052.00
LESS: ADJUSTMENT:
CN#00515-03/19/92 (636,052.00)
------------------
3,850,000.00
Add: VAT on repair bill no. 26035 385,000.00
------------------
4,235,000.00
Add: Interest/penalty charges:
Debit Note No. 02381 189,888.00
Debit Note No. 02382 434,570.00
------------------
4,859,458.00[17]
Due to Unimarines failure to heed Cebu Shipyards repeated
demands, Cebu Shipyard, through counsel, wrote the sureties
CBIC[18] on November 18, 1992, and Plaridel,[19] on November 19,
1992, to inform them of Unimarines nonpayment, and to ask them to
fulfill their obligations as sureties, and to respond within seven days
from receipt of the demand.
However, even the sureties failed to discharge their obligations, and
so Cebu Shipyard filed a Complaint dated January 8, 1993, before
the RTC, Branch 18 of Cebu City, against Unimarine, CBIC, and
Plaridel. This was docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no
cause of action. CBIC alleged that the surety bond was issued by its
agent, Quinain, in excess of his authority. CBIC claimed that Cebu
Shipyard should have doubted the authority of Quinain to issue the
surety bond based on the following:
1. The nature of the bond undertaking (guarantee payment), and
the amount involved.
2. The surety bond could only be issued in favor of the Department
of Public Works and Highways, as stamped on the upper right portion
of the face of the bond.[21] This stamp was covered by documentary
stamps.
3. The issuance of the surety bond was not reported, and the
corresponding premiums were not remitted to CBIC.[22]
CBIC added that its liability was extinguished when, without its
knowledge and consent, Cebu Shipyard and Unimarine novated their
agreement several times. Furthermore, CBIC stated that Cebu
Shipyards claim had already been paid or extinguished when
Unimarine executed an Assignment of Claims[23] of the proceeds of
the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC
also averred that Cebu Shipyards claim had already prescribed as
the endorsement that extended the surety bonds expiry date, was not
reported to CBIC. Finally, CBIC asseverated that if it were held to be
liable, its liability should be limited to the face value of the bond and
not for exemplary damages, attorneys fees, and costs of litigation.[24]
Subsequently, CBIC filed a Motion to Admit Cross and Third Party
Complaint[25] against Unimarine, as cross defendant; Paul Rodriguez,
Albert Hontanosas, and Peter Rodriguez, as signatories to the
Indemnity Agreement they executed in favor of CBIC; and Bethoven
Quinain, as the agent who issued the surety bond and endorsement
in excess of his authority, as third party defendants.[26]
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter
Rodriguez executed an Indemnity Agreement, wherein they bound
themselves, jointly and severally, to indemnify CBIC for any amount it
may sustain or incur in connection with the issuance of the surety
bond and the endorsement.[27] As for Quinain, CBIC alleged that he
exceeded his authority as stated in the Special Power of Attorney,
wherein he was authorized to solicit business and issue surety bonds
not exceeding P500,000.00 but only in favor of the Department of
Public Works and Highways, National Power Corporation, and other
government agencies.[28]
On August 23, 1993, third party defendant Hontanosas filed his
Answer with Counterclaim, to the Cross and Third Party
Complaint. Hontanosas claimed that he had no financial interest in
Unimarine and was neither a stockholder, director nor an officer of
Unimarine. He asseverated that his relationship to Unimarine was
limited to his capacity as a lawyer, being its retained counsel. He
further denied having any participation in the Indemnity Agreement
executed in favor of CBIC, and alleged that his signature therein was
forged, as he neither signed it nor appeared before the Notary Public
who acknowledged such undertaking.[29]
Various witnesses were presented by the parties during the course of
the trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She
was the Chief Accountant in charge of the custody of the documents
of the company. She corroborated Cebu Shipyards allegations and
produced in court the documents to support Cebu Shipyards
claim. She also testified that while it was true that the proceeds of the
sale of Unimarines vessel, M/V Headline, were assigned to Cebu
Shipyard, nothing was turned over to them.[30]
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard
for the repairs it did on M/V Pacific Fortune, despite the extensions
granted to Unimarine. He claimed that he signed the Indemnity
Agreement because he trusted Quinain that it was a mere pre-
requisite for the issuance of the surety bond. He added that he did
not bother to read the documents and he was not aware of the
consequences of signing an Indemnity Agreement. Paul Rodriguez
also alleged to not having noticed the limitation Valid only in favor of
DPWH stamped on the surety bond.[31] However, Paul Rodriguez did
not contradict the fact that Unimarine failed to pay Cebu Shipyard its
obligation.[32]
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding
Department. Her duties included the evaluation and approval of all
applications for and reviews of bonds issued by their agents, as
authorized under the Special Power of Attorney and General Agency
Contract of CBIC.Rianzares testified that she only learned of the
existence of CBIC Surety Bond No. G (16) 29419 when she received
the summons for this case. Upon investigation, she found out that the
surety bond was not reported to CBIC by Quinain, the issuing agent,
in violation of their General Agency Contract, which provides that all
bonds issued by the agent be reported to CBICs office within one
week from the date of issuance. She further stated that the surety
bond issued in favor of Unimarine was issued beyond Quinains
authority. Rianzares added that she was not aware that an
endorsement pertaining to the surety bond was also issued by
Quinain.[33]
After the trial, the RTC was faced with the lone issue of whether or
not CBIC was liable to Cebu Shipyard based on Surety Bond No. G
(16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
Cebu Shipyard & Engineering Works, Incorporated and against the
defendants:
1. Ordering the defendants Unimarine Shipping Lines,
Incorporated, Country Bankers Insurance Corporation and Plaridel
Surety and Insurance Corporation to pay plaintiff jointly and severally
the amount of P4,620,000.00 equivalent to the value of the surety
bonds;
2. Ordering further defendant Unimarine to pay plaintiff the
amount of P259,458.00 to complete its entire obligation
of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of P100,000.00
in attorneys fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines, Incorporated
and Third party defendants Paul Rodriguez, Peter Rodriguez and
Alber[t] Hontanosas: To indemnify jointly and severally, cross plaintiff
and third party plaintiff Country Bankers Insurance Corporation
whatever amount the latter is made to pay to plaintiff.[35]
The RTC held that CBIC, in its capacity as surety is bound with its
principal jointly and severally to the extent of the surety bond it
issued in favor of [Cebu Shipyard] because although the contract of
surety is in essence secondary only to a valid principal obligation, his
liability to [the] creditor is said to be direct, primary[,] and absolute, in
other words, he is bound by the principal.[36] The RTC added:
Solidary obligations on the part of Unimarine and CBIC having been
established and expressly stated in the Surety Bond No. 29419 (Exh.
C), [Cebu Shipyard], therefore, is entitled to collect and enforce said
obligation against any and or both of them, and if and when CBIC
pays, it can compel its co-defendant Unimarine to reimburse to it the
amount it has paid.[37]
The RTC found CBICs contention that Quinain acted in excess of his
authority in issuing the surety bond untenable. The RTC held that
CBIC is bound by the surety bond issued by its agent who acted
within the apparent scope of his authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have
been performed within the scope of the agents authority, if such act
is within the terms of the powers of attorney as written, even if the
agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.[38]
All the defendants appealed this Decision to the Court of Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas
argued that Unimarines obligation under Bill No. 26035 had been
extinguished by novation, as Cebu Shipyard had agreed to accept
the proceeds of the sale of the M/V Headline as payment for the ship
repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter
Rodriguez added that such novation also freed them from their
liability under the Indemnity Agreement they signed in favor of
CBIC. Albert Hontanosas in turn reiterated that he did not sign the
Indemnity Agreement.[39][SC1]
CBIC, in its Appellants Brief,[40] claimed that the RTC erred in
enforcing its liability on the surety bond as it was issued in excess of
Quinains authority. Moreover, CBIC averred, its liability under such
surety had been extinguished by reasons of novation, payment, and
prescription. CBIC also questioned the RTCs order, holding it jointly
and severally liable with Unimarine and Plaridel for the amount
of P4,620,000.00, a sum larger than the face value of CBIC Surety
Bond No. G (16) 29419, and why the RTC did not hold Quinain liable
to indemnify CBIC for whatever amount it was ordered to pay Cebu
Shipyard.
On January 29, 2004, the Court of Appeals promulgated its decision,
with the following dispositive portion:
WHEREFORE, in view of the foregoing, the respective appeal[s] filed
by Defendants-Appellants Unimarine Shipping Lines, Inc. and
Country Bankers Insurance Corporation; Cross-Defendant-Appellant
Unimarine Shipping Lines, Inc. and; Third-Party Defendants-
Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas
are hereby DENIED. The decision of the RTC in Civil Case No. CEB-
13447 dated February 10, 1997 is AFFIRMED with modification that
Mr. Bethoven Quinain, CBICs agent is hereby held jointly and
severally liable with CBIC by virtue of Surety Bond No. 29419
executed in favor of plaintiff-appellee CSEW.[41]
In its decision, the Court of Appeals resolved the following issues, as
it had summarized from the parties pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for
a sum of money arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu
Shipyard] has been extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly being the
Surety of UNIMARINE is liable under Surety Bond No. 29419[;]
IV. Whether or not Cross Defendant-Appellant UNIMARINE and
Third-Party Defendants-Appellants Paul Rodriguez, Peter Rodriguez,
Albert Hontanosas and Third-Party Defendant Bethoven Quinain are
liable by virtue of the Indemnity Agreement executed between them
and Cross and Third Party Plaintiff CBIC;
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled
to the award of P100,000.00 in attorneys fees and litigation
expenses.[42]
The Court of Appeals held that it was duly proven that Unimarine was
liable to Cebu Shipyard for the ship repair works it did on the formers
M/V Pacific Fortune. The Court of Appeals dismissed CBICs
contention of novation for lack of merit.[43] CBIC was held liable under
the surety bond as there was no novation on the agreement between
Unimarine and Cebu Shipyard that would discharge CBIC from its
obligation. The Court of Appeals also did not allow CBIC to disclaim
liability on the ground that Quinain exceeded his authority because
third persons had relied upon Quinains representation, as CBICs
agent.[44] Quinain was, however, held solidarily liable with CBIC
under Article 1911 of the Civil Code.[45]
Anent the liability of the signatories to the Indemnity Agreement, the
Court of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert
Hontanosas jointly and severally liable thereunder. The Court of
Appeals rejected Hontanosass claim that his signature in the
Indemnity Agreement was forged, as he was not able to prove it.[46]
The Court of Appeals affirmed the award of attorneys fees and
litigation expenses to Cebu Shipyard since it was able to clearly
establish the defendants liability, which they tried to dodge by setting
up defenses to release themselves from their obligation.[47]
CBIC[48]and Unimarine, together with third party defendants-
appellants[49] filed their respective Motions for Reconsideration. This
was, however, denied by the Court of Appeals in its October 28,
2004 Resolution for lack of merit.
Unimarine elevated its case to this Court via a petition for review
on certiorari, docketed as G.R. No. 166023, which was denied in a
Resolution dated January 19, 2005.[50]
The lone petitioner in this case, CBIC, is now before this Court,
seeking the reversal of the Court of Appeals decision and resolution
on the following grounds:
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL
CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY
ITS AGENT IN EXCESS OF AUTHORITY.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE
PERFORMANCE OF AN OBLIGATION GRANTED BY THE
CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT
TO RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND,
THE HONORABLE COURT OF APPEALS NONETHELESS
SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY
OF PETITIONER BEYOND THE VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
PETITIONER JOINTLY AND SEVERALLY LIABLE FOR
ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51]
Issue
The crux of the controversy lies in CBICs liability on the surety bond
Quinain issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and
applying the rules governing the contract of agency. It argued that
the Special Power of Attorney granted to Quinain clearly set forth the
extent and limits of his authority with regard to businesses he can
transact for and in behalf of CBIC.CBIC added that it was incumbent
upon Cebu Shipyard to inquire and look into the power of authority
conferred to Quinain. CBIC said:
The authority to bind a principal as a guarantor or surety is one of
those powers which requires a Special Power of Attorney pursuant to
Article 1878 of the Civil Code. Such power could not be simply
assumed or inferred from the mere existence of an agency. A
person who enters into a contract of suretyship with an agent without
confirming the extent of the latters authority does so at his peril. x x
x.[52]
CBIC claims that the foregoing is true even if Quinain was granted
the authority to transact in the business of insurance in general,
as the authority to bind the principal in a contract of suretyship
could nonetheless never be presumed.[53] Thus, CBIC claims, that:
[T]hird persons seeking to hold the principal liable for transactions
entered into by an agent should establish the following, in case the
same is controverted:
6.6.1. The fact or existence of the agency.
6.6.2. The nature and extent of authority.[54]
To go a little further, CBIC said that the correct Civil Code provision
to apply in this case is Article 1898. CBIC asserts that Cebu Shipyard
was charged with knowledge of the extent of the authority conferred
on Mr. Quinain by its failure to perform due diligence
investigations.[55]
Cebu Shipyard, in its Comment[56] first assailed the propriety of the
petition for raising factual issues. In support, Cebu Shipyard claimed
that the Court of Appeals application of Article 1911 of the Civil Code
was founded on findings of facts that CBIC now disputes. Thus, the
question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never put in
issue. What has always been debated by the parties is the extent of
authority or, at the very least, apparent authority, extended to
Quinain by CBIC to transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to
represent another, the principal, with the latters consent or
authority.[57] Thus, agency is based on representation, where the
agent acts for and in behalf of the principal on matters within the
scope of the authority conferred upon him.[58] Such acts have the
same legal effect as if they were personally done by the principal. By
this legal fiction of representation, the actual or legal absence of the
principal is converted into his legal or juridical presence.[59]
The RTC applied Articles 1900 and 1911 of the Civil Code in holding
CBIC liable for the surety bond. It held that CBIC could not be
allowed to disclaim liability because Quinains actions were within the
terms of the special power of attorney given to him.[60] The Court of
Appeals agreed that CBIC could not be permitted to abandon its
obligation especially since third persons had relied on Quinains
representations. It based its decision on Article 1911 of the Civil
Code and found CBIC to have been negligent and less than prudent
in conducting its insurance business for its failure to supervise and
monitor the acts of its agents, to regulate the distribution of its
insurance forms, and to devise schemes to prevent fraudulent
misrepresentations of its agents.[61]
This Court does not agree. Pertinent to this case are the following
provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify
the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to
secure the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agents authority, if
such act is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according
to an understanding between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown to
them.
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers.
Our law mandates an agent to act within the scope of his
authority.[62] The scope of an agents authority is what appears in the
written terms of the power of attorney granted upon him.[63] Under
Article 1878(11) of the Civil Code, a special power of attorney is
necessary to obligate the principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain
exceeded the scope of his authority only if Quinains act of issuing
Surety Bond No. G (16) 29419 is 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 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 8 th Floor, G.F. Antonino
Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter
referred to as the Company hereby appoints BETHOVEN B.
QUINAIN with address at x x x to be its General Agent and Attorney-
in-Fact, for and in its place, name and stead, and for its own use and
benefit, to do and perform the following acts and things:
1. To conduct, manage, carry on and transact insurance business
as usually pertains to a General Agency of Fire, Personal Accident,
Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for
and in behalf of the Company under the terms and conditions
specified in the General Agency Contract executed and entered into
by and between it and its said Attorney-in-Fact subject to the
following Schedule of Limits:

- SCHEDULE OF LIMITS -
a. FIRE:
xxxx
b. PERSONAL ACCIDENT:
xxxx
c. MOTOR CAR:
xxxx
d. MARINE:
xxxx
e. BONDS:
xxxx
Surety Bond (in favor of Dept. of Pub. Works and
Highways, Natl. Power Corp. & other. 500,000.00
Government agencies)[65]
CBIC does not anchor its defense on a secret agreement, mutual
understanding, or any verbal instruction to Quinain. CBICs stance is
grounded on its contract with Quinain, and the clear, written terms
therein. This Court finds that the terms of the foregoing contract
specifically provided for the extent and scope of Quinains authority,
and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond
the scope of his authority, may bind the principal if he ratifies them,
whether expressly or tacitly. It must be stressed though that only the
principal, and not the agent, can ratify the unauthorized acts, which
the principal must have knowledge of.[66] Expounding on the concept
and doctrine of ratification in agency, this Court said:
Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority. The
substance of the doctrine is confirmation after conduct, amounting to
a substitute for a prior authority. Ordinarily, the principal must have
full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who
assumed to act as agent. Thus, if material facts were suppressed
or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such
facts and regardless of the parties between whom the question
of ratification may arise. Nevertheless, this principle does not
apply if the principals ignorance of the material facts and
circumstances was willful, or that the principal chooses to act in
ignorance of the facts. However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot
be implied as against the principal who is ignorant of the
facts.[67] (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs
testimony that it was unaware of the existence of Surety Bond No. G
(16) 29419 and Endorsement No. 33152. There were no allegations
either that CBIC should have been put on alert with regard to
Quinains business transactions done on its behalf. It is clear, and
undisputed therefore, that there can be no ratification in this case,
whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel,
which is necessary for the protection of third persons. It states that
the principal is solidarily liable with the agent even when the latter
has exceeded his authority, if the principal allowed him to act as
though he had full powers. However, for an agency by estoppel to
exist, the following must be established:
1. The principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such
representation; and
3. Relying upon such representation, such third person has
changed his position to his detriment.[68]
In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by
estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in
reliance.[70]
This Court cannot agree with the Court of Appeals pronouncement of
negligence on CBICs part. CBIC not only clearly stated the limits of
its agents powers in their contracts, it even stamped its surety bonds
with the restrictions, in order to alert the concerned
parties. Moreover, its company procedures, such as reporting
requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted for
Quinains deliberate failure to notify it of his transactions with
Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it
stated that CBIC let the public, or specifically Unimarine, believe that
Quinain had the authority to issue a surety bond in favor of
companies other than the Department of Public Works and
Highways, the National Power Corporation, and other government
agencies. Neither was it shown that CBIC knew of the existence of
the surety bond before the endorsement extending the life of the
bond, was issued to Unimarine. For one to successfully claim the
benefit of estoppel on the ground that he has been misled by the
representations of another, he must show that he was not misled
through his own want of reasonable care and circumspection.[71]
It is apparent that Unimarine had been negligent or less than prudent
in its dealings with Quinain. In Manila Memorial Park Cemetery, Inc.
v. Linsangan,[72] this Court held:
It is a settled rule that persons dealing with an agent are bound at
their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to
establish it. The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such an inquiry,
he is chargeable with knowledge of the agents authority and his
ignorance of that authority will not be any excuse.
In the same case, this Court added:
[T]he ignorance of a person dealing with an agent as to the scope of
the latters authority is no excuse to such person and the fault cannot
be thrown upon the principal. A person dealing with an agent
assumes the risk of lack of authority in the agent. He cannot charge
the principal by relying upon the agents assumption of authority that
proves to be unfounded. The principal, on the other hand, may act
on the presumption that third persons dealing with his agent will not
be negligent in failing to ascertain the extent of his authority as well
as the existence of his agency.[73]
Unimarine undoubtedly failed to establish that it even bothered to
inquire if Quinain was authorized to agree to terms beyond the limits
indicated in his special power of attorney. While Paul Rodriguez
stated that he has done business with Quinain more than once, he
was not able to show that he was misled by CBIC as to the extent of
authority it granted Quinain. Paul Rodriguez did not even allege that
he asked for documents to prove Quinains authority to contract
business for CBIC, such as their contract of agency and power of
attorney. It is also worthy to note that even with the Indemnity
Agreement, Paul Rodriguez signed it on Quinains mere assurance
and without truly understanding the consequences of the terms of the
said agreement.Moreover, both Unimarine and Paul Rodriguez could
have inquired directly from CBIC to verify the validity and effectivity of
the surety bond and endorsement; but, instead, they blindly relied on
the representations of Quinain. As this Court held in Litonjua, Jr. v.
Eternit Corp.[74]:

A person dealing with a known agent is not authorized, under any

circumstances, blindly to trust the agents; statements as to the extent
of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent
acts within the scope of his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and if they
would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to prove it. In this
case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.[75]

In light of the foregoing, this Court is constrained to release CBIC

from its liability on Surety Bond No. G (16) 29419 and Endorsement
No. 33152. This Court sees no need to dwell on the other grounds
propounded by CBIC in support of its prayer.

WHEREFORE, this petition is hereby GRANTED and the complaint

against CBIC is DISMISSED for lack of merit. The January 29,
2004 Decision and October 28, 2004 Resolution of the Court of
Appeals in CA-G.R. CV No. 58001 is MODIFIED insofar as it
affirmed CBICs liability on Surety Bond No. G (16) 29419 and
Endorsement No. 33152.

SO ORDERED.
UMIPIG VS PEOPLE
Before us are consolidated appeals by certiorari under Rule 45 of the
1997 Rules on Civil Procedure, as amended, assailing the January 4,
2006 Decision1 and January 30, 2006 and March 1,
2006Resolutions2 of the Sandiganbayan, Fourth Division finding
petitioners Benjamin A. Umipig, Renato B. Palomo, Margie C.
Mabitad and Carmencita Fontanilla-Payabyab guilty of violating
Section 3(e) of Republic Act (R.A.) No. 3019, or the Anti-Graft and
Corrupt Practices Act, as amended.
Factual Background
The National Maritime Polytechnic (NMP) is an attached agency of
the Department of Labor and Employment tasked to provide
necessary training to seafarers in order to qualify them for
employment.
Sometime in 1995, NMP undertook an expansion program. A pre-
feasibility study conducted by the NMP identified Cavite as a possible
site for the expansion as Cavite is close to the employment market
for seafarers. Thus, NMP dispatched a team to look for a site in
Cavite, andasuitable location consisting of two parcels of land was
found at Sta. Cruz de Malabon
Estate in Tanza, Cavite: Lots 1730-C and 1730-D, which are both
covered by TCT No. T-97296-648 as part of a bigger parcel of land,
Lot 1730.3
Petitioner Palomo, then NMP Executive Director, presented for
approval to the NMP Board of Trustees the two parcels of land they
identified. On August 21, 1995, the Board approved the proposal in
principle and authorized Palomo "to start negotiations for the
acquisition of the site in
Cavite and if necessary to pay the earnest money."4
Palomo thereafter began negotiations with Glenn Solis, a real estate
broker, for the purchase of Lots 1730-C and 1730-D. Solis is the
Attorney-in-Fact of the registered owners of said properties by virtue
of a Special Power of Attorney (SPA) executed in his favor.
On November 9, 1995, Palomo,in a handwritten memorandum to
petitioners Umipig, Fontanilla and Mabitad requested them to "cause
the release of the sum of Five Hundred Thousand Pesos (P500,000)
x x x [as] EARNEST MONEY for the purchase/acquisition of [a] 5-
hectare lot for
NMP extension to Luzon—in favor of MR. GLEN[N] SOLIS, holder of
authority documents of the lot owners—and thereby authorized to
represent the owners on their behalf for this purpose."5
On November 10, 1995, Disbursement Voucher No. 101-9511-1114
was prepared for the P500,000 earnest money with Glenn B. Solis as
claimant. Umipig, then NMP Administrative Officer, after receiving the
disbursement voucher and its supporting documents, issued a
memorandum on even date to Palomo enumerating the infirmities of
the supporting documents attached, to wit:
1. Contract to Sell dated January ___ 1995 for lot with TCT
No. 97296 is between Eufrocina Sosa as Vendor and Nilda
L. Ramos and six (6) others co-heir/vendor.
2. Yet the authority to sell dated November 8, 1995 was
signed by Nilda I. Ramos (only) representing herself and
her group.
3. The authority to sell is not notarized (dated November 8,
1995) at P370.00/sq. meter while the offer to NMP dated
October 11, 1995 is for P350.00/sq.m.
4. Tax declaration No. 3908 and 3907 for TCT No. T-16279
and T-16356 are in the name of Eufrocina Raquero.
5. Xerox copy of TCT No. "97267"? is illegible, hence, one
can not establish its relevance to the voucher.
6. That the aforesaid documents are all photocopies/xerox,
not certified as true xerox copies.1a\^/phi1
7. That the feasibility study being work out by the NEDA
and the NMP for the expansion of NMP to Luzon, is yet to
be submitted to the NMP Board of Trustees for approval.
8. The undersigned signs subject voucher with aforesaid
infirmities with reservations and doubts as to its legality, in
compliance with Management Memo. dated November 9,
1995 for us to release the voucher.6
Umipig attached to the disbursement voucher his memorandum to
Palomo when he signed Box A thereof. Petitioner Fontanilla-
Payabyab, then Budget Officer, stamped the words "Fund
Availability," and signed the voucher with note "Subject to clarification
as per attached note of AO dated 11/10/95."Petitioner Mabitad, then
NMP Chief Accountant, signed Box B of the voucher, and noted "as
per findings of AO per attach[ed] memo, with reservations as to the
legality of the transaction per observations by AOV."7 Palomo signed
Box C as approving officer.8
In response to Umipig’s memorandum, Palomo instructed him to
clear up said infirmities and authorized him to arrange a travel to
Manila with their Finance Officer/Accountant "to clear these acts
once and for all." Palomo further added that "time is of the essence
and they might lose out in this transaction" and that "the cost of the
lot per square meter has been set at P350 from the beginning."9
On December 10, 1995, a P2,000,000 partial payment was released
for the purchase of Lots 1730-C and 1730-D through Disbursement
Voucher No. 101-9512-082,10 again with Solis as claimant. Umipig
signed Box A but noted "Subj. to submission of legal requirements as
previously indicated on November 10, 1995 Memorandum." Mabitad
signed Box B and noted "w/ reservations as to the legality of the
transactions." Palomo signed Box C as approving officer.
On December 21, 1995, a Contract to Sell was executed between
Palomo and Solis over Lots 1730-C and 1730-D with a combined
area of 22,296 square meters and a total agreed purchase price
ofP7,803,600 orP350 per square meter.Said Contract to Sell
eventually ripened into a consummated sale (referred hereinafter as
"the first purchase") as TCT No. T-93623611 for Lot 1730-C and TCT
No. T-93623712 for Lot 1730-D are now registered in the name of
NMP, such titles having been issued on November 21, 2000.

The foregoing sale transaction("first purchase") covering Lots
1730-C and 1730-D was the subject of Criminal Case No. 26512 filed
in the Sandiganbayan against Umipig, Palomo and Mabitad on
February 16, 2001. On August 6, 2004, the Sandiganbayan’s Fifth
Division rendered a Decision13 acquitting all three accused of the
charge of violation of Section 3 (e) of R.A. No. 3019.
After consummating the first purchase, Palomo again negotiated with
Solis for the purchase of two more parcels of land adjacent to the lots
subject of the first purchase: Lot 1731 which was covered by TCT
No. 1635614 and registered in the name of the late Eufrocina
Raqueño, married to the late Leoncio Jimenez, and Lot 1732 covered
by TCT No. 3581215 and registered in the name of the late Francisco
Jimenez, son of Eufrocina Raqueño and Leoncio Jimenez. Solis this
time was armed with two Special Power of Attorneys(SPAs): one
dated April 15, 1996 appearing to have been executed by the
Jimenez heirs, all residents of California, U.S.A., authorizing Teresita
Jimenez-Trinidad to sell Lots 1731 and 1732 and to receive
consideration;16 and another dated July 12, 1996 executed by
Trinidad authorizing Solis to sell Lots 1731 and 1732 and to receive
consideration.17
On August 1, 1996, Palomo and Solis executed a Contract to
Sell18 over Lots 1731 and 1732. It specified a total purchase price of
P11,517,100 to be paid as follows:
4.1 P6,910,260 down payment upon signing of the Contract to Sell.
4.2 Balance after fifteen (15) days upon receipt of approved Extra-
judicial partition of Estate, location plan, reconstitution of owner’s
copy and signing of Deed of Sale.19
On even date, Disbursement VoucherNo. 101-9608-78720 was
prepared for the down payment of P6,910,260 with Solis as payee.
Fontanilla-Payabyab stamped the words "FUND AVAILABILITY" and
signed the voucher. Umipig signed Box A. Mabitad signed Box B,
while Palomo signed Box C as approving officer.
Also on August 1, 1996, a Request for Obligation of Allotments21 was
prepared by Fontanilla-Payabyab for the P6,910,260 down payment.
Mabitad certified "that unobligated allotments are available for the
obligation" and affixed her signature thereon.On August 2, 1996,
NMP issued Development Bank of the Philippines (DBP) Check No.
000158429522 in the amount of P6,910,260payableto Solis. The
signatories to the check were Umipig23 and Palomo.24
On December 27, 1996, Disbursement Voucher No. 101-9612-1524
was prepared for P3,303,600 with Solis as payee. Of said amount,
P1,303,600 was for the full payment of the lots under the first
purchase while the remaining P2,000,000 was partial payment of the
balance for Lots 1731 and 1732.25 Fontanilla-Payabyab stamped the
words "FUND AVAILABILITY" and signed the voucher. Umipig
signed Box A. Mabitad signed Box B, while Palomo signed Box C as
approving officer. On even date, NMP issued DBP Check No.
000175200526 in the amount of P3,303,600 payable to Solis. The
signatories to the check were Umipig27 and Palomo.28
The total payments made for the "second purchase" covering Lots
1731 and 1732 was P8,910,260.00, which is the subject of the
present controversy. After receiving these payments, Solis
disappeared and never showed up again at the NMP. Palomo even
sent Solis three letters dated March 4, 1998,29 August 11, 1998,30 and
September 30, 1998,31 to follow up the approved extra judicial
partition of estate, location and/or subdivision plan, reconstitution of
owners’ copy and signing of Deed of Absolute Sale. Under the
Contract to Sell, the submission of said documents was made a
condition for payment of the balance, being necessary for the
transfer and registration of said properties in the name of NMP.
As no reply was received from Solis,Palomo sought the assistance of
the Office of the Solicitor General(OSG) and informed the latter of the
inability to locate Solis. The OSG then inquired with the Philippine
Consulate General in Los Angeles, California as to the genuineness
and authenticity of the SPA that was executed by Urbano Jimenez, et
al. authorizing Teresita
Trinidad to sell Lots 1731 and 1732. In a letter32 dated June 11, 1999,
Vice Consul Bello stated that the SPA executed by Urbano Jimenez,
et al. and shown to NMP was fake. According to Vice Consul Bello,
when the Consulate searched its files for 1996, they found an SPA
authorizing the sale of Lots 1731 and 1732 but it was not the same
as the instrument given to NMP. The genuine SPA33 for said
properties, bearing the same date, O.R. No., Service No., Document
No. and Page No. but without wet seal, was executed by Gloria
Potente, Marylu Lupisan and Susan Abundo authorizing Presbitero
J.Velasco, Jr. as attorney-in-fact. The OSG reported the
Consulate’s findings to Palomo in a letter34 dated June 17, 1999.
On July 19, 1999, Palomo filed an Affidavit-Complaint35 against Solis
before the Tacloban City Prosecutor’s Office for estafa through
falsification of public documents. Upon the request of the Tacloban
City Prosecutor’s Office, the Commission on Audit (COA) conducted
a special audit on the transactions subject of the complaint filed by
Palomo.
Atty. Felix M. Basallaje Jr., State Auditor III of the COA and Resident
Auditor at the NMP, set forth his findings in his Special Audit Report,
to wit:
1. Disbursement in the amount of P8,910,260.00 in favor of
Mr. Glenn Solis for the purchase of two lots covered by
TCT No. 16356 and TCT No. 35812 was not supported by
a Torrens Title or such other document that title is vested in
the government (NMP) in violation of Sec. 449 of GAAM
Vol. I.36
2. The contract to sell entered between NMP and Mr.
Glenn Solis is tainted with irregularities the parties to the
contract not being authorized as required in Sec. 5 of P.D.
1369 and pertinent provisions of the Civil Code of the
Philippines.37
In the same report, the following persons were considered
responsible for the subject transactions:
1. Mr. Glenn For acting as vendor of the above subject
Solis - property (TCT Nos. 16356 and 35812)
without authority from the owner thereof;
2. Ms. Teresita Formis[re]presentation/conspiring with
Jimenez - Mr. Glenn Solis by issuing a Special
Trinidad Power of Attorney to sell the above
property without authority from the
owner.
3. Mr. Renato For entering into a contract to sell without
B. Palomo - authority from the NMP Board of
Executive Directors and by signing Box "C"
Director approving of the voucher as payment.
4. Benjamin A. For signing Box "A" in certifying the
Umipig - payment as lawful.

Administrative
Officer
5. Margie C. For signing Box "B" certifying as to
Mabitad - availability of funds, that expenditure are
Chief proper and supported by documents.
Accountant
6. Carmencita For signing in the voucher for fund
Fontanilla - control and in the ROA for requesting
Budget Officer obligation of the above transactions.38
Atty. Basallaje thus made the following recommendations:
1. Disallow in audit all transaction[s] covering payments
made to Mr. Glenn Solis under Voucher No. 101-9608-787
and Voucher No. 101-9612-1524 with a total amount of
P8,910,260.00.
2. Require Mr. Glenn Solis and his principal, Teresita
Jimenez Trinidad to restitute the amount received plus
damages by filing a separate civil suit against the vendor.
3. Institute the filing of appropriate case against parties
involved, if evidence warrants.39
After preliminary investigation, the Tacloban City Prosecutor’s Office
issued a Resolution40 dated January 25, 2001 finding a prima facie
case of malversation of public funds committed in conspiracy by
Solis, Jimenez-Trinidad, Palomo, Fontanilla-Payabyab, Umipig and
Mabitad. Upon review, the Deputy Ombudsman for the Visayas
approved with modification the resolution of the Tacloban City
Prosecutor’s Office and recommended instead the prosecution of
petitioners for violation of Section 3(e) of R.A. No. 3019, as
amended, or the Anti-Graft and Corrupt Practices Act and the filing of
a separate Information for Falsification against Solis.41
On May 20, 2002,petitioners were charged with violation of Section
3(e),R.A. No. 3019,under the following Information:
That on or about the 1st day of August 1996, and for sometime prior
or subsequent thereto, at Tacloban City, Province of Leyte,
Philippines, and within the jurisdiction of this Honorable Court,
above named accused RENATO B. PALOMO, BENJAMIN A.
UMIPIG, MARGIE C. MABITAD and CARMENCITA FONTANILLA-
PAYABYAB, public officers, being the Executive Director,
Administrative Officer, Chief Accountant and Budget Officer,
respectively, of the National Maritime Polytechnic, stationed at
Cabalawan, Tacloban City, in such capacity committing the offense
in relation to office, conniving, confederating and mutually helping
with each other and with GLENN B. SOLIS and TERESITA
JIMENEZ-TRINIDAD, private individuals, with deliberate intent, with
manifest partiality, evident bad faith and/or gross inexcusable
negligence, did then and there willfully, unlawfully and feloniously
enter into a Contract to Sell with accused GLENN [B.] SOLIS, for the
acquisition of two (2) parcels of land denominated as Lot Nos. 1731
and 1732 covered with Transfer Certificate of Title Nos. 16356 and
35812, located at Tanza, Cavite, with an area of 32,906 sq. meters
more or less, for a consideration in the amount of EIGHT MILLION,
NINE HUNDRED TEN THOUSAND, TWO HUNDRED SIXTY
PESOS (P8,910,260.00), Philippine Currency, and consequently in
payment thereof issued Development Bank of the
Philippines (DBP) Check Nos. 1584295 dated August 2, 1996, in the
amount of SIX MILLION, NINE HUNDRED TEN THOUSAND, TWO
HUNDRED SIXTY PESOS (P6,910,260.00) Philippine Currency and
1752005, dated December 27, 1996, in the amount of THREE
MILLION,
THREE HUNDRED THREE THOUSAND, SIX HUNDRED PESOS,
(P3,303,600.00) Philippine Currency, respectively, through Voucher
Nos. 1019608-787 and 101-9612-1524, respectively, despite the
absence of a copy of a Torrens Title of the land in the name of the
National Maritime
Polytechnic (NMP) or any document showing that the title is already
vested in the name of the government, as mandated under Section
449 of the Government Accounting and Auditing Manual, Volume I,
and despite the lack of authority on the part of the accused GLENN
B. SOLIS to sell the said lands not being the real or registered owner
and the fictitious/falsified Special Power of Attorney allegedly issued
by accused TERESITA JIMENEZ-TRINIDAD, resulting to the non-
acquisition of the land by the NMP, thus, accused public officers, in
the course of the performance of their official functions had given
unwarranted benefits to accused private individuals GLENN B.
SOLIS and TERESITA JIMENEZ-TRINIDAD and to the damage and
prejudice of the government particularly, the National Maritime
Polytechnic in the amount aforestated.
CONTRARY TO LAW.42
Palomo and Mabitad were arraigned on July 22, 2002.43 Umipig and
Fontanilla-Payabyab were arraigned on September 23, 200244 and
January 20, 2004,45 respectively. They all pleaded not guilty. Solis
and Jimenez-Trinidad remained at large.
In the Sandiganbayan’s Pre-Trial Order46 dated January 20, 2004, all
the parties agreed that the following factual and legal issues would
be resolved in the case:
1. Whether or not the act of accused Executive Director
Renato Palomo y Bermes in entering, in behalf of the NMP,
into a Contract to Sell with accused Glenn Solis required
prior authority and/or approval from the Board of Trustees
of NMP; and,
2. Whether or not all of the accused conspired and violated
Section 3(e) of R.A. 3019, as amended.47
At the trial, the prosecution presented two witnesses: Atty. Basallaje,
Jr.and Emerita T. Gomez, State Auditor I, also of the COA.
Atty. Basallaje testified on the audit investigation which the COA
Regional Director instructed him to conduct on NMP regarding the
transaction involving Lots 1731 and 1732.He likewise identified the
Special Audit Report he prepared after the investigation, as well as
the documents he had evaluated-- only those documents which were
attached to the endorsement letter from the COA Regional Director
and those on file with him as resident auditor of NMP.48 He also
testified that he informed the management of NMP regarding the
audit only after it was terminated. He admitted that he did not read or
ask for a copy of the minutes of the August 21, 1995 NMP Board of
Trustees meeting which the NMP Management cites as the source of
authority for entering the subject transaction. Atty. Basallaje opined
that it was incumbent upon the NMP management to support their
claim that proper authority existed so he did not ask for a copy.49
Emerita Gomez testified that she was assigned at the NMP as
auditor from the COA from November 17, 1985 until October 5, 2003.
In the course of her duties, she recalled having received documents
pertaining to the purchase of Lots 1731 and 1732. Said documents,
which she identified in court, are: (1) Disbursement Voucher No. 101-
9608-787 dated August 1, 1996 for partial payment to Glenn Solis of
the amount of P6,910,260 to which a Request for Obligation of
Allotments was attached; (2) a certified true copy of Check No.
0001584295 dated August 2, 1996 in the amount of P6,910,260 paid
to the order of Glenn B. Solis; (3) Contract to Sell; (4) Special Power
of Attorney executed by Teresita Jimenez-Trinidad in favor of Glenn
Solis; (5) Special Power of Attorney purportedly executed by Urbano
Jimenez, et al. in favor of Teresita Jimenez-Trinidad; (6) a certified
true copy of Disbursement Voucher No. 101-9612-1524 dated
December 27, 1996 for payment of parcels of land covered by TCT
Nos. 16356 and 35812 in the amount of P3,303,600 to Glenn Solis;
(7) a certified true copy of Check No. 001752005 dated December
27, 1996 in the amount of P3,303,600 paid to the order of Glenn
Solis; (8) a letter dated June 11, 1999 by Vice Consul Bello
addressed to Atty. Carlos Ortega, Assistant Solicitor
General; (9) TCT No. 16356 RT-1245 in the name of Eufrocina
Raqueno; (10) TCT No. T-35812 in the name of Francisco Jimenez;
and (11) Declaration of Real Property in the name of Eufrocina
Raqueño.
Gomez said she was the one who supplied the documents to Atty.
Basallaje when the latter conducted an audit investigation. Shewas
also tasked toen code the Special Audit Report. Gomez likewise
identified the signatures of petitioners Umipig, Fontanilla, Mabitad
and Palomo appearing on the disbursement vouchers and checks
she had previously identified, and claimed that she was familiar with
their signatures.50
On the other hand, petitioners testified on their respective defenses,
as follows:
Petitioner Palomo related the circumstances surrounding the
transaction involving Lots 1731 and 1732. He testified that his
authority for the negotiation and payment of earnest money to Glenn
Solis came from the Board of Trustees as reflected in the minutes of
its August 21, 1995 meeting.
He also admitted that it was Solis who prepared the Contract to Sell
and that he did not try to meet the owner of the property. When the
titles were presented to them, they believed that on their face value,
they were in order. Palomo also said that the adjoining lots were
being sold forP1,000 to P2,000 per square meter while the selling
price of the subject lots was onlyP350 per square meter. On cross-
examination, Palomo admitted that none of the registered owners are
signatories to the SPAs which Solis presented to him and that it was
only when they could not anymore contact Solis, after the latter
received the payments, that he panicked and tried to check if the
documents shown to him were proper and authentic. He further
disclosed that he did not consider Section 449 of the Government
Accounting and Auditing Manual, Volume I when he transacted with
Solis over the lots purchased by NMP.51
Petitioner Umipig testified on his duties as NMP Administrative
Officer and the circumstances relating to the payments made in
connection with the subject lots. He stated that by signing
Disbursement Voucher No. 101-9612-1524 dated December 27,
1996, it means that the correct procedure was followed and the
voucher was prepared, typed and supported by complete documents
as required. He likewise admitted that before he signed the voucher,
he presumed that everything was in order because said document
had already passed through several offices.
On cross-examination, Umipig said that he made objections, as
evidenced by a memorandum,to the payments made for the first
purchase but did not anymore object on the payments pertaining to
the second purchase because the Board of Trustees already gave a
go signal for their purchase. He also cited an alleged COA regulation
stating that if the subordinate objects in writing, he will be exonerated
if he is later proven correct.52
Petitioner Mabitad, meanwhile testified on her duties and
responsibilities as Accountant of NMP and identified several
documents pertaining to the subject lots. She stated that when she
signed Box B of the disbursement vouchers, she certified that funds
are available for the purpose and the supporting documents duly
certified in Box A are attached. Like Umipig, she also made
reservations but she only expressed them in those vouchers
pertaining to the first purchase. Mabitad cited Section 106 of the
Government Auditing Code of the Philippines (P.D. No. 1445) which
she claims relieves her from liability when she made her
reservations. She also testified that her only participation in the
subject transaction was to certify that the funds for it are available.
She likewise stated that she did not make any notations in the
disbursements for the second purchase because the first purchase
was successful and titles to the lots acquired have been registered in
the name of NMP.53
Petitioner Fontanilla-Payabyab, for her part, testified on her duties
and responsibilities as Budget Officer of NMP. She explained that as
budget officer, she is not required to sign vouchers. She nonetheless
signed Disbursement Voucher Nos. 101-9608-787 and 101-9612-
1524 for her own purpose because she was the one who followed up
the release of funds from the Department of Budget and
Management (DBM) so she can track the available cash balance of
NMP as it was her duty to follow up with the DBM the release of the
agency’s budget. She further clarified that her signature does not
have the effect of validating or invalidating the voucher. She also
claimed that even if she is Head of Finance, she cannot influence the
decisions of her subordinates like Mabitad because they have
specific jobs under the COA rules and under other laws.54
On January 4, 2006, the Fourth Division of the Sandiganbayan
issued the assailed decision, the fallo of which reads:
ACCORDINGLY, accused RENATO B. PALOMO, BENJAMIN
A. UMIPIG, MARGIE A. MABITAD and CARMENCITA
FONTANILLA-PAYABYAB, are found guilty beyond reasonable
doubt of having violated RA 3019, Sec. 3(e) and are sentenced to
suffer the indeterminate penalty of SIX (6) YEARS AND ONE (1)
MONTH AS MINIMUM AND NINE (9) YEARS AS MAXIMUM,
perpetual disqualification from public office, and to indemnify jointly
and severally the Government of the Republic of the Philippines in
the amount of EIGHT MILLION NINE HUNDRED TEN THOUSAND
AND TWO HUNDRED SIXTY PESOS (Php8,910,260).
Since the Court did not acquire jurisdiction over the person of
accused GLENN B. SOLIS and TERESITA JIMENEZ-TRINIDAD, let
the cases against them be, in the meantime, archived, the same to
be revived upon their arrest. Let an alias warrant of arrest be then
issued against accused GLENN B. SOLIS and TERESITA JIMENEZ-
TRINIDAD.
SO ORDERED.55
The Sandiganbayan’s Ruling
In convicting petitioners, the Sandiganbayan ruled that the evidence
on record clearly shows that petitioners acted with evident bad faith
and gross inexcusable negligence in entering into the Contract to Sell
dated August 1, 1996 with Solis and in disbursing the amount of
P8,910,260 for the second purchase. Said court held that petitioners
violated Section 449 of the Government Accounting and Auditing
Manual since the Contract to Sell does not suffice to prove that title is
vested in the Government and even contravenes the requirement
that proof of title must support the vouchers.
The Sandiganbayan faulted Palomo for breaking the law and acting
with evident bad faith when he entered into a deal that gave no
guarantee that ownership would be transferred to the Government
and that such was obviously disadvantageous to the government.
The other petitioners likewise violated the law when they signed the
disbursement vouchers in the absence of any document that would
prove ownership by the Government. The Sandiganbayan said
petitioners cannot claim that they only followed the terms of the
Contract to Sell because they also violated its provisions, the last
disbursement voucher for P2,000,000 having been issued without
legal basis. It pointed out that the Contract to Sell provided that a
down payment of
P6,910,260 must be given upon its signing and the payment of the
balance must be paid 15 days after receipt of several specified
documents. Petitioners, however, released a portion of the balance
even without receiving any of the said documents.
The Sandiganbayan further noted that despite being apprised of
Umipig’s reservations on the legality of the transactions with Solis,
petitioners deliberately proceeded to sign the disbursement vouchers
and made possible the release of the money to Solis. Petitioners thus
acted with gross inexcusable negligence when they did not verify the
authenticity of the SPAs executed by Solis and Trinidad, and
released the P2,000,000 for no valid reason.
The Sandiganbayan also ruled that the third element – undue injury
to the Government as well as giving unwarranted benefits to a private
party – was duly proven. Petitioners’ acts unmistakably resulted in
the Government’s loss of P8,910,260 when Solis disappeared after
receiving said amount and also gave Solis unwarranted benefits.
Finally, the Sandiganbayan held that the facts established conspiracy
among the petitioners because the unlawful disbursements could not
have been made had they not affixed their signatures on the
disbursement vouchers and checks. When petitioners thus signed
the vouchers, they made it appear that disbursements were valid
when, in fact, they were not. Since each of the petitioners contributed
to attain the end goal, it can be concluded that their acts, taken
collectively, satisfactorily prove the existence of conspiracy among
them.
The motions for reconsideration filed by Palomo, Payabyab and
Mabitad were denied by the Sandiganbayan in its Resolution dated
March 1, 2006. Umipig’s motion for reconsideration was likewise
denied under the Resolution dated January 30, 2006.
These consolidated petitions were filed by Umipig (G.R. No. 171359),
Payabyab (G.R. No. 171776), Palomo and Mabitad (G.R. No.
171755).
Petitioners’ Arguments
Petitioners question the application of Section 449 of
the Government Accounting and Auditing Manual as said provision
does not categorically say that disbursement vouchers for the
acquisition of land may not be signed unless title to the land is
already in the name of Republic of the Philippines, or unless there is
another document showing that title is already vested in the
Government. They argue that the provision rather contemplates a
situation where the evidence of ownership comes after the purchase
or when the transaction has been consummated. They likewise
contend that even if they were not charged under the Government
Accounting and Auditing Manual, it is the regulation on which the
finding of guilt was based and upon which they were held to have
acted with evident bad faith and gross inexcusable negligence.
Umipig, Palomo and Mabitad also assert that no law, rule or
regulation requires them to exercise a higher degree of diligence
other than that of a good father of the family. Umipig adds that while
his failure to repeat his reservations might be construed as an
omission of duties, such omission cannot by any stretch of
imagination be construed as negligence characterized by "the want
of even the slightest care," or "omitting to act in a situation where
there is a duty to act, not inadvertently but willfully and intentionally
…." He further contends that he treated the first purchase and the
subject contract as one single transaction as both were for one
expansion program of the NMP and the lands subject of said
acquisitions were contiguous. Thus, he did not see the need to
repeat his written reservations. He also argues that there is no
evidence that he and his co-petitioners acted in conspiracy as there
was no proof of a chain of circumstances showing that each acted as
a part of a complete whole.
Palomo and Mabitad, meanwhile assert that the SPAs in favor of
Solis and Trinidad appeared to be in order and Palomo had no
reason to doubt their authenticity. Accordingly, Palomo cannot be
considered negligent or in bad faith, and should instead be presumed
to have acted in good faith in the performance of his official duty. As
with Mabitad, it is argued that she signed the vouchers as Chief
Accountant whose signature is required by Section 86 of the State
Audit Code which concerns the certification of the proper accounting
official of the agency concerned that the funds have been duly
appropriated for the purpose and the amount necessary to cover the
proposed contract is available for expenditure and account thereof,
subject to verification by the auditor concerned. Thus in signing the
voucher, she merely certified as to the availability of funds which is a
ministerial duty on her part. She also cites Section 106 of
the Government Auditing Code of the Philippines since she made a
prior reservation on the vouchers pertaining to the first purchase.
Palomo and Mabitad further submit that they have no prior
knowledge of perceived infirmities contrary to what was found by the
Sandiganbayan, pointing out that in Umipig’s Memorandum, there
was no mention that the SPAs could possibly be fake. They contend
that it was the falsified SPAs that resulted in the filing of charges
against them so the determination of conspiracy should revolve
around the acts of falsification committed by Solis and Trinidad;
hence, it was petitioners who were the victims of said conspirators.
Finally, Fontanilla-Payabyab reiterates that her signature on the
subject vouchers was not a requirement for the disbursement as it
was only a tracking or monitoring entry on the current cash position
of NMP so that she can follow up the next cash allocation release
from the DBM. She insists that the disbursement could have been
made even without her signature. She also questions the finding of
gross negligence on her part since it was not within her competence
to determine the legality or illegality of a transaction. Further, she
argues that even assuming she was indeed negligent, such finding
precludes a ruling of conspiracy since the latter requires intentional
participation.
Our Ruling
Petitioners were charged with violation of Section 3(e) of R.A. No.
3019 or the Anti-Graft and Corrupt Practices Act, as amended, which
reads:
Section 3. Corrupt practices of public officers. – In addition to acts or
omissions of public officers already penalized by existing law, the
following shall constitute corrupt practices of any public officer and
are hereby declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the Government,
or giving any private party any unwarranted benefits, advantage or
preference in the discharge of his official administrative or judicial
functions through manifest partiality, evident bad faith or gross
inexcusable negligence. This provision shall apply to officers and
employees of offices or government corporations charged with the
grant of licenses or permits or other concessions.
xxxx
The essential elements of Section 3(e) of R.A.No. 3019, as
amended, are as follows:
1. The accused must be a public officer discharging
administrative, judicial or official functions;
2. He must have acted with manifest partiality, evident bad
faith or gross inexcusable negligence; and
3. His action caused any undue injury to any party,
including the government, or gave any private party
unwarranted benefits, advantage or preference in the
discharge of his functions.56
The Court finds it no longer necessary to discuss at length the first
element as it is not disputed, having been stipulated by the parties
during pre-trial that during the material time and date alleged in the
Information, Palomo was the Executive Director, Umipig was the
Administrative Officer, Mabitad was Chief Accountant and Fontanilla-
Payabyab was the Budget Officer of NMP.The third element of undue
injury to the Government is likewise a non-issue since it was likewise
stipulated during pre-trial that after payments totaling P8,910,260
were made to Solis for the subject lots, the latter disappeared and
the SPAs he showed to NMP were found to be fake. Clearly, this is a
quantifiable loss for the Government since NMP was not able to
acquire title over the subject lots. Thus, the controversy lies in the
second element of the crime charged.
Palomoacted with evident bad faithand gross inexcusable
negligence;Umipig and Mabitad were grosslynegligent in the
performance of their duties
The second element provides the different modes by which the crime
may be committed, that is, through "manifest partiality," "evident bad
faith," or "gross inexcusable negligence." There is "manifest
partiality" when there is a clear, notorious, or plain inclination or
predilection to favor one side or person rather than
another.57 "Evident bad faith" connotes not only bad judgment but
also palpably and patently fraudulent and dishonest purpose to do
moral obliquity or conscious wrongdoing for some perverse motive or
ill will.58 "Evident bad faith" contemplates a state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill
will or for ulterior purposes.59"Gross inexcusable negligence" refers to
negligence characterized by the want of even the slightest care,
acting or omitting to act in a situation where there is a duty to act, not
inadvertently but willfully and intentionally, with conscious
indifference to consequences insofar as other persons may be
affected.60 These three modes are distinct and different from each
other. Proof of the existence of any of these modes would suffice.61
We sustain the Sandiganbayan’s finding of evident bad faith on the
part of Palomo who had no authority to effect substantial payments --
P8,910,260.00 out of the total consideration of P11,517,100.00 -- for
the lots to be purchased by NMP. The Minutes of the NMP Board
meeting of August 21, 1995, which was cited by Palomo, states:
The chairman after consulting the members of the board indicated
that the presentation was approved in principle. The chairman
indicated that Mr. Palomo is authorized to start negotiations for the
acquisition of the site in Cavite and if necessary to pay the earnest
money.62
Article 1482 of the Civil Code states that: "Whenever earnest money
is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract." The earnest
money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. Hence, there
must first be a perfected contract of sale before we can speak of
earnest money.63
Palomo requested for the release of down payment in the amount of
P6,910,260.00 notwithstanding that no contract of sale had yet been
consummated, as only a contract to sell was executed by the
supposed attorney-in-fact of the vendors, Solis. As earlier mentioned,
the Contract to Sell over Lots 1731 and 1732 stipulated that the
balance of the total consideration is to be paid 15 days after receipt
of the approved "extra-judicial partition of Estate, location plan,
reconstitution of owner’s copy and signing of the Deed of Sale." This
clearly indicates that the parties agreed to execute the contract of
sale only after the full payment of the purchase price by the buyer
and the corresponding submission by the seller of the documents
necessary for the transfer of registration of the lots sold. We have
held that where the vendor promises to execute a deed of absolute
sale upon the completion by the vendee of the payment of the price,
the contract is only a contract to sell. Such stipulation shows that the
vendor reserved title to the subject property until full payment of the
purchase price.64
There being no perfected contract of sale, Palomo had no authority
to effect substantial payments for the second purchase. That partial
payments on the first purchase was similarly made upon a mere
contract to sell, is of no moment; it must be noted that such contract
to sell (first purchase) eventually ripened into a consummated sale
and titles over Lots 1730-C and 1730-D have been actually
transferred in the name of NMP. The second purchase transaction,
however, was not consummated despite the unauthorized down
payment of P6,910,260.00. Even worse, funds were disbursed to pay
for the balance despite non-receipt of the specified transfer
documents.
Evident bad faith connotes a manifest deliberate intent on the part of
the accused to do wrong or cause damage.65Mere bad faith or
partiality and negligence per se are not enough for one to be held
liable under the law since the act of bad faith or partiality must in the
first place be evident or manifest, respectively, while the negligent
deed should both be gross and inexcusable.66 Negligence consists in
the disregard of some duty imposed by law; a failure to comply with
some duty of care owed by one to another.67 Negligence is want of
care required by the circumstances. It is a relative or comparative,
not an absolute term and its application depends upon the situation
of the parties, and the degree of care and vigilance which the
circumstances reasonably impose.68
Palomo’s bad faith was evident not only in the disbursement of
substantial payment upon a mere contract to sell -- whereas the NMP
Board granted him express authority only to start negotiations and
pay earnest money if needed -- but also in the disbursement of
P1,000,000.00 partial balance despite non-submission by Solis of the
specified transfer documents.
As correctly observed by the Sandiganbayan, Palomo failed to give a
satisfactory explanation on the matter during cross-examination,
thus:
PROS. CORESIS
Q In the contract to sell which I have shown to you earlier it is stated
here that the balance is to be paid fifteen (15) days upon receipt of
the approved extra judicial partition of the estate, location plan,
reconstitution of owner’s copy and signing of the deed of sale, do you
confirm this?
A Yes, sir.
Q At the time that you paid the second payment which was
amounting to P3 million and part of that was for the contract to
sell, there was no deed of sale executed by Glenn B. Solis in
favor of National Maritime Polytechnic, am I correct? On
December 27 there was none?
A I cannot recall.
Q You cannot recall because there was in fact none, am I
correct?
A It could be, sir.
xxxx
Q And the balance is supposed to be paid 15 days upon receipt of
the extra-judicial partition and the signing of the deed of sale, is that
correct?
A Yes, sir.69 (Emphasis supplied.)
Palomo also committed gross inexcusable negligence in failing to
protect the interest of the government in causing the release of
substantial sums to Solis despite legal infirmities in the documents
presented by the said broker. He cannot seek exoneration by arguing
that he merely followed the stipulated terms of payment in the
contract to sell. Applicable provisions of existing laws are deemed
written and incorporated in every government contract, hence it is the
contractual stipulations which must conform to and not contravene
the law and not the other way around. By entering into a contract that
does not guarantee the transfer of ownership to the Government,
petitioner violated Sec. 449 of the Government Accounting and
Auditing Manual (GAAM) which provides:
Section 449. Purchase of land. – Land purchased by agencies of the
Government shall be evidenced by a Torrens Title drawn in the name
of the Republic of the Philippines, or such other document
satisfactory to the President of the Philippines that the title is vested
in the Government.
These titles and documents shall accompany the vouchers covering
the purchase of land, after which they shall be forwarded to the
Records Management and Archives Office.
The above rule requires public officers authorized to transact with
private landowners not only to ensure that lands to be purchased by
Government are covered by a Torrens title, but also that the sellers
are the registered owners or their duly authorized representatives.
For otherwise, there can be no assurance that title would be vested
in the Government by virtue of the purchase. Thus, while the
provision does not require a title already issued in the name of the
Government at the time of the actual purchase, accountable officers
should, at the very least, exercise such reasonable diligence so that
the titles and documents accompanying the vouchers are genuine
and authentic, and the private parties to the contract had the legal
right to transmit ownership of the land being bought by the
Government. In accordance with sound accounting rules and practice
therefore, it is mandatory for such purchase of land by the
government agency or instrumentality to be evidenced by a Torrens
title in the name of the Government, or such other document that is
satisfactory to the President of the Philippines, to show that the title is
vested in the Government.
Petitioners’ act of disbursing funds in the absence of documents
sufficient to vest title in NMP, the government instrumentality buying
the subject lots, failed to comply with the above statutory
requirement. The authenticity of the SPAs supposedly showing the
authority of the alleged attorney-in-fact, Jimenez-Trinidad, and the
latter’s sub-agent, Solis, had not been properly verified. The
purchase by NMP, which already made substantial or almost full
payment of the price, was evidenced only by a contract to sell
executed by Solis who was later discovered lacking authority to do
so, the SPA in favor of Jimenez-Trinidad being a fake document.
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.70 In this case, Palomo dealt with Solis who was a mere
sub-agent of the alleged attorney-in-fact of the registered owners, a
certain Jimenez-Trinidad, under an SPA which was notarized abroad.
At the very least, therefore, Palomo should have exercised
reasonable diligence by ascertaining such fact of agency and sub-
agency, knowing that he is dealing with a mere broker and not the
registered owners themselves who are residents of a foreign country.
As noted by the Sandiganbayan, it took only a letter-query sent by
the OSG to Consul Bello to verify the authenticity of the SPA
document shown by Solis, purportedly executed by the registered
owners in favor of Jimenez-Trinidad who in turn executed another
SPA in favor of Solis. This was the prudent course for Palomo
considering that in the first purchase transaction, Umipig had already
noted legal infirmities in the documents presented by Solis. It must
also be stressed that at the time Palomo transacted again with Solis
for the second purchase in April 1996, the first purchase had not yet
resulted in the transfer of title to NMP of Lots 1730-C and 1730-D
which took place only later in the year 2000. As it turned out, the SPA
for Jimenez-Trinidad presented by Solis was found to be fake.
Palomo was indeed grossly negligent in failing to verify the authority
of the alleged attorney-in-fact, Jimenez-Trinidad, and simply relied on
the representations of Solis who was not directly authorized by the
registered owners.
We also concur with the Sandiganbayan’s finding that Umipig and
Mabitad are guilty of gross inexcusable negligence in the
performance of their duties.
The GAAM provides for the basic requirements applicable to all
classes of disbursements that shall be complied with,71 to wit:
a) Certificate of Availability of Fund.–Existence of lawful
appropriation, the unexpended balance of which, free from
other obligations, is sufficient to cover the expenditure,
certified as available by an accounting officer or any other
official required to accomplish the certificate.
Use of moneys appropriated solely for the specific purpose
for which appropriated, and for no other, except when
authorized by law or by a corresponding appropriating
body.
b) Approval of claim or expenditure by head of office or his
duly authorized representative.
c) Documents to establish validity of claim. – Submission of
documents and other evidences to establish the validity
and correctness of the claim for payment.
d) Conformity of the expenditure to existing laws and
regulations.
e) Proper accounting treatment.72
Pursuant to COA Circular No. 92-38973 dated November 3, 1992, Box
A shall be signed by "the responsible Officer having direct
supervision and knowledge of the facts of the transaction."74
Umipig, as signatory to Box A of Disbursement Voucher Nos. 101-
9608-787 and 101-9612-1524 caused the release of P8,910,260 to
Solis, certifying that "Expenses, Cash Advance necessary, lawful and
incurred under his direct supervision." By making such certification,
Umipig atteststo the transactions’ legality and regularity, which
signifies that he had checked all the supporting documents before
affixing his signature. If he had indeed exercised reasonable
diligence, he should have known that Palomo exceeded the authority
granted to him by the Board, and that the
SPAs presented by Solis needed further verification as to its
authenticity since his authority to sell was given not by the registered
owners themselves but by another person (Jimenez-Trinidad)
claiming to be the attorney-in-fact of the owners.
Had Umipig made the proper inquiries, NMP would have discovered
earlier that the SPA in favor of Jimenez-Trinidad was fake and the
unlawful disbursement of the P8,910,260 would have been
prevented. Such nonchalant stance of Umipig who admitted to have
simply presumed everything to be in order in the second purchase
and failed to scrutinize the documents presented by Solis in violation
of the accounting rules including Sec. 449 of the GAAM, constitutes
gross negligence. His reliance on the earlier written
reservations/objections he submitted to Palomo during the first
purchase will not excuse his negligent acts. The second purchase
was a separate and distinct transaction from the first purchase,
involving different parcels of land and registered owners. The
infirmities he had already observed in the first purchase should have
made Umipig more circumspect in giving his approval for the
disbursements in the second purchase. Additionally, the limited
authority granted by the NMP Board to Palomo should have impelled
Umipig to be more prudent in the second purchase, as it might
expose the government to even greater damage or loss if the
expenditure is later proved to have no legal basis.
As for Mabitad, she signed Box Battesting that "adequate available
funds/budgetary allotment in the amount x x x; expenditure properly
certified; supported by documents marked (x) per checklist x x x;
account codes proper; previous cash advance liquidated/accounted
for." Box B is accomplished by the Accountant or other equivalent
officials in the government-owned or controlled corporation.75
At the trial, Mabitad affirmed that her signature in Box B means that
the expenditure is certified. She however admitted having merely
relied on Umipig’s certification that the transactions were legal.
Mabitad further asserted that with respect to disbursement vouchers,
her responsibilities are merely certifying that funds are available for
the purpose and check if the supporting documents which were duly
certified in Box A are attached to the voucher. But contrary to her
statement suggesting that her act of signing the disbursement
voucher was ministerial, as signatory to the said document she is not
precluded from raising questions on the legality or regularity of the
transaction involved, thus:
3. Document Checklist at the Back of the Voucher
The checklist at the back of the voucher enumerates the mandatory
minimum supporting documents for the selected transactions.
It should be clear, however, that the submission of the supporting
documents enumerated under each type of transaction does not
preclude reasonable questions on the funding, legality, regularity,
necessity or economy of the expenditure or transaction. Such
questions may be raised by any of the signatories to the
voucher.
The demand for additional documents or equivalents should be in
writing. A blank space is provided for additional requirements, if any,
and if authorized by any law or regulation. If the space is insufficient,
separate check may be used and attached to the
voucher.76 (Emphasis supplied.)
It bears stressing that Umipig and Mabitad are accountable officers,
the nature of their accountability under the Government Auditing
Code of the Philippines (P.D. No. 1445) was described as follows:
Accountable. (a) Having responsibility or liability for cash or other
property held in trust or under some other relationship with another.
(b) government accounting Personally liable for improper
payments; said of a certifying or disbursing officer. (c) Requiring
entry on the books of account; said of a transaction not yet recorded,
often with reference to its timing. (d) Responsible.
Accountable officer. An officer who, by reason of the duties of his
office, is accountable for public funds or property.77 (Emphasis and
underscoring supplied.)
As such accountable officers, Umipig and Mabitad are cognizant of
the requirement in Sec. 449 of the GAAM that purchase of land shall
be evidenced by titles or such document of transfer ofownership in
favor of the government. The Court cannot uphold their own
interpretation of said provision which would require evidence of title
or transfer of ownership to Government merely for archiving and
recording purposes, as the requirement is intended to protect the
interest of the government. By approving the release of payment
under disbursement vouchers supported only by a contract to sell
executed by a mere sub-agent, Umipig and Mabitag committed gross
negligence resulting in the loss of millions of pesos paid to a bogus
land broker. The Sandiganbayan therefore did not err in convicting
them under Section 3 (e) of R.A. No. 3019.
Umipig and Mabitad nevertheless tried to seek refuge in Sec. 106 of
P.D. No. 1445 or the Government Auditing Code of the Philippines,
which provides:
Section 106.Liability for acts done by direction of superior officer. –
Noaccountable officer shall be relieved from liability by reason of his
having acted under the direction of a superior officer in paying out,
applying, or disposing of the funds or property with which he is
chargeable, unless prior to that act, he notified the superior officer in
writing of the illegality of the payment, application, or disposition. The
officer directing any illegal payment or disposition of the funds or
property shall be primarily liable for the loss, while the accountable
officer who fails to serve the required notice shall be secondarily
liable.
But as already explained, the written reservations made by Umipig
and Mabitad were done only for the first purchase and not the
second purchase subject of this case. There was clearly no written
notice to Palomo regarding their questions on the legality of
payments for the second purchase, either in the voucher itself or in a
separate letter/memorandum. Umipig’s defense that he had treated
the first and second purchases as a single transaction and thus his
previous written objections still stand, deserves scant consideration.
His certification as the accountable officer having knowledge of facts
of the subject transaction is required each time a disbursement
voucher is processed. The reason is that an accountable officer is
charged with due diligence to ensure that every expenditure is
justified and followed the proper procedure.
The negligent acts of Palomo, Umipig and Mabitad thus rendered
them personally liable for the loss incurred by the Government in the
failed transaction, in accordance with Section 105 of P.D. No. 1445
which provides that "every officer accountable for government funds
shall be liable for all losses resulting from the unlawful deposit, use,
or application thereof and for all losses attributable to negligence in
the keeping of the funds."
Conspiracy Proven
In Alvizo v. Sandiganbayan,78 this Court said:
Direct proof is not essential to show conspiracy. It need not be shown
that the parties actually came together and agreed in express terms
to enter into and pursue a common design. The existence of the
assent of minds which is involved in a conspiracy may be, and from
the secrecy of the crime, usually must be, inferred by the court from
proof of facts and circumstances which, taken together, apparently
indicate that they are merely parts of some complete whole. If it is
proved that two or more persons aimed by their acts towards the
accomplishment of the same unlawful object, each doing a part so
that their acts, though apparently independent, were in fact
connected and cooperative, indicating a closeness of personal
association and a concurrence of sentiments, then a conspiracy may
be inferred though no actual meeting among them to concert means
is proved. Thus, the proof of conspiracy, which is essentially
hatched under cover and out of view of others than those directly
concerned, is perhaps most frequently made by evidence of a
chain of circumstances only. (Emphasis supplied.)
Although a conspiracy may be deduced from the mode and manner
by which the offense was perpetrated, it must, like the crime itself, be
proven beyond reasonable doubt.79 Mere knowledge, acquiescence
or approval is not enough without a showing that the participation
was intentional and with a view of furthering a common criminal
design or purpose.80
In this case, the evidence on record clearly supports the finding of
conspiracy among petitioners Umipig, Mabitad and Palomo who all
authorized the payments on the second purchase in utter disregard
of the requirement in Section 449 of the GAAM, and with gross
negligence in failing to ascertain the authority of Solis to sell the
same. The damage or injury to the government would have been
prevented, had Umipig, Mabitad and Palomo exercised reasonable
diligence in transacting with Solis and examining the supporting
documents before approving the disbursements in payment of the
purchase price of Lots 1731 and 1732.Indeed, the fraudulent
transaction would not have succeeded without the cooperation of all
the petitioners whose signatures on the corresponding vouchers
made possible the release of payments to Solis despite legal
infirmities in the supporting documents he submitted.
Umipig and Mabitad deliberately disregarded the rules, the limited gross inexcusable negligence and evident bad faith, petitioners
authority granted by the NMP Board to Palomo, and the fact that Palomo, Mabitad and Umipig are thus liable to restitute the amount of
Solis had earlier submitted questionable documents in the first P8,910,260 that was paid to Solis.
purchase. Umipig and Mabitad cannot justify their laxity in the second
purchase simply because the first sale of Lots 1730-C and 1730-D WHEREFORE, the Decisiondated January 4, 2006 and Resolutions
was eventually consummated and titles thereto had been transferred dated January 30, 2006 and March 1, 2006 of the Sandiganbayan,
to NMP. It must be noted that NMP secured titles to the said lots Fourth Division in Criminal Case No. 27477 are hereby AFFIRMED
under the first purchase only in November 2000, long after Umipig with MODIFICATION. The conviction of petitioners Benjamin A.
and Mabitad gave their approval for subsequent disbursements for Umipig, Margie C. Mabitad and Renato B. Palomo under Section 3
Lots 1731 and 1732 for which Solis submitted a fake SPA. Their (e) of R.A. No. 3019 is UPHELD while the conviction of petitioner
participation thus went beyond mere knowledge and acquiescence to Carmencita Fontanilla-Payabyab is REVERSED as she is hereby
the illegal disbursements in the second purchase. Umipig and ACQUITTED of the said charge.
Mabitad even signed as instrumental witnesses in the Contract to
Sell covering Lots 1731 and 1732.
With costs against petitioners Benjamin A. Umipig in G.R. No.
171359 and Renato B. Palomo and Margie C. Mabitad in G.R. No.
Umipig and Mabitad further authorized the release of partial balance 171755. Costs de ojicio in G.R. No. 171776.
in the amount of P1,000,000.00 also approved by Palomo,
notwithstanding that the required transfer documents were not
SO ORDERED.
submitted by Solis as stipulated in the Contract to Sell. Hence, aside
from causing damage or injury to the Government, Umipig, Palomo
and Mabitad also gave unwarranted benefits to Solis who --
assuming he had the requisite authority from the owners to sell Lots
1731 and 1732 – had no right to receive any portion of the balance
until his submission of the required transfer documents to the buyer,
NMP.

Fontanilla-Payabyab not liable under Sec. 3 (e) of R.A. No. 3019

As to Fontanilla-Payabyab, her signature appears on the questioned

vouchers above her name which was stamped on the vouchers
together with the statement "FUND AVAILABILITY," and not in Boxes
A, B or C. Such signature, however, neither validates nor invalidates
the vouchers and this was not disputed by Mabitad who testified that
Fontanilla-Payabyab’s signature as budget officer on the
disbursement vouchers is not considered part of standard operating
procedure.

Although Fontanilla-Payabyab was the Head of Finance with Mabitad

as one of her subordinates, the prosecution failed to establish that
her responsibilities include reviewing her subordinate’s certifications
in disbursement vouchers.As Fontanilla-Payabyab’s signature on the
voucher was a mere superfluity, it is unnecessary for this Court to
make a determination of negligence on her part. Her purpose in
doing so, i.e., to monitor the budget allocated and utilized/disbursed,
is likewise immaterial considering that her act of signing the voucher
did not directly cause the damage or injury. Consequently, there is no
basis to hold her liable under Section 3 (e) of R.A. No. 3019.

Penalty for Violation of Section 3 (e), R.A. No. 3019

The penalty for violation of Section 3(e) of R.A. No. 3019 is

"imprisonment for not less than six years and one month nor more
than fifteen years, and perpetual disqualification from public office.
"Under the Indeterminate Sentence Law, if the offense is punishable
by a special law, as in the present case, an indeterminate penalty
shall be imposed on the accused, the maximum term of which shall
not exceed the maximum fixed by the law, and the minimum not less
than the minimum prescribed therein.

There being no aggravating and mitigating circumstances in this

case, the Sandiganbayan correctly imposed the indeterminate prison
term of six (6) years and one (1) month, as minimum, to ten (10)
years and one (1) day, as maximum, with perpetual disqualification
from public office.

Civil Liability

An offense as a general rule causes two classes of injuries: the first

is the social injury produced by the criminal act which is sought to be
repaired through the imposition of the corresponding penalty, and the
second is the personal injury caused to the victim of the crime, which
injury is sought to be compensated through indemnity, which is civil
in nature.81 Having caused injury or loss to the Government by their
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS
and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 1994[1], which
affirmed in toto the decision handed down by the Regional Trial Court
(RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent
Aurora Queao (Queao) filed a complaint before the Pasay City RTC
for cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgagevoid, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queao Associated Bank Check
No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat
by the Corporate Resources Financing Corporation. She also issued
her own Filmanbank Check No. 065314, to the order of Queao, also
dated 11 August 1980 and for the amount of Ninety Five Thousand
Pesos (P95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered
to the latter the owners duplicates of the titles covering the
mortgaged properties.[4] On the same day, the mortgage deed was
notarized, and Queao issued to Naguiat a promissory note for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00),
with interest at 12% per annum, payable on 11 September
1980.[5] Queao also issued a Security Bank and Trust Company
check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the
order of Naguiat.
Upon presentment on its maturity date, the Security Bank
check was dishonored for insufficiency of funds. On the following
day, 12 September 1980, Queao requested Security Bank to stop
payment of her postdated check, but the bank rejected the request
pursuant to its policy not to honor such requests if the check is drawn
against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter, Queao
and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of
the loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the
mortgage with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queao filed the case before the Pasay City
RTC,[8] seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring
the Deed of Real Estate Mortgage null and void, and ordering
Naguiat to return to Queao the owners duplicates of her titles to the
mortgaged lots.[10] Naguiat appealed the decision before the Court of
Appeals, making no less than eleven assignments of error. The Court
of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queao had actually
received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding
effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by
Naguiat involves the determination of facts, a function which this
Court does not exercise in an appeal by certiorari. Under Rule 45
which governs appeal by certiorari, only questions of law may be
raised[12] as the Supreme Court is not a trier of facts.[13] The
resolution of factual issues is the function of lower courts, whose
findings on these matters are received with respect and are in fact
generally binding on the Supreme Court.[14] A question of law which
the Court may pass upon must not involve an examination of the
probative value of the evidence presented by the litigants.[15] There is
a question of law in a given case when the doubt or difference arises
as to what the law is on a certain state of facts; there is a question of
fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts.[17] But
Naguiats case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are
supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat
vigorously insists that Queao received the loan
proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of
Appeals, however, is correct in ruling that the presumption of
truthfulness of the recitals in a public document was defeated by the
clear and convincing evidence in this case that pointed to the
absence of consideration.[18] This Court has held that the
presumption of truthfulness engendered by notarized documents is
rebuttable, yielding as it does to clear and convincing evidence to the
contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. For the Civil Code
provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only
when they have been cashed.[20] It is only after the checks have
produced the effect of payment that the contract of loan may be
deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the object
of the contract.
A loan contract is a real contract, not consensual, and, as such,
is perfected only upon the delivery of the object of the contract.[21] In
this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the
pertinent bank records. Since Naguiat presented no such proof, it
follows that the checks were not encashed or credited to Queaos
account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they could
not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the
rule.[22] Still, Naguiat insists that Ruebenfeldt was not her agent.
 Suffice to say, however, the existence of an agency
relationship between Naguiat and Ruebenfeldt is supported by ample
evidence. As correctly pointed out by the Court of Appeals,
Ruebenfeldt was not a stranger or an unauthorized person. Naguiat
instructed Ruebenfeldt to withhold from Queao the checks she
issued or indorsed to Queao, pending delivery by the latter of
additional collateral. Ruebenfeldt served as agent of Naguiat on the
loan application of Queaos friend, Marilou Farralese, and it was in
connection with that transaction that Queao came to know
Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her
meeting with Naguiat and on that occasion, on her own and without
Queao asking for it, Reubenfeldt actually drew a check for the sum
of P220,000.00 payable to Naguiat, to cover for Queaos alleged
liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency
by estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaos impression. In that situation, the rule is clear. 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.[27] The Court of
Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship
between Naguiat and Ruebenfeldt is irrelevant in the face of the fact
that the checks issued or indorsed to Queao were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of
the courts a quo that the lender did not remit and the borrower did
not receive the proceeds of the loan. That being the case, it follows
that the mortgage which is supposed to secure the loan is null and
void. The consideration of the mortgage contract is the same as that
of the principal contract from which it receives life, and without which
it cannot exist as an independent contract.[28] A mortgage contract
being a mere accessory contract, its validity would depend on the
validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision
is affirmed. Costs against petitioner.
SO ORDERED.
 3. ABS Corporation shall hold PAGCOR
YUN KWAN BYUNG, G.R. No. 163553 absolutely free and harmless from any damage, claim or liability
Petitioner, which may arise from any cause in connection with the Junket
Present: Agreement.
5. In providing the gaming facilities and services to these foreign
CARPIO, J., Chairperson, players, PAGCOR is entitled to receive from ABS Corporation a
CARPIO MORALES,* 12.5% share in the gross winnings of ABS Corporation or 1.5 million
- versus - LEONARDO-DE CASTRO,** US dollars, whichever is higher, over a playing period of 6 months.
DEL CASTILLO, and PAGCOR has the option to extend the period.[6]
ABAD, JJ.
Petitioner, a Korean national, alleges that from November 1996 to
PHILIPPINE AMUSEMENT AND March 1997, he came to the Philippines four times to play for high
GAMING CORPORATION, Promulgated: stakes at the Casino Filipino.[7]Petitioner claims that in the course of
Respondent. the games, he was able to accumulate gambling chips worth US$2.1
December 11, 2009 million. Petitioner presented as evidence during the trial gambling
chips with a face value of US$1.1 million. Petitioner contends that
when he presented the gambling chips for encashment with
PAGCORs employees or agents, PAGCOR refused to redeem
them.[8]
x------------------------------------------------- Petitioner brought an action against PAGCOR seeking the
--x redemption of gambling chips valued at US$2.1 million. Petitioner
claims that he won the gambling chips at the Casino Filipino, playing
continuously day and night. Petitioner alleges that every time he
DECISION would come to Manila, PAGCOR would extend to him amenities
deserving of a high roller. A PAGCOR official who meets him at the
CARPIO, J.: airport would bring him to Casino Filipino, a casino managed and
operated by PAGCOR. The card dealers were all PAGCOR
employees, the gambling chips, equipment and furnitures belonged
The Case to PAGCOR, and PAGCOR enforced all the regulations dealing with
the operation of foreign exchange gambling pits. Petitioner states
Yun Kwan Byung (petitioner) filed this Petition for Review [1]assailing that he was able to redeem his gambling chips with the cashier
the Court of Appeals Decision[2]dated 27 May 2003 in CA-G.R. during his first few winning trips. But later on, the casino cashier
CV No. 65699 as well as the Resolution[3]dated 7 May 2004 denying refused to encash his gambling chips so he had no recourse but to
the Motion for Reconsideration. In the assailed decision, the Court of deposit his gambling chips at the Grand Boulevard Hotels deposit
Appeals (CA) affirmed the Regional Trial Courts Decision[4]dated 6 box, every time he departed from Manila.[9]
May 1999. The Regional Trial Court of Manila, Branch 13 (trial court),
dismissed petitioners demand against respondent Philippine PAGCOR claims that petitioner, who was brought into the Philippines
Amusement and Gaming Corporation (PAGCOR) for the redemption by ABS Corporation, is a junket player who played in the dollar pit
of gambling chips. exclusively leased by ABS Corporation for its junket players.
PAGCOR alleges that it provided ABS Corporation with distinct
The Facts junket chips. ABS Corporation distributed these chips to its junket
players. At the end of each playing period, the junket players would
PAGCOR is a government-owned and controlled corporation tasked surrender the chips to ABS Corporation. Only ABS Corporation
to establish and operate gambling clubs and casinos as a means to would make an accounting of these chips to PAGCORs casino
promote tourism and generate sources of revenue for the treasury.[10]
government. To achieve these objectives, PAGCOR is vested with
the power to enter into contracts of every kind and for any lawful As additional information for the junket players playing in the gaming
purpose that pertains to its business. Pursuant to this authority, room leased to ABS Corporation, PAGCOR posted a notice written in
PAGCOR launched its Foreign Highroller Marketing Program English and Korean languages which reads:
(Program). The Program aims to invite patrons from foreign countries
to play at the dollar pit of designated PAGCOR-operated casinos NOTICE
under specified terms and conditions and in accordance with industry This GAMING ROOM is exclusively operated by ABS under
practice.[5] arrangement with PAGCOR, the former is solely accountable for all
PLAYING CHIPS wagered on the tables. Any
The Korean-based ABS Corporation was one of the international financial ARRANGEMENT/TRANSACTION between PLAYERS and
groups that availed of the Program. In a letter-agreement dated 25 ABS shall only be binding upon said PLAYERS and ABS. [11]
April 1996 (Junket Agreement), ABS Corporation agreed to bring in
foreign players to play at the five designated gaming tables of the PAGCOR claims that this notice is a standard precautionary
Casino Filipino Silahis at the Grand Boulevard Hotel in Manila measure[12]to avoid confusion between junket players of ABS
(Casino Filipino). The relevant stipulations of the Junket Agreement Corporation and PAGCORs players.
state:
PAGCOR argues that petitioner is not a PAGCOR player because
1. PAGCOR will provide ABS under PAGCORs gaming rules, gambling chips cannot be brought
Corporation with separate junket chips. The junket chips will be outside the casino. The gambling chips must be converted to cash at
distinguished from the chips being used by other players in the the end of every gaming period as they are inventoried every shift.
gaming tables. Under PAGCORs rules, it is impossible for PAGCOR players to
ABS Corporation will distribute these junket chips to its players and accumulate two million dollars worth of gambling chips and to bring
at the end of the playing period, ABS Corporation will collect the the chips out of the casino premises.[13]
junket chips from its players and make an accounting to the casino Since PAGCOR disclaimed liability for the winnings of players
treasury. recruited by ABS Corporation and refused to encash the gambling
2. ABS Corporation will assume sole chips, petitioner filed a complaint for a sum of money before the trial
responsibility to pay the winnings of its foreign players and settle the court.[14]PAGCOR filed a counterclaim against petitioner. Then, trial
collectibles from losing players. ensued.
On 6 May 1999, the trial court dismissed the complaint and
counterclaim. Petitioner appealed the trial courts decision to the CA.
On 27 May 2003, the CA affirmed the appealed decision. On 27 June
2003, petitioner moved for reconsideration which was denied on 7
May 2004.
Aggrieved by the CAs decision and resolution, petitioner elevated the
case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs charter,[15]PAGCOR
has no authority to lease any portion of the gambling tables to a
private party like ABS Corporation. Section 13 of Presidential Decree
No. 1869 or the PAGCORs charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies The Corporation
shall have the right and authority, solely and exclusively in
connection with the operations of the casino(s), to purchase, receive,
exchange and disburse foreign exchange, subject to the following
terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up
solely and exclusively for players and patrons utilizing foreign
currencies;
(b) The Corporation shall appoint and designate a duly accredited
commercial bank agent of the Central Bank, to handle, administer
and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for
the employees of the designated bank, agent of the Central Bank,
where the Corporation shall maintain a dollar account which will be
utilized exclusively for the above purpose and the casino dollar
treasury employees;
(d) Only persons with foreign passports or certificates of identity (for
Hong Kong patron only) duly issued by the government or country of
their residence will be allowed to play in the foreign exchange
gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine
International Reserve and the following foreign exchange currencies:
Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be used
in this gaming pit;
(f) The disbursement, administration, management and recording of
foreign exchange currencies used in the casino(s) shall be carried
out in accordance with existing foreign exchange regulations, and
periodical reports of the transactions in such foreign exchange
currencies by the Corporation shall be duly recorded and reported to
the Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations
for the guidance and information of players qualified to participate in
the foreign exchange gaming pit, in order to make certain that the
terms and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in
its gaming tables. When PAGCOR accepted only a fixed portion of
the dollar earnings of ABS Corporation in the concept of a lease of
facilities, PAGCOR shared its franchise with ABS Corporation in
violation of the PAGCORs charter. Hence, the Junket Agreement is
void. Since the Junket Agreement is not permitted by PAGCORs
charter, the mutual rights and obligations of the parties to this case
would be resolved based on agency and estoppel.[16]
The trial court found that the petitioner wanted to redeem gambling
chips that were specifically used by ABS Corporation at its gaming
tables. The gambling chips come in distinctive orange or yellow
colors with stickers bearing denominations of 10,000 or 1,000. The
1,000 gambling chips are smaller in size and the words no cash
value marked on them. The 10,000 gambling chips do not reflect the
no cash value sign. The senior treasury head of PAGCOR testified
that these were the gambling chips used by the previous junket
operators and PAGCOR merely continued using them. However, the
gambling chips used in the regular casino games were of a different
quality.[17]
The trial court pointed out that PAGCOR had taken steps to warn
players brought in by all junket operators, including ABS Corporation,
that they were playing under special rules. Apart from the different
kinds of gambling chips used, the junket players were confined to
certain gaming rooms. In these rooms, notices were posted that
gambling chips could only be encashed there and nowhere else. A
photograph of one such notice, printed in Korean and English, stated
that the gaming room was exclusively operated by ABS Corporation
and that ABS Corporation was solely accountable for all the chips
wagered on the gaming tables. Although petitioner denied seeing this
notice, this disclaimer has the effect of a negative evidence that can
hardly prevail against the positive assertions of PAGCOR officials
whose credibility is also not open to doubt. The trial court concluded
that petitioner had been alerted to the existence of these special
gambling rules, and the mere fact that he continued to play under the
same restrictions over a period of several months confirms his
acquiescence to them. Otherwise, petitioner could have simply chose
to stop gambling.[18]
In dismissing petitioners complaint, the trial court concluded that
petitioners demand against PAGCOR for the redemption of the
gambling chips could not stand. The trial court stated that petitioner,
a stranger to the agreement between PAGCOR and ABS
Corporation, could not under principles of equity be charged with
notice other than of the apparent authority with which PAGCOR had
clothed its employees and agents in dealing with petitioner. Since
petitioner was made aware of the special rules by which he was
playing at the Casino Filipino, petitioner could not now claim that he
was not bound by them. The trial court explained that in an unlawful
transaction, the courts will extend equitable relief only to a party who
was unaware of all its dimensions and whose ignorance of them
exposed him to the risk of being exploited by the other. Where the
parties enter into such a relationship with the opportunity to know all
of its ramifications, as in this case, there is no room for equitable
considerations to come to the rescue of any party. The trial court
ruled that it would leave the parties where they are.[19]
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four
errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS
Corporation. Petitioner also denies seeing a notice that certain
gaming rooms were exclusively operated by entities under special
agreement.[20]
The CA ruled that the records do not support petitioners theory.
Petitioners own testimony reveals that he enjoyed special
accommodations at the Grand Boulevard Hotel. This similar
accommodation was extended to players brought in by ABS
Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely that an
unknown high roller would be accorded choice accommodations by
the hotel unless the accommodation was facilitated by a junket
operator who enjoyed such privilege.[21]
The CA added that the testimonies of PAGCORs employees
affirming that notices were posted in English and Korean in the
gaming areas are credible in the absence of any convincing proof of
ill motive. Further, the specified gaming areas used only special
chips that could be bought and exchanged at certain cashier booths
in that area.[22]
Second, petitioner attacks the validity of the contents of the notice.
Since the Junket Agreement is void, the notice, which was issued
pursuant to the Junket Agreement, is also void and cannot affect
petitioner.[23]
The CA reasoned that the trial court never declared the notice valid
and neither did it enforce the contents thereof. The CA emphasized
that it was the act of cautioning and alerting the players that was
upheld. The trial court ruled that signs and warnings were in place to
inform the public, petitioner included, that special rules applied to
certain gaming areas even if the very agreement giving rise to these
rules is void.[24]
Third, petitioner takes the position that an implied agency existed
between PAGCOR and ABS Corporation.[25]
The CA disagreed with petitioners view. A void contract has no force
and effect from the very beginning. It produces no effect either
against or in favor of anyone. Neither can it create, modify or
extinguish the juridical relation to which it refers. Necessarily, the
Junket Agreement, being void from the beginning, cannot give rise to
an implied agency. The CA explained that it cannot see how the
principle of implied agency can be applied to this case. Article
1883[26]of the Civil Code applies only to a situation where the agent is
authorized by the principal to enter into a particular transaction, but
instead of contracting on behalf of the principal, the agent acts in his
own name.[27]
The CA concluded that no such legal fiction existed between
PAGCOR and ABS Corporation. PAGCOR entered into a Junket
Agreement to lease to ABS Corporation certain gaming areas. It was
never PAGCORs intention to deal with the junket players. Neither did
PAGCOR intend ABS Corporation to represent PAGCOR in dealing
with the junket players. Representation is the basis of agency but
unfortunately for petitioner none is found in this case.[28]
The CA added that the special gaming chips, while belonging to
PAGCOR, are mere accessories in the void Junket Agreement with
ABS Corporation. In Article 1883, the phrase things belonging to the
principal refers only to those things or properties subject of a
particular transaction authorized by the principal to be entered into by
its purported agent. Necessarily, the gambling chips being mere
incidents to the void lease agreement cannot fall under this
category.[29]
The CA ruled that Article 2152[30]of the Civil Code is also not
applicable. The circumstances relating to negotiorum gestio are non-
existent to warrant an officious manager to take over the
management and administration of PAGCOR.[31]
Fourth, petitioner asks for equitable relief.[32]
The CA explained that although petitioner was never a party to the
void Junket Agreement, petitioner cannot deny or feign blindness to
the signs and warnings all around him. The notices, the special
gambling chips, and the separate gaming areas were more than
enough to alert him that he was playing under different terms.
Petitioner persisted and continued to play in the casino. Petitioner
also enjoyed the perks extended to junket players of ABS
Corporation. For failing to heed these signs and warnings, petitioner
can no longer be permitted to claim equitable relief. When parties do
not come to court with clean hands, they cannot be allowed to profit
from their own wrong doing.[33]
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to
petitioner, disregarding the doctrine of implied agency, or agency by
estoppel;
2. Whether the CA erred in using intent of the contracting parties as
the test for creation of agency, when such is not relevant since the
instant case involves liability of the presumed principal in implied
agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified,
or at least adopted, the acts of the agent, ABS Corporation.[34]
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically
provided in Articles 195 to 199 of the Revised Penal Code, as
amended. Gambling is an act beyond the pale of good morals,[35]and
is thus prohibited and punished to repress an evil that undermines
the social, moral, and economic growth of the nation.[36] Presidential
Decree No. 1602 (PD 1602),[37]which modified Articles 195-199 of the
Revised Penal Code and repealed inconsistent
provisions,[38]prescribed stiffer penalties on illegal gambling.[39]
As a rule, all forms of gambling are illegal. The only form of gambling
allowed by law is that stipulated under Presidential Decree No. 1869,
which gave PAGCOR its franchise to maintain and operate gambling
casinos. The issue then turns on whether PAGCOR can validly share
its franchise with junket operators to operate gambling casinos in the
country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have
the following powers and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind
and for any lawful purpose pertaining to the business of the
Corporation, or in any manner incident thereto, as principal, agent
or otherwise, with any person, firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h)
of PAGCORs charter, PAGCOR could share its gambling franchise
with another entity. In Senator Jaworski v. Phil. Amusement and
Gaming Corp.,[40]the Court discussed the extent of the grant of the
legislative franchise to PAGCOR on its authority to operate gambling
casinos:
A legislative franchise is a special privilege granted by the state to
corporations. It is a privilege of public concern which cannot
be exercised at will and pleasure, but should be reserved for public
control and administration, either by the government directly, or by
public agents, under such conditions and regulations as the
government may impose on them in the interest of the public. It is
Congress that prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of granting the franchise,
to whom it may be granted, the mode of conducting the business, the
charter and the quality of the service to be rendered and the duty of
the grantee to the public in exercising the franchise are almost
always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the
contending positions of the parties, we hold that PAGCOR has
acted beyond the limits of its authority when it passed on or
shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR
entered into a joint venture agreement with two other entities in the
operation and management of jai alai games, the Court, in an En
Banc Resolution dated 24 August 2001, partially granted the
motions for clarification filed by respondents therein insofar as it
prayed that PAGCOR has a valid franchise, but only by itself (i.e. not
in association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE
whereby the former grants the latter the authority to operate and
maintain sports betting stations and Internet gaming operations. In
essence, the grant of authority gives SAGE the privilege to actively
participate, partake and share PAGCORs franchise to operate a
gambling activity. The grant of franchise is a special privilege that
constitutes a right and a duty to be performed by the grantee. The
grantee must not perform its activities arbitrarily and whimsically but
must abide by the limits set by its franchise and strictly adhere to its
terms and conditionalities. A corporation as a creature of the State is
presumed to exist for the common good. Hence, the special
privileges and franchises it receives are subject to the laws of the
State and the limitations of its charter. There is therefore a reserved
right of the State to inquire how these privileges had been employed,
and whether they have been abused. (Emphasis supplied)
THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY
TO OPERATE A GAMBLING ACTIVITY. WHILE PAGCOR IS
ALLOWED UNDER ITS CHARTER TO ENTER INTO OPERATORS
OR MANAGEMENT CONTRACTS, PAGCOR IS NOT ALLOWED
UNDER THE SAME CHARTER TO RELINQUISH OR SHARE ITS
FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER IN
VIEW OF THE LEGAL PRINCIPLE OF DELEGATA POTESTAS
DELEGARE NON POTEST, INASMUCH AS THERE IS NOTHING
IN THE CHARTER TO SHOW THAT IT HAS BEEN EXPRESSLY
AUTHORIZED TO DO SO.[41]
Similarly, in this case, PAGCOR, by taking only a percentage of the
earnings of ABS Corporation from its foreign currency collection,
allowed ABS Corporation to operate gaming tables in the dollar pit.
The Junket Agreement is in direct violation of PAGCORs charter and
is therefore void.
Since the Junket Agreement violates PAGCORs charter,
gambling between the junket player and the junket operator under
such agreement is illegal and may not be enforced by the
courts. Article 2014[42]of the Civil Code, which refers to illegal
gambling, states that no action can be maintained by the winner for
the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary
to discuss the applicability of Republic Act No. 9487[43](RA 9487) to
the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the
power to enter into special agreement with third parties to share the
privileges under its franchise for the operation of gambling casinos:
Section 1. The Philippine Amusement and
Gaming Corporation (PAGCOR) franchise granted under Presidential
Decree No. 1869 otherwise known as the PAGCOR Charter, is
hereby further amended to read as follows:
XXX
(2) SECTION 3(H) IS HEREBY AMENDED TO READ AS
FOLLOWS:
SEC. 3. CORPORATE POWERS. -
xxx
(h) to enter into, make, conclude, perform, and carry out contracts of
every kind and nature and for any lawful purpose which are
necessary, appropriate, proper or incidental to any business or
purpose of the PAGCOR, including but not limited to investment
agreements, joint venture agreements, management agreements,
agency agreements, whether as principal or as an agent, manpower
supply agreements, or any other similar agreements or arrangements
with any person, firm, association or corporation. (Boldfacing
supplied)
PAGCOR sought the amendment of its charter precisely to address
and remedy the legal impediment raised in Senator Jaworski v. Phil.
Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the
present case. The Junket Agreement was entered into between
PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR
charter then prevailing (PD 1869) prohibited PAGCOR from entering
into any arrangement with a third party that would allow such party to
actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively
unless the legislative intent to give them retroactive effect is
expressly declared or is necessarily implied from the language
used.[44]RA 9487 does not provide for any retroactivity of its
provisions. All laws operate prospectively absent a clear contrary
language in the text,[45]and that in every case of doubt, the doubt will
be resolved against the retroactive operation of laws.[46]
Thus, petitioner cannot avail of the provisions of RA 9487 as this was
not the law when the acts giving rise to the claimed liabilities took
place. This makes the gambling activity participated in by petitioner
illegal. Petitioner cannot sue PAGCOR to redeem the cash value of
the gambling chips or recover damages arising from an illegal activity
for two reasons. First, petitioner engaged in gambling with ABS
Corporation and not with PAGCOR. Second, the court cannot assist
petitioner in enforcing an illegal act. Moreover, for a court to grant
petitioners prayer would mean enforcing the Junket Agreement,
which is void.
Now, to address the issues raised by petitioner in his petition,
petitioner claims that he is a third party proceeding against the
liability of a presumed principal and claims relief, alternatively, on the
basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived
from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting
on his behalf without authority. Implied agency, being an actual
agency, is a fact to be proved by deductions or inferences from other
facts.[47]
On the other hand, apparent authority is based on estoppel and can
arise from two instances. First, the principal may knowingly permit
the agent to hold himself out as having such authority, and the
principal becomes estopped to claim that the agent does not have
such authority. Second, the principal may clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe
that the agent actually has such authority.[48]In an agency by
estoppel, there is no agency at all, but the one assuming to act as
agent has apparent or ostensible, although not real, authority to
represent another.[49]
The law makes no presumption of agency and proving its existence,
nature and extent is incumbent upon the person alleging
it.[50]Whether or not an agency has been created is a question to be
determined by the fact that one represents and is acting for
another. [51]
Acts and conduct of PAGCOR negates the existence of an
implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively,
petitioner claims that even assuming that no actual agency existed
between PAGCOR and ABS Corporation, there is still an agency by
estoppel based on the acts and conduct of PAGCOR showing
apparent authority in favor of ABS Corporation. Petitioner states that
one factor which distinguishes agency from other legal precepts is
control and the following undisputed facts show a relationship of
implied agency:
1. Three floors of the Grand Boulevard Hotel[52]were leased to
PAGCOR for conducting gambling operations;[53]
2. Of the three floors, PAGCOR allowed ABS Corporation to use one
whole floor for foreign exchange gambling, conducted by PAGCOR
dealers using PAGCOR facilities, operated by PAGCOR employees
and using PAGCOR chips bearing the PAGCOR logo;[54]
3. PAGCOR controlled the release, withdrawal and return of all the
gambling chips given to ABS Corporation in that part of the casino
and at the end of the day, PAGCOR conducted an inventory of the
gambling chips;[55]
4. ABS Corporation accounted for all gambling chips with the
Commission on Audit (COA), the official auditor of PAGCOR;[56]
5. PAGCOR enforced, through its own manager, all the rules and
regulations on the operation of the gambling pit used by ABS
Corporation.[57]
Petitioners argument is clearly misplaced. The basis for agency is
representation,[58]that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts
have the same legal effect as if they were personally executed by the
principal.[59]On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words
or actions, while on the part of the agent, there must be an intention
to accept the appointment and act on it.[60]Absent such mutual intent,
there is generally no agency.[61]
There is no implied agency in this case because PAGCOR did not
hold out to the public as the principal of ABS Corporation. PAGCORs
actions did not mislead the public into believing that an agency can
be implied from the arrangement with the junket operators, nor did it
hold out ABS Corporation with any apparent authority to represent it
in any capacity. The Junket Agreement was merely a contract of
lease of facilities and services.
The players brought in by ABS Corporation were covered by a
different set of rules in acquiring and encashing chips. The players
used a different kind of chip than what was used in the regular
gaming areas of PAGCOR, and that such junket players played
specifically only in the third floor area and did not mingle with the
regular patrons of PAGCOR. Furthermore, PAGCOR, in posting
notices stating that the players are playing under special rules,
exercised the necessary precaution to warn the gaming public that
no agency relationship exists.

For the second assigned error, petitioner claims that the intention of
the parties cannot apply to him as he is not a party to the contract.

We disagree. The Court of Appeals correctly used the intent of the

contracting parties in determining whether an agency by estoppel
existed in this case. An agency by estoppel, which is similar to the
doctrine of apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.[62]

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.[63]Such proof is lacking in this case.

In the entire duration that petitioner played in Casino Filipino, he was

dealing only with ABS Corporation, and availing of the privileges
extended only to players brought in by ABS Corporation. The facts
that he enjoyed special treatment upon his arrival in Manila and
special accommodations in Grand Boulevard Hotel, and that he was
playing in special gaming rooms are all indications that petitioner
cannot claim good faith that he believed he was dealing with
PAGCOR. Petitioner cannot be considered as an innocent third party
and he cannot claim entitlement to equitable relief as well.

For his third and final assigned error, petitioner asserts that
PAGCOR ratified the acts of ABS Corporation.

The trial court has declared, and we affirm, that the Junket
Agreement is void. A void or inexistent contract is one which has no
force and effect from the very beginning. Hence, it is as if it has never
been entered into and cannot be validated either by the passage of
time or by ratification.[64]Article 1409 of the Civil Code provides that
contracts expressly prohibited or declared void by law, such as
gambling contracts, cannot be ratified.[65]

WHEREFORE, we DENY the petition. We AFFIRM the Court of

Appeals Decision dated 27 May 2003 as well as the Resolution dated
7 May 2004 as modified by this Decision.
SO ORDERED.
G.R. No. 158907 February 12, 2007
EDUARDO B. OLAGUER, Petitioner,
vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules
of Court, assailing the Decision,1 dated 30 June 2003, promulgated
by the Court of Appeals, affirming the Decision of the Regional Trial
Court, dated 26 July 1995, dismissing the petitioner’s suit.
The parties presented conflicting accounts of the facts.
EDUARDO B. OLAGUER’S VERSION
Petitioner Eduardo B. Olaguer alleges that he was the owner of
60,000 shares of stock of Businessday Corporation (Businessday)
with a total par value of ₱600,000.00, with Certificates of Stock No.
005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was
employed with the corporation as Executive Vice-President of
Businessday, and President of Businessday Information Systems
and Services and of Businessday Marketing Corporation, petitioner,
together with respondent Raul Locsin (Locsin) and Enrique Joaquin
(Joaquin), was active in the political opposition against the Marcos
dictatorship.3 Anticipating the possibility that petitioner would be
arrested and detained by the Marcos military, Locsin, Joaquin, and
Hector Holifeña had an unwritten agreement that, in the event that
petitioner was arrested, they would support the petitioner’s family by
the continued payment of his salary.4 Petitioner also executed a
Special Power of Attorney (SPA), on 26 May 1979, appointing as his
attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of
selling or transferring petitioner’s shares of stock with Businessday.
During the trial, petitioner testified that he agreed to execute the SPA
in order to cancel his shares of stock, even before they are sold, for
the purpose of concealing that he was a stockholder of Businessday,
in the event of a military crackdown against the opposition.5 The
parties acknowledged the SPA before respondent Emilio
Purugganan, Jr., who was then the Corporate Secretary of
Businessday, and at the same time, a notary public for Quezon City.6
On 24 December 1979, petitioner was arrested by the Marcos
military by virtue of an Arrest, Search and Seizure Order and
detained for allegedly committing arson. During the petitioner’s
detention, respondent Locsin ordered fellow respondent Purugganan
to cancel the petitioner’s shares in the books of the corporation and
to transfer them to respondent Locsin’s name.7
As part of his scheme to defraud the petitioner, respondent Locsin
sent Rebecca Fernando, an employee of Businessday, to Camp
Crame where the petitioner was detained, to pretend to borrow
Certificate of Stock No. 100 for the purpose of using it as additional
collateral for Businessday’s then outstanding loan with the National
Investment and Development Corporation. When Fernando returned
the borrowed stock certificate, the word "cancelled" was already
written therein. When the petitioner became upset, Fernando
explained that this was merely a mistake committed by respondent
Locsin’s secretary.8
During the trial, petitioner also agreed to stipulate that from 1980 to
1982, Businessday made regular deposits, each amounting to
₱10,000.00, to the Metropolitan Bank and Trust Company accounts
of Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were
made on every 15th and 30th of the month.9 Petitioner alleged that
these funds consisted of his monthly salary, which Businessday
agreed to continue paying after his arrest for the financial support of
his family.10 After receiving a total of ₱600,000.00, the payments
stopped. Thereafter, respondent Locsin and Fernando went to ask
petitioner to endorse and deliver the rest of his stock certificates to
respondent Locsin, but petitioner refused. 11
On 16 January 1986, petitioner was finally released from detention.
He then discovered that he was no longer registered as stockholder
of Businessday in its corporate books. He also learned that
Purugganan, as the Corporate Secretary of Businessday, had
already recorded the transfer of shares in favor of respondent Locsin,
while petitioner was detained. When petitioner demanded that
respondents restore to him full ownership of his shares of stock, they
refused to do so. On 29 July 1986, petitioner filed a Complaint before
the trial court against respondents Purugganan and Locsin to declare
as illegal the sale of the shares of stock, to restore to the petitioner
full ownership of the shares, and payment of damages.12
RESPONDENT RAUL LOCSIN’S VERSION
In his version of the facts, respondent Locsin contended that
petitioner approached him and requested him to sell, and, if
necessary, buy petitioner’s shares of stock in Businessday, to assure
support for petitioner’s family in the event that something should
happen to him, particularly if he was jailed, exiled or forced to go
underground.13 At the time petitioner was employed with
Businessday, respondent Locsin was unaware that petitioner was
part of a group, Light-a-Fire Movement, which actively sought the
overthrow of the Marcos government through an armed
struggle.14 He denied that he made any arrangements to continue
paying the petitioner’s salary in the event of the latter’s
imprisonment.15
When petitioner was detained, respondent Locsin tried to sell
petitioner’s shares, but nobody wanted to buy them. Petitioner’s
reputation as an oppositionist resulted in the poor financial condition
of Businessday and discouraged any buyers for the shares of
stock.16 In view of petitioner’s previous instructions, respondent
Locsin decided to buy the shares himself.1awphi1.net Although the
capital deficiency suffered by Businessday caused the book value of
the shares to plummet below par value, respondent Locsin,
nevertheless, bought the shares at par value.17 However, he had to
borrow from Businessday the funds he used in purchasing the shares
from petitioner, and had to pay the petitioner in installments of
₱10,000.00 every 15th and 30th of each month.18
The trial court in its Decision, dated 26 July 1995, dismissed the
Complaint filed by the petitioner. It ruled that the sale of shares
between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to
anyone, including respondent Locsin, in order to provide for the
needs of his family should he be jailed or forced to go underground;
and that the SPA drafted by the petitioner empowered respondent
Locsin, and two other agents, to sell the shares for such price and
under such terms and conditions that the agents may deem proper. It
further found that petitioner consented to have respondent Locsin
buy the shares himself. It also ruled that petitioner, through his wife,
received from respondent Locsin the amount of ₱600,000.00 as
payment for the shares of stock.19 The dispositive part of the trial
court’s Decision reads:
WHEREFORE, for failure of the [herein petitioner] to prove by
preponderance of evidence, his causes of action and of the facts
alleged in his complaint, the instant suit is hereby ordered
DISMISSED, without pronouncement as to costs.
[Herein respondents’] counterclaims, however, are hereby
DISMISSED, likewise, for dearth of substantial evidentiary support.20
On appeal, the Court of Appeals affirmed the Decision of the trial
court that there was a perfected contract of sale.21It further ruled that
granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of
the purchase price, and his failure to raise any protest over the said
sale.22 The Court of Appeals refused to credit the petitioner’s
allegation that the money his wife received constituted his salary
from Businessday since the amount he received as his salary,
₱24,000.00 per month, did not correspond to the amount he received
during his detention, ₱20,000.00 per month (deposits of ₱10,000.00
on every 15th and 30th of each month in the accounts of the
petitioner’s in-laws). On the other hand, the total amount received,
₱600,000.00, corresponds to the aggregate par value of petitioner’s
shares in Businessday. Moreover, the financial condition of
Businessday prevented it from granting any form of financial
assistance in favor of the petitioner, who was placed in an indefinite
leave of absence, and, therefore, not entitled to any salary. 23
The Court of Appeals also ruled that although the manner of the
cancellation of the petitioner’s certificates of stock and the
subsequent issuance of the new certificate of stock in favor of
respondent Locsin was irregular, this irregularity will not relieve
petitioner of the consequences of a consummated sale.24
Finally, the Court of Appeals affirmed the Decision of the trial court
disallowing respondent Locsin’s claims for moral and exemplary
damages due to lack of supporting evidence.25
Hence, the present petition, where the following issues were raised:
I.
THE APPELLATE COURT ERRED IN RULING THAT THERE WAS
A PERFECTED CONTRACT OF SALE BETWEEN PETITIONER
AND MR. LOCSIN OVER THE SHARES;
II.
THE APPELLATE COURT ERRED IN RULING THAT PETITIONER
CONSENTED TO THE ALLEGED SALE OF THE SHARES TO MR.
LOCSIN;
III.
THE APPELLATE COURT ERRED IN RULING THAT THE
AMOUNTS RECEIVED BY PETITIONER’S IN LAWS WERE NOT
PETITIONER’S SALARY FROM THE CORPORATION BUT
INSTALLMENT PAYMENTS FOR THE SHARES;
IV.
THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN
WAS THE PARTY TO THE ALLEGED SALE OF THE SHARES AND
NOT THE CORPORATION; AND
V.
THE APPELLATE COURT ERRED IN RULING THAT THE
ALLEGED SALE OF THE SHARES WAS VALID ALTHOUGH THE
CANCELLATION OF THE SHARES WAS IRREGULAR.26
The petition is without merit.
The first issue that the petitioner raised is that there was no valid sale
since respondent Locsin exceeded his authority under the
SPA27 issued in his, Joaquin and Holifena’s favor. He alleged that the
authority of the afore-named agents to sell the shares of stock was
limited to the following conditions: (1) in the event of the petitioner’s
absence and incapacity; and (2) for the limited purpose of applying
the proceeds of the sale to the satisfaction of petitioner’s subsisting
obligations with the companies adverted to in the SPA.28
Petitioner sought to impose a strict construction of the SPA by
limiting the definition of the word "absence" to a condition wherein "a
person disappears from his domicile, his whereabouts being
unknown, without leaving an agent to administer his
property,"29 citing Article 381 of the Civil Code, the entire provision
hereunder quoted:
ART 381. When a person disappears from his domicile, his
whereabouts being unknown, and without leaving an agent to
administer his property, the judge, at the instance of an interested
party, a relative, or a friend, may appoint a person to represent him in
all that may be necessary.
This same rule shall be observed when under similar circumstances
the power conferred by the absentee has expired.
Petitioner also puts forward that the word "incapacity" would be
limited to mean "minority, insanity, imbecility, the state of being deaf-
mute, prodigality and civil interdiction."30 He cites Article 38 of the
Civil Code, in support of this definition, which is hereunder quoted:
ART. 38 Minority, insanity or imbecility, the state of being a deaf-
mute, prodigality and civil interdiction are mere restrictions on
capacity to act, and do not exempt the incapacitated person, from
certain obligations, as when the latter arise from his acts or from
property relations, such as easements.
Petitioner, thus, claims that his arrest and subsequent detention are
not among the instances covered by the terms "absence or
incapacity," as provided under the SPA he executed in favor of
respondent Locsin.
Petitioner’s arguments are unpersuasive. It is a general rule that a
power of attorney must be strictly construed; the instrument will be
held to grant only those powers that are specified, and the agent may
neither go beyond nor deviate from the power of attorney. However,
the rule is not absolute and should not be applied to the extent of
destroying the very purpose of the power. If the language will permit,
the construction that should be adopted is that which will carry out
instead of defeat the purpose of the appointment. Clauses in a power
of attorney that are repugnant to each other should be reconciled so
as to give effect to the instrument in accordance with its general
intent or predominant purpose. Furthermore, the instrument should
always be deemed to give such powers as essential or usual in
effectuating the express powers.31
In the present case, limiting the definitions of "absence" to that
provided under Article 381 of the Civil Code and of "incapacity" under
Article 38 of the same Code negates the effect of the power of
attorney by creating absurd, if not impossible, legal situations. Article
381 provides the necessarily stringent standards that would justify
the appointment of a representative by a judge. Among the standards
the said article enumerates is that no agent has been appointed to
administer the property. In the present case, petitioner himself had
already authorized agents to do specific acts of administration and
thus, no longer necessitated the appointment of one by the court.
Likewise, limiting the construction of "incapacity" to "minority,
insanity, imbecility, the state of being a deaf-mute, prodigality and
civil interdiction," as provided under Article 38, would render the SPA
ineffective. Article 1919(3) of the Civil Code provides that the death,
civil interdiction, insanity or insolvency of the principal or of the agent
extinguishes the agency. It would be equally incongruous, if not
outright impossible, for the petitioner to require himself to qualify as a
minor, an imbecile, a deaf-mute, or a prodigal before the SPA
becomes operative. In such cases, not only would he be prevented
from appointing an agent, he himself would be unable to administer
his property.
On the other hand, defining the terms "absence" and "incapacity" by
their everyday usage makes for a reasonable construction, that is,
"the state of not being present" and the "inability to act," given the
context that the SPA authorizes the agents to attend stockholders’
meetings and vote in behalf of petitioner, to sell the shares of stock,
and other related acts. This construction covers the situation wherein
petitioner was arrested and detained. This much is admitted by
petitioner in his testimony.32
Petitioner’s contention that the shares may only be sold for the sole
purpose of applying the proceeds of the sale to the satisfaction of
petitioner’s subsisting obligations to the company is far-fetched. The
construction, which will carry out the purpose, is that which should be
applied. Petitioner had not submitted evidence that he was in debt
with Businessday at the time he had executed the SPA. Nor could he
have considered incurring any debts since he admitted that, at the
time of its execution, he was concerned about his possible arrest,
death and disappearance. The language of the SPA clearly
enumerates, as among those acts that the agents were authorized to
do, the act of applying the proceeds of the sale of the shares to any
obligations petitioner might have against the Businessday group of
companies. This interpretation is supported by the use of the word
"and" in enumerating the authorized acts, instead of phrases such as
"only for," "for the purpose of," "in order to" or any similar terms to
indicate that the petitioner intended that the SPA be used only for a
limited purpose, that of paying any liabilities with the Businessday
group of companies.
Secondly, petitioner argued that the records failed to show that he
gave his consent to the sale of the shares to respondent Locsin for
the price of ₱600,000.00. This argument is unsustainable. Petitioner
received from respondent Locsin, through his wife and in-laws, the
installment payments for a total of ₱600,000.00 from 1980 to 1982,
without any protest or complaint. It was only four years after 1982
when petitioner demanded the return of the shares. The petitioner’s
claim that he did not instruct respondent Locsin to deposit the money
to the bank accounts of his in-laws fails to prove that petitioner did
not give his consent to the sale since respondent Locsin was
authorized, under the SPA, to negotiate the terms and conditions of
the sale including the manner of payment. Moreover, had respondent
Locsin given the proceeds directly to the petitioner, as the latter
suggested in this petition, the proceeds were likely to have been
included among petitioner’s properties which were confiscated by the
military. Instead, respondent Locsin deposited the money in the bank
accounts of petitioner’s in-laws, and consequently, assured that the
petitioner’s wife received these amounts. Article 1882 of the Civil
Code provides that the limits of an agent’s authority shall not be
considered exceeded should it have been performed in a manner
more advantageous to the principal than that specified by him.
In addition, petitioner made two inconsistent statements when he
alleged that (1) respondent Locsin had not asked the petitioner to
endorse and deliver the shares of stock, and (2) when Rebecca
Fernando asked the petitioner to endorse and deliver the certificates
of stock, but petitioner refused and even became upset.33 In either
case, both statements only prove that petitioner refused to honor his
part as seller of the shares, even after receiving payments from the
buyer. Had the petitioner not known of or given his consent to the
sale, he would have given back the payments as soon as Fernando
asked him to endorse and deliver the certificates of stock, an incident
which unequivocally confirmed that the funds he received, through
his wife and his in-laws, were intended as payment for his shares of
stocks. Instead, petitioner held on to the proceeds of the sale after it
had been made clear to him that respondent Locsin had considered
the ₱600,000.00 as payment for the shares, and asked petitioner,
through Fernando, to endorse and deliver the stock certificates for
cancellation.
As regards the third issue, petitioner’s allegation that the installment
payments he was adjudged to have received for the shares were
actually salaries which Businessday promised to pay him during his
detention is unsupported and implausible. Petitioner received
₱20,000.00 per month through his in-laws; this amount does not
correspond to his monthly salary at ₱24,000.00.34 Nor does the
amount received correspond to the amount which Businessday was
supposed to be obliged to pay petitioner, which was only ₱45,000.00
to ₱60,000.00 per annum.35 Secondly, the petitioner’s wife did not
receive funds from respondent Locsin or Businessday for the entire
duration of petitioner’s detention. Instead, when the total amount
received by the petitioner reached the aggregate amount of his
shares at par value -- ₱600,000.00 -- the payments stopped.
Petitioner even testified that when respondent Locsin denied knowing
the petitioner soon after his arrest, he believed respondent Locsin’s
commitment to pay his salaries during his detention to be nothing
more than lip-service.36
Granting that petitioner was able to prove his allegations, such an act
of gratuity, on the part of Businessday in favor of petitioner, would be
void. An arrangement whereby petitioner will receive "salaries" for
work he will not perform, which is not a demandable debt since
petitioner was on an extended leave of absence, constitutes a
donation under Article 72637 of the Civil Code. Under Article 748 of
the Civil Code, if the value of the personal property donated exceeds
₱5,000.00, the donation and the acceptance shall have to be made
in writing. Otherwise, the donation will be void. In the present case,
petitioner admitted in his testimony38 that such arrangement was not
made in writing and, hence, is void.
The fact that some of the deposit slips and communications made to
petitioner’s wife contain the phrase "household expenses" does not
disprove the sale of the shares. The money was being deposited to
the bank accounts of the petitioner’s in-laws, and not to the account
of the petitioner or his wife, precisely because some of his property
had already been confiscated by the military. Had they used the
phrase "sale of shares," it would have defeated the purpose of not
using their own bank accounts, which was to conceal from the
military any transaction involving the petitioner’s property.
Petitioner raised as his fourth issue that granting that there was a
sale, Businessday, and not respondent Locsin, was the party to the
transaction. The curious facts that the payments were received on
the 15th and 30th of each month and that the payor named in the
checks was Businessday, were adequately explained by respondent
Locsin. Respondent Locsin had obtained cash advances from the
company, paid to him on the 15th and 30th of the month, so that he
can pay petitioner for the shares. To support his claim, he presented
Businessday’s financial records and the testimony of Leo Atienza,
the Company’s Accounting Manager. When asked why the term
"shares of stock" was used for the entries, instead of "cash
advances," Atienza explained that the term "shares of stock" was
more specific rather than the broader phrase "cash
advances."39 More to the point, had the entries been for "shares of
stock," the issuance of shares should have been reflected in the
stock and transfer books of Businessday, which the petitioner
presented as evidence. Instead the stock and transfer books reveal
that the increase in respondent Locsin’s shares was a result of the
cancellation and transfer of petitioner’s shares in favor of respondent
Locsin.
Petitioner alleges that the purported sale between himself and
respondent Locsin of the disputed shares of stock is void since it
contravenes Article 1491 of the Civil Code, which provides that:
ART. 1491. The following persons cannot acquire by purchase, even
at a public or judicial auction, either in person or through the
mediation of another:
xxxx
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been
given; x x x.
It is, indeed, a familiar and universally recognized doctrine that a
person who undertakes to act as agent for another cannot be
permitted to deal in the agency matter on his own account and for his
own benefit without the consent of his principal, freely given, with full
knowledge of every detail known to the agent which might affect the
transaction.40 The prohibition against agents purchasing property in
their hands for sale or management is, however, clearly, not
absolute. It does not apply where the principal consents to the sale of
the property in the hands of the agent or administrator.>41
In the present case, the parties have conflicting allegations. While
respondent Locsin averred that petitioner had permitted him to
purchase petitioner’s shares, petitioner vehemently denies having
known of the transaction. However, records show that petitioner’s
position is less credible than that taken by respondent Locsin given
petitioner’s contemporaneous and subsequent acts.42 In 1980, when
Fernando returned a stock certificate she borrowed from the
petitioner, it was marked "cancelled." Although the petitioner alleged
that he was furious when he saw the word cancelled, he had not
demanded the issuance of a new certificate in his name. Instead of
having been put on his guard, petitioner remained silent over this
obvious red flag and continued receiving, through his wife, payments
which totalled to the aggregate amount of the shares of stock valued
at par. When the payments stopped, no demand was made by either
petitioner or his wife for further payments.

From the foregoing, it is clear that petitioner knew of the transaction,

agreed to the purchase price of ₱600,000.00 for the shares of stock,
and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioner’s wife,
with the information on the bank accounts of his in-laws. Petitioner’s
wife and his son even provided receipts for the payments that were
made to them by respondent Locsin,43 a practice that bespeaks of an onerous
transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were
fraudulent, and, therefore, illegal. In the present case, the shares were transferred in the name of the
buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock. Section 63
of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares.— xxx Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares – the delivery of the endorsed
certificates, in order to prevent the fraudulent transfer of shares of stock. However, this rule cannot be
applied in the present case without causing the injustice sought to be avoided. As had been amply
demonstrated, there was a valid sale of stocks. Petitioner’s failure to deliver the shares to their rightful
buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the
validity of such sale. Thus, while the manner of the cancellation of petitioner’s certificates of stock and the
issuance of the new certificates in favor of respondent Locsin was highly irregular, we must, nonetheless,
declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer
was fraudulent. In his testimony, petitioner admitted that they had intended to conceal his being a
stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before
the shares were actually sold, had been done with his consent. As earlier explained, even the subsequent
sale of the shares in favor of Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed
Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of the sale of the
shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

WOODCHILD HOLDINGS, INC., G.R. No. 140667
Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
ROXAS ELECTRIC AND Promulgated:
CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x-------------------------------------------------
-x
DECISION
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-
A-3-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 squatters 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-
B-1 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) to deliver to Woodchild Holdings the beneficial use of the
stipulated 25 square meters and 55 square meters;
b) 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;
c) 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;
d) to pay Woodchild Holdings the amount of P5,660,000.00,
representing actual damages and unrealized income;
e) to pay attorneys fees in the amount of P100,000.00; and
f) to pay the costs of suit.
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-A-3-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.
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) To pay plaintiff P100,000 representing attorneys fees; 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
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
PLAINTIFF-APPELLEE 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 by-laws or by its board resolution,
through its officers or agents in the normal course of business. The
general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law. [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.
ANTONIO K. LITONJUA and AURELIO K. LITONJUA,
JR., petitioners, vs. MARY ANN GRACE FERNANDEZ,
HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B.
TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL
R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON,
JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE
DOES, respondents.
DECISION
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. 64940, which reversed and set
aside the June 23, 1999 Decision[2] of the Regional Trial Court of
Pasig City, Branch 68, in Civil Case No. 65629, as well as its
Resolution dated April 30, 2001 denying the petitioners motion for
reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon[3] are the owners of a parcel of
land located in San Pablo City, covered by Transfer Certificate of
Title (TCT) No. T-36766 of the Register of Deeds of San
Pablo City.[4] On the other hand, the heirs of Paz Ticzon Eleosida,
represented by Gregorio T. Eleosida, are the owners of a parcel of
land located in San Pablo City, covered by TCT No. 36754, also of
the Register of Deeds of San Pablo City.[5]
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and
Agapito Fisico who worked as brokers, offered to sell to the
petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the
parcels of land covered by TCT Nos. 36754 and 36766. The
petitioners were shown a locator plan and copies of the titles showing
that the owners of the properties were represented by Mary Mediatrix
Fernandez and Gregorio T. Eleosida, respectively. The brokers told
the petitioners that they were authorized by respondent Fernandez to
offer the property for sale. The petitioners, thereafter, made two
ocular inspections of the property, in the course of which they saw
some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with
respondent Fernandez and the two brokers at the petitioners office
in Mandaluyong City.[6]The petitioners and respondent Fernandez
agreed that the petitioners would buy the property consisting of
36,742 square meters, for the price of P150 per square meter, or the
total sum of P5,098,500. They also agreed that the owners would
shoulder the capital gains tax, transfer tax and the expenses for the
documentation of the sale. The petitioners and respondent
Fernandez also agreed to meet on December 8, 1995 to finalize the
sale. It was also agreed upon that on the said date, respondent
Fernandez would present a special power of attorney executed by
the owners of the property, authorizing her to sell the property for and
in their behalf, and to execute a deed of absolute sale thereon. The
petitioners would also remit the purchase price to the owners,
through respondent Fernandez. However, only Agapito Fisico
attended the meeting. He informed the petitioners that respondent
Fernandez was encountering some problems with the tenants and
was trying to work out a settlement with them.[7] After a few weeks of
waiting, the petitioners wrote respondent Fernandez on January 5,
1995, demanding that their transaction be finalized by January 30,
1996.[8]
When the petitioners received no response from respondent
Fernandez, the petitioners sent her another Letter[9] dated February
1, 1996, asking that the Deed of Absolute Sale covering the property
be executed in accordance with their verbal agreement
dated November 27, 1995. The petitioners also demanded the
turnover of the subject properties to them within fifteen days from
receipt of the said letter; otherwise, they would have no option but to
protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote
the petitioners on February 14, 1996[10] and clarified her stand on the
matter in this wise:
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed about
them. Nonetheless, I made an assurance at that time that there was
no liens/encumbrances and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order
to sign the Deed of Absolute Sale. The truth of the matter is that you
were the one who emphatically stated that you would prepare a
Contract to Sell and requested us to come back first week of
December as you would be leaving the country then. In fact, what
you were demanding from us was to apprise you of the status of the
property, whether we would be able to ascertain that there are really
no tenants. Ms. Alimario and I left your office, but we did not assure
you that we would be back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be
tenants for the entire properties (including those belonging to my
other relatives.) Another thing, the Barangay Captain now refuses to
give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr.
Agapito that due to the appearance of alleged tenants who are
demanding for a one-hectare share, my cousin and I have thereby
changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will
not be attending the meeting to be held sometime first week of
December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We
have not demanded and received from you any earnest money,
thereby, no obligations exist. In the meantime, we hope that in the
future we will eventually be able to transact business since we still
have other properties in San Pablo City.[11]
Appended thereto was a copy of respondent Fernandez letter
to the petitioners dated January 16, 1996, in response to the
latters January 5, 1996 letter.[12]
On April 12, 1996, the petitioners filed the instant Complaint for
specific performance with damages[13] against respondent Fernandez
and the registered owners of the property. In their complaint, the
petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two
(2) parcels of land covered by Transfer Certificates of Title Nos.
36766 and 36754 measuring a total of 36,742 square meters in
Barrio Concepcion, San Pablo City. After a brief
negotiation, defendants committed and specifically agreed to sell to
plaintiffs 33,990 square meters of the two (2) aforementioned parcels
of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling
of the subject property in plaintiffs names would be for defendants
account.
(b) The plaintiffs would pay the entire purchase price
of P5,098,500.00 for the aforementioned 33,990 square meters of
land in plaintiffs office on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject
parcels of land were free from all liens and encumbrances and that
no squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the
commitment of defendants, pursued the purchase of the subject
parcels of lands. On 5 January 1996, plaintiffs sent a letter of even
date to defendants, setting the date of sale and payment on 30
January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not
reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to
defendants demanding execution of the Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there
was no reply. Defendants thus reneged on their commitment a
second time.
9. On 14 February 1996, defendant Fernandez sent a written
communication of the same date to plaintiffs enclosing therein a copy
of her 16 January 1996 letter to plaintiffs which plaintiffs never
received before. Defendant Fernandez stated in her 16 January 1996
letter that despite the meeting of minds among the parties over the
33,990 square meters of land for P150.00 per square meter on 27
November 1995, defendants suddenly had a change of heart and no
longer wished to sell the same. Paragraph 6 thereof unquestionably
shows defendants previous agreement as above-mentioned and their
unjustified breach of their obligations under it.
10. Defendants cannot unilaterally, whimsically and capriciously
cancel a perfected contract to sell.
11. Plaintiffs intended to use the subject property for their subdivision
project to support plaintiffs quarry operations, processing of
aggregate products and manufacture of construction
materials. Consequently, by reason of defendants failure to honor
their just obligations, plaintiffs suffered, and continue to suffer, actual
damages, consisting in unrealized profits and cost of money, in the
amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on
account of defendants fraudulent actuations for which reason
defendants are liable to plaintiffs for moral damages in the amount of
at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations,
plaintiffs, despite their willingness and ability to pay the agreed
purchase price, have to date been unable to take delivery of the title
to the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of
example or correction for the public good, defendants are liable to
plaintiff for exemplary damages in the amount of P500,000.00.
14. Defendants bad faith and refusal to honor their just obligations to
plaintiffs constrained the latter to litigate and to engage the services
of undersigned counsel for a fee in the amount of at
least P250,000.00.[14]
The petitioners prayed that, after due hearing, judgment be
rendered in their favor ordering the respondents to
(a) Secure at defendants expense all clearances from the
appropriate government agencies that will enable defendants to
comply with their obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorneys fees.[15]
On July 5, 1996, respondent Fernandez filed her Answer to the
complaint.[16] She claimed that while the petitioners offered to buy the
property during the meeting of November 27, 1995, she did not
accept the offer; thus, no verbal contract to sell was ever
perfected. She specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She
also maintained that even assuming arguendo that she had, indeed,
made a commitment or promise to sell the property to the petitioners,
the same was not binding upon her in the absence of any
consideration distinct and separate from the price. She, thus, prayed
that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay
defendant moral damages in the amount of not
less than P2,000,000.00 and exemplary
damages in the amount of not less
than P500,000.00 and attorneys fees and
reimbursement expenses of litigation in the
amount of P300,000.00.[17]
On September 24, 1997, the trial court, upon motion of the
petitioners, declared the other respondents in default for failure to file
their responsive pleading within the reglementary period.[18] At the
pre-trial conference held on March 2, 1998, the parties agreed that
the following issues were to be resolved by the trial court: (1) whether
or not there was a perfected contract to sell; (2) in the event that
there was, indeed, a perfected contract to sell, whether or not the
respondents breached the said contract to sell; and (3) the corollary
issue of damages.[19]
Respondent Fernandez testified that she requested Lourdes
Alimario to look for a buyer of the properties in San Pablo City on a
best offer basis. She was later informed by Alimario that the
petitioners were interested to buy the properties. On November 27,
1995, along with Alimario and another person, she met with the
petitioners in the latters office and told them that she was at the
conference merely to hear their offer, that she could not bind the
owners of the properties as she had no written authority to sell the
same. The petitioners offered to buy the property at P150 per square
meter. After the meeting, respondent Fernandez requested Joy
Marquez to secure a barangay clearance stating that the property
was free of any tenants. She was surprised to learn that the
clearance could not be secured. She contacted a cousin of hers, also
one of the owners of the property, and informed him that there was a
prospective buyer of the property but that there were tenants
thereon. Her cousin told her that he was not selling his share of the
property and that he was not agreeable to the price of P150 per
square meter. She no longer informed the other owners of the
petitioners offer. Respondent Fernandez then asked Alimario to
apprise the petitioners of the foregoing developments, through their
agent, Agapito Fisico. She was surprised to receive a letter from the
petitioners dated January 5, 1996. Nonetheless, she informed the
petitioners that she had changed her mind in pursuing the
negotiations in a Letter dated January 18, 1996. When she received
petitioners February 1, 1996Letter, she sent a Reply-Letter
dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in
favor of the petitioners on June 23, 1999,[20] the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of plaintiffs ANTONIO K. LITONJUA and AURELIO
K. LITONJUA and against defendants MARY MEDIATRIX T.
FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS
OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON,
ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA
PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute
Deed of Sale with the terms agreed
upon by the parties and to secure all
clearances from the concerned
government agencies and removal of
any tenants from the subject property
at their expense to enable defendants
to comply with their obligations under
the perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred
Thousand (P200,000.00) Pesos as and
by way of attorneys fees.[21]
On appeal to the Court of Appeals, the respondents ascribed
the following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT
THERE WAS A PERFECTED CONTRACT
OF SALE OF THE TWO LOTS ON NOVEMBER 27,
1995.
II. THE LOWER COURT ERRED IN NOT HOLDING
THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO
LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT
THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ DATED JANUARY 16, 1996 WAS A
CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE
THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING
THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-
APPELLANT FERNANDEZ COULD NEGOTIATE
THE SALE ON BEHALF OF THE OTHER
REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING
ATTORNEYS FEES IN THE DISPOSITIVE
PORTION OF THE DECISION WITHOUT STATING
THE BASIS IN THE TEXT OF SAID DECISION.[22]
On February 28, 2001, the appellate court promulgated its
decision reversing and setting aside the judgment of the trial court
and dismissing the petitioners complaint, as well as the respondents
counterclaim.[23] The appellate court ruled that the petitioners failed to
prove that a sale or a contract to sell over the property between the
petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule
45 of the Revised Rules of Court.
The petitioners submit the following issues for the Courts
resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT
OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE
COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN
DEFAULT ARE BENEFITED BY THE ASSAILED DECISION OF
THE COURT OF APPEALS.[24]
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of
the Rules of Court is limited to the review of errors of law committed
by the appellate court. As the findings of fact of the appellate court
are deemed continued, this Court is not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the
court a quo.[25] This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial court
are conflicting or contradictory.[26] Indeed, in this case, the findings of
the trial court and its conclusion based on the said findings contradict
those of the appellate court. However, upon careful review of the
records of this case, we find no justification to grant the petition. We,
thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners
assert that there was a perfected contract of sale between the
petitioners as buyers and the respondents-owners, through
respondent Fernandez, as sellers. The petitioners contend that the
perfection of the said contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.[27] The pertinent portions of the
said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale
will no longer push through. I specifically instructed her to inform you
thru your broker that we will not be attending the meeting to be held
sometime first week of December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We
have not demanded and received from you any earnest money,
thereby, no obligations exist[28]
The petitioners argue that the letter is a sufficient note or
memorandum of the perfected contract, thus, removing it from the
coverage of the statute of frauds.The letter specifically makes
reference to a sale which respondent Fernandez agreed to initially,
but which the latter withdrew because of the emergence of some
people who claimed to be tenants on both parcels of land. According
to the petitioners, the respondents-owners, in their answer to the
complaint, as well as respondent Fernandez when she testified,
admitted the authenticity and due execution of the said
letter. Besides, when the petitioner Antonio Litonjua testified on the
contract of sale entered into between themselves and the
respondents-owners, the latter did not object thereto. Consequently,
the respondents-owners thereby ratified the said contract of
sale. The petitioners thus contend that the appellate courts
declaration that there was no perfected contract of sale between the
petitioners and the respondents-owners is belied by the evidence,
the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the
appellate court ruled that the Letter of respondent Fernandez
dated January 16, 1996 is hardly the note or memorandum
contemplated under Article 1403(2)(e) of the New Civil Code, which
reads:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or secondary evidence of its
contents:
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein.[29]
The appellate court based its ruling on the following
disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-
appellant can hardly be said to constitute the note or memorandum
evidencing the agreement of the parties to enter into a contract of
sale as it is very clear that defendant-appellant as seller did not
accept the condition that she will be the one to pay the registration
fees and miscellaneous expenses and therein also categorically
denied she had already committed to execute the deed of sale as
claimed by the plaintiffs-appellees. The letter, in fact, stated the
reasons beyond the control of the defendant-appellant, why the sale
could no longer push through because of the problem with
tenants. The trial court zeroed in on the statement of the defendant-
appellant that she and her cousin changed their minds, thereby
concluding that defendant-appellant had unilaterally cancelled the
sale or backed out of her previous commitment. However, the tenor
of the letter actually reveals a consistent denial that there was any
such commitment on the part of defendant-appellant to sell the
subject lands to plaintiffs-appellees. When defendant-appellant used
the words changed our mind, she was clearly referring to the
decision to sell the property at all (not necessarily to plaintiffs-
appellees) and not in selling the property to herein plaintiffs-
appellees as defendant-appellant had not yet made the final
decision to sell the property to said plaintiffs-appellees.This
conclusion is buttressed by the last paragraph of the subject letter
stating that we are no longer selling the property until all problems
are fully settled. To read a definite previous agreement for the sale of
the property in favor of plaintiffs-appellees into the contents of this
letter is to unduly restrict the freedom of the contracting parties to
negotiate and prejudice the right of every property owner to secure
the best possible offer and terms in such sale transactions. We
believe, therefore, that the trial court committed a reversible error in
finding that there was a perfected contract of sale or contract to sell
under the foregoing circumstances. Hence, the defendant-appellant
may not be held liable in this action for specific performance with
damages.[30]
In Rosencor Development Corporation vs. Court of
Appeals,[31] the term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. The statute does
not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The purpose of the
statute is to prevent fraud and perjury in the enforcement of
obligations, depending for their existence on the unassisted memory
of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged. The statute is satisfied or, as it is often stated, a contract or
bargain is taken within the statute by making and executing a note or
memorandum of the contract which is sufficient to state the
requirements of the statute.[32] The application of such
statute presupposes the existence of a perfected contract.However,
for a note or memorandum to satisfy the statute, it must be complete
in itself and cannot rest partly in writing and partly in parol. The note
or memorandum must contain the names of the parties, the terms
and conditions of the contract and a description of the property
sufficient to render it capable of identification.[33] Such note or
memorandum must contain the essential elements of the contract
expressed with certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or within
which it is connected, without resorting to parol evidence.[34] To be
binding on the persons to be charged, such note or
memorandum must be signed by the said party or by his agent duly
authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange
of written correspondence between the parties may constitute
sufficient writing to evidence the agreement for purposes of
complying with the statute of frauds.
In this case, we agree with the findings of the appellate court
that there was no perfected contract of sale between the
respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the
respondents-owners specifically authorized respondent Fernandez to
sell their properties to another, including the petitioners. Article 1878
of the New Civil Code provides that a special power of attorney is
necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration,[37] or to create or convey real rights over
immovable property,[38] or for any other act of strict dominion.[39] Any
sale of real property by one purporting to be the agent of the
registered owner without any authority therefor in writing from the
said owner is null and void.[40] The declarations of the agent alone
are generally insufficient to establish the fact or extent of her
authority.[41] In this case, the only evidence adduced by the
petitioners to prove that respondent Fernandez was authorized by
the respondents-owners is the testimony of petitioner Antonio
Litonjua that respondent Fernandez openly represented herself to be
the representative of the respondents-owners,[42] and that she
promised to present to the petitioners on December 8, 1996 a written
authority to sell the properties.[43] However, the petitioners claim was
belied by respondent Fernandez when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one
of the owners of the properties, and I was just there
to listen to his proposal because that time, we were
just looking for the best offer and I did not have yet
any written authorities from my brother and sisters
and relatives. I cannot agree on anything yet since
it is just a preliminary meeting, and so, I have to
secure authorities and relate the matters to my
relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for
another country and he requested me to come
back on the first week of December and in the
meantime, I should make an assurance that there
are no tenants in our properties, sir.[44]
The petitioners cannot feign ignorance of respondent
Fernandez lack of authority to sell the properties for the respondents-
owners. It must be stressed that the petitioners are noted
businessmen who ought to be very familiar with the intricacies of
business transactions, such as the sale of real property.
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.[45] In this case, respondent Fernandez
specifically denied that she was authorized by the respondents-
owners to sell the properties, both in her answer to the complaint and
when she testified. The Letter dated January 16, 1996 relied upon by
the petitioners was signed by respondent Fernandez alone, without
any authority from the respondents-owners. There is no evidence on
record that the respondents-owners ratified all the actuations of
respondent Fernandez in connection with her dealings with the
petitioners. As such, said letter is not binding on the respondents as
owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16,
1996[46] is not a note or memorandum within the context of Article
1403(2) because it does not contain the following: (a) all the essential
terms and conditions of the sale of the properties; (b) an accurate
description of the property subject of the sale; and, (c) the names of
the respondents-owners of the properties. Furthermore, the letter
made reference to only one property, that covered by TCT No. T-
36755.
We note that the petitioners themselves were uncertain as to
the specific area of the properties they were seeking to buy. In their
complaint, they alleged to have agreed to buy from the respondents-
owners 33,990 square meters of the total acreage of the two lots
consisting of 36,742 square meters. In their Letter to respondent
Fernandez dated January 5, 1996, the petitioners stated that they
agreed to buy the two lots, with a total area of 36,742 square
meters.[47] However, in their Letter dated February 1, 1996, the
petitioners declared that they agreed to buy a portion of the
properties consisting of 33,990 square meters.[48] When he testified,
petitioner Antonio Litonjua declared that the petitioners agreed to buy
from the respondents-owners 36,742 square meters at P150 per
square meter or for the total price of P5,098,500.[49]
 The failure of respondent Fernandez to object to parol
evidence to prove (a) the essential terms and conditions of the
contract asserted by the petitioners and, (b) her authority to sell the
properties for the respondents-registered owners did not and should
not prejudice the respondents-owners who had been declared in
default.[50]
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED. The decision of the appellate court is AFFIRMED IN
TOTO. Costs against the petitioners.
SO ORDERED.
G.R. No. 176405 August 20, 2008
LEO WEE, petitioner,
vs.
GEORGE DE CASTRO (on his behalf and as attorney-in-fact of
ANNIE DE CASTRO and FELOMINA UBAN) and MARTINIANA DE
CASTRO, respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45
of the Revised Rules of Court filed by petitioner Leo Wee, seeking
the reversal and setting aside of the Decision2 dated 19 September
2006 and the Resolution3 dated 25 January 2007 of the Court of
Appeals in CA-G.R. SP No. 90906. The appellate court, in its
assailed Decision, reversed the dismissal of Civil Case. No. 1990, an
action for ejectment instituted by respondent George de Castro, on
his own behalf and on behalf of Annie de Castro, Felomina de Castro
Uban and Jesus de Castro4 against petitioner, by the Municipal Trial
Court (MTC) of Alaminos City, which was affirmed by the Regional
Trial Court (RTC), Branch 54, Alaminos City, Pangasinan; and, ruling
in favor of the respondents, ordered the petitioner to vacate the
subject property. In its assailed Resolution dated 25 January 2007,
the Court of Appeals refused to reconsider its earlier Decision of 19
September 2006.
In their Complaint5 filed on 1 July 2002 with the MTC of Alaminos
City, docketed as Civil Case No. 1990, respondentsalleged that they
are the registered owners of the subject property, a two-storey
building erected on a parcel of land registered under Transfer
Certificate of Title (TCT) No. 16193 in the Registry of Deeds of
Pangasinan, described and bounded as follows:
A parcel of land (Lot 13033-D-2, Psd-01550-022319, being
a portion of Lot 13033-D, Psd-018529, LRC Rec. No. ____)
situated in Pob., Alaminos City; bounded on the NW. along
line 1-2 by Lot 13035-D-1 of the subdivision plan; on the
NE. along line 2-3 by Vericiano St.; on the SE. along line 3-
4 by Lot 13033-D-2 of the subdivision plan; on the SW.
along line 4-1 by Lot 575, Numeriano Rabago. It is coverd
by TCT No. 16193 of the Register of Deeds of Pangasinan
(Alaminos City) and declared for taxation purposes per
T.D. No. 2075, and assessed in the sum of P93,400.00.6
Respondents rented out the subject property to petitioner on a month
to month basis for P9,000.00 per month.7 Both parties agreed that
effective 1 October 2001, the rental payment shall be increased
from P9,000.00 to P15,000.00. Petitioner, however, failed or refused
to pay the corresponding increase on rent when his rental obligation
for the month of 1 October 2001 became due. The rental dispute was
brought to the Lupon Tagapagpamayapa of Poblacion, Alaminos,
Pangasinan, in an attempt to amicably settle the matter but the
parties failed to reach an agreement, resulting in the issuance by
the Barangay Lupon of a Certification to file action in court on 18
January 2002. On 10 June 2002, respondent George de Castro sent
a letter to petitioner terminating their lease agreement and
demanding that the latter vacate and turn over the subject property to
respondents. Since petitioner stubbornly refused to comply with said
demand letter, respondent George de Castro, together with his
siblings and co-respondents, Annie de Castro, Felomina de Castro
Uban and Jesus de Castro, filed the Complaint for ejectment before
the MTC.
It must be noted, at this point, that although the Complaint stated that
it was being filed by all of the respondents, the Verification and the
Certificate of Non-Forum Shopping were signed by respondent
George de Castro alone. He would subsequently attach to his
position paper filed before the MTC on 28 October 2002 the Special
Powers of Attorney (SPAs) executed by his sisters Annie de Castro
and Felomina de Castro Uban dated 7 February 2002 and 14 March
2002 respectively, authorizing him to institute the ejectment case
against petitioner.
Petitioner, on the other hand, countered that there was no agreement
between the parties to increase the monthly rentals and respondents'
demand for an increase was exorbitant. The agreed monthly rental
was only for the amount of P9,000.00 and he was religiously paying
the same every month. Petitioner then argued that respondents failed
to comply with the jurisdictional requirement of conciliation before
the Barangay Lupon prior to the filing of Civil Case. No. 1990,
meriting the dismissal of their Complaint therein. The Certification to
file action issued by the Barangay Lupon appended to the
respondents' Complaint merely referred to the issue of rental
increase and not the matter of ejectment. Petitioner asserted further
that the MTC lacked jurisdiction over the ejectment suit, since
respondents' Complaint was devoid of any allegation that there was
an "unlawful withholding" of the subject property by the petitioner.8
During the Pre-Trial Conference9 held before the MTC, the parties
stipulated that in May 2002, petitioner tendered to respondents the
sum of P9,000.00 as rental payment for the month of January 2002;
petitioner paid rentals for the months of October 2001 to January
2002 but only in the amount of P9,000.00 per month; respondents,
thru counsel, sent a letter to petitioner on 10 June 2002 terminating
their lease agreement which petitioner ignored; and
the Barangay Lupon did issue a Certification to file action after the
parties failed to reach an agreement before it.
After the submission of the parties of their respective Position
Papers, the MTC, on 21 November 2002, rendered a
Decision10 dismissing respondents' Complaint in Civil Case No. 1990
for failure to comply with the prior conciliation requirement before
the Barangay Lupon. The decretal portion of the MTC Decision
reads:
WHEREFORE, premised considered, judgment is hereby
rendered ordering the dismissal of this case. Costs against
the [herein respondents].
On appeal, docketed as Civil Case No. A-2835, the RTC of
Alaminos, Pangasinan, Branch 54, promulgated its Decision11dated
27 June 2005 affirming the dismissal of respondents' Complaint for
ejectment after finding that the appealed MTC Decision was based
on facts and law on the matter. The RTC declared that since the
original agreement entered into by the parties was for petitioner to
pay only the sum of P9.000.00 per month for the rent of the subject
property, and no concession was reached by the parties to increase
such amount to P15.000.00, petitioner cannot be faulted for paying
only the originally agreed upon monthly rentals. Adopting petitioner's
position, the RTC declared that respondents' failure to refer the
matter to the Barangay court for conciliation process barred the
ejectment case, conciliation before the Lupon being a condition sine
qua non in the filing of ejectment suits. The RTC likewise agreed with
petitioner in ruling that the allegation in the Complaint was flawed,
since respondents failed to allege that there was an "unlawful
withholding" of possession of the subject property, taking out Civil
Case No. 1990 from the purview of an action for unlawful detainer.
Finally, the RTC decreed that respondents' Complaint failed to
comply with the rule that a co-owner could not maintain an action
without joining all the other co-owners. Thus, according to the
dispositive portion of the RTC Decision:
WHEREFORE the appellate Court finds no cogent reason
to disturb the findings of the court a quo. The Decision
dated November 21, 2002 appealed from is hereby
AFFIRMED IN TOTO.12
Undaunted, respondents filed a Petition for Review
on Certiorari13 with the Court of Appeals where it was docketed as
CA-G.R. SP No. 90906. Respondents argued in their Petition that the
RTC gravely erred in ruling that their failure to comply with the
conciliation process was fatal to their Complaint, since it is only
respondent George de Castro who resides in Alaminos City,
Pangasinan, while respondent Annie de Castro resides in
Pennsylvania, United States of America (USA); respondent Felomina
de Castro Uban, in California, USA; and respondent Jesus de
Castro, now substituted by his wife, Martiniana, resides in Manila.
Respondents further claimed that the MTC was not divested of
jurisdiction over their Complaint for ejectment because of the mere
absence therein of the term "unlawful withholding" of their subject
property, considering that they had sufficiently alleged the same in
their Complaint, albeit worded differently. Finally, respondents
posited that the fact that only respondent George de Castro signed
the Verification and the Certificate of Non-Forum Shopping attached
to the Complaint was irrelevant since the other respondents already
executed Special Powers of Attorney (SPAs) authorizing him to act
as their attorney-in-fact in the institution of the ejectment suit against
the petitioner.
On 19 September 2006, the Court of Appeals rendered a Decision
granting the respondents' Petition and ordering petitioner to vacate
the subject property and turn over the same to respondents. The
Court of Appeals decreed:
WHEREFORE, premises considered, the instant petition is
GRANTED. The assailed Decision dated June 27, 2005
issued by the RTC of Alaminos City, Pangasinan, Branch
54, is REVERSED and SET ASIDE. A new one is hereby
rendered ordering [herein petitioner] Leo Wee to
SURRENDER and VACATE the leased premises in
question as well as to pay the sum of P15,000.00 per
month reckoned from March, 2002 until he shall have
actually turned over the possession thereof to petitioners
plus the rental arrearages of P30,000.00 representing
unpaid increase in rent for the period from October, 2001 to
February, 2002, with legal interest at 6% per annum to be
computed from June 7, 2002 until finality of this decision
and 12% thereafter until full payment thereof. Respondent
is likewise hereby ordered to pay petitioners the amount
of P20,000.00 as and for attorney's fees and the costs of
suit.14
In a Resolution dated 25 January 2007, the appellate court denied
the Motion for Reconsideration interposed by petitioner for lack of
merit.
Petitioner is now before this Court via the Petition at bar, making the
following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN DECLARING THAT CONCILIATION PROCESS
IS NOT A JURISDICTIONAL REQUIREMENT THAT NON-
COMPLIANCE THEREWITH DOES NOT AFFECT THE
JURISDICTION IN EJECTMENT CASE;
II.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN UPHOLDING THE SUFFICIENCY OF THE
ALLEGATIONS IN THE COMPLAINT FOR EJECTMENT
DESPITE THE WANT OF ALLEGATION OF "UNLAWFUL
WITHOLDING PREMISES" (sic) QUESTIONED BY
PETITIONER;
III.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN RULING THAT THE FILING OF THE
COMPLAINT OF RESPONDENT GEORGE DE CASTRO
WITHOUT JOINING ALL HIS OTHER CO-OWNERS
OVER THE SUBJECT PROPERTY IS PROPER;
IV.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT APPLYING SUPREME COURT
CIRCULAR NO. 10 WHICH DIRECTS A PLEADER TO
INDICATE IN HIS PLEADINGS HIS OFFICIAL RECEIPT
OF HIS PAYMENT OF HIS IBP DUES.15
Petitioner avers that respondents failed to go through the conciliation
process before the Barangay Lupon, a jurisdictional defect that bars
the legal action for ejectment. The Certification to file action dated 18
January 2002 issued by the Barangay Lupon, appended by the
respondents to their Complaint in Civil Case No. 1990, is of no
moment, for it attested only that there was confrontation between the
parties on the matter of rental increase but not on unlawful detainer
of the subject property by the petitioner. If it was the intention of the
respondents from the very beginning to eject petitioner from the
subject property, they should have brought up the alleged unlawful
stay of the petitioner on the subject property for conciliation before
the Barangay Lupon.
The barangay justice system was established primarily as a means
of easing up the congestion of cases in the judicial courts. This could
be accomplished through a proceeding before the barangay courts
which, according to the one who conceived of the system, the late
Chief Justice Fred Ruiz Castro, is essentially arbitration in character;
and to make it truly effective, it should also be compulsory. With this
primary objective of the barangay justice system in mind, it would be
wholly in keeping with the underlying philosophy of Presidential
Decree No. 1508 (Katarungang Pambarangay Law), which would be
better served if an out-of-court settlement of the case is reached
voluntarily by the parties.16 To ensure this objective, Section 6 of
Presidential Decree No. 1508 requires the parties to undergo a
conciliation process before the Lupon Chairman or thePangkat ng
Tagapagkasundo as a precondition to filing a complaint in court
subject to certain exceptions. The said section has been declared
compulsory in nature.17
Presidential Decree No. 1508 is now incorporated in Republic Act
No. 7160 (The Local Government Code), which took effect on 1
January 1992.
The pertinent provisions of the Local Government Code making
conciliation a precondition to the filing of complaints in court are
reproduced below:
SEC. 412. Conciliation.- (a) Pre-condition to filing of
complaint in court. - No complaint, petition, action, or
proceeding involving any matter within the authority of the
lupon shall be filed or instituted directly in court or any
other government office for adjudication, unless there has
been a confrontation between the parties before the lupon
chairman or the pangkat, and that no conciliation or
settlement has been reached as certified by the lupon
secretary or pangkat secretary as attested to by the lupon
or pangkat chairman or unless the settlement has been
repudiated by the parties thereto.
(b) Where parties may go directly to court. - The parties
may go directly to court in the following instances:
(1) Where the accused is under detention;
(2) Where a person has otherwise been deprived
of personal liberty calling for habeas
corpus proceedings;
(3) Where actions are coupled with provisional
remedies such as preliminary injunction,
attachment, delivery of personal property, and
support pendente lite; and
(4) Where the action may otherwise be barred by
the statute of limitations.
 (c) Conciliation among members of indigenous cultural
communities. - The customs and traditions of indigenous
cultural communities shall be applied in settling disputes
between members of the cultural communities.
SEC. 408. Subject Matter for Amicable Settlement;
Exception Thereto. - The lupon of each barangay shall
have authority to bring together the parties actually residing
in the same city or municipality for amicable settlement of
all disputes except:
(a) Where one party is the government or any subdivision
or instrumentality thereof;
(b) Where one party is a public officer or employee, and the
dispute relates to the performance of his official functions;
(c) Offenses punishable by imprisonment exceeding one
(1) year or a fine exceeding Five thousand pesos
(P5,000.00);
(d) Offenses where there is no private offended party;
(e) Where the dispute involves real properties located in
different cities or municipalities unless the parties thereto
agree to submit their differences to amicable settlement by
an appropriate lupon;
(f) Disputes involving parties who actually reside in
barangays of different cities or municipalities, except where
such barangay units adjoin each other and the parties
thereto agree to submit their differences to amicable
settlement by an appropriate lupon;
(g) Such other classes of disputes which the President may
determine in the interest of justice or upon the
recommendation of the Secretary of Justice.
There is no question that the parties to this case appeared before
the Barangay Lupon for conciliation proceedings. There is also no
dispute that the only matter referred to the Barangay Lupon for
conciliation was the rental increase, and not the ejectment of
petitioner from the subject property. This is apparent from a perusal
of the Certification to file action in court issued by
the Barangay Lupon on 18 January 2002, to wit:
CERTIFICATION TO FILE COMPLAINTS
This is to certify that:
1. There was personal confrontation between parties
before the barangay Lupon regarding rental increase of a
commercial building but conciliation failed;
2. Therefore, the corresponding dispute of the above-
entitled case may now be filed in Court/Government
Office.18(Emphasis ours.)
The question now to be resolved by this Court is whether the
Certification dated 18 January 2002 issued by the Barangay
Lupon stating that no settlement was reached by the parties on the
matter of rental increase sufficient to comply with the prior
conciliation requirement under the Katarungang Pambarangay Law
to authorize the respondents to institute the ejectment suit against
petitioner.
The Court rules affirmatively.
While it is true that the Certification to file action dated 18 January
2002 of the Barangay Lupon refers only to rental increase and not to
the ejectment of petitioner from the subject property, the submission
of the same for conciliation before the Barangay Lupon constitutes
sufficient compliance with the provisions of the Katarungang
Pambarangay Law. Given the particular circumstances of the case at
bar, the conciliation proceedings for the amount of monthly rental
should logically and reasonably include also the matter of the
possession of the property subject of the rental, the lease agreement,
and the violation of the terms thereof.
We now proceed to discuss the meat of the controversy.
The contract of lease between the parties did not stipulate a fixed
period. Hence, the parties agreed to the payment of rentals on a
monthly basis. On this score, Article 1687 of the Civil Code provides:
Art. 1687. If the period for the lease has not been fixed,
it is understood to be from year to year, if the rent agreed
upon is annual; from month to month, if it is monthly;
from week to week, if the rent is weekly; and from day to
day, if the rent is to be paid daily. However, even though a
monthly rent is paid, and no period for the lease has been
set, the courts may fix a longer term for the lease after the
lessee has occupied the premises for over one year. If the
rent is weekly, the courts may likewise determine a longer
period after the lessee has been in possession for over six
months. In case of daily rent, the courts may also fix a
longer period after the lessee has stayed in the place for
over one month. (Emphasis supplied.)
The rentals being paid monthly, the period of such lease is deemed
terminated at the end of each month. Thus, respondents have every
right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a
lease contract, petitioner has no right of possession to the subject
property and must vacate the same. Respondents, thus, should be
allowed to resort to an action for ejectment before the MTC to
recover possession of the subject property from petitioner.
Corollarily, petitioner's ejectment, in this case, is only the reasonable
consequence of his unrelenting refusal to comply with the
respondents' demand for the payment of rental increase agreed upon
by both parties. Verily, the lessor's right to rescind the contract of
lease for non-payment of the demanded increased rental was
recognized by this Court in Chua v. Victorio19:
The right of rescission is statutorily recognized in reciprocal
obligations, such as contracts of lease. In addition to the
general remedy of rescission granted under Article 1191 of
the Civil Code, there is an independent provision granting
the remedy of rescission for breach of any of the lessor or
lessee's statutory obligations. Under Article 1659 of the
Civil Code, the aggrieved party may, at his option, ask for
(1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for
damages, allowing the contract to remain in force.
Payment of the rent is one of a lessee's statutory
obligations, and, upon non-payment by petitioners of
the increased rental in September 1994, the lessor
acquired the right to avail of any of the three remedies
outlined above. (Emphasis supplied.)
Petitioner next argues that respondent George de Castro cannot
maintain an action for ejectment against petitioner, without joining all
his co-owners.
Article 487 of the New Civil Code is explicit on this point:
ART. 487. Any one of the co-owners may bring an action in
ejectment.
This article covers all kinds of action for the recovery of
possession, i.e., forcible entry and unlawful detainer (accion
interdictal), recovery of possession (accion publiciana), and recovery
of ownership (accion de reivindicacion). As explained by the
renowned civilist, Professor Arturo M. Tolentino20:
A co-owner may bring such an action, without the
necessity of joining all the other co-owners as co-
plaintiffs, because the suit is deemed to be instituted
for the benefit of all. If the action is for the benefit of the
plaintiff alone, such that he claims possession for himself
and not for the co-ownership, the action will not prosper.
(Emphasis added.)
In the more recent case of Carandang v. Heirs of De Guzman,21 this
Court declared that a co-owner is not even a necessary party to an
action for ejectment, for complete relief can be afforded even in his
absence, thus:
In sum, in suits to recover properties, all co-owners are real
parties in interest. However, pursuant to Article 487 of the
Civil Code and the relevant jurisprudence, any one of them
may bring an action, any kind of action for the recovery of
co-owned properties. Therefore, only one of the co-owners,
namely the co-owner who filed the suit for the recovery of
the co-owned property, is an indispensable party thereto.
The other co-owners are not indispensable parties. They
are not even necessary parties, for a complete relief can be
afforded in the suit even without their participation, since
the suit is presumed to have been filed for the benefit of all
co-owners.
Moreover, respondents Annie de Castro and Felomina de Castro
Uban each executed a Special Power of Attorney, giving respondent
George de Castro the authority to initiate Civil Case No. 1990.
A power of attorney is an instrument in writing by which one person,
as principal, appoints another as his agent and confers upon him the
authority to perform certain specified acts or kinds of acts on behalf
of the principal. The written authorization itself is the power of
attorney, and this is clearly indicated by the fact that it has also been
called a "letter of attorney."22
Even then, the Court views the SPAs as mere surplusage, such that
the lack thereof does not in any way affect the validity of the action
for ejectment instituted by respondent George de Castro. This also
disposes of petitioner's contention that respondent George de Castro
lacked the authority to sign the Verification and the Certificate of
Non-Forum Shopping. As the Court ruled in Mendoza v. Coronel23:
We likewise hold that the execution of the certification
against forum shopping by the attorney-in-fact in the
case at bar is not a violation of the requirement that
the parties must personally sign the same. The
attorney-in-fact, who has authority to file, and who actually
filed the complaint as the representative of the plaintiff co-
owner, pursuant to a Special Power of Attorney, is a party
to the ejectment suit. In fact, Section 1, Rule 70 of the
Rules of Court includes the representative of the owner in
an ejectment suit as one of the parties authorized to
institute the proceedings. (Emphasis supplied.)
Failure by respondent George de Castro to attach the said SPAs to
the Complaint is innocuous, since it is undisputed that he was
granted by his sisters the authority to file the action for ejectment
against petitioner prior to the institution of Civil Case No. 1990. The
SPAs in his favor were respectively executed by respondents Annie
de Castro and Felomina de Castro Uban on 7 February 2002 and 14
March 2002; while Civil Case No. 1990 was filed by respondent
George de Castro on his own behalf and on behalf of his siblings
only on 1 July 2002, or way after he was given by his siblings the
authority to file said action. The Court quotes with approval the
following disquisition of the Court of Appeals:
Moreover, records show that [herein respondent] George
de Castro was indeed authorized by his sisters Annie de
Castro and Felomina de Castro Uban, to prosecute the
case in their behalf as shown by the Special Power of
Attorney dated February 7, 2002 and March 14, 2002. That
these documents were appended only to [respondent
George de Castro's] position paper is of no moment
considering that the authority conferred therein was given
prior to the institution of the complaint in July, 2002. x x x.24
Respondent deceased Jesus de Castro's failure to sign the
Verification and Certificate of Non-Forum Shopping may be excused
since he already executed an Affidavit25 with respondent George de
Castro that he had personal knowledge of the filing of Civil Case No.
1990. In Torres v. Specialized Packaging Development
Corporation,26 the Court ruled that the personal signing of the
verification requirement was deemed substantially complied with
when, as in the instant case, two out of 25 real parties-in-interest,
who undoubtedly have sufficient knowledge and belief to swear to
the truth of the allegations in the petition, signed the verification
attached to it.
In the same vein, this Court is not persuaded by petitioner's assertion
that respondents' failure to allege the jurisdictional fact that there was
"unlawful withholding" of the subject property was fatal to their cause
of action.
It is apodictic that what determines the nature of an action as well as
which court has jurisdiction over it are the allegations in the complaint
and the character of the relief sought. In an unlawful detainer case,
the defendant's possession was originally lawful but ceased to be so
upon the expiration of his right to possess. Hence, the phrase
"unlawful withholding" has been held to imply possession on the part
of defendant, which was legal in the beginning, having no other
source than a contract, express or implied, and which later expired
as a right and is being withheld by defendant.27
In Barba v. Court of Appeals,28 the Court held that although the
phrase "unlawfully withholding" was not actually used by therein
petitioner in her complaint, the Court held that her allegations,
nonetheless, amounted to an unlawful withholding of the subject
property by therein private respondents, because they continuously
refused to vacate the premises even after notice and demand.
In the Petition at bar, respondents alleged in their Complaint that they
are the registered owners of the subject property; the subject
property was being occupied by the petitioner pursuant to a monthly
lease contract; petitioner refused to accede to respondents' demand
for rental increase; the respondents sent petitioner a letter
terminating the lease agreement and demanding that petitioner
vacate and turn over the possession of the subject property to
respondents; and despite such demand, petitioner failed to surrender
the subject property to respondents.29 The Complaint sufficiently
alleges the unlawful withholding of the subject property by petitioner,
constitutive of unlawful detainer, although the exact words "unlawful
withholding" were not used. In an action for unlawful detainer, an
allegation that the defendant is unlawfully withholding possession
from the plaintiff is deemed sufficient, without necessarily employing
the terminology of the law.30
Petitioner's averment that the Court of Appeals should have
dismissed respondents' Petition in light of the failure of their counsel
to attach the Official Receipt of his updated payment of Integrated
Bar of the Philippines (IBP) dues is now moot and academic, since
respondents' counsel has already duly complied therewith. It must be
stressed that judicial cases do not come and go through the portals
of a court of law by the mere mandate of technicalities.31 Where a
rigid application of the rules will result in a manifest failure or
miscarriage of justice, technicalities should be disregarded in order to
resolve the case. 32
Finally, we agree in the ruling of the Court of Appeals that petitioner
is liable for the payment of back rentals, attorney's fees and cost of
the suit. Respondents must be duly indemnified for the loss of
income from the subject property on account of petitioner's refusal to
vacate the leased premises.

WHEREFORE, premises considered, the instant Petition is DENIED.

The Decision dated 19 September 2006 and Resolution dated 25
January 2007 of the Court of Appeals in CA-G.R. SP No. 90906 are
hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.