DECISION

FIRST DIVISION

CALLEJO, SR., J.:

EDUARDO V. LINTONJUA, JR. G.R. No. 144805

and ANTONIO K. LITONJUA,

Petitioners, On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
Present:
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution[2] of the CA
PANGANIBAN, C.J., Chairperson, denying the motion for reconsideration thereof.

- versus - YNARES-SANTIAGO,*

AUSTRIA-MARTINEZ,
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine
CALLEJO, SR., and laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe
CHICO-NAZARIO, JJ. products. Its manufacturing operations were conducted on eight parcels of land with a total
area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila,
ETERNIT CORPORATION were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120,
(now ETERTON MULTI- 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as
trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer
RESOURCES CORPORATION), S.A. Corporation (ESAC), a corporation organized and registered under the laws
of Belgium.[3] Jack Glanville, an Australian citizen, was the General Manager and President of
ETEROUTREMER, S.A. and Promulgated:
EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had
FAR EAST BANK & TRUST their offices in Belgium.

COMPANY, June 8, 2006

Respondents.
x-----------------------------------------------------------------------------------------x
In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of the eight
parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.
 Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of
the Philippines, the political situation in the Philippines had improved. Marquez received a
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that
his principal to inform Marquez that the decision has been taken at a Board Meeting not to
the terms of the sale were subject to negotiation.[4]
sell the properties on which Eternit Corporation is situated.[10]

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
Office had decided not to proceed with the sale of the subject land, to wit:
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer
and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the
May 22, 1987
offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the Belgian/Swiss decision, the final offer was Mr. L.G. Marquez
US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation.[5] L.G. Marquez, Inc.

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, 334 Makati Stock Exchange Bldg.
Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a 6767 Ayala Avenue
Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full Makati, Metro Manila
payment within 90 days after execution and preparation of all documents of sale, together Philippines
with the necessary governmental clearances.[6]

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank &
Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.[7] Dear Sir:

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale Re: Land of Eternit Corporation
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he
had met with the buyer, which had given him the impression that he is prepared to press for
a satisfactory conclusion to the sale.[8] He also emphasized to Delsaux that the buyers were I would like to confirm officially that our Group has decided not to proceed with the sale of
concerned because they would incur expenses in bank commitment fees as a consequence the land which was proposed to you.
of prolonged period of inaction.[9]
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the] new
political situation since the departure of MR. MARCOS and a certain stabilization in
the Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.) [11]
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now
the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC
in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha
T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of
their purchase of ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts;
the Board and stockholders of EC never approved any resolution to sell subject properties
nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack
Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.[12] The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of
cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation
and Eteroutremer, S.A. is also dismissed for lack of merit.[13]
The trial court declared that since the authority of the agents/realtors was not in writing,
the sale is void and not merely unenforceable, and as such, could not have been ratified by
the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs
could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total
cessation of its operation.[14]
The Litonjuas appealed the decision to the CA, alleging that (1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution of
the board of directors.[15] They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy and
sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporations assets, it would
necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. The [16]
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he
needed a special authority from ECs board of directors to bind such corporation to the sale
of its properties. Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was
not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I was not an ordinary agent because his authority was of a special and limited character in
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT
OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE
PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER
TO SELL THE SAID PROPERTIES.[17]
Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation. Petitioners insist that they
had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors
of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez
most respects. His only job as a broker was to look for a buyer and to bring together the
parties to the transaction. He was not authorized to sell the properties or to make a binding
contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does
not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows
that Glanville, who was the President and General Manager of respondent EC, and Delsaux,
who was the Managing Director for ESAC Asia, had the necessary authority to sell the
subject property or, at least, had been allowed by respondent EC to hold themselves out in
the public as having the power to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as
evidenced by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL;
7. More importantly, Exhibits G and H of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.[18]
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by
respondent EC.Petitioners insist that Delsaux confirmed his authority to sell the properties
in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later stage we would consult you again.

In the meantime, I remain
Yours sincerely,
C.F. DELSAUX[19]
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain
that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent
EC and its Board of Directors to offer the properties for sale to the petitioners, or to any
other person or entity for that matter. They assert that the decision and resolution of the CA
are in accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1,
1997. Given the significance of their positions and their duties in respondent EC at the time
of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of
respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC never repudiated the acts of
Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In
the absence of express written terms creating the relationship of an agency, the existence of
an agency is a fact question.[20] Whether an agency by estoppel was created or whether a
person acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.[21] The findings of the trial court on such
issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and
appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the
case.[22]
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the
evidence on record, whether testimonial and documentary. There are, however, recognized
exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly agents in the normal course of business. The general principles of agency govern the
considered, would justify a different conclusion; and (10) when the findings of fact of the relation between the corporation and its officers or agents, subject to the articles of
Court of Appeals are premised on the absence of evidence and are contradicted by the incorporation, by-laws, or relevant provisions of law.[26]
evidence on record.[23]

Under Section 36 of the Corporation Code, a corporation may sell or convey its real
We have reviewed the records thoroughly and find that the petitioners failed to establish properties, subject to the limitations prescribed by law and the Constitution, as follows:
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
It was the duty of the petitioners to prove that respondent EC had decided to sell its
the power and capacity:
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the
properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is sought xxxx
of a contract made with an agent, the agency must be established by clear, certain and
specific proof.[24]
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of corporations, as the transaction of a lawful business of the corporation may reasonably and
the Philippines, provides: necessarily require, subject to the limitations prescribed by the law and the Constitution.

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 The property of a corporation, however, is not the property of the stockholders or
conducted and all property of such corporations controlled and held by the board of members, and as such, may not be sold without express authority from the board of
directors or trustees to be elected from among the holders of stocks, or where there is no directors.[27] Physical acts, like the offering of the properties of the corporation for sale, or
stock, from among the members of the corporation, who shall hold office for one (1) year the acceptance of a counter-offer of prospective buyers of such properties and the
and until their successors are elected and qualified. execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.[28] Absent such valid delegation/authorization, the
Indeed, a corporation is a juridical person separate and distinct from its members or rule is that the declarations of an individual director relating to the affairs of the
stockholders and is not affected by the personal rights, corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on
the corporation.[29]
obligations and transactions of the latter.[25] It may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through its officers or
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.[30] An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or impliedly
by its board of directors. Any sale of real property of a corporation by a person purporting to
be an agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of
his/her authority.[31]
By the contract of agency, a person binds himself to render some service or to do something
in representation on behalf of another, with the consent or authority of the
latter.[32] Consent of both principal and agent is necessary to create an agency. The principal
must intend that the agent shall act for him; the agent must intend to accept the authority
and act on it, and the intention of the parties must find expression either in words or
conduct between them.[33]
An agency may be expressed or implied from the act of the principal, from his silence or lack
of action, or his failure to repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be expressed, or implied from his
acts which carry out the agency, or from his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law requires a specific form.[35] However, to
create or convey real rights over immovable property, a special power of attorney is
necessary.[36] Thus, when a sale of a piece of land or any portion thereof is through an agent,
the authority of the latter shall be in writing, otherwise, the sale shall be void.[37]
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of
the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its
agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned
by respondent EC including the improvements thereon. The bare fact that Delsaux may have
been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1,
1997, cannot be used as basis for petitioners claim that he had likewise been authorized by
respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and the Belgian/Swiss
component of the management of respondent ESAC.[40] As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for
sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations.
When petitioners offered to purchase the property for P20,000,000.00, through Marquez,
the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners offer. However, as admitted by
petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of
Glanville because Delsaux had to wait for confirmation from respondent ESAC.[41] When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on
the Belgian/Swiss decision the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final liquidation.[42] The offer of
Delsaux emanated only from the Belgian/Swiss decision, and not the entire management or
Board of Directors of respondent ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was not a party to the transaction
between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a
majority of the shares of stocks of another, or even all of such shares of stocks, taken alone,
will not justify their being treated as one corporation.[43]
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court.[44]
The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and
to sell the said properties to the petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the agents; statements as to the extent
of his powers; such person must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of his authority.[45] The
settled rule is that, persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to prove it.[46] In this case, the petitioners failed to discharge their burden;
hence, petitioners are not entitled to damages from respondent EC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions
and the various communications inter se were never submitted to the Board of Directors of
respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.

It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell.[47]

Equally barren of merit is petitioners contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established: (1) the principal manifested
a representation of the agents authority or knowlingly allowed the agent to assume such

authority; (2) the third person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his position to his detriment.[48] An
agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance.[49] Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux positively and unequivocally
declared that they were acting for and in behalf of respondent ESAC.
FIRST DIVISION
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV
No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court
(RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied
petitioner’s Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil
Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in the
concept of a personal loan amounting to P405,430.00 representing the principal amount
and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as
seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon,
with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and
located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in
order to satisfy her personal loan with respondent; that this property was mortgaged to
National Home Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in the
sum of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent
shall assume the undue balance of the mortgage and pay the monthly amortization
of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the
property was at that time being occupied by a tenant paying a monthly rent of P3,000.00;
that upon verification with the NHMFC, respondent learned that petitioner had incurred
arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner denied that she incurred them and
refused to pay the same; that despite repeated demand, petitioner refused to cooperate
with respondent to execute the necessary documents and other formalities required by the
NHMFC to effect the transfer of the title over the property; that petitioner collected rent
over the property for the month of January 1997 and refused to remit the proceeds to
respondent; and that respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that
she borrowed money from respondent, and averred that from June to September 1995, she
referred her friends to respondent whom she knew to be engaged in the business of lending
money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that
her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and
Elizabeth Tomelden, borrowed money from respondent and issued personal checks in
payment of the loan; that the checks bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the borrowers, she could no longer locate them;
that, because of this, respondent became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be filed against her; that she was forced to
issue eight checks amounting to P350,000 to answer for the bounced checks of the
borrowers she referred; that prior to the issuance of the checks she informed respondent
that they were not sufficiently funded but the latter nonetheless deposited the checks and
for which reason they were subsequently dishonored; that respondent then threatened to
initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor,
Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that she
did not appear before a notary public; that the Community Tax Certificate number on the
deed was not hers and for which respondent may be prosecuted for falsification and
perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid;
second; if valid, whether petitioner is obliged to sign and execute the necessary documents
to effect the transfer of her rights over the property to the respondent; and third, whether
petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint
for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration:5
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by and
between plaintiff and defendant. Moreover, the property is not solely owned by defendant
as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A,
Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of
Teodorico Doles on the parcel of land described in this certificate of title by virtue of the
special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no
effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE
DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF
EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of
the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered
ordering defendant-appellee to execute all necessary documents to effect transfer of
subject property to plaintiff-appellant with the arrearages of the former’s loan with the
NHMFC, at the latter’s expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends
of petitioner never presented themselves to respondent and that all transactions were
made by and between petitioner and respondent;7 that the money borrowed was deposited
with the bank account of the petitioner, while payments made for the loan were deposited
by the latter to respondent’s bank account;8 that petitioner herself admitted in open court
that she was "re-lending" the money loaned from respondent to other individuals for
profit;9 and that the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce one’s claim
through competent authority under Article 133511 of the Civil Code;12 that with respect to
the arrearages of petitioner on her monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as the
claim for damages and attorney’s fees, is denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity
to sue petitioner; and that the CA failed to consider the fact that petitioner’s father, who co-
owned the subject property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT
DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made by
the lower courts, jurisprudence has recognized several exceptions, at least three of which
are present in the instant case, namely: when the judgment is based on a misapprehension a. Yes, sir.
of facts; when the findings of facts of the courts a quo are conflicting; and when the CA
Atty. Diza:
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria
the Court finds it necessary to re-examine the evidence presented by the contending parties Luisa Inocencio, Zenaida Romulo, they are your friends?
during the trial of the case.
witness:
The Petition is meritorious.
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were
The principal issue is whether the Deed of Absolute Sale is supported by a valid just referred.
consideration.
Atty. Diza:
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed between her q. And you have transact[ed] with the plaintiff?
and the respondent in their own names, which was predicated on that pre-existing debt, is witness:
void for lack of consideration.
a. Yes, sir.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form
of a price certain in money16 and that this sum indisputably pertains to the debt in issue. Atty. Diza:
This Court has consistently held that a contract of sale is null and void and produces no q. What is that transaction?
effect whatsoever where the same is without cause or consideration.17 The question that
has to be resolved for the moment is whether this debt can be considered as a valid cause witness:
or consideration for the sale.
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
To restate, the CA cited four instances in the record to support its holding that petitioner
Atty. Diza:
"re-lends" the amount borrowed from respondent to her friends: first, the friends of
petitioner never presented themselves to respondent and that all transactions were made q. Did the plaintiff personally see the transactions with your friends?
by and between petitioner and respondent;18 second; the money passed through the bank
witness:
accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-
lending" the money loaned to other individuals for profit;20 and fourth, the documentary a. No, sir.
evidence shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.21 Atty. Diza:

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then q. Your friends and the plaintiff did not meet personally?
defendant, during her cross-examination:22 witness:
Atty. Diza: a. Yes, sir.
q. You also mentioned that you were not the one indebted to the plaintiff? Atty. Diza:
witness: q. You are intermediaries?
witness: Atty. Villacorta:

a. We are both intermediaries. As evidenced by the checks of the debtors they were q. Who is this Arsenio Pua?
deposited to the name of Arsenio Pua because the money came from Arsenio Pua.
witness:
xxxx
a. Principal financier, sir.
Atty. Diza:
Atty. Villacorta:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the
q. So the money came from Arsenio Pua?
one you mentioned [a] while ago?
witness:
witness:
a. Yes, because I am only representing him, sir.
a. Yes, she knows the money will go to those persons.
Other portions of the testimony of respondent must likewise be considered:24
Atty. Diza:
Atty. Villacorta:
q. You are re-lending the money?
q. So it is not actually your money but the money of Arsenio Pua?
witness:
witness:
a. Yes, sir.
a. Yes, sir.
Atty. Diza:
Court:
q. What profit do you have, do you have commission?
q. It is not your money?
witness:
witness:
a. Yes, sir.
a. Yes, Your Honor.
Atty. Diza:
Atty. Villacorta:
q. How much?
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate
witness:
somebody, are you aware of that?
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none,
witness:
sir.
a. I am aware of that.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender. Atty. Villacorta:
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission q. More or less she [accommodated] several friends of the defendant?
during her cross examination:23
witness: q. So that occasion lasted for more than a year?

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

xxxx a. Yes, sir.

Atty. Villacorta: Atty. Villacorta:

q. And these friends of the defendant borrowed money from you with the assurance of the q. And some of the checks that were issued by the friends of the defendant bounced, am I
defendant? correct?

witness: witness:

a. They go direct to Jocelyn because I don’t know them. a. Yes, sir.

xxxx Atty. Villacorta:

Atty. Villacorta: q. And because of that Arsenio Pua got mad with you?

q. And is it not also a fact Madam witness that everytime that the defendant borrowed witness:
money from you her friends who [are] in need of money issued check[s] to you? There were
a. Yes, sir.
checks issued to you?
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her
witness:
disclosed principal. She is also estopped to deny that petitioner acted as agent for the
a. Yes, there were checks issued. alleged debtors, the friends whom she (petitioner) referred.

Atty. Villacorta: This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a
q. By the friends of the defendant, am I correct?
question which may be established in the same way as any other fact, either by direct or
witness: circumstantial evidence. The question is ultimately one of intention.26 Agency may even be
implied from the words and conduct of the parties and the circumstances of the particular
a. Yes, sir. case.27Though the fact or extent of authority of the agents may not, as a general rule, be
Atty. Villacorta: established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal and
q. And because of your assistance, the friends of the defendant who are in need of money the third persons interested in the transaction in which he or she is engaged.28
were able to obtain loan to [sic] Arsenio Pua through your assistance?
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew
witness: that the borrowers are friends of petitioner.
a. Yes, sir. The CA is incorrect when it considered the fact that the "supposed friends of [petitioner],
Atty. Villacorta: the actual borrowers, did not present themselves to [respondent]" as evidence that negates
the agency relationship—it is sufficient that petitioner disclosed to respondent that the
former was acting in behalf of her principals, her friends whom she referred to respondent.
For an agency to arise, it is not necessary that the principal personally encounter the third
person with whom the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the third person
with whom her agent transacts: precisely, the purpose of agency is to extend the personality
of the principal through the facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other
that they are representing someone else, and so both of them are estopped to deny the
same. It is evident from the record that petitioner merely refers actual borrowers and then
collects and disburses the amounts of the loan upon which she received a commission; and
that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If
their respective principals do not actually and personally know each other, such ignorance
does not affect their juridical standing as agents, especially since the very purpose of agency
is to extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the
parties designate the relationship is not controlling. If an act done by one person in behalf of
another is in its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called.30 The question is to be determined by the fact
that one represents and is acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood the exact nature of the relation
or not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that
petitioner was "re-lending", then the checks should have been drawn in her name and not
directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements
and payments for the loan were made through the bank accounts of petitioner and
respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be appointed, such
as the bank itself, to carry out the task, especially where there is no stipulation to the
contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan, then the
sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up
by another consideration that is separate and distinct from the debt: respondent averred in
her complaint and testified that the parties had agreed that as a condition for the
conveyance of the property the respondent shall assume the balance of the mortgage loan
which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT,35 the Court must stress that the Transfer Certificate of Title
No. 38253236 on its face shows that the owner of the property which admittedly forms the
subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father,
Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in the
name of "Household Development Corporation." Although there is an entry to the effect
that the petitioner had been granted a special power of attorney "covering the shares of
Teodorico Doles on the parcel of land described in this certificate,"37 it cannot be inferred
from this bare notation, nor from any other evidence on the record, that the petitioner or
her father held any direct interest on the property in question so as to validly constitute a
mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale at
the consummation stage.39 What is worse, there is a notation that the TCT itself has been
"cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any factual
finding that petitioner was, in the first place, endowed with any ownership rights to validly
mortgage and convey the property. As the complainant who initiated the case, respondent
bears the burden of proving the basis of her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the sale void for lack of cause. And since the
sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or
intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondent’s
allegation that the mortgage with the NHMFC was for 25 years which began September 3,
1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years
had not lapsed, the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:
THIRD DIVISION

Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of
Appeals dated 10 August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R. SP No.
71397 entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The
EUROTECH INDUSTRIAL TECHNOLOGIES, G.R. No. 167552 assailed Decision and Resolution affirmed the Order[3] dated 29 January 2002 rendered by
INC., Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a
party defendant in Civil Case No. CEB-19672.
Petitioner,
Present:

The generative facts of the case are as follows:

YNARES-SANTIAGO, J.,

Chairperson, Petitioner is engaged in the business of importation and distribution of various European
- versus - industrial equipment for customers here in the Philippines. It has as one of its customers
AUSTRIA-MARTINEZ,
Impact Systems Sales (Impact Systems) which is a sole proprietorship owned by respondent
CALLEJO, SR., ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was
CHICO-NAZARIO, and impleaded in the court a quo in said capacity.

NACHURA, JJ.
From January to April 1995, petitioner sold to Impact Systems various products allegedly
EDWIN CUIZON and ERWIN CUIZON, amounting to ninety-one thousand three hundred thirty-eight (P91,338.00)
Promulgated: pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump
Respondents. valued at P250,000.00 with respondents making a down payment of fifty thousand pesos
(P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner refused
April 23, 2007 to deliver the same to respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner,
the pertinent part of which states:

DECISION 1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the
purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
CHICO-NAZARIO, J.: ASSIGNEE[6] the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is
the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner delivered to respondents the
sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of
Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29
as evidenced by Check Voucher No. 0933[9] prepared by said power company and an official
receipt dated 15 August 1995 issued by Impact Systems.[10] Alarmed by this development,
petitioner made several demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioners counsel sent respondents a final demand letter wherein it was stated that as
of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and
attorneys fees.[11] Because of respondents failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for
preliminary attachment against herein respondents before
the Regional Trial Court of Cebu City.[12]
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.[13]
[14]
On 25 June 1997, respondent EDWIN filed his Answer wherein he admitted petitioners
allegations with respect to the sale transactions entered into by Impact Systems and
petitioner between January and April 1995.[15] He, however, disputed the total amount of
Impact Systems indebtedness to petitioner which, according to him, amounted to
only P220,000.00.[16]
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real
party in interest in this case. According to him, he was acting as mere agent of his principal,
which was the Impact Systems, in his transaction with petitioner and the latter was very
much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and
1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales (Impact
Systems for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may
be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He
is the Sales Manager of Impact Systems and is sued in this action in such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with
Motion for Summary Judgment. The trial court granted petitioners motion to declare
respondent ERWIN in default for his failure to answer within the prescribed period despite
the opportunity granted[18] but it denied petitioners motion for summary judgment in its
Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October
2001.[19] However, the conduct of the pre-trial conference was deferred pending the
resolution by the trial court of the special and affirmative defenses raised by respondent
EDWIN.[20]
After the filing of respondent EDWINs Memorandum[21] in support of his special and
affirmative defenses and petitioners opposition[22] thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in
this case. According to the trial court
A study of Annex G to the complaint shows that in the Deed of Assignment, defendant
Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact]
Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin
H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager
Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex H to the
complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H.
Cuizon, made a down payment of P50,000.00 that Annex H is dated June 30, 1995 or two
days after the execution of Annex G, thereby showing that [Impact] Systems Sales ratified To support its argument, petitioner points to Article 1897 of the New Civil Code which
the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] states:
Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted
the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by
defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its Art. 1897. The agent who acts as such is not personally liable to the party with whom he
agent and plaintiff knew about said ratification.Plaintiff could not say that the subject contracts, unless he expressly binds himself or exceeds the limits of his authority without
contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems giving such party sufficient notice of his powers.
Sales made a down payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as
party defendant.[23]
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court
of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by
the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.[24]
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act
of collecting the receivables from the Toledo Power Corporation notwithstanding the
existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While
said collection did not revoke the agency relations of respondents, petitioner insists that
ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should
be made personally liable for the obligations of his principal.[26]
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed
of Assignment. Petitioner directs the attention of this Court to the fact that respondents are
bound not only by their principal and agent relationship but are in fact full-blooded brothers
whose successive contravening acts bore the obvious signs of conspiracy to defraud
petitioner.[27]

Petitioners motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party
allowance, the following:
in interest in this case and it was proper for the trial court to have him dropped as a
defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN
and that his status as such is known even to petitioner as it is alleged in the Complaint that
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
he is being sued in his capacity as the sales manager of the said business venture. Likewise,
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
respondent EDWIN points to the Deed of Assignment which clearly states that he was acting
NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
as a representative of Impact Systems in said transaction.
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]
 is when he expressly binds himself to the obligation and the second is when he exceeds his
authority. In the last instance, the agent can be held liable if he does not give the third party
We do not find merit in the petition.
sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of
the exceptions contained in this provision.

In a contract of agency, a person binds himself to render some service or to do something in

representation or on behalf of another with the latters consent.[29] The underlying principle
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
of the contract of agency is to accomplish results by using the services of others to do a
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in
great variety of things like selling, buying, manufacturing, and transporting.[30] Its purpose is
that it presupposes the grant of broad powers with which to conduct the business of the
to extend the personality of the principal or the party for whom another acts and from
principal, thus:
whom he or she derives the authority to act.[31] It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal effect as if they were personally
The powers of an agent are particularly broad in the case of one acting as a general agent or
executed by the principal.[32] By this legal fiction, the actual or real absence of the principal is
manager; such a position presupposes a degree of confidence reposed and investiture with
converted into his legal or juridical presence qui facit per alium facit per se.[33]
liberal powers for the exercise of judgment and discretion in transactions and concerns
which are incidental or appurtenant to the business entrusted to his care and
management. In the absence of an agreement to the contrary, a managing agent may enter
The elements of the contract of agency are: (1) consent, express or implied, of the parties to
into any contracts that he deems reasonably necessary or requisite for the protection of the
establish the relationship; (2) the object is the execution of a juridical act in relation to a
interests of his principal entrusted to his management. x x x.[35]
third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.[34]

In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute
is whether respondent EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to
petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority
granted by his principal and he should therefore bear the effect of his deed pursuant to
Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person. The first
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his
authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver
the one unit of sludge pump unless it received, in full, the payment for Impact Systems
indebtedness.[36] We may very well assume that Impact Systems desperately needed the
sludge pump for its business since after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March 1995,[37] it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of Assignment of its receivables
from Toledo Power Company on 28 June 1995.[38] The significant amount of time spent on
the negotiation for the sale of the sludge pump underscores Impact Systems perseverance
to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent
EDWINs participation in the Deed of Assignment was reasonably necessary or was required
in order for him to protect the business of his principal. Had he not acted in the way he did,
the business of his principal would have been adversely affected and he would have violated
his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article
1897 of the New Civil Code upon which petitioner anchors its claim against respondent
EDWIN does not hold that in case of excess of authority, both the agent and the principal
are liable to the other contracting party.[39] To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted within the bounds of his
authority. Under this, the agent is completely absolved of any liability. The second part of
the said provision presents the situations when the agent himself becomes liable to a third
party when he expressly binds himself or he exceeds the limits of his authority without
giving notice of his powers to the third person. However, it must be pointed out that in case
of excess of authority by the agent, like what petitioner claims exists here, the law does not
say that a third person can recover from both the principal and the agent.[40]

As we declare that respondent EDWIN acted within his authority as an agent, who did not
acquire any right nor incur any liability arising from the Deed of Assignment, it follows that
he is not a real party in interest who should be impleaded in this case. A real party in
interest is one who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit.[41] In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.

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

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for
the continuation of the proceedings against respondent ERWIN CUIZON.

SO ORDERED.
Republic of the Philippines

Supreme Court x --------------------------------------------------------------------------------------- x

Manila

DECISION

THIRD DIVISION MENDOZA, J.:

WESTMONT INVESTMENT G.R. No. 194128

CORPORATION, At bench is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the (1) July 27, 2010 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 84725, which
Petitioner, Present:
affirmed with modification the September 27, 2004 Decision[2] of the Regional Trial Court,
Branch 56, Makati City (RTC) in Civil Case No. 01-507; and (2) its October 14, 2010
Resolution,[3] which denied the motion for the reconsideration thereof.
PERALTA,* J., Acting Chairperson,

ABAD,

- versus -
AMOS P. FRANCIA, JR.,
MENDOZA,
THE FACTS:
SERENO,* * and
On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and Benjamin
PERLAS-BERNABE, JJ. Francia (the Francias) filed a Complaint for Collection of Sum of Money and
Damages[4] arising from their investments against petitioner Westmont Investment
Corporation (Wincorp) and respondent Pearlbank Securities Inc. (Pearlbank) before the RTC.

CECILIA ZAMORA,
BENJAMIN FRANCIA, and
PEARLBANK SECURITIES,
INC.,
Wincorp and Pearlbank filed their separate motions to dismiss.[5] Both motions were
anchored on the ground that the complaint of the Francias failed to state a cause of
Promulgated: action. On July 16, 2001, after several exchanges of pleadings, the RTC issued an
order[6] dismissing the motions to dismiss of Wincorp and Pearlbank for lack of merit.

Respondents. December 7, 2011

Wincorp then filed its Answer,[7] while Pearlbank filed its Answer with Counterclaim and
Crossclaim (against Wincorp).[8]

The case was set for pre-trial but before pre-trial conference could be held, Wincorp filed its
Motion to Dismiss Crossclaim[9] of Pearlbank to which the latter filed an opposition.[10] The
RTC denied Wincorps motion to dismiss crossclaim.[11]
The pre-trial conference was later conducted after the parties had filed their respective pre-
trial briefs. The parties agreed on the following stipulation of facts, as contained in the Pre-
Trial Order[12] issued by the RTC on April 17, 2002:
1. The personal and juridical circumstances of the parties meaning, the plaintiffs and both
corporate defendants;
2. That plaintiffs caused the service of a demand letter on Pearl Bank on February 13,
2001 marked as Exhibit E;
3. Plaintiffs do not have personal knowledge as to whether or not Pearl Bank indeed
borrowed the funds allegedly invested by the plaintiff from Wincorp; and
4. That the alleged confirmation advices which indicate Pearl Bank as alleged borrower of
the funds allegedly invested by the plaintiffs in Wincorp do not bear the signature or
acknowledgment of Pearl Bank. (Emphases supplied)
After several postponements requested by Wincorp, trial on the merits finally ensued. The
gist of the testimony of Amos Francia, Jr. (Amos) is as follows:
1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank manager of Westmont
Bank, Meycauayan, Bulacan Branch, to make an investment with Wincorp, the banks
financial investment arm, as it was offering interest rates that were 3% to 5% higher than
regular bank interest rates. Due to the promise of a good return of investment, he was
convinced to invest. He even invited his sister, Cecilia Zamora and his brother, Benjamin
Francia, to join him. Eventually, they placed their investment in the amounts of
₱1,420,352.72 and ₱2,522,745.34 with Wincorp in consideration of a net interest rate of
11% over a 43-day spread. Thereafter, Wincorp, through Westmont Bank, issued Official
Receipt Nos. 470844[13] and 470845,[14] both dated January 27, 2000, evidencing the said
transactions.[15]
2. When the 43-day placement matured, the Francias wanted to retire their investments but
they were told that Wincorp had no funds. Instead, Wincorp rolled-over their placements
and issued Confirmation Advices[16] extending their placements for another 34 days. The
said confirmation advices indicated the name of the borrower as Pearlbank. The maturity
values were ₱1,435,108.61 and ₱2,548,953.86 with a due date of April 13, 2000.
3. On April 13, 2000, they again tried to get back the principal amount they invested plus
interest but, again, they were frustrated.[17]
4. Constrained, they demanded from Pearlbank[18] their investments. There were several
attempts to settle the case, but all proved futile.
After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of
Evidence.[19] Pearlbank filed its Comment/Objection,[20] while Wincorp did not file any
comment or objection. After all the exhibits of the Francias were admitted for the purposes
they were offered, the Francias rested their case.
Thereafter, the case was set for the presentation of the defense evidence of Wincorp.
On March 7, 2003, three (3) days before the scheduled hearing, Wincorp filed a written
motion to postpone the hearing on even date, as its witness, Antonio T. Ong, was
unavailable because he had to attend a congressional hearing. Wincorps substitute witness,
Atty. Nemesio Briones, was likewise unavailable due to a previous commitment in the Not in conformity with the pronouncement of the RTC, Wincorp interposed an appeal with
Securities and Exchange Commission. the CA, alleging the following arguments:

The RTC denied Wincorps Motion to Postpone and considered it to have waived its right to I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT WINCORP AS AGENT OF
present evidence.[21] The Motion for Reconsideration of Wincorp was likewise denied.[22] PLAINTIFFS-APPELLEES WAS LIABLE TO THE LATTER NOTWITHSTANDING THE CLEAR
WRITTEN AGREEMENT TO THE CONTRARY;

On August 14, 2003, Pearlbank filed its Demurrer to Evidence.[23] The RTC granted the same
in its Order[24] dated January 12, 2004. Hence, the complaint against Pearlbank was II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD THAT PEARLBANK, THE ACTUAL
dismissed, while the case was considered submitted for decision insofar as Wincorp was BORROWER AND RECIPIENT OF THE MONEY INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-
concerned. APPELLEES; and

On September 27, 2004, the RTC rendered a decision[25] in favor of the Francias and held III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL TOGETHER THE CROSS-CLAIM OF
Wincorp solely liable to them. The dispositive portion thereof reads: WINCORP AGAINST PEARLBANK.[27]

WHEREFORE, judgment is rendered ordering defendant Westmont Investment Corporation

to pay the plaintiffs, the following amounts:
The CA affirmed with modification the ruling of the RTC in its July 27, 2010 Decision, the
decretal portion of which reads:

1. ₱3,984,062.47 representing the aggregate amount of investment placements made by

plaintiffs, plus 11% per annum by way of stipulated interest, to be counted from 10 March
WHEREFORE, premises considered, the present Appeal is DENIED. The Decision dated 27
2000 until fully paid; and
September 2004 of the Regional Trial Court, Branch 56, Makati City in Civil Case No. 01-507
is hereby AFFIRMED WITH MODIFICATION of the awards. Defendant-appellant Wincorp is
hereby ordered to pay plaintiffs-appellees the amounts of ₱3,984,062.47 plus 11% per
2. 10% of the above-mentioned amount as and for attorneys fees and costs of suit.
annum by way of stipulated interest to be computed from 13 April 2000 until fully paid
and ₱100,000.00 as attorneys fees and cost of suit.

SO ORDERED.

Wincorp then filed a motion for reconsideration, but it was denied by the RTC in its SO ORDERED.
Order[26] dated November 10, 2004.

The CA explained:

After a careful and judicious scrutiny of the records of the present case, together with the
applicable laws and jurisprudence, this Court finds defendant-appellant Wincorp solely
liable to pay the amount of ₱3,984,062.47 plus 11% interest per annum computed from 10
March 2000 to plaintiffs-appellees.
Preliminarily, the Court will rule on the procedural issues raised to know what pieces of
evidence will be considered in this appeal.
Section 34, Rule 132 of the Rules on Evidence states that:
The court shall consider no evidence which has not been formally offered. The purpose for
which the evidence is offered must be specified.
A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the purpose or purposes for which the
proponent is presenting the evidence. On the other hand, this allows opposing parties to
examine the evidence and object to its admissibility. Moreover, it facilitates review as the
appellate court will not be required to review documents not previously scrutinized by the
trial court. Evidence not formally offered during the trial can not be used for or against a
party litigant. Neither may it be taken into account on appeal.
The rule on formal offer of evidence is not a trivial matter. Failure to make a formal offer
within a considerable period of time shall be deemed a waiver to submit it. Consequently,
any evidence that has not been offered shall be excluded and rejected.
Prescinding therefrom, the very glaring conclusion is that all the documents attached in the
motion for reconsideration of the decision of the trial court and all the documents attached
in the defendant-appellants brief filed by defendant-appellant Wincorp cannot be given any
probative weight or credit for the sole reason that the said documents were not formally
offered as evidence in the trial court because to consider them at this stage will deny the
other parties the right to rebut them.
The arguments of defendant-appellant Wincorp that the plaintiffs-appellees made an
erroneous offer of evidence as the documents were offered to prove what is contrary to its
content and that they made a violation of the parol evidence rule do not hold water.
It is basic in the rule of evidence that objection to evidence must be made after the
evidence is formally offered. In case of documentary evidence, offer is made after all the
witnesses of the party making the offer have testified, specifying the purpose for which the
evidence is being offered. It is only at this time, and not at any other, that objection to the
documentary evidence may be made.
As to oral evidence, objection thereto must likewise be raised at the earliest possible time,
that is, after the objectionable question is asked or after the answer is given if the
objectionable issue becomes apparent only after the answer was given.
xxx
In the case at bench, a perusal of the records shows that the plaintiffs-appellees have
sufficiently established their cause of action by preponderance of evidence. The fact that on
27 January 2000, plaintiffs-appellees placed their investment in the amounts
of ₱1,420,352.72 and ₱2,522,754.34 with defendant-appellant Wincorp to earn a net
interest at the rate of 11% over a 43-day period was distinctly proved by the testimony of
plaintiff-appellee Amos Francia, Jr. and supported by Official Receipt Nos. 470844 and
470845 issued by defendant-appellant Wincorp through Westmont Bank. The facts that
plaintiffs-appellees failed to get back their investment after 43 days and that their
investment was rolled over for another 34 days were also established by their oral evidence
and confirmed by the Confirmation Advices issued by defendant-appellant Wincorp, which
indicate that their investment already amounted to ₱1,435,108.61 and ₱2,548,953.86 upon
its maturity on 13 April 2000. Likewise, the fact that plaintiffs-appellees investment was not
returned to them until this date by defendant-appellant Wincorp was proved by their
evidence. To top it all, defendant-appellant Wincorp never negated these established facts
because defendant-appellant Wincorps claim is that it received the money of plaintiffs-
appellees but it merely acted as an agent of plaintiffs-appellees and that the actual
borrower of plaintiffs-appellees money is defendant-appellee PearlBank. Hence, defendant-
appellant Wincorp alleges that it should be the latter who must be held liable to the
plaintiffs-appellees.
However, the contract of agency and the fact that defendant-appellee PearlBank actually
received their money were never proven. The records are bereft of any showing that
defendant-appellee PearlBank is the actual borrower of the money invested by plaintiffs-
appellees as defendant-appellant Wincorp never presented any evidence to prove the same.
Moreover, the trial court did not err in dismissing defendant-appellant Wincorps crossclaim
as nothing in the records supports its claim. And such was solely due to defendant-appellant
Wincorp because it failed to present any scintilla of evidence that would implicate
defendant-appellee PearlBank to the transactions involved in this case. The fact that the
name of defendant-appellee PearlBank was printed in the Confirmation Advices as the
actual borrower does not automatically makes defendant-appellee PearlBank liable to the
plaintiffs-appellees as nothing therein shows that defendant-appellee PearlBank adhered or
acknowledged that it is the actual borrower of the amount specified therein.
Clearly, the plaintiffs-appellees were able to establish their cause of action against
defendant-appellant Wincorp, while the latter failed to establish its cause of action against
defendant-appellee PearlBank.
Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp solely liable
to pay the amount of ₱3,984,062.47 representing the matured value of the plaintiffs-
appellees investment as of 13 April 2000 plus 11% interest per annum by way of stipulated
interest counted from maturity date (13 April 2000).
As to the award of attorneys fees, this Court finds that the undeniable source of the present
controversy is the failure of defendant-appellant Wincorp to return the principal amount
and the interest of the investment money of plaintiffs-appellees, thus, the latter was forced
to engage the services of their counsel to protect their right. It is elementary that when
attorneys fees is awarded, they are so adjudicated, because it is in the nature of actual
damages suffered by the party to whom it is awarded, as he was constrained to engage the
services of a counsel to represent him for the protection of his interest. Thus, although the
award of attorneys fees to plaintiffs-appellees was warranted by the circumstances
obtained in this case, this Court finds it equitable to reduce the same from 10% of the total
award to a fixed amount of ₱100,000.00.[28]
Wincorps Motion for Reconsideration was likewise denied by the CA in its October 14,
2010 Resolution.[29]
Not in conformity, Wincorp seeks relief with this Court via this petition for review alleging
that −
PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST WINCORP AS THE
EVIDENCE ON RECORD SHOWS THAT THE ACTUAL BENEFICIARY OF THE PROCEEDS OF THE
LOAN TRANSACTIONS WAS PEARLBANK
SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED BY WINCORP SHOULD
BE CONSIDERED TO DETERMINE WHO, AMONG THE PARTIES, ARE LIABLE TO PLAINTIFFS-
RESPONDENTS[30]
ISSUE
The core issue in this case is whether or not the CA is correct in finding Wincorp solely liable
to pay the Francias the amount of ₱3,984,062.47 plus interest of 11% per annum.
Quite clearly, the case at bench presents a factual issue.
As a rule, a petition for review under Rule 45 of the Rules of Court covers only questions of
law. Questions of fact are not reviewable and cannot be passed upon by this Court in the
exercise of its power to review. The distinction between questions of law and questions of
fact is established. A question of law exists when the doubt or difference centers on what
the law is on a certain state of facts. A question of fact, on the other hand, exists if the
doubt centers on the truth or falsity of the alleged facts.[31] This being so, the findings of fact
of the CA are final and conclusive and this Court will not review them on appeal.
While it goes without saying that only questions of law can be raised in a petition for review
on certiorari under Rule 45, the same admits of exceptions, namely: (1) when the findings
are grounded entirely on speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on misappreciation of facts; (5) when the
findings of fact are conflicting; (6) when in making its findings, the same are contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary to those of
the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondent; and (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the evidence on
record.[32]
The Court finds that no cogent reason exists in this case to deviate from the general rule.
Wincorp insists that the CA should have based its decision on the express terms,
stipulations, and agreements provided for in the documents offered by the Francias as the
legal relationship of the parties was clearly spelled out in the very documents introduced by
them which indicated that it merely brokered the loan transaction between the Francias and
Pearlbank.[33]
Wincorp would want the Court to rule that there was a contract of agency between it and
the Francias with the latter authorizing the former as their agent to lend money to
Pearlbank. According to Wincorp, the two Confirmation Advices presented as evidence by
the Francias and admitted by the court, were competent proof that the recipient of the loan
proceeds was Pearlbank.[34]
The Court is not persuaded.
In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latters consent.[35] It is said that the
underlying principle of the contract of agency is to accomplish results by using the services
of others to do a great variety of things. Its aim is to extend the personality of the principal
or the party for whom another acts and from whom he or she derives the authority to act.
Its basis is representation.[36]
Significantly, the elements of the contract of agency are: (1) consent, express or implied, of
the parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself; (4) the observed by the CA, these documents were not formally offered as evidence in the trial
agent acts within the scope of his authority.[37] court. To consider them now would deny the other parties the right to examine and rebut
them. Section 34, Rule 132 of the Rules of Court provides:
In this case, the principal-agent relationship between the Francias and Wincorp was not duly
established by evidence. The records are bereft of any showing that Wincorp merely
brokered the loan transactions between the Francias and Pearlbank and the latter was the
Section 34. Offer of evidence The court shall consider no evidence which has not been
actual recipient of the money invested by the former. Pearlbank did not authorize Wincorp
formally offered. The purpose for which the evidence is offered must be specified.
to borrow money for it. Neither was there a ratification, expressly or impliedly, that it had
authorized or consented to said transaction.

As to Pearlbank, records bear out that the Francias anchor their cause of action against it The offer of evidence is necessary because it is the duty of the court to rest its findings of
merely on the strength of the subject Confirmation Advices bearing the name PearlBank as fact and its judgment only and strictly upon the evidence offered by the parties. Unless and
the supposed borrower of their investments. Apparently, the Francias ran after Pearlbank until admitted by the court in evidence for the purpose or purposes for which such
only after learning that Wincorp was reportedly bankrupt.[38] The Francias were consistent in document is offered, the same is merely a scrap of paper barren of probative weight.[40]
saying that they only dealt with Wincorp and not with Pearlbank. It bears noting that even in
their Complaint and during the pre-trial conference, the Francias alleged that they did not
have any personal knowledge if Pearlbank was indeed the recipient/beneficiary of their
investments.

Although the subject Confirmation Advices indicate the name of Pearlbank as the purported
borrower of the said investments, said documents do not bear the signature or
acknowledgment of Pearlbank or any of its officers. This cannot prove the position of
Wincorp that it was Pearlbank which received and benefited from the investments made by
the Francias. There was not even a promissory note validly and duly executed by Pearlbank
which would in any way serve as evidence of the said borrowing.
Another significant point which would support the stand of Pearlbank that it was not the
borrower of whatever funds supposedly invested by the Francias was the fact that it
initiated, filed and pursued several cases against Wincorp, questioning, among others, the
latters acts of naming it as borrower of funds from investors.[39]
The Court cannot, likewise, disturb the findings of the RTC and the CA as to the evidence
presented by the Francias. It is elementary that objection to evidence must be made after
evidence is formally offered.[41] It appears that Wincorp was given ample opportunity to file
its Comment/Objection to the formal offer of evidence of the Francias but it chose not to
file any.
All told, the CA committed no reversible error in rendering the assailed July 27,
2010 Decision and in issuing the challenged October 14, 2010 Resolution.
WHEREFORE, the petition is DENIED.
SO ORDERED.

It bears stressing too that all the documents attached by Wincorp to its pleadings before the
CA cannot be given any weight or evidentiary value for the sole reason that, as correctly
THIRD DIVISION
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of
Appeals in CA-G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in
C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution3 denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage
and operate the latter’s mining claim, known as the Sto. Nino mine, located in Atok and
Tublay, Benguet Province. The parties’ agreement was denominated as "Power of Attorney"
and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make
available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00),
in such amounts as from time to time may be required by the MANAGERS within the said 3-
year period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION
PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owner’s
account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO.
NINO MINE, which is left with the Sto. Nino PROJECT, shall be added to such owner’s
account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to
the Sto. Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS
as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so
paid in cash shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT
until termination of this Agency.
(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL
to extend to the MANAGERS the benefit of subsequent appreciation of property, upon a
projected termination of this Agency, the ratio which the MANAGERS’ account has to the
owner’s account will be determined, and the corresponding proportion of the entire assets
of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except
that such transferred assets shall not include mine development, roads, buildings, and
similar property which will be valueless, or of slight value, to the MANAGERS. The
MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets
are transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the
Sto. Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income
tax on their compensation, while the PRINCIPAL shall pay income tax on the net profit of the
Sto. Nino PROJECT after deduction therefrom of the MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the
future, may incur other obligations in favor of the MANAGERS. This Power of Attorney has
been executed as security for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same. Therefore, this
Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS
is outstanding, inclusive of the MANAGERS’ account. After all obligations of the PRINCIPAL in
favor of the MANAGERS have been paid and satisfied in full, this Agency shall be revocable
by the PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-
month notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to
the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the
in case of the MANAGERS’ withdrawal. taxable year when it was determined to be worthless.

x x x x5 Petitioner emphasized that the debt arose out of a valid management contract it entered
into with Baguio Gold. The bad debt deduction represented advances made by petitioner
In the course of managing and operating the project, Philex Mining made advances of cash
which, pursuant to the management contract, formed part of Baguio Gold’s "pecuniary
and property in accordance with paragraph 5 of the agreement. However, the mine suffered
obligations" to petitioner. It also included payments made by petitioner as guarantor of
continuing losses over the years which resulted to petitioner’s withdrawal as manager of the
Baguio Gold’s long-term loans which legally entitled petitioner to be subrogated to the
mine on January 28, 1982 and in the eventual cessation of mine operations on February 20,
rights of the original creditor.
1982.6
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in
it would not be able to recover the advances and payments it had made in behalf of Baguio
Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of
Gold. For a debt to be considered worthless, petitioner claimed that it was neither required
P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio
to institute a judicial action for collection against the debtor nor to sell or dispose of
Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s equitable title in
collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent
its Philodrill assets and finally settling the remaining liability through properties that Baguio
efforts to enforce collection and exhausted all reasonable means to collect.
Gold may acquire in the future.
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
held that the alleged debt was not ascertained to be worthless since Baguio Gold remained
Payment"8 where the parties determined that Baguio Gold’s indebtedness to petitioner
existing and had not filed a petition for bankruptcy; and that the deduction did not consist
actually amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to
of a valid and subsisting debt considering that, under the management contract, petitioner
other creditors that petitioner had assumed as guarantor. These liabilities pertained to long-
was to be paid fifty percent (50%) of the project’s net profit.10
term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as
two segments by first assigning its tangible assets for P127,838,051.00 and then transferring follows:
its equitable title in its Philodrill assets for P16,302,426.00. The parties then ascertained that
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for
Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of
lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax
P114,996,768.00.
in the amount of P62,811,161.39 is hereby AFFIRMED.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent
indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that
Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency
were set up in 1981 and P2,860,768.00 to the 1982 operations.
interest due computed from February 10, 1995, which is the date after the 20-day grace
In its 1982 annual income tax return, petitioner deducted from its gross income the amount period given by the respondent within which petitioner has to pay the deficiency amount x x
of P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves x up to actual date of payment.
and allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as
SO ORDERED.11
deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine
Petitioner protested before the BIR arguing that the deduction must be allowed since all
were in the nature of a loan. It instead characterized the advances as petitioner’s
requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing
investment in a partnership with Baguio Gold for the development and exploitation of the
Sto. Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and
Baguio Gold was actually a partnership agreement. Since the advanced amount partook of
the nature of an investment, it could not be deducted as a bad debt from petitioner’s gross
income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations
of Baguio Gold could not be allowed as a bad debt deduction. At the time the payments
were made, Baguio Gold was not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent
by Bank of America showing that it was merely demanding payment of the installment and
interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the
pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion
for reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court,
alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the
management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature
of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto.
Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto.
Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio
Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely
disregarding the Compromise Agreement and the Amended Compromise Agreement when
it construed the nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad
debts write-off.14
Petitioner insists that in determining the nature of its business relationship with Baguio
Gold, we should not only rely on the "Power of Attorney", but also on the subsequent
"Compromise with Dation in Payment" and "Amended Compromise with Dation in
Payment" that the parties executed in 1982. These documents, allegedly evinced the
parties’ intent to treat the advances and payments as a loan and establish a creditor-debtor
relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is
material in determining the true nature of the business relationship between petitioner and
Baguio Gold. Before resort may be had to the two compromise agreements, the parties’
contractual intent must first be discovered from the expressed language of the primary
contract under which the parties’ business relations were founded. It should be noted that
the compromise agreements were mere collateral documents executed by the parties
pursuant to the termination of their business relationship created under the "Power of
Attorney". On the other hand, it is the latter which established the juridical relation of the
parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a
subsequent or contemporaneous act that is reflective of the parties’ true intent. The
compromise agreements were executed eleven years after the "Power of Attorney" and
merely laid out a plan or procedure by which petitioner could recover the advances and
payments it made under the "Power of Attorney". The parties entered into the compromise
agreements as a consequence of the dissolution of their business relationship. It did not
define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was
indeed intended by the parties. Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.15 While a corporation, like petitioner,
cannot generally enter into a contract of partnership unless authorized by law or its charter,
it has been held that it may enter into a joint venture which is akin to a particular
partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. x x x It is in fact hardly distinguishable from the partnership, since their
elements are similar – community of interest in the business, sharing of profits and losses,
and a mutual right of control. x x x The main distinction cited by most opinions in common contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the
law jurisdictions is that the partnership contemplates a general business with some degree advances until termination of the parties’ business relations. As can be seen, petitioner
of continuity, while the joint venture is formed for the execution of a single transaction, and became bound by its contributions once the transfers were made. The contributions
is thus of a temporary nature. x x x This observation is not entirely accurate in this acquired an obligatory nature as soon as petitioner had chosen to exercise its option under
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a paragraph 5.
particular partnership may have for its object a specific undertaking. x x x It would seem
There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against
therefore that under Philippine law, a joint venture is a form of partnership and should be
withdrawal of advances should not be taken as an indication that it had entered into a
governed by the law of partnerships. The Supreme Court has however recognized a
partnership with Baguio Gold; that the stipulation only showed that what the parties
distinction between these two business forms, and has held that although a corporation
entered into was actually a contract of agency coupled with an interest which is not
cannot enter into a partnership contract, it may however engage in a joint venture with
revocable at will and not a partnership.
others. x x x (Citations omitted) 16
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties
the principal due to an interest of a third party that depends upon it, or the mutual interest
had intended to create a partnership and establish a common fund for the purpose. They
of both principal and agent.19 In this case, the non-revocation or non-withdrawal under
also had a joint interest in the profits of the business as shown by a 50-50 sharing in the
paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and
income of the mine.
not the principal under the contract. Thus, it cannot be inferred from the stipulation that
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, the parties’ relation under the agreement is one of agency coupled with an interest and not
property and industry to the common fund known as the Sto. Niño mine.17 In this regard, we a partnership.
note that there is a substantive equivalence in the respective contributions of the parties to
Neither can paragraph 16 of the agreement be taken as an indication that the relationship
the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the
of the parties was one of agency and not a partnership. Although the said provision states
agreement, petitioner and Baguio Gold were to contribute equally to the joint venture
that "this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the
assets under their respective accounts. Baguio Gold would contribute P11M under its
MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does not necessarily
owner’s account plus any of its income that is left in the project, in addition to its actual
follow that the parties entered into an agency contract coupled with an interest that cannot
mining claim. Meanwhile, petitioner’s contribution would consist of its expertise in the
be withdrawn by Baguio Gold.
management and operation of mines, as well as the manager’s account which is comprised
of P11M in funds and property and petitioner’s "compensation" as manager that cannot be It should be stressed that the main object of the "Power of Attorney" was not to confer a
paid in cash. power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to
create a business relationship between petitioner and Baguio Gold, in which the former was
However, petitioner asserts that it could not have entered into a partnership agreement
to manage and operate the latter’s mine through the parties’ mutual contribution of
with Baguio Gold because it did not "bind" itself to contribute money or property to the
material resources and industry. The essence of an agency, even one that is coupled with
project; that under paragraph 5 of the agreement, it was only optional for petitioner to
interest, is the agent’s ability to represent his principal and bring about business relations
transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall deem
between the latter and third persons.20 Where representation for and in behalf of the
it necessary and convenient in connection with the MANAGEMENT of the STO. NIÑO
principal is merely incidental or necessary for the proper discharge of one’s paramount
MINE."18
undertaking under a contract, the latter may not necessarily be a contract of agency, but
The wording of the parties’ agreement as to petitioner’s contribution to the common fund some other agreement depending on the ultimate undertaking of the parties.21
does not detract from the fact that petitioner transferred its funds and property to the
project as specified in paragraph 5, thus rendering effective the other stipulations of the
In this case, the totality of the circumstances and the stipulations in the parties’ agreement manner of payment was unclear. All these point to the inevitable conclusion that the
indubitably lead to the conclusion that a partnership was formed between petitioner and advances were not loans but capital contributions to a partnership.
Baguio Gold.
The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it
First, it does not appear that Baguio Gold was unconditionally obligated to return the would receive 50% of the net profits as "compensation" under paragraph 12 of the
advances made by petitioner under the agreement. Paragraph 5 (d) thereof provides that agreement. The entirety of the parties’ contractual stipulations simply leads to no other
upon termination of the parties’ business relations, "the ratio which the MANAGER’S conclusion than that petitioner’s "compensation" is actually its share in the income of the
account has to the owner’s account will be determined, and the corresponding proportion joint venture.
of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share
petitioner.22 As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
in the profits of a business is prima facie evidence that he is a partner in the business."
proportionate return of the mine’s assets upon dissolution of the parties’ business relations.
Petitioner asserts, however, that no such inference can be drawn against it since its share in
There was nothing in the agreement that would require Baguio Gold to make payments of
the profits of the Sto Niño project was in the nature of compensation or "wages of an
the advances to petitioner as would be recognized as an item of obligation or "accounts
employee", under the exception provided in Article 1769 (4) (b).24
payable" for Baguio Gold.
On this score, the tax court correctly noted that petitioner was not an employee of Baguio
Thus, the tax court correctly concluded that the agreement provided for a distribution of
Gold who will be paid "wages" pursuant to an employer-employee relationship. To begin
assets of the Sto. Niño mine upon termination, a provision that is more consistent with a
with, petitioner was the manager of the project and had put substantial sums into the
partnership than a creditor-debtor relationship. It should be pointed out that in a contract
venture in order to ensure its viability and profitability. By pegging its compensation to
of loan, a person who receives a loan or money or any fungible thing acquires ownership
profits, petitioner also stood not to be remunerated in case the mine had no income. It is
thereof and is bound to pay the creditor an equal amount of the same kind and quality.23 In
hard to believe that petitioner would take the risk of not being paid at all for its services, if it
this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the
were truly just an ordinary employee.
cash and property that it had advanced, but only the return of an amount pegged at a ratio
which the manager’s account had to the owner’s account. Consequently, we find that petitioner’s "compensation" under paragraph 12 of the
agreement actually constitutes its share in the net profits of the partnership. Indeed,
In this connection, we find no contractual basis for the execution of the two compromise
petitioner would not be entitled to an equal share in the income of the mine if it were just
agreements in which Baguio Gold recognized a debt in favor of petitioner, which supposedly
an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share
arose from the termination of their business relations over the Sto. Nino mine. The "Power
in the net profits, considering that the "Power of Attorney" also provided for an almost
of Attorney" clearly provides that petitioner would only be entitled to the return of a
equal contribution of the parties to the St. Nino mine. The "compensation" agreed upon
proportionate share of the mine assets to be computed at a ratio that the manager’s
only serves to reinforce the notion that the parties’ relations were indeed of partners and
account had to the owner’s account. Except to provide a basis for claiming the advances as a
not employer-employee.
bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner
under the compromise agreements, for any amount over and above the proportion agreed All told, the lower courts did not err in treating petitioner’s advances as investments in a
upon in the "Power of Attorney". partnership known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to
petitioner inasmuch as the latter was under no unconditional obligation to return the same
Next, the tax court correctly observed that it was unlikely for a business corporation to lend
to the former under the "Power of Attorney". As for the amounts that petitioner paid as
hundreds of millions of pesos to another corporation with neither security, or collateral, nor
guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s
a specific deed evidencing the terms and conditions of such loans. The parties also did not
factual finding that Baguio Gold’s debts were not yet due and demandable at the time that
provide a specific maturity date for the advances to become due and demandable, and the
petitioner paid the same. Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its
bank creditors and this conclusion is supported by the evidence on record.26

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

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

SO ORDERED.
Republic of the Philippines x------------------------------------------------------------------------------------x

Supreme Court

Manila DECISION

REYES, J.:

SECOND DIVISION
SPOUSES FERNANDO
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009
Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No.
88586 entitled “Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.,” the
dispositive portion of which states:
G.R. No. 188288

and LOURDES VILORIA,

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006,
Petitioners, Present:
awarding US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest
from 21 July 1997 until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as
exemplary damages, [P]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees
CARPIO, J.,
is hereby REVERSED and SET ASIDE.
Chairperson,

PEREZ,
Defendant-appellant’s counterclaim is DENIED.
- versus - SERENO,

REYES, and
Costs against plaintiffs-appellees.

BERNABE, JJ.

SO ORDERED.2
Promulgated:
CONTINENTAL AIRLINES, INC.,

Respondent. January 16, 2012 On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a
Decision, giving due course to the complaint for sum of money and damages filed by
petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called
Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the
records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased for himself
and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark,
New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00
each from a travel agency called “Holiday Travel” and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity passenger
train service provider in the United States. Per the tickets, Spouses Viloria were scheduled to
leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier
date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines
were already fully booked and offered the alternative of a round trip flight via Frontier Air.
Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would
mean traveling by night, Fernando opted to request for a refund. Mager, however, denied
his request as the subject tickets are non-refundable and the only option that Continental
Airlines can offer is the re-issuance of new tickets within one (1) year from the date the
subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and
was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak
tickets, telling her that she had misled them into buying the Continental Airlines tickets by
misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for
a refund but Mager was firm in her position that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998,
demanding a refund and alleging that Mager had deluded them into purchasing the subject
tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his
complaint had been referred to the Customer Refund Services of Continental Airlines at
Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a
refund and advised him that he may take the subject tickets to any Continental ticketing
location for the re-issuance of new tickets within two (2) years from the date they were
issued. Continental Micronesia informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental ticket, albeit with a re-issuance
fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati
City to have the subject tickets replaced by a single round trip ticket to Los Angeles,
California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-
transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay
what will not be covered by the value of his San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as
he no longer wished to have them replaced. In addition to the dubious circumstances under
which the subject tickets were issued, Fernando claimed that CAI’s act of charging him with
US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00,
and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24,
1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be
ordered to refund the money they used in the purchase of the subject tickets with legal
interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00 as
exemplary damages and P250,000.00 as attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund
as the subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in
Lourdes’ name for the purchase of a round trip ticket to Los Angeles since the same is non-
transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI,
its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorney’s fees. CAI also invoked the following clause printed on
the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by
each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii)
carrier’s conditions of carriage and related regulations which are made part hereof (and are
available on application at the offices of carrier), except in transportation between a place in
the United States or Canada and any place outside thereof to which tariffs in force in those
countries apply.8
According to CAI, one of the conditions attached to their contract of carriage is the non-
transferability and non-refundability of the subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses
Viloria are entitled to a refund in view of Mager’s misrepresentation in obtaining their
consent in the purchase of the subject tickets.9 The relevant portion of the April 3, 2006
Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent
in presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to
travel via AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines
tickets instead on the fraudulent misrepresentation that Amtrak was fully booked. In fact,
defendant Airline did not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying
Continental Airline tickets on Ms. Mager’s misleading misrepresentations. Continental
Airlines agent Ms. Mager further relied on and exploited plaintiff Fernando’s need and told
him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its
agent’s unethical tactics for baiting trusting customers.”10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent,
hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned, there
is no issue as to whether Mager was CAI’s agent in view of CAI’s implied recognition of her
status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the following are the pertinent New
Civil Code provisions on agency:
Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter. This court takes judicial notice of the common services rendered by travel agencies
that represent themselves as such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July
21, 1997 were no different from those offered in any other travel agency. Defendant airline
impliedly if not expressly acknowledged its principal-agent relationship with Ms. Mager by
its offer in the letter dated March 24, 1998 – an obvious attempt to assuage plaintiffs
spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to
replace the subject tickets within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes’ ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant
airline still charged plaintiffs spouses US$1,867.40 or more than double the then going rate
of US$856.00 for the unused tickets when the same were presented within two (2) years
from date of issue, defendant airline exhibited callous treatment of passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held
liable for Mager’s act in the absence of any proof that a principal-agent relationship existed
between CAI and Holiday Travel. According to the CA, Spouses Viloria, who have the burden
of proof to establish the fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the
contractual relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a
ticketing agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines.
Proceeding from this premise, they contend that Continental Airlines should be held liable
for the acts of Mager. The trial court held the same view.
We do not agree. By the contract of agency, a person binds him/herself to render some
service or to do something in representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for him/herself; and
(4) the agent acts within the scope of his/her authority. As the basis of agency is
representation, there must be, on the part of the principal, an actual intention to appoint,
an intention naturally inferable from the principal’s words or actions. In the same manner,
there must be an intention on the part of the agent to accept the appointment and act upon
it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish
it. Agency is never presumed, neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents so far presented. We find
nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting
in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was
simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental
Airlines and then, through its employees, Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word “non-
refundable” was clearly printed on the face of the subject tickets, which constitute their
contract with CAI. Therefore, the grant of their prayer for a refund would violate the
proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with
the higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the
CA, there is no compulsion for CAI to charge the lower amount of US$856.00, which Spouses
Viloria claim to be the fee charged by other airlines. The matter of fixing the prices for its
services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg
the premium of the services and items which they provide at a price which they deem fit, no
matter how expensive or exhorbitant said price may seem vis-à-vis those of the competing
companies. The Spouses Viloria may not intervene with the business judgment of
Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as
the latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal
bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a
higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking to re-
issue new tickets to them within the period stated in their March 24, 1998 letter. CAI
likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a
round trip to Los Angeles given that there is nothing in Lourdes’ ticket indicating that it is
non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the terms
and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,
the petitioners are no longer questioning the validity of the subject contracts and limited its
claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its
willingness to issue new tickets to them and to credit the value of the subject tickets against
the value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis
to claim that the price at which CAI was willing to issue the new tickets is unconscionable is
a piece of hearsay evidence – an advertisement appearing on a newspaper stating that
airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the
advertisement pertains to airfares in September 2000 and not to airfares prevailing in June
1999, the time when Fernando asked CAI to apply the value of the subject tickets for the
purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation
was to apply the value of the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the
subject tickets and that the terms and conditions that are printed on them are ambiguous,
CAI denies any ambiguity and alleged that its representative informed Fernando that the
subject tickets are non-transferable when he applied for the issuance of a new ticket. On the
other hand, the word “non-refundable” clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no
principal-agency relationship exists between them. As an independent contractor, Holiday
Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether
Spouses Viloria have the right to the reliefs they prayed for, this Court deems it necessary to
resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound
by the acts of Holiday Travel’s agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as
to vitiate the consent of Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-
refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles
requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply
the value of the subject tickets in the purchase of new ones when it refused to allow
Fernando to use Lourdes’ ticket and in charging a higher price for a round trip ticket to Los
Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to
review and re-examine the evidence presented by the parties below, this Court takes
exception to the general rule that the CA’s findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of fact if confronted with
contrasting factual findings of the trial court and appellate court and if the findings of the CA
are contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it exists has the
burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented
evidence that fell short of indubitably demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that
Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the
contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed
to apply the fundamental civil law principles governing agency and differentiating it from
sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an
agency and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority.
Agency is basically personal, representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first
and second elements are present as CAI does not deny that it concluded an agreement with
Considering that the fundamental hallmarks of an agency are present, this Court finds it
Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third
rather peculiar that the CA had branded the contractual relationship between CAI and
persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday
Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult
Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is
to discern and this Court, as early as 1970, had already formulated the guidelines that would
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth
aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
element is also present considering that CAI has not made any allegation that Holiday Travel
Constantino,21 this Court extrapolated that the primordial differentiating consideration
exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity
between the two (2) contracts is the transfer of ownership or title over the property subject
of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that
of the contract. In an agency, the principal retains ownership and control over the property
Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of
and the agent merely acts on the principal’s behalf and under his instructions in furtherance
Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its
of the objectives for which the agency was established. On the other hand, the contract is
February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of
clearly a sale if the parties intended that the delivery of the property will effect a
the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed
relinquishment of title, control and ownership in such a way that the recipient may do with
CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that
the property as he pleases.
Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave
Holiday Travel the power and authority to conclude contracts of carriage on its behalf. As
clearly extant from the records, CAI recognized the validity of the contracts of carriage that
Holiday Travel entered into with Spouses Viloria and considered itself bound with Spouses
Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament
to Holiday Travel’s authority to act as its agent. This Court cannot therefore allow CAI to
take an altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition
of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice.20Estoppel bars CAI
from making such denial.
As categorically provided under Article 1869 of the Civil Code, “[a]gency may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.”
Since the company retained ownership of the goods, even as it delivered possession unto
the dealer for resale to customers, the price and terms of which were subject to the
company's control, the relationship between the company and the dealer is one of agency,
tested under the following criterion:
“The difficulty in distinguishing between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of which this difficulty may be
solved. The decisions say the transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the proceeds of a resale, the transaction
is a sale; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds less the agent's
commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48;
Williston on Sales, 1; Tiedeman on Sales, 1.” (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday
Travel is a sale is certainly confounding, considering that CAI is the one bound by the
contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf. It is
undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines,
and this conclusively indicates the existence of a principal-agent relationship. That the
principal is bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort
committed by its agent’s employees if it has been established by preponderance of
evidence that the principal was also at fault or negligent or that the principal exercise
control and supervision over them.
the Civil Code does not make the principal vicariously liable for the tort committed by its
agent’s employees and the principal-agency relationship per se does not make the principal
a party to such tort; hence, the need to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline
company is based on contractual breach or culpa contractual, it is not necessary that there
be evidence of the airline company’s fault or negligence. As this Court previously stated
in China Air Lines and reiterated in Air France vs. Gillego,24 “in an action based on a breach
of contract of carriage, the aggrieved party does not have to prove that the common carrier
was at fault or was negligent. All that he has to prove is the existence of the contract and
the fact of its non-performance by the carrier.”
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent
misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing
contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria
to prove that CAI was equally at fault.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for
the fault or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of
However, the records are devoid of any evidence by which CAI’s alleged liability can be
Appeals, et al.,23CAI argues that it cannot be held liable for the actions of the employee of its
substantiated. Apart from their claim that CAI must be held liable for Mager’s supposed
ticketing agent in the absence of an employer-employee relationship.
fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Mager’s complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.
An examination of this Court’s pronouncements in China Air Lines will reveal that an airline
company is not completely exonerated from any liability for the tort committed by its
agent’s employees. A prior determination of the nature of the passenger’s cause of action is
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the
necessary. If the passenger’s cause of action against the airline company is premised
terms and conditions of the subject contracts, which Mager entered into with them on CAI’s
on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’
company’s agent, there must be an independent showing that the airline company was at
ticket for the re-issuance of a new one, and simultaneously claim that they are not bound by
fault or negligent or has contributed to the negligence or tortuous conduct committed by
Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for
the employee of its agent. The mere fact that the employee of the airline company’s agent
damages and maintaining the validity of the subject contracts. It may likewise be argued
has committed a tort is not sufficient to hold the airline company liable. There is
that CAI cannot deny liability as it benefited from Mager’s acts, which were performed in
no vinculum juris between the airline company and its agent’s employees and the
compliance with Holiday Travel’s obligations as CAI’s agent.
contractual relationship between the airline company and its agent does not operate to
create a juridical tie between the airline company and its agent’s employees. Article 2180 of
However, a person’s vicarious liability is anchored on his possession of control, whether
absolute or limited, on the tortfeasor. Without such control, there is nothing which could
justify extending the liability to a person other than the one who committed the tort. As this
Court explained in Cangco v. Manila Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or
omission, it is competent for the legislature to elect — and our Legislature has so elected —
to limit such liability to cases in which the person upon whom such an obligation is imposed
is morally culpable or, on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include responsibility for the
negligence of those persons whose acts or omissions are imputable, by a legal fiction, to
others who are in a position to exercise an absolute or limited control over them. The
legislature which adopted our Civil Code has elected to limit extra-contractual liability —
with certain well-defined exceptions — to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility may consist in having failed
to exercise due care in one's own acts, or in having failed to exercise due care in the
selection and control of one's agent or servants, or in the control of persons who, by
reasons of their status, occupy a position of dependency with respect to the person made
liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over
Mager by preponderant evidence. The existence of control or supervision cannot be
presumed and CAI is under no obligation to prove its denial or nugatory assertion.
Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged
employment relationship. The defendant is under no obligation to prove the negative
averment. This Court said:
“It is an old and well-settled rule of the courts that the burden of proving the action is upon
the plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his
claim, the defendant is under no obligation to prove his exceptions. This [rule] is in harmony
with the provisions of Section 297 of the Code of Civil Procedure holding that each party
must prove his own affirmative allegations, etc.”29(citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s
supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still,
Spouses Viloria are not entitled to a refund. Mager’s statement cannot be
considered a causal fraud that would justify the annulment of the subject
contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and
may be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore
to each other the things subject matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s
consent to the subject contracts was supposedly secured by Mager through fraudulent
means, it is plainly apparent that their demand for a refund is tantamount to seeking for an
annulment of the subject contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to determine whether
Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute on the
existence of an agency, whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the records if the findings of the
CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent,
it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement
to the making of the contract.30 In Samson v. Court of Appeals,31causal fraud was defined as
“a deception employed by one party prior to or simultaneous to the contract in order to
secure the consent of the other.”32
Also, fraud must be serious and its existence must be established by clear and convincing
evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
To quote Tolentino again, the “misrepresentation constituting the fraud must be established
by full, clear, and convincing evidence, and not merely by a preponderance thereof. The
deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a prudent person cannot be
a ground for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim.”34
After meticulously poring over the records, this Court finds that the fraud alleged by
Spouses Viloria has not been satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey
on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that
an Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As
CAI correctly pointed out and as Fernando admitted, it was possible that during the
intervening period of three (3) weeks from the time Fernando purchased the subject tickets
to the time he talked to said Amtrak employee, other passengers may have cancelled their
bookings and reservations with Amtrak, making it possible for Amtrak to accommodate
them. Indeed, the existence of fraud cannot be proved by mere speculations and
conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court,
it is presumed that "a person is innocent of crime or wrong" and that "private transactions
have been fair and regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the
subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been
impliedly ratified when Spouses Viloria decided to exercise their right to use the subject
tickets for the purchase of new ones. Under Article 1392 of the Civil Code, “ratification
extinguishes the action to annul a voidable contract.”
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
 their annulment. A party cannot rely on the contract and claim rights or obligations under it
and at the same time impugn its existence or validity. Indeed, litigants are enjoined from
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a
taking inconsistent positions.39
tacit ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an act
which necessarily implies an intention to waive his right.
V. Contracts cannot be rescinded for a slight or casual breach.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
CAI cannot insist on the non-transferability of the subject tickets.
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Considering that the subject contracts are not annullable on the ground of vitiated consent,
Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on the next question is: “Do Spouses Viloria have the right to rescind the contract on the
its undertaking to replace the subject tickets with a round trip ticket from Manila to Los ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender of
Angeles. the subject tickets?”

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based Article 1191, as presently worded, states:
on contractual breach. Resolution, the action referred to in Article 1191, is based on the
defendant’s breach of faith, a violation of the reciprocity between the parties37 and in Solar
Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled that a claim for a The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
reimbursement in view of the other party’s failure to comply with his obligations under the should not comply with what is incumbent upon him.
contract is one for rescission or resolution.

The injured party may choose between the fulfilment and the rescission of the obligation,
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 with the payment of damages in either case. He may also seek rescission, even after he has
are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid chosen fulfillment, if the latter should become impossible.
are present; in annulment, one of the essential elements to a formation of a contract, which
is consent, is absent. In resolution, the defect is in the consummation stage of the contract
when the parties are in the process of performing their respective obligations; in annulment, The court shall decree the rescission claimed, unless there be just cause authorizing the
the defect is already present at the time of the negotiation and perfection stages of the fixing of a period.
contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias
had impliedly admitted the validity of the subject contracts, forfeiting their right to demand
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts
when it refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip
ticket to Los Angeles and in requiring him to pay an amount higher than the price fixed by
other airline companies.
In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a form
of payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue
fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).”
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the
restriction on the non-transferability of the subject tickets can be inferred. In fact, the words
used by CAI in its letter supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether for themselves or for
some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the
subject tickets for the purchase of a round trip ticket between Manila and Los Angeles that
he was informed that he cannot use the ticket in Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from
a plain reading of the provision printed on the subject tickets stating that “[t]o the extent
not in conflict with the foregoing carriage and other services performed by each carrier are
subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of carriage and
related regulations which are made part hereof (and are available on application at the
offices of carrier) x x x.” As a common carrier whose business is imbued with public interest,
the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its
passengers for that matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on
transferability is not written on the face of the subject tickets and CAI failed to inform
Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment
for Fernando’s purchase of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only
a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not
absolute. The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental violations as would defeat the
very object of the parties in making the agreement.40 Whether a breach is substantial is
largely determined by the attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the
purchase of a new ticket is unjustified as the non-transferability of the subject tickets was
not clearly stipulated, it cannot, however be considered substantial. The endorsability of the
subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply
is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to
perform its principal obligation and this is to apply the price of the ticket in Fernando’s
name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be
for the purchase of any ticket, albeit under her name and for her exclusive use. In other
words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely
faulted for the fact that their agreement failed to consummate and no new ticket was issued
to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between
Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference
between the price of the subject tickets and the amount fixed by CAI. The petitioners failed
to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight
anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998
letter, it was clearly stated that “[n]on-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket”42 and there is nothing in it suggesting
that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of
tickets or that the surrender of the subject tickets will be considered as full payment for any
ticket that the petitioners intend to buy regardless of actual price and destination. The CA
was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its
services and it may not be compelled to observe and maintain the prices of other airline
companies.43
The conflict as to the endorsability of the subject tickets is an altogether different matter,
which does not preclude CAI from fixing the price of a round trip ticket between Manila and
Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an
excuse not to pay such price, albeit subject to a reduction coming from the value of the
subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to
pay whatever is not covered by the value of the subject tickets whether or not the subject
tickets are transferable or not.
There is also no showing that Spouses Viloria were discriminated against in bad faith by
being charged with a higher rate. The only evidence the petitioners presented to prove that
the price of a round trip ticket between Manila and Los Angeles at that time was only
$856.00 is a newspaper advertisement for another airline company, which is inadmissible
for being “hearsay evidence, twice removed.” Newspaper clippings are hearsay if they were
offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court
of Appeals,:44
[N]ewspaper articles amount to “hearsay evidence, twice removed” and are therefore not
only inadmissible but without any probative value at all whether objected to or not, unless
offered for a purpose other than proving the truth of the matter asserted. In this case, the
news article is admissible only as evidence that such publication does exist with the tenor of
the news therein stated.45 (citations omitted)
The records of this case demonstrate that both parties were equally in default; hence, none
of them can seek judicial redress for the cancellation or resolution of the subject contracts
and they are therefore bound to their respective obligations thereunder. As the 1st sentence
of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished, and
each shall bear his own damages. (emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the
purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their
refusal to pay the amount, which is not covered by the subject tickets. Moreover, the
contract between them remains, hence, CAI is duty bound to issue new tickets for a
destination chosen by Spouses Viloria upon their surrender of the subject tickets and
Spouses Viloria are obliged to pay whatever amount is not covered by the value of the
subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay
his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral
damages is the absence of a showing that the latter acted fraudulently and in bad faith.
Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages
are generally not recoverable in culpa contractual except when bad faith had been
proven.48 The award of exemplary damages is likewise not warranted. Apart from the
requirement that the defendant acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
FIRST DIVISION
[G.R. No. 122544. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
[G.R. No. 124741. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners, vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND
EXPRESS LINES, INC., respondents.
DECISION
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul the decisions
and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit
was juxtaposed with procedural intricacies which finally found its way to this Court.
G. R. NO. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a
Contract of Lease with Option to Buy with petitioners[1] (lessors) involving a 1,755.80 square
meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up
to May 15, 1975. During this period, private respondent was granted an option to purchase
for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month
basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month
effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on
November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon
City, Branch VIII. On November 22, 1982, the City Court rendered judgment[2] ordering
private respondent to vacate the leased premises and to pay the sum of P624,000.00
representing rentals in arrears and/or as damages in the form of reasonable compensation
for the use and occupation of the premises during the period of illegal detainer from June
1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12%
interest per annum from November 18, 1976, the date of filing of the complaint, until fully
paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully
vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order
enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction
of the City Court.
On September 26, 1984, the then Intermediate Appellate Court[3] (now Court of Appeals)
rendered a decision[4] stating that:
"x x x, the alleged question of whether petitioner was granted an extension of the option to
buy the property; whether such option, if any, extended the lease or whether petitioner
actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private
respondents in consideration of the option and, whether petitioner thereafter offered to
pay the balance of the supposed purchase price, are all merely incidental and do not remove
the unlawful detainer case from the jurisdiction of respondent court. In consonance with
the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised
and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original Records, pp. 38-39)."
The motion for reconsideration was denied. On review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion
for reconsideration in a resolution dated September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of
Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period
for Obligation with prayer for the issuance of a restraining order pending hearing on the
prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of
sale pursuant to the option to purchase and the receipt of the partial payment, and to fix
the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the
issuance of a writ of preliminary injunction on the ground that the decision of the then City
Court for the ejectment of the private respondent, having been affirmed by the then
Intermediate Appellate Court and the Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City,
Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of
and Relief from Judgment with injunction and damages. In its decision[6] dated May 12,
1986, the trial court dismissed the complaint for annulment on the ground of res judicata,
and the writ of preliminary injunction previously issued was dissolved. It also ordered
private respondent to pay P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby
restraining the execution of the City Court's judgment on the ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On
April 28, 1989, a decision[7] was rendered dismissing private respondent's complaint in Civil
Case No. Q-45541 (specific performance case) and denying its motion for reconsideration in
Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of
said decision was likewise denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the jurisdiction
of the City Court of Quezon City in the ejectment case. It also concluded that there was a
perfected contract of sale between the parties on the leased premises and that pursuant to
the option to buy agreement, private respondent had acquired the rights of a vendee in a
contract of sale. It opined that the payment by private respondent of P300,000.00 on June
20, 1975 as partial payment for the leased property, which petitioners accepted (through
Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave
rise to a perfected contract of sale, and that for failure of petitioners to deny receipt
thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The Court of
Appeals went further by stating that in fact, what was entered into was a "conditional
contract of sale" wherein ownership over the leased property shall not pass to the private
respondent until it has fully paid the purchase price. Since private respondent did not
consign to the court the balance of the purchase price and continued to occupy the subject
premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision reads:
"WHEREFORE, the appealed decision in Case No. 46487 is AFFIRMED. The appealed decision
in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-
appellees are ordered to execute the deed of absolute sale of the property in question, free
from any lien or encumbrance whatsoever, in favor of the plaintiff-appellant, and to deliver
to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title
to said property upon payment of the balance of the purchase price by the plaintiff-
appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976,
plus 6% interest per annum, until payment of the balance of the purchase price, as
previously agreed upon by the parties.
SO ORDERED."
Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by
respondent Court of Appeals,[10] petitioners elevated the case via petition
for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving
private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of
Lease with Option to Buy. Petitioners also assail the propriety of private respondent's
exercise of the option when it tendered the said amount on June 20, 1975 which
purportedly resulted in a perfected contract of sale.
G. R. NO. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil
Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court
of Quezon City, Branch 38, for execution of the judgment[11] dated November 22, 1982
which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to
reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary
injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was
dismissed in a resolution dated September 16, 1992 on the ground that the same was a
refiled case previously dismissed for lack of merit. On November 26, 1992, entry of
judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in
Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993,
the trial court ordered the issuance of a third alias writ of execution. In denying private
respondent's motion for reconsideration, it ordered the immediate implementation of the
third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of
Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary
injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and
validity of the MTC judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an order[12] granting the
issuance of a writ of preliminary injunction upon private respondent's posting of an
injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration,
petitioners filed a petition[13] for certiorari and prohibition with a prayer for a temporary
restraining order and/or preliminary injunction with the Court of Appeals. In its
decision,[14] the Court of Appeals dismissed the petition and ruled that:
"The avowed purpose of this petition is to enjoin the public respondent from restraining the
ejectment of the private respondent. To grant the petition would be to allow the ejectment
of the private respondent. We cannot do that now in view of the decision of this Court in
CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been
demonstrated to be without basis in the said civil case. The petitioners have been shown,
after all, to have no right to eject private respondents.
WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.
SO ORDERED."[15]
Petitioners' motion for reconsideration was denied in a resolution[16] by the Court of Appeals
stating that:
"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant
(private respondent herein) acquired the rights of a vendee in a contract of sale, in effect,
recognizing the right of the private respondent to possess the subject premises. Considering
said decision, we should not allow ejectment; to do so would disturb the status quo of the
parties since the petitioners are not in possession of the subject property. It would be unfair
and unjust to deprive the private respondent of its possession of the subject property after
its rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of merit.
SO ORDERED."[17]
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject
premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy
was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private
respondent was given an option to purchase said property at P3,000.00 per square
meter. After the expiration thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by
petitioners and private respondent. However, since the rent was paid on a monthly basis,
the period of lease is considered to be from month to month in accordance with Article
1687 of the New Civil Code.[18] Where the rentals are paid monthly, the lease, even if verbal
may be deemed to be on a monthly basis, expiring at the end of every month pursuant to
Article 1687, in relation to Article 1673 of the Civil Code.[19] In such case, a demand to vacate
is not even necessary for judicial action after the expiration of every month.[20]
When private respondent failed to pay the increased rental of P8,000.00 per month in June
1976, the petitioners had a cause of action to institute an ejectment suit against the former
with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction
over the ejectment suit. The filing by private respondent of a suit with the Regional Trial
Court for specific performance to enforce the option to purchase did not divest the then City
Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that
the decision of the City Court was affirmed by both the Intermediate Appellate Court and
this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private
respondent cannot enforce its option to purchase anymore. Moreover, even
assuming arguendo that the right to exercise the option still subsists at the time private
respondent tendered the amount on June 20, 1975, the suit for specific performance to
enforce the option to purchase was filed only on October 7, 1985 or more than ten (10)
years after accrual of the cause of action as provided under Article 1144 of the New Civil
Code.[21]
In this case, there was a contract of lease for one (1) year with option to purchase. The
contract of lease expired without the private respondent, as lessee, purchasing the property
but remained in possession thereof. Hence, there was an implicit renewal of the contract of
lease on a monthly basis. The other terms of the original contract of lease which are revived
in the implied new lease under Article 1670 of the New Civil Code[22] are only those terms
which are germane to the lessees right of continued enjoyment of the property
leased.[23] Therefore, an implied new lease does not ipso facto carry with it any implied
revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is
not deemed incorporated in the impliedly renewed contract because it is alien to the
possession of the lessee. Private respondents right to exercise the option to purchase
expired with the termination of the original contract of lease for one year. The rationale of
this Court is that:
This is a reasonable construction of the provision, which is based on the presumption that
when the lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be for the
entire period corresponding to the rent which is customarily paid in this case up to the end
of the month because the rent was paid monthly. Necessarily, if the presumed will of the
parties refers to the enjoyment of possession the presumption covers the other terms of the
contract related to such possession, such as the amount of rental, the date when it must be
paid, the care of the property, the responsibility for repairs, etc. But no such presumption
may be indulged in with respect to special agreements which by nature are foreign to the
right of occupancy or enjoyment inherent in a contract of lease.[24]
Third. There was no perfected contract of sale between petitioners and private
respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A.
Dizon who acted as agent of petitioners pursuant to the supposed authority given by
petitioner Fidela Dizon, the payee thereof. Private respondent further contended that
petitioners filing of the ejectment case against it based on the contract of lease with option
to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It
insisted that the payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. Thus, the elements of a contract of
sale are consent, object, and price in money or its equivalent. It bears stressing that the
absence of any of these essential elements negates the existence of a perfected contract of
sale. Sale is a consensual contract and he who alleges it must show its existence by
competent proof.[25]
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to
petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount
tendered would constitute a perfected contract of sale pursuant to the contract of lease
with option to buy. There was no valid consent by the petitioners (as co-owners of the
leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners alleged
agent, and private respondent. The basis for agency is representation and a person dealing
with an agent is put upon inquiry and must discover upon his peril the authority of the
agent.[26] As provided in Article 1868 of the New Civil Code,[27] there was no showing that
petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf
with regard to her transaction with private respondent. The most prudent thing private
respondent should have done was to ascertain the extent of the authority of Alice A.
Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a
supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in dealing with an
agent:
Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of
the agents authority, and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a general or special one,
are bound at their peril, if they would hold the principal, to ascertain not only the fact of the
agency but also the nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution of the
ejectment suit rendered in favor of petitioners, we now write finis to this controversy and
shun further delay so as to ensure that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated
March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as
well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-
G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the
judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now
Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated
September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in
the resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount
of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
SECOND DIVISION
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as
well as the respondent court's resolution of September 30, 1994 modifying said decision.
Both decision and resolution amended the judgment dated February 13, 1991, of the
Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias
Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No.
1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M
covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag
as "per sales order VMC Marketing No. 042 dated October 16, 1989."[1] The transaction it
covered was a "direct sale."[2] The SLDR also contains an additional note which reads:
"subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC)
its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25,
1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote
petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No.
1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from
STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the
total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with
petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27,
1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR
No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M.
CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M
had been "sold and endorsed" to it but that it had been refused further withdrawals of
sugar from petitioner's warehouse despite the fact that only 2,000 bags had been
withdrawn.[5] CSC thus inquired when it would be allowed to withdraw the remaining 23,000
bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of
sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered
by the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of
23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of
STM's cleared checks had been fully withdrawn and hence, there would be no more
deliveries of the commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No.
90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese
Merchandising) and herein petitioner. Since the former could not be served with summons,
the case proceeded only against the latter. During the trial, it was discovered that Teresita
Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through
summons.[7] CSC, however, did not bother to pursue its case against her, but instead used
her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC
prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M
and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary
damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.[8] Since STM had already drawn in full all the sugar corresponding to the amount of its
cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also
contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but
mere delivery receipts issued pursuant to a series of transactions entered into between it
and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did
not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-
conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser
for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the
following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages;
and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be
ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's
fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as
follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of
refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined
sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase
price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No.
1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by
her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs)
is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October
27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the
time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks
appear to have been honored and duly credited to the account of Victorias Milling Company
because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in
favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1).
The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer
printout of defendant Victorias Milling Company showing the quantity and value of the
purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase,
the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to
the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word
'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR
No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic,
witness for defendant Victorias Milling Company. The Court notes that the testimony of
Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been
fully paid and is not corroborated by any positive evidence. There is an insinuation by
Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of
the purchased price were dishonored. However, said witness failed to present in Court any
dishonored check or any replacement check. Said witness likewise failed to present any
bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the
purchase price of the sugar covered by SLDR No. 1214 were dishonored."[10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of
transactions involving only one account or one general contract of sale. Pursuant to this
contract, STM or any of its authorized agents could withdraw bags of sugar only against
cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since
the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were
separate and independent transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of cleared check payments
and sugar stock withdrawals because this a more convenient system than issuing separate
statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR No. 1214M was a separate, independent, and
single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No.
1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar
covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-
appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags
of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to
read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-
appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered
as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should
consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al,
1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is
presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct
in its argument that Exhibit F' which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p.
58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and
Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-
appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after
which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78,
Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-
appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from
SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's
assertions. It did not present evidence to show how many bags of sugar had been
withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question
were a series of one single transaction and withdrawal of sugar depended on the clearing of
checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial
court on this point."[13]
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially
informing petitioner that respondent was authorized by buyer STM to withdraw sugar
against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other
persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan &
Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being
an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from
doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which, had they been considered, would have shown
that petitioner was not liable, except for 69 bags of sugar, and which would justify review of
its conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and
1626 of the Civil Code when it ruled that compensation applied only to credits from one
SLDR or contract and not to those from two or more distinct contracts between the same
parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice
of assignment from other sales or SLDRs against private respondent's claim as assignee
under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law
on compensation applies precisely to two or more distinct contracts between the same
parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts
in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's
acquiescence thereto by silence for almost one year did not render Exh. `F' an account
stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No.
1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to
its availability at the Nawaco warehouse, made the sale conditional and prevented STM or
private respondent from acquiring title to the sugar; and the non-availability of sugar freed
petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against
its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM
and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the
transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on
the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under
SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from
further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first
time on appeal. It is settled that an issue which was not raised during the trial in the court
below could not be raised for the first time on appeal as to do so would be offensive to the
basic rules of fair play, justice, and due process.[15] Nonetheless, the Court of Appeals opted
to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of
said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for
and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery
Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,
000 bags."[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter."
It is clear from Article 1868 that the basis of agency is representation.[17] On the part of the
principal, there must be an actual intention to appoint[18] or an intention naturally inferable
from his words or actions;[19] and on the part of the agent, there must be an intention to
accept the appointment and act on it,[20] and in the absence of such intent, there is generally
no agency.[21] One factor which most clearly distinguishes agency from other legal concepts
is control; one person - the agent - agrees to act under the control or direction of another -
the principal. Indeed, the very word "agency" has come to connote control by the
principal.[22] The control factor, more than any other, has caused the courts to put contracts
between principal and agent in a separate category.[23] The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the
parties, the law makes no presumption of agency, and it is always a fact to be proved, with
the burden of proof resting upon the persons alleging the agency, to show not only the fact
of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, defendant-appellant failed to sufficiently establish the existence of an agency relation
between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal
of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing
to the existence of an agency relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented plaintiff-appellee as "It is understood and agreed that by payment by buyer/trader of refined sugar and/or
being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was receipt of this document by the buyer/trader personally or through a representative, title to
cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and
SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). completed (stress supplied) and buyer/trader assumes full responsibility therefore"[29]
Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No.
The aforequoted terms and conditions clearly show that petitioner transferred title to the
1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and
sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly
transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to
establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging
sue in its own name, without need of joining its imputed principal STM as co-plaintiff."[24]
the contrary. The contract is the law between the contracting parties.[30] And where the
In the instant case, it appears plain to us that private respondent CSC was a buyer of the terms and conditions so stipulated are not contrary to law, morals, good customs, public
SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's policy or public order, the contract is valid and must be upheld.[31] Having transferred title to
control. The question of whether a contract is one of sale or agency depends on the the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.
intention of the parties as gathered from the whole scope and effect of the language
As to the fourth issue, petitioner submits that STM and private respondent CSC have
employed.[25] That the authorization given to CSC contained the phrase "for and in our
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by:
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of
(a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to
the parties.[26] That no agency was meant to be established by the CSC and STM is clearly
pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other
shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and
persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said
endorsed" to it.[27] The use of the words "sold and endorsed" means that STM and CSC
SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to
intended a contract of sale, and not an agency. Hence, on this score, no error was
preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the
committed by the respondent appellate court when it held that CSC was not STM's agent
records bare of convincing evidence whatsoever to support the petitioner's allegations of
and could independently sue petitioner.
fraud. We are now constrained to deem this matter purely speculative, bereft of concrete
On the second issue, proceeding from the theory that the transactions entered into between proof.
petitioner and STM are but serial parts of one account, petitioner insists that its debt has
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil
Code.[28] However, the trial court found, and the Court of Appeals concurred, that the SO ORDERED.
purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction;
it was not a serial part of a single transaction or of one account contrary to petitioner's
insistence. Evidence on record shows, without being rebutted, that petitioner had been paid
for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had been fully paid for,
petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each
other. No reversible error could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M
is a conditional sale or a contract to sell, with title to the sugar still remaining with the
vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:
FIRST DIVISION
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S.
GUEVARRA, and FERNANDO AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari[1] from the decision of the Court of Appeals[2] affirming the
decision[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo
S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced
by Guevarra in the payment of the claims of Dominions clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in his
capacity as manager of defendant to satisfy certain claims filed by defendants clients.
In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who,
at the time relevant to the case, was its Regional Manager for Central Luzon area.
In due time, third-party defendant Austria filed his answer.
Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial
conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice, defendant and counsel did not appear, although
a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendants counsel which instructed him to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
ORDER
When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a
certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously
objected to any postponement on the ground that the note is but a mere scrap of paper and
moved that the defendant corporation be declared as in default for its failure to appear in
court despite due notice.
Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the
pre-trial conference has been repeatedly postponed on motion of the defendant
Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in
default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in the
morning.
The plaintiff and his counsel are notified of this order in open court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13,
1992. The exhibits were admitted in evidence in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It
alleged therein that the failure of counsel to attend the pre-trial conference was due to an
unavoidable circumstance and that counsel had sent his representative on that date to
inform the trial court of his inability to appear. The Motion was vehemently opposed by
plaintiff.
On August 25, 1992 the trial court denied defendants motion for reasons, among others,
that it was neither verified nor supported by an affidavit of merit and that it further failed to
allege or specify the facts constituting his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For
the first time counsel revealed to the trial court that the reason for his nonappearance at
the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-
President purporting to explain its meritorious defense was attached to the said Motion.
Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.
On November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of
defendants clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
3. The dismissal of the counter-claim of the defendant and the third-party complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.[5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion.[8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent
for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of
amounts he paid out of his personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter.[10] The
basis for agency is representation.[11] On the part of the principal, there must be an actual
intention to appoint[12] or an intention naturally inferrable from his words or actions;[13] and
on the part of the agent, there must be an intention to accept the appointment and act on
it,[14] and in the absence of such intent, there is generally no agency.[15]
A perusal of the Special Power of Attorney[16] would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a principal-
agent relationship. Despite the word special in the title of the document, the contents
reveal that what was constituted was actually a general agency. The terms of the agreement
read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a corporation duly organized
and existing under and by virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx do hereby appoint
RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and
things:
1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as
usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and
BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds
for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and
receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing payable
or transferable to said Corporation by reason of or in connection with the above-mentioned
appointment.
4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation.[19] [Emphasis supplied]
The agency comprises all the business of the principal,[20] but, couched in general terms, it is
limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not require a special
power.[22] Thus, the acts enumerated in or similar to those enumerated in the Special Power
of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:
Article 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special power of attorney is required
before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum of
Management Agreement[23] dated February 18, 1987 which enumerates the scope of
respondent Guevarras duties and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all motor car claims in the amount
of P5,000.00 with prior approval of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above, respondent Guevarras authority is further limited by
the written standard authority to pay,[25] which states that the payment shall come from
respondent Guevarras revolving fund or collection. The authority to pay is worded as
follows:
This is to authorize you to withdraw from your revolving fund/collection the amount of
PESOS __________________ (P ) representing the payment on the _________________
claim of assured _______________ under Policy No. ______ in that accident of
___________ at ____________.
It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall
come from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil
Code, which states that:
The principal is not liable for the expenses incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principals instructions, unless the latter should
wish to avail himself of the benefits derived from the contract;
xxx xxx xxx
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners liability as insurer arose. This
obligation was extinguished when respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule otherwise
would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims
could best be proven by the Release of Claim Loss and Subrogation Receipts[27] which were
attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the
total amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be
deducted from the above amount.

The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court
of Appeals[28] and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,[29] in
that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11
representing the total amount advanced by the latter in the payment of the claims of
petitioners clients.

No costs in this instance.

SO ORDERED.
THIRD DIVISION
[G.R. No. 115838. July 18, 2002]
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT
OF APPEALS and FRANCISCO ARTIGO, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari[1] seeking to annul the Decision of the Court
of Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the
decision[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-
2631. The trial court disposed as follows:
WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and
solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorneys fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991.
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners
Constante A. De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for
brevity) to collect the unpaid balance of his brokers commission from the De Castros.[4] The
Court of Appeals summarized the facts in this wise:
x x x. Appellants[5] were co-owners of four (4) lots located at EDSA corner New York and
Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144,
Records), appellee[6] was authorized by appellants to act as real estate broker in the sale of
these properties for the amount of P23,000,000.00, five percent (5%) of which will be given
to the agent as commission. It was appellee who first found Times Transit Corporation,
represented by its president Mr. Rondaris, as prospective buyer which desired to buy two
(2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots
14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently
felt short changed because according to him, his total commission should be P352,500.00
which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer
to appellants and unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after
having received P48,893.76 in advance.
On the other hand, appellants completely traverse appellees claims and essentially argue
that appellee is selfishly asking for more than what he truly deserved as commission to the
prejudice of other agents who were more instrumental in the consummation of the
sale. Although appellants readily concede that it was appellee who first introduced Times
Transit Corp. to them, appellee was not designated by them as their exclusive real estate
agent but that in fact there were more or less eighteen (18) others whose collective efforts
in the long run dwarfed those of appellees, considering that the first negotiation for the sale
where appellee took active participation failed and it was these other agents who
successfully brokered in the second negotiation. But despite this and out of appellants pure
liberality, beneficence and magnanimity, appellee nevertheless was given the largest cut in
the commission (P48,893.76), although on the principle of quantum meruit he would have
certainly been entitled to less. So appellee should not have been heard to complain of
getting only a pittance when he actually got the lions share of the commission and worse, he
should not have been allowed to get the entire commission. Furthermore, the purchase
price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05
million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the P3.6 million, or P180,000.00.
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale
of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante
clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought
prospective buyers and found Times Transit Corporation (Times Transit for brevity). Artigo
facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the
Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price
as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to
implead as indispensable parties the other co-owners of the two lots. The Court of Appeals
explained that it is not necessary to implead the other co-owners since the action is
exclusively based on a contract of agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting
parol evidence to prove the true amount paid by Times Transit to the De Castros for the two
lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the
actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of
sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness
in the deed of sale between the De Castros and Times Transit. The Court of Appeals
explained that, the rule that oral evidence is inadmissible to vary the terms of written
instruments is generally applied only in suits between parties to the instrument and
strangers to the contract are not bound by it. Besides, Artigo was not suing under the deed
of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial
courts finding that the purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in -
I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGOS
CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES;
VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY DAMAGES, AND ATTORNEYS
FEES.
The Courts Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners
as indispensable parties
The De Castros argue that Artigos complaint should have been dismissed for failure to
implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that
the two lots were co-owned by Constante and Corazon with their other siblings Jose and
Carmela whom Constante merely represented. The De Castros contend that failure to
implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the
four co-owners, would be paid with funds co-owned by the four co-owners.
The De Castros contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the courts action in the
litigation, and without whom no final determination of the case can be had.[7] The joinder of
indispensable parties is mandatory and courts cannot proceed without their
presence.[8] Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and order
the inclusion of such party.[9]
However, the rule on mandatory joinder of indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24,
1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The
authority was on a first come, first serve basis. The authority reads in full:
24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection
with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon
City.
Asking price P23,000,000.00 with
5% commission as agents fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC
Constante signed the note as owner and as representative of the other co-owners. Under
this note, a contract of agency was clearly constituted between Constante and
Artigo. Whether Constante appointed Artigo as agent, in Constantes individual or
representative capacity, or both, the De Castros cannot seek the dismissal of the case for
failure to implead the other co-owners as indispensable parties. The De Castros admit that
the other co-owners are solidarily liable under the contract of agency,[10] citing Article 1915
of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.
The solidary liability of the four co-owners, however, militates against the De Castros theory
that the other co-owners should be impleaded as indispensable parties. A noted
commentator explained Article 1915 thus
The rule in this article applies even when the appointments were made by the principals in
separate acts, provided that they are for the same transaction. The solidarity arises from
the common interest of the principals, and not from the act of constituting the agency. By
virtue of this solidarity, the agent can recover from any principal the whole compensation
and indemnity owing to him by the others. The parties, however, may, by express
agreement, negate this solidary responsibility. The solidarity does not disappear by the
mere partition effected by the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency,
only the latter are solidarily liable, without prejudice to the effects of negotiorum
gestio with respect to the others. And if the power granted includes various transactions
some of which are common and others are not, only those interested in each transaction
shall be liable for it.[11]
When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.[12] The agent may recover the whole compensation from any one of the co-
principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary
debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has not
been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.[13] that
x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the
creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of
the solidary debtors or some or all of them simultaneously. (Emphasis supplied)
Second Issue: whether Artigos claim has been extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his
proportionate share and no longer entitled to any balance. According to them, Artigo was
just one of the agents involved in the sale and entitled to a proportionate share in the
commission. They assert that Artigo did absolutely nothing during the second negotiation
but to sign as a witness in the deed of sale. He did not even prepare the documents for the
transaction as an active real estate broker usually does.
The De Castros arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or good
custom is a valid contract, and constitutes the law between the parties.[14] The contract of
agency entered into by Constante with Artigo is the law between them and both are bound
to comply with its terms and conditions in good faith.
The mere fact that other agents intervened in the consummation of the sale and were paid
their respective commissions cannot vary the terms of the contract of agency granting
Artigo a 5 percent commission based on the selling price. These other agents turned out to
be employees of Times Transit, the buyer Artigo introduced to the De Castros. This
prompted the trial court to observe:
The alleged `second group of agents came into the picture only during the so-called `second
negotiation and it is amusing to note that these (sic) second group, prominent among whom
are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the
buyer of the properties. And their efforts were limited to convincing Constante to part away
with the properties because the redemption period of the foreclosed properties is around
the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constantes version of the story is to open the floodgates of fraud and deceit. A
seller could always pretend rejection of the offer and wait for sometime for others to renew
it who are much willing to accept a commission far less than the original broker. The
immorality in the instant case easily presents itself if one has to consider that the alleged
`second group are the employees of the buyer, Times Transit and they have not bettered
the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the unrenewed real
estate brokers license of Mr. Artigo, he did not bother at all to inquire as to the licenses of
Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40).[15] (Emphasis supplied)
In any event, we find that the 5 percent real estate brokers commission is reasonable and
within the standard practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigos inaction as well as failure to protest estops him
from recovering more than what was actually paid him. The De Castros cite Article 1235 of
the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.
The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of
partial payment of his commission neither amounts to a waiver of the balance nor puts him
in estoppel. This is the import of Article 1235 which was explained in this wise:
The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or
sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a
partial payment is not equivalent to the required acceptance of performance as would
extinguish the whole obligation.[16] (Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial payment without waiving the balance. Thus,
there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost four years later. Hence, Artigos claim for
the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by exercising due diligence could or should have been done earlier. It is
negligence or omission to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined to assert it.[17]
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent
on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court,
Artigo demanded in April and July of 1985 the payment of his commission by Constante on
the basis of the selling price of P7.05 million but there was no response from
Constante.[18] After it became clear that his demands for payment have fallen on deaf ears,
Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten
years from the time the right of action accrues.[19] The right of action accrues from the
moment the breach of right or duty occurs. From this moment, the creditor can institute the
action even as the ten-year prescriptive period begins to run.[20]
The De Castros admit that Artigos claim was filed within the ten-year prescriptive
period. The De Castros, however, still maintain that Artigos cause of action is barred by
laches. Laches does not apply because only four years had lapsed from the time of the sale
in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29,
1989, well within the ten-year prescriptive period. This does not constitute an unreasonable
delay in asserting ones right. The Court has ruled, a delay within the prescriptive period is
sanctioned by law and is not considered to be a delay that would bar relief.[21] In explaining
that laches applies only in the absence of a statutory prescriptive period, the Court has
stated -
Laches is recourse in equity. Equity, however, is applied only in the absence, never in
contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated by the Civil Code.[22]
Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the
Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced
in the trial court to determine whether the actual selling price of the two lots was P7.05
million and not P3.6 million. The De Castros contend that it is erroneous to base the 5
percent commission on a purchase price of P7.05 million as ordered by the trial court and
the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly
stated in the deed of sale, the due execution and authenticity of which was admitted during
the trial.
The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and parole evidence
rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial courts
reliance on the various correspondences between Constante and Times Transit which were
mere photocopies that do not satisfy the best evidence rule. Further, these letters covered
only the first negotiations between Constante and Times Transit which failed; hence, these
are immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as
witness benefited therefrom, and being equally guilty, should be left where he presently
stands. They likewise claim that the Court of Appeals erred in relying on evidence
which were not offered for the purpose considered by the trial court. Specifically, Exhibits B,
C, D and E were not offered to prove that the purchase price was P7.05 Million. Finally, they
argue that the courts a quo erred in giving credence to the perjured testimony of
Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was
lying when he claimed at the outset that he was a licensed real estate broker when he was
not.
Whether the actual purchase price was P7.05 Million as found by the trial court and
affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question
of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on
record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or
analyze or weigh the evidence again.[23] This Court is not the proper venue to consider a
factual issue as it is not a trier of facts.In petitions for review on certiorari as a mode of
appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in
the case of Cormero vs. Court of Appeals[24] bears reiteration:
At the outset, it is evident from the errors assigned that the petition is anchored on a plea to
review the factual conclusion reached by the respondent court. Such task however is
foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only
questions of law distinctly set forth may be raised. These questions have been defined as
those that do not call for any examination of the probative value of the evidence presented
by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751
[1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate
court were correct in according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the court cannot and
will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the
absence of any showing that the findings complained of are totally devoid of support in the
record, or that they are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand, for this court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals,
197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).
We find no reason to depart from this principle. The trial and appellate courts are in a much
better position to evaluate properly the evidence. Hence, we find no other recourse but to
affirm their finding on the actual purchase price.
Fourth Issue: whether award of moral damages and attorneys fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and
attorneys fees. The De Castros, however, cite no concrete reason except to say that they are
the ones entitled to damages since the case was filed to harass and extort money from
them.
Law and jurisprudence support the award of moral damages and attorneys fees in favor of
Artigo. The award of damages and attorneys fees is left to the sound discretion of the court,
and if such discretion is well exercised, as in this case, it will not be disturbed on
appeal.[25] Moral damages may be awarded when in a breach of contract the defendant
acted in bad faith, or in wanton disregard of his contractual obligation.[26] On the other
hand, attorneys fees are awarded in instances where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable
claim.[27] There is no reason to disturb the trial courts finding that the defendants lack of
good faith and unkind treatment of the plaintiff in refusing to give his due commission
deserve censure. This warrants the award of P25,000.00 in moral damages and P45,000.00
in attorneys fees. The amounts are, in our view, fair and reasonable. Having found a buyer
for the two lots, Artigo had already performed his part of the bargain under the contract of
agency. The De Castros should have exercised fairness and good judgment in dealing with
Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent brokers
commission based on the actual purchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals
dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

SO ORDERED.
SECOND DIVISION
G.R. No. 179382 January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO PEÑA,* AND
VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
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. To pay jointly and severally to the plaintiffs the daily loss 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.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:
Republic of the Philippines x------------------------------------------------------------------------------------x

Supreme Court

Manila DECISION

REYES, J.:

SECOND DIVISION
SPOUSES FERNANDO
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009
Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No.
88586 entitled “Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.,” the
dispositive portion of which states:
G.R. No. 188288

and LOURDES VILORIA,

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006,
Petitioners, Present:
awarding US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest
from 21 July 1997 until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as
exemplary damages, [P]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees
CARPIO, J.,
is hereby REVERSED and SET ASIDE.
Chairperson,

PEREZ,
Defendant-appellant’s counterclaim is DENIED.
- versus - SERENO,

REYES, and
Costs against plaintiffs-appellees.

BERNABE, JJ.

SO ORDERED.2
Promulgated:
CONTINENTAL AIRLINES, INC.,

Respondent. January 16, 2012 On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a
Decision, giving due course to the complaint for sum of money and damages filed by
petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called
Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the
records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased for himself
and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark,
New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00
each from a travel agency called “Holiday Travel” and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after
Mager informed them that there were no available seats at Amtrak, an intercity passenger
train service provider in the United States. Per the tickets, Spouses Viloria were scheduled to
leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier
date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines
were already fully booked and offered the alternative of a round trip flight via Frontier Air.
Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would
mean traveling by night, Fernando opted to request for a refund. Mager, however, denied
his request as the subject tickets are non-refundable and the only option that Continental
Airlines can offer is the re-issuance of new tickets within one (1) year from the date the
subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and
was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak
tickets, telling her that she had misled them into buying the Continental Airlines tickets by
misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for
a refund but Mager was firm in her position that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998,
demanding a refund and alleging that Mager had deluded them into purchasing the subject
tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his
complaint had been referred to the Customer Refund Services of Continental Airlines at
Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a
refund and advised him that he may take the subject tickets to any Continental ticketing
location for the re-issuance of new tickets within two (2) years from the date they were
issued. Continental Micronesia informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental ticket, albeit with a re-issuance
fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati
City to have the subject tickets replaced by a single round trip ticket to Los Angeles,
California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-
transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay
what will not be covered by the value of his San Diego to Newark round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as
he no longer wished to have them replaced. In addition to the dubious circumstances under
which the subject tickets were issued, Fernando claimed that CAI’s act of charging him with
US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00,
and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24,
1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be
ordered to refund the money they used in the purchase of the subject tickets with legal
interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00 as
exemplary damages and P250,000.00 as attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund
as the subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in
Lourdes’ name for the purchase of a round trip ticket to Los Angeles since the same is non-
transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI,
its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorney’s fees. CAI also invoked the following clause printed on
the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by
each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii)
carrier’s conditions of carriage and related regulations which are made part hereof (and are
available on application at the offices of carrier), except in transportation between a place in
the United States or Canada and any place outside thereof to which tariffs in force in those
countries apply.8
According to CAI, one of the conditions attached to their contract of carriage is the non-
transferability and non-refundability of the subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses
Viloria are entitled to a refund in view of Mager’s misrepresentation in obtaining their
consent in the purchase of the subject tickets.9 The relevant portion of the April 3, 2006
Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent
in presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to
travel via AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines
tickets instead on the fraudulent misrepresentation that Amtrak was fully booked. In fact,
defendant Airline did not specifically denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying
Continental Airline tickets on Ms. Mager’s misleading misrepresentations. Continental
Airlines agent Ms. Mager further relied on and exploited plaintiff Fernando’s need and told
him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its
agent’s unethical tactics for baiting trusting customers.”10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent,
hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned, there
is no issue as to whether Mager was CAI’s agent in view of CAI’s implied recognition of her
status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the following are the pertinent New
Civil Code provisions on agency:
Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter. This court takes judicial notice of the common services rendered by travel agencies
that represent themselves as such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July
21, 1997 were no different from those offered in any other travel agency. Defendant airline
impliedly if not expressly acknowledged its principal-agent relationship with Ms. Mager by
its offer in the letter dated March 24, 1998 – an obvious attempt to assuage plaintiffs
spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to
replace the subject tickets within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes’ ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant
airline still charged plaintiffs spouses US$1,867.40 or more than double the then going rate
of US$856.00 for the unused tickets when the same were presented within two (2) years
from date of issue, defendant airline exhibited callous treatment of passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held
liable for Mager’s act in the absence of any proof that a principal-agent relationship existed
between CAI and Holiday Travel. According to the CA, Spouses Viloria, who have the burden
of proof to establish the fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the
contractual relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a
ticketing agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines.
Proceeding from this premise, they contend that Continental Airlines should be held liable
for the acts of Mager. The trial court held the same view.
We do not agree. By the contract of agency, a person binds him/herself to render some
service or to do something in representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for him/herself; and
(4) the agent acts within the scope of his/her authority. As the basis of agency is
representation, there must be, on the part of the principal, an actual intention to appoint,
an intention naturally inferable from the principal’s words or actions. In the same manner,
there must be an intention on the part of the agent to accept the appointment and act upon
it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish
it. Agency is never presumed, neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents so far presented. We find
nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting
in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was
simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental
Airlines and then, through its employees, Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word “non-
refundable” was clearly printed on the face of the subject tickets, which constitute their
contract with CAI. Therefore, the grant of their prayer for a refund would violate the
proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with
the higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the
CA, there is no compulsion for CAI to charge the lower amount of US$856.00, which Spouses
Viloria claim to be the fee charged by other airlines. The matter of fixing the prices for its
services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg
the premium of the services and items which they provide at a price which they deem fit, no
matter how expensive or exhorbitant said price may seem vis-à-vis those of the competing
companies. The Spouses Viloria may not intervene with the business judgment of
Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as
the latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal
bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a
higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking to re-
issue new tickets to them within the period stated in their March 24, 1998 letter. CAI
likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a
round trip to Los Angeles given that there is nothing in Lourdes’ ticket indicating that it is
non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the terms
and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,
the petitioners are no longer questioning the validity of the subject contracts and limited its
claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its
willingness to issue new tickets to them and to credit the value of the subject tickets against
the value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis
to claim that the price at which CAI was willing to issue the new tickets is unconscionable is
a piece of hearsay evidence – an advertisement appearing on a newspaper stating that
airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the
advertisement pertains to airfares in September 2000 and not to airfares prevailing in June
1999, the time when Fernando asked CAI to apply the value of the subject tickets for the
purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation
was to apply the value of the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the
subject tickets and that the terms and conditions that are printed on them are ambiguous,
CAI denies any ambiguity and alleged that its representative informed Fernando that the
subject tickets are non-transferable when he applied for the issuance of a new ticket. On the
other hand, the word “non-refundable” clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no
principal-agency relationship exists between them. As an independent contractor, Holiday
Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether
Spouses Viloria have the right to the reliefs they prayed for, this Court deems it necessary to
resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound
by the acts of Holiday Travel’s agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as
to vitiate the consent of Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-
refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles
requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply
the value of the subject tickets in the purchase of new ones when it refused to allow
Fernando to use Lourdes’ ticket and in charging a higher price for a round trip ticket to Los
Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to
review and re-examine the evidence presented by the parties below, this Court takes
exception to the general rule that the CA’s findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of fact if confronted with
contrasting factual findings of the trial court and appellate court and if the findings of the CA
are contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it exists has the
burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented
evidence that fell short of indubitably demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that
Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the
contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed
to apply the fundamental civil law principles governing agency and differentiating it from
sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an
agency and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority.
Agency is basically personal, representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first
and second elements are present as CAI does not deny that it concluded an agreement with
Considering that the fundamental hallmarks of an agency are present, this Court finds it
Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third
rather peculiar that the CA had branded the contractual relationship between CAI and
persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday
Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult
Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is
to discern and this Court, as early as 1970, had already formulated the guidelines that would
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth
aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
element is also present considering that CAI has not made any allegation that Holiday Travel
Constantino,21 this Court extrapolated that the primordial differentiating consideration
exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity
between the two (2) contracts is the transfer of ownership or title over the property subject
of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that
of the contract. In an agency, the principal retains ownership and control over the property
Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of
and the agent merely acts on the principal’s behalf and under his instructions in furtherance
Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its
of the objectives for which the agency was established. On the other hand, the contract is
February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of
clearly a sale if the parties intended that the delivery of the property will effect a
the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed
relinquishment of title, control and ownership in such a way that the recipient may do with
CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that
the property as he pleases.
Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave
Holiday Travel the power and authority to conclude contracts of carriage on its behalf. As
clearly extant from the records, CAI recognized the validity of the contracts of carriage that
Holiday Travel entered into with Spouses Viloria and considered itself bound with Spouses
Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament
to Holiday Travel’s authority to act as its agent. This Court cannot therefore allow CAI to
take an altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition
of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice.20Estoppel bars CAI
from making such denial.
As categorically provided under Article 1869 of the Civil Code, “[a]gency may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.”
Since the company retained ownership of the goods, even as it delivered possession unto
the dealer for resale to customers, the price and terms of which were subject to the
company's control, the relationship between the company and the dealer is one of agency,
tested under the following criterion:
“The difficulty in distinguishing between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of which this difficulty may be
solved. The decisions say the transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the proceeds of a resale, the transaction
is a sale; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds less the agent's
commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48;
Williston on Sales, 1; Tiedeman on Sales, 1.” (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday
Travel is a sale is certainly confounding, considering that CAI is the one bound by the
contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf. It is
undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines,
and this conclusively indicates the existence of a principal-agent relationship. That the
principal is bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort
committed by its agent’s employees if it has been established by preponderance of
evidence that the principal was also at fault or negligent or that the principal exercise
control and supervision over them.
the Civil Code does not make the principal vicariously liable for the tort committed by its
agent’s employees and the principal-agency relationship per se does not make the principal
a party to such tort; hence, the need to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline
company is based on contractual breach or culpa contractual, it is not necessary that there
be evidence of the airline company’s fault or negligence. As this Court previously stated
in China Air Lines and reiterated in Air France vs. Gillego,24 “in an action based on a breach
of contract of carriage, the aggrieved party does not have to prove that the common carrier
was at fault or was negligent. All that he has to prove is the existence of the contract and
the fact of its non-performance by the carrier.”
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent
misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing
contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria
to prove that CAI was equally at fault.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for
the fault or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of
However, the records are devoid of any evidence by which CAI’s alleged liability can be
Appeals, et al.,23CAI argues that it cannot be held liable for the actions of the employee of its
substantiated. Apart from their claim that CAI must be held liable for Mager’s supposed
ticketing agent in the absence of an employer-employee relationship.
fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Mager’s complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.
An examination of this Court’s pronouncements in China Air Lines will reveal that an airline
company is not completely exonerated from any liability for the tort committed by its
agent’s employees. A prior determination of the nature of the passenger’s cause of action is
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the
necessary. If the passenger’s cause of action against the airline company is premised
terms and conditions of the subject contracts, which Mager entered into with them on CAI’s
on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’
company’s agent, there must be an independent showing that the airline company was at
ticket for the re-issuance of a new one, and simultaneously claim that they are not bound by
fault or negligent or has contributed to the negligence or tortuous conduct committed by
Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for
the employee of its agent. The mere fact that the employee of the airline company’s agent
damages and maintaining the validity of the subject contracts. It may likewise be argued
has committed a tort is not sufficient to hold the airline company liable. There is
that CAI cannot deny liability as it benefited from Mager’s acts, which were performed in
no vinculum juris between the airline company and its agent’s employees and the
compliance with Holiday Travel’s obligations as CAI’s agent.
contractual relationship between the airline company and its agent does not operate to
create a juridical tie between the airline company and its agent’s employees. Article 2180 of
However, a person’s vicarious liability is anchored on his possession of control, whether
absolute or limited, on the tortfeasor. Without such control, there is nothing which could
justify extending the liability to a person other than the one who committed the tort. As this
Court explained in Cangco v. Manila Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or
omission, it is competent for the legislature to elect — and our Legislature has so elected —
to limit such liability to cases in which the person upon whom such an obligation is imposed
is morally culpable or, on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include responsibility for the
negligence of those persons whose acts or omissions are imputable, by a legal fiction, to
others who are in a position to exercise an absolute or limited control over them. The
legislature which adopted our Civil Code has elected to limit extra-contractual liability —
with certain well-defined exceptions — to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility may consist in having failed
to exercise due care in one's own acts, or in having failed to exercise due care in the
selection and control of one's agent or servants, or in the control of persons who, by
reasons of their status, occupy a position of dependency with respect to the person made
liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over
Mager by preponderant evidence. The existence of control or supervision cannot be
presumed and CAI is under no obligation to prove its denial or nugatory assertion.
Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged
employment relationship. The defendant is under no obligation to prove the negative
averment. This Court said:
“It is an old and well-settled rule of the courts that the burden of proving the action is upon
the plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his
claim, the defendant is under no obligation to prove his exceptions. This [rule] is in harmony
with the provisions of Section 297 of the Code of Civil Procedure holding that each party
must prove his own affirmative allegations, etc.”29(citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s
supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still,
Spouses Viloria are not entitled to a refund. Mager’s statement cannot be
considered a causal fraud that would justify the annulment of the subject
contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and
may be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore
to each other the things subject matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s
consent to the subject contracts was supposedly secured by Mager through fraudulent
means, it is plainly apparent that their demand for a refund is tantamount to seeking for an
annulment of the subject contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to determine whether
Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute on the
existence of an agency, whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the records if the findings of the
CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent,
it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement
to the making of the contract.30 In Samson v. Court of Appeals,31causal fraud was defined as
“a deception employed by one party prior to or simultaneous to the contract in order to
secure the consent of the other.”32
Also, fraud must be serious and its existence must be established by clear and convincing
evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
To quote Tolentino again, the “misrepresentation constituting the fraud must be established
by full, clear, and convincing evidence, and not merely by a preponderance thereof. The
deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a prudent person cannot be
a ground for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim.”34
After meticulously poring over the records, this Court finds that the fraud alleged by
Spouses Viloria has not been satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey
on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that
an Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As
CAI correctly pointed out and as Fernando admitted, it was possible that during the
intervening period of three (3) weeks from the time Fernando purchased the subject tickets
to the time he talked to said Amtrak employee, other passengers may have cancelled their
bookings and reservations with Amtrak, making it possible for Amtrak to accommodate
them. Indeed, the existence of fraud cannot be proved by mere speculations and
conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court,
it is presumed that "a person is innocent of crime or wrong" and that "private transactions
have been fair and regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the
subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been
impliedly ratified when Spouses Viloria decided to exercise their right to use the subject
tickets for the purchase of new ones. Under Article 1392 of the Civil Code, “ratification
extinguishes the action to annul a voidable contract.”
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
 their annulment. A party cannot rely on the contract and claim rights or obligations under it
and at the same time impugn its existence or validity. Indeed, litigants are enjoined from
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a
taking inconsistent positions.39
tacit ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an act
which necessarily implies an intention to waive his right.
V. Contracts cannot be rescinded for a slight or casual breach.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
CAI cannot insist on the non-transferability of the subject tickets.
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Considering that the subject contracts are not annullable on the ground of vitiated consent,
Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on the next question is: “Do Spouses Viloria have the right to rescind the contract on the
its undertaking to replace the subject tickets with a round trip ticket from Manila to Los ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender of
Angeles. the subject tickets?”

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based Article 1191, as presently worded, states:
on contractual breach. Resolution, the action referred to in Article 1191, is based on the
defendant’s breach of faith, a violation of the reciprocity between the parties37 and in Solar
Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled that a claim for a The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
reimbursement in view of the other party’s failure to comply with his obligations under the should not comply with what is incumbent upon him.
contract is one for rescission or resolution.

The injured party may choose between the fulfilment and the rescission of the obligation,
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 with the payment of damages in either case. He may also seek rescission, even after he has
are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid chosen fulfillment, if the latter should become impossible.
are present; in annulment, one of the essential elements to a formation of a contract, which
is consent, is absent. In resolution, the defect is in the consummation stage of the contract
when the parties are in the process of performing their respective obligations; in annulment, The court shall decree the rescission claimed, unless there be just cause authorizing the
the defect is already present at the time of the negotiation and perfection stages of the fixing of a period.
contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias
had impliedly admitted the validity of the subject contracts, forfeiting their right to demand
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts
when it refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip
ticket to Los Angeles and in requiring him to pay an amount higher than the price fixed by
other airline companies.
In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a form
of payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue
fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).”
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the
restriction on the non-transferability of the subject tickets can be inferred. In fact, the words
used by CAI in its letter supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether for themselves or for
some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the
subject tickets for the purchase of a round trip ticket between Manila and Los Angeles that
he was informed that he cannot use the ticket in Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from
a plain reading of the provision printed on the subject tickets stating that “[t]o the extent
not in conflict with the foregoing carriage and other services performed by each carrier are
subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of carriage and
related regulations which are made part hereof (and are available on application at the
offices of carrier) x x x.” As a common carrier whose business is imbued with public interest,
the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its
passengers for that matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on
transferability is not written on the face of the subject tickets and CAI failed to inform
Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment
for Fernando’s purchase of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only
a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not
absolute. The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental violations as would defeat the
very object of the parties in making the agreement.40 Whether a breach is substantial is
largely determined by the attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the
purchase of a new ticket is unjustified as the non-transferability of the subject tickets was
not clearly stipulated, it cannot, however be considered substantial. The endorsability of the
subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply
is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to
perform its principal obligation and this is to apply the price of the ticket in Fernando’s
name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be
for the purchase of any ticket, albeit under her name and for her exclusive use. In other
words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely
faulted for the fact that their agreement failed to consummate and no new ticket was issued
to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between
Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference
between the price of the subject tickets and the amount fixed by CAI. The petitioners failed
to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight
anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998
letter, it was clearly stated that “[n]on-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket”42 and there is nothing in it suggesting
that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of
tickets or that the surrender of the subject tickets will be considered as full payment for any
ticket that the petitioners intend to buy regardless of actual price and destination. The CA
was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its
services and it may not be compelled to observe and maintain the prices of other airline
companies.43
The conflict as to the endorsability of the subject tickets is an altogether different matter,
which does not preclude CAI from fixing the price of a round trip ticket between Manila and
Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an
excuse not to pay such price, albeit subject to a reduction coming from the value of the
subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to
pay whatever is not covered by the value of the subject tickets whether or not the subject
tickets are transferable or not.
There is also no showing that Spouses Viloria were discriminated against in bad faith by
being charged with a higher rate. The only evidence the petitioners presented to prove that
the price of a round trip ticket between Manila and Los Angeles at that time was only
$856.00 is a newspaper advertisement for another airline company, which is inadmissible
for being “hearsay evidence, twice removed.” Newspaper clippings are hearsay if they were
offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court
of Appeals,:44
[N]ewspaper articles amount to “hearsay evidence, twice removed” and are therefore not
only inadmissible but without any probative value at all whether objected to or not, unless
offered for a purpose other than proving the truth of the matter asserted. In this case, the
news article is admissible only as evidence that such publication does exist with the tenor of
the news therein stated.45 (citations omitted)
The records of this case demonstrate that both parties were equally in default; hence, none
of them can seek judicial redress for the cancellation or resolution of the subject contracts
and they are therefore bound to their respective obligations thereunder. As the 1st sentence
of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished, and
each shall bear his own damages. (emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the
purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their
refusal to pay the amount, which is not covered by the subject tickets. Moreover, the
contract between them remains, hence, CAI is duty bound to issue new tickets for a
destination chosen by Spouses Viloria upon their surrender of the subject tickets and
Spouses Viloria are obliged to pay whatever amount is not covered by the value of the
subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay
his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral
damages is the absence of a showing that the latter acted fraudulently and in bad faith.
Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages
are generally not recoverable in culpa contractual except when bad faith had been
proven.48 The award of exemplary damages is likewise not warranted. Apart from the
requirement that the defendant acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
SPECIAL SECOND DIVISION
[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.
FIRST DIVISION 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
ABACUS SECURITIES G.R. No. 160016 stock market speculations, and are thus mandatory.
CORPORATION,

Petitioner, Present: In the present case, respondent cannot escape payment of stocks validly traded by
Panganiban, CJ, 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.
Chairman,

Ynares-Santiago,
The Case
- versus - Austria-Martinez,

Callejo, Sr., and

Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging
Chico-Nazario, JJ the March 21, 2003 Decision[2] and the September 19, 2003 Resolution[3] of the Court of
Promulgated: Appeals (CA) in CA-GR CV No. 68273. The assailed Decision disposed as follows:

RUBEN U. AMPIL,

Respondent. February 27, 2006 UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is hereby DISMISSED. With
costs.[4]
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION
The CA denied reconsideration in its September 19, 2003 Resolution.

PANGANIBAN, CJ:
The Facts

S tock market transactions affect the general public and the national economy. The rise

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]
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 quo held that petitioner was estopped from raising the
question, because it had actively and voluntarily participated in the assailed proceedings.

Hence, this Petition.[8]

In its Decision[6] dated June 26, 2000, the Regional Trial Court (RTC) of Makati City (Branch
Issues
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 Petitioner submits the following issues for our consideration:
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 I.
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. 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
The trial court also found respondent to be equally at fault, by incurring excessive credits considering that respondent was the first one who violated the terms of the Account
and waiting to see how his investments turned out before deciding to invoke the RSA. Thus, Opening Form, [which was the] agreement between the parties.
the RTC concluded that petitioner and respondent were in pari delicto and therefore
without recourse against each other.

Ruling of the Court of Appeals

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, determine willful violations of the RSA and impose appropriate sanctions therefor, as
violated the law at its own peril. Hence, it cannot now complain for failing to obtain the full provided under Sections 45 and 46 of the Act.
amount of its claim for these latter transactions.

On the other hand, with respect to respondents counterclaim for damages for having been Moreover, we uphold the SEC in its Opinion, thus:
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. 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.
Second Issue:

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]

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]

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby MODIFIED. Respondent is ordered to pay petitioner the difference between the
The instant controversy is an ordinary civil case seeking to enforce rights arising from the
formers outstanding obligation as of April 11, 1997 less the proceeds from the mandatory
Agreement (AOF) between petitioner and respondent. It relates to acts committed by the
sell out of shares pursuant to the RSA Rules, with interest thereon at the legal rate until fully
parties in the course of their business relationship. The purpose of the suit is to collect
paid.
respondents alleged outstanding debt to petitioner for stock purchases.

The RTC of Makati, Branch 57 is hereby directed to make a computation of respondents

To be sure, the RSA and its Rules are to be read into the Agreement entered into between
outstanding obligation using the closing prices of the stocks at T+14 as basis -- counted from
petitioner and respondent. Compliance with the terms of the AOF necessarily means
April 11, 1997 and to issue the proper order for payment if warranted. It may hold trial and
compliance with the laws. Thus, to determine whether the parties fulfilled their obligations
hear the parties to be able to make this determination.
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 No finding as to costs in this instance.
SO ORDERED.
SECOND DIVISION 23 Mabini Street

[G.R. No. 150678. February 18, 2005] Quezon City, M.M.

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs. COURT OF APPEALS, Dear Mesdames:
PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents.
This letter will serve as your authority* to negotiate with any prospective buyer for the sale
DECISION of a certain real estate property more specifically a mango plantation which is described
more particularly therein below:
CALLEJO, SR., J.:
Location : Barrio Tulay-na-Patpat, Ibaan,
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 Batangas
No. 15664 which awarded to the respondents their 5% brokers commission.
Lot Area : 17 hectares (more or less) per
The facts are as follows:
attached Appendix A
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the
Improvements : 720 all fruit-bearing mango trees
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 (carabao variety) and other trees
at P2,200,000.00, located in Ibaan, Batangas.[4]
Price : P 2,200,000.00
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 For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a
Lee responded to an ad in a newspaper put up by Borbon for an 8-hectare property in Lubo, commission of 5% of the total purchase price to be agreed upon by the buyer and seller.
Batangas, planted with atis trees. Lee expressed that he preferred a land with mango trees Very truly yours,
instead. Borbon promised to get back to him as soon as she would be able to find a property
according to his specifications. (Sgd.)

Borbon relayed to her business associates and friends that she had a ready buyer for a B.R. Medrano
mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation Owner
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 * Subject to price sale.[6]
issued the Letter of Authority, as follows:
The respondents arranged for an ocular inspection of the property together with Lee which
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio 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
Campos Rueda Building on his way to Lipa City to inspect another property, and might as well also take a look at the
Tindalo, Makati, M.M. 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
Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig 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 common issues:
1. Whether or not the letter of authority is binding and enforceable against the defendant
Bank only or both defendants; and
2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject
property.[14]
On September 21, 1994, the trial court rendered a Decision in favor of the respondents. The
petitioners were ordered to pay, jointly and severally, the 5% 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.
(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.

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
FIRST DIVISION
[G.R. No. 143978. December 3, 2002]
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAA, petitioners, vs. EDUARDO
R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
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.
The records show that petitioner Manuel B. Tan is a licensed real estate broker, and
petitioners Gregg M. Tecson and Alexander Saldaa are his associates. In Schmid and Oberly
v. RJL Martinez Fishing Corporation,[20]we defined 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. x x x a broker is one whose occupation is
to bring the parties together, in matters of trade, commerce or navigation. (Emphasis
supplied)
During the trial, it was established that petitioners, as brokers, were authorized by private
respondents to negotiate for the sale of their land within a period of one month reckoned
from June 29, 1992. The authority given to petitioners was non-exclusive, which meant that
private respondents were not precluded from granting the same authority to other agents
with respect to the sale of the same property. In fact, private respondent authorized
another agent in the person of Mr. Bobby Pacana to sell the same property. There was
nothing illegal or amiss in this arrangement, per se, considering the non-exclusivity of
petitioners authority to sell. The problem arose when it eventually turned out that these
agents were entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that
Pacana was the one entitled to the stipulated 3% commission is untenable, considering that
it was the petitioners who were responsible for the introduction of the representatives of
the Sisters of Mary to private respondent Eduardo 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.
should be based on the price at which the land was offered for sale, i.e., P530.00 per square
meter. However, the actual purchase price for which the land was sold was only P200.00 per
square meter. Therefore, equity considerations dictate that petitioners commission must be
based on this price. To rule otherwise would constitute unjust enrichment on the part of
petitioners as brokers.

Private respondents contention that Pacana was the one responsible for the sale of the land In the matter of attorneys fees and expenses of litigation, we affirm the amount of
is also unsubstantiated. There was nothing on record which established the existence of a P50,000.00 awarded by the trial court to the petitioners.
previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The only piece of
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000 decision
evidence that the private respondents were able to present is an undated and unnotarized
of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court
Special Power of Attorney in favor of Pacana. While the lack of a date and an oath do not
of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering private respondents Eduardo
necessarily render said Special Power of Attorney invalid, it should be borne in mind that the
Gullas and Norma S. Gullas to pay jointly and severally petitioners Manuel B. Tan, Gregg
contract involves a considerable amount of money. Hence, it is inconsistent with sound
Tecson and Alexander Saldaa the sum of Six Hundred Twenty-Four Thousand and Six
business practice that the authority to sell is contained in an undated and unnotarized
Hundred Eighty-Four Pesos (P624,684.00) as brokers fee with legal interest at the rate of 6%
Special Power of Attorney. Petitioners, on the other hand, were given the written authority
per annum from the filing of the complaint; and the sum of Fifty Thousand Pesos
to sell by the private respondents.
(P50,000.00) as attorneys fees and costs of litigation, is REINSTATED.
The trial courts evaluation of the witnesses is accorded great respect and finality in the
SO ORDERED.
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.

Having ruled that petitioners are entitled to the brokers commission, we should now resolve
how much commission are petitioners entitled to?

Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3%
commission for the sale of the land in question. Petitioners maintain that their commission
SECOND DIVISION

GENEVIEVE LIM, G.R. No. 163720 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
Petitioner,
respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement,
Present: 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
PUNO, J., commission for the sale.[3]

- versus - Chairman,

AUSTRIA-MARTINEZ, 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
CALLEJO, SR., 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred
TINGA, and 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
FLORENCIO SABAN, CHICO-NAZARIO, JJ. 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
Respondent.
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
Promulgated:
(P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645
December 16, 2004 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.
x-------------------------------------------------------------------x

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez
DECISION 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]

TINGA, J.:
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]
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.
 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
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot
liability towards Saban.
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
Saban appealed the trial courts Decision to the Court of Appeals.
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 On October 27, 2003, the appellate court promulgated its Decision[12] reversing the trial
the sale since he concealed the actual selling price of the lot from Ybaez and because he was courts ruling. It held that Saban was entitled to his commission amounting
not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. 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
Saban further averred that Ybaez and Lim connived to deprive him of his sales commission
in bad faith in order to deprive Saban of his commission and to keep the profits for
by withholding payment of the first three checks. He also claimed that Lim failed to make
himself.[14]
good the fourth check which was dishonored because the account against which it was
drawn was closed.

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
In his Answer, Ybaez claimed that Saban was not entitled to any commission because he
corresponding to his commission because she issued the four checks knowing that the total
concealed the actual selling price from him and because he was not a licensed real estate
amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The
broker.
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
Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban,
to pay Saban as the holder for value of the checks.[15]
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.
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]

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
Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.
parties.[10]
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 commission,[28] and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28,
sale. 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
However, the Court does not agree with the appellate courts pronouncement that Sabans
him P400,000.00 which he said was the full amount for the sale of the lot.[30] It thus appears
agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency
that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of
cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an
the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the
obligation already contracted, or if a partner is appointed manager of a partnership in the
balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to
contract of partnership and his removal from the management is unjustifiable. Stated
Ybaez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybaez
differently, an agency is deemed as one coupled with an interest where it is established for
rounded off the amount to P400,000.00 and waived the difference.
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
Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her
interest must be in the subject matter of the power conferred and not merely an interest in
claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she
the exercise of the power because it entitles him to compensation. When an agents interest
did not agree thereto, there would be no reason for her to issue those checks which is the
is confined to earning his agreed compensation, the agency is not one coupled with an
balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00
interest, since an agents interest in obtaining his compensation as such agent is an ordinary
(commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed
incident of the agency relationship.[26]
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
Sabans entitlement to his commission having been settled, the Court must now determine
prejudice of Saban whose efforts led to the completion of the sale between the latter, and
whether Lim is the proper party against whom Saban should address his claim.
Lim and her co-vendees. This the Court cannot countenance.

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
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.
THIRD DIVISION

PHILIPPINE HEALTH-CARE PROVIDERS, INC. G.R. No. 171052

(MAXICARE),
This petition for review on certiorari assails the Decision[1] dated June 16, 2005 of the Court
Petitioner, of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the Decision[2] dated October
Present:
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).
YNARES-SANTIAGO, J.,

Chairperson,
- versus - The facts, as found by the CA and adopted by Maxicare in its petition, follow:
AUSTRIA-MARTINEZ,

CORONA,*
[Maxicare] is a domestic corporation engaged in selling health insurance plans whose
NACHURA, and Chairman Dr. Roberto K. Macasaet, Chief Operating Officer Virgilio del Valle, and
REYES, JJ. Sales/Marketing Manager Josephine Cabrera were impleaded as defendants-appellants.

CARMELA ESTRADA/CARA HEALTH SERVICES, On September 15, 1990, [Maxicare] allegedly engaged the services of Carmela Estrada who
Promulgated:
Respondent. 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
January 28, 2008 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.:
x------------------------------------------------------------------------------------x

Commission

DECISION 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
NACHURA, J.: commissionable amount on corporate accounts from all membership dues collected and
remitted by you to [Maxicare].
 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
[Maxicare] alleged that it followed a franchising system in dealing with its agents whereby
MERALCO and the other accounts so that if ever [Maxicare] was indebted to [Estrada], it
an agent had to first secure permission from [Maxicare] to list a prospective company as
was only for P1,555.00 and P43.l2 as commissions on the accounts of Overseas Freighters
client. [Estrada] alleged that it did apply with [Maxicare] for the MERALCO account and
Co. and Mr. Enrique Acosta, respectively.
other accounts, and in fact, its franchise to solicit corporate accounts, MERALCO account
included, was renewed on February 11, 1991.

[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
Plaintiff-appellee [Estrada] submitted proposals and made representations to the officers of
Branch 135.
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
Defendants-appellants [Maxicare] and its officers filed their Answer with Counterclaim on
the terms and conditions.
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
On November 28, 1991, MERALCO eventually subscribed to the MAXICARE Plan and signed a
as agent under the February 16, 1991 letter-agreement to promote the MAXICARE Plan was
Service Agreement directly with [Maxicare] for medical coverage of its qualified
for a period of one (1) year only; said agency was not renewed after the expiration of the
members, i.e.: 1) the enrolled dependent/s of regular MERALCO executives; 2) retired
one (1) year period; [Estrada] did not intervene in the negotiations of the contract with
executives and their dependents who have opted to enroll and/or continue their MAXICARE
MERALCO which was directly negotiated by MERALCO with [Maxicare]; and [Estradas]
membership up to age 65; and 3) regular MERALCO female executives (exclusively for
alleged other clients/accounts were not accredited with [Maxicare] as required, since the
maternity benefits). Its duration was for one (1) year from December 1, 1991 to November
agency contract on the MAXICARE health plans were not renewed. By way of counterclaim,
30, 1992. The contract was renewed twice for a term of three (3) years each, the first
defendants-appellants [Maxicare] and its officers claimed P100,000.00 in moral damages for
started on December 1, 1992 while the second took effect on December 1, 1995.
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]

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] After trial, the RTC found Maxicare liable for breach of contract and ordered it to pay
was P20,169,335.00. 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
On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from attorneys fees in the amount of P100,000.00.
[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
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:
As provided for in Section 4 of Rule 129 of the Rules of Court, the general rule that a judicial
admission is conclusive upon the party making it and does not require proof admits of two
exceptions: 1) when it is shown that the admission was made through palpable mistake, and
2) when it is shown that no such admission was in fact made. The latter exception allows
one to contradict an admission by denying that he made such an admission.
For instance, if a party invokes an admission by an adverse party, but cites the admission out
of context, then the one making the admission may show that he made no such admission,
or that his admission was taken out of context.
This may be interpreted as to mean not in the sense in which the admission is made to
appear. That is the reason for the modifier such.[21]
In this case, the letter, although part of 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
SO ORDERED.
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 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.
FIRST DIVISION
[G.R. No. 142950. March 26, 2001]
EQUITABLE PCI BANK, formerly EQUITABLE BANKING CORPORATION, petitioner,
vs. ROSITA KU, respondent.
DECISION
KAPUNAN, J.:
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 Court of Appeals, covered
by Registry Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as Annex
A) together with other mail matters, and brought them to the Mail and Courier Department;
(5) After sorting out these mail matters, on April 25, 2000, I 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 is attached as Annex B).
(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law
Office whose receiving clerk Darwin Bawar opened the letter and stamped on the Notice of
Judgment their actual date of receipt: April 27, 2000 (copy of the said Notice with the date
so stamped is attached as Annex C).
(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my
actual date of receipt of this letter, and I informed him that based on my logbook, I received
it on April 25, 2000.
(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo
that Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a
certification that I received the said mail on April 24, 2000.
(9) I hereby confirm that this error was caused by an honest mistake.
Petitioner argues that receipt on April 25, 2000 by Joel 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
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 9thfloor 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.
The Court proceeded to enumerate cases where the rules on reglementary periods were
suspended. Republic vs. Court of Appeals[16] involved a delay of six days; Siguenza vs. Court
of Appeals,[17] thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,[18] one
day; Cortes vs. Court of Appeals,[19] seven days; Olacao vs. NLRC,[20] two days; Legasto vs.
Court of Appeals,[21] two days; and City Fair Corporation vs. NLRC,[22] which also concerned a
tardy appeal.

Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt The Court finds these arguments to be persuasive, especially in light of the merits of the
by its counsel was on April 27, 2000, not April 25, 2000. Following the argument to its logical petition.
conclusion, the motion for extension to file the petition for review was even filed two (2)
WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court of
days before the lapse of the 15-day reglementary period. That counsel treated April 25,
Appeals is REVERSED.
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, SO ORDERED.
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 or took steps to put a
stop to it.The facts are, therefore, inadequate for the Court to make a ruling in petitioners
favor.

Assuming the motion for extension was indeed one day late, 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 petition was filed three
(3) days late. The Court held:

It has been said time and again that the perfection of an appeal within the period fixed by
the rules is mandatory and jurisdictional. But, it is always in the power of this Court to
suspend its own rules, or to except a particular case from its operation, whenever the
purposes of justice require it. Strong compelling reasons such as serving the ends of justice
and preventing a grave miscarriage thereof warrant the suspension of the rules.
SECOND DIVISION
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 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
Joy Training appealed the RTC decision to the CA. 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
The CA Ruling
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
The CA upheld the RTC�s jurisdiction over the case but reversed its ruling with respect to sale because Section 108 of Presidential Decree No. (PD) 1529 requires that the revocation
the sale of real properties. It maintained that the present action is cognizable by the RTC of authority must be approved by a court of competent jurisdiction and no revocation was
because it involves recovery of ownership from third parties. reflected in the certificate of title.25cralaw virtualaw library

The Case for the Respondent

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.
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has
jurisdiction over the case. It posits that the action is essentially for recovery of property and
is therefore a case cognizable by the RTC. Furthermore, Sally is estopped from questioning
the RTC�s jurisdiction because she seeks to reinstate the RTC ruling in the present case.
Joy Training maintains that it did not authorize the spouses Johnson to sell its real
properties. TCT No. T-25334 does not specifically grant the authority to sell the parcel of
land to the spouses Johnson. It further asserts that the resolution and the certification
should not be given any probative value because they were not admitted in evidence by the
RTC. It argues that the resolution is void for failure to comply with the voting requirements
under Section 40 of the Corporation Code. It also posits that the certification is void because
it lacks material particulars.

The Petition The Issues

Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint The case comes to us with the following issues:cralawlibrary
was principally for the nullification of a corporate act. The transfer of the SEC�s original
1) Whether or not the RTC has jurisdiction over the present case; and
and exclusive jurisdiction to the RTC24 does not have any retroactive application because
jurisdiction is a substantive matter. Whether or not there was a contract of agency to sell the real properties between Joy
2)
Training and the spouses Johnson.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she
As a consequence of the second issue, whether or not there was a valid contract of sale of
was a buyer in good faith because she merely relied on TCT No. T-25334. The title states 3)
the real properties between Joy Training and the spouses Yoshizaki.
that the spouses Johnson are Joy Training�s representatives.
 However, the present case falls under the recognized exception that a review of the facts is
warranted when the findings of the lower courts are conflicting.32Accordingly, we will
Our Ruling
examine the relevant pieces of evidence presented to the lower court.

There is no contract of agency between Joy

We find the petition unmeritorious. Training and the spouses Johnson to sell the
parcel of land with its improvements
The RTC has jurisdiction over disputes
concerning the application of the Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person
Civil Code �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.� It may be express, or implied from
Jurisdiction over the subject matter is the power to hear and determine cases of the general the acts of the principal, from his silence or lack of action, or his failure to repudiate the
class to which the proceedings before a court belong.28 It is conferred by law. The agency, knowing that another person is acting on his behalf without authority.
allegations in the complaint and the status or relationship of the parties determine which
court has jurisdiction over the nature of an action.29 The same test applies in ascertaining As a general rule, a contract of agency may be oral. However, it must be written when the
whether a case involves an intra-corporate controversy.30cralaw virtualaw library law requires a specific form.33 Specifically, Article 1874 of the Civil Code provides that the
contract of agency must be written for the validity of the sale of a piece of land or any
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks interest therein. Otherwise, the sale shall be void. A related provision, Article 1878 of the
to nullify the sale of the real properties on the ground that there was no contract of agency Civil Code, states that special powers of attorney are necessary to convey real rights over
between Joy Training and the spouses Johnson. This was beyond the ambit of the SEC�s immovable properties.
original and exclusive jurisdiction prior to the enactment of Republic Act No. 8799 which
only took effect on August 3, 2000. The determination of the existence of a contract of The special power of attorney mandated by law must be one that expressly mentions a sale
agency and the validity of a contract of sale requires the application of the relevant or that includes a sale as a necessary ingredient of the authorized act. We unequivocably
provisions of the Civil Code. It is a well-settled rule that �[d]isputes concerning the declared in Cosmic Lumber Corporation v. Court of Appeals34 that a special power of
application of the Civil Code are properly cognizable by courts of general attorney must express the powers of the agent in clear and unmistakable language for the
jurisdiction.�31Indeed, no special skill requiring the SEC�s technical expertise is necessary principal to confer the right upon an agent to sell real estate. When there is any reasonable
for the disposition of this issue and of this case. doubt that the language so used conveys such power, no such construction shall be given
the document. The purpose of the law in requiring a special power of attorney in the
The Supreme Court may review questions of disposition of immovable property is to protect the interest of an unsuspecting owner from
fact in a petition for review on certiorari being prejudiced by the unwarranted act of another and to caution the buyer to assure
when the findings of fact by the lower courts himself of the specific authorization of the putative agent.35cralaw virtualaw library
are conflicting
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy
We are aware that the issues at hand require us to review the pieces of evidence presented Training specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-
by the parties before the lower courts. As a general rule, a petition for review 25334, (2) the resolution, (3) and the certification. We quote the pertinent portions of
on certiorari precludes this Court from entertaining factual issues; we are not duty-bound to these documents for a thorough examination of Sally�s claimuote the pertinent portions of
analyze again and weigh the evidence introduced in and considered by the lower courts.
the said documents.. this Court becuse es. es Training did not e. TCT No. T-25334, entered in
the Registry of Deeds on March 5, 1998, states:cralawlibrary
A parcel of land x x x is registered in accordance with the provisions of the Property
Registration Decree in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps.
RICHARD A. JOHNSON and LINDA S. JOHNSON, both of legal age, U.S. Citizen, and residents
of P.O. Box 3246, Shawnee, Ks 66203, U.S.A.36 (emphasis ours)
On the other hand, the fifth paragraph of the certification provides:cralawlibrary
Further, Richard A. and Linda J[.] Johnson were given FULL AUTHORITY for ALL SIGNATORY
purposes for the corporation on ANY and all matters and decisions regarding the property
and ministry here. They will follow guidelines set forth according to their appointment and
ministerial and missionary training and in that, they will formulate and come up with by-
laws which will address and serve as governing papers over the center and corporation.
They are to issue monthly and quarterly statements to all members of the
corporation.37 (emphasis ours)
The resolution states:cralawlibrary
We, the undersigned Board of Trustees (in majority) have authorized the sale of land and
building owned by spouses Richard A. and Linda J[.] Johnson (as described in the title SN
No. 5102156 filed with the Province of Aurora last 5th day of March, 1998. These proceeds
are going to pay outstanding loans against the project and the dissolution of the corporation
shall follow the sale. This is a religious, non-profit corporation and no profits or stocks are
issued.38 (emphasis ours)
The above documents do not convince us of the existence of the 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 2543 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 February 14, 2006 and
Resolution dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the
petition is hereby DENIED for lack of merit.

SO ORDERED.
FIRST DIVISION
G.R. No. 182349, July 24, 2013
REMAN RECIO, Petitioner, v. HEIRS OF THE SPOUSES AGUEDO AND MARIA ALTAMIRANO,
NAMELY: ALEJANDRO, ADELAIDA, CATALINA, ALFREDO, FRANCISCO, ALL SURNAMED
ALTAMIRANO; VIOLETA ALTAMIRANO OLFATO, AND LORETA ALTAMIRANO VDA. DE
MARALIT AND SPOUSES LAURO AND MARCELINA LAJARCA, Respondents.
DECISION
REYES, J.:
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 and costs of suit.
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 SO ORDERED.12
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
Aggrieved, the Spouses Lajarca filed an appeal assailing the above RTC decision.
The Ruling of the RTC in Civil Case No. 97-0107
The Ruling of the CA in CA-G.R. CV No. 86001

On August 23, 2005, the trial court rendered a decision,11 the dispositive portion of which
In its Decision13 dated November 29, 2007, the CA affirmed with modification, the
reads as follows:cralavvonlinelawlibrary
dispositive portion of which states:cralavvonlinelawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and
WHEREFORE, premises considered, the August 23, 2005 Decision of the Regional Trial Court,
against the defendants as follows:cralavvonlinelawlibrary
Br. 85, Fourth Judicial Region, Lipa City, in Civil Case No. 97-0107, is hereby AFFIRMED with
MODIFICATION. Concomitantly, judgment is hereby rendered, as
1. declaring as NULL AND VOID the Deed of Absolute Sale dated 26 February 1998 between
follows:cralavvonlinelawlibrary
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
1) The complaint, as far as Adelaida Altam[i]rano, Catalina Altam[i]rano, Alfredo
Mayo Street), Lipa City, Batangas, containing an area of more or less Eighty[-]Nine Square
Altam[i]rano, Francisco Altam[i]rano, Violeta Altam[i]rano Olfato and Loreta Altam[i]rano
Meters and Fifty Square Decimeters (89.50 sq. m) then covered by Transfer Certificate of
vda. de Maralit are concerned, is hereby DISMISSED;chanroblesvirtualawlibrary
Title No. T-102563 of the Registry of Deeds of Lipa City;chanroblesvirtualawlibrary

2) The contract of sale between Alejandro Altam[i]rano and Reman Recio is VALID only with
2. ordering the Register of Deeds of Lipa City to cancel Transfer Certificate of Title No. T-
respect to the aliquot share of Alejandro Altam[i]rano in the lot previously covered by TCT
112727 of the Registry of Deeds of Lipa City in the name of the defendants Lajarcas and to
No. T-102563 (now covered by TCT No. 112727);chanroblesvirtualawlibrary
reinstate Transfer Certificate of Title No. T-102563;chanroblesvirtualawlibrary

3) The Deed of Sale, dated February 26, 1998, between the Altam[i]ranos and the Lajarca
3. directing the defendants Altamiranos to execute a Deed of Absolute Sale in favor of
Spouses is declared NULL and VOID as far as the aliquot share of Alejandro Altam[i]rano is
plaintiff covering the parcel of land together with all improvements thereon situated at No.
concerned;chanroblesvirtualawlibrary
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
4) Reman Recio is DECLARED a co-owner of the Spouses Lauro and Marcelina Lajarca over
covered by Transfer Certificate of Title No. T-102563 upon payment by said plaintiff of the
the property previously covered by TCT No. T-102563 (now TCT No. 112727), his share being
balance of the purchase price in the amount of THREE HUNDRED FORTY THOUSAND PESOS
that which previously corresponds to the aliquot share of Alejandro Altam[i]rano; and
([P]340,000.00).

5) The damages awarded below to Reman Recio are AFFIRMED. No costs.

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
SO ORDERED.14nadcralavvonlinelawlibrary
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,
 Not satisfied with the decision, the petitioner sought reconsideration but his motion was
In pr�cis, the CA found and ruled as follows:cralavvonlinelawlibrary denied in the CA Resolution20 dated March 18, 2008.

Issue
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 The petitioner filed the instant petition alleging in the main that the CA gravely and seriously
Alejandro and Violeta, reside abroad with unknown addresses. Thus, for the CA, summons erred in modifying the RTC decision.
to the non-resident Altamiranos should have been served extraterritorially as provided in
Our Ruling
Section 15, Rule 1415 of the Revised Rules of Court.16

2) That there was a valid contract of sale entered into by Alejandro and the petitioner The petition has no merit.
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 Under Rule 45 of the Rules of Court, jurisdiction is generally limited to the review of errors
payments made for the purchase of Lot No. 3; (b) Alejendro actually delivered Lot No. 3 to of law committed by the appellate court. The Supreme Court is not obliged to review all
the petitioner and waived the rental payments thereof; (c) Alejandro did not actually refuse over again the evidence which the parties adduced in the court a quo. Of course, the general
the petitioner�s offer to pay the balance of the purchase price but instead, merely avoided rule admits of exceptions, such as where the factual findings of the CA and the trial court are
the petitioner; and (d) all the elements of a valid contract of sale exist in the transaction conflicting or contradictory.21 In the instant case, the findings of the trial court and its
between the petitioner and the Altamiranos.17 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.
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 At the core of the present petition is the validity of the verbal contract of sale between
the latter is null and void. An SPA from the co-owners pursuant to Article 1878 of the New Alejandro and the petitioner; and the Deed of Absolute Sale between the Altamiranos and
Civil Code is necessary. However, the CA held that the contract of sale between Alejandro the Spouses Lajarca involving the subject property.
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 A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership
Lajarca were not buyers in good faith because they had knowledge of the prior sale to the of the thing sold in exchange for a price; (b) the subject matter, which must be a possible
petitioner who even caused the annotation of the Notice of Lis Pendens on TCT No. T- thing; and (c) the price certain in money or its equivalent.22
102563.19
In the instant case, all these elements are present. The records disclose that the Altamiranos
The CA, thereby, held that insofar as the verbal contract of sale between Alejandro and the were the ones who offered to sell the property to Nena but the transaction did not push
petitioner is concerned, Alejandro�s disposition affects only his pro indiviso share, such through due to the fault of the respondents. Thereafter, the petitioner renewed Nena�s
that the transferee (the petitioner) receives only what corresponds to Alejandro�s option to purchase the property to which Alejandro, as the representative of the
undivided share in the subject lot. Likewise, the CA declared the deed of absolute sale Altamiranos verbally agreed. The determinate subject matter is Lot No. 3, which is covered
between the Altamiranos and the Spouses Lajarca valid only insofar as the aliquot shares of under TCT No. T-102563 and located at No. 39 10 de Julio Street (now Esteban Mayo Street),
the other Altamiranos are concerned. Thus, in effect, the petitioner and the Spouses Lajarca Lipa City, Batangas.23 The price agreed for the sale of the property was Five Hundred
are co-owners of the subject property. 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
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 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.
SECOND DIVISION 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.

WOODCHILD HOLDINGS, INC., G.R. No. 140667

The Antecedents
Petitioner,

Present:
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas
PUNO, J., Chairman, Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer
AUSTRIA-MARTINEZ, Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A
- versus - CALLEJO, SR., 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.
TINGA, and

CHICO-NAZARIO, JJ.
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
ROXAS ELECTRIC AND Promulgated: 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]
CONSTRUCTION COMPANY, INC.,

Respondent. August 12, 2004

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by
x--------------------------------------------------x
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
DECISION
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:

CALLEJO, SR., J.:

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
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
Lot
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.
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.

Indubitably, a corporation may act only through its board of directors or, when authorized
Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the
either by its by-laws or by its board resolution, through its officers or agents in the normal
respondent, which is worded as follows:
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]
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
Generally, the acts of the corporate officers within the scope of their authority are binding
which he deems most reasonable and advantageous to the corporation;
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:
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]
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 Evidently, Roxas was not specifically authorized under the said resolution to grant a right of
except when he ratifies it expressly or tacitly. 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.
 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.
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
The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the
affirmed the ruling of the trial court that the respondent failed to cause the eviction of the
lease of the property to the Ponderosa Leather Goods Company. The respondent is, thus,
squatters from the property on or before September 29, 1991; hence, was liable
liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil
for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the
Code:
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.
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
The petitioner could not be expected to file its application for a building permit before April damages which may be reasonably attributed to the non-performance of the obligation.
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 In sum, we affirm the trial courts award of damages and attorneys fees to the petitioner.
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
IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed
construction and the increase thereon, conformably to Article 1170 of the New Civil Code,
Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to
which reads:
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.
Republic of the Philippines

Supreme Court DECISION

Manila

FIRST DIVISION LEONARDO-DE CASTRO, J.:

COUNTRY BANKERS INSURANCE G.R. No. 166044 This is a petition for review on certiorari[1] to reverse and set aside the January 29,
CORPORATION, 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
Petitioner,
Present: Decision[4] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-
13447.

LEONARDO-DE CASTRO,*
- versus - Hereunder are the undisputed facts as culled from the records of the case.
Acting Chairperson,

KEPPEL CEBU SHIPYARD, UNIMARINE
SHIPPING LINES, INC., PAUL RODRIGUEZ,
PETER RODRIGUEZ, ALBERT HONTANOSAS,
and BETHOVEN QUINAIN,
BERSAMIN,
On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in
DEL CASTILLO, 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
VILLARAMA, JR., and
works on its vessel, the M/V Pacific Fortune.[5]
PERLAS-BERNABE,** JJ.

Respondents. 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
Promulgated: 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:
June 18, 2012

x--------------------------------------------------x
18 February 1992
Ref No.: LL92/0383 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 SHIPPING LINES, INC.

C/O Autographics, Inc.

Unimarine in consideration of the credit terms extended by CSEW and the release of the
Gorordo Avenue, Lahug, Cebu City 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.

Attention: Mr. Paul Rodriguez

Yours faithfully,
President/General Manager

CEBU SHIPYARD & ENGG WORKS, INC Conforme:

This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific
Fortune, our invoice no. 26035.
(SGD) (SGD)______

The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 SEET KENG TAT PAUL RODRIGUEZ
excluding VAT.
Treasurer/VP-Admin. Unimarine Shipping

Lines, Inc.[7]
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:

In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from
Country Bankers Insurance Corp. (CBIC), through the latters agent, Bethoven Quinain
Installments Amount Due Date
(Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety bond) on January 15, 1992 in the
1st Installment P2,350,000.00 30 May 1992 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
2nd Installment P1,500,000.00 30 Jun 1992 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.
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
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.
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)

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 3,850,000.00
contract shall have been faithfully and fully performed by the Debtor.[11]
Add: VAT on repair bill no. 26035 385,000.00

------------------

4,235,000.00
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 Add: Interest/penalty charges:
installment of P2,350,000.00.The check, however, was dishonored by the bank due to Debit Note No. 02381 189,888.00
insufficient funds.[12] Cebu Shipyard faxed a message to Unimarine, informing it of the
situation, and reminding it to settle its account immediately.[13] Debit Note No. 02382 434,570.00

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,
4,859,458.00[17]
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
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 AFFIRMEDwith
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 THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF
Shipyard for the ship repair works it did on the formers M/V Pacific Fortune. The Court of ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS
Appeals dismissed CBICs contention of novation for lack of merit.[43] CBIC was held liable AGENT IN EXCESS OF AUTHORITY.
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 B.
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]
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
Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY.
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] C.

The Court of Appeals affirmed the award of attorneys fees and litigation expenses to Cebu ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF
Shipyard since it was able to clearly establish the defendants liability, which they tried to APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF
dodge by setting up defenses to release themselves from their obligation.[47] PETITIONER BEYOND THE VALUE OF THE BOND.

CBIC[48]and Unimarine, together with third party defendants-appellants[49] filed their D.

respective Motions for Reconsideration. This was, however, denied by the Court of Appeals
in its October 28, 2004 Resolution for lack of merit.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND
SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51]
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 Issue
Court of Appeals decision and resolution on the following grounds:

The crux of the controversy lies in CBICs liability on the surety bond Quinain issued to
A. 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 In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with authority only if Quinains act of issuing Surety Bond No. G (16) 29419 is deemed to have
whom the agent contracted is aware of the limits of the powers granted by the principal. In been performed within the written terms of the power of attorney he was granted.[64]
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
However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain
within the scope of the agents authority, if such act is within the terms of the power of
clearly states the limits of his authority and particularly provides that in case of surety
attorney, as written, even if the agent has in fact exceeded the limits of his authority
bonds, it can only be issued in favor of the Department of Public Works and Highways, the
according to an understanding between the principal and the agent.
National Power Corporation, and other government agencies; furthermore, the amount of
the surety bond is limited to P500,000.00, to wit:

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
SPECIAL POWER OF ATTORNEY
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.

KNOW ALL MEN BY THESE PRESENTS:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with head offices at 8th Floor, G.F.
Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as the
As for any obligation wherein the agent has exceeded his power, the principal is not bound
Company hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General
except when he ratifies it expressly or tacitly.
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:

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.
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).

Our law mandates an agent to act within the scope of his authority.[62] The scope of an 2. To accept, underwrite and subscribe policies of insurance for and in behalf of the
agents authority is what appears in the written terms of the power of attorney granted Company under the terms and conditions specified in the General Agency Contract executed
upon him.[63] Under Article 1878(11) of the Civil Code, a special power of attorney is and entered into by and between it and its said Attorney-in-Fact subject to the following
necessary to obligate the principal as a guarantor or surety. Schedule of Limits:
 e. BONDS:

xxxx

Surety Bond (in favor of Dept. of Pub. Works and

- SCHEDULE OF LIMITS - Highways, Natl. Power Corp. & other. 500,000.00

Government agencies)[65]

a. FIRE:

xxxx 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
b. PERSONAL ACCIDENT:
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.
xxxx

Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority,
c. MOTOR CAR: 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
xxxx ratification in agency, this Court said:

Ratification in agency is the adoption or confirmation by one person of an act performed on

d. MARINE: 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
xxxx
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 In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety
the principal by relying upon the agents assumption of authority that proves to be Bond No. G (16) 29419 and Endorsement No. 33152. This Court sees no need to dwell on the
unfounded. The principal, on the other hand, may act on the presumption that third other grounds propounded by CBIC in support of its prayer.
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]
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.
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
SO ORDERED.
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]
Republic of the Philippines The National Maritime Polytechnic (NMP) is an attached agency of the Department of Labor
SUPREME COURT and Employment tasked to provide necessary training to seafarers in order to qualify them
Manila for employment.

FIRST DIVISION 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
G.R. No. 171359 July 18, 2012
employment market for seafarers. Thus, NMP dispatched a team to look for a site in Cavite,
BENJAMIN A. UMIPIG, Petitioner, andasuitable location consisting of two parcels of land was found at Sta. Cruz de Malabon
vs.
Estate in Tanza, Cavite: Lots 1730-C and 1730-D, which are both covered by TCT No. T-
PEOPLE OF THE PHILIPPINES, Respondent.
97296-648 as part of a bigger parcel of land, Lot 1730.3
x-----------------------x
Petitioner Palomo, then NMP Executive Director, presented for approval to the NMP Board
G.R. No. 171755 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
RENA TO B. PALOMO and MARGIE C. MABITAD, Petitioners, the site in
vs.
PEOPLE OF THE PHILIPPINES, Respondent. Cavite and if necessary to pay the earnest money."4

x-----------------------x 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
G.R. No. 171776 said properties by virtue of a Special Power of Attorney (SPA) executed in his favor.
CARMENCITA FONTANILLA-PAYABYAB, Petitioner, On November 9, 1995, Palomo,in a handwritten memorandum to petitioners Umipig,
vs. Fontanilla and Mabitad requested them to "cause the release of the sum of Five Hundred
PEOPLE OF THE PHILIPPINES, Respondent. Thousand Pesos (P500,000) x x x [as] EARNEST MONEY for the purchase/acquisition of [a] 5-
DECISION hectare lot for

VILLARAMA, JR., J.:
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
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. 35812 15 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
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 Solis - For acting as vendor of the above subject property
Nos. 16356 and 35812) without authority from the o
thereof;
2. Ms. Teresita Jimenez - Trinidad Formis[re]presentation/conspiring with Mr. Glenn So
issuing a Special Power of Attorney to sell the a
property without authority from the owner.

Trinidad to sell Lots 1731 and 1732. In a letter32 dated June 11, 1999, Vice Consul Bello 3. Mr. Renato B. Palomo - For entering into a contract to sell without authority
stated that the SPA executed by Urbano Jimenez, et al. and shown to NMP was fake. Executive Director the NMP Board of Directors and by signing Bo
According to Vice Consul Bello, when the Consulate searched its files for 1996, they found approving of the voucher as payment.
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., 4. Benjamin A. Umipig - For signing Box "A" in certifying the payment as lawfu
Service No., Document No. and Page No. but without wet seal, was executed by Gloria Administrative Officer
Potente, Marylu Lupisan and Susan Abundo authorizing Presbitero J.Velasco, Jr. as attorney-
in-fact. The OSG reported the 5. Margie C. Mabitad - For signing Box "B" certifying as to availability of f
 Chief Accountant that expenditure are proper and
documents.
6. Carmencita Fontanilla - For signing in the voucher for fund control and in the ROA
Budget Officer for requesting 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
supportednegligence,
by 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 authority granted by the
NMP Board to Palomo, and the fact that Solis had earlier submitted questionable
documents in the first purchase. Umipig and Mabitad cannot justify their laxity in the
second purchase simply because the first sale of Lots 1730-C and 1730-D was eventually
consummated and titles thereto had been transferred to NMP. It must be noted that NMP
secured titles to the said lots under the first purchase only in November 2000, long after
Umipig and Mabitad gave their approval for subsequent disbursements for Lots 1731 and
1732 for which Solis submitted a fake SPA. Their participation thus went beyond mere
knowledge and acquiescence to the illegal disbursements in the second purchase. Umipig
and Mabitad even signed as instrumental witnesses in the Contract to Sell covering Lots
1731 and 1732.
Umipig and Mabitad further authorized the release of partial balance in the amount of
P1,000,000.00 also approved by Palomo, notwithstanding that the required transfer
documents were not 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 while the conviction of petitioner Carmencita Fontanilla-Payabyab is REVERSED as she is
of standard operating procedure. hereby ACQUITTED of the said charge.

Although Fontanilla-Payabyab was the Head of Finance with Mabitad as one of her With costs against petitioners Benjamin A. Umipig in G.R. No. 171359 and Renato B. Palomo
subordinates, the prosecution failed to establish that her responsibilities include reviewing and Margie C. Mabitad in G.R. No. 171755. Costs de ojicio in G.R. No. 171776.
her subordinate’s certifications in disbursement vouchers.As Fontanilla-Payabyab’s
SO ORDERED.
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 MARTIN S. VILLARAMA, JR.
budget allocated and utilized/disbursed, is likewise immaterial considering that her act of Associate Justice
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. WE CONCUR:

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 gross inexcusable
negligence and evident bad faith, petitioners Palomo, Mabitad and Umipig are thus liable to
restitute the amount of P8,910,260 that was paid to Solis.

WHEREFORE, the Decisiondated January 4, 2006 and Resolutions dated January 30, 2006
and March 1, 2006 of the Sandiganbayan, Fourth Division in Criminal Case No. 27477 are
hereby AFFIRMED with MODIFICATION. The conviction of petitioners Benjamin A. Umipig,
Margie C. Mabitad and Renato B. Palomo under Section 3 (e) of R.A. No. 3019 is UPHELD
SECOND DIVISION
[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 Mortgage void, 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 Naguiat questions the admissibility of the various written representations made by
presented by the litigants.[15] There is a question of law in a given case when the doubt or Ruebenfeldt on the ground that they could not bind her following the res inter alia acta
difference arises as to what the law is on a certain state of facts; there is a question of fact alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that since
when the doubt or difference arises as to the truth or the falsehood of alleged facts.[16] 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.
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 Suffice to say, however, the existence of an agency relationship between Naguiat and
any event, both the decisions of the appellate and trial courts are supported by the evidence Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of
on record and the applicable laws. 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
Against the common finding of the courts below, Naguiat vigorously insists that Queao
delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the
received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
loan application of Queaos friend, Marilou Farralese, and it was in connection with that
document, she cites the rule that a public document enjoys the presumption of validity and
transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt who accompanied
truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the
Queao in her meeting with Naguiat and on that occasion, on her own and without Queao
presumption of truthfulness of the recitals in a public document was defeated by the clear
asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to
and convincing evidence in this case that pointed to the absence of consideration.[18] This
Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.[24]
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 The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article
case.[19] 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
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos
issued or endorsed were actually encashed or deposited. The mere issuance of the checks
impression. In that situation, the rule is clear. One who clothes another with apparent
did not result in the perfection of the contract of loan. For the Civil Code provides that the
authority as his agent, and holds him out to the public as such, cannot be permitted to deny
delivery of bills of exchange and mercantile documents such as checks shall produce the
the authority of such person to act as his agent, to the prejudice of innocent third parties
effect of payment only when they have been cashed.[20] It is only after the checks have
dealing with such person in good faith, and in the honest belief that he is what he appears
produced the effect of payment that the contract of loan may be deemed perfected. Art.
to be.[27] The Court of Appeals is correct in invoking the said rule on agency by estoppel.
1934 of the Civil Code provides:
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt
An accepted promise to deliver something by way of commodatum or simple loan is binding
is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never
upon the parties, but the commodatum or simple loan itself shall not be perfected until the
encashed or deposited to her account of Naguiat.
delivery of the object of the contract.
All told, we find no compelling reason to disturb the finding of the courts a quo that the
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
lender did not remit and the borrower did not receive the proceeds of the loan. That being
delivery of the object of the contract.[21] In this case, the objects of the contract are the loan
the case, it follows that the mortgage which is supposed to secure the loan is null and void.
proceeds which Queao would enjoy only upon the encashment of the checks signed or
The consideration of the mortgage contract is the same as that of the principal contract
indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have
from which it receives life, and without which it cannot exist as an independent
certainly presented the corresponding documentary evidence, such as the returned checks
contract.[28] A mortgage contract being a mere accessory contract, its validity would depend
and the pertinent bank records. Since Naguiat presented no such proof, it follows that the
on the validity of the loan secured by it.[29]
checks were not encashed or credited to Queaos account.
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against
petitioner.

SO ORDERED.
FIRST DIVISION

CALLEJO, SR., J.:

EDUARDO V. LINTONJUA, JR. G.R. No. 144805

and ANTONIO K. LITONJUA,

Petitioners, On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
Present:
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution[2] of the CA
PANGANIBAN, C.J., Chairperson, denying the motion for reconsideration thereof.

- versus - YNARES-SANTIAGO,*

AUSTRIA-MARTINEZ,
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine
CALLEJO, SR., and laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe
CHICO-NAZARIO, JJ. products. Its manufacturing operations were conducted on eight parcels of land with a total
area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila,
ETERNIT CORPORATION were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120,
(now ETERTON MULTI- 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as
trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer
RESOURCES CORPORATION), S.A. Corporation (ESAC), a corporation organized and registered under the laws
of Belgium.[3] Jack Glanville, an Australian citizen, was the General Manager and President of
ETEROUTREMER, S.A. and Promulgated:
EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had
FAR EAST BANK & TRUST their offices in Belgium.
COMPANY, June 8, 2006

Respondents. In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of the eight
x-----------------------------------------------------------------------------------------x parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.
DECISION
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that
the terms of the sale were subject to negotiation.[4]
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer
and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the
offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the Belgian/Swiss decision, the final offer was
US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation.[5]
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of
the Philippines, the political situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
his principal to inform Marquez that the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is situated.[10]
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional
Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez

L.G. Marquez, Inc.

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua,
Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a 334 Makati Stock Exchange Bldg.
Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full 6767 Ayala Avenue
payment within 90 days after execution and preparation of all documents of sale, together Makati, Metro Manila
with the necessary governmental clearances.[6]
Philippines
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank &
Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.[7]
Dear Sir:

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he
Re: Land of Eternit Corporation
had met with the buyer, which had given him the impression that he is prepared to press for
a satisfactory conclusion to the sale.[8] He also emphasized to Delsaux that the buyers were
concerned because they would incur expenses in bank commitment fees as a consequence
I would like to confirm officially that our Group has decided not to proceed with the sale of
of prolonged period of inaction.[9]
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the] new
political situation since the departure of MR. MARCOS and a certain stabilization in
the Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.) [11]
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now
the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC
in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha
T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of
their purchase of ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts;
the Board and stockholders of EC never approved any resolution to sell subject properties
nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack
Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.[12] The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of
cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation
and Eteroutremer, S.A. is also dismissed for lack of merit.[13]
The trial court declared that since the authority of the agents/realtors was not in writing,
the sale is void and not merely unenforceable, and as such, could not have been ratified by
the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs
could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total
cessation of its operation.[14]
The Litonjuas appealed the decision to the CA, alleging that (1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution of
the board of directors.[15] They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy and
sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporations assets, it would
necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. The [16]
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he
needed a special authority from ECs board of directors to bind such corporation to the sale
of its properties. Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was
not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I was not an ordinary agent because his authority was of a special and limited character in
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT
OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE
PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER
TO SELL THE SAID PROPERTIES.[17]
Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation. Petitioners insist that they
had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors
of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez
most respects. His only job as a broker was to look for a buyer and to bring together the
parties to the transaction. He was not authorized to sell the properties or to make a binding
contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does
not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows
that Glanville, who was the President and General Manager of respondent EC, and Delsaux,
who was the Managing Director for ESAC Asia, had the necessary authority to sell the
subject property or, at least, had been allowed by respondent EC to hold themselves out in
the public as having the power to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as
evidenced by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL;
7. More importantly, Exhibits G and H of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.[18]
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by
respondent EC.Petitioners insist that Delsaux confirmed his authority to sell the properties
in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later stage we would consult you again.

In the meantime, I remain
Yours sincerely,
C.F. DELSAUX[19]
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain
that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent
EC and its Board of Directors to offer the properties for sale to the petitioners, or to any
other person or entity for that matter. They assert that the decision and resolution of the CA
are in accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1,
1997. Given the significance of their positions and their duties in respondent EC at the time
of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of
respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC never repudiated the acts of
Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In
the absence of express written terms creating the relationship of an agency, the existence of
an agency is a fact question.[20] Whether an agency by estoppel was created or whether a
person acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.[21] The findings of the trial court on such
issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and
appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the
case.[22]
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the
evidence on record, whether testimonial and documentary. There are, however, recognized
exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly agents in the normal course of business. The general principles of agency govern the
considered, would justify a different conclusion; and (10) when the findings of fact of the relation between the corporation and its officers or agents, subject to the articles of
Court of Appeals are premised on the absence of evidence and are contradicted by the incorporation, by-laws, or relevant provisions of law.[26]
evidence on record.[23]

Under Section 36 of the Corporation Code, a corporation may sell or convey its real
We have reviewed the records thoroughly and find that the petitioners failed to establish properties, subject to the limitations prescribed by law and the Constitution, as follows:
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
It was the duty of the petitioners to prove that respondent EC had decided to sell its
the power and capacity:
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the
properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is sought xxxx
of a contract made with an agent, the agency must be established by clear, certain and
specific proof.[24]
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of corporations, as the transaction of a lawful business of the corporation may reasonably and
the Philippines, provides: necessarily require, subject to the limitations prescribed by the law and the Constitution.

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 The property of a corporation, however, is not the property of the stockholders or
conducted and all property of such corporations controlled and held by the board of members, and as such, may not be sold without express authority from the board of
directors or trustees to be elected from among the holders of stocks, or where there is no directors.[27] Physical acts, like the offering of the properties of the corporation for sale, or
stock, from among the members of the corporation, who shall hold office for one (1) year the acceptance of a counter-offer of prospective buyers of such properties and the
and until their successors are elected and qualified. execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.[28] Absent such valid delegation/authorization, the
Indeed, a corporation is a juridical person separate and distinct from its members or rule is that the declarations of an individual director relating to the affairs of the
stockholders and is not affected by the personal rights, corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on
the corporation.[29]
obligations and transactions of the latter.[25] It may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through its officers or
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.[30] An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or impliedly
by its board of directors. Any sale of real property of a corporation by a person purporting to
be an agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of
his/her authority.[31]
By the contract of agency, a person binds himself to render some service or to do something
in representation on behalf of another, with the consent or authority of the
latter.[32] Consent of both principal and agent is necessary to create an agency. The principal
must intend that the agent shall act for him; the agent must intend to accept the authority
and act on it, and the intention of the parties must find expression either in words or
conduct between them.[33]
An agency may be expressed or implied from the act of the principal, from his silence or lack
of action, or his failure to repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be expressed, or implied from his
acts which carry out the agency, or from his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law requires a specific form.[35] However, to
create or convey real rights over immovable property, a special power of attorney is
necessary.[36] Thus, when a sale of a piece of land or any portion thereof is through an agent,
the authority of the latter shall be in writing, otherwise, the sale shall be void.[37]
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of
the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its
agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned
by respondent EC including the improvements thereon. The bare fact that Delsaux may have
been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1,
1997, cannot be used as basis for petitioners claim that he had likewise been authorized by
respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and the Belgian/Swiss
component of the management of respondent ESAC.[40] As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for
sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations.
When petitioners offered to purchase the property for P20,000,000.00, through Marquez,
the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners offer. However, as admitted by
petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of
Glanville because Delsaux had to wait for confirmation from respondent ESAC.[41] When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on
the Belgian/Swiss decision the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final liquidation.[42] The offer of
Delsaux emanated only from the Belgian/Swiss decision, and not the entire management or
Board of Directors of respondent ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was not a party to the transaction
between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a
majority of the shares of stocks of another, or even all of such shares of stocks, taken alone,
will not justify their being treated as one corporation.[43]
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court.[44]
The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and
to sell the said properties to the petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the agents; statements as to the extent
of his powers; such person must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of his authority.[45] The
settled rule is that, persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to prove it.[46] In this case, the petitioners failed to discharge their burden;
hence, petitioners are not entitled to damages from respondent EC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions
and the various communications inter se were never submitted to the Board of Directors of
respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.

It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell.[47]

Equally barren of merit is petitioners contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established: (1) the principal manifested
a representation of the agents authority or knowlingly allowed the agent to assume such

authority; (2) the third person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his position to his detriment.[48] An
agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance.[49] Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux positively and unequivocally
declared that they were acting for and in behalf of respondent ESAC.
SECOND DIVISION CARPIO, J.:

The Case

YUN KWAN BYUNG, G.R. No. 163553

Petitioner, Yun Kwan Byung (petitioner) filed this Petition for Review[1]assailing the Court of Appeals
Decision[2]dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution[3]dated 7
Present:
May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Courts Decision[4]dated 6 May 1999. The Regional
Trial Court of Manila, Branch 13 (trial court), dismissed petitioners demand against
CARPIO, J., Chairperson, respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption
CARPIO MORALES,* of gambling chips.

- versus - LEONARDO-DE CASTRO,**

DEL CASTILLO, and The Facts

ABAD, JJ.
PAGCOR is a government-owned and controlled corporation tasked to establish and operate
gambling clubs and casinos as a means to promote tourism and generate sources of revenue
PHILIPPINE AMUSEMENT AND GAMING for the government. To achieve these objectives, PAGCOR is vested with the power to enter
CORPORATION, into contracts of every kind and for any lawful purpose that pertains to its business.
Promulgated:
Respondent. Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing Program
(Program). The Program aims to invite patrons from foreign countries to play at the dollar
pit of designated PAGCOR-operated casinos under specified terms and conditions and in
December 11, 2009
accordance with industry practice.[5]

x---------------------------------------------------x
The Korean-based ABS Corporation was one of the international groups that availed of the
Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation
agreed to bring in foreign players to play at the five designated gaming tables of the Casino
Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant
DECISION stipulations of the Junket Agreement state:
 states that he was able to redeem his gambling chips with the cashier during his first few
winning trips. But later on, the casino cashier refused to encash his gambling chips so he had
1. PAGCOR will provide ABS Corporation with separate junket
no recourse but to deposit his gambling chips at the Grand Boulevard Hotels deposit box,
chips. The junket chips will be distinguished from the chips being used by other players in
every time he departed from Manila.[9]
the gaming tables.

ABS Corporation will distribute these junket chips to its players and at the end of the playing
period, ABS Corporation will collect the junket chips from its players and make an PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is
accounting to the casino treasury. a junket player who played in the dollar pit exclusively leased by ABS Corporation for its
junket players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips.
2. ABS Corporation will assume sole responsibility to pay the winnings
ABS Corporation distributed these chips to its junket players. At the end of each playing
of its foreign players and settle the collectibles from losing players.
period, the junket players would surrender the chips to ABS Corporation. Only ABS
3. ABS Corporation shall hold PAGCOR absolutely free and harmless Corporation would make an accounting of these chips to PAGCORs casino treasury.[10]
from any damage, claim or liability which may arise from any cause in connection with the
Junket Agreement.
As additional information for the junket players playing in the gaming room leased to ABS
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled
Corporation, PAGCOR posted a notice written in English and Korean languages which reads:
to receive from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or
1.5 million US dollars, whichever is higher, over a playing period of 6 months. PAGCOR has
the option to extend the period.[6]
NOTICE

Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to
the Philippines four times to play for high stakes at the Casino Filipino.[7]Petitioner claims
that in the course of the games, he was able to accumulate gambling chips worth US$2.1
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]
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the
former is solely accountable for all PLAYING CHIPS wagered on the tables. Any
financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding
upon said PLAYERS and ABS.[11]
PAGCOR claims that this notice is a standard precautionary measure[12]to avoid confusion
between junket players of ABS Corporation and PAGCORs players.

Petitioner brought an action against PAGCOR seeking the 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 would
come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A
PAGCOR official who meets him at the 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 to PAGCOR, and PAGCOR enforced all
the regulations dealing with the operation of foreign exchange gambling pits. Petitioner
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming
rules, gambling chips cannot be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are inventoried every shift.
Under PAGCORs rules, it is impossible for PAGCOR players to accumulate two million dollars
worth of gambling chips and to bring the chips out of the casino premises.[13]
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation
and refused to encash the gambling chips, petitioner filed a complaint for a sum of money
before the trial court.[14]PAGCOR filed a counterclaim against petitioner. Then, trial 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
4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA),
lead a reasonably prudent person to believe that the agent actually has such authority.[48]In
the official auditor of PAGCOR;[56]
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]

5. PAGCOR enforced, through its own manager, all the rules and regulations on the
operation of the gambling pit used by ABS Corporation.[57]

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]
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.

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]
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]
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.
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 SO ORDERED.
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]
G.R. No. 158907 February 12, 2007
EDUARDO B. OLAGUER, vs. EMILIO PURUGGANAN, JR. AND RAUL LOCSIN
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 respondent Locsin or Businessday for the entire duration of petitioner’s detention. Instead,
sale of the shares to respondent Locsin for the price of ₱600,000.00. This argument is when the total amount received by the petitioner reached the aggregate amount of his
unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws, the shares at par value -- ₱600,000.00 -- the payments stopped. Petitioner even testified that
installment payments for a total of ₱600,000.00 from 1980 to 1982, without any protest or when respondent Locsin denied knowing the petitioner soon after his arrest, he believed
complaint. It was only four years after 1982 when petitioner demanded the return of the respondent Locsin’s commitment to pay his salaries during his detention to be nothing more
shares. The petitioner’s claim that he did not instruct respondent Locsin to deposit the than lip-service.36
money to the bank accounts of his in-laws fails to prove that petitioner did not give his
Granting that petitioner was able to prove his allegations, such an act of gratuity, on the
consent to the sale since respondent Locsin was authorized, under the SPA, to negotiate the
part of Businessday in favor of petitioner, would be void. An arrangement whereby
terms and conditions of the sale including the manner of payment. Moreover, had
petitioner will receive "salaries" for work he will not perform, which is not a demandable
respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in
debt since petitioner was on an extended leave of absence, constitutes a donation under
this petition, the proceeds were likely to have been included among petitioner’s properties
Article 72637 of the Civil Code. Under Article 748 of the Civil Code, if the value of the
which were confiscated by the military. Instead, respondent Locsin deposited the money in
personal property donated exceeds ₱5,000.00, the donation and the acceptance shall have
the bank accounts of petitioner’s in-laws, and consequently, assured that the petitioner’s
to be made in writing. Otherwise, the donation will be void. In the present case, petitioner
wife received these amounts. Article 1882 of the Civil Code provides that the limits of an
admitted in his testimony38 that such arrangement was not made in writing and, hence, is
agent’s authority shall not be considered exceeded should it have been performed in a
void.
manner more advantageous to the principal than that specified by him.
The fact that some of the deposit slips and communications made to petitioner’s wife
In addition, petitioner made two inconsistent statements when he alleged that (1)
contain the phrase "household expenses" does not disprove the sale of the shares. The
respondent Locsin had not asked the petitioner to endorse and deliver the shares of stock,
money was being deposited to the bank accounts of the petitioner’s in-laws, and not to the
and (2) when Rebecca Fernando asked the petitioner to endorse and deliver the certificates
account of the petitioner or his wife, precisely because some of his property had already
of stock, but petitioner refused and even became upset.33 In either case, both statements
been confiscated by the military. Had they used the phrase "sale of shares," it would have
only prove that petitioner refused to honor his part as seller of the shares, even after
defeated the purpose of not using their own bank accounts, which was to conceal from the
receiving payments from the buyer. Had the petitioner not known of or given his consent to
military any transaction involving the petitioner’s property.
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 Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not
funds he received, through his wife and his in-laws, were intended as payment for his shares respondent Locsin, was the party to the transaction. The curious facts that the payments
of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made were received on the 15th and 30th of each month and that the payor named in the checks
clear to him that respondent Locsin had considered the ₱600,000.00 as payment for the was Businessday, were adequately explained by respondent Locsin. Respondent Locsin had
shares, and asked petitioner, through Fernando, to endorse and deliver the stock certificates obtained cash advances from the company, paid to him on the 15th and 30th of the month,
for cancellation. 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
As regards the third issue, petitioner’s allegation that the installment payments he was
Manager. When asked why the term "shares of stock" was used for the entries, instead of
adjudged to have received for the shares were actually salaries which Businessday promised
"cash advances," Atienza explained that the term "shares of stock" was more specific rather
to pay him during his detention is unsupported and implausible. Petitioner received
than the broader phrase "cash advances."39 More to the point, had the entries been for
₱20,000.00 per month through his in-laws; this amount does not correspond to his monthly
"shares of stock," the issuance of shares should have been reflected in the stock and
salary at ₱24,000.00.34 Nor does the amount received correspond to the amount which
transfer books of Businessday, which the petitioner presented as evidence. Instead the
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
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
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.)
(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. 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
It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to
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
act as agent for another cannot be permitted to deal in the agency matter on his own
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
account and for his own benefit without the consent of his principal, freely given, with full
cancellation of petitioner’s certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly irregular, we
knowledge of every detail known to the agent which might affect the transaction.40 The
must, nonetheless, declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In
prohibition against agents purchasing property in their hands for sale or management is,
his testimony, petitioner admitted that they had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name from
however, clearly, not absolute. It does not apply where the principal consents to the sale of
the stock and transfer book, even before the shares were actually sold, had been done with his consent. As earlier explained, even the
the property in the hands of the agent or administrator.>41
subsequent sale of the shares in favor of Locsin had been done with his consent.
In the present case, the parties have conflicting allegations. While respondent Locsin
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on
averred that petitioner had permitted him to purchase petitioner’s shares, petitioner
30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No costs.
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 SO ORDERED.
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
G.R. No. 176405 August 20, 2008
LEO WEE, vs.GEORGE DE CASTRO (on his behalf and as attorney-in-fact of ANNIE DE
CASTRO and FELOMINA UBAN) and MARTINIANA DE CASTRO,
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, respondents alleged 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 Decision11 dated 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 barangaycourts 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 the Pangkat 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
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.

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
G.R. No. 171165 Hernandez-Nievera vs. Hernandez
DECISION
PERALTA, J.
This Rule 45 petition for review assails the October 19, 2005 Decision[1] of the Court of
Appeals in CA-G.R. CV No. 83852,[2] as well as the January 11, 2006 Resolution[3] in the same
case which denied reconsideration. The said decision had reversed and set aside the August
30, 2004 judgment[4] rendered by the Regional Trial Court (RTC) of San Pablo City, Laguna,
Branch 32 in Civil Case No. SP-5742(2000) one for rescission of a memorandum of
agreement and declaration of nullity of a deed of assignment and conveyance, with prayer
for preliminary injunction and damages.
The facts follow.
Project Movers Realty & Development Corporation (PMRDC), one of the
respondents herein, is a duly organized domestic corporation engaged in real estate
development.Sometime in 1995, it entered through its president, respondent Mario
Villamor (Villamor), into various agreements with co-respondents Home Insurance &
Guaranty Corporation (HIGC)[5] and Land Bank of the Philippines (LBP), in connection with
the construction of the Isabel Homes housing project in Batangas and of the Monumento
Plaza commercial and recreation complex in Caloocan City. In its Asset Pool Formation
Agreement, PMRDC conveyed to HIGC the constituent assets of the two projects,[6] whereas
LBP agreed to act as trustee of the resulting Asset Pool[7] for a consideration.[8] The
execution of the projects would be funded largely through securitization, a method of
sourcing development funds by the issuance of participation certificates against the direct
backing assets of the projects,[9] whereby LBP would act as the nominal issuer of such
certificates with the Asset Pool itself acting as the real issuer.[10] HIGC, in turn, would provide
guaranty coverage to these participation certificates in accordance with its Contract of
Guaranty with PMRDC and LBP. [11]
On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA)
whereby it was given the option to buy pieces of land owned by petitioners Carolina
Hernandez-Nievera (Carolina), Margarita H. Malvar (Margarita) and Demetrio P. Hernandez,
Jr. (Demetrio). Demetrio, under authority of a Special Power of Attorney to Sell or
Mortgage,[12] signed the MOA also in behalf of Carolina and Margarita. In the aggregate, the
realty measured 4,580,451 square meters and was segregated by agreement into Area I and
Area II, respectively pertaining to the parcels covered by Transfer Certificate of Title (TCT)
Nos. T-3137, T-3138, T-3139 and T-3140 on the one hand, and on the other by TCT Nos. T-
3132, T-3133, T-3134, T-3135 and T-3136, all issued by the Register of Deeds of Laguna. The
MOA materially provides:
1. THAT, the consideration for the sale of the parcels of land (Areas
I and II) shall be TWENTY-FIVE PESOS (Php 25.00) per square meter or a
total of PESOS: ONE HUNDRED FOURTEEN MILLION FIVE HUNDRED ELEVEN
TWO HUNDRED SEVENTY (Php114,511,270.00);
1. THAT, the VENDEE shall have the option to purchase the
above-described parcels of land within a period of twelve (12) months
from the date of this instrument and that the VENDEE shall pay the vendor
option money in the following amounts and on the dates herein specified:
Area I
PESOS: SIX MILLION (Php6,000,000.00) payable in two (2)
equal installments of PESOS: THREE MILLION
(Php3,000,000.00), the first installment due on or before
November 20, 1997; the second installment due on or
before December 15, 1997, both installments to be
covered by postdated checks upon signing of this
Agreement.
Area II
Option money of PESOS: EIGHT MILLION FIVE HUNDRED
THOUSAND (Php8,500,000.00) payable within thirty (30)
days after conveyance to the Isabel Homes Asset Pool.
2. THAT, should the VENDEE exercise the option to purchase the
parcels of land within the stipulated period, the VENDEE shall complete
the TWENTY-FIVE (25%) PERCENT downpayment inclusive of the option
money within the said stipulated period. Balance of the TWENTY FIVE
(25%) PERCENT downpayment exclusive of the option money for Area I is
PESOS: TEN MILLION FOUR HUNDRED EIGHTY-TWO THOUSAND TWO
HUNDRED SIXTY-TWO (Php10,482,262.00) and for Area II is PESOS: THREE
MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE HUNDRED FIFTY- SIX
(Php3,645,556.00).
The balance of the purchase price in the amount of PESOS: EIGHTY-
FIVE MILLION EIGHT HUNDRED EIGHTY-THREE FOUR HUNDRED FIFTY-SIX
(Php85,883,456.00) shall be payable within two (2) years in eight (8)
quarterly installments covered by postdated checks. Schedule of payments
shall be as follows:
 January 31, 1999 Php 10,735,432.00
April 30, 1999 10,735,432.00
July 31, 1999 10,735,432.00
October 31, 1999 10,735,432.00
January 31, 2000 10,735,432.00
April 30, 2000 10,735,432.00
July 30, 2000 10,735,432.00
October 31, 2000 10,735,432.00
3. THAT, should the VENDEE fail to exercise its option to purchase
the said described parcels of land within the stipulated period, the option
money shall be forfeited in favor of the VENDOR and that the VENDEE
shall return to the VENDOR all the Transfer Certificates of Title covering
the said described parcels of land within a period of THIRTY (30) DAYS
from the stipulated period, FREE FROM ALL LIENS AND ENCUMBRANCES;
4. THAT, the VENDOR, at the request of the VENDEE, shall agree to
convey the parcels of land to any bank or financial institution by way of
mortgage or to a Trustee by way of a Trust Agreement at any time from the
date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not
liable for any mortgage or loans or obligations that will be incurred by way
of mortgage of Trust Agreement that the VENDEE might enter into;
5. It is agreed that the VENDOR shall have the sole responsibility in
the settlement of the tenants and eviction of the tenants and eviction of the
occupants of the described parcels of land after all consideration have been
fully paid by the VENDEE to the VENDOR;
6. THAT, all taxes including capital gains tax, transfer tax and
documentary stamps tax shall be for the account of the VENDOR;
7. THAT, the VENDOR hereby warrants valid title to, and peaceful
possession of the said described parcels of land after all considerations have
been fully paid.[13]
As an implementation of the MOA, the lands within Area I were then mortgaged to
Solid Bank for which petitioners received consideration from PMRDC.[14]
Later on, PMRDC saw the need to convey additional properties to and augment the
value of its Asset Pool to support the collateralization of additional participation certificates
to be issued.[15] Thus, on March 23, 1998, it entered with LBP and Demetrio the latter
purportedly acting under authority of the same special power of attorney as in the MOA
into a Deed of Assignment and Conveyance (DAC)[16] whereby the lands within Area II
covered by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136 were transferred and
assigned to the Asset Pool in exchange for a number of shares of stock which supposedly
had already been issued in the name and in favor of Demetrio. These pieces of land are the
subject of the present controversy as far as they are affected by the explicit provision in the
DAC which dispensed with the stipulated obligation of PMRDC in the MOA to pay option
money should it opt to buy the properties.[17]
PMRDC admittedly did not avail of its option to purchase the lands in Area II in the
twelve months that passed after the execution of the MOA. Although PMRDC delivered to
petitioners certain checks representing the money, the same however allegedly
bounced.[18] Hence, on January 8, 1999, petitioners demanded the return of the
corresponding TCTs.[19] In its January 21, 1999 letter to Demetrio, however, PMRDC, through
Villamor, stated that the TCTs could no longer be delivered back to petitioners as the
covered properties had already been conveyed and assigned to the Asset Pool pursuant to
the March 23, 1998 DAC. In the correspondence that ensued, petitioners disowned
Demetrios signature in the DAC and labeled it a mere forgery. They explained that Demetrio
could not have entered into the said agreement as his power of attorney was limited only to
selling or mortgaging the properties and not conveying the same to the Asset Pool. Boldly,
they asserted that the fraudulent execution of the DAC was made possible through the
connivance of all the respondents.[20]
With that final word, petitioners instituted an action before the RTC of San Pablo
City, Laguna, Branch 32 for the rescission of the MOA, as well as for the declaration of nullity
of the DAC. They prayed for the issuance of a writ of preliminary injunction and for the
payment of damages.[21]
Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option
contract and ordered its rescission. It, likewise, declared the DAC null and void as it made a
definite finding of forgery of Demetrios signature as well as fraud in its execution, and
accordingly, adjudged respondents PMRDC and Villamor liable to petitioner for
damages.[22] The dispositive portion of the decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
in the favor of the plaintiffs and against the defendants as follows:
 1. Rescinding the Memorandum of Agreement (MOA)
executed between the plaintiffs and Project Movers Realty [&]
Development Corporation (PMRDC);
2. Declaring null and void the Deed of Assignment and
Conveyance (DAC) executed between Project Movers Realty [&]
Development Corporation, Land Bank of the Philippines and
Demetrio Hernandez whose signature is forged;
3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133,
T-3134 and T-3135, all in the names of the plaintiffs, which are in
the custody of the Court, to be delivered to plaintiffs immediately
and the plaintiffs are ordered to issue a corresponding receipt of
said certificates of title signed by all the plaintiffs to be submitted to
the OIC-Branch Clerk of Court of this Court within five (5) days from
receipt of said titles;
4. Ordering defendants Mario Villamor and Wilfredo
Hernandez to pay plaintiffs, jointly and severally, the following:
a. Actual damages of P500,000.00;
b. Moral damages of P200,000.00;
c. Exemplary damages of P200,000.00;
d. Attorneys fees in the amount of P300,000.00;
e. And the costs of the suit.
SO ORDERED.[23]
Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of
Appeals. On October 19, 2005, the Court of Appeals issued the assailed Decision reversing
and setting aside the trial courts decision as follows:
WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision
dated August 30, 2004 of the Regional Trial Court, Branch 32, San Pablo City
in Civil Case No. SP-5742 (2000) is REVERSED and SET ASIDE and a new one
is entered declaring the Deed of Conveyance valid and thus, the Transfer
Certificates of Title subject of this case are ordered returned to HIGC.No
costs.
SO ORDERED.[24]
Central to the ruling of the Court of Appeals is its contrary finding that the allegation of
forgery of Demetrios signature in the DAC was not established by the evidence and, hence,
following the legal presumption of regularity in the execution of notarized deeds, it upheld
the validity of the DAC.[25] The Court of Appeals noted that the incompatibility in the terms
of the MOA and the DAC clearly signified the intention of the parties to have the MOA
novated by subsequent agreement and have the properties conveyed to the Asset Pool in
exchange for PMRDC shares to be issued to Demetrio. This, according to the appellate court,
completely changed the original obligations of PMRDC as provided in the MOA. It noted
further that it was premature to order the release of the subject TCTs to petitioners at this
stage of the proceedings, because that would amount to an execution of the decision.[26]
With the denial of their motion for reconsideration,[27] petitioners filed the instant petition
for review attributing error to the Court of Appeals in declining to rescind the MOA and
declare the DAC null and void.
Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its
failure to exercise the option to purchase the lands according to the terms of the MOA, and
that the deliberate refusal of PMRDC to perform such obligation gives ground for the
rescission of the MOA. This thesis is perched on petitioners argument that the MOA could
not have possibly been novated by the DAC because first, Demetrios signature therein has
been forged, and second, Demetrio could not have validly assented to the DAC in behalf of
Carolina and Margarita because his special power was limited only to selling or mortgaging
the properties and excludes conveying and assigning the said properties to the Asset Pool
for consideration.[28] They also point out that the DAC itself is infirm insofar as it stipulated
to convey the lands to the Asset Pool as the latter supposedly is neither a registered
corporation nor a partnership and does not possess a legal personality.[29]
Commenting on the petition, PMRDC and Villamor advance that petitioners allegation of
fraud and forgery are all factual matters that are inappropriate in a Rule 45 petition.[30]More
importantly, they aver that the novation of the MOA by the DAC is unmistakable as the DAC
itself has made an express reference to the MOA provisions on the payment of option
money and, hence, has expressly modified the pertinent terms thereof.[31]
HIGC and its president, Wilfredo Hernandez, both represented by the Office of the
Government Corporate Counsel (OGCC),[32] and LBP[33] are of the same view.[34] In addition,
HIGC explains that contrary to petitioners belief, the transfer of the properties under the
DAC is valid as the conveyance has been made to the Asset Pool with LBP, an entity with
juridical entity, acting as trustee thereof.[35] Addressing the issue of forgery and fraud in the
execution of the DAC, HIGC maintains that these factual matters remain to be mere
allegations which nothing in the records of the case could conclusively prove, except the
self-serving testimony of petitioners themselves.[36]
The Court denies the petition.
Petitioners cause stems from the failure of PMRDC to restore to petitioners the
possession of the TCTs of the lands within Area II upon its failure to exercise the option to
purchase within the 12-month period stipulated in the MOA. Respondents maintain,
however, that said obligation, dependent as it is on the exercise of the option to purchase,
has altogether been expressly obliterated by the terms of the DAC whereby petitioners,
through Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA by
extinguishing the core obligations of PMRDC on the payment of option money. This seems
to suggest that with the execution of the DAC, PMRDC has already entered into the exercise
of its option except that its obligation to deliver the option money has, by subsequent
agreement embodied in the DAC, been substituted instead by the obligation to issue
participation certificates in Demetrios name but which, likewise, has not yet been
performed by PMRDC. But petitioners stand against the validity of the DAC on the ground
that the signature of Demetrio therein was spurious.
Firmly settled is the jurisprudential rule that forgery cannot be presumed from a
mere allegation but rather must be proved by clear, positive and convincing evidence by the
party alleging the same.[37] The burden to prove the allegation of forgery in this case has not
been conclusively discharged by petitioners because first, nothing in the records supports
the allegation except only perhaps Demetrios explicit self-serving disavowal of his signature
in open court.[38] Second, while in fact Demetrio at the trial of the case had committed to
have the subject signature examined by an expert,[39] nevertheless, the trial had terminated
without the results of the examination being submitted in evidence.Third, the claim of
forgery, unsubstantiated as it is, becomes even more unremarkable in light of the fact that
the DAC involved in this case is a notarized deed guaranteed by public attestation in
accordance with law, such that the execution thereof enjoys the legal presumption of
regularity in the absence of compelling proof to the contrary.[40]
Yet the inquiry on the validity of the DAC does not terminate with the finding alone
of the genuineness of Demetrios signature therein, because petitioners also stand against its
validity on the ground of Demetrios non-authority to execute the same. They claim that the
execution of the DAC would be beyond the power of Demetrio to perform as his authority is
limited only to selling or mortgaging the properties and does not include assigning and
conveying said properties to the Asset Pool in consideration of shares of stocks for his lone
benefit. For their part, respondents, who believe Demetrios power of attorney was broad
enough to effectuate a novation of PMRDCs core obligations in the MOA or, at the least,
implement the provisions thereof through the DAC, invoke the 4th and 5th whereas-clauses
in the DAC which, in relation to each other, supposedly pertain to that certain provision in
the MOA which authorizes the conveyance of the properties to the Asset Pool in exchange
for corporate shares.[41]
The 4th and 5th whereas-clauses in the DAC read as follows:
WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have
entered into a Memorandum of Agreement whereby the former agreed to
convey to the Isabel Homes Asset Pool certain real properties located at
Sta. Maria, Laguna;
[WHEREAS], the LANDOWNER and PMRDC have agreed to revise
and modify the said Memorandum of Agreement, whereby the
LANDOWNER shall dispense with the option money as a requisite to the
sale and purchase of the properties by PMRDC, and agreed to convey
absolutely and unqualifiedly the same properties directly to the Isabel
Homes Asset Pool for and in exchange of shares of stock or equity in
PMRDC.[42]
While indeed we find no provision in the MOA such as that alluded to in the aforequoted
4th whereas-clause in the DAC which purportedly embodies an agreement by the parties to
assign and convey the subject properties to the Asset Pool, we surmise that the clause could
be referring to paragraph 5 of the MOA which stipulates a commitment on the part of
petitioners to give their consent to an assignment and conveyance of the properties to the
Asset Pool but only once a request therefor is made by PMRDC. Paragraph 5 reads:
5. THAT, the VENDOR at the request of the VENDEE shall agree to
convey the parcels of land to any bank or financial institution by way of
mortgage or to a Trustee by way of a Trust Agreement at any time from
the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not
liable for any mortgage or loans or obligations that will be incurred by way
of mortgage of Trust Agreement that the VENDEE might enter into;[43]
Petitioners profess, however, that no such request was ever intimated to them at any time
during the subsistence of the PMRDCs right to exercise the option to buy. But respondents
are quick to reason that a request is unnecessary because Demetrio has been legally
enabled by his special power to give such consent and accordingly execute the DAC, effect a
novation of the MOA, and extinguish the stipulated obligations of PMRDC therein, or at least
that he could assent to the implementation of the MOA provisions in the way that
transpired. We agree.
Demetrios special power of attorney granting the powers to sell and/or mortgage reads in
part:
1. To sell and/or mortgage in favor of any person, corporation, partnership,
private banking or financial institution, government or semi-government
banking or financial institution for such price or amount and under such
terms and conditions as our aforesaid attorney-in-fact may deem just and
proper, parcels of land more particularly described as follows:
xxx
2. To carry out the authority aforestated, to sign, execute and deliver such
deeds, instruments and other papers that may be required or necessary;
3. To further attain the authority herein given, to do and perform such acts
and things that may be necessary or incidental to fully carry out the
authority herein granted.[44]
It is in the context of this vesture of power that Demetrio, representing his shared
interest with Carolina and Margarita, entered into the MOA with PMRDC. It is likewise
within this same context that Demetrio later on entered into the DAC and accordingly
extinguished the previously subsisting obligation of PMRDC to deliver the stipulated option
money and replaced said obligation with the delivery instead of participation certificates in
favor of Demetrio.
The powers conferred on Demetrio were exclusive only to selling and mortgaging
the properties. Between these two specific powers, the power to sell is quite controversial
because it is the sale transaction which bears close resemblance to the deal contemplated in
the DAC. In fact, part of the testimony of Atty. Danilo Javier, counsel for respondent HIGC
and head of its legal department at the time, is that in the execution of the DAC,
respondents had relied on Demetrios special power of attorney and also on his supposed
agreement to be paid in kind, i.e., in shares of stock, as consideration for the assignment
and conveyance of the subject properties to the Asset Pool.[45] What petitioners miss,
however, is that the power conferred on Demetrio to sell for such price or amount[46] is
broad enough to cover the exchange contemplated in the DAC between the properties and
the corresponding corporate shares in PMRDC, with the latter replacing the cash equivalent
of the option money initially agreed to be paid by PMRDC under the MOA. Suffice it to say
that price is understood to mean the cost at which something is obtained, or something
which one ordinarily accepts voluntarily in exchange for something else, or the
consideration given for the purchase of a thing.[47]
Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient
to enable him to make a binding commitment under the DAC in behalf of Carolina and
Margarita. In particular, it does include the authority to extinguish PMRDCs obligation under
the MOA to deliver option money and agree to a more flexible term by agreeing instead to
receive shares of stock in lieu thereof and in consideration of the assignment and
conveyance of the properties to the Asset Pool. Indeed, the terms of his special power of
attorney allow much leeway to accommodate not only the terms of the MOA but also those
of the subsequent agreement in the DAC which, in this case, necessarily and consequently
has resulted in a novation of PMRDCs integral obligations. On this score, we quote with
approval the decision of the Court of Appeals, aptly citing the case of California Bus Lines,
Inc. v. State Investment House, Inc.[48] thus
There are two ways which could indicate, in fine, the presence of novation
and thereby produce the effect of extinguishing an obligation by another
which substitutes the same. The first is when novation has been explicitly
stated and declared in unequivocal terms. The second is when the old and
the new obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible, and
the latter obligation novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements of the
obligation such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and
insufficient to extinguish the original obligation.[49]
In view of the foregoing, the Court finds no useful purpose in addressing all the
other issues raised in this petition.
A final note. Section 10, Book IV, Title III, Chapter 3[50] of the Revised Administrative
Code of 1987 has designated the OGCC to act as the principal law office of government-
owned or controlled corporations (GOCCs) in connection with any judicial or quasi-judicial
proceeding. Yet between the two respondents GOCCs in this case LBP and HIGC it is only the
latter for which the OGCC has entered its appearance. Nowhere in the records is it shown
that the OGCC has ever entered its appearance in this case as principal legal counsel of
respondent LBP, or that at the very least it has given express conformity to the LBP legal
departments representation.[51]
In Land Bank of the Philippines v. Martinez,[52] citing Land Bank of the Philippines v.
Panlilio-Luciano,[53] we explained that the legal department of LBP is not expressly
authorized by its charter to appear in behalf of the corporation in any proceeding as the GOCCs. Since GOCCs fall within the same governmental framework, it
mandate of the law is explicit enough to place the said department under the OGCCs power would be detrimental to have GOCCs foisted into adversarial positions by
of control and supervision. We held in that case: their respective legal departments. Hence, there is indubitable wisdom in
having one overseer over all these legal departments which would ensure
[Section 10] mandates the OGCC, and not the LBP Legal that the legal positions adopted by the GOCCs would not conflict with
Department, as the principal law office of the LBP. Moreover, it each other or the government.
establishes the proper hierarchical order in that the LBP Legal Department
remains under the control and supervision of the OGCC. x x x x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative
Code of 1987 can be invoked by adverse parties or by the courts in citing as
At the same time, the existence of the OGCC does not render the deficient the exclusive representation of LBP by its Legal Department. Then
LBP Legal Department a superfluity. We do not doubt that the LBP Legal again, if neither the adverse parties nor the courts of jurisdiction choose to
Department carries out vital legal services to LBP. However, the contest this point, there would be no impediment to the litigation to
performance of such functions cannot deprive the OGCCs role as overseer maintain. x x x[54]
of the LBP Legal Department and its mandate of exercising control and
supervision over all GOCC legal departments. For the purpose of filing
petitions and making submissions before this Court, such control and WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006
supervision imply express participation by the OGCC as principal legal Resolution of the Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.
counsel of LBP. x x x
SO ORDERED.
It should also be noted that the aforementioned Section 10, Book
IV, Title III, Chapter 3 of the Administrative Code of 1987 authorizes the
OGCC to receive the attorney's fees adjudged in favor of their client GOCCs, DIOSDADO M. PERALTA
such fees accruing to a special fund of the OGCC. Evidently, the non-
participation of the OGCC in litigations pursued by GOCCs would deprive the
former of its due funding as authorized by law. Hence, this is another reason
why we cannot sustain Attys. Beramo and Berbao's position that the OGCC
need not participate in litigations pursued by LBP.

It may strike as disruptive to the flow of a GOCCs daily grind to

require the participation of the OGCC as its principal law office, or the
exercise of control and supervision by the OGCC over the acts of the GOCCs
legal departments. For reasons such as proximity and comfort, the GOCC
may find it convenient to rely instead on its in-house legal departments, or
more irregularly, on private practitioners. Yet the statutory role of the
OGCC as principal law office of GOCCs is one of long-standing, and we have
to recognize such function as part of public policy. Since the jurisdiction of
the OGCC includes all GOCCs, its perspective is less myopic than that
maintained by a particular legal department of a GOCC. It is not
inconceivable that left to its own devices, the legal department of a given
GOCC may adopt a legal position inconsistent with or detrimental to other