G.R. No.

3246 February 9, 1907 the making of this contract on August 5 they had already sold under the original agency, their
commission should be allowed.
CADWALLADER & COMPANY, plaintiff-appellant,
vs. The court below found the net amount due from the defendants to the plaintiff for the Quito piles, after
SMITH, BELL & COMPANY and HENRY W. PEABODY & COMPANY, defendants-appellees. deducting the expense of landing the same and $543.10 commission, was $1,760.88, on which it
allowed interest at the rate of 6 per cent from March 1, 1903. This amount should be increased by the
Thomas E. Kepner for appellant. addition thereto of the amount of the commission disallowed, to wit, $331.17 giving $2,092.05. Interest
Kinney, Odlin & Lawrence for appellees. computed on this sum to the date of the entry of judgment below amounts to $359.77, which added to
the principal sum makes $2,241.82, the amount of plaintiff's claim, which is to be deducted from
defendants' counterclaim of $6,993.80, leaving a balance of $4,541.98, equivalent to 9,083.96 pesos,
TRACEY, J.: the amount for which judgment below should have been entered in favor of the defendants.

In this action the plaintiff, as assignee of the Pacific Export Lumber Company, sues for $3,486, United Let the judgment of the Court of First Instance be modified accordingly, without costs to either party.
States currency, the differences between the amount turned over to the company on account of a cargo
of cedar piles consigned to the defendants as its agents and afterwards bought by them, and the
amount actually received by them on the subsequent sale thereof. The defendant were allowed by the After expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter
court below a counterclaim of $6,993.80, United States currency, from which was deducted $2,063.16 the record remanded to the court below for proper action. So ordered.
for the plaintiffs claim, leaving a balance in favor of the defendants of $4,930.64, for the equipment of
which, to wit, 9,861.28 pesos, judgment was entered. The defendants have not appealed. The plaintiff Arellano, C.J., Torres, Mapa, Carson and Willard, JJ., concur.
took several exceptions, but on the argument its counsel stated that its contention was confined to the
allowance by the trial court of the commissions of the defendant on selling the piling.

In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito five
hundred and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at Manila, on the
sale of which before storage the consignees were to receive a commission of one half of whatever sum
was obtained over $15 for each pile and 5 per cent of the price of the piles sold after storage. After the
arrival of the steamer on August 2, Peabody and Company wrote the agent of the Pacific Company at
Shanghai that for lack of a demand the piles would have to be sold at considerably less than $15
apiece; whereupon the company's agent directed them to make the best possible offer for the piles, in
response to which on August 5 they telegraphed him an offer of $12 apiece. It was accepted by him on
August 6, in consequence of which the defendant paid the Pacific Company $6,972.

It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with the
Insular Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in the sale to the
Government of two hundred and thirteen (213) piles at $19 each. More of them were afterwards sold to
the Government at the same figure and the remainder to other parties at carrying prices, the whole G.R. No. 114311 November 29, 1996
realizing to the defendants $10,41.66, amounting to $3,445.66 above the amount paid by the defendant
to the plaintiff therefor. Thus it is clear that at the time when the agents were buying from their principal
these piles at $12 apiece on the strength of their representation that no better price was obtainable, COSMIC LUMBER CORPORATION, petitioner,
they had already sold a substantial part of them at $19. In these transactions the defendant, Smith, Bell vs.
& Company, were associated with the defendants, Henry W. Peabody & Company, who conducted the COURT OF APPEAL and ISIDRO PEREZ, respondents.
negotiations, and are consequently accountable with them.

It is plaint that in concealing from their principal the negotiations with the Government, resulting in a sale
of the piles at 19 a piece and in misrepresenting the condition of the market, the agents committed a BELLOSILLO, J.:
breach of duty from which they should benefit. The contract of sale to themselves thereby induced was
founded on their fraud and was subject to annulment by the aggrieved party. (Civil Code, articles 1265 COSMIC LUMBER CORPORATION through its General Manager executed on 28 January
and 1269.) Upon annulment the parties should be restored to their original position by mutual restitution. 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact —
(Article 1303 and 1306.) Therefore the defendants are not entitled to retain their commission realized
upon the piles included under the contract so annulled. In respect of the 213 piles, which at the time of

AGENCY Page 1 of 99
 . . . to initiate, institute and file any court action for the ejectment of third persons
and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and
37649, for the said squatters to remove their houses and vacate the premises in order
that the corporation may take material possession of the entire lot, and for this
purpose, to appear at the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the rights and interest of the
corporation in the aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an
action for the ejectment of private respondent Isidro Perez and recover the possession of a
portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case No.
D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with
respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his house is
located is 333 square meters on the easternmost part of lot 443 and which portion
has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-
fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by
virtue of this compromise agreement over said portion of 333 square m. of lot 443
which portion will be located on the easternmost part as indicated in the sketch as
annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses shall
be shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4
Although the decision became final and executory it was not executed within the 5-year period
from date of its finality allegedly due to the failure of petitioner to produce the owner's duplicate
copy of Title No. 37649 needed to segregate from Lot No. 443 the portion sold by the attorney-
in-fact, Paz G. Villamil-Estrada, to private respondent under the compromise agreement. Thus
on 25 January 1993 respondent filed a complaint to revive the judgment, docketed as Civil
Case No. D-10459. 5
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival
of judgment was served upon it that it came to know of the compromise agreement entered
into between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the trial court
based its decision of 26 July 1993 in Civil Case No. D-7750. Forthwith, upon learning of the
fraudulent transaction, petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise agreement was void
because: (a) the attorney-in-fact did not have the authority to dispose of, sell, encumber or
AGENCY
divest the plaintiff of its ownership over its real property or any portion thereof; (b) the authority
of the attorney-in-fact was confined to the institution and filing of an ejectment case against
third persons/squatters on the property of the plaintiff, and to cause their eviction therefrom; (c)
while the special power of attorney made mention of an authority to enter into a compromise
agreement, such authority was in connection with, and limited to, the eviction of third
persons/squatters thereat, in order that "the corporation may take material possession of the
entire lot;" (d) the amount of P26,640.00 alluded to as alleged consideration of said agreement
was never received by the plaintiff; (e) the private defendant acted in bad faith in. the execution
of said agreement knowing fully well the want of authority of the attorney-in-fact to sell,
encumber or dispose of the real property of plaintiff; and, (f) the disposal of a corporate
property indispensably requires a Board Resolution of its Directors, a fact which is wanting in
said Civil Case No. D-7750, and the General Manager is not the proper officer to encumber a
corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that
not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown
to exist. 7 It also denied the motion for reconsideration filed by petitioner, discoursing that the
alleged nullity of the compromise judgment on the ground that petitioner's attorney-in-fact
Villamil-Estrada was not authorized to sell the subject propety may be raised as a defense in
the execution of the compromise judgment as it does not bind petitioner, but not as a ground
for annulment of judgment because it does not affect the jurisdiction of the trial court over the
action nor does it amount to extrinsic fraud. 8
Petitioner challenges this verdict. It argues that the decision of the trial court is void because
the compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada
did not possess the authority to sell or was she armed with a Board Resolution authorizing the
sale of its property. She was merely empowered to enter into a compromise agreement in the
recovery suit she was authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons or squatters of . . . lot . . .
(No.) 443 . . . for the said squatters to remove their houses and vacate the premises in order
that the corporation may take material possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession
thereof, and for this purpose, to appear at the pre-trial and enter into any stipulation of facts
and/or compromise agreement but only insofar as this was protective of the rights and
interests of petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a portion thereof.
Neither can a conferment of the power to sell be validly inferred from the specific authority "to
enter into a compromise agreement" because of the explicit limitation fixed by the grantor that
the compromise entered into shall only be "so far as it shall protect the rights and interest of
the corporation in the aforementioned lots." In the context of the specific investiture of powers
to Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed protective
of the right of petitioner to physically possess the same, more so when the land was being sold
for a price of P80.00 per square meter, very much less than its assessed value of P250.00 per
square meter, and considering further that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an agent
Page 2 of 99
to execute a contract for the sale of real estate must be conferred in writing and must give him
specific authority, either to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in the contract he did execute. 10 A
special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. 11The
express mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. 12 For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document. 13
It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a
compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso
jure is consequently void. So is the compromise agreement. This being the case, the judgment
based thereon is necessarily void. Antipodal to the opinion expressed by respondent court in
resolving petitioner's motion for reconsideration, the nullity of the settlement between Villamil-
Estrada and Perez impaired the jurisdiction of the trial court to render its decision based on the
compromise agreement. In Alviar v. Court of First Instance of La Union, 14 the Court held —
. . . this court does not hesitate to hold that the judgment in question is null and
void ab initio. It is not binding upon and cannot be executed against the petitioners. It
is evident that the compromise upon which the judgment was based was not
subscribed by them . . . Neither could Attorney Ortega bind them validly in the
compromise because he had no special authority . . .
As the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof . . .
. . . A judgment, which is null and void ab initio, rendered by a court without
jurisdiction to do so, is without legal efficacy and may properly be impugned in any
proceeding by the party against whom it is sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-
respected authority on civil law, where the Court declared that a judgment based on a
compromise entered into by an attorney without specific authority from the client is void. Such
judgment may be impugned and its execution restrained in any proceeding by the party
against whom it is sought to be enforced. The Court also observed that a defendant against
whom a judgment based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise set aside and
then appeal from the order of denial since he was not a party to the compromise. Thus it would
appear that the obiter of the appellate court that the alleged nullity of the compromise
agreement should be raised as a defense against its enforcement is not legally feasible.
Petitioner could not be in a position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada
who signed the compromise agreement may have been the attorney-in-fact but she could not
legally bind petitioner thereto as she was not entrusted with a special authority to sell the land,
as required in Art. 1878, par. (5), of the Civil Code.
AGENCY
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the Intermediate
Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction
over action for annulment of judgments of the Regional Trial Courts . . ." However, certain
requisites must first be established before a final and executory judgment can be the subject of
an action for annulment. It must either be void for want of jurisdiction or for lack of due process
of law, or it has been obtained by fraud. 17
Conformably with law and the above-cited authorities, the petition to annul the decision of the
trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it
did from a void compromise agreement, the trial court had no jurisdiction to render a judgment
based thereon. 18
It would also appear, and quite contrary to the finding of the appellate court, that the highly
reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an
extrinsic or collateral fraud by reason of which the judgment rendered thereon should have
been struck down. Not all the legal semantics in the world can becloud the unassailable fact
that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise agreement had been forged with
the end-result that a portion of petitioner's property was sold to the deforciant, literally for a
song. Thus completely kept unaware of its agent's artifice, petitioner was not accorded even a
fighting chance to repudiate the settlement so much so that the judgment based thereon
became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits.
Fraud may assume different shapes and be committed in as many different ways and here lies
the danger of attempting to define fraud. For man in his ingenuity and fertile imagination will
always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one
the effect of which prevents a party from hearing a trial, or real contest, or from presenting all
of his case to the court, or where it operates upon matters, not pertaining to the judgment itself,
but to the manner in which it was procured so that there is not a fair submission of the
controversy. In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in
the litigation which is committed outside of the trial of the case, whereby the defeated party has
been prevented from exhibiting fully his side of the case by fraud or deception practiced on him
by his opponent. 19 Fraud is extrinsic where the unsuccessful party has been prevented from
exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping
him away from court, a false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these and similar cases which show
that there has never been a real contest in the trial or hearing of the case are reasons for
which a new suit may be sustained to set aside and annul the former judgment and open the
case for a new and fair hearing. 20
It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the agent
was acting as such. But the general rule is intended to protect those who exercise good faith
and not as a shield for unfair dealing. Hence there is a well-established exception to the
general rule as where the conduct and dealings of the agent are such as to raise a clear
Page 3 of 99
 presumption that he will not communicate to the principal the facts in controversy. 21The logical
reason for this exception is that where the agent is committing a fraud, it would be contrary to
common sense to presume or to expect that he would communicate the facts to the principal.
Verily, when an agent is engaged in the perpetration of a fraud upon his principal for his own
exclusive benefit, he is not really acting for the principal but is really acting for himself, entirely
outside the scope of his agency. 22 Indeed, the basic tenets of agency rest on the highest
considerations of justice, equity and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret hostility to the interests of his
principal transcends the power afforded him. 23
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of
Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of
the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985,
are NULLIFIED and SET ASIDE. The "Compromise Agreement" entered into between
Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This is
without prejudice to the right of petitioner to pursue its complaint against private respondent
Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot No.
443.
SO ORDERED.
G.R. No. L-21237 March 22, 1924
JAMES D. BARTON, plaintiff-appellee,
vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.
Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant.
Frank B. Ingersoll for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of the City of Manila by James D. Barton, to
recover of the Leyte Asphalt & Mineral Oil Co., Ltd., as damages for breach of contract, the sum of
AGENCY
$318,563.30, United States currency, and further to secure a judicial pronouncement to the effect that
the plaintiff is entitled to an extension of the terms of the sales agencies specified in the contract Exhibit
A. The defendant answered with a general denial, and the cause was heard upon the proof, both
documentary and oral, after which the trial judge entered a judgment absolving the defendant
corporation from four of the six causes of action set forth in the complaint and giving judgment for the
plaintiff to recover of said defendant, upon the first and fourth causes of action, the sum of $202,500,
United States currency, equivalent to $405,000, Philippine currency, with legal interest from June 2,
1921, and with costs. From this judgment the defendant company appealed.
The plaintiff is a citizen of the United States, resident in the City of Manila, while the defendant is a
corporation organized under the law of the Philippine Islands with its principal office in the City of Cebu,
Province of Cebu, Philippine Islands. Said company appears to be the owner by a valuable deposit of
bituminous limestone and other asphalt products, located on the Island of Leyte and known as
the Lucio mine. On April 21, 1920, one William Anderson, as president and general manager of the
defendant company, addressed a letter Exhibit B, to the plaintiff Barton, authorizing the latter to sell the
products of the Lucio mine in the Commonwealth of Australia and New Zealand upon a scale of prices
indicated in said letter.
In the third cause of action stated in the complaint the plaintiff alleges that during the life of the agency
indicated in Exhibit B, he rendered services to the defendant company in the way of advertising and
demonstrating the products of the defendant and expended large sums of money in visiting various
parts of the world for the purpose of carrying on said advertising and demonstrations, in shipping to
various parts of the world samples of the products of the defendant, and in otherwise carrying on
advertising work. For these services and expenditures the plaintiff sought, in said third cause of action,
to recover the sum of $16,563.80, United States currency. The court, however, absolved the defendant
from all liability on this cause of action and the plaintiff did not appeal, with the result that we are not
now concerned with this phase of the case. Besides, the authority contained in said Exhibit B was
admittedly superseded by the authority expressed in a later letter, Exhibit A, dated October 1, 1920.
This document bears the approval of the board of directors of the defendant company and was formally
accepted by the plaintiff. As it supplies the principal basis of the action, it will be quoted in its entirety.
(Exhibit A)
CEBU, CEBU, P. I.
October 1, 1920.
JAMES D. BARTON, Esq.,
Cebu Hotel City.
DEAR SIR: — You are hereby given the sole and exclusive sales agency for our bituminous limestone
and other asphalt products of the Leyte Asphalt and Mineral Oil Company, Ltd., May first, 1922, in the
following territory:
Australia Saigon Java
New Zealand India China
Tasmania Sumatra Hongkong
Siam and the Straits Settlements, also in the United States of America until May 1, 1921.
Page 4 of 99
As regard bituminous limestone mined from the Lucio property. No orders for less than one thousand
(1,000) tons will be accepted except under special agreement with us. All orders for said products are to
be billed to you as follows:
Per ton
In 1,000 ton lots ........................................... P15
In 2,000 ton lots ........................................... 14
In 5,000 ton lots ........................................... 12
In 10,000 ton lots .......................................... 10
with the understanding, however that, should the sales in the above territory equal or exceed ten
thousand (10,000) tons in the year ending October 1, 1921, then in that event the price of all shipments
made during the above period shall be ten pesos (P10) per ton, and any sum charged to any of your
customers or buyers in the aforesaid territory in excess of ten pesos (P10) per ton, shall be rebated to
you. Said rebate to be due and payable when the gross sales have equalled or exceeded ten thousand
(10,000) tons in the twelve months period as hereinbefore described. Rebates on lesser sales to apply
as per above price list.
You are to have full authority to sell said product of the Lucio mine for any sum see fit in excess of the
prices quoted above and such excess in price shall be your extra and additional profit and commission.
Should we make any collection in excess of the prices quoted, we agree to remit same to your within
ten (10) days of the date of such collections or payments.
All contracts taken with municipal governments will be subject to inspector before shipping, by any
authorized representative of such governments at whatever price may be contracted for by you and we
agree to accept such contracts subject to draft attached to bill of lading in full payment of such
shipment.
It is understood that the purchasers of the products of the Lucio mine are to pay freight from the mine
carriers to destination and are to be responsible for all freight, insurance and other charges, providing
said shipment has been accepted by their inspectors.
All contracts taken with responsible firms are to be under the same conditions as with municipal
governments.
All contracts will be subject to delays caused by the acts of God, over which the parties hereto have no
control.
It is understood and agreed that we agree to load all ships, steamers, boats or other carriers prompty
and without delay and load not less than 1,000 tons each twenty-four hours after March 1, 1921, unless
we so notify you specifically prior to that date we are prepared to load at that rate, and it is also
stipulated that we shall not be required to ship orders of 5,000 tons except on 30 days notice and
10,000 tons except on 60 days notice.
If your sales in the United States reach five thousand tons on or before May 1, 1921, you are to have
sole rights for this territory also for one year additional and should your sales in the second year reach
or exceed ten thousand tons you are to have the option to renew the agreement for this territory on the
same terms for an additional two years.
AGENCY
Should your sales equal exceed ten thousand (10,000) tons in the year ending October 1, 1921, or
twenty thousand (20,000) tons by May 1, 1922, then this contract is to be continued automatically for an
additional three years ending April 30, 1925, under the same terms and conditions as above stipulated.
The products of the other mines can be sold by you in the aforesaid territories under the same terms
and conditions as the products of the Lucio mine; scale of prices to be mutually agreed upon between
us.
LEYTE ASPHALT & MINERAL OIL CO., LTD.
By (Sgd.) WM. ANDERSON
President
(Sgd.) W. C. A. PALMER
Secretary
Approved by Board of Directors,
October 1, 1920.
(Sgd.) WM. ANDERSON
President
Accepted.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN
Upon careful perusal of the fourth paragraph from the end of this letter it is apparent that some negative
word has been inadvertently omitted before "prepared," so that the full expression should be "unless we
should notify you specifically prior to that date that we are unprepared to load at that rate," or "not
prepared to load at that rate."
Very soon after the aforesaid contract became effective, the plaintiff requested the defendant company
to give him a similar selling agency for Japan. To this request the defendant company, through its
president, Wm. Anderson, replied, under date of November 27, 1920, as follows:
In re your request for Japanese agency, will say, that we are willing to give you, the same
commission on all sales made by you in Japan, on the same basis as your Australian sales,
but we do not feel like giving you a regular agency for Japan until you can make some large
sized sales there, because some other people have given us assurances that they can handle
our Japanese sales, therefore we have decided to leave this agency open for a time.
Meanwhile the plaintiff had embarked for San Francisco and upon arriving at that port he entered into
an agreement with Ludvigsen & McCurdy, of that city, whereby said firm was constituted a subagent and
given the sole selling rights for the bituminous limestone products of the defendant company for the
period of one year from November 11, 1920, on terms stated in the letter Exhibit K. The territory
assigned to Ludvigsen & McCurdy included San Francisco and all territory in California north of said
city. Upon an earlier voyage during the same year to Australia, the plaintiff had already made an
agreement with Frank B. Smith, of Sydney, whereby the latter was to act as the plaintiff's sales agent for
bituminous limestone mined at the defendant's quarry in Leyte, until February 12, 1921. Later the same
agreement was extended for the period of one year from January 1, 1921. (Exhibit Q.)
Page 5 of 99
On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a letter to the plaintiff, then in
San Francisco, advising hi that he might enter an order for six thousand tons of bituminous limestone to
be loaded at Leyte not later than May 5, 1921, upon terms stated in the letter Exhibit G. Upon this letter
the plaintiff immediately indorsed his acceptance.
The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to him from Cebu, to the
effect that the company was behind with construction and was not then able to handle big contracts.
(Exhibit FF.) On March 12, Anderson was in Manila and the two had an interview in the Manila Hotel, in
the course of which the plaintiff informed Anderson of the San Francisco order. Anderson thereupon
said that, owing to lack of capital, adequate facilities had not been provided by the company for filling
large orders and suggested that the plaintiff had better hold up in the matter of taking orders. The
plaintiff expressed surprise at this and told Anderson that he had not only the San Francisco order
(which he says he exhibited to Anderson) but other orders for large quantities of bituminous limestone to
be shipped to Australia and Shanghai. In another interview on the same Anderson definitely informed
the plaintiff that the contracts which be claimed to have procured would not be filled.
Three days later the plaintiff addressed a letter (Exhibit Y) to the defendant company in Cebu, in which
he notified the company to be prepared to ship five thousand tons of bituminous limestone to John
Chapman Co., San Francisco, loading to commence on May 1, and to proceed at the rate of one
thousand tons per day of each twenty-four hours, weather permitting.
On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order for five thousand tons of
bituminous limestone; and in his letter of March 15 to the defendant, the plaintiff advised the defendant
company to be prepared to ship another five thousand tons of bituminous limestone, on or about May 6,
1921, in addition to the intended consignment for San Francisco. The name Henry E. White was
indicated as the name of the person through whom this contract had been made, and it was stated that
the consignee would be named later, no destination for the shipment being given. The plaintiff explains
that the name White, as used in this letter, was based on an inference which he had erroneously drawn
from the cable sent by Frank B. Smith, and his intention was to have the second shipment consigned to
Australia in response to Smith's order.
It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that no mention was
made of the names of the person, or firm, for whom the shipments were really intended. The obvious
explanation that occurs in connection with this is that the plaintiff did not then care to reveal the fact that
the two orders had originated from his own subagents in San Francisco and Sydney.
To the plaintiff's letter of March 15, the assistant manager of the defendant company replied on March,
25, 1921, acknowledging the receipt of an order for five thousand tons of bituminous limestone to be
consigned to John Chapman Co., of San Francisco, and the further amount of five thousand tons of the
same material to be consigned to Henry E. White, and it was stated that "no orders can be entertained
unless cash has been actually deposited with either the International Banking Corporation or the
Chartered Bank of India, Australia and China, Cebu." (Exhibit Z.)
To this letter the plaintiff in turn replied from Manila, under date of March, 1921, questioning the right of
the defendant to insist upon a cash deposit in Cebu prior to the filling of the orders. In conclusion the
plaintiff gave orders for shipment to Australia of five thousand tons, or more, about May 22, 1921, and
ten thousand tons, or more, about June 1, 1921. In conclusion the plaintiff said "I have arranged for
deposits to be made on these additional shipments if you will signify your ability to fulfill these orders on
the dates mentioned." No name was mentioned as the purchaser, or purchases, of these intended
Australian consignments.
AGENCY
Soon after writing the letter last above-mentioned, the plaintiff embarked for China and Japan. With his
activities in China we are not here concerned, but we note that in Tokio, Japan, he came in contact with
one H. Hiwatari, who appears to have been a suitable person for handling bituminous limestone for
construction work in Japan. In the letter Exhibit X, Hiwatari speaks of himself as if he had been
appointed exclusive sales agent for the plaintiff in Japan, but no document expressly appointing him
such is in evidence.
While the plaintiff was in Tokio he procured the letter Exhibit W, addressed to himself, to be signed by
Hiwatari. This letter, endited by the plaintiff himself, contains an order for one thousand tons of
bituminous limestone from the quarries of the defendant company, to be delivered as soon after July 1,
1921, as possible. In this letter Hiwatari states, "on receipt of the cable from you, notifying me of date
you will be ready to ship, and also tonnage rate, I will agree to transfer through the Bank of Taiwan, of
Tokio, to the Asia Banking Corporation, of Manila, P. I., the entire payment of $16,000 gold, to be
subject to our order on delivery of documents covering bill of lading of shipments, the customs report of
weight, and prepaid export tax receipt. I will arrange in advance a confirmed or irrevocable letter of
credit for the above amounts so that payment can be ordered by cable, in reply to your cable advising
shipping date."
In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shown the contract,
signed by himself, to the submanager of the Taiwan Bank who had given it as his opinion that he would
be able to issue, upon request of Hiwatari, a credit note for the contracted amount, but he added that
the submanager was not personally able to place his approval on the contract as that was a matter
beyond his authority. Accordingly Hiwatari advised that he was intending to make further arrangements
when the manager of the bank should return from Formosa.
In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons of bituminous limestone,
it was stated that if the material should prove satisfactory after being thoroughly tested by the Paving
Department of the City of Tokio, he would contract with the plaintiff for a minimum quantity of ten
thousand additional tons, to be used within a year from September 1, 1921, and that in this event the
contract was to be automatically extended for an additional four years. The contents of the letter of May
5 seems to have been conveyed, though imperfectly, by the plaintiff to his attorney, Mr. Frank B.
Ingersoll, of Manila; and on May 17, 1921, Ingersoll addressed a note to the defendant company in
Cebu in which he stated that he had been requested by the plaintiff to notify the defendant that the
plaintiff had accepted an order from Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum
order of ten thousand tons of the stone annually for a period of five years, the first shipment of one
thousand tons to be made as early after July 1 as possible. It will be noted that this communication did
not truly reflect the contents of Hiwatari's letter, which called unconditionally for only one thousand tons,
the taking of the remainder being contingent upon future eventualities.
It will be noted that the only written communications between the plaintiff and the defendant company in
which the former gave notice of having any orders for the sale of bituminous limestone are the four
letters Exhibit Y, AA, BB, and II. In the first of these letters, dated March 15, 1921, the plaintiff advises
the defendant company to be prepared to ship five thousand tons of bituminous limestone, to be
consigned to John Chapman, Co., of San Francisco, to be loaded by March 5, and a further
consignment of five thousand tons, through a contract with Henry E. White, consignees to be named
later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's attorney gives notice of the acceptance
by plaintiff of an order from Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum of ten
thousand annually for a period of five years, first shipment of a thousand tons to be as early after July 1
as possible. In the letter Exhibit H the plaintiff gives notice of an "additional" (?) order from H. E. White,
Sydney, for two lots of bituminous limestone of five thousand tons each, one for shipment not later than
Page 6 of 99
June 30, 1921, and the other by July 20, 1921. In the same letter thousand tons from F. B. Smith, to be
shipped to Brisbane, Australia, by June 30, and a similar amount within thirty days later.
After the suit was brought, the plaintiff filed an amendment to his complaint in which he set out, in
tabulated form, the orders which he claims to have received and upon which his letters of notification to
the defendant company were based. In this amended answer the name of Ludvigsen & McCurdy
appears for the first time; and the name of Frank B. Smith, of Sydney, is used for the first time as the
source of the intended consignments of the letters, Exhibits G, L, M, and W, containing the orders from
Ludvigen & McCurdy, Frank B. Smith and H. Hiwatari were at no time submitted for inspection to any
officer of the defendant company, except possibly the Exhibit G, which the plaintiff claims to have shown
to Anderson in Manila on March, 12, 1921.
The different items conspiring the award which the trial judge gave in favor of the plaintiff are all based
upon the orders given by Ludvigsen & McCurdy (Exhibit G), by Frank B. Smith (Exhibit L and M), and by
Hiwatari in Exhibit W; and the appealed does not involve an order which came from Shanghai, China.
We therefore now address ourselves to the question whether or not the orders contained in Exhibit G, L,
M, and W, in connection with the subsequent notification thereof given by the plaintiff to the defendant,
are sufficient to support the judgment rendered by the trial court.
The transaction indicated in the orders from Ludvigsen, & McCurdy and from Frank B. Smith must, in
our opinion, be at once excluded from consideration as emanating from persons who had been
constituted mere agents of the plaintiff. The San Francisco order and the Australian orders are the same
in legal effect as if they were orders signed by the plaintiff and drawn upon himself; and it cannot be
pretended that those orders represent sales to bona fide purchasers found by the plaintiff. The original
contract by which the plaintiff was appointed sales agent for a limited period of time in Australia and the
United States contemplated that he should find reliable and solvent buyers who should be prepared to
obligate themselves to take the quantity of bituminous limestone contracted for upon terms consistent
with the contract. These conditions were not met by the taking of these orders from the plaintiff's own
subagents, which was as if the plaintiff had bought for himself the commodity which he was authorized
to sell to others. Article 267 of the Code of Commerce declares that no agent shall purchase for himself
or for another that which he has been ordered to sell. The law has placed its ban upon a broker's
purchasing from his principal unless the latter with full knowledge of all the facts and circumstances
acquiesces in such course; and even then the broker's action must be characterized by the utmost good
faith. A sale made by a broker to himself without the consent of the principal is ineffectual whether the
broker has been guilty of fraudulent conduct or not. (4 R. C. L., 276-277.) We think, therefore, that the
position of the defendant company is indubitably sound in so far as it rest upon the contention that the
plaintiff has not in fact found any bona fide purchasers ready and able to take the commodity contracted
for upon terms compatible with the contract which is the basis of the action.
It will be observed that the contract set out at the beginning of this opinion contains provisions under
which the period of the contract might be extended. That privilege was probably considered a highly
important incident of the contract and it will be seen that the sale of five thousand tons which the plaintiff
reported for shipment to San Francisco was precisely adjusted to the purpose of the extension of the
contract for the United States for the period of an additional year; and the sales reported for shipment to
Australia were likewise adjusted to the requirements for the extention of the contract in that territory.
Given the circumstances surrounding these contracts as they were reported to the defendant company
and the concealment by the plaintiff of the names of the authors of the orders, -- who after all were
merely the plaintiff's subagents, — the officers of the defendant company might justly have entertained
the suspicion that the real and only person behind those contracts was the plaintiff himself. Such at
least turns out to have been the case.
AGENCY
Much energy has been expended in the briefs upon his appeal over the contention whether the
defendant was justified in laying down the condition mentioned in the letter of March 26, 1921, to the
effect that no order would be entertained unless cash should be deposited with either the International
Banking Corporation of the Chartered Bank of India, Australia and China, in Cebu. In this connection the
plaintiff points to the stipulation of the contract which provides that contracts with responsible parties are
to be accepted "subject to draft attached to bill of lading in full payment of such shipment." What passed
between the parties upon this point appears to have the character of mere diplomatic parrying, as the
plaintiff had no contract from any responsible purchaser other than his own subagents and the
defendant company could no probably have filled the contracts even if they had been backed by the
Bank of England.
Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will be found ample assurance that
deposits for the amount of each shipment would be made with a bank in Manila provided the defendant
would indicated its ability to fill the orders; but these assurance rested upon no other basis than the
financial responsibility of the plaintiff himself, and this circumstance doubtless did not escape the
discernment of the defendant's officers.
With respect to the order from H. Hiwatari, we observe that while he intimates that he had been
promised the exclusive agency under the plaintiff for Japan, nevertheless it does not affirmatively
appear that he had been in fact appointed to be such at the time he signed to order Exhibit W at the
request of the plaintiff. It may be assumed, therefore, that he was at that time a stranger to the contract
of agency. It clearly appears, however, that he did not expect to purchase the thousand tons of
bituminous limestone referred to in his order without banking assistance; and although the submanager
of the Bank of Taiwan had said something encouraging in respect to the matter, nevertheless that
official had refrained from giving his approval to the order Exhibit W. It is therefore not shown
affirmatively that this order proceeds from a responsible source.
The first assignment of error in the appellant's brief is directed to the action of the trial judge in refusing
to admit Exhibit 2, 7, 8, 9 and 10, offered by the defendant, and in admitting Exhibit E, offered by the
plaintiff. The Exhibit 2 is a letter dated June 25, 1921, or more than three weeks after the action was
instituted, in which the defendant's assistant general manager undertakes to reply to the plaintiff's letter
of March 29 proceeding. It was evidently intended as an argumentative presentation of the plaintiff's
point of view in the litigation then pending, and its probative value is so slight, even if admissible at all,
that there was no error on the part of the trial court in excluding it.
Exhibit 7, 8, 9 and 10 comprise correspondence which passed between the parties by mail or telegraph
during the first part of the year 1921. The subject-matter of this correspondence relates to efforts that
were being made by Anderson to dispose of the controlling in the defendant corporation, and Exhibit 9
in particular contains an offer from the plaintiff, representing certain associates, to but out Anderson's
interest for a fixed sum. While these exhibits perhaps shed some light upon the relations of the parties
during the time this controversy was brewing, the bearing of the matter upon the litigation before us is
too remote to exert any definitive influence on the case. The trial court was not in error in our opinion in
excluding these documents.
Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920, in which information is given
concerning the property of the defendant company. It is stated in this letter that the output of
the Lucio (quarry) during the coming year would probably be at the rate of about five tons for twenty-
four hours, with the equipment then on hand, but that with the installation of a model cableway which
was under contemplation, the company would be able to handle two thousand tons in twenty-four hours.
Page 7 of 99
We see no legitimate reason for rejecting this document, although of slight probative value; and her
error imputed to the court in admitting the same was not committed.

Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy of a letter dated
June 13, 1921, written by the plaintiff to his attorney, Frank B. Ingersoll, Esq., of Manila, and in which
plaintiff states, among other things, that his profit from the San Francisco contract would have been at
the rate of eigthy-five cents (gold) per ton. The authenticity of this city document is admitted, and when
it was offered in evidence by the attorney for the defendant the counsel for the plaintiff announced that
he had no objection to the introduction of this carbon copy in evidence if counsel for the defendant
would explain where this copy was secured. Upon this the attorney for the defendant informed the court
that he received the letter from the former attorneys of the defendant without explanation of the manner
in which the document had come into their possession. Upon this the attorney for the plaintiff made this
announcement: "We hereby give notice at this time that unless such an explanation is made, explaining
fully how this carbon copy came into the possession of the defendant company, or any one representing
it, we propose to object to its admission on the ground that it is a confidential communication between
client and lawyer." No further information was then given by the attorney for the defendant as to the
manner in which the letter had come to his hands and the trial judge thereupon excluded the document,
on the ground that it was a privileged communication between client and attorney.
G.R. No. 158576 March 9, 2011

We are of the opinion that this ruling was erroneous; for even supposing that the letter was within the
privilege which protects communications between attorney and client, this privilege was lost when the
letter came to the hands of the adverse party. And it makes no difference how the adversary acquired
possession. The law protects the client from the effect of disclosures made by him to his attorney in the
confidence of the legal relation, but when such a document, containing admissions of the client, comes
to the hand of a third party, and reaches the adversary, it is admissible in evidence. In this connection
Mr. Wigmore says:
The law provides subjective freedom for the client by assuring him of exemption from its
processes of disclosure against himself or the attorney or their agents of communication. This
much, but not a whit more, is necessary for the maintenance of the privilege. Since the means
of preserving secrecy of communication are entirely in the client's hands, and since the
privilege is a derogation from the general testimonial duty and should be strictly construed, it
would be improper to extend its prohibition to third persons who obtain knowledge of the
communications. One who overhears the communication, whether with or without the client's
knowledge, is not within the protection of the privilege. The same rule ought to apply to one
who surreptitiously reads or obtains possession of a document in original or copy. (5 Wigmore
on Evidence, 2d ed., sec. 2326.)
Although the precedents are somewhat confusing, the better doctrine is to the effect that when papers
are offered in evidence a court will take no notice of how they were obtained, whether legally or illegally,
properly or improperly; nor will it form a collateral issue to try that question. (10 R. C. L., 931; 1 Greenl.
Evid., sec. 254a; State vs. Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.)
Our conclusion upon the entire record is that the judgment appealed from must be reversed; and the
defendant will be absolved from the complaint. It is so ordered, without special pronouncement as to
costs of either instance.
Araullo, C.J., Johnson, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.
CORNELIA M. HERNANDEZ, Petitioner,
vs.
CECILIO F. HERNANDEZ, Respondent.
DECISION
PEREZ, J.:
Before Us is a Petition for Review1 of the Decision of the Court of Appeals in CA-G.R. CV No.
701842 dated 29 May 2003. The appellate court reversed the Decision of the Regional Trial Court of
Makati, Branch 150 (RTC Branch 150), in Civil Case No. 00-11483 dated 12 February 2001, declaring
that the quitclaim signed by the petitioner is valid and incontrovertible.
The controversy between the parties began when the Republic of the Philippines, through the
Department of Public Works and Highways (DPWH), offered to purchase a portion of a parcel of land
with an area of 80,133 square meters, covered by TCT No. T-367514 of the Registry of Deeds for
Tanauan, Batangas, located at San Rafael, Sto. Tomas, Batangas, for use in the expansion of the South
Luzon Expressway. The land is pro-indiviso owned by Cornelia M. Hernandez (Cornelia), petitioner
herein, Atty. Jose M. Hernandez, deceased father of respondent Cecilio F. Hernandez
(Cecilio),5 represented by Paciencia Hernandez (Paciencia) and Mena Hernandez (Mena), also
deceased and represented by her heirs.6
The initial purchase price that was offered by the government was allegedly at Thirty-Five pesos
(₱35.00) per square meter for 14,643 square meters of the aforementioned land.7 The Hernandez
family rejected the offer. After a series of negotiations with the DPWH, the last offer stood at Seventy
Pesos (₱70.00) per square meter.8 They still did not accept the offer and the government was forced to
file an expropriation case.

AGENCY Page 8 of 99
On 9 August 1993, an expropriation case was filed by the Republic of the Philippines, through the
DPWH, before the Regional Trial Court, Branch 83 (RTC Branch 83), Tanauan, Batangas.9 The case
was first docketed as Civil Case No. T-859, then Civil Case No. C-023. Branch Clerk of Court Francisco
Q. Balderama, Jr., issued a Certification dated 10 January 2001 certifying that the docket numbers
stated refers to one and the same case.10
In Civil Case No. C-023, different parcels of land in Barangay Tripache, Tanauan Batangas, which
belongs to thirty-four (34) families including the Hernandezes are affected by the expansion project of
the DPWH. A similar case, Civil Case No. C-022, was consolidated with the former as it affects the
same DPWH endeavor. Land in San Rafael, Sto. Tomas, Batangas, which belong to twenty-three (23)
families, was also the subject of expropriation.
On 11 November 1993, the owners of the Hernandez property executed a letter indicating: (1) Cecilio as
the representative of the owners of the land; and (2) the compensation he gets in doing such job. The
letter reads:
November 11, 1993
Mr. Cecilio F. Hernandez
Tanauan, Batangas
Dear Cecilio:
This would confirm to give you twenty (20%) percent of any amount in excess of Seventy (P70.00)
Pesos per square meter of our respective shares as success fee for your effort in representing us in
Civil Case No. T-859 entitled, "Republic of the Philippines, represented by the Public Works and
Highways v. Sto. Tomas Agri-Farms, Inc. and the Appellate Courts."
Whatever excess beyond Three Hundred (₱300.00) Pesos per square meter of the area shall likewise
be given to you as additional incentive.
We will give you One Thousand Five Hundred (₱8,500.00) (sic) Pesos each for the preparation of the
pleading before the Regional Trial Court and such other reasonable expenses of litigation pro-indiviso.
Very Truly Yours,
(Sgd.) PACENCIA F. HERNANDEZ
(Sgd.) CORNELIA M. HERNANDEZ
Conforme:
(Sgd.) PACITA M. HERNANDEZ
(Sgd.)CECILIO F. HERNANDEZ
AGENCY
HEIRS OF MENA M. HERNANDEZ
By: (Sgd.) MA. ANTONIA H. LLAMZON
AND
(Sgd.) PERSEVERANDO M. HERNANDEZ11
During the course of the expropriation proceedings, an Order dated 13 September 1996 was issued by
the RTC Branch 83, informing the parties of the appointment of commissioners to help determine the
just compensation. Cecilio was appointed as one of the commissioners to represent the defendants in
Civil Case No. C-022. The Order reads:
In order to determine the fair market value of the lands subject of expropriation, the following are
appointed as commissioners: Engr. Melchor Dimaano, as representative of the Department of Public
Works and Highways (DPWH), Messrs. Magno Aguilar and Cecilio Hernandez, as representatives of
the landowners, and Mr. Eric Faustino Esperanza as representative of the Court.12 (Emphasis ours)
On 18 October 1996, Cornelia, and her other co-owners who were also signatories of the 11 November
1993 letter, executed an irrevocable Special Power of Attorney (SPA) appointing Cecilio Hernandez as
their "true and lawful attorney" with respect to the expropriation of the subject property.13 The SPA stated
that the authority shall be irrevocable and continue to be binding all throughout the negotiation. It further
stated that the authority shall bind all successors and assigns in regard to any negotiation with the
government until its consummation and binding transfer of a portion to be sold to that entity with Cecilio
as the sole signatory in regard to the rights and interests of the signatories therein. There was no
mention of the compensation scheme for Cecilio, the attorney-in-fact.
The just compensation for the condemned properties was fixed in the Decision14 dated 7 January 1998,
penned by Judge Voltaire Y. Rosales (Judge Rosales) of RTC Branch 83, Tanauan, Batangas. The
value of the land located at Barangay Tripache, Tanauan, Batangas, was pegged at One Thousand Five
Hundred Pesos (₱1,500.00) per square meter. The total area that was condemned for the Hernandez
family was Fourteen Thousand Six Hundred Forty-Three (14,643) square meters. Thus, multiplying the
values given, the Hernandez family will get a total of Twenty One Million, Nine Hundred Sixty-Four
Thousand Five Hundred Pesos (₱21,964,500.00) as just compensation.15
Included in the decision is the directive of the court to pay the amount of ₱4,000.00 to Cecilio, as
Commissioner’s fees.16
On 6 October 1999, petitioner executed a Revocation of the SPA17 withdrawing the authority earlier
granted to Cecilio in the SPA dated 18 October 1996. After the revocation, on 28 December 1999,
without the termination of counsel on record, Cornelia, with a new lawyer, moved for the withdrawal of
her one-third (1/3) share of the just compensation, which is equivalent to Seven Million Three Hundred
Twenty-One Thousand Five Hundred Pesos (₱7,321,500.00) – the amount a pro-indiviso owner is to
receive.
In the Order18 dated 24 January 2000, Judge Rosales, even with the irregularity that the motion to
withdraw was not filed by the counsel of record, granted the motion of petitioner, with the condition that
the money shall be released only to the attorney-in-fact, Mr. Cecilio F. Hernandez. The trial court took
Page 9 of 99
cognizance of the irrevocable nature of the SPA dated 18 October 1996.19 Cecilio, therefore, was able to
get not just one-third (1/3) of, but the entire sum of Twenty One Million, Nine Hundred Sixty-Four
Thousand Five Hundred Pesos (₱21,964,500.00).
On 7 February 2000, Cornelia received from Cecilio a Bank of the Philippine Islands Check amounting
to One Million One Hundred Twenty-Three Thousand Pesos (₱1,123,000.00).20 The check was however
accompanied by a Receipt and Quitclaim21 document in favor of Cecilio. In essence it states that: (1) the
amount received will be the share of Cornelia in the just compensation paid by the government in the
expropriated property; (2) in consideration of the payment, it will release and forever discharge Cecilio
from any action, damages, claims or demands; and (3) Cornelia will not institute any action and will not
pursue her complaint or opposition to the release to Cecilio or his heirs or assigns, of the entire amount
deposited in the Land Bank of the Philippines, Tanauan, Batangas, or in any other account with any
bank, deposited or will be deposited therein, in connection with Civil Case No C-023, representing the
total just compensation of expropriated properties under the aforementioned case.
The check was received by Cornelia with a heavy heart. She averred in her ex-parte testimony that she
was forced to receive such amount because she needs the money immediately for medical expenses
due to her frail condition.22
Moreover, Cornelia averred that after a few days from her receipt of the check, she sought the help of
her niece, Daisy Castillo, to get the decision in Civil Case No. C-022.23 It was only then, when her niece
got hold of the decision and explained its contents, that she learned that she was entitled to receive
Seven Million Three Hundred Twenty-One Thousand Five Hundred Pesos (₱7,321,500.00).24 In a
Letter25 dated 22 June 2000, Cornelia demanded the accounting of the proceeds. The letter was left
unanswered. She then decided to have the courts settle the issue. A Complaint for the Annulment of
Quitclaim and Recovery of Sum of Money and Damages26 was filed before the RTC Branch 150 of
Makati on 18 September 2000. The case was docketed as Civil Case No. 00-1184.
Cecilio, despite the service of summons and copy of the complaint failed to file an answer. The trial
court explained further that Cecilio was present in the address supplied by the petitioner but refused to
receive the copy. The trial court even gave Cecilio ten (10) more days, from his refusal to accept the
summons, to file his answer. Upon the motion of the petitioner, respondent Cecilio was declared in
default. The court allowed petitioner to adduce evidence ex parte.27
Cecilio tried to file a Motion for Reconsideration to lift the order of default. However, the trial court found
that the leeway they have given Cecilio to file an answer was more than enough.
In the Decision dated 12 February 2001, the RTC Branch 150 of Makati, through Judge Zeus C.
Abrogar denied the motion and nullified the quitclaim in favor of Cecilio. The fallo of the case reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
declaring the receipt and quitclaim signed by the plaintiff dated February 7, 2000 as null and void and
ordering the defendant to pay the plaintiff the amount of;
1. ₱6,198,417.60, including the accrued interest thereon with 12% per annum, computed from
the date of the filing hereof until the said amount is fully paid;
2. payment of ₱200,000.00 to the plaintiff by the defendant by way of moral damages;
AGENCY
3. attorney’s fees in the sum of ₱100,000.00 and;
4. cost of suit.28
Aggrieved, Cecilio appealed the Decision of the trial court. The Court of Appeals did not discuss
whether the default order was proper. However, the appellate court, in its Decision dated 29 May 2003
reversed and set aside the ruling of the trial court. The dispositive portion reads:
WHEREFORE, premises considered, the Decision dated February 12, 2001, of the Regional Trial Court
of Makati, National Capital Judicial Region, Branch 150, in Civil Case No. 00-1148, is hereby
REVERSED and SET ASIDE and a new one is entered ordering the dismissal of the complaint filed on
September 13, 2000 by the appellee against the appellant. No pronouncement as to costs.29
Petitioner Cornelia now submits that the Court of Appeals erred in holding the validity of the receipt and
quitclaim document contrary to law and jurisprudence.30 She holds that the distribution of award that
transpired is unjust and prays that the decision of the RTC Branch 150 of Makati be reinstated.
We agree.
The trial court awarded the Hernandez family, among others, a total amount of ₱21,964,500.00 for the
expropriation of 14,643 square meters of land to be used as extension of the South Luzon Expressway.
The three co-owners of the said land, Cornelia, Mena and Paciencia were listed as item number twenty
(20) in the decision dated 7 January 1998, as one of the recipients of the just compensation to be given
by the government.31 As pro-indiviso landowners of the property taken, each one of them ought to
receive an equal share or one third (1/3) of the total amount which is equivalent to ₱7,321,500.00.
The equal division of proceeds, however, was contested by Cecilio. He avers that he is the agent of the
owners of the property.32 He bound himself to render service on behalf of her cousins, aunt and mother,
by virtue of the request of the latter.33 As an agent, Cecilio insists that he be given the compensation he
deserves based on the agreement made in the letter dated 11 November 1993, also called as the
service contract,34 which was signed by all the parties. This is the contract to which Cecilio anchors his
claim of validity of the receipt and quitclaim that was signed in his favor.
I.
A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.35 In determining whether consent is vitiated by any of the circumstances mentioned, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor
what they believe to have actually occurred, considering the age, physical infirmity, intelligence,
relationship, and the conduct of the parties at the time of the making of the contract and subsequent
thereto, irrespective of whether the contract is in public or private writing.36 And, in order that mistake
may invalidate consent, it should refer to the substance of the thing which is the object of the contract,
or those conditions which have principally moved one or both parties to enter the contract.37
The compensation scheme of 20% of any amount over ₱70.00 per square meter and everything above
₱300.00 per square meter was granted in favor of Cecilio by the Hernandezes on 11 November 1993.
At that time, the Hernandezes had just rejected the government’s offer of ₱35.00 per square meter,
which offer last stood at ₱70.00 per square meter. It was the rejection likewise of the last offer that led
Page 10 of 99
to the filing of the expropriation case on 9 August 1993. It was in this case, and for Cecilio’s
representation in it of the Hernandezes, that he was granted the compensation scheme. Clear as day,
the conditions that moved the parties to the contract were the base price at ₱70.00 per square meter,
the increase of which would be compensated by 20% of whatever may be added to the base price; and
the ceiling price of ₱300.00 per square meter, which was considerably high reckoned from the base at
₱70.00, which would therefore, allow Cecilio to get all that which would be in excess of the elevated
ceiling. The ceiling was, from the base, extraordinarily high, justifying the extraordinary grant to Cornelio
of all that would exceed the ceiling.
It was on these base and ceiling prices, conditions which principally moved both parties to enter into the
agreement on the scheme of compensation, that an obvious mistake was made. The trial court,
deviating from the principle that just compensation is determined by the value of the land at the time
either of the taking or filing,38 which was in 1993, determined the compensation as the 1998 value of
₱1,500.00 per square meter. The trial court ratiocinated that the 1998 value was considered for the
reason, among others that:
3. It is common knowledge that prices of real estate in Batangas, including and/or particularly in
Sto.Tomas and Tanauan have skyrocketed in the past two years;39 (Emphasis ours).
This 1998 "skyrocketed" price of ₱1,500.00 per square meter was pounced upon by Cecilio as the
amount against which the 1993 ceiling of ₱300.00 per square meter should be compared, thereby
giving him the amount computed40 as follows:
CECILIO’S FEES = (20% of anything over ₱70.00) + (everything in excess of ₱300)
*If the land value is at ₱1,500.00 per square meter, then,
= (20% of ₱230.00) + (₱1,500.00 – ₱300.00)
= ₱46.00 + ₱1,200.00
= ₱1,246.00 per square meter
= (land value at 1,500 less Cecilio’s fees)
CORNELIA’S SHARE
= ₱254.00 per square meter
*The total expropriated property is at 14,643 m2, thus, Cecilio will get a total of
= ₱1,246.00 * 14,643
= ₱18,245,178.00 total compensatinon
*One Third of the above value shows that Cecilio will get, from Cornelia
= ₱6,081,726.00
It must be noted that:
*The Hernandez’ family gets ₱21,964,500 for 14,643 m2, at ₱1,500.00 per m2
*One-third (1/3) of that is ₱7,321,500 representing the share of a co-owner like Cornelia
*What will be left of Cornelia’s share if she pays Cecilio will be:
AGENCY
₱1,239,774 less: 124,953.60 (Nominal Cost of Litigation as averred by Cecilio)
1,500.00 (Nominal payment for preparation of pleadings)
OVERALL TOTAL AMOUNT CORNELIA WILL RECEIVE:
₱ 1,113,320.4
As opposed to:
OVERALL TOTAL AMOUNT CECILIO WILL RECEIVE: ₱6,081,726.00
Cecilio’s position would give him 83.07% of the just compensation due Cornelia as a co-owner of the
land. No evidence on record would show that Cornelia agreed, by way of the 11 November 1993 letter,
to give Cecilio 83.07% of the proceeds of the sale of her land.
What is on record is that Cornelia asked for an accounting of the just compensation from Cecilio several
times, but the request remained unheeded. Right at that point, it can be already said that Cecilio
violated the fiduciary relationship of an agent and a principal. The relation of an agent to his principal is
fiduciary and it is elementary that in regard to property subject matter of the agency, an agent is
estopped from acquiring or asserting a title adverse to that of the principal. His position is analogous to
that of a trustee and he cannot, consistently with the principles of good faith, be allowed to create in
himself an interest in opposition to that of his principal or cestui que trust.41
Instead of an accounting, what Cornelia received was a receipt and quitclaim document that was ready
for signing. As testified to by Cornelia, due to her frail condition and urgent need of money in order to
buy medicines, she nevertheless signed the quitclaim in Cornelio’s favor. Quitclaims are also contracts
and can be voided if there was fraud or intimidation that leads to lack of consent. The facts show that a
simple accounting of the proceeds of the just compensation will be enough to satisfy the curiosity of
Cornelia. However, Cecilio did not disclose the truth and instead of coming up with the request of his
aunt, he made a contract intended to bar Cornelia from recovering any further sum of money from the
sale of her property.
The preparation by Cecilio of the receipt and quitclaim document which he asked Cornelia to sign,
indicate that even Cecilio doubted that he could validly claim 83.07% of the price of Cornelia’s land on
the basis of the 11 November 1993 agreement. Based on the attending circumstances, the receipt and
quitclaim document is an act of fraud perpetuated by Cecilio. Very clearly, both the service contract of
11 November 1993 letter- agreement, and the later receipt and quitclaim document, the first vitiated by
mistake and the second being fraudulent, are void.
II.
Cecilio’s last source of authority to collect payment from the proceeds of the expropriation is the SPA
executed on 18 October 1996 by the Hernandezes in favor of Cecilio as their "true and lawful" attorney
with respect to the expropriation of the Hernandez property. At the outset, it must be underscored that
the SPA did not specify the compensation of Cecilio as attorney-in-fact of the Hernandezes.
Page 11 of 99
The SPA, however, must be appreciated in the light of the fact that Cecilio was appointed and acted as
appraisal commissioner in the expropriation case under the provisions of Section 5, Rule 67 of the
Rules of Court, which provides:
SEC. 5. Ascertainment of compensation. — Upon the rendition of the order of expropriation, the court
shall appoint not more than three (3) competent and disinterested persons as commissioners to
ascertain and report to the court the just compensation for the property sought to be taken. The order of
appointment shall designate the time and place of the first session of the hearing to be held by the
commissioners and specify the time within which their report shall be submitted to the court. (Emphasis
ours).
The commissioner to be appointed is specifically required to be disinterested. As defined, such person
must be free from bias, prejudice or partiality.42 The record of performance by Cecilio of his duties as
commissioner shows: (1) Order dated 13 September 1996 appointing Cecilio and three others as court
commissioners; (2) Agreement on the course of action of the commissioners appointed 13 September
1996 whereby respondent Cecilio signed as a court commissioner; (3) Appraisal Commission Report
dated 10 January 1997 signed by respondent and his fellow court commissioners; (4) Dissenting
Opinion on the Lone Minority Report dated 14 February 1997 signed by respondent and two other court
commissioners; and (5) Decision dated 7 February 1997 which sets the fees of the court
commissioners.43
When Cecilio accepted the position as commissioner and proceeded to perform the duties of such
commissioner until the completion of his mandate as such, he created a barrier that prevented his
performance of his duties under the SPA. Due to the nature of his duties and functions as
commissioner, Cecilio became an officer of the court. As stated in Section 5, Rule 67 of the Rules of
Court, the commissioner’s duty is to "ascertain and report to the court the just compensation for the
property to be taken." The undertaking of a commissioner is further stated under the rules, to wit:
SEC. 6. Proceedings by commissioners.—Before entering upon the performance of their duties, the
commissioners shall take and subscribe an oath that they will faithfully perform their duties as
commissioners, which oath shall be filed in court with the other proceedings in the case. Evidence may
be introduced by either party before the commissioners who are authorized to administer oaths on
hearings before them, and the commissioners shall, unless the parties consent to the contrary, after due
notice to the parties to attend, view and examine the property sought to be expropriated and its
surroundings, and may measure the same, after which either party may, by himself or counsel, argue
the case. The commissioners shall assess the consequential damages to the property not taken and
deduct from such consequential damages the consequential benefits to be derived by the owner from
the public use or purpose of the property taken, the operation of its franchise by the corporation or the
carrying on of the business of the corporation or person taking the property. But in no case shall the
consequential benefits assessed exceed the consequential damages assessed, or the owner be
deprived of the actual value of his property so taken.
Cecilio acted for the expropriation court. He cannot be allowed to consider such action as an act for or
in behalf of the defendant in the same case. Cecilio could not have been a hearing officer and a
defendant at the same time. Indeed, Cecilio foisted fraud on both the Court and the Hernandezes when,
after his appointment as commissioner, he accepted the appointment by the Hernandezes to
"represent" and "sue for" them.
It should be noted, finally, that, as completion of his appointment as commissioner, compensation for
the work he has done for the court was awarded, as stated in the decision rendered in the case, thus:
AGENCY
Finally, plaintiff is directed to pay the corresponding Commissioner’s fees of the following, to wit:
1. Eric Faustino J. Esperanza – Chairman ₱5,000.00
2. Cecilio F. Hernandez – Member 4,000.00
3. Magno Aguilar – Member 4,000.00
4. Melchor Dimaano – Member 4,000.0044
III.
Cecilio breached an obligation that is neither a loan nor forbearance of money. The decision of the
lower court ordering Cecilio to pay the amount of ₱6,189,417.60 to Cornelia at 12% per annum until
fully paid should be modified to 6% per annum from the time of the filing of the complaint up to the date
of the decision, and at 12% per annum from finality until fully paid, in order to conform to the doctrine
enunciated by Eastern Shipping Lines, Inc. v. Court of Appeals,45 to wit:
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date of the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount of finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
WHEREFORE, premises considered, the Decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. The Decision of the RTC of Makati, Branch 150 is REINSTATED with the following
MODIFICATIONS that the interest on the monetary awards should be at 6% per annum from the time of
the filing of the complaint up to the date of the decision, and at 12% per annum from finality until fully
paid.
SO ORDERED.
Page 12 of 99

G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO,
RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed
DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special
Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the
said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima
P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio
Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of the Special Division of Five of the
Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a
real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about
88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of
5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of
the agency or if the property is sold by Vicente within three months from the termination of the agency
to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to
Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original
and another copy were retained by Gregorio.
AGENCY
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising
him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square
meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several
conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June
20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of
Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after
which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to
pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente
asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to
deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or
about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the
purchase price. It was again amended to the effect that Oscar will vacate his house and lot on
December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of
Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere
typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a
gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to
sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos
(P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente.
Neither did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of
earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor
on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from
his brother in the United States, for which reason he was giving up the negotiation including the amount
of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos
(P1,000.00) given to Gregorio aspropina or gift. When Oscar did not see him after several weeks,
Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit
"A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is
consummated within three months after the expiration of the 30-day period of the exclusive agency in
his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio
to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces.
Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of
Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of
Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo
Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in
favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of
Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and
his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine
Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that
Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his
property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's
letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the
property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de
Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is
genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of
Page 13 of 99
the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the
sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be
given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to
the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore
there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest
money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount
of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by
the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two
replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente
the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or
"propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square
meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether
Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the
expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest,
moral and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice
Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that
it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely
part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and
that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect
better terms for him from the seller, independent of his legitimate commission, is not fraudulent,
because the principal can reject the terms offered by the prospective buyer if he believes that such
terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice
Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and
constituted a breach of trust, which should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which an agent owes to his
principal.1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall
be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence, which
shall be judged with more less rigor by the courts, according to whether the agency
was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:
AGENCY
Art. 1720. Every agent is bound to give an account of his transaction and to pay to the
principal whatever he may have received by virtue of the agency, even though what
he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay"
to "to deliver", which latter term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an
agent — condemning as void any stipulation exempting the agent from the duty and liability imposed on
him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil
Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be
judged with more or less severity by the courts, according to whether the agency was
gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the
part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon
the agent the absolute obligation to make a full disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency, so much so that the law as amended does
not countenance any stipulation exempting the agent from such an obligation and considers such an
exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary
rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice.2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the
vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the
principal and forfeits his right to collect the commission from his principal, even if the principal does not
suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency
is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of
any wrong, not to remedy or repair an actual damage.3 By taking such profit or bonus or gift or propina
from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent
for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency
had existed. The fact that the principal may have been benefited by the valuable services of the said
agent does not exculpate the agent who has only himself to blame for such a result by reason of his
treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code.
Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was convicted estafa.4 An administrator
of an estate was likewise under the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are estopped by having accepted the
correctness of his account previously rendered.5
Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for
failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same from his collections.6
Page 14 of 99
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and
property received by him for his client despite his attorney's lien.7 The duty of a commission agent to
render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while ignorant of the fact
that the latter has been unfaithful, the principal may recover back the commission
paid, since an agent or broker who has been unfaithful is not entitled to any
compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34
LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost
good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not
conduct himself with entire fidelity towards his principal, but is guilty of taking a secret
profit or commission in regard the matter in which he is employed, he loses his right
to compensation on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as if no agency had
existed. This may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held immaterial where
the agent has in fact entered into a relationship inconsistent with his agency, since the
law condemns the corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260.9
As a general rule, it is a breach of good faith and loyalty to his principal for an agent,
while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he may be held as a trustee and
may be compelled to account to his principal for all profits, advantages, rights, or
privileges acquired by him in such dealings, whether in performance or in violation of
his duties, and be required to transfer them to his principal upon being reimbursed for
his expenditures for the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had accrued, to the agent,
or unless with such knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The application of this rule is not
affected by the fact that the principal did not suffer any injury by reason of the agent's
dealings or that he in fact obtained better results; nor is it affected by the fact that
there is a usage or custom to the contrary or that the agency is a gratuitous one.
(Emphasis applied.) 10
AGENCY
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the
amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the
knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of
said substantial monetary gift corrupted his duty to serve the interests only of his principal and
undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos
(P300.00) on his commission. As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most advantageous terms desired by his principal,
the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to
accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or
One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters,
which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six
Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only
as a middleman with the task of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if
the agent or broker had informed the principal of the gift or bonus or profit he received from the
purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was
not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He
was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not
aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does
not materially alter the situation; because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their
house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of
Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must
forfeit his right to the commission and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-
half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-
agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even
aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de
Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos
(P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which
is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish
and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees
in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and
directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of
Page 15 of 99
One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as
attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay
the costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.
G.R. No. L-3754 November 15, 1907
ANGELA OJINAGA, plaintiff-appellant,
vs.
THE ESTATE OF TOMAS R. PEREZ, defendant-appellee.
Haussermann, Cohn and Williams, for appellant.
Chicote and Miranda, for appellee.
WILLARD, J.:
The appellant, Doña Angela Ojinaga, as judicial administratrix of Eladio Ojinaga, deceased, presented
to the commissioners appointed to hear claims against the estate of Tomas R. Perez, deceased, a
demand for 12,053.54 pesos with interest from the 1st of May, 1893. This claim was disallowed by the
commissioners and from that disallowance the appellant appealed to the Court of First Instance. That
court entered judgment against the appellant and from that judgment she has appealed to this court.
Domingo Perez died in the town of Nueva Caceres in 1882, leaving as surviving heir ten children, six by
one marriage and four by another. His estate was administered by one Manuel Achondo until 1889,
when the administration was assumed by Tomas R. Perez, one of the heirs.
AGENCY
In April, 1890, a partition of such estate was had among the heirs of Domingo Perez. By this partition
the six children of the first marriage received 31,608.90 pesos each, and the four children of the second
marriage 17,241.24 pesos each. Two of the children of the first marriage, Adela and Aurora, withdrew
their participation. The remaining children, however, four of the first marriage and four of the second —
Tomas R. Perez being included among the former — continued Tomas R. Perez in the administration of
their respective portions. The community as thus constituted was as follows:
Of the first marriage, Tomas R. Perez, Patricio Perez, Juan Perez and Eladio Ojinaga, the latter being
the surviving husband and successor in interest of Isabel Perez, one of the children of the first marriage.
These four contributed to the community their respective portions, i. e., 31,608.90 pesos each.
Of the second marriage, Filomena, Jose, Rodolfo, and Margarita Perez, who contributed 17,241.24
pesos each.
Tomas R. Perez continued the administration of this property from April 20, 1890, to May, 1893. In such
administration he acted as guardian for all the persons interested except Eladio Ojinaga, and as to him
Tomas R. Perez acted as agent. In 1893, when, apparently, Juan and Patricio Perez became of age,
Tomas R. Perez filed an account of his administration in the Court of First Instance at Nueva Caceres.
In this accounting he showed the net profits of the business for the period stated as 8,084 pesos. The
brothers Juan and Patricio refused to accept this statement as correct, claiming that the profits actually
drived by Tomas R. Perez from such business during the period named were greater than shown by
him. Eladio Ojinaga accepted the account as rendered and permitted Tomas R. Perez to continue in the
administration of his interest. Patricio Perez and his brother Juan persisted in their charge that the
account was not correct and continued to demand a new accounting from Tomas R. Perez. The result
was that in 1896 or 1897 arbitrators were appointed to examine the accounts of Tomas R. Perez from
April 20, 1890, to May 1, 1893. These arbitrators had before them the books of Tomas R. Perez which
were examined by Patricio Perez. While this examination was going on, and before it had been
completed, Patricio Perez offered to accept 32,000 pesos as a final settlement and determination of the
whole question. It seems that Thomas R. Perez was willing to pay this amount as a settlement of the
transaction, but Patricio Perez and his associates insisted that in the division of this 32,000 pesos
among the heirs Eladio Ojinaga be excluded, and that it be divided among seven heirs instead of being
divided among eight heirs.
Patricio Perez knew at this time that Eladio Ojinaga was satisfied with the accounting rendered in 1893,
and, testifying at the trial, he said that the reason why they excluded Ojinaga from participation in this
amount was because they suspected that there was an agreement between him and Tomas R. Perez
and that the idea of Tomas R. Perez was to take his own share out so as to reduce the share of each for
his own benefit. This settlement, therefore, was never carried out. Litigation was begun by Patricio and
Juan Perez against Tomas R. Perez for an accounting. Other judicial proceedings were commenced by
Tomas R. Perez against the heirs, or some of them. A final settlement of all the suits and proceedings
then pending and of the entire matter in controversy was made on the 14th of August, 1901, in a public
document of that date. By that agreement: "4. Don Tomas R. Perez binds himself to pay Don Patricio
Perez the sum of 12,053.54 pesos, as profits, together with the interests agreed upon during the period
of his administration from April 20, 1890, to May 1, 1893." He agreed to pay to the other heirs who
joined in the agreement, and who were all of the heirs except Eladio Ojinaga, a proportionate
amount.lawphil.net
It is claimed by the appellant that this document proves conclusively that the amount of the profits to
which Eladio Ojinaga was entitled for the period in question was this sum of 12,053.54 pesos and that
he is entitled to that sum with interest thereon from the 1st of May, 1893. It is, however, apparent from
Page 16 of 99
the whole document, and from the testimony of Patricio Perez, a witness presented by the appellant at
the trial, that this agreement was a compromise settlement and that this sum of 12,000 pesos included
interest, costs, and expenses. Patricio Perez testified:
Q. What is the ultimate account on which was calculated your share of 12,053 pesos? — A. I
can not tell precisely now from whence that account was taken, but, adding my share to the
shares of my brothers and the other four, this was the total sum to be given to us, including the
prejudice and damage suffered by us.
xxx xxx xxx
Q. What was to be your share of this 32,000 pesos? — A. I do not know exactly.
Q. More or less? — A. about 6,000 pesos, approximately.
Q. And how was it that you ultimately received 12,000 pesos? — A. Because here in Manila I
had incurred further expense and the interest had been accumulating.
The appellant sought to prove at the trial the actual amount of the profits during the period in question
by the books kept at the time, but it appears that these had been lost and destroyed. With the exception
of these compromise settlements, the only evidence as to the actual profits was that furnished by
Patricio Perez. He testified that the reason why he would not accept 8,084 pesos as the amount of the
profits was "because the first year he (Tomas R. Perez) rendered the account to the court there was
17,000 pesos profit, and the second year not more than 8,000 pesos profit, and the third year not more
than 4,000 pesos profit, but my brother stated to me that on account of some mistakes in the account
the profits became reduced by reason of paying off some expenses."
It appears from testimony that Tomas R. Perez filed yearly statements in regard to the profits and that
from these yearly statements they would appear to amount to 29,000 pesos, but when he presented his
final account for the whole time he showed profits of only 8,084 pesos, claiming that expenses had
been paid which had not been included in the yearly accounts. Tomas R. Perez having died in 1903, his
explanation of this difference could not be given.
But assuming that the profits for the period above mentioned were 29,000 pesos instead of 8,000, the
question is whether Eladio Ojinaga so conducted himself with regard to the transaction that his
administratrix has now lost the right to claim a proportionate share of the said 29,000 pesos.
On the 25th of October, 1894, Tomas R. Perez rendered to Eladio Ojinaga an account of his
administration from April 1, 1893, to October 25, 1894. In that account are found the following items:
Pesos
Proportionate share of profits during 91, 92 and 93 .............. 1,662.00
6 per cent interest on the above amount .................................. 99.72
On the 29th of October, 1894, Ojinaga stated in writing his consent to this account and left to the
administration of Tomas R. Perez all the property which belonged to him coming from the estate. The
AGENCY
rendition of this account and the agreement of Ojinaga to the correctness thereof constituted a contract
between these parties (Ternate vs.Aniversario, 1 5 Off. Gaz., 462; Enriquez, vs. Enriquez, 2 5 Off. Gaz.,
739), a contract which can be set aside only upon the grounds upon which any other contract can be
annulled. It is claimed by the appellant that it can be annulled on the ground o fraud committed by
Tomas R. Perez in concealing from Ojinaga the truth in regard to the amount of profits for the period in
question. No contract can be set aside on the ground of fraud if the person who claims to be defrauded
knew all of the facts upon which his claim of fraud is based.
Patricio Perez, who testified as a witness for the appellant, stated that —
. . . In the year 1894 Eladio Ojinaga invited me to approve that account because he had done
so, and he advised me to approve it because it would be more just to him, and I did not like to
follow his advice.
xxx xxx xxx
Q. Did Eladio Ojinaga know all this trouble between you and Tomas R. Perez, and
your brothers? — A. Yes, sir. He had knowledge of that at the time when he invited
me to approve the account. I informed him about that. I gave him all of my reasons for
not wishing to approve the account and he told me that he on his part approved it.
It is thus seen that in 1894 Ojinaga knew practically everything that is known to-day. Whether this
conversation took place before and after the 29th day of October, 1894, is immaterial, because on the
30th of April, 1895, Perez rendered another account to Ojinaga for the time between the 25th of
October, 1894, and the 30th of April, 1895. The first item in this account approved by Ojinaga on the
29th of October, 1894. On the 30th of April, 1896, he rendered another account to Ojinaga for the time
between 1st day of May, 1895, and the 30th of April, 1896. The first item in this account is the balance
of the last preceding account. On the 30th of November, 1896, Ojinaga agreed in writing to the
correctness of this account. On the 30th of June, 1897, Tomas R. Perez rendered another account to
Ojinaga for the time between the 1st of May, 1896, and the 30th of June, 1897. The first item in this
account is the balance of the last preceding account. On September 18, 1897, Ojinaga agreed in writing
to the correctness of this account.
The appellant admitted at the trial that when litigation was commenced against Tomas R. Perez, about
1897, Ojinaga complained bitterly of the conduct of Juan and Patricio and accused them of being
unkind to their brother. Evidence was introduced at the trial as to the contents of two letters said to be
lost, written by Tomas R. Perez to Ojinaga at the time the settlement of 32,000 pesos was under
discussion, in which Perez advised Ojinaga to claim his part of that sum. Even then Ojinaga took no
action in the matter. He died in Kobe in July, 1898. His will, made in that month, stated that the last time
when he settled accounts with Tomas R. Perez was in 1894, but that this settlement was not made
effective because there were discovered certain irregularities in the account, irregularities which had
been, and are now, the subject to litigation, and he added:
At any rate, it is my desire that whatever profit may accrue from this property, it should be
equally divided between my son and my wife.
From what has been said it is seen that this statement is not exactly correct as he kept on approving the
accounts of Perez up to the time of his death.
Page 17 of 99
The appellant testified at the trial that she learned the facts in regard to these accounts before her
husband's death, and that after his death Juan and Patricio Perez proposed to her to join them in this
litigation. This she refused to do, but said that in case they won the suit she would pay her share of the
expenses when they paid her proportionate share of what they obtained. No action in court was taken
by her until November, 1902.
Under the circumstances above stated this action can not be maintained. Eladio Ojinaga not only
agreed to the correctness of this account in 1894, but after he was thoroughly informed in the same
year as to all the facts in the case he agreed to other accounts, which necessarily, as he then knew,
involved in a repetition of his agreement to the account of 1894. And knowing all the facts in the case,
he not only did not join in litigation commenced for the purpose of securing a true statement of the
profits but expressly refused to do so and censured the persons who promoted such litigation. The
judgment of the court below is affirmed, with the costs of this instance against the appellant. So
ordered.
Arellano, C.J., Torres and Tracey, JJ., concur.
G.R. No. 192085 February 22, 2012
CARIDAD SEGARRA SAZON, Petitioner,
vs.
LETECIA VASQUEZ-MENANCIO, represented by Attorney-in-Fact EDGAR S.
SEGARRA, Respondent.
Villarama*
DECISION
SERENO, J.:
The present case stems from a Complaint for Recovery of Possession of Real Properties, Accounting
and Injunction1 filed by Leticia Vasquez-Menancio (respondent) against Caridad S. Sazon (petitioner) in
the Regional Trial Court (RTC) of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed
AGENCY
itself when petitioner filed a Motion for Reconsideration (MR). Respondent appealed the case to the
Court of Appeals (CA), but it affirmed the first Decision of the RTC. She filed another MR, but the CA
denied it for lack of merit.
The Case
Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the 26 November 2009
Decision3 of the appellate court in CA-GR CV No. 91570. The challenged Decision disposed as follows:
WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July 2007 of the Regional Trial Court,
Branch 13, Ligao City, in Civil Case No. T-1944 is AFFIRMED with MODIFICATION in that Caridad S.
Sazon is ORDERED to pay Leticia Vasquez-Menancio the amount of ₱ 908,112.62, representing the
unremitted fruits and income of the subject properties from 1979 to 1997. This is already net of
administration expenses, allowance for compensation and proved real estate taxes paid. The Decision
is affirmed in all other respects.
SO ORDERED.4
Antecedents
Respondent is a resident of the United States of America. Sometime in 1979, she entrusted the
management, administration, care and preservation of her properties to petitioner. These properties are
more specifically described as follows:
I. Residential lot, with an area of 573 sq. m., located in Zone III, Libon, Albay, declared under
Tax No. 097-03-0066 in the sum of ₱ 24,070.00
II. Residential lot, with an area of 299 sq. m., located in Zone III, Libon, Albay, declared under
Tax No. 097-003-00115 in the sum of ₱ 12,560.00
III. Residential lot, with an area of 873 sq. m., located in San Antonio St., Libon, Albay,
declared under Tax No. 097-003-00068 in the sum of ₱ 36,670.00
IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304 hectares, located at San Isidro,
Libon, Albay, declared under Tax No. 07-039-235 in the sum of ₱ 96,580.00
V. Irrigated riceland, with an area of 1.5652 hectares, located at Bololo Centro, Libon, Albay,
declared under Tax No. 07-005-104 in the sum of ₱ 48,290.00
VI. Irrigated riceland, with an area of .6720 hectares, located at Bololo Centro, Libon, Albay,
declared under Tax No. 07-005-103 in the sum of ₱ 29,730.00
VII. Irrigated riceland, with an area of .6380 hectares, located at Balagon Centro, Libon, Albay,
declared under Tax No. 07-005-222 in the sum of ₱ 19,680.00
VIII. Coconut land, with an area of ten (10) hectares, located at Macabugos, Libon, Albay,
declared under Tax No. 07-023-85 in the sum of ₱ 42,840.00
Page 18 of 99
 IX. Coconut land, with an area of 3.7102 hectares, located at Macabugos, Libon, Albay,
declared under Tax No. 07-023-86 in the sum of ₱ 15,740.005
The properties shall hereinafter be referred to individually as "Lot I," "Lot II" and so on for brevity.
Respondent avers that Lots I to IX are productive, and that petitioner as the administrator has collected
and received all the fruits and income accruing therefrom. Petitioner, on the other hand, claims that
several of the properties do not produce any fruit or generate any income at all,6 and that any supposed
income derived from them is not sufficient to answer for all the expenses incurred to maintain them.7
According to respondent, petitioner never rendered a full accounting of the fruits and income derived
from the properties, but has instead appropriated and in fact applied these for her own use and benefit.
Denying this allegation, petitioner presented five letters—dated 21 January 1983, 12 March 1984, 15
September 1986, 2 December 1988, and one undated—which had been sent to respondent as proof of
the accounting.8
Furthermore, petitioner denies receipt of any letter asking her to make an accounting or to remit the
fruits collected from the properties. 9 She further avers that, since the start of her agency agreement with
respondent, the latter never answered "any of the communications" petitioner had sought to initiate.10
As a result of the foregoing, respondent revoked, in writing, all the powers and authority of
administration granted to petitioner effective March 1997. Thereafter, the former demanded that
petitioner return and/or turn over the possession and administration of the properties.
Respondent claims that she made repeated verbal, and served written, demands upon petitioner,
asking the latter to render an accounting and to remit the owner’s share of the fruits. Petitioner,
however, continued to fail and to refuse to perform her obligation.11 In fact, she continues to hold on to
the properties and the management and administration thereof. Further, she continues to collect,
receive, and keep all the income generated by the properties.
12
Thus, on 30 October 1997, respondent filed her Complaint with Preliminary Injunction, praying that the
RTC order petitioner to render an accounting and remit all the fruits and income the latter, as the
administrator, received from the properties.
In her Answer with Counterclaim,13 petitioner alleges as follows:
2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which is duly covered by a
Lease Contract executed during the effectivity of the Special Power of Attorney granted to the
herein defendant. Furthermore, the said Lease Contract was entered into with the express
consent, and without any objection on the part of the plaintiff since she was consulted prior to
its execution; xxx,
2.b. Lot area of 299 sq. m. – This is included in the [L]ease [C]ontract above-mentioned.
2.c. Lot area of 873 sq. m. – This is likewise duly covered by a Lease Contract executed
between the herein defendant as lessee and Ana C. Segarra when the latter was still the
administrator of the properties of the plaintiff. The said Lease Contract was likewise entered
AGENCY
into with the express consent and without any objection on the part of the plaintiff since she
was again consulted prior to its execution; xxx.
2.d. Lot area of 3.1304 hectares – this is administered as to 2/3 of the total land area but not
as to the other 1/3 as the same is owned by the defendant’s mother Ana C. Segarra by virtue
of a contract of sale from Mrs. Josefina Segarra, the co-owner of the plaintiff over the said
land; xxx,
2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned by the plaintiff but that of
the mother of the herein defendant Ana C. Segarra by virtue of a Deed of Redemption, as in
fact, they are in possession thereof as owners and not as administrator of the plaintiff; xxx,
2.f. Lot area of .6380 hectares – said land is presently possessed by the alleged administrator
of the plaintiff yet the plaintiff still seeks the return of the same which constitutes an act that
trifles with the administration of justice and further prove that this groundless case was filed
with this court purely to harass the herein defendant;
2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares – the herein defendant is no
longer in possession of these lots as in fact, the fruits of these lands are not being turned over
to the defendant ever since the plaintiff revoked the authority given to the defendant, xxx.14
In short, petitioner argues that respondent has no cause of action against her for the following
reasons:15
1. The properties that cannot be returned because they are under valid lease agreements—
Lots I-III—and those that have been transferred to a third party by virtue of contracts of sale
with corresponding deeds of redemption—Lots V and VI—can no longer be given to
respondent;16
2. Some properties are already in respondent’s possession—Lots IV and VII-IX.17
By way of compulsory counterclaim, petitioner is asking this Court to order respondent to return the
one-third portion of Lot IV allegedly owned by petitioner’s mother and the fruits collected therefrom.18
During the pretrial conference held on 24 July 1998, the parties agreed that respondent already had
possession over Lots IV, VII, VIII, and IX. They also agreed that all the income derived from Lots I to IX
since 1979 were received by petitioner.19
In a Decision20 dated 31 July 2007, the RTC ruled in favor of respondents. The dispositive portion
thereof reads:
WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor of plaintiff
Leticia Vasquez-Menancio and against defendant Caridad S. Sazon, as follows:
a) ordering the defendant to turn over the possession, management and administration of all
the properties enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which
Page 19 of 99
 were already under plaintiff’s possession since August, 1977, to the plaintiff, thru attorney-in-
fact Edgar S. Segarra;
b) ordering the defendant to remit to the plaintiff the total sum of ₱ 1,265,493.75 representing
unremitted fruits and income of the subject properties, less the amount of ₱ 150,000.00 by way
of administration expenses incurred by defendant;
c) ordering the defendant to pay the plaintiff the sum of ₱ 50,000.00 as moral damages;
d) ordering the defendant to reimburse the plaintiff the sum of ₱ 20,000.00 as and for
attorney’s fees, plus the sum of ₱ 1,000.00 for every court appearance of counsel; and —
e) ordering the defendant to pay the costs of the suit.
On the other hand, plaintiff Leticia Vasquez-Menancio is hereby ordered to pay defendant Caridad S.
Sazon the total sum of ₱ 180,000.00, representing the latter’s compensation in administering the
former’s properties based on quantum meruit.
SO ORDERED. 21
Petitioner filed her MR on 20 August 2007 questioning the trial court’s Decision to rely on the
computation made by respondent’s attorney-in-fact. These computations, reflected in paragraph (b) of
the dispositive portion, were used by the RTC to determine the prices of palay, corn and copra at the
time that petitioner administered the properties. Realizing, however, that it should have considered the
Certifications issued by the National Food Authority (NFA) and the Philippine Coconut Authority (PCA)
for that purpose, the RTC ruled in favor of respondent and partly reversed its 28 March 2008 Decision,
the dispositive portion of which reads:
WHEREFORE, the foregoing premises duly considered, the Court resolves to set aside the Decision
dated July 31, 2007. In lieu thereof, a new decision is hereby rendered as follows:
a) ordering the defendant Caridad S. Sazon to turn over the possession, management and
administration of all the properties enumerated in paragraph 2 of the complaint, except parcels
4, 7, 8 and 9 which were already under plaintiff’s possession since August, 2007, to plaintiff
Leticia Vasquez-Menancio, thru her attorney-in-fact Edgar S. Segarra;
b) ordering the defendant to render full, accurate and complete accounting of all the fruits and
proceeds of the subject properties during the period of her administration; and
c) ordering the defendant to reimburse the plaintiff the sum of ₱ 20,000.00, as and for
attorney’s fees;
Costs against defendant.
SO ORDERED.22 (Emphasis supplied in the original)
AGENCY
Still aggrieved, petitioner raised the matter to the CA, but it dismissed her appeal. It affirmed the trial
court’s 31 July 2007 Decision, except for the amount ordered to be remitted to respondent, which was
reduced to ₱ 908,112.62. The MR filed by petitioner was also denied on 29 April 2010.23
Petitioner is now asking this Court to set aside the CA’s Decision.24
In questioning the Decision of the CA, petitioner first raises a procedural issue. She argues that the
appellate court should not have affirmed the RTC Decision in this case, because when the trial court
abandoned its original Decision, the latter impliedly admitted that it had "committed erroneous findings
of facts."25 Respondent argues that the CA had the power to affirm the RTC’s second Decision—the
Resolution on the MR—because the entire case was opened for review upon appeal.
We agree with respondent.
In Heirs of Carlos Alcaraz v. Republic of the Philippines,26 we reiterated the cardinal rule that when a
case is appealed, the appellate court has the power the review the case in its entirety, to wit:
In any event, when petitioners interposed an appeal to the Court of Appeals, the appealed case was
thereby thrown wide open for review by that court, which is thus necessarily empowered to come out
with a judgment as it thinks would be a just determination of the controversy. Given this power, the
appellate court has the authority to either affirm, reverse or modify the appealed decision of the trial
court. To withhold from the appellate court its power to render an entirely new decision would violate its
power of review and would, in effect, render it incapable of correcting patent errors committed by the
lower courts.
Thus, we agree with respondent that the CA was free to affirm, reverse, or modify either the Decision or
the Order of the RTC.
Next, petitioner avers that she cannot turn over possession of Lots I to III, because these are subject of
valid lease agreements. None of the parties question the appellate court’s finding that the lease
agreements covering Lots I-III should be respected. After all, when petitioner entered into these
agreements, she acted within her authority as respondent’s agent.27
In this matter, we agree with the CA in its ruling that even though the lease agreements covering these
lots should be respected, petitioner must turn over the administration of the leases to respondent’s
attorney-in-fact.28 The reason is that respondent has already revoked the authority of petitioner as
administrator. Hence, the latter no longer has the right to administer the properties or to receive the
income they generate on respondent’s behalf.
With respect to the one-third portion of Lot IV, the parties also agree that the sale of one-third of this lot
to petitioner’s mother should be respected by respondent.29 Lot IV has been in the latter’s possession
since 1997. Since it is not controverted that one-third of this lot is now owned by petitioner’s mother,
respondent should turn over possession of the corresponding one-third portion and remit all fruits
collected therefrom since 1997.
Petitioner questions the factual findings of the appellate court. She claims that the CA erred in finding
that "the reason why petitioner allegedly never rendered an accounting of income is because the
respondent never demanded it."30 According to petitioner, she never claimed that this was the reason
Page 20 of 99
why she never rendered an accounting of income. In fact, she insists that she actually sent letters of
accounting to respondent. Supposedly, she only said that respondent never demanded accounting from
her to refute the claim of respondent that such demand letter was sent to her.
Petitioner insists, however, that Article 1891 of the Civil Code contains a few of the obligations owed by
an agent to his principal, viz:
Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency, even though it may not be owing to the
principal.
Every stipulation exempting the agent from the obligation to render an account shall be void.
It is evident that the reason behind the failure of petitioner to render an accounting to respondent is
immaterial. What is important is that the former fulfill her duty to render an account of the relevant
transactions she entered into as respondent’s agent.
Petitioner claims that in the course of her administration of the properties, the letters she sent to
respondent should be considered as a fulfillment of her obligation, as respondent’s agent, to render an
accounting of her administration.31 Both the RTC and the CA found these letters insufficient. We agree.
Petitioner was the administrator of respondent’s properties for 18 years or from 1979 to 1997, and four
letters within 18 years can hardly be considered as sufficient to keep the principal informed and updated
of the condition and status of the latter’s properties.
As to Lots V and VI, petitioner avers that ownership thereof was transferred to her mother through a
Deed of Redemption,32 viz:
Defendant averred that her mother owned parcels 5 and 6. She Identified a Deed of Redemption
purporting to have transferred the property to her mother. When the deed was executed, plaintiff was in
the United States but defendant’s mother notified her. She saw her mother putting 100-peso bills
amounting to ₱ 6,500.00 in a big brown envelope to pay for the lot. Her father Simeon Segarra who just
came from the United States gave her the money.33
On this matter, the RTC found thus:
As regards parcels 5 and 6, the defendant averred that they were owned by her mother Ana Segarra
because she was the one who redeemed the properties. But the evidence extant in the records
disclosed that the said parcels of land were declared for taxation purposes in the name of plaintiff
Leticia Vasquez-Menancio. In many cases, it has been repeatedly held that although tax declarations
are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the
concept of an owner for no one in his right mind would be paying taxes for a property that is not under
his actual or at least constructive possession. Hence, the fruits and profits of these properties shall still
incur to the plaintiff.34
For its part, the CA held as follows:
To prove that one of Leticia’s properties now belongs to her mother, Ana Segarra, Sazon presented
evidence showing that when Ana was still the administrator of Leticia’s properties, she redeemed
AGENCY
Leticia’s property that was sold by Leticia’s father to vendee-a-retro, Loreto San Andres-Seda. However,
the Deed of Redemption clearly shows that Ana redeemed the property only in her capacity as attorney-
in-fact of Leticia, and not in her personal capacity.35
Factual findings of the trial court are accorded high respect and are generally not disturbed by appellate
courts, unless found to be clearly arbitrary or baseless.36 This Court does not review the factual findings
of an appellate court, unless these findings are "mistaken, absurd, speculative, conjectural, conflicting,
tainted with grave abuse of discretion, or contrary to the findings culled by the trial court of origin."37
Although the pronouncement of the trial court is not identical to that of the CA, the declaration of one
corroborates the findings of the other. We rule that the findings of the lower court and the CA regarding
Lots V and VI should be respected. The mother of petitioner purchased both of these lots in her
capacity as respondent’s attorney-in-fact, which explains why these lots were—for taxation purposes—
declared in the name of respondent.
Petitioner bewails the appellate court’s supposed failure to rule on her claim that respondent promised
to give the former a 20% commission for the sale of respondent’s properties in Las Piñas, Quiapo; and
Fraternal, Sampaloc, Manila.38 We rule that petitioner failed to prove that this agreement had been
entered into. No other evidence, except for her testimony, was presented to prove that an agreement of
this nature had been entered into between the parties.39
Finally, the crux of the present Petition is the determination of the value of all the fruits and proceeds
collected from respondent’s properties from 1979 to 1997 and the total sum thereof.
Petitioner does not deny that she never remitted to respondent any of the fruits or income derived from
the properties. Instead, petitioner claims that (1) the properties did not produce any fruit or generate any
income at all;40(2) any supposed income derived from the properties was not sufficient to answer for all
the expenses incurred to maintain them;41 and (3) she was never compensated for the services she
rendered as the administrator of respondent’s properties.
As previously mentioned, every agent is bound to deliver to the principal whatever the former may have
received by virtue of the agency, even though that amount may not be owed to the principal.42
In determining the value of the fruits, the RTC—in its original Decision—relied on the computation
submitted by respondent’s attorney-in-fact and ordered petitioner to remit to respondent the total sum of
₱ 1,265,493.75, to wit:
At the outset, it may be stated that plaintiff’s attorney-in-fact Edgar S. Segarra, being a farmer himself
and a resident of the area where the subject properties are located can best testify regarding the
income thereof. In preparing a computation of income of his principal, plaintiff Leticia Vasquez-
Menancio, he consulted people from the agrarian sector, as well as grains buyers. He also referred to
the lease contracts entered into between the former administratrix and the tenants. Based on his
computation, the amount which represented the fruits of the properties being administered by the
defendant but were not remitted to the plaintiff totaled ₱ 1,265,493.75 xxx, which amount to the mind of
the Court, is not colossal but a reasonable claim, especially in this instance where the subject properties
have been administered by defendant and her mother for more than (10) years.43
The computation is based on the alleged prevailing price of ₱ 8.75 per kilo for palay and ₱ 12 per kilo
for copra. The trial court also ordered respondent to reimburse petitioner in the amount of ₱ 150,000
Page 21 of 99
representing the administrative expenses the latter incurred as the agent. Furthermore, petitioner was
awarded ₱ 180,000 as compensation for administering respondent’s properties. Lastly, petitioner was
ordered to pay respondent attorney’s fees in the amount of ₱ 20,000 plus ₱ 1,000 for every appearance
of counsel.
In the Order of the RTC reversing its Decision, it found that it should have considered the Certifications
issued by the NFA and PCA with respect to the prevailing prices of palay, corn, and copra at the time of
petitioner’s administration. These Certifications revealed that the prevailing prices from 1979 to 1997
were as follows: (1) from ₱ 1.75 to ₱ 8 per kilo for palay; (2) from ₱ 1to ₱ 6 per kilo for corn; and (3)
from ₱ 3.15 to ₱ 10.77 per kilo for copra. The RTC found that the parties failed to prove the exact
quantity and quality of harvests for the period. Consequently, it ordered petitioner to "render full,
accurate, and complete accounting of all the fruits and proceeds of the subject properties during the
period of her administration."44
The CA affirmed the RTC’s original Decision and ordered petitioner to pay respondent the amount of ₱
1,315,533.75—even though the trial court had ordered the return of only ₱ 1,265,493.75—representing
the total value of the fruits and rents derived from the properties from 1979 to 1997 less the ₱ 150,000
administrative expenses, the ₱ 180,000 compensation for administering the properties, and the ₱
77,221.13 real estate taxes paid by petitioner from 1979 to 1997.
We disagree with the appellate court’s finding with respect to the total value of fruits and rents earned
by the properties from 1979 to 1997.
As found by the RTC, the following computation of the amounts owed by petitioner to respondent was
submitted by the latter’s attorney-in-fact, Edgar S. Segarra:
Witness Edgar S. Segarra testified that the properties which were administered by defendant Caridad S.
Sazon consisted of residential and agricultural lands. Caridad Sazon leased the residential lots to one
Salome Segarra in the amount of 100 pesos a month since 1988. Another parcel of land was leased to
defendant’s mother Ana Segarra in exchange for one sack or 46 kilograms of palay for a period of 20
years. A cornland which is being tenanted by Orlando Macalinao produced ₱ 72,000.00. The
computation was based on a 75/25 sharing plan multiplied by the price of corn at 6 pesos and again
multiplied by 15 years, the number of years that the properties were being tenanted. Another riceland
was tilled by the defendant’s husband. This 1.56 hectares Riceland produced 1,932 kilograms of rice
per year and at ₱ 8.75 a kilogram, for 14 years, the amount which was not remitted to the plaintiff
amounted to ₱ 836,670.00. Another property, located at Libon, Albay, containing an area of .6720
hectare and tilled by defendant’s husband produced harvest amounting to ₱ 121,030.00. Further, a
riceland with an area of .6380 hectare being farmed by the defendant’s daughter produced ₱
183,720.00. Two coconut lands, located at Macabugos, Libon, Albay, produced coconuts made into
copras, thus bringing in profits of about ₱ 705,600.00.
The foregoing amounts correspond to the years by which the properties were administered by the
defendant, the number of crops they harvested, the sharing plan, and the prevailing price of the produce
during the years of administration. He also asked the comprador (buyer of grains) about the prices and
consulted employees of the department of Agrarian Reform regarding the sharing of the crops. The
lease contracts affecting the properties were also considered. All these amounts were never remitted by
the defendant to the owner-plaintiff. 45
AGENCY
Petitioner correctly posits that it was wrong for the CA to base the computation of unremitted fruits and
rents solely on the evidence submitted by respondent’s attorney-in-fact, as this computation was
obviously self-serving. Furthermore, the Certifications issued by the NFA and PCA should have been be
given weight, as they are documentary evidence issued by government offices mainly responsible for
determining the buying/selling price of palay, corn, and other food and coconut products.
We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with those of
the trial court and the evidence on record.
This Court is convinced that the Certifications are genuine, authentic, valid, and issued in the proper
exercise and regular performance of the issuing authority’s official duties. Under Section 3(m), Rule 131
of the Revised Rules of Court, there is a legal presumption that official duty has been regularly
performed. No evidence was presented to rebut or dispute this presumption.
Petitioner claims that several of the properties did not produce any fruit or generate any income at
all.46 However, the trial court found that not only was there evidence on record showing that the
properties administered yielded agricultural produce and rents, but petitioner herself had testified that
the properties increased when she served as administrator. In effect, she admitted that the properties
indeed generated income.47
This Court is left with no other choice but to order both parties to present their evidence in support of
their respective claims considering that no evidence was submitted to prove the quantity and quality of
harvests for the relevant period. Neither the RTC nor the CA was able to explain or present a
breakdown to show how it arrived at the supposed amount representing the total value of the fruits and
rents derived from the properties.
The trial court correctly ordered petitioner to "render full, accurate, and complete accounting of all the
fruits and proceeds of the subject properties during the period of her administration." However, it should
have also ordered petitioner to present all her evidence regarding the alleged transportation expenses,
attorney’s fees, docket fees, and other fees; 48 the total amount expended for the purchase of
respondent’s Las Piñas property;49 and the total amount of real property taxes paid. These claimed
expenses, if and when duly proven by sufficient evidence, should be deducted from the total income
earned by the properties.
Both parties should be required to present their evidence to finally resolve the following issues: (1) the
total amount of the income generated by Lots I to IX during the administration of petitioner; and (2) the
total amount of expenses incurred by petitioner that should be borne by respondent as the owner of the
properties, or the total deductibles in petitioner’s favor.
There is no doubt that petitioner is entitled to compensation for the services she rendered. Respondent
does not deny that she never paid the former, since they had no agreement regarding the amount, the
determination of which she left to petitioner.50
Petitioner now argues that since the expenses for the maintenance of the properties exceeded
whatever income they generated, then whatever is left of the income should now belong to her as
compensation.51 She says that the "admission of the respondent admitted during cross-examination that
she expected petitioner to fix her own salary out of the remaining income, if any, of the administered
property" is enough reason to reverse and Decision and Resolution of the CA.52
Page 22 of 99
The contention is not acceptable. Considering that neither of the parties was able to prove how much transportation expenses, legal expenses, attorney’s fees, docket fees, etc; the total
the properties earned, this Court cannot just agree with petitioner’s claim that whatever is left of this amount expended for the purchase of respondent’s Las Piñas property;55 and the total
income, after the expenses have been deducted, should be considered as her salary. To begin with, she amount of real property taxes paid, all for the period 1979 to 1997;
repeatedly claimed that all the income derived from these properties was insufficient to cover even just
the expenses; thus, there is no "remaining income" left to speak of. (c) ORDER the parties to submit their evidence to prove the exact quantity and quality
of the harvests or the fruits produced by the properties and all the expenses incurred
We have already ruled that petitioner should be compensated for the services she rendered. Since in maintaining them from 1979 to 1997;
there was no exact amount agreed upon, and she failed to fix her own salary despite the authority given
to her, the RTC correctly applied the doctrine of quantum meruit. With respect to this matter, the trial (d) DETERMINE the total amount earned by the properties by using as basis the
court found thus: declaration of the National Food Authority and the Philippine Coconut Authority with
respect to the prevailing prices of palay, corn, and copra for the period 1979 to 1997;
And where the payment is based on quantum meruit, the amount of recovery would only be the and
reasonable value of the thing or services rendered regardless of any agreement as to value. In the
instant case, the amount of ₱ 1,000.00 per month for 15 years representing defendant’s compensation (e) SUBTRACT from the determined total amount the expenses proven by petitioner
for administering plaintiff’s properties appears to be just, reasonable and fair.53 and the ₱ 180,000 serving as her compensation for administering the properties from
1979 to 1997.
The doctrine of quantum meruit (as much as one deserves) prevents undue enrichment based on the
equitable postulate that it is unjust for a person to retain benefit without paying for it.54 Being an COSTS against petitioner.
equitable principle, it should only be applied if no express contract was entered into, and no specific
statutory provision is applicable. Although petitioner was given the authority to set the amount of her
salary, she failed to do so. Thus, she should at least be given what she merits for her services. We find SO ORDERED.
no reason to reverse the finding of both the RTC and the CA that ₱ 1,000 per month for 15 years is a
just, reasonable, and fair compensation to petitioner for administering respondent’s properties. The
lower court is ordered to add this amount to the deductibles that petitioner is able to prove or, if the
deductibles exceed the monetary value of the income generated by the properties, to add this amount
to whatever respondent ends up owing petitioner.

We delete the award of moral damages and attorney's fees in the absence of proof of bad faith and
malice on the part of petitioner.

WHEREFORE, in view of the foregoing, the Petition is PARTLY GRANTED, as follows:

(1) Petitioner Caridad S. Sazon is ordered to TURN OVER the possession, management, and
administration of Lots I, II, III, V, and VI to respondent Leticia Vasquez-Menancio through the
latter’s attorney-in-fact, Edgar S. Segarra.

(2) Respondent is ordered to TURN OVER the possession, management, and administration
of one-third of Lot IV to petitioner.

(3) The case is REMANDED to the Regional Trial Court of Ligao City, Albay, the court of origin,
which is ordered to do the following:

(a) ORDER petitioner to render full, accurate, and complete accounting of all the fruits
and proceeds earned by respondent’s properties during petitioner’s administration
thereof; G.R. No. L-9572. July 31, 1956.]
JOAQUIN GUZMAN, Petitioner, vs. THE HONORABLE COURT OF APPEALS, Respondent.
(b) ORDER petitioner to submit a detailed list with a breakdown of all her claimed
expenses, including but not limited to the following: maintenance expenses including

AGENCY Page 23 of 99
 DECISION
REYES, J.B.L., J.:
Appeal by certiorari from the decision of the Court of Appeals finding Appellant Joaquin Guzman guilty of the
crime of qualified theft.
The facts, as found by the Court of Appeals, are as follows:chanroblesvirtuallawlibrary
“That accused Joaquin Guzman was a travelling sales agent of the New Life Commercial of Aparri, Cagayan. On
March 2, 1903, Guzman left Manila with 45 cases of different assortments of La Tondeña wine, in a truck driven
by Andres Buenaventura, with Federico Cabacungan as washing (helper), on their return trip to Aparri, by way of
Ilocos Norte. Along the route, the accused made various cash sales of wine and when they reached Ballesteros,
Cagayan, at about 3 o’clock in the afternoon of March 5, 1953, said accused had in his possession the amount of
P4,873.62. Here, they parked their truck at the Sambrano Station and the accused left his companions until
supper time at past 7:chanroblesvirtuallawlibrary00 p.m. When they retired for the night, driver Buenaventura
and the accused occupied the driver’s compartment of the truck, Buenaventura lying on the driver’s seat and the
accused taking the upper deck with which the truck was provided (see photograph Exhibit A). The washing,
Cabacungan, slept in the body of the truck where the wines were kept. There was a wall between the body of the
truck and the driver’s compartment; chan roblesvirtualawlibraryand on that night all the windows were locked
from inside. In the morning of March 6, 1953, accused Guzman told the driver that he lost the amount of
P2,840.50, and his firearm license. Upon the advice of the driver, said accused reported the matter to the Chief of
Police of Ballesteros, who gave him a certificate of loss of his firearm license. They were proceeding to their home
journey when, at the outskirts of Ballesteros, they were met by a tax collector and policeman Mariano David who
told the accused to return to Ballesteros and execute an affidavit regarding the alleged theft. Before the accused
returned to Ballesteros, he entrusted to the driver Buenaventura, the amount of P1,630 in cash and a check for
P403.12 under the proper receipt (Exhibit C), with the sales invoices, for delivery to the manager, Enrique Go, of
the company of Aparri. Driver and washing continued the trip and arrived at Aparri between 3 and 4 o’clock in
the afternoon of the same day. The driver delivered the money and invoices to Enrique Go and informed the
latter of the loss. Go reported the matter to the Philippine Constabulary. The PC investigators and Go picked the
accused at his house at Aparri at 8 o’clock in the morning, on March 7, 1953, after having failed to see him
(accused) at Ballesteros the previous night. Questioned at the PC barracks as to how much money he still had, the
accused stated that he had only P3, in his person. On March 10, 1953, the accused wrote to Go, requesting him
to defer the filing of the criminal complaint until March 16, 1953, on which date he promised to refund the
amount lost (Exhibit G). On March 17, 1953, the said accused paid the amount of P1,500 to Go. On April 1, 1953,
the accused was prosecuted for theft for the shortage of P804.70.” (Appellant’s Brief, pp. 13-15.)
Appellant Guzman claims, first, that under the above findings of fact, he had committed only the crime of
estafa; chan roblesvirtualawlibraryand second, as the crimes of estafa and theft are essentially different offenses,
he should be acquitted of the present charge for qualified theft, although proceedings may be filed anew against
him for the proper offense.
We agree with Appellant that under the above facts, the Court of Appeals erred in holding that he “had only the
material or physical possession of the said merchandise or its proceeds, because he was not the owner
thereof; chan roblesvirtualawlibraryhe was simply holding the money for and in behalf of his employer”.
While it is true that Appellant received the proceeds of his wine sales as travelling salesman for the complainant,
for and in behalf of the latter as his principal, and that possession of the agent is possession of the principal, an
agent, unlike a servant or messenger, has both the physical and juridical possession of the goods received in
agency, or the proceeds thereof, which takes the place of the goods after their sale by the agent. His duty to turn
over the proceeds of the agency depends upon his discharge, as well as the result of the accounting between him
AGENCY
and the principal; chan roblesvirtualawlibraryand he may set up his right of possession as against that of the
principal until the agency is terminated.
The case cited by the Court of Appeals (People vs. Locson, 57 Phil., 325), in support of its theory
that Appellant only had the material possession of the merchandise he was selling for his principal, or their
proceeds, is not in point. In said case, the receiving teller of a bank who misappropriated money received by him
for the bank, was held guilty of qualified theft on the theory that the possession of the teller is the possession of
the bank. There is an essential distinction between the possession by a receiving teller of funds received from
third persons paid to the bank, and an agent who receives the proceeds of sales of merchandise delivered to him
in agency by his principal. In the former case, payment by third persons to the teller is payment to the bank
itself; chan roblesvirtualawlibrarythe teller is a mere custodian or keeper of the funds received, and has no
independent right or title to retain or possess the same as against the bank. An agent, on the other hand, can
even assert, as against his own principal, an independent, autonomous, right to retain the money or goods
received in consequence of the agency; chan roblesvirtualawlibraryas when the principal fails to reimburse him
for advances he has made, and indemnify him for damages suffered without his fault (Article 1915, new Civil
Code; chan roblesvirtualawlibraryArticle 1730, old).
As Appellant converted to his own use proceeds of sales of merchandise delivered to him as agent, which he
received in trust for and under obligation to deliver and turn over to his principal, he is guilty of the crime of
estafa as defined by Article 315, paragraph 1, subparagraph (c), of the Revised Penal Code. This has been the
consistent ruling of this Court in cases where a sales agent misappropriates or fails to turn over to his principal
proceeds of things or goods he was commissioned or authorized to sell for the latter. (U. S. vs. Reyes, 36 Phil.,
791; chan roblesvirtualawlibraryU. S. vs. Lim, 36 Phil., 682; chan roblesvirtualawlibraryPeople vs. Leachon, 56
Phil., 737).
The next question is whether the present information for qualified theft alleges sufficient facts to sustain a
conviction for estafa under Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code. The
information reads:chanroblesvirtuallawlibrary
“The undersigned accuses Joaquin Guzman of the crime of Qualified Theft, defined and penalized under Articles
308 and 309, No. 3 in connection with Article 310 of the Revised Penal Code, as amended by Commonwealth
Acts Nos. 273 and 417 and Republic Act No. 120, committed as follows:chanroblesvirtuallawlibrary.
That on or about the 6th day of March, 1953, in the municipality of Aparri, province of Cagayan, and within the
jurisdiction of this Honorable Court, the said accused Joaquin Guzman, while in the employ of Enrique Go and
with grave abuse of confidence did then and there, willfully, unlawfully, and feloniously, with intent to gain but
without violence against or intimidation of persons nor force upon things, without the consent of the owner
Enrique Go alias Ngo Yat, take and carry away for his personal use and benefit the sum of eight hundred four
pesos and seventy centavos (P804.70) to the damages and prejudice of said Enrique Go alias Ngo Yat, in the
amount of P804.70.” (Original Records p. 22.)
Article 315, paragraph 1, subparagraph (b), on the other hand, provides:chanroblesvirtuallawlibrary
“Swindling (estafa). — Any person who shall defraud another by any of the means mentioned hereinbelow shall
be punished by:chanroblesvirtuallawlibrary
xxx xxx xxx
(2) With unfaithfulness or abuse of confidence, namely:chanroblesvirtuallawlibrary
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property
received by the offender in trust or on commission, or for administration, or under any other obligation involving,
Page 24 of 99
the duty to make delivery of, or to return the same, even though such obligation be totally or partially
guaranteed by a bond; chan roblesvirtualawlibraryor by denying having received such money, good, or other
property;
Under the above definition of estafa, it is an essential element of the crime that the money or goods
misappropriated or converted by the accused to the prejudice of another was received by him “in trust or on
commission, or for administration, or under any other obligation involving the duty to make delivery of, or to
retain the same”. No such allegation appears in the above information. Consequently, we agree
with Appellant that he cannot be convicted thereunder of the crime of estafa as defined by the article above.’
Wherefore, the decision appealed from is reversed, and Appellant Joaquin Guzman acquitted of the crime of
qualified theft. Appellant should, however, be held in custody pending the filing of another information against
him for estafa under Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code. Without costs in this
instance. SO ORDERED.
G.R. No. L-42465 November 19, 1936
INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant,
vs.
THE LYRIC FILM EXCHANGE, INC., defendant-appellee.
J. W. Ferrier for appellant.
Juan T. Santos and Arsenio Solidum for appellee.
VILLA-REAL, J.:
This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of
the Court of First Instance of Manila dismissing the complaint filed by it against the defendant company
the Lyric Film Exchange, Inc., with costs to said plaintiff.
AGENCY
In support of its appeal the appellant assigns six alleged errors as committed by the court a quo in its
said judgment, which will be discussed in the course of this decision.
The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company
International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933
(Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the film
entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be shown
in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in the
Cuartel de España for one day, or on June 6, 1933, for P45; in the University Theater for two
consecutive days, or on June 8, and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for two
consecutive days, or on June 18 and 19, 1933, for 30 per cent of the receipts, and in the Paz Theater
for two consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of
the conditions of the contract was that the defendant company would answer for the loss of the film in
question whatever the cause. On June 23, 1933, following the last showing of the film in question in the
Paz Theater, Vicente Albo, then chief of the film department of the Lyric Film Exchange, Inc.,
telephoned said agent of the plaintiff company informing him that the showing of said film had already
finished and asked, at the same time, where he wished to have the film returned to him. In answer,
Bernard Gabelman informed Albo that he wished to see him personally in the latter's office. At about 11
o'clock the next morning, Gabelman went to Vicente Albo's office and asked whether he could deposit
the film in question in the vault of the Lyric Film Exchange, Inc., as the International Films (China) Ltd.
did not yet have a safety vault, as required by the regulations of the fire department. After the case had
been referred to O'Malley, Vicente Albo's chief, the former answered that the deposit could not be made
inasmuch as the film in question would not be covered by the insurance carried by the Lyric Film
Exchange, Inc. Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the
vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a verbal
contract between Gabelman and the Lyric Film Exchange Inc., whereby the film "Monte Carlo Madness"
would be shown elsewhere, O'Malley agreed and the film was deposited in the vault of the defendant
company under Bernard Gabelman's responsibility.
About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being
succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent,
informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant
company as well as of the verbal contract entered into between him and the Lyric Film Exchange, Inc.,
whereby the latter would act as a subagent of the plaintiff company, International Films (China) Ltd.,
with authority to show this film "Monte Carlo Madness" in any theater where said defendant company,
the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract Exhibit C. As
soon as Lazarus Joseph had taken possession of the Philippine agency of the International Films
(China) Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of the
film "Monte Carlo Madness" but also of the films "White Devils" and "Congress Dances". On August 13
and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled "Congress Dances" and "White
Devils" to Lazarus Joseph, but not the film "Monte Carlo Madness" because it was to be shown in Cebu
on August 29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the film "Monte
Carlo Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the bodega of
the Lyric Film Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo
Madness" which was not insured.
The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is
whether or not the court a quo erred in allowing the defendant company to amend its answer after both
parties had already rested their respective cases.
Page 25 of 99
In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:
Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of
Variance and Amendments in General, should be equitably applied to the end that cases may
be favorably and fairly presented upon their merits, and that equal and exact justice may be
done between the parties. Under code practice, amendments to pleadings are favored, and
should be liberally allowed in furtherance of justice. This liberality, it has been said, is greatest
in the early stages of a lawsuit, decreases as it progresses, and changes at times to a
strictness amounting to a prohibition. The granting of leave to file amended pleadings is a
matter peculiarly within the sound discretion of the trial court. The discretion will not be
disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing
amendments to pleadings is subject to the general but not inflexible limitation that the cause of
action or defense shall not be substantially changed, or that the theory of the case shall not be
altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470 and
473; Ramirez vs. Murray [1855], 5 Cal., 222; Hayden vs. Hayden [1873], 46 Cal., 332;
Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs. Board of Education of City of
Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N.
S.], 818.)lawphi1.net
In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting section
473 of the Code of Civil Procedure of said State, from which section 110 of our Code was taken, stated
as follows:
The rule is that courts will be liberal in allowing an amendment to a pleading when it does not
seriously impair the rights of the opposite party — and particularly an amendment to an
answer. A defendant can generally set up as many defenses as he may have. Appellant
contends that the affidavits upon which the motion to amend was made show that it was based
mainly on a mistake of law made by respondent's attorney; but, assuming that to be, so, still
the power of a court to allow an amendment is not limited by the character of the mistake
which calls forth its exercise. The general rule that a party cannot be relieved from an
ordinary contract which is in its nature final, on account of a mistake of law, does not apply to
proceedings in an action at law while it is pending and undetermined. Pleadings are not
necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that
the court may allow an amendment to a pleading to correct certain enumerated mistakes or "a
mistake in any other respect," and "in other particulars." The true rule is well stated in
Ward vs. Clay (62 Cal. 502). In the case at bar evidence of the lease was given at the first trial;
and we cannot see that the amendment before the second trial put plaintiff in a position any
different from that which he would have occupied if the amendment had been made before the
first trial.
In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:
The principal purpose of vesting the court with this discretionary power is to enable it "to mold
and direct its proceedings so as to dispose of cases upon their substantial merits," when it can
be done without injustice to either party, whether the obstruction to such a disposition of cases
be a mistake of fact or a mistake as to the law; although it may be that the court should require
a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake
as to matter of fact. The exercise of the power conferred by section 473 of the code, however,
should appear to have, been "in furtherance of justice," and the relief, if any, should be granted
upon just terms.
AGENCY
Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:
In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the
suit, an amendment to the answer, made after both parties had rested, but before the cause
was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the
discretion of the court.
Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to allow
or not the amendment of an answer for the purpose of questioning the personality of the plaintiff to bring
the action, even after the parties had rested their cases, as it causes no injustice to any of the parties,
and this court will not interfere in the exercise of said discretion unless there is an evident abuse
thereof, which does not exist in this case.
The second question to be decided is whether or not the defendant company, the Lyric Film Exchange,
Inc., is responsible to the plaintiff, International Films (China) Ltd., for the destruction by fire of the film in
question, entitled "Monte Carlo Madness".
The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to the
former was due to the fact that the period for the delivery thereof, which expired on June 22, 1933, had
been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in accordance with
an understanding had between Lazarus Joseph, the new agent of the plaintiff company, and the
defendant. The defendant company, on the other hand, claims that when it wanted to return the film
"Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of the
arrival of the date for the return thereof, under the contract Exhibit C, said agent, not having a safety
vault, requested Vicente Albo, chief of the film department of the defendant company, to keep said film
in the latter's vault under Gabelman's own responsibility, verbally stipulating at the same time that the
defendant company, as subagent of the International Films (China) Ltd., might show the film in question
in its theaters.
It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second
agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company,
was that the defendant company would continue showing said film under the same contract Exhibit C.
The preponderance of evidence shows that the verbal agreement had between Bernard Gabelman, the
former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant
company, was that said film "Monte Carlo Madness" would remain deposited in the safety vault of the
defendant company under the responsibility of said former agent and that the defendant company, as
his subagent, could show it in its theaters, the plaintiff company receiving 5 per cent of the receipts up
to a certain amount, and 15 per cent thereof in excess of said amount.
If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman,
the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant
company, was a sub-agency or a submandate, the defendant company is not civilly liable for the
destruction by fire of the film in question because as a mere submandatary or subagent, it was not
obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the
principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire
does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange,
Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance
of the film does not form a part of the obligation imposed upon it by law.
Page 26 of 99
As to the question whether or not the defendant company having collected the entire proceeds of the
fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in
question which was deposited therein, the evidence shows that the film "Monte Carlo Madness" under
consideration was not included in the insurance of the defendant company's films, as this was one of
the reasons why O'Malley at first refused to receive said film for deposit and he consented thereto only
when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming
all responsibility. Furthermore, the defendant company did not collect from the insurance company an
amount greater than that for which its films were insured, notwithstanding the fact that the film in
question was included in the vault, and it would have collected the same amount even if said film had
not been deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film Exchange,
Inc., had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the
latter.
For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted
within its discretionary power in allowing the defendant company to amend its answer by pleading the
special defense of the plaintiff company's lack of personality to bring the action, after both parties had
already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in the
exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having
received any express mandate to that effect, and it is not liable for the accidental destruction thereof by
fire.
Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to the
appellant. So ordered.
Avanceña, C. J., Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.
G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
AGENCY
YNARES-SANTIAGO, J.:
During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to
petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner
shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from
receipt of the items.
Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung
hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a witness, Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter
to sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused
her to likewise fail to pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand2 to petitioner for failure to settle
her obligation. Quilatan executed a complaint affidavit3 against petitioner before the Office of the
Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph
1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court,
the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in
the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of
remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold
but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and
abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously
misappropriate and convert the same for her own personal use and benefit and despite oral and written
demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the
damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of
P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the
payments were remitted late;8that petitioner still owed her in the amount of P424,750.00.9
Page 27 of 99
On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and
that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same, thereby causing her to default in paying
Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to Quilatan
prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She
identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that
she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the
past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis; however,
due to her outstanding account with the latter, she got jewelry from petitioner instead.13
On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the
first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the
maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of
imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to
TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as
cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the
costs.
SO ORDERED.14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the
penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of
the crime of estafa is hereby AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum
period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed
Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of
imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to
Twenty (20) Years of Reclusion Temporal.
SO ORDERED.15
Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45,
alleging that:
I act of using or disposing of another’s property as if it were one’s own, or of devoting it to a purpose or
AGENCY
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN
ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS
MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO
RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17
Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the
confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her
giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her undertaking
with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which
it was originally entrusted to her. It was established that petitioner had not derived any personal benefit
from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the
same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the
Revised Penal Code are: (1) that the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such
money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or
conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended
party on the offender.18 While the first, third and fourth elements are concededly present, we find the
second element of misappropriation or conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the
lower courts’ conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the
jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."19
It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express agreement to the contrary between the agent and
the principal.20 In the case at bar, the appointment of Labrador as petitioner’s sub-agent was not
expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the
jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus,
it cannot be said that petitioner’s act of entrusting the jewelry to Labrador is characterized by abuse of
confidence because such an act was not proscribed and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert" and "misappropriated" connote an
use different from that agreed upon. To misappropriate for one’s own use includes not only conversion
to one’s personal advantage, but also every attempt to dispose of the property of another without right.21
Page 28 of 99
In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to
return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn,
to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she
obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the
same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve
the very same end for which they were delivered to her in the first place. Consequently, there is no
conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed
upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
"without right." Aside from the fact that no condition or limitation was imposed on the mode or manner
by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to
necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale.
Labrador admitted that she received the jewelry from petitioner and sold the same to a third person.
She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent
on the part of petitioner. There is no showing that petitioner derived personal benefit from or conspired
with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no estafa within
contemplation of the law.
Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan.
The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a sub-
agent but does so without express authority is responsible for the acts of the sub-agent.29 Considering
that the civil action for the recovery of civil liability arising from the offense is deemed instituted with the
criminal action,30 petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of
jewelry.

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant
case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on
commission basis, with the obligation to return the same in a few days if not sold. However, by reason
of the fact that the rings were delivered also for sale on commission to sub-agents who failed to account
for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to
the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the
crime charged, we held:
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No.
17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE.
Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the amount of
P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in case of
insolvency.
SO ORDERED.

Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a subagent to whom
the first agent had actually entrusted the property in good faith, and for the same purpose for which it
was received; there being no prohibition to do so and the chattel being delivered to the subagent before
the owner demands its return or before such return becomes due, we hold that the first agent can not
be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is
characteristic of this offense is missing under the circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on People v. Flores24 and
U.S. v. Panes25 to justify petitioner’s conviction is misplaced, considering that the factual background of
the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring
to sell under the condition that she would return it the following day if not sold and without authority to
retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the
jewelry he received upon demand, but passed on the same to a sub-agent even after demand for its
return had already been made. In the foregoing cases, it was held that there was conversion or
misappropriation.
G.R. No. 136433 December 6, 2006
26
Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case of People v.
Trinidad,27 held that: ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO,
In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts, JR. and ERNESTO R. SALENGA, respondents.
and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel
cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course
the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried
out the actual misappropriation, then the accused would be answerable for the acts of his co-
conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the
accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in DECISION
order.28 (Italics copied)
AGENCY Page 29 of 99

VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on
Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the
November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the dismissal
of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against respondents
Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M. Mariano and Legal
Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando, Pampanga), and Ernesto
R. Salenga. The petition likewise seeks to set aside the October 30, 1998 Memorandum5of the OSP
duly approved by the Ombudsman on November 27, 1998 which denied petitioner's Motion for
Reconsideration.6 Previously, the filing of the Information against said respondents was authorized by
the May 10, 1996 Resolution7 and October 3, 1996 Order8 of the Ombudsman which found probable
cause that they granted unwarranted benefits, advantage, and preference to respondent Salenga in
violation of Section 3 (e) of RA 3019.9
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-
Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three (3)-year
period, that is, from August 7, 1990 to August 7, 1993.10 Lessee Eduardo Lapid in turn sub-leased the
fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of the original lease, that
is, from January 10, 1993 to August 7, 1993.11 Respondent Ernesto Salenga was hired by Eduardo
Lapid as fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehired respondent
Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his
January 28, 1993 demand letter12 to Rafael Lopez and Lourdes Lapid for unpaid salaries and non-
payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter that
for the last two (2) months of the sub-lease, he had given the rights over the fishpond to Mario Palad
and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a Complaint14 before
the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando, Pampanga
docketed as DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L.
Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest.
The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal Officer of the Department of
Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga, as counsel for respondent
Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal Officer of DAR Region III. The
case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his complaint.15 The amendments included a prayer
for the issuance of a temporary restraining order (TRO) and preliminary injunction. However, before the
prayer for the issuance of a TRO could be acted upon, on June 16, 1993, respondent Salenga filed a
AGENCY
Motion to Maintain Status Quo and to Issue Restraining Order16 which was set for hearing on June 22,
1993. In the hearing, however, only respondent Salenga with his counsel appeared despite notice to the
other parties. Consequently, the ex-partepresentation of respondent Salenga’s evidence in support of
the prayer for the issuance of a restraining order was allowed, since the motion was unopposed, and on
July 21, 1993, respondent Ilao, Jr. issued a TRO.17
Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did.
Accordingly, defendants Lopez and Lapid received their respective shares while respondent Salenga
was given his share under protest. In the subsequent hearing for the issuance of a preliminary
injunction, again, only respondent Salenga appeared and presented his evidence for the issuance of the
writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner Paciencia
Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the November 15,
1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing the
Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the decision before the
DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-
Affidavit18 against private respondents before the Office of the Ombudsman which was docketed as
OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and
Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy through
the issuance of the TRO in allowing respondent Salenga to retain possession of the fishpond, operate it,
harvest the produce, and keep the sales under the safekeeping of other private respondents. Moreover,
petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case No.
552-P’93 filed by respondent Salenga as there was no tenancy relation between respondent Salenga
and Rafael L. Lopez, and thus, the complaint was dismissible on its face.
Through the December 14, 1994 Order,19 the Ombudsman required private respondents to file their
counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the other
respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February 9, 1995
motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsman’s Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to court,
denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an Information for
violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996
Motion for Reconsideration and/or Re-investigation21 which was denied through the October 3, 1996
Order.22 Consequently, the March 17, 1997 Information23 was filed against all the private respondents
before the Sandiganbayan which was docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or Re-
investigation which was granted through the August 29, 1997 Order.24 On September 8, 1997,
respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did not
file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-
Page 30 of 99
investigation; and the result of the re-investigation was embodied in the assailed November 26, 1997
Order26 which recommended the dismissal of the complaint in OMB-1-94-3425 against all private
respondents. Upon review, the Ombudsman approved the OSP’s recommendation on August 21, 1998.
Petitioner’s Motion for Reconsideration27 was likewise denied by the OSP through the October 30, 1998
Memorandum28 which was approved by the Ombudsman on November 27, 1998. Consequently, the
trial prosecutor moved orally before the Sandiganbayan for the dismissal of Criminal Case No. 23661
which was granted through the December 11, 1998 Order.29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS OWN
COMPLAINT.30
Before delving into the errors raised by petitioner, we first address the preliminary procedural issue of
the authority and locus standi of petitioner to pursue the instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in a court of justice x x x on a given question."31 In
private suits, standing is governed by the "real-parties-in interest" rule found in Section 2, Rule 3 of the
1997 Rules of Civil Procedure which provides that "every action must be prosecuted or defended in the
name of the real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."32 Succinctly
put, the plaintiffs’ standing is based on their own right to the relief sought.
The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in
person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as the
Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question on his
authority and legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate and
prosecute on its own or on complaint by any person, any act or omission of any public officer or
employee, office or agency, when such act or omission appears to be illegal, unjust, improper or
inefficient (emphasis supplied)."33 The Ombudsman can act on anonymous complaints and motu
proprio inquire into alleged improper official acts or omissions from whatever source, e.g., a
AGENCY
newspaper.34Thus, any complainant may be entertained by the Ombudsman for the latter to initiate an
inquiry and investigation for alleged irregularities.
However, filing the petition in person before this Court is another matter. The Rules allow a non-lawyer
to conduct litigation in person and appear for oneself only when he is a party to a legal controversy.
Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. – In the court of a justice of the peace a party may
conduct his litigation in person, with the aid of an agent or friend appointed by him for that
purpose, or with the aid of an attorney. In any other court, a party may conduct his litigation
personally or by aid of an attorney, and his appearance must be either personal or by a duly
authorized member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition? We
answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section 2,
Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear
that petitioner is not a real party in interest. Except being the complainant, the records show that
petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the
fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P’93 through her Attorney-in-
Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino
Mercado, as agent of Paciencia Regala, was granted by respondent Provincial Adjudicator Ilao, Jr.
through the November 15, 1993 Order in DARAB Case No. 552-P’93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a
Special Power of Attorney35 (SPA) from Faustino Mercado. However, such SPA is unavailing for
petitioner. For one, petitioner’s principal, Faustino Mercado, is an agent himself and as such cannot
further delegate his agency to another. Otherwise put, an agent cannot delegate to another the same
agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-
delegated, while applied primarily in political law to the exercise of legislative power, is a principle of
agency.36 For another, a re-delegation of the agency would be detrimental to the principal as the second
agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract
with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.
Page 31 of 99
Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such is not
the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue the case
and not merely as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a
substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party
in interest in the criminal proceedings conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not
being an agent of the parties in the agrarian case, he has no locus standi to pursue this petition. He
cannot be likened to an injured private complainant in a criminal complaint who has direct interest in the
outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public right"
in assailing an allegedly illegal official action, and doing so as a representative of the general public. He
is pursuing the instant case as an agent of an ineffective agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider petitioner suing as a
"stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown that
he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient interest
in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer"; more so when
there is no showing that he was injured by the dismissal of the criminal complaint before the
Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this
action and the instant petition must be forthwith dismissed on that score. Even granting arguendo that
he has locus standi, nonetheless, petitioner fails to show grave abuse of discretion of respondent
Ombudsman to warrant a reversal of the assailed November 26, 1997 Order and the October 30, 1998
Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of discretion
on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-Affidavit when
the preliminary investigation was already concluded and an Information filed with the Sandiganbayan
which assumed jurisdiction over the criminal case. This contention is utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao,
Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for re-
investigation and ordered the OSP to conduct the re-investigation through its August 29, 1997 Order, as
follows:
AGENCY
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao, Jr.
was not able to file his counter-affidavit in the preliminary investigation, there appears to be
some basis for granting the motion of said accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary
evidence attached, if any, with the Office of the Special Prosecutor within then (10) days from
today. The prosecution is ordered to conduct a reinvestigation within a period of thirty (30)
days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft court’s directive
to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed,
petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover, petitioner
did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to file
his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but such was
not resolved before the Resolution—finding cause to bring respondents to trial—was issued. In fact,
respondent Ilao, Jr.’s motion to dismiss was resolved only through the May 10, 1996 Resolution which
recommended the filing of an Information. Respondent Ilao, Jr.’s Motion for Reconsideration and/or Re-
investigation was denied and the Information was filed with the graft court.
Verily, courts are given wide latitude to accord the accused ample opportunity to present controverting
evidence even before trial as demanded by due process. Thus, we held in Villaflor v. Vivar that "[a]
component part of due process in criminal justice, preliminary investigation is a statutory and
substantive right accorded to the accused before trial. To deny their claim to a preliminary investigation
would be to deprive them of the full measure of their right to due process."39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P’93 is not an
agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that respondent
Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by Paciencia Regala.
Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents in the
DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne out
by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule that
jurisdiction over the subject matter is determined by the allegations of the complaint.40 The nature of an
action is determined by the material averments in the complaint and the character of the relief
sought,41 not by the defenses asserted in the answer or motion to dismiss.42 Given that respondent
Salenga’s complaint and its attachment clearly spells out the jurisdictional allegations that he is an
agricultural tenant in possession of the fishpond and is about to be ejected from it, clearly, respondent
Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations characterize an agricultural
Page 32 of 99
dispute. Besides, whatever defense asserted in an answer or motion to dismiss is not to be considered
in resolving the issue on jurisdiction as it cannot be made dependent upon the allegations of the
defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper assumption of jurisdiction by respondent
Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO was a proper
exercise of discretion. Firstly, the averments with evidence as to the existence of the need for the
issuance of the restraining order were manifest in respondent Salenga’s Motion to Maintain Status Quo
and to Issue Restraining Order,43 the attached Police Investigation Report,44 and Medical
Certificate.45 Secondly, only respondent Salenga attended the June 22, 1993 hearing despite notice to
parties. Hence, Salenga’s motion was not only unopposed but his evidence adduced ex-parte also
adequately supported the issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised his
discretion in issuing the TRO—as respondent Ilao, Jr. aptly maintained that giving due course to the
complaint and issuing the TRO do not reflect the final determination of the merits of the case. Indeed,
after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing DARAB
Case No. 552-P’93 for lack of merit.
Court will not review prosecutor’s determination of probable cause
Finally, we will not delve into the merits of the Ombudsman’s reversal of its initial finding of probable
cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the Ombudsman
committed grave abuse of discretion in rendering such reversal. Secondly, it is clear from the records
that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the filing of
respondent Ilao, Jr.’s Counter-Affidavit. Thirdly, it is the responsibility of the public prosecutor, in this
case the Ombudsman, to uphold the law, to prosecute the guilty, and to protect the innocent. Lastly, the
function of determining the existence of probable cause is proper for the Ombudsman in this case and
we will not tread on the realm of this executive function to examine and assess evidence supplied by
the parties, which is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy
Rural Bank, Inc.,46 as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon.
Desierto,47 we had occasion to rule that we cannot pass upon the sufficiency or insufficiency of evidence
to determine the existence of probable cause.48
WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order and
the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case No. 23661
(OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.
SO ORDERED.
AGENCY
G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE
HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R.
BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set aside the Decision and Resolution of the Court of
Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R. CV No. 48282,
entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a hold-departure order] from the Philippines against Ignacio E.
Rubio. Respondent amended her complaint to include specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani, and
other co-heirs; that said vendors executed a contract of sale dated April 10, 1990 in her favor; that
Ignacio Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale that the vendors
would secure certificates of title covering their respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon presentation of their individual certificate[s] of [title]; that
Ignacio Rubio refused to receive the other half of the down payment which is P[100,000]; that Ignacio
Rubio refused and still refuses to deliver to [respondent] the certificates of title covering his share on the
two lots; that with respect to the heirs of Luz Baloloy, they also refused and still refuse to perform the
delivery of the two certificates of title covering their share in the disputed lots; that respondent was and
is ready and willing to pay Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their
individual certificates of title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been
sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was
Page 33 of 99
effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondent’s title.
In their separate amended answers, petitioners denied the material allegations of the complaint and
alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale has no more force and effect
as far as the Baloloys are concerned, since they have withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that
he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia
Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the disputed lots
in favor of respondent; that the P100,000 respondent claimed he received as down payment for the lots
is a simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court declared the
Baloloys in default. They then filed a motion to lift the order declaring them in default, which was denied
by the trial court in an order dated November 27, 1991. Consequently, respondent was allowed to
adduce evidence ex parte. Thereafter, the trial court rendered a partial decision dated July 23, 1993
against the Baloloys, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an [Absolute] Deed of Sale
over their hereditary share in the properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or consignation of said amount in Court.
[For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of Sale
over their hereditary share in the property covered by TCT No. T-74392 and TCT No. T-74394 in favor
of [respondent], the Clerk of Court is ordered to execute the necessary Absolute Deed of Sale in behalf
of the Baloloys in favor of [respondent,] with a consideration of P[1,500,000]. Further[,] [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P[50,000] and P[20,000] for attorney’s fees. The adverse claim annotated at
the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and
Bayani Baloloy are concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and supplemental
petition dated July 7, 1994. This was denied by the trial court in an order dated September 16, 1994.
Hence, appeal to the Court of Appeals was taken challenging the order denying the petition for relief.
AGENCY
Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the trial court
rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to the
[respondent], Rufina Lim[,] the amount of P102,169.80[,] with interest at the rate of six percent (6%) per
annum from April 10, [1990] until the same is fully paid. Without pronouncement as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial court’s order and partial decision, but reversed the later decision.
The dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment and
Orders dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED. The
Order appealed from is AFFIRMED.
2. the Decision dismissing [respondent’s] complaint is REVERSED and SET ASIDE and a new
one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent] is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the
payment of the balance of the purchase price by [respondent] within 30 days from the
receipt of the entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving Rubio’s share in the
disputed properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the
amount of P[20,000] as moral damages and P[20,000] as attorney’s fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED.
SO ORDERED.5
Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this petition.
The issues are:
I
Page 34 of 99
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM
JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN
AWARDING MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L.
LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN VIRGINIA
LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA LAYGO-LIM IS
A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER THE
CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE
CONTRACT OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON L.
ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS’
COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners’ failure to appear at the pre-trial
and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because
petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order.
Neither did the former counsel of record inform him. Consequently, the order declaring him in default is
void, and all subsequent proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.
AGENCY
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia to
transact business in his behalf pertaining to the property. The Special Power of Attorney was constituted
in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-fact. Llamas
even disowned her signature appearing on the "Joint Special Power of Attorney," which constituted
Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also the
nature and extent of the former’s authority. Besides, Virginia exceeded the authority for failing to comply
with her obligations under the "Joint Special Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment of respondent’s
debt. His acceptance and encashment of the check was not a ratification of the contract of sale.
Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The real
character of the contract is not the title given, but the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full payment of the purchase price. Together with taxes
and other fees due on the properties, these are conditions precedent for the perfection of the sale. Even
assuming that the contract is ambiguous, the same must be resolved against respondent, the party who
caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to sell
his properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold
to her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer to
the original complaint and amended complaint, the allegations relating to the personal circumstances of
the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the need x
x x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto
or inconsistent therewith should be ignored whether objection is interposed by a party or not."9 Besides,
there is no showing that a palpable mistake has been committed in their admission or that no admission
has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives such notice and attends the pre-
trial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of
attorney in favor of their former counsel, not that they have not received the notice or been informed of
the scheduled pre-trial. Not having raised the ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
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SEC. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of
the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after
such judgment or final order was entered, or such proceeding was taken; and must be accompanied
with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts
constituting the petitioner’s good and substantial cause of action or defense, as the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is
reckoned from the time the party acquired knowledge of the order, judgment or proceedings and not
from the date he actually read the same."13 As aptly put by the appellate court:
The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the
former counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993 on
April 5, 1994. At that time, said former counsel is still their counsel of record. The reckoning of the 60
day period therefore is the date when the said counsel of record received a copy of the partial decision
which was on April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994 which
means that 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, the records
further show that the Baloloys received the partial decision on September 13, 1993 as evidenced by
Registry return cards which bear the numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary period to file a
petition for relief from judgment[,] included in its petition the two Orders dated May 6, 1994 and June 29,
1994. The first Order denied Baloloys’ motion to fix the period within which plaintiffs-appellants pay the
balance of the purchase price. The second Order refers to the grant of partial execution, i.e. on the
aspect of damages. These Orders are only consequences of the partial decision subject of the petition
for relief, and thus, cannot be considered in the determination of the reglementary period within which to
file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for
relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x x
x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence could
not have guarded against, and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable negligence "caused
by failure to receive notice of x x x the trial x x x that it would not be necessary for him to take an active
part in the case x x x by relying on another person to attend to the case for him, when such other
person x x x was chargeable with that duty x x x, or by other circumstances not involving fault of the
moving party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor
of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the
AGENCY
authority given by her father, but she will have to be "responsible for the acts of the sub-agent,"19 among
which is precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the contract of sale and "produce the effects
of an express power of agency."20 "[H]is action necessarily implies that he waived his right of action to
avoid the contract, and, consequently, it also implies the tacit, if not express, confirmation of the said
sale effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance
such repudiation would be contrary to equity, and would put a premium on fraud or misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be reserved in or "retained by the vendor until full payment
of the price."22
Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.23 Even the argument that a purchaser need not inquire beyond what
appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that
the subject properties are registered in common, not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from becoming
effective"24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period."25Petitioners themselves have failed to deliver their individual certificates of
title, for which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees,
and expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as:
(1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its
equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay for the subject properties. "The offer and the
Page 36 of 99
acceptance are concurrent, since the minds of the contracting parties meet in the terms of the
agreement."27
In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price and
as proof of the perfection of the contract.28 It constitutes an advance payment to "be deducted from the
total price."29
Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be transferred to
the vendee upon actual or constructive delivery thereof."30 In the present case, there is actual delivery
as manifested by acts simultaneous with and subsequent to the contract of sale when respondent not
only took possession of the subject properties but also allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution itself of the contract of sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after
having sold them to respondent. "[I]n a contract of sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded x x x."31 The records do not
show that Ignacio Rubio asked for a rescission of the contract. What he adduced was a belated
revocation of the special power of attorney he executed in favor of Patricia Llamas. "In the sale of
immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act."32
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
AGENCY
G.R. No. L-10099 January 27, 1916
TEOFILA DEL ROSARIO DE COSTA and BERNARDO COSTA, plaintiffs-appellants,
vs.
LA BADENIA, a corporation, defendant-appellee.
Albert E. Somersille for appellant.
Williams, Ferrier and SyCip for appellee.
CARSON, J.:
The plaintiffs, Teofila del Rosario de Costa and her husband, Bernardino Costa, brought this action to
recover from the defendant corporation the sum of P1,795.25 a balance alleged to be due Teofila del
Rosario de Costa as the agent of the defendant corporation for services rendered and expenses
incurred in the sale of its products. The defendant denied the claim and set up counterclaim for P55.43.
Judgment having been rendered in favor of the defendant, the record is now before us on plaintiff's bill
of exceptions.
The plaintiffs are residents of Legaspi, Albay, and the defendant corporation is engaged in the
manufacture and sale of tobacco products with its head office in the city of Manila. The record shows
that in the year 1911 the defendant corporation, a new concern, inaugurated an extensive selling
campaign for the purpose of introducing its products to the retail trade. Celestino Aragon, a general
agent of the defendant corporation, was in charged of this campaign in Albay, Sorsogon, and other
provinces in the southern end of Luzon. He established a central distributing agency or depot at Legaspi
with the plaintiff, Teofila del Rosario de Costa, nominally in charge, though her husband, Bernardino de
Costa appears to have been the actual manager of the agency. The business relations between the
plaintiffs and the defendant extended from February 1, 1911, to March 24, 1912, and during this time no
settlement of their accounts was ever had. When Aragon, the general agent, came to Legaspi in 1911
he established his headquarters there and took up his residence with the plaintiffs, using the lower part
of their house as a store room or depository for large quantities of cigarettes and cigars. He employed a
number of persons as solicitors and paid their salaries; he paid the internal revenue fees incident to the
conduct of the business in Legaspi, and also the rent of the building in which he lived with the plaintiffs
and which he made use of as the general headquarters for the agency. The record shows that business
amounting to more than P24,000 (wholesale) was done by the Legaspi agency from February 1, 1911,
to March 24, 1912. All goods sent to Legaspi were charged by the head office at Manila against the
general agent, Aragon, while on the books kept by Aragon these goods were charged against the
plaintiffs, and as goods were withdrawn by himself, he credited the amount of the withdrawals to the
account of the plaintiffs. The business at Legaspi appears to have been that of a distributing agency
actively in charge of the plaintiffs but over which the general agent maintained a close supervision.
Goods were withdrawn from the depository at Legaspi from time to time by the general agent for
shipment to other points; goods were likewise withdrawn by plaintiffs and shipped to neighboring towns
without any intervention on the part of the general agent. All accounts incident to the business were
carried on the books of Aragon. The plaintiffs do not appear to have kept a separate set of books. The
account as carried on the books of Aragon, the general agent, was between Teofila del Rosario de
Costa and La Badenia, the defendant corporation. On March 24, 1912, the general agent had a
settlement with the plaintiffs and acknowledged over his signature that these books showed a balance
in favor of the plaintiffs amounting to P1,795.25.
Plaintiffs' Exhibit B is a tabulated statement taken from the books of account kept by Aragon and shows
in detail the whole course of the business at Legaspi from February 1, 1911, to March 24, 1912. In this
Page 37 of 99
statement goods received by the Legaspi agency from the factory in Manila are charged against Teofila
del Rosario de Costa, while credits are given on various items, such as, withdrawals of goods from the
depository at Legaspi shipped to other towns, remittances made to the head office in Manila, money
paid over to the general agent, advertising expenses, commissions on sales, salaries of employees,
and other expenses incident to the conduct of the business.
Mr. BERNARDINO COSTA, Legaspi, Albay.
DEAR SIR: We have the pleasure of hereby acknowledging receipt of your two letters dated
the 4th instant, in which we found enclosed two drafts, to wit:

When this final settlement of accounts was had on the 24th of March, 1912, both Aragon and the No. 528________________c/ Ang Siliong P200
plaintiff, Teofila del Rosario de Costa, confirmed it as a true statement of the account. The defendant
corporation however, refused to pay over to plaintiffs the balance of P1,795.25, claiming that plaintiffs No. 1240_______________c/ Smith, Bell & Co 980
had been improperly allowed a credit of P1,850.68 which represented unpaid accounts due the
business in Legaspi for cigars and cigarettes sold by it. If these uncollected claims are charged to the 1,180
defendant corporation a balance is left in favor of plaintiffs amounting to P1,795.25; and if charged to
plaintiffs there remains a balance in favor of the defendant corporation amounting to P55.43.
Which sum of one thousand one hundred and eighty pesos we have duly credited on the
account current of Mr. Celestino Aragon.
It is the contention of the defendant corporation that the plaintiffs were simply merchants who
purchased the goods at fixed wholesale prices and sold them on their own account, and that they were
never employed as their agents. On the other hand plaintiffs contend that they were the agents of the We also acknowledge receipt of the bill of lading for the eight packages you have forwarded to
defendant corporation; that they received commissions on the sales made by the agency; and that they us, but to date we have not received said packages. As soon as we get then we will send you
were authorized to extend a reasonable credit under the supervision of the general agent. timely notice.

It is not clear from the record just what were the precise terms of the arrangement made by Aragon with We are, yours very sincerely,
the plaintiffs. It is not denied however, that Aragon was acting as the general agent of the defendant
corporation and that as such he was invested with authority to inaugurate and carry out a selling
campaign with a view of interesting the sale of the defendant's products in the territory assigned to him. LA BADENIA, INC.,
The record does not show what limitations, if any, were placed upon his powers to act for the __________ __________, Assistant Manager.
corporation. The general conduct of the selling campaign intrusted to him was approved and
commended by the head office, and judging from the amount of the sales the business appears to have
been a very prosperous one for the corporation.

EXHIBIT B.
It appears further that the head office at Manila was fully informed of plaintiffs' relations with the general
agent in extending the sales of its products. Plaintiffs made direct remittances to the head office in
Manila and these remittances were credited to the account of the agency at Legaspi, and MANILA, P. I., Sept. 19, 1911.
acknowledgment was made directly to the plaintiffs. Neither the head office nor Aragon appear to have
made any distinction between the business done by Aragon and that done by the plaintiffs. The
purchases, sales and remittances made by the plaintiffs do not seem to have been considered as those Mr. BERNARDINO COSTA, Legaspi, Albay.
of an independent business concern, but rather as a part of the work of the Legaspi agency under the
control and supervision of Aragon. The fact that the defendant corporation carried the Legaspi account
DEAR SIR: We have the pleasure of hereby acknowledging receipt of your letter dated the
in the name of the general agent, Aragon, and carried no account with the plaintiffs, would seem to
12th instant, of which we have made note.
negative the contention that plaintiffs were simply merchants purchasing their goods in Manila at
wholesale and selling them locally on their own account.
By the steamer Cebu we are sending, according to the attached invoice, 3 boxes of small
cigars (cajas de tabaquitos) for the agency in your charge.
The active management and participation of the plaintiffs in the conduct of the business at Legaspi are
fully recognized in the following letters written by the assistant manager of the defendant corporation to
one of the plaintiffs. We are, yours very sincerely,

EXHIBIT A. LA BADENIA, INC.,

__________ __________, Assistant Manager.
MANILA, P.I., October 9, 1911.

AGENCY Page 38 of 99
Several other letters received by the plaintiffs from the defendant corporation were offered in evidence,
but the two letters just quoted are sufficient to show that the defendant was fully aware of plaintiffs'
connection with the agency at Legaspi, and recognized them as agents of the company, and clearly did
not consider them as independent merchants buying solely on their own account, but rather as
subagents working under the supervision of the general agent, Aragon.
It seems equally clear that Aragon did not consider the plaintiffs as independent merchants operating on
their own account, but rather as agents cooperating with him and working under his supervision. This
fact is clearly borne out by the nature of the entries made in his books of account. A reference to that
statement taken from the books of account shows that the plaintiffs were given credit on various items,
such as advertising expenses, the free distribution of cigars and cigarettes for advertising purposes,
freight and carriage charges on shipments to neighboring towns, and the like, and it does not seem at
all likely that plaintiffs would have been allowed credit on such items if they had been conducting the
business solely on their own account.
Aragon extended credit to certain purchasers of cigars and cigarettes and the entries made by him on
his books of account show that he knew that the plaintiffs were also extending credit to some of the
purchasers of the goods shipped from Legaspi. He approved the very items now questioned when as
general agent of the defendant corporation he signed the statement of account showing a balance of
P1,795.25 in favor of the plaintiffs. Aragon thereby admitted that he, at least, considered these
outstanding claims as properly chargeable against the defendant corporation, and unless the plaintiffs
had been specifically authorized by him to extend credit it seems certain that he would never have
approved this balance in their favor.
It is contended that it is unreasonable that plaintiffs would have so large a balance in their favor, and
that they are now merely seeking to saddle upon the defendant corporation a lot of unpaid accounts. In
view of the fact that plaintiffs are only seeking to enforce the payment of a balance admitted by the
general agent of the defendant corporation to be rightly due them, we fail to see how it can be
reasonably urged that plaintiffs are attempting to saddle these unpaid claims on the defendant. The
general agent who was in control of the Legaspi business, and who was fully conversant with all of its
details, clearly recognized the right of the plaintiffs to have credit on their account for the amount of
these unpaid claims. This agent had employed the plaintiffs to assist him in extending the sale of the
defendant's products, and the defendant was well aware of this fact. Certainly the only reliable source of
information as to what plaintiffs' account with the defendant corporation was, is to be found in the books
kept by the general agent, Aragon. The defendant carried no account whatever with the plaintiffs, and
having intrusted the entire management of the Legaspi business to Aragon, it can not now come into
court and repudiate the account confirmed by him, unless it can show that he acted beyond the scope
of his authority in making the arrangement he did with the plaintiffs. Aragon's powers as a selling agent
appear to have been very broad, and there is no evidence in the record to indicate that he acted beyond
his powers in conducting the business at Legaspi as he did; and there can be no doubt that plaintiffs
had been authorized by him to extend credit on behalf of the agency. There is no other reasonable
explanation of the entries made by Aragon in his books of account, and his approval of the balance in
favor of the plaintiffs.
The lower court was of the opinion that the specific goods sold to the delinquent debtors, whose unpaid
accounts form the basis of this litigation, had already been paid for by the plaintiffs and that this was
conclusive evidence that the plaintiffs were not acting as the agents of the defendant corporation, and
that in effect, the purpose of this suit was to recover back money already paid for the goods purchased
and sold by the plaintiffs. We find ourselves unable to agree with the conclusions of the trial court in this
respect.
AGENCY
It appears that the plan under which the business was conducted was as follows: a shipment of cigars
and cigarettes was made from the Manila office and charged against the account of the general agent,
Aragon; these goods were deposited in the store room at Legaspi, and in the account carried by Aragon
were charged against the plaintiffs. Withdrawals were made from the Legaspi stock by Aragon and the
plaintiffs, and credit was given the plaintiffs for the amount of the withdrawals by Aragon. Both Aragon
and the plaintiffs drew on the Legaspi stock for advertising purposes, such as the free distribution of
cigars and cigarettes, and plaintiffs were credited with the value of the goods so withdrawn. The stock
on hand was being replenished from time to time by new shipments received from Manila. The plaintiffs
made remittances to Manila which were credited to the account of the Legaspi agency and this account
included not only the goods sold and withdrawn from stock by the plaintiffs, but also the goods
withdrawn by Aragon. Thus evidently these remittances were not in payment of any particular
shipments, but were simply payments on account and covered goods sold by Aragon as well as those
sold by the plaintiffs. Remittances were doubtless made to Manila by Aragon and credited on the
agency account in the same manner. Under this method of conducting the business a balance for or
against the plaintiffs might well remain at any time, and such a balance would not be determined solely
by the value of the goods withdrawn from stock by the plaintiffs, and the amount of the remittances
made by them, but would be determined by the total value of the stock of the Legaspi agency charged
against the plaintiffs and the amounts allowed them as credits; these credits would include not only the
remittances made to Manila, but also goods withdrawn by Aragon, and such other items as might
constitute proper credits on the account. We do not therefore think it at all unreasonable that a balance
should have remained in favor of the plaintiffs when the settlement was made, nor do we see that the
existence of such a balance would necessarily indicate that the plaintiffs had overpaid their account with
the defendant corporation.
It is further contended that the goods were charged to plaintiffs at wholesale prices, and that they were
to have as profits any amounts received over and above the wholesale cost price on the goods sold by
them, and it is urged that such an arrangement indicates that they were independent merchants doing
business on their own account. Even granting that such was the arrangement made with the plaintiffs by
Aragon, it does not necessarily follow that they were conducting an independent business on their own
account. As already stated, the record does not disclose what were the precise terms of arrangement
made with the plaintiffs. The record does show however, that in many instances the plaintiffs were
allowed commissions on sales made by them, but whether or not these were in addition to other profits
allowed them the record does not show. Upon a careful examination of the whole record we are
satisfied that plaintiffs were not conducting an independent business but were the agents of the
defendant corporation operating under the supervision of the general agent, Aragon.
For the reasons set out we are of the opinion, and so hold, that plaintiffs are entitled to the reversal of
the judgment appealed from and to a judgment against La Badenia, the defendant corporation, for the
sum of P1,795.25, with legal interest thereon from August 5, 1914, the date of filing the complaint, until
paid, and under their costs in both instances.
Let judgment be entered in accordance herewith. So ordered.
Arellano, C.J., Torres, Johnson, Moreland and Trent, JJ., concur.
Page 39 of 99
 The defendant answered the amended complaints, pleading in special defense, that not having no
knowledge of the supposed management of their rights in the "Tren de Aguadas," and , furthermore, not
having seen nor received any money of the plaintiff's from said business, she is not in a position to
render an account of any sort to the plaintiffs, either in her own personal capacity or as judicial
administratrix of Benigno Goitia's intestate estate.

G.R. No. L-31739
LEONOR MENDEZONA, plaintiff-appellee,
vs.
ENCARNACION C. VIUDA DE GOITIA, administratrix of the estate of Benigno Goitia, defendant-
appellant.
-----------------------------
G.R. No. L-31740
By agreement of the parties, both cases were tried together, and the trial court rendered but one
decision upon them on October 31, 1928, holding it sufficiently proved, "that defendant Encarnacion C.
Vda, de Goitia has been duly appointed judicial administratrix of the estate of her deceased husband
Benigno Goitia in special proceeding No. 30273 of this court; that Benigno Goitia was the representative
and attorney-in-fact of the plaintiffs in the joint-account partnership known as the "Tren de Aguadas" and
located in the City of Manila, of which the plaintiff Leonor Mendezona, widow of Juan Bautista Goitia,
owns 180 shares worth P18,000, and the plaintiff Valentina Izaguirre y Nazabal owns 72 shares worth
P7,200; that prior to 1915, Benigno Goitia, at that time the manager of the aforesaid co-partnership,
collected the dividends for the plaintiffs, which he remitted to them every year; that prior to 1915, the
usual dividends which Benigno Goitia forwarded to plaintiff Leonor Mendezona each year were P540,
and to plaintiff Valentina Izaguirre y Nazabal, P216; that from 1915 until his death in August, 1926,
Benigno Goitia failed to remit to the dividends upon their shares in the "Tren de Aguadas"; that some
March 11, 1930
time before his death, more particularly, in July, 1926, Benigno Goitia, who was no longer the manager
of the said business, receive as attorney-in-fact of both plaintiff, the amount of P90 as dividend upon
plaintiff Leonor Mendezona's shares, and P36 upon Valentina Izaguirre y Nazabal's stock; that from
1915 to 1926, the "Tren de Aguadas" paid dividends to the share-holders, one of them, Ramon Salinas,
having received the total amount of P1,155 as ordinary and special dividends upon his 15 shares' that
calculating the dividends due from 1915 to 1926 upon Leonor Mendezona's 180 shares at P540 per
annum, and at P216 yearly upon the 72 shares held by Valentina Izaguirre y Nazabal, counsel for both
plaintiffs filed their claims with the committee of claims and appraisal of the estate of Benigno Goitia,
and, upon their disallowance, appealed from the committee's decision by means of the complaints in
these two cases."
March 11, 1930

VALENTINA IZAGUIRRE Y NAZABAL, plaintiff-appellee,
vs.
ENCARNACION C. VIUDA DE GOITIA, ETC., defendant-appellant.
Avanceña and Lata for appellant.
Ramon Sotelo for appellees.
VILLAMOR, J.:
The plaintiffs, Leonor Mendezona and Valentina Izaguirre y Nazabal, filed separate claims with the
committee of claims and appraisal against the intestate estate of Benigno Goitia y Lazaga (Court of
First Instance of Manila, civil case No. 30273), the first for the amount of P5,940, and the second,
P2,376. By order of the court dated June 16, 1927, these claims were heard by the committee. The
claimants presented their evidence, which the committee deemed insufficient and disapproved their
claims. Both claimants appealed from the report of the committee, and in accordance with section 776
of the Code of Civil Procedure, filed a new complaint which was later amended with the approval of the
court, there being nothing in the bill of exceptions to show that the defendant, or the administratrix of the
deceased Benigno Goitia, excepted to the court's order admitting the amendments to the complaints.
The trial court likewise deemed it proven that "during the period from 1915 to 1926, Benigno Goitia
collected and received certain sums as dividends and profits upon the plaintiffs's stock in the "Tren de
Aguadas" in his capacity as representative and attorney-in-fact for both of them, which he has neither
remitted nor accounted for to the said plaintiffs, although it has been prove that said Benigno Goitia was
their attorney-in-fact and representative in the "Tren de Aguadas" up to the time of his death."
The court below therefore ordered the defendant, as judicial administratrix of Benigno Goitia's estate to
render a judicial account of the intestate estate of the deceased Benigno Goitia, in special proceeding
No. 30273 of this court (below), to render an account of the amounts collected by her aforesaid
husband Benigno Goitia, as attorney-in-fact and representative of the plaintiffs Leonor Mendezona and
Valentina Izaguirre y Nazabal in the copartnership known as the "Tren de Aguadas" from 1915 to July,
1926, within thirty days from notice of this decision; and that the defendant may see, examine, and
make a copy of the books and documents relative to the business of the aforementioned copartnership,
in accordance with the provisions of section 664 of the Code of Civil Procedure. Without special
pronouncement of costs.
On December 15, 1928, at the instance of the plaintiffs, the trial court set the 15th of January, 1929, as
the date on which the defendant should present her account of the dividends and profits collected by
the decedent, as attorney-in-fact for the plaintiffs, with regard to the "Tren de Aguatas" copartnership,
form 1915 to 1926, and the hearing was postponed to the 7th of February, 1929.

AGENCY Page 40 of 99
On February 6, 1929, the defendant, reiterating her exception to the court's decision enjoining her to
render accounts, manifested that after a painstaking examination of the books of account of the
copartnership "Tren de Aguadas," and several attempts to obtain data from Ruperto Santos, the
manager and administrator thereof, she has found no more evidence of any amount received by her
late husband, Benigno de Goitia, than a book of accounts where she came upon an item of P90 for
Leonor Mendezona, and another of P36 for Valentina Izaguirre.
In view of this report and the evidence taken at the hearing the court rendered a suppletory judgment,
upon motion of the plaintiffs dated December 3, 1928; and taking into account chiefly the testimony of
Ruperto Santos and Ramon Salinas, it was held that, upon the basis of the dividends received by the
witness Salinas on his fifteen shares in the "Tren de Aguadas" from 1915 to 1925, it appears that the
dividends distributed for each share was equal to one-fifteenth of P1,087.50, that is P72.50. Thus the
dividends upon plaintiff Leonor Mendezona's 180 shares would be P13,050, and upon the 72 shares
pertaining to Valentina Izaguirre, P5,220; and these sums, added to those collected by the attorney-in-
fact Benigno Goitia as part of the 1926 dividends, P90 for Leonor Mendezona, and P36 for Valentina
Izaguirre, show that Benigno Goitia thereby received P13,140 in behalf of Leonor Mendezona, and
P5,256 in behalf of Valentina Izaguirre.
Wherefore, the court ordered the defendant, as judicial administratrix of the estate of the deceased
Benigno Goitia, to pay the plaintiff Leonor Mendezona the sum of P13,140 with legal interest from the
date of the filing of the complaint, and to pay the plaintiff Valentina Izaguirre P5,256 likewise with legal
interest from the date of the filing of the complaint, and moreover, to pay the costs of both instances.
The defendant duly appealed from this judgment to this Supreme Court through the proper bill of
exceptions.
The fundamental question raised by the appellant in the first assignment of error refers to the court's
jurisdiction to admit the amended complaints whereby the plaintiffs claim P13,680 and P5,470
respectively, whereas the claims presented to the committee of claims and appraisal were only for
P5,940 and P2,376, respectively. Appellant contends that the plaintiffs have not perfected their appeal
in accoundance with section 773 of the Code of Civil Procedure in claiming more in their complaints
than in the claims filed with the committee of claims and appraisal, by including therein, not only the
yearly dividends paid from 1915 to 1925, inclusive, but also the ordinary and extraordinary dividends
upon their shares for the years of 1915 to 1926, alleged to have been delivered to Benigno Goitia.
The fact that the claims filed with the committee were upon the basis of annual dividends, while those
filed with the court below were on ordinary and extraordinary dividends, is of no importance, for, after all
they refer to the same amounts received by the deceased Benigno Goitia in the name and for the
benefit of the plaintiffs. The question to be decided is whether or not in this jurisdiction a greater sum
may be claimed before the court than was claimed before the committee. It should be noted that
according to the cases cited by the appellant on pages 12 and 13 of her brief, to wit, Patrick vs. Howard,
47 Mich., 40; 10 N. W. 71. 72; Dayton vs. Dakin's Estate, 61 N. W., 349; and Luizzi vs. Brandy's Estate,
113 N. W., 574; 140 Mich., 73; 12 Detroit Leg., 59, the claims passed upon by the committee cannot be
enlarged in the Circuit Court by amendment. But counsel for the appellees draws our attention to the
doctrines of the Vermont Supreme Court (Maughan vs. Burns' Estate, 64 Vt., 316; 23 Atlantic, 583),
permitting an augmentative amendment to the claim filed with the committee.
In the Maughan case, supra, the court stated:
AGENCY
ROWELL, J. This is an appeal from the decision and report of the commissioners on the estate
of Michael Burns. Plaintiff presented her claim to the commissioners at $2,789.65. The ad
damnum in her declaration filed in the probate court was $3,500. In the country court she
recovered $3,813.49. Thereupon she moved for leave to amend her declaration by raising
the ad damnum to $4,000, which was granted, and she had judgment for the amount of her
recovery. The identical claim presented to the commissioners was the claim tried above. The
amount of plaintiff's recovery rested on the quantum meruit. The jury found that she merited
more than she estimated her claim when she presented it to the commissioners. But such
underestimate did not preclude her from recovering more, if the testimony show her entitled to
it, as presumably it did, as more was found. The fact of such estimate was evidence against
here deserving more, as it was an implied admission that what she claimed was enough; but
the admission was not conclusive upon her, and did not prevent 527; Stowe vs. Bishop, 58 Vt.,
498; 3 Atl. Rep., 494; Hard vs. Burton, 62 Vt., 314; 20 Atl. Rep., 269.)
It is conceded that in common-low actions the court has power to raise the ad damnum at any
time; but it is claimed that as the probate court is not a common-low court, but is a court of
special and limited jurisdiction, and has by statue original jurisdiction of settlement of the
estates of deceased person, the country court has no power to raise the ad damnum of the
declaration filed in the probate court. The county court has, by statue, appellate jurisdiction of
matters originally within the jurisdiction of the probate court and in such appeals it sits as a
higher court of probate, and its jurisdiction is co-extensive with that of the probate court. It is
not limited to the particular questions that arose in the probate court in the matter appealed,
but is expressly extended to matters originally within the jurisdiction of that court. It is an
appellate court for the rehearing and the re-examination of matters — not particular questions
merely — that have been acted upon in the court below. (Adams vs. Adams, 21 Vt., 162) And
these matters embrace even those that rest in discretion. (Holmes vs. Holmes, 26 Vt., 536.) In
Francis vs. Lathrope, 2 Tyler, 372, the claimant was allowed, on terms, to file a declaration in
the country court, he having omitted to file one in the probate court as required by statute. It
was within the jurisdiction of the probate court to have allowed this amendment, and, as the
county court had all the jurisdiction of the probate court in this behalf, it also had power to allow
the amendment.
However this may be, in this jurisdiction there is a rule governing the question raised in this assignment
of error, namely, section 776 of the Code of Civil Procedure, as construed in the cases of
Zaragoza vs. Estate of De Viademonte (10 Phil., 23); Escuin vs. Escuin (11 Phil., 332); and In re Estate
of Santos (18 Phil., 403). This section provides:
SEC. 776. Upon the lodging of such appeal; with the clerk, the disputed claim shall stand for
trial in the same manner as any other action in the Court of First Instance, the creditor being
deemed to be the plaintiff, and the estate the defendant, and pleading as in other actions shall
be filed.
Just as in ordinary actions in which the pleadings may be amended, so in the instant case, the original
complaint for the same amounts claimed before the committee was altered, increasing the amounts,
and the amended complaint was approved by the court and not objected to by the adverse party. The
character of the action throughout is the same. The action before the committee rested on the
contention that as attorney-in-fact for the plaintiffs with respect to the partnership "Tren de Aguadas,"
the late Benigno Goitia had received dividends upon their shares which he failed to turn over to them;
the appeal to the Court of First Instance is founded on the same contention. When the claim was filed
with the committee, counsel for the plaintiffs merely made a calculation of the amounts due, in view of
Page 41 of 99
the fact that he had not all the data from the plaintiffs, who live in Spain; but after filing the complaint on
appeal with the court of First Instance, he discovered that his clients were entitled to larger sums, and
was therefore compelled to change the amount of the claims.
Considering the distance that separated the plaintiffs from their attorney-in-fact, the deceased Benigno
Goitia, and that the latter failed to supply them with data from 1915 until his death in 1926, it is natural
that they had to resort to calculating the amounts due them from the "Tren de Aguadas." To deny them
the right to amend their complaint in accordance with section 776, when they had secured more definite
information as to the amounts due them, would be an injustice, especially when it is taken into
consideration that this action arises from trust relations between the plaintiffs and the late Benigno
Goitia as their attorney-in-fact.
The first error is therefore overruled.
The allegation found in the second assignment of error that the plaintiffs are not in reality interested
parties in this case is untenable. It does not appear from the bill of exceptions that the appellant
demurred on the ground of misjoinder of parties, or alleged such misjoinder in her answer. In
accordance with section 93 of the Code of Civil Procedure, the appellant has waived the right to raise
any objection on the ground that the plaintiffs are not the real parties in interest, or that they are not the
owners of the stock in question. (Broce vs. Broce, 4 Phil., 611; and Ortiz vs. Aramburo, 8 Phil., 98)
Furthermore it appears from Exhibits D, E, F, and G, that the late Benigno Goitia recognized that those
shares of the "Tren de Aguadas" really belonged to the plaintiffs. And above all, Exhibit K-1, which is a
copy of the balance sheet for May and June, 1926, taken from the books of the partnership, clearly
shows that Leonor Mendezona owned 180 shares, and Valentina Izaguirre, 72 shares. Therefore the
appellant cannot now contend that the plaintiffs are not the real interested parties.
In the third assignment of error it is argued that following section 676 of the Code of Civil Procedure, the
court below had no power to order the defendant to render an account of dividends supposed to have
been received by her deceased husband. We are of opinion that the order of the court enjoining the
appellant to render an account of all the amounts collected by her aforesaid husband Benigno Goitia as
representative and attorney-in-fact of the plaintiffs, from 1915 until June, 1926, was made for the
purpose of giving her an opportunity of showing, if she could, just what amounts the deceased Goitia
received on account of the appellees' stock. There is no reversible error in this; for, as the complaint
demanded the return of amounts alleged to have been received by the deceased attorney-in-fact
represented by the appellant, it was quite in order to determine whether such amounts were really
received or not.
The fourth assignment of error relates to Exhibits A and B, being the appellees' depositions made
before the American consul at Bilbao, Spain, in accordance with section 356 of the Code of Civil
Procedure. Counsel for the appellant was notified of the taking of these depositions, and he did not
suggest any other interrogatory in addition to the questions of the committee. When these depositions
were read in court, the defendant objected to their admission, invoking section 383, No. 7, of the Code
of Civil Procedure. Her objection referred mainly to the following questions:
1. Did Mr. Benigno Goitia render you an account of your partnership in the "Tren de Aguadas?"
— Yes, until the year 1914.
2. From the year 1915, did Mr. Benigno Goitia send you any report or money on account of
profits upon your shares? — He sent me nothing, nor did he answer, my letters.
AGENCY
3. did you ever ask him to send you a statement of your account — Yes, several times by
letter, but I never received an answer.
The first of these questions tends to show the relationship between the principals and their attorney-in-
fact Benigno Goitia up to 1914. Supposing it was error to permit such a question, it would not be
reversible error, for that very relationship is proved by Exhibits C to F, and H to I. As to the other two
questions, it is to be noted that the deponents deny having received from the deceased Benigno Goitia
any money on account of profits on their shares, since 1915. We are of opinion that the claimants'
denial that a certain fact occurred before the death of their attorney-in-fact Benigno Agoitia does not
come within the legal prohibitions (section 383, No. 7, Code of Civil Procedure). The law prohibits a
witness directly interested in a claim against the estate of a decedent from testifying upon a matter of
fact which took place before the death of the deceased. The underlying principle of this prohibition is to
protect the intestate estate from fictitious claims. But this protection should not be treated as an
absolute bar or prohibition from the filing of just claims against the decedent's estate.
The facts in the case of Maxilom vs. Tabotabo (9 Phil., 390), differ from those in the case at bar. In that
case, the plaintiff Maxilom liquidated his accounts with the deceased Tabotabo during his lifetime, with
the result that there was a balance in his favor and against Tabotabo of P312.37, Mexican currency. The
liquidation was signed by both Maxilom and Tabotabo. In spite of this, some years later, or in 1906,
Maxilom filed a claim against the estate of Tabotabo for P1,062.37, Mexican currency, alleging that
P750 which included the 1899 liquidation had not really been received, and that therefore instead of
P312.37, Mexican currency, that liquidation should have shown a balance of P1,062.37 in favor of
Maxilom. It is evident that in view of the prohibition of section 383, paragraph 7, of the Code of Civil
Procedure, Maxilom could not testify in his own behalf against Tabotabo's estate, so as to alter the
balance of the liquidation made by and between himself and the decedent. But in the case before us
there has been no such liquidation between the plaintiffs and the deceased Goitia. They testify, denying
any such liquidation. To apply to them the rule that "if death has sealed the lips of one of the parties, the
law seals those of the other," would be to exclude all possibility of a claim against the testamentary
estate. We do not believe that this was the legislator's intention.
The plaintiffs-appellees did not testify to a fact which took place before their representative's death, but
on the contrary denied that it had taken place at all, i.e. they denied that a liquidation had been made or
any money remitted on account of their shares in the "Tren de Aguadas" which is the ground of their
claim. It was incumbent upon the appellant to prove by proper evidence that the affirmative proposition
was true, either by bringing into court the books which the attorney-in-fact was in duty bound to keep, or
by introducing copies of the drafts kept by the banks which drew them, as was the decedents's usual
practice according to Exhibit I, or by other similar evidence.
The appellant admits having found a book of accounts kept by the decedent showing an item of P90 for
the account of Leonor Mendezona and another of P36 for the account of Valentina Izaguirre, which
agrees with the statement of Ruperto Santos, who succeeded Benigno Goitia in the administration of
said partnership, to the effect that the deceased attorney-in-fact had collected the amounts due the
plaintiffs as dividends on their shares for the months of May and June, 1926, or P90 for Leonor
Mendezona, and P36 for Valentina Izaguirre, amounts which had not been remitted by the deceased to
the plaintiffs.
Finally, the appellant complains that the trial court held by mere inference that Benigno Goitia received
from the "Tren de Aguadas" the amounts of P13,140 and P5,265 for Mendezona and Izaguirre,
respectively, as dividends for the years from 1915 to 1926, inclusive, and in holding again, by mere
inference, that Benigno Goitia did not remit said sums to the plaintiffs.
Page 42 of 99
It is a well established fact in the record that the plaintiffs had an interest or some shares in the
partnership called "Tren de Aguadas," Mendezona holding 180 shares, worth P18,000, and Izaguirre,
72 shares worth P7,200. By the testimony of Ruperto Santos, former secretary of Benigno Goitia and
his successor in the administration of that partnership, it appears that the deceased Benigno Goitia had
received the dividends due the appellees for the months of May and June, 1926. And according to
Exhibit K-I, the dividend for the months of May and June was P0.50 a share. And witness Ramon
Salinas, a practising attorney and one of the shareholders of the partnership "Tren de Aguadas,"
testified, from a notebook which he had, that he received from the "Tren de Aguadas" the following
ordinary dividends: P45 in 1915; P45 in 1916; P45 in 1917; P45 in 1918; P45 in 1919; P90 in 1920;
P67.50 in 1921, and P45 each for 1922, 1923, 4924, 1925, and 1926. By way of extraordinary
dividends, the witness testified that he received P22.50 each year from 1915 to 1918 inclusive; P45 in
1919; P60 in 1920; P37.50 in 1921, 1922, 1923, and 1924; P15 in 1925; and P22.50 in 1926. He further
stated that he received P165 in 1918 as his share of the proceeds of the sale of the boat Santolan.
Summing up all these amounts, we find that the witness Ramon Salinas, from 1915 to 1925, received a
total of P1,087.50.
It further appears that Ruperto Santos assured the court that the dividends for the period from 1915 to
1926 have been distributed among the shareholders, and that the late Benigno Goitia received the
dividends due on the shares pertaining to Leonor Mendezona and Valentina Izaguirre, deducting them
from the total distribution. In view of these data, the court below reached the conclusion, on the basis of
the dividends received by partner Ramon Salinas, that the attorney-in-fact Benigno Goitia received for
the plaintiffs-appellees, respectively, the amounts of P13,140 and P5.256, including the dividends for
1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre.
As to the interest imposed in the judgment appealed from, it is sufficient to cite article 1724 of the Civil
Code, which provides that an agent shall be liable for interest upon any sums he may have applied to
his own use, from the day on which he did so, and upon those which he still owes, after the expiration of
the agency, from the time of his default.
The judgment appealed form being in accordance with the merits of the case, we are of opinion, and so
hold, that the same must be, as it is hereby, affirmed, with costs against the appellant. So ordered.
Johnson, Malcolm, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
AGENCY
G.R. No. L-38479 November 20, 1933
QUINTIN DE BORJA, judicial administrator of the intestate estate of the deceased Marcelo de
Borja, plaintiff-appellant,
vs.
FRANCISCO DE BORJA, defendant-appellant.
M.H. de Joya and Quintin Paredes for plaintiff-appellant.
Jose de Borja for defendant-appellant.
IMPERIAL, J.:
The plaintiff herein, in his capacity as judicial administrator of the estate of the deceased Marcelo de
Borja, instituted this action of the Court of First Instance of Rizal, to recover from the defendant the sum
of P61,376.56 which, according to the amended complaint, the said defendant owed the aforesaid
deceased, for the certain sums of money loaned to and collected by him from other persons with the
obligation to render an accounting thereof to the said deceased.
In his amended answer, the defendant interposed various counterclaims for alleged sums of money
owed by him by the aforesaid deceased.
After the trial thereof and the presentation of voluminous evidence therein, the trial court reached the
conclusion and held that, from his various causes of action, the plaintiff was entitled to recover the sum
of P33,218.86 from the defendant, and that, by way of counterclaim, the said defendant in turn was
entitled to collect the sum of P39,683 from the plaintiff, and rendered judgment in favor of the defendant
in the sum of P6,464.14 with legal interest thereon from the date of the counterclaim, with the costs.
Both parties appealed therefrom.lawphil.net
The trial court made a very careful analysis of the oral and documentary evidence presented therein,
and from the preponderance thereof, inferred the findings of fact stated in its decision. We are convicted
that, from the evidence presented, the liquidation made by the trial court is the nearest approach to its
findings of fact, and for this reason we do not feel inclined to alter or modify it.
The plaintiff-appellant's contention that the counterclaims presented by the defendant have already
prescribed, is untenable. The counterclaims in question are based on instruments in writing marked
Exhibit 1 to 6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in
accordance with the provisions of section 43 (1) of the Code of Civil Procedure.
Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums loaned to and
collected by the defendant from various persons for his deceased father. In all the aforementioned
transactions, the defendant acted in his capacity as attorney-in-fact of his deceased father, and there
being no evidence showing that he converted the money entrusted to him to his own use, he is not
liable for interest thereon, in accordance with the provisions of article 1742 of the Civil Code.
Page 43 of 99
The defendant-appellant's claim to the effect that he is entitled to collect the rents for the use of the
earthen jar factory and the buildings thereof, is, likewise, unfounded. The trial court held that all there
existed between the parties was a mere gratuitous commodatum and that the most that the deceased
bound himself to do was to pay the taxes on the properties in question. There is nothing in the records
of the case to justify reversing the judgment rendered therein.
The judgment appealed from being, in our opinion, in accordance with the law and sufficiently supported
by a preponderance of the evidence presented therein, it is hereby affirmed, without special
pronouncement as to the costs of this instance. So ordered.
Avanceña, C.J., Malcolm, Villa-Real, and Hull, JJ., concur.
G.R. No. 110668 February 6, 1997
SMITH, BELL & CO., INC., petitioner,
vs.
COURT OF APPEALS and JOSEPH BENGZON CHUA,1 respondents.
PANGANIBAN, J.:
The main issue raised in this case is whether a local claim or settling agent is personally and/or
solidarily liable upon a marine insurance policy issued by its disclosed foreign principal.
This is a petition for review on certiorari of the Decision of respondent Court2 promulgated on January
20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court4 which disposed as follows:5
Wherefore, the Court renders judgment condemning the defendants (petitioner and
First Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent)
AGENCY
the amount of US$7,359.78. plus 24% interest thereon annually until the claim is fully
paid, 10% as and for attorney's fees, and the cost.
The Facts
The facts are undisputed by the parties,6 and are narrated by respondent Court, quoting the trial court,
as follows:7
The undisputed facts of the case have been succintly (sic) summarized by the lower court(,) as follows:
. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong,
Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of
Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at
US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the
Port of Kaohsiung, Taiwan on Board S.S. "GOLDEN WEALTH" for the Port on (sic)
Manila. On July 27, 1982, this shipment was insured by the defendant First Insurance
Co. for US$19,500.00 "against all risks" at port of departure under Marine Policy No.
1000M82070033219, with the note "Claim, if any, payable in U.S. currency at Manila
(Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the
lower left side of the policy as "Claim Agent."
The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-
mentioned carrying vessel and landed at port on September 2, 1982. thereafter, the
entire cargo was discharged to the local arrastre contractor, Metroport Services Inc.
with a number of the cargo in apparent bad order condition. On September 27, 1982,
the plaintiff secured the services of a cargo surveyor to conduct a survey of the
damaged cargo which were (sic) delivered by plaintiff's broker on said date to the
plaintiffs premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report
(Exh. "E") showed that of the 1,250 bags of the imported material, 600 were damaged
by tearing at the sides of the container bags and the contents partly empty. Upon
weighing, the contents of the damaged bags were found to be 18,546.0 kg short.
Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a
formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of
the corresponding value of the losses, in the sum of US$7,357.78.00. (sic) After
purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the
plaintiff by letter dated February 15, 1983 (Exh."G-2") that its principal offered only
50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy
between the amounts contained in the shipping agent's reply to the claimant of only
US$90.48 with that of Metroport's. The offer not being acceptable to the plaintiff, the
latter wrote Smith, Bell, & Co. expressing his refusal to the "redress" offer. contending
that the discrepancy was a result of loss from vessel to arrastre to consignees'
warehouse\which losses were still within the "all risk" insurance cover. No settlement
of the claim having been made, the plaintiff then caused the instant case to be filed.
(p. 2, RTC Decision; p. 142, Record).
Denying any liability, defendant-appellant averred in its answer that it is merely a settling or claim agent
of defendant insurance company and as SUCH agent, it is not personally liable under the policy in
which it has not even taken part of. It then alleged that plaintiff-appellee has no cause of action against
it.
Page 44 of 99
Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default.
After due trial and proceeding, the lower court rendered a decision favorable to
plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the
insurance firm on the subject insurance contract as the former presented concrete
evidence of the amount of losses resulting from the risks insured against which were
supported, by reliable report and assessment of professional cargo surveyor. As
regards defendant-appellant, the lower court held that since it is admittedly a claim
agent of the foreign insurance firm doing business in the Philippines justice is better
served if said agent is made liable without prejudice to its right of action against its
principal, the insurance firm. . . .
The Issue
"Whether or not a local settling or claim agent of a disclosed principal — a foreign insurance company
— can be held jointly and severally liable with said principal under the latter's marine cargo insurance
policy, given that the agent is not a party to the insurance contract" 8 — is the sole issue-raised by
petitioner.
Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an agent and
thus not personally liable to the party with whom it contracts on behalf of its principal; (2) it had no
participation at all in the contract of insurance; and (3) the suit is not brought against the real party-in-
interest.9
On the other hand, respondent Court in ruling against petitioner disposed of the main issue by citing a
case it decided in 1987, where petitioner was also a party-litigant. 10 In that case, respondent Court held
that petitioner as resident agent of First Insurance Co. Ltd. was "authorized to settle claims against its
principal. Its defense that its authority excluded personal liability must be proven satisfactorily. There is
a complete dearth of evidence supportive of appellant's non-responsibility as resident agent." The ruling
continued with the statement that "the interest of justice is better served by holding the settling or claim
agent jointly and severally liable with its principal." 11
Likewise, private respondent disputed the applicability of the cases of E Macias & Co. vs. Warner,
Barnes & Co. 12and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its appeal.
According to private respondent, these two cases impleaded only the "insurance agent" and did not
include the principal. While both the foreign principal — which was declared in default by the trial court
— and petitioner, as claim agent, were found to be solidarily liable in this case, petitioner still had
"recourse" against its foreign principal. Also, being a contract of adhesion, an insurance agreement
must be strictly construed against the insurer. 14
The Court's Ruling
There are three reasons why we find for petitioner.
First Reason: Existing Jurisprudence
Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be held
personally and/or solidarily liable for the obligations of its disclosed principal merely because there is
AGENCY
allegedly a need for a speedy settlement of the claim of private respondent. In the leading case
of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled in this wise: 15
We agree with counsel for the appellee that the defendant is a settlement and
adjustment agent of the foreign insurance company and that as such agent it has the
authority to settle all the losses and claims that may arise under the policies that may
be issued by or in behalf of said company in accordance with the instructions it may
receive from time to time from its principal, but we disagree with counsel in his
contention that as such adjustment and settlement agent, the defendant has assumed
personal liability under said policies, and, therefore, it can be sued in its own right. An
adjustment and settlement agent is no different from any other agent from the point of
view of his responsibility (sic), for he also acts in a representative capacity. Whenever
he adjusts or settles a claim, he does it in behalf of his principal, and his action is
binding not upon himself but upon his principal. And here again, the ordinary rule of
agency applies. The following authorities bear this out:
"An insurance adjuster is ordinarily a special agent for the person or
company for whom he acts, and his authority is prima
facie coextensive with the business intrusted to him. . . ."
"An adjuster does not discharge functions of a quasi-judicial nature,
but represents his employer, to whom he owes faithful service, and
for his acts, in the employer's interest, the employer is responsible
so long as the acts are done while the agent is acting within the
scope of his employment." (45 C.J.S., 1338- 1340.)
It, therefore, clearly appears that the scope and extent of the functions of an
adjustment and settlement agent do not include personal liability. His functions are
merely to settle and adjusts claims in behalf of his principal if those claims are proven
and undisputed, and if the claim is disputed or is disapproved by the principal, like in
the instant case, the agent does not assume any personal liability. The recourse of
the insured is to press his claim against the principal. (Emphasis supplied).
The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of time has
not eroded its value or merit. It still applies with equal force and vigor.
Private respondent's contention that Salonga does not apply simply because only the agent was sued
therein while here both agent and principal were impleaded and found solidarily liable is without merit.
Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with
its principal.
Every cause of action ex contractu must be founded upon a contract, oral or written, either express or
implied. 16The only "involvement" of petitioner in the subject contract of insurance was having its name
stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up,
such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated
in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can
be no obligation or liability, and thus no Cause of action against petitioner attaches. Under Article
1311 17 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who
Page 45 of 99
execute them. The subject cargo insurance was between the First Insurance Company, Ltd. and the
Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First
Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in
the contract which mentions the personal liability of petitioner.
Second Reason: Absence of Solidarity Liability
May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent
Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides
that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot
lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would
really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted.
Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle
the claim without any assurance that it can collect from the principal which disapproved such claim, in
the first place. More importantly, such ,position would have absolutely no legal basis.
The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such agent, as a
representative of the foreign insurance company, is tasked only to receive legal processes on behalf of
its principal and not to answer personally for any insurance claims. We quote:
Sec. 190. The Commissioner must require as a condition precedent to the transaction
of insurance business in the Philippines by any foreign insurance company, that such
company file in his office a written power of attorney designating some person who
shall be a resident of the Philippines as its general agent, on whom any notice
provided by law or by any insurance policy, proof summons and other legal processes
may be served in all actions or other legal proceedings against such company, and
consenting that service upon such general agent shall be admitted and held as valid
as if served upon the foreign company at its home office. Any such foreign company
shall, as further condition precedent to the transaction of insurance business in the
Philippines, make and file with the Commissioner an agreement or stipulation,
executed by the proper authorities of said company in form and substance as follows:
The (name of company) does hereby stipulate and agree in consideration of the
permission granted by the Insurance Commissioner to transact business in the
Philippines, that if at any time such company shall leave the Philippines, or cease to
transact business therein, or shall be without any agent in the Philippines on whom
any notice, proof of loss, summons, or legal process may be served, then in any
action or proceeding arising out of any business or transaction which occurred in the
Philippines, service of any notice provided by law, or insurance policy, proof of loss,
summons, or other legal process may be made upon the Insurance Commissioner
shall have the same force and effect as if made upon the company.
Whenever such service of notice, proof of loss, summons or other legal process shall
be made upon the Commissioner he must, within ten days thereafter, transmit by
mail, postage paid, a copy of such notice, proof of loss, summons, or other legal
process to the company at its home or principal office. The sending of such copy of
the Commissioner shall be necessary part of the service of the notice, proof of loss,
or other legal process. (Emphasis supplied).
AGENCY
Further, we note that in the case cited by respondent Court, petitioner was found to be a resident agent
of First Insurance Co. Ltd. In the instant case however, the trial court had to order the service of
summons upon First Insurance Co., Ltd. which would not have been necessary if petitioner was its
resident agent. Indeed, from our reading of the records of this case, we find no factual and legal bases
for the finding of respondent Court that petitioner is the resident agent of First Insurance Co., Ltd.
Third Reason: Not Real Party-In-Interest
Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this
case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party
sued is not the proper party, any decision that may be rendered against him would be futile, for the
decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real
parties-in-interest are, thus:
Sec. 2. Parties in interest. — Every action must be prosecuted and defended in the
name of the real party in interest. All persons having an interest in the subject of the
action and in obtaining the relief demanded shall be joined as plaintiffs. All persons
who claim an interest in the controversy or the subject thereof adverse to the, plaintiff,
or who are necessary to a complete determination or settlement of the questions
involved therein shall be joined as defendants.
The cause of action of private respondent is based on a contract of insurance which as already shown
was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff"
nor is said respondent "necessary to a complete determination or settlement of the questions involved"
in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit
or suffer in case the action prospers. 20
Resort to Equity Misplaced
Finally, respondent Court also contends that "the interest of justice is better served by holding the
settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the
appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice
outside legality," is availed of only in the absence of, and never against, statutory law or judicial
pronouncements. 21 Upon the other hand the liability of agents is clearly provided for by our laws and
existing jurisprudence.
WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the Decision
appealed from is REVERSED and SET ASIDE.
Page 46 of 99

G.R. Nos. 112438-39 December 12, 1995
CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC), petitioner,
vs.
THE HONORABLE COURT OF APPEALS JAIME Y. GONZALES, as Assignee of the Bank of the
Philippine Islands (BPI), RIZAL COMMERCIAL BANKING CORPORATION (RCBC), LAND BANK
OF THE PHILIPPINES (LBP), PHILIPPINE COMMERCIAL & INTERNATIONAL BANK (PCIB) and
THE PHILIPPINE INVESTMENT SYSTEM ORGANIZATION (PISO), respondents.
G.R. No. 113394 December 12, 1995
PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS ASSIGNEE JAIME Y.
GONZALES) petitioner,
vs.
HONORABLE COURT OR APPEALS and CHEMPHIL EXPORT AND IMPORT CORPORATION
(CEIC), respondents.
KAPUNAN, J.:
Before us is a legal tug-of-war between the Chemphil Export and Import Corporation (hereinafter
referred to as CEIC), on one side, and the PISO and Jaime Gonzales as assignee of the Bank of the
Philippine Islands (BPI), Rizal Commercial Banking Corporation (RCBC), Land Bank of the Philippines
(LBP) and Philippine Commercial International Bank (PCIB), on the other (hereinafter referred to as the
consortium), over 1,717,678 shares of stock (hereinafter referred to as the "disputed shares") in the
Chemical Industries of the Philippines (Chemphil/CIP).
Our task is to determine who is the rightful owner of the disputed shares.
Pursuant to our resolution dated 30 May 1994, the instant case is a consolidation of two petitions for
review filed before us as follows:
In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of the Court of Appeals (former Twelfth
Division) promulgated on 30 June 1993 and its resolution of 29 October 1993, denying petitioner's
motion for reconsideration in the consolidated cases entitled "Dynetics, Inc., et al. v. PISO, et al." (CA-
G.R. No. 20467) and "Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-Appellee" (CA-G.R. CV No.
26511).
The dispositive portion of the assailed decision reads, thus:
WHEREFORE, this Court resolves in these consolidated cases as follows:
AGENCY
1. The Orders of the Regional Trial Court, dated March 25, 1988, and May 20, 1988,
subject of CA-G.R. CV No. 10467, are SET ASIDE and judgment is hereby rendered
in favor of the consortium and against appellee Dynetics, Inc., the amount of the
judgment, to be determined by Regional Trial Court, taking into account the value of
assets that the consortium may have already recovered and shall have recovered in
accordance with the other portions of this decision.
2. The Orders of the Regional Trial Court dated December 19, 1989 and March 5,
1990 are hereby REVERSED and SET ASIDE and judgment is hereby rendered
confirming the ownership of the consortium over the Chemphil shares of stock,
subject of CA-G.R. CV No. 26511, and the Order dated September 4, 1989, is
reinstated.
No pronouncement as to costs.
SO ORDERED. 1
In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for the annulment of the Court of
Appeals' decision (former Special Ninth Division) promulgated on 26 March 1993 in "PCIB v. Hon. Job
B. Madayag & CEIC" (CA-G.R. SP NO. 20474) dismissing the petition for certiorari, prohibition
and mandamus filed by PCIB and of said court's resolution dated 11 January 1994 denying their motion
for reconsideration of its decision.2
The antecedent facts leading to the aforementioned controversies are as follows:
On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief
and/or injunction against the PISO, BPI, LBP, PCIB and RCBC or the consortium with the Regional Trial
Court of Makati, Branch 45 (Civil Case No. 8527), seeking judicial declaration, construction and
interpretation of the validity of the surety agreement that Dynetics and Garcia had entered into with the
consortium and to perpetually enjoin the latter from claiming, collecting and enforcing any purported
obligations which Dynetics and Garcia might have undertaken in said agreement.3
The consortium filed their respective answers with counterclaims alleging that the surety agreement in
question was valid and binding and that Dynetics and Garcia were liable under the terms of the said
agreement. It likewise applied for the issuance of a writ of preliminary attachment against Dynetics and
Garcia.4
Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia and Matrix Management & Trading
Corporation filed a complaint for declaratory relief and/or injunction against the Security Bank & Trust
Co. (SBTC case) before the Regional Trial Court of Makati, Branch 135 docketed as Civil Case No.
10398.5
On 2 July 1985, the trial court granted SBTC's prayer for the issuance of a writ of preliminary
attachment and on 9 July 1985, a notice of garnishment covering Garcia's shares in CIP/Chemphil
(including the disputed shares) was served on Chemphil through its then President. The notice of
garnishment was duly annotated in the stock and transfer books of Chemphil on the same date.6
Page 47 of 99
On 6 September 1985, the writ of attachment in favor of SBTC was lifted. However, the same was
reinstated on 30 October 1985.7
In the meantime, on 12 July 1985, the Regional Trial Court in Civil Case No. 8527 (the consortium case)
denied the application of Dynetics and Garcia for preliminary injunction and instead granted the
consortium's prayer for a consolidated writ of preliminary attachment. Hence, on 19 July 1985, after the
consortium had filed the required bond, a writ of attachment was issued and various real and personal
properties of Dynetics and Garcia were garnished, including the disputed shares.8 This garnishment,
however, was not annotated in Chemphil's stock and transfer book.
On 8 September 1987, PCIB filed a motion to dismiss the complaint of Dynetics and Garcia for lack of
interest to prosecute and to submit its counterclaims for decision, adopting the evidence it had adduced
at the hearing of its application for preliminary attachment.9
On 25 March 1988, the Regional Trial Court dismissed the complaint of Dynetics and Garcia in Civil
Case No. 8527, as well as the counterclaims of the consortium, thus:
Resolving defendant's, Philippine Commercial International Bank, MOTION TO
DISMISS WITH MOTION TO SUBMIT DEFENDANT PCIBANK's COUNTERCLAIM
FOR DECISION, dated September 7, 1987:
(1) The motion to dismiss is granted; and the instant case is hereby ordered
dismissed pursuant to Sec. 3, Rule 17 of the Revised Rules of Court, plaintiff having
failed to comply with the order dated July 16, 1987, and having not taken further steps
to prosecute the case; and
(2) The motion to submit said defendant's counterclaim for decision is denied; there is
no need; said counterclaim is likewise dismissed under the authority of Dalman
vs. City Court of Dipolog City, L-63194, January 21, 1985, wherein the Supreme
Court stated that if the civil case is dismissed, so also is the counterclaim filed therein.
"A person cannot eat his cake and have it at the same time" (p. 645, record, Vol. I).10
The motions for reconsideration filed by the consortium were, likewise, denied by the trial court in its
order dated 20 May 1988:
The Court could have stood pat on its order dated 25 March 1988, in regard to which
the defendants-banks concerned filed motions for reconsideration. However,
inasmuch as plaintiffs commented on said motions that: "3). In any event, so as not to
unduly foreclose on the rights of the respective parties to refile and prosecute their
respective causes of action, plaintiffs manifest their conformity to the modification of
this Honorable Court's order to indicate that the dismissal of the complaint and the
counterclaims is without prejudice." (p. 2, plaintiffs' COMMENT etc. dated May 20,
1988). The Court is inclined to so modify the said order.
WHEREFORE , the order issued on March 25, 1988, is hereby modified in the sense
that the dismissal of the complaint as well as of the counterclaims of defendants
RCBC, LBP, PCIB and BPI shall be considered as without prejudice (p. 675, record,
Vol. I).11
AGENCY
Unsatisfied with the aforementioned order, the consortium appealed to the Court of Appeals, docketed
as CA-G.R. CV No. 20467.
On 17 January 1989 during the pendency of consortium's appeal in CA-G.R. CV No. 20467, Antonio
Garcia and the consortium entered into a Compromise Agreement which the Court of Appeals approved
on 22 May 1989 and became the basis of its judgment by compromise. Antonio Garcia was dropped as
a party to the appeal leaving the consortium to proceed solely against Dynetics, Inc.12 On 27 June 1989,
entry of judgment was made by the Clerk of Court.13
Hereunder quoted are the salient portions of said compromise agreement:
xxx xxx xxx
3. Defendants, in consideration of avoiding an extended litigation, having agreed to
limit their claim against plaintiff Antonio M. Garcia to a principal sum of P145 Million
immediately demandable and to waive all other claims to interest, penalties,
attorney's fees and other charges. The aforesaid compromise amount of
indebtedness of P145 Million shall earn interest of eighteen percent (18%) from the
date of this Compromise.
4. Plaintiff Antonio M. Garcia and herein defendants have no further claims against
each other.
5. This Compromise shall be without prejudice to such claims as the parties herein
may have against plaintiff Dynetics, Inc.
6. Plaintiff Antonio M. Garcia shall have two (2) months from date of this Compromise
within which to work for the entry and participation of his other creditor, Security Bank
and Trust Co., into this Compromise. Upon the expiration of this period, without
Security Bank and Trust Co. having joined, this Compromise shall be submitted to the
Court for its information and approval (pp. 27, 28-31, rollo, CA-G.R. CV No. 10467).14
It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale transferred to Ferro Chemicals,
Inc. (FCI) the disputed shares and other properties for P79,207,331.28. It was agreed upon that part of
the purchase price shall be paid by FCI directly to SBTC for whatever judgment credits that may be
adjudged in the latter's favor and against Antonio Garcia in the aforementioned SBTC case.15
On 6 March 1989, FCI, through its President Antonio M. Garcia, issued a Bank of America Check No.
860114 in favor of SBTC in the amount of P35,462,869.62. 16 SBTC refused to accept the check
claiming that the amount was not sufficient to discharge the debt. The check was thus consigned by
Antonio Garcia and Dynetics with the Regional Trial Court as payment of their judgment debt in the
SBTC case.17
On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil, which included the disputed shares,
to petitioner CEIC. The shares were registered and recorded in the corporate books of Chemphil in
CEIC's name and the corresponding stock certificates were issued to it.18
Page 48 of 99
Meanwhile, Antonio Garcia, in the consortium case, failed to comply with the terms of the compromise
agreement he entered into with the consortium on 17 January 1989. As a result, on 18 July 1989, the
consortium filed a motion for execution which was granted by the trial court on 11 August 1989. Among
Garcia's properties that were levied upon on execution were his 1,717,678 shares in Chemphil (the
disputed shares) previously garnished on 19 July 1985.19
On 22 August 1989, the consortium acquired the disputed shares of stock at the public auction sale
conducted by the sheriff for P85,000,000.00. 20 On same day, a Certificate of Sale covering the disputed
shares was issued to it.
On 30 August 1989,21 the consortium filed a motion (dated 29 August 1989) to order the corporate
secretary of Chemphil to enter in its stock and transfer books the sheriff's certificate of sale dated 22
August 1989, and to issue new certificates of stock in the name of the banks concerned. The trial court
granted said motion in its order dated 4 September 1989, thus:
For being legally proper, defendant's MOTION TO ORDER THE CORPORATE
SECRETARY OF CHEMICAL INDUSTRIES OF THE PHILS., INC. (CHEMPIL) TO
ENTER IN THE STOCK AND TRANSFER BOOKS OF CHEMPHIL THE SHERIFF'S
CERTIFICATE OF SALE DATED AUGUST 22, 1989 AND TO ISSUE NEW
CERTIFICATES OF STOCK IN THE NAME OF THE DEFENDANT BANKS, dated
August 29, 1989, is hereby granted.
WHEREFORE, the corporate secretary of the aforesaid corporation, or whoever is
acting for and in his behalf, is hereby ordered to (1) record and/or register the
Certificate of Sale dated August 22, 1989 issued by Deputy Sheriff Cristobal S.
Jabson of this Court; (2) to cancel the certificates of stock of plaintiff Antonio M.
Garcia and all those which may have subsequently been issued in replacement
and/or in substitution thereof; and (3) to issue in lieu of the said shares new shares of
stock in the name of the defendant Banks, namely, PCIB, BPI, RCBC, LBP and PISO
bank in such proportion as their respective claims would appear in this suit (p. 82,
record, Vol. II).22
On 26 September 1989, CEIC filed a motion to intervene (dated 25 September 1989) in the consortium
case seeking the recall of the abovementioned order on grounds that it is the rightful owner of the
disputed shares.23 It further alleged that the disputed shares were previously owned by Antonio M.
Garcia but subsequently sold by him on 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn
assigned the same to CEIC in an agreement dated 26 June 1989.
On 27 September 1989, the trial court granted CEIC's motion allowing it to intervene, but limited only to
the incidents covered by the order dated 4 September 1989. In the same order, the trial court directed
Chemphil's corporate secretary to temporarily refrain from implementing the 4 September 1989
order.24
On 2 October 1989, the consortium filed their opposition to CEIC's motion for intervention alleging that
their attachment lien over the disputed shares of stocks must prevail over the private sale in favor of the
CEIC considering that said shares of stock were garnished in the consortium's favor as early as 19 July
1985.25
AGENCY
On 4 October 1989, the consortium filed their opposition to CEIC's motion to set aside the 4 September
1989 order and moved to lift the 27 September 1989 order.26
On 12 October 1989, the consortium filed a manifestation and motion to lift the 27 September 1989
order, to reinstate the 4 September 1989 order and to direct CEIC to surrender the disputed stock
certificates of Chemphil in its possession within twenty-four (24) hours, failing in which the President,
Corporate Secretary and stock and transfer agent of Chemphil be directed to register the names of the
banks making up the consortium as owners of said shares, sign the new certificates of stocks
evidencing their ownership over said shares and to immediately deliver the stock certificates to them.27
Resolving the foregoing motions, the trial court rendered an order dated 19 December 1989, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the Urgent Motion dated September 25, 1989
filed by CEIC is hereby GRANTED. Accordingly, the Order of September 4, 1989, is
hereby SET ASIDE, and any and all acts of the Corporate Secretary of CHEMPHIL
and/or whoever is acting for and in his behalf, as may have already been done,
carried out or implemented pursuant to the Order of September 4, 1989, are hereby
nullified.
PERFORCE, the CONSORTIUM'S Motions dated October 3, 1989 and October 11,
1989, are both hereby denied for lack of merit.
The Cease and Desist Order dated September 27, 1989, is hereby AFFIRMED and
made PERMANENT.
SO ORDERED.28
In so ruling, the trial court ratiocinated in this wise:
xxx xxx xxx
After careful and assiduous consideration of the facts and applicable law and
jurisprudence, the Court holds that CEIC's Urgent Motion to Set Aside the Order of
September 4, 1989 is impressed with merit. The CONSORTIUM has admitted that the
writ of attachment/garnishment issued on July 19, 1985 on the shares of stock
belonging to plaintiff Antonio M. Garcia was not annotated and registered in the stock
and transfer books of CHEMPHIL. On the other hand, the prior attachment issued in
favor of SBTC on July 2, 1985 by Branch 135 of this Court in Civil Case No. 10398,
against the same CHEMPHIL shares of Antonio M. Garcia, was duly registered and
annotated in the stock and transfer books of CHEMPHIL. The matter of non-recording
of the Consortium's attachment in Chemphil's stock and transfer book on the shares
of Antonio M. Garcia assumes significance considering CEIC's position that FCI and
later CEIC acquired the CHEMPHIL shares of Antonio M. Garcia without knowledge
of the attachment of the CONSORTIUM. This is also important as CEIC claims that it
has been subrogated to the rights of SBTC since CEIC's predecessor-in-interest, the
FCI, had paid SBTC the amount of P35,462,869.12 pursuant to the Deed of Sale and
Purchase of Shares of Stock executed by Antonio M. Garcia on July 15, 1988. By
reason of such payment, sale with the knowledge and consent of Antonio M. Garcia,
Page 49 of 99
 FCI and CEIC, as party-in-interest to FCI, are subrogated by operation of law to the
rights of SBTC. The Court is not unaware of the citation in CEIC's reply that "as
between two (2) attaching creditors, the one whose claims was first registered on the
books of the corporation enjoy priority." (Samahang Magsasaka, Inc. vs. Chua Gan,
96 Phil. 974.)
The Court holds that a levy on the shares of corporate stock to be valid and binding
on third persons, the notice of attachment or garnishment must be registered and
annotated in the stock and transfer books of the corporation, more so when the
shares of the corporation are listed and traded in the stock exchange, as in this case.
As a matter of fact, in the CONSORTIUM's motion of August 30, 1989, they
specifically move to "order the Corporate Secretary of CHEMPHIL to enter in the
stock and transfer books of CHEMPHIL the Sheriff's Certificate of Sale dated August
22, 1989." This goes to show that, contrary to the arguments of the CONSORTIUM, in
order that attachment, garnishment and/or encumbrances affecting rights and
ownership on shares of a corporation to be valid and binding, the same has to be
recorded in the stock and transfer books.
Since neither CEIC nor FCI had notice of the CONSORTIUM's attachment of July 19,
1985, CEIC's shares of stock in CHEMPHIL, legally acquired from Antonio M. Garcia,
cannot be levied upon in execution to satisfy his judgment debts. At the time of the
Sheriff's levy on execution, Antonio M. Garcia has no more in CHEMPHIL which could
be levied upon.29
xxx xxx xxx
On 23 January 1990, the consortium and PCIB filed separate motions for reconsideration of the
aforestated order which were opposed by petitioner
CEIC.30
On 5 March 1990, the trial court denied the motions for
reconsideration.31
On 16 March 1990, the consortium appealed to the Court of Appeals (CA-G.R. No. 26511). In its
Resolution dated 9 August 1990, the Court of Appeals consolidated CA-G.R. No. 26511 with CA-G.R.
No. 20467.32
The issues raised in the two cases, as formulated by the Court of Appeals, are as follows:
I case, was sufficient basis for the RTC to pass upon and determine the consortium's
WHETHER OR NOT, UNDER THE PECULIAR CIRCUMSTANCES OF THE CASE,
THE TRIAL COURT ERRED IN DISMISSING THE COUNTERCLAIMS OF THE
CONSORTIUM IN CIVIL CASE NO. 8527;
II
AGENCY
WHETHER OR NOT THE DISMISSAL OF CIVIL CASE NO. 8527 RESULTED IN
THE DISCHARGE OF THE WRIT OF ATTACHMENT ISSUED THEREIN EVEN AS
THE CONSORTIUM APPEALED THE ORDER DISMISSING CIVIL CASE NO. 8527;
III
WHETHER OR NOT THE JUDGMENT BASED ON COMPROMISE RENDERED BY
THIS COURT ON MAY 22, 1989 HAD THE EFFECT OF DISCHARGING THE
ATTACHMENTS ISSUED IN CIVIL CASE NO. 8527;
IV
WHETHER OR NOT THE ATTACHMENT OF SHARES OF STOCK, IN ORDER TO
BIND THIRD PERSONS, MUST BE RECORDED IN THE STOCK AND TRANSFER
BOOK OF THE CORPORATION; AND
V
WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITS SUCCESSOR-IN-
INTEREST, CEIC, WERE SUBROGATED TO THE RIGHTS OF SECURITY BANK &
TRUST COMPANY (SBTC) IN A SEPARATE CIVIL ACTION. (This issue appears to
be material as SBTC is alleged to have obtained an earlier attachment over the same
Chemphil shares that the consortium seeks to recover in the case at bar).33
On 6 April 1990, the PCIB separately filed with the Court of Appeals a petition for certiorari, prohibition
and mandamus with a prayer for the issuance of a writ of preliminary injunction (CA-G.R. No. SP-
20474), likewise, assailing the very same orders dated 19 December 1989 and 5 March 1990, subject
of CA-G.R. No. 26511.34
On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R. No. 26511 and CA-G.R. No.
20467 rendered a decision reversing the orders of the trial court and confirming the ownership of the
consortium over the disputed shares. CEIC's motion for reconsideration was denied on 29 October
1993.35
In ruling for the consortium, the Court of Appeals made the following ratiocination:36
On the first issue, it ruled that the evidence offered by the consortium in support of its
counterclaims, coupled with the failure of Dynetics and Garcia to prosecute their
counterclaims.
The Court of Appeals found no application for the ruling in Dalman v. City Court of
Dipolog, 134 SCRA 243 (1985) that "a person cannot eat his cake and have it at the
same time. If the civil case is dismissed, so also is the counterclaim filed therein"
because the factual background of the present action is different. In the instant case,
both Dynetics and Garcia and the consortium presented testimonial and documentary
evidence which clearly should have supported a judgment on the merits in favor of
the consortium. As the consortium correctly argued, the net atrocious effect of the
Page 50 of 99
Regional Trial Court's ruling is that it allows a situation where a party litigant is forced
to plead and prove compulsory counterclaims only to be denied those counterclaims
on account of the adverse party's failure to prosecute his case. Verily, the consortium
had no alternative but to present its counterclaims in Civil Case No. 8527 since its
counterclaims are compulsory in nature.
On the second issue, the Court of Appeals opined that unless a writ of attachment is
lifted by a special order specifically providing for the discharge thereof, or unless a
case has been finally dismissed against the party in whose favor the attachment has
been issued, the attachment lien subsists. When the consortium, therefore, took an
appeal from the Regional Trial Court's orders of March 25, 1988 and May 20, 1988,
such appeal had the effect of preserving the consortium's attachment liens secured at
the inception of Civil Case No. 8527, invoking the rule in Olib v. Pastoral, 188 SCRA
692 (1988) that where the main action is appealed, the attachment issued in the said
main case is also considered appealed.
Anent the third issue, the compromise agreement between the consortium and Garcia
dated 17 January 1989 did not result in the abandonment of its attachment lien over
his properties. Said agreement was approved by the Court of Appeals in a Resolution
dated 22 May 1989. The judgment based on the compromise agreement had the
effect of preserving the said attachment lien as security for the satisfaction of said
judgment (citing BF Homes, Inc. v. CA, 190 SCRA 262, [1990]).
As to the fourth issue, the Court of Appeals agreed with the consortium's position that
the attachment of shares of stock in a corporation need not be recorded in the
corporation's stock and transfer book in order to bind third persons.
Section 7(d), Rule 57 of the Rules of Court was complied with by the consortium
(through the Sheriff of the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president of Chemphil on July 19,
1985. Indeed, to bind third persons, no law requires that an attachment of shares of
stock be recorded in the stock and transfer book of a corporation. The statement
attributed by the Regional Trial Court to the Supreme Court in Samahang
Magsasaka, Inc. vs. Gonzalo Chua Guan, G.R. No. L-7252, February 25, 1955
(unreported), to the effect that "as between two attaching creditors, the one whose
claim was registered first on the books of the corporation enjoys priority," is an obiter
dictum that does not modify the procedure laid down in Section 7(d), Rule 57 of the
Rules of Court.
Therefore, ruled the Court of Appeals, the attachment made over the Chemphil
shares in the name of Garcia on July 19, 1985 was made in accordance with law and
the lien created thereby remained valid and subsisting at the time Garcia sold those
shares to FCI (predecessor-in-interest of appellee CEIC) in 1988.
Anent the last issue, the Court of Appeals rejected CEIC's subrogation theory based
on Art. 1302 (2) of the New Civil Code stating that the obligation to SBTC was paid by
Garcia himself and not by a third party (FCI).
AGENCY
The Court of Appeals further opined that while the check used to pay SBTC was a
FCI corporate check, it was funds of Garcia in FCI that was used to pay off SBTC.
That the funds used to pay off SBTC were funds of Garcia has not been refuted by
FCI or CEIC. It is clear, therefore, that there was an attempt on the part of Garcia to
use FCI and CEIC as convenient vehicles to deny the consortium its right to make
itself whole through an execution sale of the Chemphil shares attached by the
consortium at the inception of Civil Case No. 8527. The consortium, therefore, is
entitled to the issuance of the Chemphil shares of stock in its favor. The Regional Trial
Court's order of September 4, 1989, should, therefore, be reinstated in toto.
Accordingly, the question of whether or not the attachment lien in favor of SBTC in the
SBTC case is superior to the attachment lien in favor of the consortium in Civil Case
No. 8527 becomes immaterial with respect to the right of intervenor-appellee CEIC.
The said issue would have been relevant had CEIC established its subrogation to the
rights of SBTC.
On 26 March 1993, the Court of Appeals (Special Ninth Division) in CA-G.R. No. SP 20474 rendered a
decision denying due course to and dismissing PCIB's petition for certiorari on grounds that PCIB
violated the rule against forum-shopping and that no grave abuse of discretion was committed by
respondent Regional Trial Court in issuing its assailed orders dated 19 December 1989 and 5 March
1990. PCIB's motion for reconsideration was denied on 11 January 1994.37
On 7 July 1993, the consortium, with the exception of PISO, assigned without recourse all its rights and
interests in the disputed shares to Jaime Gonzales.38
On 3 January 1994, CEIC filed the instant petition for review docketed as G.R. Nos. 112438-39 and
assigned the following errors:
I.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE
AND REVERSING THE ORDERS OF THE REGIONAL TRIAL COURT DATED
DECEMBER 5, 1989 AND MARCH 5, 1990 AND IN NOT CONFIRMING
PETITIONER'S OWNERSHIP OVER THE DISPUTED CHEMPHIL SHARES
AGAINST THE FRIVOLOUS AND UNFOUNDED CLAIMS OF THE CONSORTIUM.
II.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED:
(1) In not holding that the Consortium's attachment over the
disputed Chemphil shares did not vest any priority right in its favor
and cannot bind third parties since admittedly its attachment on 19
July 1985 was not recorded in the stock and transfer books of
Chemphil, and subordinate to the attachment of SBTC which SBTC
registered and annotated in the stock and transfer books of
Chemphil on 2 July 1985, and that the Consortium's attachment
failed to comply with Sec. 7(d), Rule 57 of the Rules as evidenced
by the notice of garnishment of the deputy sheriff of the trial court
Page 51 of 99
 dated 19 July 1985 (annex "D") which the sheriff served on a
certain Thelly Ruiz who was neither President nor managing agent
of Chemphil;
(2) In not applying the case law enunciated by this Honorable
Supreme Court in Samahang Magsasaka, Inc. vs. Gonzalo Chua
Guan, 96 Phil. 974 that as between two attaching creditors, the one
whose claim was registered first in the books of the corporation
enjoys priority, and which respondent Court erroneously
characterized as mere obiter dictum;
(3) In not holding that the dismissal of the appeal of the Consortium
from the order of the trial court dismissing its counterclaim against
Antonio M. Garcia and the finality of the compromise agreement
which ended the litigation between the Consortium and Antonio M.
Garcia in the Dynetics case had ipso jure discharged the
Consortium's purported attachment over the disputed shares.
III.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING
THAT CEIC HAD BEEN SUBROGATED TO THE RIGHTS OF SBTC SINCE CEIC'S
PREDECESSOR IN INTEREST HAD PAID SBTC PURSUANT TO THE DEED OF
SALE AND PURCHASE OF STOCK EXECUTED BY ANTONIO M. GARCIA ON
JULY 15, 1988, AND THAT BY REASON OF SUCH PAYMENT, WITH THE
CONSENT AND KNOWLEDGE OF ANTONIO M. GARCIA, FCI AND CEIC, AS
PARTY IN INTEREST TO FCI, WERE SUBROGATED BY OPERATION OF LAW TO
THE RIGHTS OF SBTC.
IV.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND MADE
UNWARRANTED INFERENCES AND CONCLUSIONS, WITHOUT ANY
SUPPORTING EVIDENCE, THAT THERE WAS AN ATTEMPT ON THE PART OF
ANTONIO M. GARCIA TO USE FCI AND CEIC AS CONVENIENT VEHICLES TO
DENY THE CONSORTIUM ITS RIGHTS TO MAKE ITSELF WHOLE THROUGH AN
EXECUTION OF THE CHEMPHIL SHARES PURPORTEDLY ATTACHED BY THE
CONSORTIUM ON 19 JULY 1985. 39
On 2 March 1994, PCIB filed its own petition for review docketed as G.R. No. 113394 wherein it raised
the following issues:
I. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN
RENDERING THE DECISION AND RESOLUTION IN QUESTION (ANNEXES A AND
B) IN DEFIANCE OF LAW AND JURISPRUDENCE BY FINDING RESPONDENT
CEIC AS HAVING BEEN SUBROGATED TO THE RIGHTS OF SBTC BY THE
PAYMENT BY FCI OF GARCIA'S DEBTS TO THE LATTER DESPITE THE FACT
THAT —
AGENCY
A. FCI PAID THE SBTC DEBT BY VIRTUE OF A CONTRACT
BETWEEN FCI AND GARCIA, THUS, LEGAL SUBROGATION
DOES NOT ARISE;
B. THE SBTC DEBT WAS PAID BY GARCIA HIMSELF AND NOT
BY FCI, HENCE, SUBROGATION BY PAYMENT COULD NOT
HAVE OCCURRED;
C. FCI DID NOT ACQUIRE ANY RIGHT OVER THE DISPUTED
SHARES AS SBTC HAD NOT YET LEVIED UPON NOR BOUGHT
THOSE SHARES ON EXECUTION. ACCORDINGLY, WHAT FCI
ACQUIRED FROM SBTC WAS SIMPLY A JUDGMENT CREDIT
AND AN ATTACHMENT LIEN TO SECURE ITS SATISFACTION.
II. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN
SUSTAINING THE ORDERS OF THE TRIAL COURT DATED DECEMBER 19, 1989
AND MARCH 5, 1990 WHICH DENIED PETITIONER'S OWNERSHIP OVER THE
DISPUTED SHARES NOTWITHSTANDING PROVISIONS OF LAW AND EXTANT
JURISPRUDENCE ON THE MATTER THAT PETITIONER AND THE CONSORTIUM
HAVE PREFERRED SENIOR RIGHTS THEREOVER.
III. RESPONDENT COURT OF APPEAL COMMITTED SERIOUS ERROR IN
CONCLUDING THAT THE DISMISSAL OF THE COMPLAINT AND THE
COUNTERCLAIM IN CIVIL CASE NO. 8527 ALSO RESULTED IN THE DISCHARGE
OF THE WRIT OF ATTACHMENT DESPITE THE RULINGS OF THIS HONORABLE
COURT IN BF HOMES VS. COURT OF APPEALS, G.R. NOS. 76879 AND 77143,
OCTOBER 3, 1990, 190 SCRA 262, AND IN OLIB VS. PASTORAL, G.R. NO. 81120,
AUGUST 20, 1990, 188 SCRA 692 TO THE CONTRARY.
IV. RESPONDENT COURT OF APPEALS EXCEEDED ITS JURISDICTION IN
RULING ON THE MERITS OF THE MAIN CASE NOTWITHSTANDING THAT
THOSE MATTERS WERE NOT ON APPEAL BEFORE IT.
V. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN
HOLDING THAT PETITIONER IS GUILTY OF FORUM SHOPPING DESPITE THE
FACT THAT SC CIRCULAR NO. 28-91 WAS NOT YET IN FORCE AND EFFECT AT
THE TIME THE PETITION WAS FILED BEFORE RESPONDENT APPELLATE
COURT, AND THAT ITS COUNSEL AT THAT TIME HAD ADEQUATE BASIS TO
BELIEVE THAT CERTIORARI AND NOT AN APPEAL OF THE TRIAL COURT'S
ORDERS WAS THE APPROPRIATE RELIEF.40
As previously stated, the issue boils down to who is legally entitled to the disputed shares of Chemphil.
We shall resolve this controversy by examining the validity of the claims of each party and, thus,
determine whose claim has priority.
CEIC's claim
CEIC traces its claim over the disputed shares to the attachment lien obtained by SBTC on 2 July 1985
against Antonio Garcia in Civil Case No. 10398. It avers that when FCI, CEIC's predecessor-in-interest,
Page 52 of 99
paid SBTC the due obligations of Garcia to the said bank pursuant to the Deed of Absolute Sale and
Purchase of Shares of Stock,41FCI, and later CEIC, was subrogated to the rights of SBTC, particularly
to the latter's aforementioned attachment lien over the disputed shares.
CEIC argues that SBTC's attachment lien is superior as it was obtained on 2 July 1985, ahead of the
consortium's purported attachment on 19 July 1985. More importantly, said CEIC lien was duly recorded
in the stock and transfer books of Chemphil.
CEIC's subrogation theory is unavailing.
By definition, subrogation is "the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which
takes place without agreement but by operation of law because of certain acts; this is the subrogation
referred to in article 1302. Conventional subrogation is that which takes place by agreement of the
parties . . ."42
CEIC's theory is premised on Art. 1302 (2) of the Civil Code which states:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's
knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the
latter's share. (Emphasis ours.)
Despite, however, its multitudinous arguments, CEIC presents an erroneous interpretation of the
concept of subrogation. An analysis of the situations involved would reveal the clear inapplicability of
Art. 1302 (2).
Antonio Garcia sold the disputed shares to FCI for a consideration of P79,207,331.28. FCI, however,
did not pay the entire amount to Garcia as it was obligated to deliver part of the purchase price directly
to SBTC pursuant to the following stipulation in the Deed of Sale:
Manner of Payment
Payment of the Purchase Price shall be made in accordance with the following order
of preferenceprovided that in no instance shall the total amount paid by the Buyer
exceed the Purchase Price:
a. Buyer shall pay directly to the Security Bank and Trust Co. the amount determined
by the Supreme Court as due and owing in favor of the said bank by the Seller.
AGENCY
The foregoing amount shall be paid within fifteen (15) days from the date the decision
of the Supreme Court in the case entitled "Antonio M. Garcia, et al. vs. Court of
Appeals, et al." G.R. Nos. 82282-83 becomes final and executory. 43 (Emphasis ours.)
Hence, when FCI issued the BA check to SBTC in the amount of P35,462,869.62 to pay Garcia's
indebtedness to the said bank, it was in effect paying with Garcia's money, no longer with its own,
because said amount was part of the purchase price which FCI owed Garcia in payment for the sale of
the disputed shares by the latter to the former. The money "paid" by FCI to SBTC, thus properly
belonged to Garcia. It is as if Garcia himself paid his own debt to SBTC but through a third party — FCI.
It is, therefore, of no consequence that what was used to pay SBTC was a corporate check of FCI. As
we have earlier stated, said check no longer represented FCI funds but Garcia's money, being as it was
part of FCI's payment for the acquisition of the disputed shares. The FCI check should not be taken at
face value, the attendant circumstances must also be considered.
The aforequoted contractual stipulation in the Deed of Sale dated 15 July 1988 between Antonio Garcia
and FCI is nothing more but an arrangement for the sake of convenience. Payment was to be effected
in the aforesaid manner so as to prevent money from changing hands needlessly. Besides, the very
purpose of Garcia in selling the disputed shares and his other properties was to "settle certain civil suits
filed against him."44
Since the money used to discharge Garcia's debt rightfully belonged to him, FCI cannot be considered
a third party payor under Art. 1302 (2). It was but a conduit, or as aptly categorized by respondents,
merely an agent as defined in Art. 1868 of the Civil Code:
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.
FCI was merely fulfilling its obligation under the aforementioned Deed of Sale.
Additionally, FCI is not a disinterested party as required by Art. 1302 (2) since the benefits of the
extinguishment of the obligation would redound to none other but itself.45 Payment of the judgment debt
to SBTC resulted in the discharge of the attachment lien on the disputed shares purchased by FCI. The
latter would then have a free and "clean" title to said shares.
In sum, CEIC, for its failure to fulfill the requirements of Art. 1302 (2), was not subrogated to the rights of
SBTC against Antonio Garcia and did not acquire SBTC's attachment lien over the disputed shares
which, in turn, had already been lifted or discharged upon satisfaction by Garcia, through FCI, of his
debt to the said bank.46
The rule laid down in the case of Samahang Magsasaka, Inc. v. Chua Guan,47 that as between two
attaching creditors the one whose claim was registered ahead on the books of the corporation enjoys
priority, clearly has no application in the case at bench. As we have amply discussed, since CEIC was
not subrogated to SBTC's right as attaching creditor, which right in turn, had already terminated after
Garcia paid his debt to SBTC, it cannot, therefore, be categorized as an attaching creditor in the present
controversy. CEIC cannot resurrect and claim a right which no longer exists. The issue in the instant
case, then, is priority between an attaching creditor (the consortium) and a purchaser (FCI/CEIC) of the
Page 53 of 99
disputed shares of stock and not between two attaching creditors — the subject matter of the
aforestated Samahang Magsasaka case.
CEIC, likewise, argues that the consortium's attachment lien over the disputed Chemphil shares is
null and void and not binding on third parties due to the latter's failure to register said lien in the stock
and transfer books of Chemphil as mandated by the rule laid down by the Samahang Magsasaka
v. Chua Guan.48
The attachment lien acquired by the consortium is valid and effective. Both the Revised Rules of Court
and the Corporation Code do not require annotation in the corporation's stock and transfer books for the
attachment of shares of stock to be valid and binding on the corporation and third party.
Section 74 of the Corporation Code which enumerates the instances where registration in the stock and
transfer books of a corporation provides:
Sec. 74. Books to be kept; stock transfer agent. —
xxx xxx xxx
Stock corporations must also keep a book to be known as the stock and transfer
book, in which must be kept a record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any settlement; a statement
of every alienation, sale or transfer of stock made, the date thereof, and by and to
whom made; and such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the corporation or in the office of
its stock transfer agent and shall be open for inspection by any director or stockholder
of the corporation at reasonable hours on business days. (Emphasis ours.)
xxx xxx xxx
Section 63 of the same Code states:
Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president
or vice-president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with the by-
laws. 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 so as to show 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.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (Emphasis ours.)
AGENCY
Are attachments of shares of stock included in the term "transfer" as provided in Sec. 63 of the
Corporation Code? We rule in the negative. As succinctly declared in the case of Monserrat
v. Ceron,49 "chattel mortgage over shares of stock need not be registered in the corporation's stock and
transfer book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of
shares," and that only absolute transfers of shares of stock are required to be recorded in the
corporation's stock and transfer book in order to have "force and effect as against third persons."
xxx xxx xxx
The word "transferencia" (transfer) is defined by the "Diccionario de la Academia de la
Lengua Castellana" as "accion y efecto de transfeir" (the act and effect of
transferring); and the verb "transferir", as "ceder or renunciar en otro el derecho o
dominio que se tiene sobre una cosa, haciendole dueno de ella" (to assign or waive
the right in, or absolute ownership of, a thing in favor of another, making him the
owner thereof).
In the Law Dictionary of "Words and Phrases", third series, volume 7, p. 5867, the
word "transfer" is defined as follows:
"Transfer" means any act by which property of one person is vested
in another, and "transfer of shares", as used in Uniform Stock
Transfer Act (Comp. St. Supp. 690), implies any means whereby
one may be divested of and another acquire ownership of stock.
(Wallach vs. Stein [N.J.], 136 A., 209, 210.)
xxx xxx xxx
In the case of Noble vs. Ft. Smith Wholesale Grocery Co. (127 Pac., 14, 17; 34 Okl.,
662; 46 L.R.A. [N.S.], 455), cited in Words and Phrases, second series, vol. 4, p. 978,
the following appears:
A "transfer" is the act by which the owner of a thing delivers it to
another with the intent of passing the rights which he has in it to the
latter, and a chattel mortgage is not within the meaning of such
term.
xxx xxx xxx.50
Although the Monserrat case refers to a chattel mortgage over shares of stock, the same may be
applied to the attachment of the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of property but is primarily used as a means "to
seize the debtor's property in order to secure the debt or claim of the creditor in the event that a
judgment is rendered."51
Known commentators on the Corporation Code expound, thus:
xxx xxx xxx
Page 54 of 99
 Shares of stock being personal property, may be the subject matter of pledge and
chattel mortgage. Such collateral transfers are however not covered by the
registration requirement of Section 63, since our Supreme Court has held that such
provision applies only to absolute transfers thus, the registration in the corporate
books of pledges and chattel mortgages of shares cannot have any legal
effect. 52(Emphasis ours.)
xxx xxx xxx
The requirement that the transfer shall be recorded in the books of the corporation to
be valid as against third persons has reference only to absolute transfers or absolute
conveyance of the ownership or title to a share.
Consequently, the entry or notation on the books of the corporation of pledges and
chattel mortgages on shares is not necessary to their validity (although it is advisable
to do so) since they do not involve absolute alienation of ownership of stock
(Monserrat vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang Magsasaka,
Inc., 62 Phil. 472 [1935].) To affect third persons, it is enough that the date and
description of the shares pledged appear in a public instrument. (Art. 2096, Civil
Code.) With respect to a chattel mortgage constituted on shares of stock, what is
necessary is its registration in the Chattel Mortgage Registry. (Act No. 1508 and Art.
2140, Civil Code.)53
CEIC's reliance on the Samahang Magsasaka case is misplaced. Nowhere in the said decision was it
categorically stated that annotation of the attachment in the corporate books is mandatory for its validity
and for the purpose of giving notice to third persons.
The only basis, then, for petitioner CEIC's claim is the Deed of Sale under which it purchased the
disputed shares. It is, however, a settled rule that a purchaser of attached property acquires it subject to
an attachment legally and validly levied thereon.54
Our corollary inquiry is whether or not the consortium has indeed a prior valid and existing attachment
lien over the disputed shares.
Jaime Gonzales' /Consortium's Claim
Is the consortium's attachment lien over the disputed shares valid?
CEIC vigorously argues that the consortium's writ of attachment over the disputed shares of Chemphil
is null and void, insisting as it does, that the notice of garnishment was not validly served on the
designated officers on 19 July 1985.
To support its contention, CEIC presented the sheriff's notice of garnishment55 dated 19 July 1985 which
showed on its face that said notice was received by one Thelly Ruiz who was neither the president nor
managing agent of Chemphil. It makes no difference, CEIC further avers, that Thelly Ruiz was the
secretary of the President of Chemphil, for under the above-quoted provision she is not among the
officers so authorized or designated to be served with the notice of garnishment.
AGENCY
We cannot subscribe to such a narrow view of the rule on proper service of writs of attachment.
A secretary's major function is to assist his or her superior. He/she is in effect an extension of the latter.
Obviously, as such, one of her duties is to receive letters and notices for and in behalf of her superior,
as in the case at bench. The notice of garnishment was addressed to and was actually received by
Chemphil's president through his secretary who formally received it for him. Thus, in one case,56 we
ruled that the secretary of the president may be considered an "agent" of the corporation and held that
service of summons on him is binding on the corporation.
Moreover, the service and receipt of the notice of garnishment on 19 July 1985 was duly acknowledged
and confirmed by the corporate secretary of Chemphil, Rolando Navarro and his successor Avelino
Cruz through their respective certifications dated 15 August 198957 and 21 August 1989.58
We rule, therefore, that there was substantial compliance with Sec. 7(d), Rule 57 of the Rules of Court.
Did the compromise agreement between Antonio Garcia and the consortium discharge the latter's
attachment lien over the disputed shares?
CEIC argues that a writ of attachment is a mere auxiliary remedy which, upon the dismissal of the case,
dies a natural death. Thus, when the consortium entered into a compromise agreement, 59 which
resulted in the termination of their case, the disputed shares were released from garnishment.
We disagree. To subscribe to CEIC's contentions would be to totally disregard the concept and purpose
of a preliminary attachment.
A writ of preliminary attachment is a provisional remedy issued upon order of the
court where an action is pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the Sheriff as security for the
satisfaction of whatever judgment might be secured in said action by the attaching
creditor against the defendant.60 (Emphasis ours.)
Attachment is a juridical institution which has for its purpose to secure the outcome of
the trial, that is, the satisfaction of the pecuniary obligation really contracted by a
person or believed to have been contracted by him, either by virtue of a civil
obligation emanating from contract or from law, or by virtue of some crime or
misdemeanor that he might have committed, and the writ issued, granted it, is
executed by attaching and safely keeping all the movable property of the defendant,
or so much thereof may be sufficient to satisfy the plaintiff's demands . . .61 (Emphasis
ours.)
The chief purpose of the remedy of attachment is to secure a contingent lien on
defendant's property until plaintiff can, by appropriate proceedings, obtain a judgment
and have such property applied to its satisfaction, or to make some provision for
unsecured debts in cases where the means of satisfaction thereof are liable to be
removed beyond the jurisdiction, or improperly disposed of or concealed, or otherwise
placed beyond the reach of creditors.62 (Emphasis ours.)
Page 55 of 99
We reiterate the rule laid down in BF Homes, Inc. v. CA 63 that an attachment lien continues until the
debt is paid, or sale is had under execution issued on the judgment or until judgment is satisfied, or the
attachment discharged or vacated in the same manner provided by law. We expounded in said case
that:
The appointment of a rehabilitation receiver who took control and custody of BF has
not necessarily secured the claims of Roa and Mendoza. In the event that the
receivership is terminated with such claims not having been satisfied, the creditors
may also find themselves without security therefor in the civil action because of the
dissolution of the attachment. This should not be permitted. Having previously
obtained the issuance of the writ in good faith, they should not be deprived of its
protection if the rehabilitation plan does not succeed and the civil action is resumed.
xxx xxx xxx
As we ruled in Government of the Philippine Islands v. Mercado:
Attachment is in the nature of a proceeding in rem. It is against the
particular property. The attaching creditor thereby acquires specific
lien upon the attached property which ripens into a judgment
against the res when the order of sale is made. Such a proceeding
is in effect a finding that the property attached is an indebted thing
and a virtual condemnation of it to pay the owner's debt. The law
does not provide the length of time an attachment lien shall
continue after the rendition of judgment, and it must therefore
necessarily continue until the debt is paid, or sale is had under
execution issued on the judgment or until judgment is satisfied, or
the attachment discharged or vacated in some manner provided by
law.
It has been held that the lien obtained by attachment stands upon
as high equitable grounds as a mortgage lien:
The lien or security obtained by an attachment even before
judgment, is a fixed and positive security, a specific lien, and,
although whether it will ever be made available to the creditor
depends on contingencies, its existence is in no way contingent,
conditioned or inchoate. It is a vested interest, an actual and
substantial security, affording specific security for satisfaction of the
debt put in suit, which constitutes a cloud on the legal title, and is
as specific as if created by virtue of a voluntary act of the debtor
and stands upon as high equitable grounds as a mortgage.
(Corpus Juris Secundum, 433, and authorities therein cited.)
xxx xxx xxx
The case at bench admits of a peculiar character in the sense that it involves a compromise agreement.
Nonetheless, the rule established in the aforequoted cases still applies, even more so since the terms of
the agreement have to be complied with in full by the parties thereto. The parties to the compromise
AGENCY
agreement should not be deprived of the protection provided by an attachment lien especially in an
instance where one reneges on his obligations under the agreement, as in the case at bench, where
Antonio Garcia failed to hold up his own end of the deal, so to speak.
Moreover, a violation of the terms and conditions of a compromise agreement entitles the aggrieved
party to a writ of execution.
In Abenojar & Tana v. CA, et al., 64 we held:
The non-fulfillment of the terms and conditions of a compromise agreement approved
by the Court justifies execution thereof and the issuance of the writ for said purpose is
the Court's ministerial duty enforceable by mandamus.
Likewise we ruled in Canonizado v. Benitez:65
A judicial compromise may be enforced by a writ of execution. If a party fails or
refuses to abide by the compromise, the other party may enforce the compromise or
regard it as rescinded and insist upon his original demand.
If we were to rule otherwise, we would in effect create a back door by which a debtor can easily escape
his creditors. Consequently, we would be faced with an anomalous situation where a debtor, in order to
buy time to dispose of his properties, would enter into a compromise agreement he has no intention of
honoring in the first place. The purpose of the provisional remedy of attachment would thus be lost. It
would become, in analogy, a declawed and toothless tiger.
From the foregoing, it is clear that the consortium and/or its assignee Jaime Gonzales have the better
right over the disputed shares. When CEIC purchased the disputed shares from Antonio Garcia on 15
July 1988, it took the shares subject to the prior, valid and existing attachment lien in favor of and
obtained by the consortium.
Forum Shopping in G.R. No. 113394
We uphold the decision of the Court of Appeals finding PCIB guilty of forum-shopping.66
The Court of Appeals opined:
True it is, that petitioner PCIB was not a party to the appeal made by the four other
banks belonging to the consortium, but equally true is the rule that where the rights
and liabilities of the parties appealing are so interwoven and dependent on each other
as to be inseparable, a reversal of the appealed decision as to those who appealed,
operates as a reversal to all and will inure to the benefit of those who did not join the
appeal (Tropical Homes vs. Fortun, 169 SCRA 80, p. 90, citing Alling vs. Wenzel, 133
111. 264-278; 4 C.J. 1206). Such principal, premised upon communality of interest of
the parties, is recognized in this jurisdiction (Director of Lands vs. Reyes, 69 SCRA
415). The four other banks which were part of the consortium, filed their notice of
appeal under date of March 16, 1990, furnishing a copy thereof upon the lawyers of
petitioner. The petition for certiorari in the present case was filed on April 10, 1990,
Page 56 of 99
 long after the other members of the consortium had appealed from the assailed order
of December 19, 1989.
We view with skepticism PCIB's contention that it did not join the consortium because it "honestly
believed that certiorari was the more efficacious and speedy relief available under the
circumstances."67 Rule 65 of the Revised Rules of Court is not difficult to understand. Certiorari is
available only if there is no appeal or other plain, speedy and adequate remedy in the ordinary course of
law. Hence, in instituting a separate petition for certiorari, PCIB has deliberately resorted to forum-
shopping.
PCIB cannot hide behind the subterfuge that Supreme Court Circular 28-91 was not yet in force when it
filed the certiorari proceedings in the Court of Appeals. The rule against forum-shopping has long been
established.68Supreme Court Circular 28-91 merely formalized the prohibition and provided the
appropriate penalties against transgressors.
It alarms us to realize that we have to constantly repeat our warning against forum-shopping. We
cannot over-emphasize its ill-effects, one of which is aptly demonstrated in the case at bench where we
are confronted with two divisions of the Court of Appeals issuing contradictory decisions69 one in favor
of CEIC and the other in favor of the consortium/Jaime Gonzales.
Forum-shopping or the act of a party against whom an adverse judgment has been rendered in one
forum, of seeking another (and possibly favorable) opinion in another forum (other than by appeal or the
special civil action of certiorari), or the institution of two (2) or more actions or proceedings grounded on
the same cause on the supposition that one or the other court would make a favorable disposition,70 has
been characterized as an act of malpractice that is prohibited and condemned as trifling with the Courts
and abusing their processes. It constitutes improper conduct which tends to degrade the administration
of justice. It has also been aptly described as deplorable because it adds to the congestion of the
already heavily burdened dockets of the
courts.71
WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438-39 is hereby
AFFIRMED and the appealed decision in G.R. No. 113394, insofar as it adjudged the CEIC the rightful
owner of the disputed shares, is hereby REVERSED. Moreover, for wantonly resorting to forum-
shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition of the same or similar acts in
the future shall be dealt with more severely.
SO ORDERED.
AGENCY
G.R. No. 150128 August 31, 2006
LAUREANO T. ANGELES, Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO FLORES, 1Respondents.
DECISION
GARCIA, J.:
Under consideration is this petition for review under Rule 45 of the Rules of Court assailing and seeking
to set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 54062, to wit:
1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional Trial Court (RTC) of
Quezon City, Branch 79, which dismissed the complaint for specific performance and damages thereat
commenced by the petitioner against the herein respondents; and
2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain Gaudencio
Romualdez (Romualdez, hereinafter) that it has accepted the latter’s offer to buy, on an "AS IS, WHERE
IS" basis, the PNR’s scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga
at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount of P96,600.00. After
paying the stated purchase price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNR’s Acting
Purchasing Agent. Bearing date May 26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful representative in the
withdrawal of the scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5, 1980 and O.R. No.
8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and participation in favor
of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Page 57 of 99
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner's now deceased
wife. That very same day – May 26, 1980 – Lizette requested the PNR to transfer the location of
withdrawal for the reason that the scrap/unserviceable rails located in Del Carmen and Lubao,
Pampanga were not ready for hauling. The PNR granted said request and allowed Lizette to withdraw
scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead. However, the PNR
subsequently suspended the withdrawal in view of what it considered as documentary discrepancies
coupled by reported pilferages of over P500,000.00 worth of PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00. The PNR,
however, refused to pay, alleging that as per delivery receipt duly signed by Lizette, 54.658 metric tons
of unserviceable rails had already been withdrawn which, at P2,100.00 per metric ton, were
worth P114,781.80, an amount that exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate secretary,
Rodolfo Flores, among others, for specific performance and damages before the Regional Trial Court of
Quezon City. In it, they prayed that PNR be directed to deliver 46 metric tons of scrap/unserviceable
rails and to pay them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial ensued. Meanwhile,
Lizette W. Angeles passed away and was substituted by her heirs, among whom is her husband, herein
petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real parties-in-
interest, rendered judgment dismissing their complaint for lack of cause of action. As held by the court,
Lizette was merely a representative of Romualdez in the withdrawal of scrap or unserviceable rails
awarded to him and not an assignee to the latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at the threshold hereof, in
its decision of June 4, 2001, dismissed the appeal and affirmed that of the trial court. The affirmatory
decision was reiterated by the CA in its resolution of September 17, 2001, denying the petitioner’s
motion for reconsideration.
Hence, the petitioner’s present recourse on the submission that the CA erred in affirming the trial court's
holding that petitioner and his spouse, as plaintiffs a quo, had no cause of action as they were not the
real parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter of Romualdez to Atty.
Dizon of the PNR should be taken: was it meant to designate, or has it the effect of designating, Lizette
W. Angeles as a mere agent or as an assignee of his (Romualdez's) interest in the scrap rails awarded
to San Juanico Enterprises? The CA’s conclusion, affirmatory of that of the trial court, is that Lizette was
not an assignee, but merely an agent whose authority was limited to the withdrawal of the scrap rails,
hence, without personality to sue.
AGENCY
Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the principal and
not to the agent and the relationship of the third party to the principal is the same as that in a contract in
which there is no agent. Normally, the agent has neither rights nor liabilities as against the third party.
He cannot thus sue or be sued on the contract. Since a contract may be violated only by the parties
thereto as against each other, the real party-in-interest, either as plaintiff or defendant in an action upon
that contract must, generally, be a contracting party.
The legal situation is, however, different where an agent is constituted as an assignee. In such a case,
the agent may, in his own behalf, sue on a contract made for his principal, as an assignee of such
contract. The rule
requiring every action to be prosecuted in the name of the real party-in-interest recognizes the
assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest and may maintain an
action upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26, 1980, it is at once
apparent that Lizette was to act just as a "representative" of Romualdez in the "withdrawal of rails," and
not an assignee. For perspective, we reproduce the contents of said letter:
This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO x x x to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5, 1980 and O.R. No.
8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and participation in favor
of LIZETTE R. WIJANCO. (Emphasis added)
If Lizette was without legal standing to sue and appear in this case, there is more reason to hold that
her petitioner husband, either as her conjugal partner or her heir, is also without such standing.
Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact" were not used in the
Romualdez letter aforestated. It bears to stress, however, that the words "principal" and "agent," are not
the only terms used to designate the parties in an agency relation. The agent may also be called an
attorney, proxy, delegate or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active verb "authorized," instead of
"assigned," indicated an intent on his part to keep and retain his interest in the subject matter. Stated a
bit differently, he intended to limit Lizette’s role in the scrap transaction to being the representative of his
interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating - "I have given [Lizette]
the original copy of the award x x x which will indicate my waiver of rights, interests and participation in
favor of Lizette R. Wijanco" - clarifies that Lizette was intended to be an assignee, and not a mere
agent.
Page 58 of 99
We are not persuaded. As it were, the petitioner conveniently omitted an important phrase preceding A power of attorney must be strictly construed and pursued. The instrument will be held to grant only
the paragraph which would have put the whole matter in context. The phrase is "For this reason," and those powers which are specified therein, and the agent may neither go beyond nor deviate from the
the antecedent thereof is his (Romualdez) having appointed Lizette as his representative in the matter power of attorney. 10Contextually, all that Lizette was authorized to do was to withdraw the
of the withdrawal of the scrap items. In fine, the key phrase clearly conveys the idea that Lizette was unserviceable/scrap railings. Allowing her authority to sue therefor, especially in her own name, would
given the original copy of the contract award to enable her to withdraw the rails as Romualdez’s be to read something not intended, let alone written in the Romualdez letter.
authorized representative.
Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the PNR appears to be a
Article 1374 of the Civil Code provides that the various stipulations of a contract shall be read and mere afterthought; it ought to be dismissed outright under the estoppel principle. In earlier proceedings,
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken petitioner himself admitted in his complaint that it was Romualdez who paid this amount.
jointly. In fine, the real intention of the parties is primarily to be determined from the language used and
gathered from the whole instrument. When put into the context of the letter as a whole, it is abundantly WHEREFORE, the petition is DENIED and the assailed decision of the CA is AFFIRMED.
clear that the rights which Romualdez waived or ceded in favor of Lizette were those in furtherance of
the agency relation that he had established for the withdrawal of the rails.
Costs against the petitioner.
At any rate, any doubt as to the intent of Romualdez generated by the way his letter was couched could
be clarified by the acts of the main players themselves. Article 1371 of the Civil Code provides that to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt, resort may be made to the situation,
surroundings, and relations of the parties.

The fact of agency was, as the trial court aptly observed, 5 confirmed in subsequent letters from the
Angeles spouses in which they themselves refer to Lizette as "authorized representative" of San
Juanico Enterprises. Mention may also be made that the withdrawal receipt which Lizette had signed
indicated that she was doing so in a representative capacity. One professing to act as agent for another
is estopped to deny his agency both as against his asserted principal and third persons interested in the
transaction which he engaged in.

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. The appellate court, and before it, the trial court, had peremptorily
determined that Lizette, with respect to the withdrawal of the scrap in question, was acting for
Romualdez. And with the view we take of this case, there were substantial pieces of evidence adduced
to support this determination. The desired reversal urged by the petitioner cannot, accordingly, be
granted. For, factual findings of the trial court, adopted and confirmed by the CA, are, as a rule, final and G.R. No. 167552 April 23, 2007
conclusive and may not be disturbed on appeal. 6 So it must be here.
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
Petitioner maintains that the Romualdez letter in question was not in the form of a special power of vs.
attorney, implying that the latter had not intended to merely authorize his wife, Lizette, to perform an act EDWIN CUIZON and ERWIN CUIZON, Respondents.
for him (Romualdez). The contention is specious. In the absence of statute, no form or method of
execution is required for a valid power of attorney; it may be in any form clearly showing on its face the DECISION
agent’s authority. 7
CHICO-NAZARIO, J.:
A power of attorney is only but an instrument in writing by which a person, as principal, appoints another
as his agent and confers upon him the authority to perform certain specified acts on behalf of the
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10
principal. The written authorization itself is the power of attorney, and this is clearly indicated by the fact
August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
that it has also been called a "letter of attorney." Its primary purpose is not to define the authority of the
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed
agent as between himself and his principal but to evidence the authority of the agent to third parties with
the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
whom the agent deals. 8 The letter under consideration is sufficient to constitute a power of attorney.
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
Except as may be required by statute, a power of attorney is valid although no notary public intervened
in its execution. 9
The generative facts of the case are as follows:
AGENCY Page 59 of 99
Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN).
Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
ninety-one thousand three hundred thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought
to buy from petitioner one unit of sludge pump valued at ₱250,000.00 with respondents making a down
payment of fifty thousand pesos (₱50,000.00).4 When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent
part of which states:
5
1.) That ASSIGNOR has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment
for the purchase of one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) 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 ₱365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995
issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner’s counsel sent respondents a final demand letter wherein it
was stated that as of 11 June 1996, respondents’ total obligations stood at ₱295,000.00 excluding
interests and attorney’s fees.11 Because of respondents’ failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment
against herein respondents before the Regional Trial Court of Cebu City.12
On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary
attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations
with respect to the sale transactions entered into by Impact Systems and petitioner between January
and April 1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner
which, according to him, amounted to only ₱220,000.00.16
AGENCY
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In
support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales ("Impact
Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may
be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is
the Sales Manager of Impact Systems and is sued in this action in such capacity.17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied
petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of
the case on 16 October 2001.19 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 EDWIN’s Memorandum21 in support of his special and affirmative defenses
and petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002
dropping respondent EDWIN as a party defendant in this case. According to the trial court –
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B.
Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that
plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is
dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which
is owned solely by defendant Erwin H. Cuizon, made a down payment of ₱50,000.00 that Annex "H" is
dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact]
Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that
[Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted
the down payment of ₱50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant
Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew
about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B.
Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of ₱50,000.00 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
Page 60 of 99
Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated
on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT
PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD. 25
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting
the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to
sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made personally liable for the obligations of his principal.26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in
this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was
a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even
to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager
of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which
clearly states that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latter’s consent.29 The underlying principle of the contract
of agency is to accomplish results by using the services of others – to do a great variety of things like
selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the
principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is
said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal
on matters within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence – qui facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish
the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34
AGENCY
In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect of his deed
pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to
the party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the
obligation and the second is when he exceeds his authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN
does not fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager;
such a position presupposes a degree of confidence reposed and investiture with liberal powers for the
exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to
the business entrusted to his care and management. In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid
the amount of fifty thousand pesos (₱50,000.00) 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 EDWIN’s participation
in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil
Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party."39 To
reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself becomes liable to a
third party when he expressly binds himself or he exceeds the limits of his authority without giving notice
of his powers to the third person. However, it must be pointed out that in case of excess of authority by
Page 61 of 99
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.
G.R. No. L-2344 February 10, 1906
GONZALO TUASON, plaintiff-appellee,
vs.
DOLORES OROZCO, defendant-appellant.
Hartigan, Marple, Rohde and Gutierrez for appellant.
Ledesma, Sumulong and Quintos for appellee.
MAPA, J.:
On November 19, 1888, Juan de Vargas y Amaya, the defendant's husband, executed a power of
attorney to Enrique Grupe, authorizing him, among other things, to dispose of all his property, and
AGENCY
particularly of a certain house and lot known as No. 24 Calle Nueva, Malate, in the city of Manila, for the
price at which it was actually sold. He was also authorized to mortgage the house for the purpose of
securing the payment of any amount advanced to his wife, Dolores Orozco de Rivero, who, inasmuch
as the property had been acquired with funds belonging to the conjugal partnership, was a necessary
party to its sale or incumbrance.
On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de Rivero obtained a loan from the
plaintiff secured by a mortgage on the property referred to in the power of attorney. In the caption of the
instrument evidencing the debt it is stated that Grupe and Dolores Orozco appeared as the parties of
the first part and Gonzalo Tuason, the plaintiff, as the party of the second part; that Grupe acted for
himself and also in behalf of Juan Vargas by virtue of the power granted him by the latter, and that
Dolores Orozco appeared merely for the purpose of complying with the requirement contained in the
power of attorney. In the body of the instrument the following appears:
1. Enrique Grupe acknowledges to have this day received from Gonzalo Tuason as a loan,
after deducting therefrom the interest agreed upon, the sum of 3,500 pesos in cash, to his
entire satisfaction, which sum he promises to pay within one year from the date hereof.
2. Grupe also declares that of the 3,500 pesos, he has delivered to Dolores Orozco the sum of
2,200 pesos, having retained the remaining 1,300 pesos for use in his business; that
notwithstanding this distribution of the amount borrowed, he assumes liability for the whole
sum of 3,500 pesos, which he promises to repay in current gold or silver coin, without discount,
in this city on the date of the maturity of the loan, he otherwise to be liable for all expenses
incurred and damages suffered by his creditor by reason of his failure to comply with any or all
of the conditions stipulated herein, and to pay further interest at the rate of 1 per cent per
month from the date of default until the debt is fully paid.
3. Grupe pledges as special security for the payment of the debt 13 shares of stock in the
"Compañia de los Tranvias de Filipinas," which shares he has delivered to his creditor duly
indorsed so that the latter in case of his insolvency may dispose of the same without any
further formalities.
4. To secure the payment of the 2,200 pesos delivered to Dolores Orozco as aforesaid he
specially mortgages the house and lot No. 24, Calle Nueva, Malate, in the city of Manila (the
same house referred to in the power at attorney executed by Vargas to Grupe).
5. Dolores Orozco states that, in accordance with the requirement contained in the power of
attorney executed by Vargas to Grupe, she appears for the purpose of confirming the
mortgage created upon the property in question.
6. Gonzalo Tuason does hereby accept all rights and actions accruing to him under his
contract.
This instrument was duly recorded in the Registry of Property, and it appears therefrom that Enrique
Grupe, as attorney in fact for Vargas, received from the plaintiff a loan of 2,200 pesos and delivered the
same to the defendant; that to secure its payment he mortgaged the property of his principal with
defendant's consent as required in the power of attorney. He also received 1,300 pesos. This amount
he borrowed for his own use. The recovery of this sum not being involved in this action, it will not be
Page 62 of 99
necessary to refer to it in this decision. The complaint refers only to the 2,200 pesos delivered to the
defendant under the terms of the agreement.
The defendant denies having received this sum, but her denial can not overcome the proof to the
contrary contained in the agreement. She was one of the parties to that instrument and signed it. This
necessarily implies an admission on her part that the statements in the agreement relating to her are
true. She executed another act which corroborates the delivery to her of the money in question — that
is, her personal intervention in the execution of the mortgage and her statement in the deed that the
mortgage had been created with her knowledge and consent. The lien was created precisely upon the
assumption that she had received that amount and for the purpose of securing its payment.
In addition to this the defendant wrote a letter on October 23, 1903, to the attorneys for the plaintiff
promising to pay the debt on or before the 5th day of November following. The defendant admits the
authenticity of this letter, which is a further evidence of the fact that she had received the amount in
question. Thirteen years had elapsed since she signed the mortgage deed. During all this time she
never denied having received the money. On the contrary, she promised to settle within a short time.
The only explanation that we can find for this is that she actually received the money as set forth in the
instrument.
The fact that the defendant received the money from her husband's agent and not from the creditor
does not affect the validity of the mortgage in view of the conditions contained in the power of attorney
under which the mortgage was created. Nowhere does it appear in this power that the money was to be
delivered to her by the creditor himself and not through the agent or any other person. The important
thing was that she should have received the money. This we think is fully established by the record.
This being an action for the recovery of the debt referred to, the court below properly admitted the
instrument executed January 21, 1890, evidencing the debt.
The appellant claims that the instrument is evidence of a debt personally incurred by Enrique Grupe for
his own benefit, and not incurred for the benefit of his principal, Vargas, as alleged in the complaint. As
a matter of fact, Grupe, by the terms of the agreement, bound himself personally to pay the debt. The
appellant's contention however, can not be sustained. The agreement, so far as that amount is
concerned, was signed by Grupe as attorney in fact for Vargas. Pursuant to instructions contained in the
power of attorney the money was delivered to Varga's wife, the defendant in this case. To secure the
payment of the debt, Varga's property was mortgaged. His wife took part in the execution of the
mortgage as required in the power of attorney. A debt thus incurred by the agent is binding directly upon
the principal, provided the former acted, as in the present case, within the scope of his authority. (Art.
1727 of the Civil Code.) The fact that the agent has also bound himself to pay the debt does not relieve
from liability the principal for whose benefit the debt was incurred. The individual liability of the agent
constitutes in the present case a further security in favor of the creditor and does not affect or preclude
the liability of the principal. In the present case the latter's liability was further guaranteed by a mortgage
upon his property. The law does not provide that the agent can not bind himself personally to the
fulfillment of an obligation incurred by him in the name and on behalf of his principal. On the contrary, it
provides that such act on the part of an agent would be valid. (Art. 1725 of the Civil Code.)
The above mortgage being valid and having been duly recorded in the Register of Property, directly
subjects the property thus encumbered, whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created. (Art. 1876 of the Civil Code and art. 105 of the
Mortgage Law.) This presents another phase of the question. Under the view we have taken of the case
it is practically of no importance whether or not Enrique Grupe bound himself personally to pay the debt
AGENCY
in question. Be this as it may and assuming that Vargas, though principal in the agency, was not the
principal debtor, the right in rem arising from the mortgage would have justified the creditor in bringing
his action directly against the property encumbered had he chosen to foreclose the mortgage rather
than to sue Grupe, the alleged principal debtor. This would be true irrespective of the personal liability
incurred by Grupe. The result would be practically the same even though it were admitted that
appellant's contention is correct.
The appellant also alleges that Enrique Grupe pledged to the plaintiff thirteen shares of stock in the
"Compañia de los Tranvias de Filipinas" to secure the payment of the entire debt, and contends that it
must be shown what has become of these shares, the value of which might be amply sufficient to pay
the debt, before proceeding to foreclose the mortgage. This contention can not be sustained in the face
of the law above quoted to the effect that a mortgage directly subjects the property encumbered,
whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created.
Moreover it was incumbent upon the appellant to show that the debt had been paid with those shares.
Payment is not presumed but must be proved. It is a defense which the defendant may interpose. It was
therefore her duty to show this fact affirmatively. She failed, however, to do so.
The appellant's final contention is that in order to render judgment against the mortgaged property it
would be necessary that the minor children of Juan de Vargas be made parties defendant in this action,
they having an interest in the property. Under article 154 of the Civil Code, which was in force at the
time of the death of Vargas, the defendant had the parental authority over her children and
consequently the legal representation of their persons and property. (Arts. 155 and 159 of the Civil
Code.) It can not be said, therefore, that they were not properly represented at the trial. Furthermore
this action was brought against the defendant in her capacity as administratrix of the estate of the
deceased Vargas. She did not deny in her answer that she was such administratix.
Vargas having incurred this debt during his marriage, the same should not be paid out of property
belonging to the defendant exclusively but from that pertaining to the conjugal partnership. This fact
should be borne in mind in case the proceeds of the mortgaged property be not sufficient to ay the debt
and interest thereon. The judgment of the court below should be modified in so far as it holds the
defendant personally liable for the payment of the debt.
The judgment thus modified is affirmed and the defendant is hereby ordered to pay to the plaintiff the
sum of 2,200 pesos as principal, together with interest thereon from the 21st day of January, 1891, until
the debt shall have been fully discharged. The appellant shall pay the costs of this appeal.
After the expiration of ten days let judgment be entered in accordance herewith and let the case be
remanded to the court below for execution. So ordered.
Arellano, C.J., Johnson, Carson, and Willard, JJ., concur.
Page 63 of 99

G.R. No. L-17160 November 29, 1965
PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,
vs.
PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA
(PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees.
Jose A. Javier for plaintiff-appellant.
Ibarra and Papa for defendants-appellees.
BENGZON, C.J.:
This is an action to recover from defendants, the sum of P33,009.71 with interest and attorney's fees of
P8,000.00.
Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur (hereinafter referred to as
Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved herein, had its
main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with
agricultural products, particularly in oils, fats and oil-seeds and related products."
The record shows that:
On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into an
agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in the
Philippines for the account of Primateria Zurich, during "a tentative experimental period of one month
from date." The contract was renewed by mutual agreement of the parties to cover an extended period
up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of
copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria
(Phil.) Inc. — referred to hereafter as Primateria Philippines — acting by defendant Alexander G. Baylin
and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of
May 30, 1955, was P33,009.71.
At the trial, before the Manila court of first instance, it was proven that the amount due from defendant
Primateria Zurich, on account of the various shipments of copra, was P31,009.71, because it had paid
P2,000.00 of the original claim of plaintiff. There is no dispute about accounting.
And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly
authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted
indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive
vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It is likewise
undisputed that Primateria Zurich had no license to transact business in the Philippines.
AGENCY
For failure to file an answer within the reglementary period, defendant Primateria Zurich was declared in
default.
After trial, judgment was rendered by the lower court holding defendant Primateria Zurich liable to the
plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the complaint, and
P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G.
Baylin, and Jose M. Crame from any and all liability.
Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the three
defendants.
It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections 68
and 69 of the Corporation Law, and since it has transacted business in the Philippines without the
necessary license, as required by said provisions, its agents here are personally liable for contracts
made in its behalf.
Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized, or
existing under any laws other than those of the Philippines shall be permitted to transact business in the
Philippines, until after it shall have obtained a license for that purpose from the Securities and Exchange
Commission .. ." And under Section 69, "any officer or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed shall be punished by
imprisonment for etc. ... ."
The issues which have to be determined, therefore, are the following:
1. Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of
Sections 68 and 69 of the Corporation Law;
2. Assuming said entity to be a foreign corporation, whether it may be considered as having transacted
business in the Philippines within the meaning of said sections; and
3. If so, whether its agents may be held personally liable on contracts made in the name of the entity
with third persons in the Philippines.
The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation; nor that
a societe anonyme ("sociedad anomima") is a corporation; and that failing such proof,
the societe cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We
agree with the said court's conclusion. In fact, our corporation law recognized the difference
between sociedades anonimas and corporations.
At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and
its agents. It has been given judgment against the principal for the whole amount. It asked for such
judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three
defendants.
But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897 of
the New Civil Code which reads as follows:
Page 64 of 99
 Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers.
But there is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal —
Primateria Zurich — who should be the one to raise the point, never raised it, denied its liability on the
ground of excess of authority. At any rate, the article does not hold that in cases of excess of
authority, both the agent and the principal are liable to the other contracting party.
This view of the cause dispenses with the necessity of deciding the other two issues, namely: whether
the agent of a foreign corporation doing business, but not licensed here is personally liable for contracts
made by him in the name of such corporation.1 Although, the solution should not be difficult, since we
already held that such foreign corporation may be sued here (General Corporation vs. Union Ins., 87
Phil. 509). And obviously, liability of the agent is necessarily premised on the inability to sue the
principal or non-liability of such principal. In the absence of express legislation, of course.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment is affirmed, with costs
against appellant.
Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ., concur.
Barrera, J., took no part.
G.R. No. 105562 September 27, 1993
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA
CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.
Mariano V. Ampil, Jr. for petitioners.
AGENCY
Ramon S. Caguiao for private respondent.
DAVIDE, JR., J.:
This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of
Appeals in CA-G.R. SP No. 229501 and its Resolution denying the petitioners' motion for
reconsideration.2 The challenged decision modified the decision of the Insurance Commission in IC
Case
No. RD-058. 3
The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against
private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed with
the Insurance Commission on 20 September 1989. 4 They prayed therein that after due proceedings,
Insular Life "be ordered to pay the claimants their insurance claims" and that "proper
sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its contractual obligations
to the complainants, and of the Insurance Code." 5 Insular Life's motion to dismiss the complaint on the
ground that "the claims of complainants are all respectively beyond the jurisdiction of the Insurance
Commission as provided in Section 416 of the Insurance Code,"6 having been denied in the Order of 14
November 1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were conducted on
various dates.
On 20 June 1990, the Commission rendered its decision9 in favor of the complainants, the dispositive
portion of which reads as follows:
WHEREFORE, this Commission merely orders the respondent company to:
a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy
of this Decision until actual payment thereof;
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00 and
P40,000.00, respectively;
c) Notify henceforth it should notify individual beneficiaries designated under any
Group Policy, in the event of the death of insured(s), where the corresponding claims
are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who have handled
this case should not be subjected to disciplinary and other administrative sanctions
for deliberately releasing to Capt. Nuval the check intended for spouses ALARCON,
in the absence of any Special Power of Attorney for that matter, and for negligence
with respect to the release of the other five checks.
SO ORDERED. 10
In holding for the petitioners, the Insurance Commission made the following findings and conclusions:
Page 65 of 99
 After taking into consideration the evidences [sic], testimonial and documentary for
the complainants and the respondent, the Commission finds that; First: The
respondent erred in appreciating that the powers of attorney executed by five (5) of
the several beneficiaries convey absolute authority to Capt. Nuval, to demand,
receive, receipt and take delivery of insurance proceeds from respondent Insular Life.
A cursory reading of the questioned powers of authority would disclosed [sic] that they
do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the death
of the seaman-insured. On the contrary, the said powers of attorney are couched in
terms which could easily arouse suspicion of an ordinary
man. . . .
Second: The testimony of the complainants' rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her
husband, executed a special power of attorney in favor of Captain Rosendo Nuval,
authorizing him to claim, receive, receipt and take delivery of any insurance proceeds
from Insular Life arising out of the death of their insured/seaman son, is not
convincingly refuted.
Third: Respondent Insular Life did not observe Section 180 of the Insurance Code,
when it issued or released two checks in the amount of P150,000.00 for the three
minor children (P50,000.00 each) of complainant, Dina Ayo and another check of
P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant
Lucia Lontok, there being no showing of any court authorization presented or the
requisite bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother of any minor, who is an insured
or a beneficiary under a contract of life, health or accident
insurance, may exercise, in behalf of said minor, any right, under
the policy, without necessity of court authority or the giving of a
bond where the interest of the minor in the particular act involved
does not exceed twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No.
22950. The appeal urged the appellate court to reverse the decision because the Insurance
Commission (a) had no jurisdiction over the case considering that the claims exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey
absolute authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds
pertaining to the petitioners, (c) erred in not giving credit to the version of Insular Life that the power of
attorney supposed to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for having
released to the surviving mothers the insurance proceeds pertaining to the beneficiaries who were still
minors despite the failure of the former to obtain a court authorization or to post a bond.
On 10 October 1991, the public respondent rendered a decision, 12 the decretal portion of which reads:
AGENCY
WHEREFORE, the decision appealed from is modified by eliminating therefrom the
award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00,
respectively. 13
It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide
life insurance coverage to its sea-based employees enrolled under the plan. On 17
February 1986, during the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk
somewhere in El Jadida, Morocco. They were survived by complainants-appellees,
the beneficiaries under the policy.
Following the tragic demise of their loved ones, complainants-appellees sought to
claim death benefits due them and, for this purpose, they approached the President
and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness to
assist complainants-appellees to recover Overseas Workers Welfare Administration
(OWWA) benefits from the POEA and to work for the increase of their PANDIMAN
and other benefits arising from the deaths of their husbands/sons. They were thus
made to execute, with the exception of the spouses Alarcon, special powers of
attorney authorizing Capt. Nuval to, among others, "follow up, ask, demand, collect
and receive" for their benefit indemnities of sums of money due them relative to the
sinking of M/V Nemos. By virtue of these written powers of attorney, complainants-
appellees were able to receive their respective death benefits. Unknown to them,
however, the PMSI, in its capacity as employer and policyholder of the life insurance
of its deceased workers, filed with respondent-appellant formal claims for and in
behalf of the beneficiaries, through its President, Capt. Nuval. Among the documents
submitted by the latter for the processing of the claims were five special powers of
attorney executed by complainants-appellees. On the basis of these and other
documents duly submitted, respondent-appellant drew against its account with the
Bank of the Philippine Islands on 27 May 1986 six (6) checks, four for P200,00.00
each, one for P50,000.00 and another for P40,00.00, payable to the order of
complainants-appellees. These checks were released to the treasurer of PMSI upon
instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager
for Group Administration Department of respondent-appellant. Capt. Nuval, upon
receipt of these checks from the treasurer, who happened to be his son-in-law,
endorsed and deposited them in his account with the Commercial Bank of Manila,
now Boston Bank.
On 3 July 1989, after complainants-appellees learned that they were entitled, as
beneficiaries, to life insurance benefits under a group policy with respondent-
appellant, they sought to recover these benefits from Insular Life but the latter denied
their claim on the ground that the liability to complainants-appellees was already
extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in their
names.14
Page 66 of 99
On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over
the case on the ground that although some of the claims exceed P100,000.00, the petitioners had
asked for administrative sanctions against Insular Life which are within the Commission's jurisdiction to
grant; hence, "there was merely a misjoinder of causes of action . . . and, like misjoinder of parties, it is
not a ground for the dismissal of the action as it does not affect the other reliefs prayed for." 15 It also
rejected Insular Life's claim that the Alarcons had submitted a special power of attorney which they
(Insular Life) later misplaced.
On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied
upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance
pertaining to the beneficiaries. It stated:
When the officers of respondent-appellant read these written powers, they must have
assumed Capt. Nuval indeed had authority to collect the insurance proceeds in behalf
of the beneficiaries who duly affixed their signatures therein. The written power is
specific enough to define the authority of the agent to collect any sum of money
pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted this
power to include the collection of insurance proceeds in behalf of the beneficiaries
concerned. We believe this is a reasonable interpretation even by an officer of
respondent-appellant unschooled in the law. Had respondent appellant, consulted its
legal department it would not have received a contrary view. There is nothing in the
law which mandates a specific or special power of attorney to be executed to collect
insurance proceeds. Such authority is not included in the enumeration of Art. 1878 of
the New Civil Code. Neither do we perceive collection of insurance claims as an act
of strict dominion as to require a special power of attorney. Moreover, respondent-
appellant had no reason to doubt Capt. Nuval. Not only was he armed with a
seemingly genuine authorization, he also appeared to be the proper person to deal
with respondent-appellant being the President and General Manager of the PMSI, the
policyholder with whom respondent-appellant always dealt. The fact that there was a
verbal agreement between complainants-appellees and Capt. Nuval limiting the
authority of the latter to claiming specified death benefits cannot prejudice the
insurance company which relied on the terms of the powers of attorney which on their
face do not disclose such limitation. Under the circumstances, it appearing that
complainants-appellees have failed to point to a positive provision of law or stipulation
in the policy requiring a specific power of attorney to be presented, respondents-
appellant's reliance on the written powers was in order and it cannot be penalized for
such an act. 16
Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the
requirement in Section 180 of the Insurance Code which provides in part that:
In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not exceed twenty
thousand pesos. Such a right, may include, but shall not be limited to, obtaining a
policy loan, surrendering the policy, receiving the proceeds of the policy, and giving
the minor's consent to any transaction on the policy.
AGENCY
has been amended by the Family Code 17 which grants the father and mother joint legal
guardianship over the property of their unemancipated common child without the necessity of a
court appointment; however, when the market value of the property or the annual income of
the child exceeds P50,000.00, the parent concerned shall be required to put up a bond in such
amount as the court may determine.
Hence, this petition for review on certiorari which we gave due course after the private respondent had
filed the required comment thereon and the petitioners their reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed by
petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro,
respectively, on 14 May 198618and uniformly granted to Capt. Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of
money due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida,
Casablanca, Morocco on the evening of February 17, 1986; and
To sign receipts, documents, pertinent waivers of indemnities or other writings of
whatsoever nature with any and all third persons, concerns and entities, upon terms
and conditions acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of attorney "do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent
company insurance proceeds arising from the death of the seaman-insured. On the contrary, the said
powers of attorney are couched in terms which could easily arouse suspicion of an ordinary
man." 19 The holding of the public respondent to the contrary is principally premised on its opinion that:
[t]here is nothing in the law which mandates a specific or special power of attorney to
be executed to collect insurance proceeds. Such authority is not included in the
enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special power of attorney.
If this be so, then they could not have been meant to be a general power of attorney since
Exhibits "1" to "5" are special powers of attorney. The execution by the principals of special
powers of attorney, which clearly appeared to be in prepared forms and only had to be filled up
with their names, residences, dates of execution, dates of acknowledgment and others,
excludes any intent to grant a general power of attorney or to constitute a universal agency.
Being special powers of attorney, they must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers of attorney in question the power
to collect and receive the insurance proceeds due the petitioners from Group Policy No. G-004694.
Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and receipt of such
proceeds was a deviation from its practice with respect to group policies. Such practice was testified to
by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative Department, thus:
ATTY. CAGUIOA:
Page 67 of 99
 Can you explain to us why in this case, the claim was filed by a q In other words, under a group insurance policy like the one in this
certain Capt. Noval [sic]? case, Insular Life could pay the claims to the policyholder himself
even without the presentation of any power of attorney from the
WITNESS: designated beneficiaries?

a The practice of our company in claim pertaining to group xxx xxx xxx
insurance, the policyholder is the one who files the claim for the
beneficiaries of the deceased. At that time, Capt. Noval [sic] is the WITNESS:
President and General Manager of Prime Marine.
a No. Sir.
q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of the ATTY. AMPIL:
policyholders?
q Why? Is this case, the present case different from the cases
a Yes because group insurance is normally taken by the employer which you answered that no power of attorney is necessary in
as an employee-benefit program and as such, the benefit should be claims payments?
awarded by the policyholder to make it appear that the benefit
really is given by the employer. 20
WITNESS:
On cross-examination, Urbano further elaborated that even payments, among other things, are coursed
through the policyholder: a We did not pay Prime Marine; we paid the beneficiaries.

q What is the corporate concept of group insurance insofar as q Will you now tell the Honorable Commission why you did not pay
Insular Life is concerned? Prime Marine and instead paid the beneficiaries, the designated
beneficiaries?
WITNESS:
xxx xxx xxx
a Group insurance is a contract where a group of individuals are
covered under one master contract. The individual underwriting ATTY. AMPIL:
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The I will rephrase the question.
contract is between the policyholder and the insurance company. In
our case, it is Prime Marine and Insular Life. We do not have q Will you tell the Commission what circumstances led you to pay
contractual obligations with the individual employees; it is between the designated beneficiaries, the complainants in this case, instead
Prime Marine and Insular Life. of the policyholder when as you answered a while ago, it is your
practice in group insurance that claims payments, etc., are coursed
q And so it is part of that concept that all inquiries, follow-up, thru the policyholder?
payment of claims, premium billings, etc. should always be coursed
thru the policyholder? WITNESS:

a Yes that is our practice. a It is coursed but, it is not paid to the policyholder.

q And when you say claim payments should always be coursed q And so in this case, you gave the checks to the policyholder only
thru the policyholder, do you require a power of attorney to be coursing them thru said policyholder?
presented by the policyholder or not?

a That is right, Sir.

a Not necessarily.

AGENCY Page 68 of 99
 q Not directly to the designated beneficiaries?
a Yes, Sir. 21
This practice is usual in the group insurance business and is consistent with the jurisprudence thereon
in the State of California — from whose laws our Insurance Code has been mainly patterned — which
holds that the employer-policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the United States, the first modern group
insurance policies appear to have been issued in 1911 by the Equitable Life Assurance
Society. 22 Group insurance is essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy that is
issued by the insurer to a representative of the group or to an administrator of the insurance program,
such as an employer. 23 The employer acts as a functionary in the collection and payment of premiums
and in performing related duties. Likewise falling within the ambit of administration of a group policy is
the disbursement of insurance payments by the employer to the employees. 24 Most policies, such as
the one in this case, require an employee to pay a portion of the premium, which the employer deducts
from wages while the remainder is paid by the employer. This is known as a contributory plan as
compared to a non-contributory plan where the premiums are solely paid by the employer.
Although the employer may be the titular or named insured, the insurance is actually related to the life
and health of the employee. Indeed, the employee is in the position of a real party to the master policy,
and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the
total compensation paid for the services of the employee. 25 Put differently, the labor of the employees is
the true source of the benefits, which are a form of additional compensation to them.
It has been stated that every problem concerning group insurance presented to a court should be
approached with the purpose of giving to it every legitimate opportunity of becoming a social agency of
real consequence considering that the primary aim is to provide the employer with a means of procuring
insurance protection for his employees and their families at the lowest possible cost, and in so doing,
the employer creates goodwill with his employees, enables the employees to carry a larger amount of
insurance than they could otherwise, and helps to attract and hold a permanent class of employees. 26
In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly ruled that in
group insurance policies, the employer is the agent of the insurer. Thus:
We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the employer
acts entirely for its own benefit or for the benefit of its employees in undertaking
administrative functions. While a reduced premium may result if the employer relieves
the insurer of these tasks, and this, of course, is advantageous to both the employer
and the employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of sales, and at the same
time the insurer's own administrative costs are markedly reduced.
AGENCY
xxx xxx xxx
The most persuasive rationale for adopting the view that the employer acts as the
agent of the insurer, however, is that the employee has no knowledge of or control
over the employer's actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall act in his behalf
and be subject to his control. It is clear from the evidence regarding procedural
techniques here that the insurer-employer relationship meets this agency test with
regard to the administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance of the
employer's administrative acts, and if these duties are not undertaken properly the
insurer is in a position to exercise more constricted control over the employer's
conduct.
In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that:
[t]he employer owes to the employee the duty of good faith and due care in attending
to the policy, and that the employer should make clear to the employee anything
required of him to keep the policy in effect, and the time that the obligations are due.
In its position as administrator of the policy, we feel also that the employer should be
considered as the agent of the insurer, and any omission of duty to the employee in
its administration should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life
Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization.30
In the light of the above disquisitions and after an examination of the facts of this case, we hold that
PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The
latter is thus bound by the misconduct of its agent.
Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners.
Unfortunately, through its official, Mr. Urbano, it acted imprudently and negligently in the premises by
relying without question on the special power of attorney. In Strong vs. Repide, 31 this Court ruled that it
is among the established principles in the civil law of Europe as well as the common law of American
that third persons deal with agents at their peril and are bound to inquire as to the extent of the power of
the agent with whom they contract. And in Harry E. Keller Electric Co. vs. Rodriguez, 32 this Court,
quoting Mechem on Agency, 33 stated that:
The person dealing with an agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions of
probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true condition
of affairs. (emphasis supplied)
Page 69 of 99
Even granting for the sake of argument that the special powers of attorney were in due form, Insular Life
was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a party who is not the
agent mentioned in the special power of attorney.

Nor can we agree with the opinion of the public respondent that since the shares of the minors in the
insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code their mothers
could receive such shares without need of either court appointments as guardian or the posting of a
bond. It is of the view that said Article had repealed the third paragraph of Section 180 of the Insurance
Code. 34 The pertinent portion of Article 225 of the Family Code reads as follows:
G.R. No. L-109937 March 21, 1994
Art. 225. The father and the mother shall jointly exercise legal guardianship over the
property of their unemancipated common child without the necessity of a court DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
appointment. In case of disagreement, the father's decision shall prevail, unless there vs.
is judicial order to the contrary. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA
G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Where the market value of the property or the annual income of the child exceeds
P50,000, the parent concerned shall be required to furnish a bond in such amount as Office of the Legal Counsel for petitioner.
the court may determine, but not less than ten per centum (10%) of the value of the
property or annual income, to guarantee the performance of the obligations Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.
prescribed for general guardians.

It is clear from the said Article that regardless of the value of the unemancipated common child's
property, the father and mother ipso jure become the legal guardian of the child's property. However, if
the market value of the property or the annual income of the child exceeds P50,000.00, a bond has to
be posted by the parents concerned to guarantee the performance of the obligations of a general
guardian.
It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the
"market value of the property or the annual income of the child," which means, therefore, the aggregate
of the child's property or annual income; if this exceeds P50,000.00, a bond is required. There is no
evidence that the share of each of the minors in the proceeds of the group policy in question is the
minor's only property. Without such evidence, it would not be safe to conclude that, indeed, that is his
only property.
WHEREFORE, the instant petition is GRANTED. The Decision of
10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950
are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is
REINSTATED.
Costs against the private respondent.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a
loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption
insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released
on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI
Application for Insurance" and the "Health Statement for DBP MRI Pool."

On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by
DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the
credit.

AGENCY Page 70 of 99
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to
the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but
Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an
amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint
with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of
Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI
Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for
MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that
the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage
debt of the deceased be declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim
against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial
court ordered the parties to submit their respective position papers and documentary evidence, which
may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP.
The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract
between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying
for MRI and actually collecting the premium and the service fee, despite knowledge of his age
ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of justice
and equity, the Court finds judgment for the plaintiff and against Defendant DBP,
ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of
interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest accumulated or
otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage
of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other
expenses, and other relief just and equitable.
AGENCY
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed.
The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court
affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool"
(Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are
true, complete and correct to the best of my knowledge and belief and form part of my
application for insurance. It is understood and agreed that no insurance coverage
shall be effected unless and until this application is approved and the full premium is
paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall
be approved by the insurance pool; and (2) when the full premium is paid during the continued good
health of the applicant. These two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's
premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot
be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's
loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI
premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health
statement. The DBP later submitted both the application form and health statement to the DBP MRI
Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the
premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby
leading him and his family to believe that they had already fulfilled all the requirements for the MRI and
that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's
application was never going to be approved. The maximum age for MRI acceptance is 60 years as
Page 71 of 99
clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed
in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally
liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age
(Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by
collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person
is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on
DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the
Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule
that the agent is liable when he acts without authority is founded upon the supposition that there has
been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication
that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties,
act with justice give everyone his due and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were
it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another
insurance company, and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an
insurance coverage from another company. It must also be noted that Dans died almost immediately,
AGENCY
i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of
release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be
capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories
Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine
Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate
estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art.
2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances
of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of
the limits of its authority amounted to a deception to its client, an award of moral damages in the
amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of
Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until
fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral
damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against
petitioner.
SO ORDERED.
G.R. No. L-2437 February 13, 1906
Page 72 of 99
MONICA CASON, plaintiff-appellant,
vs.
FRANCISCO WALTERIO RICKARDS, ET AL., defendants-appellees.
W.A. Kincaid for appellant.
Pillsbury and Sutro for appellees.
WILLARD, J.:
From the 1st day of November, 1895, until the 31st day of October, 1896, the defendant Rickards was
the agent at Dagupan, in the Province of Pangasinan, of the other defendant, Smith, Bell & Co. While
he was such agent he received from the plaintiff, as a deposit, the sum of 2,000 pesos. When he left the
employ of the defendant company the 2,000 pesos were, by his orders, delivered to another agent of
Smith, Bell & Co. in that province, and Smith, Bell & Co. received ad used the same. This money was
not mingled with other money belonging either to Richards or to Smith, Bell & Co., and at the time of its
delivery by Rickards to the other agent he notified Smith, Bell & Co. that it was not the money of Smith,
Bell & Co., but was the money of the plaintiff. The judgment of the court below holding Smith, Bell &
Co., responsible for this amount was clearly right. The question as to whether Rickards was authorized
by Smith, Bell & Co. to receive deposits of this character for third persons is a matter of no
consequence. The identical money which he received from the plaintiff was by him turned over to Smith,
Bell & Co., with notice that it was the money of the plaintiff, and they now have it in their possession,
and are therefore bound to pay it to her.
At the trial of this case Rickards testified that a few days after he received the 2,000 pesos from the
plaintiff, and about the 8th day of October, 1896, he received from her an order or warrant upon the
Spanish treasury for the sum of 4,200 pesos; that he wrote Smith, Bell & Co., asking if it could be
collected; that they told him to send it to Manila. It was sent to Manila, and collected through the
Hongkong and Shanghai Bank. Rickards testified that he received the money from the Hongkong and
Shanghai Bank, and paid all of it out in the business of Smith, Bell & Co.; that after he had received it he
entered upon the books of Smith, Bell & Co. at Dagupan a credit in favor of the plaintiff of 4,200 pesos,
less 5 per cent commission for collection, of which commission Smith, Bell & Co. received the benefit.
He testified that all these transactions took place prior to the 31st day of October, 1896, when he left the
employ of Smith, Bell & Co. He also testified that he had seen the books of Smith, Bell & Co.; that they
were in court in an action commenced in regard to this same amount in 1896 or 1897, and that the
books which were then produced in court by Smith, Bell & Co. contained an entry or entries of the
receipt by Smith, Bell & Co. of this 4,200 pesos. If this testimony is to be believed there is no doubt as
to the liability of Smith, Bell & Co. to repay to the plaintiff the sum of 4,200 pesos, less the commission
of 5 per cent.
The question as to the general authority of Rickards to receive money on deposit for Smith, Bell & Co.
has nothing to do with this cause of action, for Rickards testified that he received express directions in
regard to this particular transaction. Rickards in his testimony stated that he had had several
conversations with different agents and employees of Smith, Bell & Co. in Manila in regard to the
transaction. At the trial of this case Smith, Bell & Co. did not present as witnesses any of these
employees or agents, and did not present any of their books which the witness Rickards declared would
corroborate his statement, if produced, but contented themselves with calling as a witness one who was
then a bookkeeper of the Hongkong and Shanghai Bank. He, testifying from entries which appeared in
the books of that bank, stated that there was received for Rickards, in November, 1896, 4,200 pesos, a
part of which was credited to his accounts in that bank, and the balance, amounting to about 2,616
pesos, was paid in cash. The witness could not testify to whom this cash was paid. Although he testified
AGENCY
that he had some independent recollection of this transaction, yet it is apparent that his testimony is
substantially, if not entirely, based upon the entries made in the books of the bank, which were in his
handwriting.
The question in this case is this: Can the positive testimony of Rickards, which has been set forth
above, be overcome by the testimony of the agent of the bank in view of the fact that Smith, Bell & Co.
had it in their power to demonstrate the falsity of the testimony of Rickards by producing their books?
No reason appears in the case why the books were not produced. The trial was had in Manila, where is
located the main office of Smith, Bell & Co. Rickards gave his testimony at the opening of the trial. If it
were false its falsity could have been easily proved by the introduction of these books, and their
production was more imperatively demanded considering the statement of Rickards that he had seen
them, and that they did contain the entries in regard to this amount of 4,200 pesos.
Under these circumstances the judgment of the court below relieving Smith, Bell & Co. of the
responsibility for this 4,200 pesos can not be affirmed. The evidence as it stands in the record strongly
preponderates against them, and the judgment must be reversed.
The question arises as to what disposition should be made of this case; whether final judgment should
be entered in this court against Smith, Bell & Co., or whether the case should be remanded for further
proceedings. Under the Code of Civil Procedure we have authority, when the judgment must be
reversed, either to enter final judgment in this court or to remand the case for a new trial or for further
proceedings. In the present case we think that the ends of justice require that there should be a new
trial as to the 4,200 pesos. (Regalado vs. Luchsinger & Co., 1 Phil. Rep., 619.) If at the new trial Smith,
Bell & Co. still fail to produce their books, and no additional evidence is offered to overcome the
testimony of Rickards, final judgment should be entered against them in reference to this 4,200 pesos.
In accordance with the provisions of section 505 of the Code of Civil Procedure, upon the new trial it will
not be necessary to retake any of the evidence which has already been taken.
The judgment is reversed, and the case is remanded to the court below for a new trial only of the issue
relating to the 4,200 pesos. After the new trial judgment will, as a matter of course, be entered for the
plaintiff against Smith, Bell & Co. in reference to the 2,000 pesos, and for or against them in respect to
the 4,200 pesos, as the results of the new trial may require. No costs will be allowed to either party in
this court. So ordered.
Torres, Mapa, Johnson, and Carson, JJ., concur.
Page 73 of 99

G.R. No. L-23018 December 14, 1925
LORENZO ZAYCO, plaintiff-appellant,
vs.
SALVADOR SERRA, ET AL., defendants-appellees.
Aurelio Montinola and Jose M. Hontiveros for appellant
Hilado and Hilado and Araneta and Zaragoza for appellee
No appearance for the other appellees
OSTRAND, J.:
It appears from the evidence that on February 2, 1919, Salvador Serra, Juan J. Vidauzarraga, Felix
Vidauzarraga, Dionisio Vidauzarraga, and Lazaro Mota, as parties of the first part, and Severo Alejano,
the Estate of Hilario Cordova, Lorenzo Zayco, the Estate of Tomasa Gemora, Rogaciano Albayda, and
Josefa Pacheco, as parties of the second part, entered into a contract in writing whereby the parties of
the first part, referred to in the contract as the "Palma and San Isidro Centrals," in consideration of the
covenants and agreements of the parties of the second part, referred to in the contract as the
"Planters," obligated themselves under paragraphs 1 and 2 of the contract as follows:
PARAGRAPH 1. That on or before the 1st November, 1919, the Palma Central will construct a
mill of a capacity of not less than 500 tons of cane, each twenty-four hours composed of two
mills of three rollers each, and a crushing mill of two rollers."
PAR. 2 That they will construct, maintain, and operate during the term of the contract, free of
charge to the to the Planters, a railroad, propelled by motor or steam, or by both, for the use of
the Planters, for the transportation of sugar cane, sugar and fertilizers, which they shall
endeavor to run through the cane fields of the Planters or as near them as the position of the
lands and plantations shall permit and the amount of cane to be transported shall require, etc.
Under the heading of "Obligations of the Planters," the contract further provides that:
In consideration of the agreement and covenants with the Palma and San Isidro Centrals,
hereinabove mentioned, and of the sum of one peso (P1) paid to each one of the Planters by
the Palma and San Isidro Centrals, receipt of which sum is hereby acknowledged, the
Planters, individually and separately, for themselves, their heirs, executors, administrators, and
assigns, do hereby covenant, stipulate and agree:
1. That each one of them will deliver to the said Palma and San Isidro Centrals, for a period of
twenty (20) years, beginning from the date on which they are notified by the master of
AGENCY
transportation that they are ready to commence the milling of all the sugar cane, planted by
them on their lands, situated in the municipality of Kabankalan, Province of Occidental Negros,
P. I., which lands of the parties of the second part are situated in said municipality and are
generally designated and described as follows:
1. Hacienda s "Nandong," "Pansod," "Lupni," "Ayucutan," Lorenzo Zayco, owner."
2. Hacienda "Gilbangan," Josefa Pacheco, owner."
3. Hacienda "Balas-Balas," Rogaciano Albayda, owners
4. Rogaciano Albayda, as judicial administrator of the Estate of Doña Tomasa Gemora,
Hacienda "Gilabangan."
5. Gregorio Cordova on behalf of the Estate of Hilario Cordova, lands "Hilamonan" and
"Nandong."
6. Gregorio Cordova on behalf of the Hacienda "Lapnis" of Severo, Alejano."
3. That for a reasonable compensation, they will give and cede upon demand by the Palma
and San Isidro Centrals, for a period of thirty (30) years, beginning from the completion of the
construction of the railroad line, the necessary right of way for the construction of a telephone
system for the Palma and San Isidro Centrals, and in like manner, upon demand, they will also
give the necessary right of way for the railroad line for a period of thirty (30) years. . . .
9. That they shall appoint a committee or agents among those forming the parties of the
second part, which committee or agents shall inspect the extension of the sugar plantings, in
order to see to it that no less than 2/3 of the area of the lands owned by them are planted and
harvested, unless prevented by force majeure, after the first year of this contract, and they
shall be cultivated subject to the inspection of said committee or agents, and in all matters
affecting those of the parties of the second part, said committee or agents shall represent them
in their relations with the parties part, and shall also represent them in all other matters
hereinabove specified in the obligations of the Palma and San Isidro Centrals.
10. That they will submit any and all differences which might arise between the parties of the
first part and the parties of the second part to the decision of referees, two of whom shall be
selected by the first part and two by the second part, who in case of disagreement, shall select
a fifth referee, and they shall respect and abide by the decision of said referees or of three of
them, as the case may be.
14. This agreement as well as all the provisions, covenants and stipulations shall constitute a
lien on said lands, and shall be binding upon the planter's heirs, administrators, assigns and
grantees.
The mill referred to in paragraph 1 of the contract was not constructed and the railroad line mentioned in
paragraph 2 did not reach the "Nandong and Ponsod" plantations, belonging to Lorenzo Zayco, until
March, 1920, over a year after the contract was entered into, and Zayco therefore brought the present
action against all the parties of the first part of the contract, alleging that said parties had not complied
Page 74 of 99
with the terms of the contract and that he, by reason thereof, had suffered damages upon various
counts in the total amount of P1,016,000, for which he asks judgment against the defendants. He
further prays that the contract in question be declared rescinded."
The defendants Juan Vidauzarraga and Dionisio Vidauzarraga did not answer the complaint and
judgment was rendered against them by default. The defendants Anastasia Echevarria and Felix
Vidauzarraga answered by general denial. The defendants Salvador Serra set up as special defenses
that he did not enter into the contract with the plaintiff individually, but that the contract was between all
of the defendants on one side and the plaintiff and many others on the other side, and that there,
therefore, was a defect in the parties plaintiff in the case; that the parties of the second part in said
contract had violated their agreement by not appointing the committee referred to in paragraph 9 of the
contract and by failing to plant a sufficient quantity of sugar cane; that ample facilities were at all events
furnished the plaintiff Zayco for milling his cane, and that he therefore had suffered no damages.
After trial, the court below rendered judgment dismissing the complaint with the costs against the
plaintiff. The plaintiff appeals to this court and makes the following assignments of error:
1. The court a quo erred in holding that Exhibit A, the basis of the action brought by the herein
plaintiff in this case, is without value as it never existed.
2. The court a quo erred in holding that there is no evidence in the present case constituting
estoppel as against the defendants.
3. The court a quo erred in holding that the defendant Salvador Serra was not bound to
construct the mill mentioned in Exhibit A capable of crushing 500 tons of sugar cane during
each twenty-four hours, for the reason that the planters did not perform their part of the
contract since some of them failed to plant the quantity of sugar cane agreed upon.
4. The court a quo erred in holding that the defendant was justified in not constructing the
railroad connecting the Palma and San Isidro Centrals with the haciendas belonging to the
plaintiff.
5. The court a quo erred in relieving the defendant Salvador Serra from the obligation of paying
damages to the plaintiff from January 29, 1902.
6. The court a quo erred in holding that plaintiffs claim for damages was not sufficiently
established by the evidence.lawphi1.net
The first and second assignments of error have reference to the contention of the defendant Serra that
the contract in question was null and void because the persons who signed it on behalf of the estates of
Tomasa Gemora and Hilario Cordova were not duly authorized to represent said estates.
There is some merit in these assignments. It appears that Rogaciano Albayda who represented the
Gemora estate was its judicial administrator and Gregorio Cordova who signed the contract on behalf of
the Cordova estate was its judicial its judicial administrator and Greogorio Cordova who signed the
contract on behalf of the Cordova estate was the de facto administrator of that estate. Assuming that
these persons exceeded their authority, the contract would nevertheless not be an absolute nullity, but
simply voidable at the instance of the parties who had been improperly represented. It follows that
AGENCY
under the circumstances of this case, the defendant Serra is hardly in position to assert that the entire
contract here in question was null and void ab initio.
The third and fourth assignments of error are not well taken. The defendant's contract was not with
plaintiff individually and alone; it was with all of the individuals designated as "the Planters" in a body
and consequently a breach of the contract by any one of these individuals would in effect constitute a
breach of it by all. The evidence is conclusive that none of the parties who signed the contract as
planters lived up to their agreement. By paragraph 9 of the portion of the contract which relates to the
obligation of the planters, the latter bound themselves to appoint a committee or agents to supervise the
planting of cane and to settle disputes. The functions of the committee were of importance to the orderly
fulfillment of the milling contract, but there is no pretense that such a committee was formed or that
agents were appointed.
The same paragraph also placed upon the planters the obligation, after the first year of the contract, to
plant not less than 2/3 of the area of their plantations to sugar cane. The plaintiff planted less than half
of his land and the other planters made practically no new plantings. As the proposed increase in cane
production must have been the principal inducement for the defendants' undertaking to construct an
additional mill, and undoubtedly also one of the reasons for their promise to construct a railroad and
operate it during the term of the contract, it would be more than unfair to the defendants to require them
to proceed with the construction of the mill in the face of the failure of the planters to make provisions
for an adequate supply of cane. When in addition to this it is considered that the weight of the evidence
shows that the existing milling facilities were more than sufficient for the grinding of the cane produced
by the planters, we are clearly of the opinion than the trial court did not err in holding that through the
fault of the planters, the defendants were justified in delaying the construction of the mill.
As to the construction of the railroad, the evidence shows that the defendants exercised due diligence
and that the delay in its completion was due to circumstances beyond their control.
The fifth and sixth assignments of error relate to the plaintiff's claim for damages. In view of what has
already been said, it is unnecessary to discuss this question. We may say however that we agree with
the trial court that the plaintiff's claim is not sufficiently supported by the evidence.
The judgment appealed from is affirmed with the costs against the appellant. So ordered.
Avanceña, C. J., Street, Malcolm, Johns and Villa-Real, JJ., concur.
Page 75 of 99

G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.
PURISMA, J.:
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals 1 in CA
GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air Lines Inc.", affirming in toto the
judgment of the trial court dismissing petitioner's complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein
petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until
March 27, 1990. The issuance of the said plane ticket was in compliance with a Compromise
Agreement entered into between the contending parties in two previous suits, docketed as Civil Case
Nos. 3392 and 3451 before the Regional Trial Court in Surigao City. 2
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his
arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket
with the PAL office, and it was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that
he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight In
San Francisco instead of boarding in Las Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not
allowed to board. The PAL personnel concerned marked the following notation on his ticket: "TICKET
NOT ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage
docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in
Surigao City. But the said complaint was dismissed for lack of merit. 3
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a
Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject
ticket extended the period of validity of petitioner's ticket; (2) Whether or not the defense of lack of
AGENCY
authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was
proper.
To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings
of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed
unless for strong and cogent reasons. 4
The facts of the case as found by the lower court 5 are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is
not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the
Conditions of Contract (Exhibit 1, page 2) as follows:
8. This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carrier's tariffs,
conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of carriage.
Carrier may refuse transportation if the applicable fare has not been
paid. 6
The question on the validity of subject ticket can be resolved in light of the ruling in the case
of Lufthansa vs. Court of Appeals. 7 In the said case, the Tolentinos were issued first class tickets on
April 3, 1982, which will be valid until April 10, 1983. On June 10, 1982, they changed their
accommodations to economy class but the replacement tickets still contained the same restriction. On
May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the
petitioner on the ground that the said tickets had already expired. The non-extension of their tickets
prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In
ruling against the award of damages, the Court held that the "ticket constitute the contract between the
parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the
contracting parties, contracts are to be interpreted according to their literal meaning."
In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PAL's
agents in Los Angeles and San Francisco changed the compromise agreement between the parties.
As aptly by the appellate court:
. . . on March 23, 1990, he was aware of the risk that his ticket
could expire, as it did, before he returned to the Philippines.' (pp.
320-321, Original Records) 8
The question is: "Did these two (2) employees, in effect, extend the
validity or lifetime of the ticket in question? The answer is in the
negative. Both had no authority to do so. Appellant knew this from
the very start when he called up the Legal Department of appellee
in the Philippines before he left for the United States of America. He
had first hand knowledge that the ticket in question would expire on
March 27, 1990 and that to secure an extension, he would have to
file a written request for extension at the PAL's office in the
Philippines (TSN, Testimony of Nicholas Cervantes, August 2,
Page 76 of 99
 1991, pp. 20-23). Despite this knowledge, appellant persisted to issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to
use the ticket in question." 9 the evidence thus presented when the adverse party fails to object thereto." 13

From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted
send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket. in bad faith in refusing to allow him to board its plane in San Francisco.

Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to
the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The
said agents, according to the Court of Appeals, 10 acted without authority when they confirmed the
flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the acts an agent beyond the scope of his authority do not
bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third
person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to
secure the principal's ratification. 12
Anent the second issue, petitioner's stance that the defense of lack of authority on the part of the PAL
employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is
unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss
is a waiver thereof.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. 14 Petitioner
knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a
back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that
it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury
resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate
him with the use of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of
example or correction for the public good, and the existence of bad faith is established. The wrongful
act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty
party acted in a wanton, fraudulent, reckless or malevolent manner. 15 Here, there is no showing that
PAL acted in such a manner. An award for attorney's fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995
AFFIRMED in toto. No pronouncement as to costs.

Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the SO ORDERED.
answer nor in the motion to dismiss. But records show that the question of whether there was authority
on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was
presented as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth
Villanueva, were presented.

The admission by Cervantes that he was told by PAL's legal counsel that he had to submit a letter
requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part
that the PAL employees had no authority to extend the validity of subject tickets and only PAL's legal
counsel was authorized to do so.

However, notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL agents in
its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as
shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of
Civil Procedure provides:

Sec. 5. Amendment to conform, or authorize presentation of evidence. — When

issues not raised by the pleadings are tried with express or implied consent of the G.R. No. 150718 March 26, 2003
parties, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to BASILIO BORJA, SR., petitioner,
raise these issues may be made upon motion of any party at any time, even after vs.
judgment; but failure to amend does not affect the result of the trial of these issues. . . SULYAP, INC. and THE COURT OF APPEALS, respondents.
.
YNARES-SANTIAGO, J.:
Thus, "when evidence is presented by one party, with the express or implied consent of the adverse
party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said
AGENCY Page 77 of 99
This is a petition for review assailing the April 20, 2001 Decision1 of the Court of Appeals in CA-G.R. CV
No. 62237, and its October 31, 2001 Resolution2 denying petitioner’s motion for reconsideration.
The antecedent facts reveal that petitioner Basilio Borja, Sr., as lessor, and private respondent Sulyap
Inc., as lessee, entered into a contract of lease involving a one-storey office building owned by the
petitioner and located at 12th Street, New Manila, Quezon City. Pursuant to the lease, private
respondent paid, among others, advance rentals, association dues and deposit for electrical and
telephone expenses. Upon the expiration of their lease contract, private respondent demanded the
return of the said advance rentals, dues and deposit but the petitioner refused to do so. Thus, on
October 5, 1995, the former filed with the Regional Trial Court of Quezon City, Branch 80, a complaint
for sum of money against the petitioner.3 Subsequently, the parties entered into and submitted to the
trial court a "Compromise Agreement" dated October 16, 1995.4 On the basis thereof, the trial court, on
October 24, 1995 rendered a decision5 approving the compromise agreement. The full text of the said
decision reads:
Parties thru counsel submitted the following compromise agreement:
"1. That the parties agree that defendant is the LESSOR and owner of the premises subject of
the herein complaint and that herein plaintiff is the LESSEE thereof who is to vacate the leased
premises peacefully on November 7, 1995;
2. That in the possession of defendant are the following amounts:
a) P20,000.00 – deposited by plaintiff to defendant on June 7, 1994 for utilities;
b) 5,400.00 – as returnable association dues to plaintiff;
c) 30,000.00 – deposited by the plaintiff to defendant on August 30, 1994, for
telephone [expenses];
d) 55,000.00 – … [rental] deposit [to be applied as rental payment] for the period of
October 7 to November 7, 1995.
3. That likewise plaintiff paid for the 5% withholding taxes to the Bureau of Internal Revenue
for the rentals which is due from the defendant amounting to P25,175.00 covering the period
from July 1994, to July of 1995, whereon plaintiff is hereto attaching proof of payment or
receipts as annexes "A" and "B" of said withholding taxes and had been credited to the
defendant entitling plaintiff to full reimbursement;
4. That it is expressly agreed that prior to or on November 7, 1995, defendant will reimburse to
plaintiff the withholding taxes paid to the Bureau of Internal Revenue in the name of defendant
upon signing of the herein compromise agreement plus the association dues of P5,400.00 or a
total of P30,575.00;
5. That with the P55,000.00 consumed by way of rentals up to November 7, 1995, there will be
left in the possession of defendant of plaintiff’s money in the amount of P50,000.00; said
amount shall be turned over by defendant to plaintiff within 5 days from arrival of billings for
telephone, electrical and water charges only;
AGENCY
6. That the amount shall be subject to actual billings ending November 7, 1995 only and shall
immediately as stated, be hand[ed] over to plaintiff;
7. That it is expressly agreed that the parties shall comply in good faith to the terms of the
herein compromise agreement and that any amount due not paid within the period stated in
this agreement shall earn 2% interest per month until fully paid plus twenty five 25% attorney’s
fees of the amount collectible and that writ of execution shall be issued as a matter of right.
(Emphasis supplied)
WHEREFORE, in light of the above, it is respectfully prayed of this Honorable Court that
judgment be rendered on the basis of the above compromise agreement.
Manila for Quezon City
October 16, 1995."
Finding the foregoing compromise agreement to be not contrary to law, morals and public
policy, the same is hereby APPROVED.
WHEREFORE, judgment is hereby rendered in accordance with the terms and conditions set
forth in the compromise agreement and the parties are hereby enjoined to comply with and
abide by the said terms and conditions thereof.
SO ORDERED.6
Petitioner, however, failed to pay the amounts of P30,575.00 and P50,000.00 stated in the judicial
compromise. Hence, private respondent filed a motion for the issuance of a writ of execution for the
total amounts of P30,575.00 and P50,000.00 or a total of P102,733.12, inclusive of 2% interest and
25% attorney’s fees.7 The trial court, in its February 7, 1996 order,8 granted the motion over the
opposition9 of the petitioner. On May 24, 1996, the latter filed a motion to quash the writ of execution,
contending that the penalty of 2% monthly interest and 25% attorney’s fees should not be imposed on
him because his failure to pay the amounts of P30,575.00 and P50,000.00 within the agreed period was
due to private respondent’s fault.10
On February 20, 1997, petitioner filed another motion praying for the quashal of the writ of execution
and modification of the decision.11 This time, he contended that there was fraud in the execution of the
compromise agreement. He claimed that 3 sets of compromise agreement were submitted for his
approval. Among them, he allegedly chose and signed the compromise agreement which contained no
stipulation as to the payment of 2% monthly interest and 25% attorney’s fees in case of default in
payment. He alleged that his former counsel, Atty. Leonardo Cruz, who assisted him in entering into the
said agreement, removed the page of the genuine compromise agreement where he affixed his
signature and fraudulently attached the same to the compromise agreement submitted to the court in
order to make it appear that he agreed to the penalty clause embodied therein.
Private respondent, on the other hand, vehemently denied the contention of the petitioner. To refute the
latter’s claim, he presented Atty. Leonardo Cruz, who declared that the petitioner gave his consent to
the inclusion of the penalty clause of 2% monthly interest and 25% attorney’s fees in the compromise
agreement. He added that the compromise agreement approved by the court was in fact signed by the
Page 78 of 99
petitioner inside the courtroom before the same was submitted for approval. Atty. Cruz stressed that the
penalty clause of 2% interest per month until full payment of the amount due, plus 25% thereof as
attorney’s fees, in case of default in payment, was actually chosen by the petitioner over another
proposed more burdensome penalty clause which states – "That it is expressly agreed that the parties
shall comply in good faith to the terms of the herein compromise agreement and that any violation
thereof shall automatically entitle the aggrieved party to damages in the amount of P250,000.00 plus
P50,000.00 attorney’s fees."12
On October 26, 1998, the trial court issued the assailed order denying petitioner’s motion seeking to
quash the writ of execution and to modify the judgment on compromise. It gave credence to the
testimony of Atty. Leonardo Cruz that petitioner consented to the penalty clause in the compromise
agreement. The court further noted that it was only on February 20, 1997, or more than one year from
receipt of the judgment on compromise on October 25, 1995, when he questioned the inclusion of the
penalty clause in the approved compromise agreement despite several opportunities to raise said
objection. The dispositive portion of the said order states:
WHEREFORE, premises considered, and as earlier stated, the defendant’s motion to quash
the writ of execution and modification of judgment is denied.
SO ORDERED.13
On appeal by the petitioner to the Court of Appeals, the latter affirmed the challenged order of the trial
court.
Hence, the instant petition.
Is the petitioner bound by the penalty clause in the compromise agreement?
The settled rule in criminal as well as in civil cases is that, in the matter of credibility of witnesses, the
findings of the trial courts are given great weight and highest degree of respect by the appellate court
considering that the latter is in a better position to decide the question, having heard the witnesses
themselves and observed their deportment and manner of testifying during the trial, unless it plainly
overlooked certain facts of substance and value that, if considered, might affect the result of the case.
In the case at bar, we are faced with the conflicting claim of the petitioner that the questioned penalty
clause was fraudulently added to the compromise agreement approved by the court, and the assertion
of private respondent that the petitioner consented to the inclusion thereof in the compromise
agreement. A scrutiny of the records reveal that the trial court correctly sustained the claim of private
respondent. While a judicial compromise may be annulled or modified on the ground of vitiated consent
or forgery,14 we find that the testimony of the petitioner failed to establish the attendance of fraud in the
instant case. Indeed, the testimony of Atty. Leonardo Cruz is worthy of belief and credence. We are
inclined to believe that the petitioner had knowledge of and consented to the penalty clause embodied
in the agreement considering that the same is less burdensome than the automatic imposition of the
penalty of P250,000.00 and attorney’s fees of P50,000.00 in case of violation of the terms of the
agreement or default in payment. Moreover, we see nothing irregular in the compromise agreement
approved by the trial court. No evidence was presented by petitioner other than his bare allegation that
his former counsel fraudulently attached the page of the genuine compromise agreement where he
affixed his signature to the compromise agreement submitted to the court.
AGENCY
What further militates against the claim of the petitioner is his conduct after receiving the judgment
based on the compromise agreement. From October 25, 1995, when he received the judgment
reproducing the full text of the compromise agreement, to February 19, 1997, he never raised the issue
of the fraudulent inclusion of the penalty clause in their agreement. We note that petitioner is a doctor of
medicine. He must have read and understood the contents of the judgment on compromise. In fact, on
November 13, 1995, he filed, without the assistance of counsel, a motion praying that the amounts of
P50,000.00 and 37,575.00 be withheld from his total obligation and instead be applied to the expenses
for the repair of the leased premises which was allegedly vandalized by the private respondent.15 He did
not question the penalty clause in the compromise agreement. Even when the petitioner was already
represented by his new counsel, Atty. Felixberto F. Abad, to whom he allegedly confided his former
counsel’s fraudulent inclusion of the penalty clause, the issue of fraud was never brought to the trial
court’s attention. On January 31, 1996, when petitioner filed an opposition to the private respondent’s
motion for the issuance of a writ of execution, he likewise failed to mention the fraud complained of. On
May 24, 1996, petitioner filed a motion to quash the writ of execution but based on a different ground.
He argued that the penalty of 2% monthly interest and 25% attorney’s fees cannot be imposed on him
considering that his failure to pay on time was due to the fault of the private respondent. He allegedly
refused to pay because the person sent by private respondent to collect payment did not present a
special power of attorney authorizing him to receive said payment.16 In effect, therefore, petitioner
acknowledged the validity of the penalty clause.
Evidently, petitioner cannot feign ignorance of the existence of the penalty clause in the compromise
agreement approved by the court. Even assuming that Atty. Leonardo Cruz exceeded his authority in
inserting the penalty clause, the status of the said clause is not void but merely voidable, i.e., capable of
being ratified.17 Indeed, petitioner’s failure to question the inclusion of the 2% monthly interest and 25%
attorney’s fees in the judicial compromise despite several opportunities to do so was tantamount to
ratification. Hence, he is estopped from assailing the validity thereof.18
Finally, we find no merit in petitioner’s contention that the compromise agreement should be annulled
because Atty. Leonardo Cruz, who assisted him in entering into such agreement, was then an employee
of the Quezon City government, and is thus prohibited from engaging in the private practice of his
profession. Suffice it to state that the isolated assistance provided by Atty. Cruz to the petitioner in
entering into a compromise agreement does not constitute a prohibited "private practice" of law by a
public official. "Private practice" of a profession, specifically the law profession does not pertain to an
isolated court appearance; rather, it contemplates a succession of acts of the same nature habitually or
customarily holding one’s self to the public as a lawyer.19 Such was never established in the instant
case.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 62237, which sustained the trial court’s denial of petitioner’s motion to
quash the writ of execution and to modify the compromise judgment, is AFFIRMED.
SO ORDERED.
Page 79 of 99

G.R. No. L-19118 January 30, 1965
MARIANO A. ALBERT, plaintiff-appellant,
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.
Aruego, Mamaril & Associates for defendant-appellees.
BENGZON, J.P., J.:
No less than three times have the parties here appealed to this Court.
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to
damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment
for P15,000.00 which had become final and executory, should be executed to its full amount, since in
fixing it, payment already made had been considered.
Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed
President of University Publishing Co., Inc., as the real defendant.
Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc.
Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the laws of
the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a
contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive
right to publish his revised Commentaries on the Revised Penal Code and for his share in previous
sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of
P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest
due; and that defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and
terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their contract by
failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages.1äwphï1.ñët
Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him.
AGENCY
The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the
dispositive portion —
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and
against the defendant the University Publishing Co., Inc., ordering the defendant to pay the
administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date
of the filing of this complaint until the whole amount shall have been fully paid. The defendant
shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of
evidence.
As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on
July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing Co.,
Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M. Aruego, as
the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered that there is no such
entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification from the
securities and Exchange Commission dated July 31, 1961, attesting: "The records of this Commission
do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or
partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's
own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case," and that,
therefore, plaintiff's petition should be denied.
Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would
not want Jose M. Aruego to be considered a party to the present case: should a separate action be now
instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of limitations.
The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed.
The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange
Commission has not been disputed. Defendant would only raise the point that "University Publishing
Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing
Co., Inc." is an existing corporation with an independent juridical personality. Precisely, however, on
account of the non-registration it cannot be considered a corporation, not even a corporation de
facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it
cannot be sued independently.
The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here.
Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe
in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating
that this was "a corporation duly organized and existing under the laws of the Philippines," and
obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to
act upon his wilful misrepresentation that a corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs.
Garlitos, 56 O.G. 3069).
"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon
the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just a
name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as
counsel. He was in fact, if not, in name, the defendant.
Page 80 of 99
Even with regard to corporations duly organized and existing under the law, we have in many a case Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal and Zaldivar,
pierced the veil of corporate fiction to administer the ends of justice. * And in Salvatiera vs. JJ., concur.
Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation which Bautista Angelo, J., took no part.
has no valid existence assumes such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been named as
party defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room
for debate as to his personal liability. Since he was not so named, the matters of "day in court" and "due
process" have arisen.

In this connection, it must be realized that parties to a suit are "persons who have a right to control the
proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision"
(67 C.J.S. 887) — and Aruego was, in reality, the person who had and exercised these rights. Clearly,
then, Aruego had his day in court as the real defendant; and due process of law has been substantially
observed.

By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon
inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has
said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is Cadwaller & Co. vs. Smith, Bell & Co.
rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs.
Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process"
[No. 3246. February 9, 1907.]
clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying
undue homage to formality. For substance must prevail over form. It may now be trite, but none the less
CADWALLADER   &   COMPANY,   plaintiff   and   appellant, vs. SMITH,   BELL   &   COMPANY   and   HENRY   W.
apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:
PEABODY & COMPANY, defendants and appellees.

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
1. 1.SALE; MISREPRESENTATION   BY   CONSIGNEE.—The   consignee   who   by   means   of
subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in
misrepresentation of the condition of the market induces his consignors to sell to him the property
which each contending party fully and fairly lays before the court the facts in issue and then,
consigned, at a price less than that for which he has already contracted to sell part of it. and who
brushing side as wholly trivial and indecisive all imperfections of form and technicalities of
thereafter disposes of the whole at an advance, must answer for the difference.
procedure, asks that Justice be done upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts. 1. 2.ID.; FRAUD; ANNULLMENT OF CONTRACT.—Such conduct on the part of the agent constitutes
There should be no vested rights in technicalities. fraud, entitling the principal to annul the contract of sale.

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, 462
was the real party to the contract sued upon; that he was the one who reaped the benefits resulting
from it, so much so that partial payments of the consideration were made by him; that he violated its 462 PHILIPPINE REPORTS ANNOTATED
terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant.
Perforce, in line with the ends of justice, responsibility under the judgment falls on him.
Cadwaller & Co. vs. Smith, Bell & Co.
We need hardly state that should there be persons who under the law are liable to Aruego for
1. 3.ID.; AGENCY; COMMISSIONS.—Commissions should be allowed the agent on sales made by him
reimbursement or contribution with respect to the payment he makes under the judgment in question,
under his original authorization, but not on sales of property included in the annulled contract.
he may, of course, proceed against them through proper remedial measures.

PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded
ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment
into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered. Cosmic Lumber Corporation vs. Court of Appeals

2. G.R. No. 114311. November 29, 1996.*
AGENCY Page 81 of 99
3. COSMIC   LUMBER   CORPORATION,   petitioner, vs.COURT   OF   APPEALS   and   ISIDRO   PEREZ,
respondents.
0
4. Agency; Special   Powers   of   Attorney; Compromise   Agreements;Sales; Pre­Trial; Ejectment; A   special
power of attorney for an agent to institute any action in court to eject all persons in the principal's lots
so that the principal could take material possession thereof, and for this purpose, to appear at the pre­
trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this is
protective of the rights and interests of the principal in the property, does not grant any power to the
agent  to  sell   the   subject   property   nor   a   portion   thereof.—We   agree   with   petitioner.   The   authority
granted Villamil­Estrada under the special power of attorney was explicit and exclusionary: for her to
institute any action in court to eject all persons found on Lots Nos. 9127 and 443 so that petitioner
could
5. ________________
6. *
 FIRST DIVISION.
7. 169
VOL. 265, NOVEMBER 29, 1996 169
Cosmic Lumber Corporation vs. Court of Appeals
8. take material possession thereof, and for this purpose, to appear at the pre­trial and enter into any
stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights
and   interests   of   petitioner   in   the   property. Nowhere   in   this   authorization   was   Villamil­Estrada
granted expressly or impliedly any power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the specific authority "to enter into a
compromise agreement" because of the explicit limitation fixed by the grantor that the compromise
entered into shall only be "so far as it shall protect the rights and interest of the corporation in the
aforementioned lots" In the context of the specific investiture of powers to Villamil­Estrada, alienation
by sale of an immovable certainly cannot be deemed protective of the right of petitioner to physically
possess the same, more so when the land was being sold for a price of P80.00 per square meter, very
much   less   than   its   assessed   value   of   P250.00   per   square   meter,   and   considering   further   that
petitioner never received the proceeds of the sale.
9. Same; Same; Same; Same; The express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as
a necessary  ingredient of the  action  mentioned.—When  the sale  of  a piece  of  land  or any   interest
thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void. Thus the authority of an agent to execute a contract for the sale of real estate must be conferred
in writing and must give him specific authority, either to conduct the general business of the principal
or to execute a binding contract containing terms and conditions which are in the contract he did
execute. A special power of attorney is necessary to enter into any contract by which the ownership of
an  immovable   is  transmitted   or   acquired   either   gratuitously   or  for  a   valuable   consideration.   The
express mandate required by law to enable an appointee of an agency (couched) in general terms to
sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the
act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent in clear and unmistakable language. When there is
any reasonable doubt that the language so used conveys such power, no such construction shall be
given the document.
10. 170
AGENCY
17 SUPREME COURT REPORTS ANNOTATED
Cosmic Lumber Corporation vs. Court of Appeals
11. Same; Same; Same; Courts; Jurisdiction; The nullity of the settlement between an agent and a third
person   impairs   the   jurisdiction   of   the   trial   court   to   render   its   decision   based   on   the   compromise
agreement.—It is therefore clear that by selling to respondent Perez a portion of petitioner's land
through   a   compromise   agreement,   Villamil­Estrada   acted   without   or   in   obvious   authority.   The
sale ipso   jure is   consequently   void.   So   is   the   compromise   agreement.   This   being   the   case,   the
judgment based thereon is necessarily void. Antipodal to the opinion expressed by respondent court in
resolving   petitioner's   motion   for   reconsideration,   the   nullity   of   the   settlement   between   Villamil­
Estrada and Perez impaired the jurisdiction of the trial court to render its decision based on the
compromise agreement.
12. Actions; Courts; Judgments; Annulment   of   Judgments; Pleadings   and   Practice;   A   party   may   now
petition   the  Court of   Appeals  to  annul  and   set  aside   judgments   of  Regional   Trial  Courts.—Under
authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul
and  set aside  judgments of  Regional  Trial  Courts. "Thus,  the Intermediate  Appellant  Court (now
Court   of   Appeals)   shall   exercise   wi   wi   wi   wi   (2)   Exclusive   original   jurisdiction   over   action   for
annulment of judgments of the Regional Trial Courts wi wi wi x" However, certain requisites must
first   be   established   before   a   final   and   executory   judgment   can   be   the   subject   of   an   action   for
annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it has
been obtained by fraud. Conformably with law and the above­cited authorities, the petition to annul
the   decision  of  the   trial  court   in   Civil  Case   No,   D­7750   before   the  Court  of  Appeals   was   proper.
Emanating as it did from a void compromise agreement, the trial court had no jurisdiction to render a
judgment based thereon.
13. Same; Same; Same; Same; Fraud; Words   and   Phrases; Fraud   may   assume   different   shapes   and   be
committed in as many different ways, and here lies the danger of attempting to define fraud, for man
in his ingenuity and fertile imagination will always contrive new schemes to fool the unwary.—For
sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud
may assume different shapes and be committed in as many different ways and here lies the danger of
attempting to define fraud. For man in his ingenuity and fertile imagination will always contrive new
schemes to fool the unwary.
14. 171
VOL. 265, NOVEMBER 29, 1996 171
Cosmic Lumber Corporation vs. Court of Appeals
15. Same; Same; Same; Same; Same; Same; Extrinsic fraud refers to any fraudulent act of the prevailing
party in the litigation which is committed outside of the trial of the case, whereby the defeated party
has been prevented from exhibiting fully his side of the case by fraud or deception practiced on him by
his opponent.—There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where
it is one the effect of which prevents a party from hearing a trial, or real contest, or from presenting
all of his case to the court, or where it operates upon matters, not pertaining to the judgment itself,
Page 82 of 99
 but to the manner in which it was procured so that there is not a fair submission of the controversy.
In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party has been prevented
from exhibiting  fully his side of the case by fraud or deception practiced on him by his opponent.
Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting fully his case, by
fraud or deception practiced on him by his opponent, as by keeping him away  from court, a false
promise of a compromise; or where the defendant never had  knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority connives
at his defeat; these and similar cases which show that there has never been a real contest in the trial
or hearing of the case are reasons for which a new suit may be sustained to set aside and annul the
former judgment and open the case for a new and fair hearing.
16. Agency; Fraud; Equity; When an agent is engaged in the perpetration of a fraud upon his principal for
his   own  extrinsic   benefit,  he  is  not  really acting  for  the   principal   but is  really acting  for  himself,
entirely outside the scope of his agency—the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own
personal advantage.—It may be argued that petitioner knew of the compromise agreement since the
principal is chargeable with and bound by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to protect those who exercise good faith
and not as a shield for unfair dealing. Hence there is a well­established exception to the general rule
as where the conduct and dealings of the agent are such as to raise a clear presumption that he will
not communicate to the principal the facts in controversy. The logical reason for this exception is that
where the agent is committing a fraud, it would be contrary to com­
17. 172
17 SUPREME COURT REPORTS ANNOTATED
2
Cosmic Lumber Corporation vs. Court of Appeals
18. mon sense to presume or to expect that he would communicate the facts to the principal. Verily, when
an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit, he
is not really acting for the principal but is really acting for himself, entirely outside the scope of his
agency. Indeed, the basic tenets of agency rest on the highest considerations of justice, equity and fair
play, and an agent will not be permitted to pervert his authority to his own personal advantage, and
his act in secret hostility to the interests of his principal trascends the power afforded him.
No. 21237. March 22, 1924]
JAMES D. BARTON, plaintiff and appellee, vs. LEYTE ASPHALT & MINERAL OIL Co., LTD., defendant and
appellant.
1. 1.PRINCIPAL   AND   AGENT; AUTHORITY   OF   SELLING   AGENT; SALES   TO   SUBAGENT.—An
agent who is clothed with authority to sell a given commodity cannot bind the principal by selling to
himself, either directly or indirectly. It results that the principal is not obligated to fill orders taken
AGENCY
by the agent from his own subagent, unless the principal ratifies such sale with full knowledge of
the facts.
1. 2.EVIDENCE; PRIVILEGE OF ATTORNEY AND CLIENT; LOSS  OF  PRIVILEGE.—The privilege
which protects communications between attorney and client does not extend to a copy of a letter
written by the client to his attorney which comes to the hands of the adverse party. Where the
authenticity of such a document is admitted, the court will take no notice of the manner in which it
was obtained.
G.R. No. 158576. March 9, 2011.*
CORNELIA M. HERNANDEZ, petitioner, vs. CECILIO F. HERNANDEZ, respondent.
Civil Law; Contracts; A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.—A contract where consent is given through mistake, violence, intimidation,
undue influence, or fraud is voidable. In determining whether consent is vitiated by any of the circumstances
mentioned, courts are given  a wide latitude in  weighing the facts or circumstances in  a given  case and in
deciding in their favor what they believe to have actually occurred, considering the age, physical infirmity,
intelligence, relationship, and the conduct of the parties at the time of the making of the contract
and subsequent thereto, irrespective of whether the contract is in public or private writing.
Domingo vs. Domingo
No. L­30573. October 29, 1971.
VICENTE   M.   DOMINGO,represented   by   his   heirs,   ANTONINA   RAYMUNDO   VDA.   DE   DOMINGO,
RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO,
petitioners­appellants, vs. GREGORIO   M.   DOMINGO,respondent­appellee,   TEOFILO   P.   PURISIMA,
intervenor­respondent.
Agency; Obligations of an agent.—–Articles 1891 and 1909 of the Civil Code demand the utmost good
faith, fidelity, honesty, candor and fairness on the part of the agent to his principal. The agent has an absolute
obligation   to   make   a   full   disclosure   or   complete   account   to   his   principal   of   all   his   transactions   and   other
material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation
exempting the agent from such an obligation and considers such an exemption as void.
Same; Failure of agent to make full disclosure makes him guilty of breach of his loyalty to the principal.
—–An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee,
Page 83 of 99
without revealing the same to bis principal is guilty of a breach of his loyalty to the latter and forfeits his right
to collect the commission that may be due him, even if the principal does not suffer any injury by reason of such
breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or
custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual
damage.
Same; Duty of fidelity when not applicable.—–The duty embodied in Article 1891 of the Civil Code does
not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor
and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction.
[No. 3754. November 15, 1907.]
ANGELA OJINAGA, plaintiff and appellant, vs. THE ESTATE OF TOMAS R. PEREZ, defendant and appellee.
ESTATES; ADMINISTRATION; AGENCY; CONTRACT.—In the management of property, where a principal receives
from an agent periodical statements of account and, knowing all the facts in the case, repeatedly agrees to
the correctness thereof and approves the same, the result is a species of contract between the parties which
can only be set aside upon grounds similar to those upon which any other contract may be annulled or
rescinded.
G.R. No. 192085. February 22, 2012.*
CARIDAD SEGARRA SAZON, petitioner, vs. LETECIA VASQUEZ­MENANCIO, represented by attorney­in­
fact EDGAR S. SEGARRA, respondent.
Remedial Law; Civil Procedure; Appeals; When a case is appealed, the appellate court has the power to
review the case in its entirety.—In Heirs of Carlos Alcaraz v. Republic of the Philippines, 464 SCRA 280 (2005),
we reiterated the cardinal rule that when a case is appealed, the appellate court has the power to review the
case in its entirety, to wit: In any event, when petitioners interposed an appeal to the Court of Appeals, the
appealed case was thereby thrown wide open for review by that court, which is thus necessarily empowered to
come out with a judgment as it thinks would be a just determination of the controversy. Given this power, the
appellate court has the authority to either affirm, reverse or modify the appealed decision of the trial court. To
withhold from the appellate court its power to render an entirely new decision would violate its power of review
and would, in effect, render it incapable of correcting patent errors committed by the lower courts. Thus, we
agree with respondent that the CA was free to affirm, reverse, or modify either the Decision or the Order of the
RTC.
Same; Same; Same; Factual findings of the trial court are accorded high respect and are generally not
disturbed by appellate courts, unless found to be clearly arbitrary or baseless.—Factual findings of the trial
court are accorded high respect and are generally not disturbed by appellate courts, unless found to be clearly
arbitrary   or   baseless.   This   Court   does   not   review   the   factual   findings   of   an   appellate   court,   unless   these
findings are “mistaken, absurd, speculative, conjectural, conflicting, tainted with grave abuse of discretion, or
contrary to the findings culled by the trial court of origin.”
AGENCY
Civil Law; Human Relations; Quantum Meruit; Unjust Enrichment; The doctrine of quantum meruit (as
much as one deserves) prevents undue enrichment based on the equitable postulate that it is
_______________
* SECOND DIVISION.
708
70 SUPREME COURT REPORTS ANNOTATED
8
Sazon vs. Vasquez-Menancio
unjust for a person to retain benefit without paying for it.—The doctrine of quantum meruit (as much as
one deserves) prevents undue enrichment based on the equitable postulate that it is unjust for a person to
retain benefit without paying for it. Being an equitable principle, it should only be applied if no express contract
was entered into, and no specific statutory provision is applicable. Although petitioner was given the authority
to set the amount of her salary, she failed to do so. Thus, she should at least be given what she merits for her
services. We find no reason to reverse the finding of both the RTC and the CA that P1,000 per month for 15
years is a just, reasonable, and fair compensation to petitioner for administering respondent’s properties. The
lower court is ordered to add this amount to the deductibles that petitioner is able to prove or, if the deductibles
exceed   the   monetary   value   of   the   income   generated   by   the   properties,   to   add   this   amount   to   whatever
respondent ends up owing petitioner.
[No. L­9572. July 31, 1956]
JOAQUIN GUZMAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, respondent.
1. 1.AGENCY; NATURE OP POSSESSION OP AGENT OP THE GOODS RECEIVED IN AGENCY.—
An agent, unlike a servant or messenger, has both the physical and judicial possession of the goods
received in agency, or the proceeds thereof, which takes the place of the goods after their sale by the
agent. His duty to turn over the proceeds of the agency depends upon his discharge, as well as the
resul'* of the accounting between him and the principal; and he may set up his right of possession as
against that of the principal until the agency is terminated.
704
704 PHILIPPINE REPORTS ANNOTATED
Guzman vs. Court of Appeals
Page 84 of 99
 1. 2.ID.; POSSESSION OP AGENT DISTINGUISHED FROM POSSESSION OF TELLER OF BANK.—
There is an essential distinction between the possession by a receiving teller of funds received from
third persons paid to the bank, and an agent who receives the proceeds of sales of merchandise
delivered to him in agency by his principal. In the former case, payment by third persons to the
teller is payment to the bank itself; the teller is a mere custodian or keeper of the funds received,
and has no independent right or title to retain or possess the same as against the bank. An agent,
on the other hand, can even assert, as against his own principal, an independent, autonomous, rigfit
to retain the money or goods received in consequence of the agency; as when the principal fails to
reimburse him for advances he has made, and indemnify him for damages suffered without his fault
(Article 1915, new Civil Code; Article 1730, old).
1. 3.CRIMINAL   LAW; ESTAPA; MISAPPROPRIATION   OF   GOODS   BY   SALES   AGENT
CONSTITUTES   ESTAFA.—Where   a   sales   agent   misappropriates   or   fails   to   turn   over   to   his
principal proceeds of things or goods he was commissioned or authorized to sell for the latter, he is
guilty   not   of   the   crime   of   theft   but   of estafa, as   defined   by   Article   315,   paragraph   1,
subparagraph (c), of the Revised Penal Code. (U. S. vs. Reyes, 36 Phil. 791; U. S. vs. Lim, 36 Phil.
68^|; People vs. Leachon, 56 Phil. 737.)
1. 4.ID.; ID.; ELEMENTS   OF; FAILURE   TO   ALLEGE   ELEMENTS   OF   CRIME   IN   THE
INFORMATION; EFFECT OF.—It is an essential element of the crime of estafa that the money or
goods misappropriated or converted by the accused to the prejudice of another was received by him
'in trust or on commission, or for administration, or undier any other obligation involving the duty
to make ­delivery of, or to return the same". Where no such allegation appears in the information,
the accused can not be convicted thereunder of the crime of estafa.
No. 42465. November 19, 1936]
INTERNATIONAL FILMS (CHINA), LTD., plaintiff and appellant, vs, THE LYRIC FILM EXCHANGE, INC.,
defendant and appellee.
1. 1.ALLEGATIONS; AMENDMENTS TO PLEADINGS; LACK OF PERSONALITY OF PLAINTIFF.—
The court a quo acted within its discretionary power in allowing the defendant company to amend
its answer by pleading the special defense of the plaintiff company's lack of personality to bring the
action, after both parties had already rested their respective cases.
1. 2.MANDATE; LIABILITY OF SUBAGENT.—The defendant company, as subagent of the plaintiff in
the exhibition   of  the film  "Monte Carlo  Madness",  was not obliged  to insure it against  fire,  not
having received any express mandate to that effect, and it is not liable for the accidental destruction
thereof by fire.
AGENCY
Serona vs. Court of Appeals
G.R. No. 130423. November 18, 2002.*
VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
respondents.
Criminal Law; Estafa Through Misappropriation or Conversion (Art. 315, par. 1[b] of the Revised Penal
Code); Elements.—The elements of estafa through misappropriation or conversion as defined in Article 315, par.
1(b)  of the Revised Penal Code are: (1) that the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or
denial is to the prejudice of another; and (4) that there is a demand made by the offended party on the offender.
While   the   first,   third   and   fourth   elements   are   concededly   present,   we   find   the   second   element   of
misappropriation or conversion to be lacking in the case at bar.
Same; Same; Sales; Agency; An agent does not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering jewelry she received to be sold on commission basis to a sub­agent—the law on
agency in our jurisdiction allows the appointment by an agent of a substitute or sub­agent in the absence of an
express agreement to the contrary between the agent and the principal.—Petitioner did not ipso facto commit the
crime of estafa through conversion  or misappropriation  by  delivering the jewelry to a sub­agent for  sale on
commission basis. We are unable to agree with the lower courts’ conclusion that this fact alone is sufficient
ground for holding that petitioner disposed of the jewelry “as if it were hers, thereby committing conversion and
a   clear   breach   of   trust.”   It   must   be   pointed   out   that   the   law   on   agency   in   our   jurisdiction   allows   the
appointment by an agent of a substitute or sub­agent in the absence of an express agreement to the contrary
between the agent and the principal. In the case at bar, the appointment of Labrador as petitioner’s sub­agent
was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit “B”, does not contain any
such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the
jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus, it cannot
be said that petitioner’s act of en­
_______________
*
 FIRST DIVISION.
36
3 SUPREME COURT REPORTS ANNOTATED
6
Serona vs. Court of Appeals
Page 85 of 99
 trusting the jewelry to Labrador is characterized by abuse of confidence because such an act was not
proscribed and is, in fact, legally sanctioned.
Same; Same; Same; Same; Words   and   Phrases; The   essence   of   estafa   under   Art.   315,   par.   1(b)   is   the
appropriation or conversion of money or property received to the prejudice of the owner; The words “convert” and
“misappropriated”   connote   an   act   of   using   or   disposing   of   another’s   property   as   if   it   were   one’s   own,   or   of
devoting it to a purpose or use different from that agreed upon.—The essence of estafa under Article 315, par.
1(b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words
“convert” and “misappropriated” connote an act of using or disposing of another’s property as if it were one’s
own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one’s own use
includes not only conversion to one’s personal advantage, but also every attempt to dispose of the property of
another without right.
Same; Same; Same; Same; It is consistent with usual practice for the seller of jewelry entrusted to be sold
on commission basis to necessarily part with the valuables in order to find a buyer and allow inspection of the
items for sale.—It cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
“without right.” Aside from the fact that no condition or limitation was imposed on the mode or manner by
which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily part
with the valuables in order to find a buyer and allow inspection of the items for sale.
Same; Same; Same; Same; The rule is that where an accused is acquitted of estafa may nevertheless be
held civilly liable where the facts established by the evidence so warrant; An agent who is not prohibited from
appointing  a  sub­agent  but  does   so  without  express   authority  is   responsible   for   the   acts   of   the   sub­agent.—
Petitioner   is   not   entirely   free   from   any   liability   towards   Quilatan.   The   rule   is   that   an   accused   acquitted
of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant. Then
too,   an   agent  who   is  not  prohibited   from  appointing   a   sub­agent   but  does   so  without   express  authority   is
responsible for the acts of the sub­agent. Considering that the civil action  for the recovery of civil liability
arising from the offense is deemed instituted with the criminal action, petitioner is liable to pay complainant
Quilatan the value of the unpaid pieces of jewelry.
Baltazar vs. Ombudsman
G.R. No. 136433. December 6, 2006.*
ANTONIO B. BALTAZAR, petitioner, vs. HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D.
JIMENEZ, JR., TORIBIO E. ILAO, JR. and ERNESTO R. SALENGA, respondents.
AGENCY
Locus   Standi; Parties; Words   and   Phrases; Civil   Procedure; Locus   standi   is   defined   as   “a   right   of
appearance in a court of justice on a given question”—in private suits, standing is governed by the “real­parties­
in interest” rule found in Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that “every action
must be prosecuted or defended in the name of real party in interest.”—Locus standi is defined as “a right of
appearance in a court of justice x x x on a given question.” In private suits, standing is governed by the “real­
parties­in interest” rule found in Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that
“every action must be prosecuted or defended in the name of the real party in interest.” Accordingly, the “real­
party­in interest” is “the party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit.” Succinctly put, the plaintiffs’ standing is based on their own right to the relief
sought.
Ombudsman; The Office of the Ombudsman is mandated to “investigate and prosecute on its own or on
complaint by any person, any act or omission of any public officer or employee, office or agency, when such act or
omission appears to be illegal, unjust, improper or
_______________
*
 THIRD DIVISION.
75
VOL. 510, DECEMBER 6, 2006 75
Baltazar vs. Ombudsman
inefficient—the Ombudsman can act on anonymous complaints and motu proprio inquire into alleged
improper   official   acts   or   omissions   from   whatever   source,   e.g.,   a   newspaper.   Thus,   any   complaint   may   be
entertained by the Ombudsman for the latter to initiate an inquiry and investigation for alleged irregularities. —
The Office of the Ombudsman is mandated to “investigate and prosecute on its own or on complaint by any
person, any act or omission of any public officer or employee, office or agency, when such act or omission
appears   to   be   illegal,   unjust,   improper   or   inefficient   (emphasis   supplied).”   The   Ombudsman   can   act   on
anonymous complaints and motu proprio inquire into alleged improper official acts or omissions from whatever
source, e.g.,  a  newspaper.  Thus,  any  complainant   may  be  entertained  by   the Ombudsman   for   the  latter   to
initiate an inquiry and investigation for alleged irregularities.
Litigations; The Rules allow a non­lawyer  to conduct litigation in person  and  appear  for oneself only
when he is a party to a legal controversy.—Filing the petition in person before this Court is another matter. The
Rules allow a non­lawyer to conduct litigation in person and appear for oneself only when he is a party to a
legal controversy. Section 34 of Rule 138 pertinently provides, thus: SEC. 34. By whom litigation conducted.—
In the court of a justice of the peace a party may conduct his litigation in person, with the aid of an agent or
friend appointed by him for that purpose, or with  the aid of an attorney. In any other court, a  party may
conduct his litigation personally or by aid of an attorney, and his appearance must be either personal or by a
duly authorized member of the bar (emphases supplied).
Page 86 of 99
 Legal  Maxims; Words   and   Phrases; Agency; The   legal  maxim  potestas   delegata   non   delegare  potest;   a VOL. 510, DECEMBER 6, 2006 77
power once delegated cannot be re­delegated, while applied primarily in political law to the exercise of legislative
power, is a principle of agency—for another, a redelegation of the agency would be detrimental to the principal Baltazar vs. Ombudsman
as the second agent has no privity of contract with the former.—The legal maxim potestas delegata non delegare
rule that we cannot pass upon the sufficiency or insufficiency of evidence to determine the existence of
potest; a power once delegated cannot be re­delegated, while applied primarily in political law to the exercise of
probable cause.
legislative power, is a principle of agency. For another, a re­delegation of the agency would be detrimental to
the principal as the second agent has no privity of contract with the former.

76

7 SUPREME COURT REPORTS ANNOTATED

6
Escueta vs. Lim
Baltazar vs. Ombudsman
G.R. No. 137162. January 24, 2007.*
Due   Process; Preliminary   Investigation; Courts   are   given   wide   latitude   to   accord   the   accused   ample
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE HEIRS OF
opportunity to present controverting evidence even before trial as demanded by due process. Thus, we held in
LUZ   R.   BALOLOY,   namely,   ALEJANDRINO   R.   BALOLOY   and   BAYANI   R.   BALOLOY,
Villaflor v. Vivar, 349 SCRA 194 (2001), that “[a] component part of due process in criminal justice, preliminary
petitioners, vs. RUFINA LIM, respondent.
investigation is a statutory and substantive right accorded to the accused before trial—to deny their claim to a
preliminary investigation would be to deprive them of the full measure of their right to due process.—Courts are Pleadings and Practice; Admissions; The factual admission in the pleadings on record dispenses with the
given wide latitude to accord the accused ample opportunity to present controverting evidence even before trial need   to   present   evidence   to   prove   the   admitted   fact,   and   all   proofs   submitted   by   the   party   making   such
as demanded by due process. Thus, we held in Villaflor v. Vivar, 349 SCRA 194 (2001), that “[a] component part admission “contrary thereto or inconsistent therewith should be ignored whether objection is interposed by a
of due process in criminal justice, preliminary investigation is a statutory and substantive right accorded to the
party or not.”—An admission, verbal or written, made by a party in the course of the proceedings in the same
accused before trial. To deny their claim to a preliminary investigation would be to deprive them of the full
case, does not require proof.” The “factual admission in the pleadings on record [dispenses] with the need x x x
measure of their right to due process.”
to present evidence to prove the admitted fact.” It cannot, therefore, “be controverted by the party making such
admission,   and  [is]   conclusive”  as   to  them.   All  proofs   submitted   by  them   “contrary  thereto  or   inconsistent
Jurisdictions; Actions; It  is   settled   rule   that  jurisdiction   over   the   subject  matter   is   determined   by   the
therewith should be ignored whether objection is interposed by a party or not.” Besides, there is no showing
allegations of the complaint—the nature of an action is determined by the material averments in the complaint
that a palpable mistake has been committed in their admission or that no admission has been made by them.
and the character of the relief sought, not by the de­fenses asserted in the answer or motion to dismiss .—It is a
settled rule that jurisdiction over the subject matter is determined by the allegations of the complaint. The Annulment of Judgments; The 60­day period for filing a petition for annulment of judgment is reckoned
nature of an action is determined by the material averments in the complaint and the character of the relief from the time the party acquired knowledge of the order, judgment or proceedings and not from the date he
sought, not by the defenses asserted in the answer or motion to dismiss.
actually read the same.—Section 3 of Rule 38 of the Rules of Court states: SEC. 3. Time for filing petition;

Probable Cause; Ombudsman; The function of determining the existence of probable cause is proper for
the Ombudsman in this case and we will not tread on the realm of this executive function to examine and assess
evidence supplied by the parties, which is supposed to be exercised at the start of criminal proceedings .—The
function of determining the existence of probable cause is proper for the Ombudsman in this case and we will
not tread on the realm of this executive function to examine and assess evidence supplied by the parties, which
is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc., 327
SCRA 588 (2000), as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon. Desierto, 385
SCRA 392 (2002), we had occasion to
contents  and  verification.—A   petition  provided for  in   either  of  the  preceding  sections  of   this Rule must be
verified, filed within sixty (60) days after the petitioner learns of the judgment, final order, or other proceeding
to be set aside, and not more than  six (6) months after such judgment or final order was entered, or such
proceeding   was   taken;   and   must   be   accompanied   with   affidavits   showing   the   fraud,   accident,   mistake,   or
excusable negligence relied upon, and the facts constituting the petitioner’s good and substantial cause of action
or defense, as the case may be. There is no reason for the Baloloys to ignore the effects of the above­cited rule.
“The 60­day period is reckoned from
_______________

77
AGENCY Page 87 of 99
 *
 FIRST DIVISION. Same; Same; Estoppel; The doctrine of estoppel is not only that which prohibits a party from assuming
inconsistent positions, based on the principle of election, but that which precludes him from repudiating an
412
obligation voluntarily assumed after having accepted benefits therefrom.—Similarly, the Baloloys have ratified
the   contract   of   sale   when   they   accepted   and   enjoyed   its   benefits.   “The   doctrine   of   estoppel   applicable   to
41 SUPREME COURT REPORTS ANNOTATED
petitioners here is not only that which prohibits a party from assuming inconsistent positions, based on the
2 principle of election, but that which precludes him from repudiating an obligation voluntarily assumed after
having accepted benefits therefrom. To countenance such repudiation would be contrary to equity, and would
Escueta vs. Lim put a premium on fraud or misrepresentation.”

the time the party acquired knowledge of the order, judgment or proceedings and not from the date he Same; Same; Double   Sales; A   second   buyer   of   the   property   who   may   have   had   actual   or   constructive
actually read the same.”
knowledge of a defect in the seller’s title, or at least was charged with the obligation to discover such defect,
cannot be a registrant in good faith.—Applying Article 1544 of the Civil Code, a second buyer of the property
Agency; The  agent  may appoint  a  substitute  if   the  principal  has  not prohibited  him from  doing  so.—
who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged
Article 1892 of the Civil Code provides: Art. 1892. The agent may appoint a substitute if the principal has not
with  the obligation  to discover such defect, cannot be a registrant in good faith. Such second buyer cannot
prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was not
defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance
given the power to appoint one x x x. Applying the above­quoted provision to the special power of attorney
of the property subject of the sale. Even the argument that a purchaser need not inquire beyond what appears
executed by Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not prohibited from
in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that the subject
appointing a substitute. By authorizing Virginia Lim to sell the subject properties, Patricia merely acted within
properties are registered in common, not in the individual names of the heirs.
the limits of the authority given by her father, but she will have to be “responsible for the acts of the sub­
agent,” among which is precisely the sale of the subject properties in favor of respondent.
Same; Same; Earnest  Money; Earnest  money  constitutes   an  advance  payment  to be   deducted  from  the

Same; Sales; A   contract   executed   by   an   agent   without   authority   to   sell   is   not   void   but   simply
unenforceable.—Even assuming that Virginia Lim has no authority to sell the subject properties, the contract
she executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of Article
1317 of the Civil Code which reads: Art. 1317. x x x A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.
Same; Same; The acceptance and encashment by the owner of a check representing the purchase price of
his property sold through his agent constitute ratification of the contract of sale and produce the effects of an
express power of agency.—Ignacio Rubio merely denies the contract of sale. He claims, without substantiation,
that what he received was a loan, not the down payment for the sale of the subject properties. His acceptance
and encashment of the check, however, constitute ratification of the contract of sale and “produce the effects of
an express power of agency.” “[H]is action necessarily implies that he waived his right of action to avoid the
contract, and, consequently, it also implies the tacit, if not express, confirmation of the said sale effected” by
Virginia Lim in favor of respondent.
413
VOL. 512, JANUARY 24, 2007 413
total price.—Earnest money has been given by respondent. “[I]t shall be considered as part of the price and as
proof of the perfection of the contract. It constitutes an advance payment to “be deducted from the total price.”
Same; Same; In a contract of sale, the vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded.—Ignacio Rubio could no longer sell the subject properties to
Corazon Escueta, after having sold them to respondent. “[I]n a contract of sale, the vendor loses ownership over
the property and cannot recover it until and unless the contract is resolved or rescinded x x x.” The records do
not show that Ignacio
414
41 SUPREME COURT REPORTS ANNOTATED
4
Escueta vs. Lim
Rubio asked for a rescission of the contract. What he adduced was a belated revocation of the special
power of attorney he executed in favor of Patricia Llamas. “In the sale of immovable property, even though it
may  have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial act.”

Escueta vs. Lim

AGENCY Page 88 of 99
 1. 1.PLEADING AND PRACTICE; AMENDMENT OF PLEADINGS.—As in other ordinary actions in
which   the   pleadings   may   be   amended,   the   amounts   claimed   in   the   complaint   presented   in   the
instant case before the committee of claims and appraisal, were changed in the complaint which was
[No. 10099. January 27, 1916.]
filed in the court and approved by the same without exception from the other party. There was no
change of the nature of the action, because both complaints contained the same allegations to the
TEOFILA   DEL   ROSARIO   DE   COSTA   and   BERNARDINO   COSTA,   plaintiffs   and   appellants, vs. LA effect that the plaintiffs had not received the amounts claimed as dividends due on their shares in
BADENIA, a corporation, defendant and appellee. the partnership styled "Tren de Aguadas."

PRINCIPAL AND AGENT; LIABILITY OF PRINCIPAL.—The principal is liable  upon subagency
558
contracts entered into by a general agent in the name of the principal, when it appears that the general
agent was clothed with such broad powers as to justify the inference that he was anthorized to execute
558 PHILIPPINE REPORTS ANNOTATED
contracts of this kind, and it not appearing from the record what limitations, if any, were placed upon his
powers to act for his principal.
Mendezona vs. C. Viuda de Goitia

1. 2.ID.; DEMURRER FOR MISJOINDER; WAIVER.—Since the bill of excep­tions does not show that
the appellant demurred on the ground of misjoinder of parties, or alleged such misjoinder in her
answer, in accordance with section 93 of the Code of Civil Procedure she must be deemed to have
waived her right to raise any objection on that ground.
No. 32977. November 17, 1930]
1. 3.ID. ; ORDER FOR ACCOUNTING.—The order of the court enjoining the appellant to render an
THE   MUNICIPAL   COUNCIL   OF   ILOILO,   plaintiff   and   appellee, vs. JOSE   EVANGELISTA   ET   AL.,
account of all the amounts collected by her late husband, as representative and attorney­in­fact of
defendants and appellees. TAN ONG SZE VDA. DE TAN Toco, appellant. the plaintiffs, was made for the purpose of giving her an opportunity of showing, if she could, just
what  amounts the decedent had received on account  of  the plaintiffs' shares. This showing was
1. 1.PRINCIPAL AND AGENT; POWER OF AGENT; PAYMENTS OF AT­TORNEYS' FEES.—An agent proper because the action was to demand the reimburse­ment of said amounts.
or attorney­in­fact empowered to pay the debts of the principal, and to employ attorneys to defend
the latter's interests, is impliedly empowered to pay the attorneys' fees for services rendered in the
1. 4.ID. ; LEGAL PROHIBITION TO TESTIFY.—The law prohibits a witness directly interested in a
interests of said principal, and may satisfy them by an assignment of a judgment rendered in favor
claim against the estate of a decedent from testifying upon a matter of fact which took place before
of said principal.
the death of the deceased. The underlying principle of this prohibition is to protect the estate from
fictitious claims; but it should not be understood to prohibit the filing of a just claim against the
1. 2.ID.; APPOINTMENT OF Two AGENTS.—When a person appoints two agents independently, the decedent's estate.
consent of one will not be required to validate the acts of the other, unless that appears positively to
have been the principal's intention.

1. 3.JUDGMENT; ASSIGNMENT OF AMOUNT FOR PROFESSIONAL SERVICES.—The assignment
of the amount of a judgment made by a person to his attorney, who has not taken any part in the
case wherein said judgment was rendered, made in payment of professional services in other cases,
does not contravene the prohibition of article 1459, case 5, of the Civil Code.

No. 38479. November 20, 1933]
No. 31739. March 11, 1930]
QUINTIN DE BORJA, judicial administrator of the intestate estate of the deceased Marcelo de Borja, plaintiff
LEONOR MENDEZONA, plaintiff and appellee, vs.ENCARNACION C. VIUDA DE GOITIA, administratrix of and appellant, vs. FRANCISCO DE BORJA, defendant and appellant.
the estate of Benigno Goitia, defendant and appellant.
1. 1.PLEADING   AND   PRACTICE; PERIOD   FOR   FILING   OF   COUNTERCLAIMS.—The   plaintiff­
appellant's contention that the counterclaims presented by the defendant have already prescribed is
[No. 31740. March 11, 1930]
untenable. The counterclaims in question are based on instruments in writing marked Exhibits 1 to
6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance
VALENTINA IZAGUIRRE Y NAZABAL, plaintiff and appellee, vs. ENCARNACION C. VIUDA DE GOITIA,
with the provisions of section 43 (1) of the Code of Civil Procedure.
ETC., defendant and appellant.

AGENCY Page 89 of 99
 1. 2.DEBTS   AND   DEBTORS; PAYMENT   OF   INTEREST.—Neither   is   the   plaintiff   entitled   to   the
interest claimed by him upon the alleged sums of money loaned to and collected by the defendant
from various persons for his deceased father. In all the aforesaid transactions, the defendant acted
in his capacity as attorney­in­fact of his deceased father and, there being no evidence showing that
he converted the money entrusted to him to his own use, he is not liable for interest thereon in
accordance with the provisions of article 1724 of the Civil Code.
G.R. No. 110668. February 6, 1997.*
2. SMITH,   BELL   &   CO.,   INC.,   petitioner, vs. COURT   OF   APPEALS   and   JOSEPH   BENGZON
CHUA,1 respondents.
3. Agency; Insurance; Contracts; Obligations; Actions; A   settling   agent   acting   within   the   scope   of   its
authority cannot be held personally liable and/or solidarily liable for the obligations of its disclosed
principal.—Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot
be held personally and/or solidarily
4. _______________
*
5.  THIRD DIVISION.
1
6.  Doing business under the name and style “Tic Hin Chiong Importer.”
7. 531
VOL. 267, FEBRUARY 6, 1997 531
Smith, Bell & Co., Inc. vs. Court of Appeals
8. liable   for  the  obligations  of   its  disclosed  principal   merely  because  there  is  allegedly  a   need   for   a
speedy  settlement  of  the  claim  of   private   respondent.  In   the  leading  case  of Salonga   vs.  Warner,
Barnes & Co., Ltd. this Court ruled in this wise: “We agree with counsel for the appellee that the
defendant is a settlement and adjustment agent of the foreign insurance company and that as such
agent it has the authority to settle all the losses and claims that may arise under the policies that
may be issued by or in behalf of said company in accordance with the instructions it may receive from
time   to   time   from   its   principal,   but   we   disagree   with   counsel   in   his   contention   that   as   such
adjustment and settlement agent, the defendant has assumed personal liability under said policies,
and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different
from   any   other   agent   from   the   point   of   view   of   his   responsibility   (sic),   for   he   also   acts   in   a
representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal,
and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of
agency applies.
9. Same; Same; Same; Same; Contracts are binding only upon the parties (and their assigns and heirs)
who   execute   them.—Every   cause   of   action ex   contractu must   be   founded   upon   a   contract,   oral   or
written,  either   express or  implied.  The  only  “involvement”  of   petitioner   in  the subject contract of
insurance was having its name stamped at the bottom left portion of the policy as “Claim Agent.”
Without   anything   else   to   back   it   up,   such   stamp   cannot   even   be   deemed   by   the   remotest
interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is
no privity of contract, and correspondingly there can be no obligation or liability, and thus no cause of
action against petitioner attaches. Under Article 1311 of the Civil Code, contracts are binding only
upon the parties (and their assigns and heirs) who execute them. The subject cargo insurance was
between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was
AGENCY
signed in Taipei, Taiwan by the president of the First Insurance Company, Ltd., and the president of
the Chin  Gact  Co.,  Ltd. There is absolutely  nothing in  the contract  which  mentions the personal
liability of petitioner.
10. Same; Same; Same; Same; The   well­entrenched   rule   is   that   solidary   obligation   cannot   lightly   be
inferred—it must be positively and clearly expressed.—May then petitioner, in its capacity as resident
agent (as found in the case cited by the respondent Court) be held solidarily liable with the foreign
insurer? Article 1207 of the
11. 532
53 SUPREME COURT REPORTS ANNOTATED
2
Smith, Bell & Co., Inc. vs. Court of Appeals
12. Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.” The well­entrenched rule
is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The
contention that, in the end, it would really be First Insurance Company, Ltd. which would be held
liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which
would be made to advance the funds to settle the claim without any assurance that it can collect from
the principal which disapproved such claim, in the first place. More importantly, such position would
have absolutely no legal basis.
13. Same; Same; Same; Same; Words   and   Phrases;  A  resident  agent,  as   a  representative   of  the   foreign
insurance   company,  is   tasked   only   to   receive   legal   processes   on   behalf   of   its   principal   and   not   to
answer personally for any insurance claims.—The Insurance Code is quite clear as to the purpose and
role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked
only   to   receive   legal   processes   on   behalf   of   its   principal   and   not   to   answer   personally   for   any
insurance claims.
14. Same; Same; Same; Same; Actions; Parties; Pleadings and Practice; If the party sued is not the proper
party,  any decision   that  may be   rendered   against  him would   be   futile,  for   the   decision   cannot  be
enforced or executed.—Being a mere agent and representative, petitioner is also not the real party­in­
interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive
relief. If the party sued is not the proper party, any decision that may be rendered against him would
be futile, for the decision cannot be enforced or executed. Section  2, Rule 3 of the Rules of Court
identifies who the real parties­in­interest are,
15. Equity; Words and Phrases; Equity, which has been aptly described as “justice outside legality,” is
availed   of   only   in   the   absence   of,   and   never   against,   statutory   law   or   judicial   pronouncements.—
Respondent Court also contends that “the interest of justice is better served by holding the settling
agent jointly and severally liable with its principal.” As no law backs up such pronouncement, the
appellate Court is thus resorting to equity. However, equity which has been aptly described as “justice
outside legality,” is availed of only in  the absence of, and never against,  statutory law or judicial
pronouncements. Upon the other hand, the liability of agents is clearly provided for by our laws and
existing jurisprudence.
Chemphil Export & Import Corporation vs. Court of Appeals
Page 90 of 99

G.R. Nos. 112438­39. December 12, 1995.*
CHEMPHIL   EXPORT   &   IMPORT   CORPORATION   (CEIC),   petitioner, vs. THE   HONORABLE   COURT   OF
APPEALS,   JAIME   Y.   GONZALES,   as   Assignee   of   the   Bank   of   the   Philippine   Islands   (BPI),   RIZAL
COMMERCIAL   BANKING   CORPORATION   (RCBC),   LAND   BANK   OF   THE   PHILIPPINES   (LBP),
PHILIPPINE   COMMERCIAL   &   INTERNATIONAL   BANK   (PCIB)   and   THE   PHILIPPINE   INVESTMENT
SYSTEM ORGANIZATION (PISO), respondents.
G.R. No. 113394. December 12, 1995.*
PHILIPPINE   COMMERCIAL   INDUSTRIAL   BANK   (AND   ITS   ASSIGNEE   JAIME   Y.   GONZALES),
petitioner, vs.HONORABLE COURT OF APPEALS and CHEMPHIL EXPORT AND IMPORT CORPORATION
(CEIC), respondents.
Contracts; Subrogation; Classifications of Subrogation; Words and Phrases; Subrogation is “the transfer
of   all   the   rights   of   the   creditor   to   a   third   person,   who   substitutes   him   in   all   his   rights.” —By   definition,
subrogation is “the transfer of all the rights of the creditor to a third person, who substitutes him in all his
rights. It may either be legal or conventional. Legal subrogation is that which takes place without
______________
*
 EN BANC.
258
25 SUPREME COURT REPORTS ANNOTATED
8 the disputed shares. It is, however, a settled rule that a purchaser of attached property acquires it subject to an
Chemphil Export & Import Corporation vs. Court of Appeals
agreement but by operation of law because of certain acts; this is the subrogation referred to in Article
1302. Conventional subrogation is that which takes place by agreement of the parties . . .”
Same; Same; Agency; Where the money used to discharge a person’s debt rightfully belonged to the debtor,
the party paying cannot be considered a third­party payor under Art. 1302(2) of the Civil Code but a mere agent.
—Since the money used to discharge Garcia’s debt rightfully belonged to him, FCI cannot be considered a third
party payor under Art. 1302 (2). It was but a conduit, or as aptly categorized by respondents, merely an agent
as defined in Art. 1868 of the Civil Code.
Attachment; Corporations; Both   the   Revised   Rules   of   Court   and   the   Corporation   Code   do   not   require
annotation in the corporation’s stock and transfer books for the attachment of shares of stock to be valid and
binding on the corporation and third parties.—The attachment lien acquired by the consortium is valid and
AGENCY
effective.   Both   the   Revised   Rules   of   Court   and   the   Corporation   Code   do   not   require   annotation   in   the
corporation’s stock and transfer books for the attachment of shares of stock to be valid and binding on the
corporation and third party.
Same; Same; Words and Phrases; Attachments of shares of stock are not included in the term “transfer” as
provided in Sec. 63 of the Corporation Code.—Are attachments of shares of stock included in the term “transfer”
as provided in Sec. 63 of the Corporation Code? We rule in the negative. As succinctly declared in the case
of Monserrat v. Ceron, “chattel mortgage over shares of stock need not be registered in the corporation’s stock
and transfer book inasmuch as chattel mortgage over shares of stock does not involve a “transfer of shares,”
and that only absolute transfers of shares of stock are required to be recorded in the corporation’s stock and
transfer book in order to have “force and effect as against third persons.”
Same; Same; An attachment does not constitute an absolute conveyance of property but is primarily used
as a means “to seize the debtor’s property in order to secure the debt or claim of the creditor in the event that a
judgment is rendered.”—Although the Monserrat case refers to a chattel mortgage over shares of  stock, the
same may be applied to the attachment of the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of property but is primarily used as a means “to seize
the   debtor’s   property  in   order   to  secure  the   debt  or   claim   of   the  creditor   in   the  event   that  a   judgment  is
rendered.”
259
VOL. 251, DECEMBER 12, 1995 259
Chemphil Export & Import Corporation vs. Court of Appeals
Same; Sales; A purchaser of attached property acquires it subject to an attachment legally and validly
levied thereon.—The only basis, then, for petitioner CEIC’s claim is the Deed of Sale under which it purchased
attachment legally and validly levied thereon.
Same; Actions; Garnishments; Corporations; Secretaries; A notice of garnishment served on the secretary
of the president binds the corporation.—CEIC vigorously argues that the consortium’s writ of attachment over
the disputed shares of Chemphil is null and void, insisting as it does, that the notice of garnishment was not
validly served on the designated officers on 19 July 1985. It was served on Thelly Ruiz who was neither the
president nor the managing agent of Chemphil. It makes no difference, CEIC further avers, that Thelly Ruiz
was the secretary of the President of Chemphil, for under the above­quoted provision she is not among the
officers so authorized or designated to be served with the notice of garnishment. We cannot subscribe to such a
narrow view of the rule on proper service of writs of attachment. A secretary’s major function is to assist his or
her superior. He/ she is in effect an extension of the latter. Obviously, as such, one of her duties is to receive
letters and notices for and in behalf of her superior, as in the case at bench. The notice of garnishment was
addressed to and was actually received by Chemphil’s president through his secretary who formally received it
for him. Thus, in one case, we ruled that the secretary of the president may be considered an “agent” of the
corporation and held that service of summons on him is binding on the corporation.
Page 91 of 99
 Same; Same; Same; Compromise Agreements; A writ of attachment is not extinguished by the execution of the certiorari proceedings in the Court of Appeals. The rule against forum­shopping has long been established.
a   compromise   agreement   among   the   parties.—CEIC   argues   that   a   writ   of   attachment   is   a   mere   auxiliary Supreme   Court   Circular   28­91   merely   formalized   the   prohibition   and   provided   the   appropriate   penalties
remedy which, upon the dismissal of the case, dies a natural death. Thus, when the consortium entered into a against transgressors.
compromise agreement, which resulted in the termination of their case, the disputed shares were released from
261
garnishment. We disagree. To subscribe to CEIC’s contentions would be to totally disregard the concept and
purpose of a preliminary attachment. A writ of preliminary attachment is a provisional remedy issued upon
order of the court where an action is pending to be levied upon the property or properties of the defendant VOL. 251, DECEMBER 12, 1995 261

therein, the same to be held thereafter by the Sheriff as security for the satisfaction of whatever judgment might
Chemphil Export & Import Corporation vs. Court of Appeals
be secured in said action by the attaching creditor against the defendant.

Same; Same; Same; Words and Phrases; “Forum­Shopping,” Explained.—Forum­shopping or the act of a
260
party against whom an adverse judgment has been rendered in one forum, of seeking another (and possibly
favorable)   opinion   in   another   forum   (other   than   by   appeal   or   the   special   civil   action   of   certiorari),   or   the
26 SUPREME COURT REPORTS ANNOTATED
institution of two (2) or more actions or proceedings grounded on the same cause on the supposition that one or
0 the other court would make a favorable disposition, has been characterized as an act of malpractice that is
prohibited and condemned as  trifling with  the Courts and abusing  their  processes. It constitutes improper
Chemphil Export & Import Corporation vs. Court of Appeals conduct which tends to degrade the administration of justice. It has also been aptly described as deplorable
because it adds to the congestion of the already heavily burdened dockets of the courts.
Same; Same; Same; Same; An   attachment   lien   continues   until   the   debt   is   paid,   or   sale   is   had   under
execution issued on the judgment or until judgment is satisfied, or the attachment discharged or vacated in the
same manner provided by law.—We reiterate the rule laid down in BF Homes, Inc. v. CA that an attachment
lien continues until the debt is paid, or sale is had under execution issued on the judgment or until judgment is
satisfied, or the attachment discharged or vacated in the same manner provided by law.

Same; Same; Same; Same; The   parties   to   the   compromise   agreement   should   not   be   deprived   of   the

G.R. No. 150128. August 31, 2006.*
protection provided by an attachment lien especially in an instance where one reneges on his obligations under
the agreement.—The case at bench admits of a peculiar character in the sense that it involves a compromise LAUREANO   T.   ANGELES,   petitioner, vs. PHILIPPINE   NATIONAL   RAILWAYS   (PNR)   AND   RODOLFO
agreement. Nonetheless, the rule established  in  the aforequoted  cases still applies,  even  more so since the FLORES,1 respondents.
terms of the agreement have to be complied with in full by the parties thereto. The parties to the compromise
agreement should not be deprived of the protection provided by an attachment lien especially in an instance Civil Law; Contracts; Agency; Normally, the agent has neither rights nor liabilities as against the third
where one reneges on his obligations under the agreement, as in the case at bench, where Antonio Garcia failed party; he cannot thus sue or be sued on the contract.—Where agency exists, the third party’s (in this case,
to hold up his own end of the deal, so to speak. PNR’s) liability on a contract is to the principal and not to the agent and the relationship of the third party to
the principal is the same as that in a contract in which there is no agent. Normally,
Actions; Pleadings and Practice; Forum­Shopping; Appeals; Certiorari; A party who institutes a separate
petition for certiorari instead of joining his co­parties in their appeal, where such remedy is available, is guilty of _______________
forum shopping.—We view with skepticism PCIB’s contention that it did not join the consortium because it
*
“honestly believed that certiorari was the more efficacious and speedy relief available under the circumstances.”  SECOND DIVISION.
Rule 65 of the Revised Rules of Court is not difficult to understand. Certiorari is available only if there is no 1
 As filed, the petition impleads the Court of Appeals as among the respondents. Pursuant to Sec. 4, Rule
appeal   or  other   plain,   speedy  and   adequate   remedy  in   the  ordinary   course  of   law.   Hence,   in   instituting   a
45, the CA need not be impleaded.
separate petition for certiorari, PCIB has deliberately resorted to forum­shopping.

445
Same; Same; Same; The   rule   against   forum­shopping   has   long   been   established   and   Supreme   Court
Circular 28­91 merely formalized the prohibition and provided the appropriate penalties against transgressors.
VOL. 500, AUGUST 31, 2006 445
—PCIB cannot hide behind the subterfuge that Supreme Court Circular 28­91 was not yet in force when it filed

AGENCY Page 92 of 99

Angeles vs. Philippine National Railways (PNR)
the agent has neither rights nor liabilities as against the third party. He cannot thus sue or be sued on
the contract. Since a contract may be violated only by the parties thereto as against each other, the real party­
in­interest, either as plaintiff or defendant in an action upon that contract must, generally, be a contracting
party.
Agency; Assignee; The legal situation is different where an agent is constituted as an assignee.—The legal
situation is, however, different where an agent is constituted as an assignee. In such a case, the agent may, in
his own behalf, sue on a contract made for his principal, as an assignee of such contract. The rule requiring
every action to be prosecuted in the name of the real party­in­interest recognizes the assignment of rights of
action and also recognizes that when one has a right assigned to him, he is then the real party­in­interest and
may maintain an action upon such claim or right.
Civil Law; Contracts; Article 1374 of the Civil Code provides that the various stipulations of a contract
shall be read and interpreted together, attributing to the doubtful ones that sense which may result from all of
them taken jointly.—Article 1374 of the Civil Code provides that the various stipulations of a contract shall be
read and interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly. In fine, the real intention of the parties is primarily to be determined from the language used and
gathered from the whole instrument. When put into the context of the letter as a whole, it is abundantly clear
that the rights which Romualdez waived or ceded in favor of Lizette were those in furtherance of the agency
relation that he had established  for the withdrawal of the rails. At any rate, any doubt as to the intent of
Romualdez generated by the way his letter was couched could be clarified  by  the acts of the main  players
themselves. Article 1371 of the Civil Code provides that to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. In other words, in case of doubt, resort
may be made to the situation, surroundings, and relations of the parties.
Powers   of   Attorney; A   power  of   attorney   is   only  but   an   instrument  in   writing   by  which   a   person,   as
principal, appoints another as his agent and confers upon him the authority to perform certain
446
44 SUPREME COURT REPORTS ANNOTATED
6
Angeles vs. Philippine National Railways (PNR)
specified acts on behalf of the principal.—A power of attorney is only but an instrument in writing by
which a person, as principal, appoints another as his agent and confers upon him the authority to perform
certain specified 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.” Its primary purpose is not
to define the authority of the agent as between himself and his principal but to evidence the authority of the
agent to third parties with whom the agent deals.The letter under consideration is sufficient to constitute a
power of attorney. Except as may be required by statute, a power of attorney is valid although no notary public
AGENCY
intervened in its execution. A power of attorney must be strictly construed and pursued. The instrument will be
held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate
from the power of attorney.
G.R. No. 167552. April 23, 2007.*
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., petitioner, vs. EDWIN CUIZON and ERWIN CUIZON,
respondents.
Agency; The underlying principle of the contract of agency is to accomplish results by using the services of
others—to do a great variety of things like selling, buying, manufacturing, and transporting.—In a contract of
agency, a person binds himself to render some service or to do something in representation or on behalf of
another with the latter’s consent. The underlying principle of the contract of agency is to accomplish results by
using   the   services   of   others—to   do   a   great   variety   of   things   like   selling,   buying,   manufacturing,   and
transporting. Its purpose is to extend the personality of the principal or the party for whom another acts and
from whom he or she derives the authority to act. It is said that the basis of agency is representation, that is,
the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have
the same legal effect as if they were personally executed by the principal. By this legal fiction, the actual or real
absence of the principal is converted into his legal or juridical presence—qui facit per alium facit per se.
Same; Elements.—The  elements of  the contract  of   agency are: (1)  consent, express or  implied,  of   the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.
Same; Article 1897 of the Civil Code reinforces the familiar doctrine that an agent, who acts as such, is
not personally liable  to the party with whom he contracts; Exceptions.—Article 1897  reinforces the familiar
doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same
provision, however, presents two instances when an agent becomes personally liable to a third person. The first
is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In
_______________
*
 THIRD DIVISION.
585
VOL. 521, APRIL 23, 2007 585
Eurotech Industrial Technologies, Inc. vs. Cuizon
the last instance, the agent can be held liable if he does not give the third party sufficient notice of his
powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.
Page 93 of 99
 Same; Managers; The position of manager is unique in that it presupposes the grant of broad powers with
which to conduct the business of the principal.—The Deed of Assignment clearly states that respondent EDWIN
signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is
unique in that it presupposes the grant of broad powers with which to conduct the business of the principal,
thus: The powers of an agent are particularly broad in the case of one acting as a general agent or manager;
such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise
of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of
his principal entrusted to his management. x x x.
Same; In case of excess of authority by the agent, the law does not say that a third person can recover from
both the principal and the agent.—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.” 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.
586
58 SUPREME COURT REPORTS ANNOTATED
6
Eurotech Industrial Technologies, Inc. vs. Cuizon
Same; Actions; Parties; Words and Phrases; An agent acting within his authority as such, who did not
acquire any right nor incur any liability arising from a Deed, is not a real property in interest who should be
impleaded; 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.—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.” In
this respect, we sustain his exclusion as a defendant in the suit before the court a quo.
AGENCY
No. 2344. February 10, 1906.]
GONZALO TUASON, plaintiff and appellee, vs. DOLORES OROZCO, defendant and appellant.
1. 1.LOAN; CREDITORS; AGENCY.—Under   the   provisions   of   article   1727   of   the   Civil   Code   the
principal is directly liable to the creditor for the payment of a debt incurred by his agent acting
within the scope of his authority.
1. 2.ID.; ID.; ID.—Irrespective of such liability on the part of the principal, the agent may bind himself
personally to the payment of the debt incurred for the benefit and in behalf of his principal. (Art.
1725 of the Civil Code.) In such a case the liability expressly incurred by the agent does not preclude
the personal liability of the principal but constitutes a further security in favor of the creditor.
1. 3.ID.; ID.; ID.; MORTGAGE; ACTION.—Where   a   debt   is   secured   by   a   mortgage   upon   property
belonging to the principal, duly recorded in the Registry of property, the creditor may bring his
action directly against the mortgaged property, notwithstanding the liability personally incurred by
the agent and the fact the agent delivered to the reditor certain shares of stock as security for the
liability incurred by himself. A mortgage directly subjects the encumbered property, whoever its
possessor may be, to the fulfillment of the obligation for the security of which it was created. (Art.
1876 of the Civil Code and art. 105 of the Mortgage Law.)
No. L­17160. November 29, 1965.
2. PHILIPPINE PRODUCTS COMPANY, plaintiff­appellant, vs. PRIMATERIA SOCIETE ANONYME
POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES) INC., ALEXAN
3. 302
302 SUPREME COURT REPORTS ANNOTATED
Phil Products Co. vs. Primateria Societe Anonyme Pour
Le Commerce Exterieur: Primateria (Phil.) Inc.
4. DER G. BAYLIN and JOSE M, CRAME, defendantsappellees.
5. Corporations; Foreign Corporations; Failure to ­prove that corporation is foreign.—An association not
duly  proven  to be  a  foreign  corporation  does not fall  within   the prescription  of  Section  68  of  the
Corporation Law.
6. Same; Same; Sociedades anonimas different from corporations.—The Corporation Law recognizes the
difference between sociedades anonimas and corporations.
7. Same; Same; When agent of foreign corporation personally liable; Eight of contracting party to recover
from both principal and agent.—Article 1897  of the New Civil Code does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party.
8. Same; Same; Same; Basis of liability of agent.—ln the absence of express legislation, the liability of
the agent of a foreign corporation doing business, but not licensed in the Philippines, is premised on
the inability to sue the principal or non­liability thereof.
Page 94 of 99

G.R. No. 105562. September 27, 1993.*
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG
and LUCIA LONTOK, petitioners, vs. HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE
COMPANY, LIMITED, respondents.
Insurance Law; Group Insurance Policies; In group insurance policies, the employer is the agent of the
insurer.—In Elfstrom vs. New York Life Insurance Company, the California Supreme Court explicitlyruled that
in group insurance policies, the employer is the agent of the insurer. Thus: “We are convinced that the employer
is the agent of the insurer in performing the duties of administering group insurance policies. It cannot be said
that   the   employer   acts   entirely   for   its   own   benefit   or   for   the   benefit   of   its   employees   in   undertaking
administrative functions. While a reduced premium may result if the employer relieves the insurer of these
tasks, and this, of course, is advantageous to both the employer and the employees, the insurer also enjoys
significant advantages  from the arrangement. The reduction  in  the premium which results from employer­
administration permits the insurer to realize a larger volume of sales, and at the same time the insurer’s own
administrative costs are markedly reduced. x x x The most persuasive rationale for adopting the view that the
employer acts as the agent of the insurer, however, is that the employee has no knowledge of or control over the
employer’s actions in handling the policy or its administration. An agency relationship is based upon consent by
one person that another shall act in  his behalf  and  be subject to his control. It is clear from the evidence
regarding   procedural   techniques   here   that   the   insurer­employer   relationship   meets   this   agency   test   with
regard to the administration of the policy, whereas that between the employer and its employees fails to reflect
true agency. The insurer directs the performance of the employer’s administrative acts, and if these duties are
not undertaken properly the insurer is in a position to exercise more constricted control over the employer’s
conduct.”
Same; Same; Civil Law; Family Law; Guardianship; The father and mother are the legal guardian of the
child’s property if the market value of the property or the annual income of the child does not exceed
_______________
*
 FIRST DIVISION.
755
VOL. 226, SEPTEMBER 27, 1993 755
Pineda vs. Court of Appeals
P50,000.00, otherwise a bond is required.—Nor can we agree with the opinion of the public respondent
that since the shares of the minors in the insurance proceeds are less than P50,000.00, then under Article 225
of   the   Family   Code   their   mothers   could   receive   such   shares   without   need   of   either   court   appointment   as
AGENCY
guardian or the posting of a bond. It is of the view that said Article had repealed the third paragraph of Section
180 of the Insurance Code. The pertinent portion of Article 225 of the Family Code reads as follows: “ART. 225.
The father and the mother shall jointly exercise legal guardianship over the property of their unemancipated
common child without the necessity of a court appointment. In case of disagreement, the father’s decision shall
prevail, unless there is judicial order to the contrary. Where the market value of the property or the annual
income of the child exceeds P50,000, the parent concerned shall be required to furnish a bond in such amount
as the court may determine, but not less than ten per centum (10%) of the value of the property or annual
income, to guarantee the performance of the obligations prescribed for general guardians.” It is clear from the
said   Article   that   regardless   of   the   value   of   the   unemancipated   common   child’s   property,   the   father   and
mother ipso jure become the legal guardian of the child’s property. However, if the market value of the property
or the annual income of the child exceeds P50,000.00, a bond has to be posted by the parents concerned to
guarantee the performance of the obligations of a general guardian. It must, however, be noted that the second
paragraph of Article 225 of the Family Code speaks of the “market value of the property or the annual income
of the child,” which means, therefore, the aggregate of the child’s property or annual income; if this exceeds
P50,000.00, a bond is required. There is no evidence that the share of each of the minors in the proceeds of the
group policy in question is the minor’s only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.
G.R. No. 109937. March 21, 1994.*
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and the ESTATE OF
THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL, respondents.
Civil   Law; Contracts; Insurance; Where   there   was   no   perfected   contract   of   insurance,   DBP   MRI   Pool
cannot be held liable on the contract that does not exist.—Undisputably, the power to approve MRI applications
is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no
showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it
was payment for Dans’s premium. There was, as a result, no perfected contract of insurance; hence, the DBP
MRI Pool cannot be held liable on a contract that does not exist.
Same; Agency; Obligation of the Agent; Agent acting as such is not personally liable unless he expressly
binds himself or exceeds his authority.—Under Article 1897 of the Civil Code of the Philippines, “the agent who
acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of
_______________
*
 FIRST DIVISION.
371
VOL. 231, MARCH 21, 1994 371
Page 95 of 99
 Development Bank of the Philippines vs. Court of Appeals

his authority without giving such party sufficient notice of his powers.” No. 2437. February 13, 1906.]

MONICA CASON, plaintiff and appellant, vs. FRANCISCO WALTERIO RICKARDS ET AL., defendants and
Same; Same; Same; Liability of the agent who exceeds the scope of his authority depends upon whether
appellees.
the 3rd person is aware of the limits of agent’s powers.—The liability of an agent who exceeds the scope of his
authority depends upon whether the third person is aware of the limits of the agent’s powers. There is no 1. 1.DEPOSIT; AGENT AND PRINCIPAL.—When money is received as a deposit by an agent, and that
showing that Dans knew of the limitation on DBP’s authority to solicit applications for MRI. money is by the agent turned over to his principal, with notice that it is the money of the depositor,
the principal is bound to deliver it to the depositor, even if his agent was not authorized to receive
Same; Same; Same; If the third person dealing with an agent is unaware of the limits of the authority such deposits.
conferred by the principal on the agent and the third person has been deceived by the non­disclosure by the
agent, then the latter is liable for damages to him.—If the third person dealing with an agent is unaware of the 1. 2.BOOKS IN EVIDENCE.—When a witness has testified that he has seen the books of the defendant,
and if produced they would prove the liability of the latter, the failure of the defendant to present
limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the
his books in evidence strongly corroborates the testimony of the witness.
non­disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries
and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25,
1. 3.JUDGMENT; REVERSAL; DISCRETION OF THE COURT.—When the record requires a reversal
1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that of the judgment below, this court may, in its discretion, enter final judgment, or it may remand the
there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the case to the lower court for a new trial in whole or in part.
authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y.
70,   75).   Inasmuch   as   the   non­disclosure   of   the   limits   of   the   agency   carries   with   it   the   implication   that   a
deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code
of the Philippines come into play.
No. 23018. December 14, 1925]
Same; Damages; One is entitled to an adequate compensation only for such pecuniary loss suffered by him
LORENZO ZAYCO, plaintiff and appellant, vs.SALVADOR SERRA ET AL., defendants and appellees.
as he has duly proved.—One is entitled to an adequate compensation only for such pecuniary loss suffered by
him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only 1. 1.PRINCIPAL AND AGENT; UNAUTHORIZED ACTS; VOIDABLE CONTRACT.—Where an agent
be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation or representative in entering into a contract on behalf of the principal exceeds his authority, the
v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 contract is not an absolute, nullity, but only voidable at the instance of the party who has been
[1916]).   Speculative   damages   are  too   remote  to   be   included  in   an  accurate   estimate   of   damages  (Sun   Life improperly represented.
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
1. 2.BREACH   OF   CONTRACT.—The   defendants,   owners   of   certain   sugar   centrals,   entered   into   a
Same; Same; No proof of pecuniary loss is required in the assessment of moral damages.—While Dans is contract with a number of persons, designated in the contract as "the Planters," for the milling of
sugar cane and the construction of an additional mill. Some of the planters failed to perform their
not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is
obligations under the contract. Held, that the contract was made with the planters as a body, and
that, under the circumstances, a breach of the contract by some of them constituted in effect the
372
breach of it by all.

37 SUPREME COURT REPORTS ANNOTATED

1. 3.ID. ; FAILURE OF PERFORMANCE ; DAMAGES.—The planters having failed to plant the acreage
2 of sugar cane agreed upon in the contract, and the existing milling facilities being sufficient for the
handling of the sugar cane actually planted, the defendants were not liable in damages for failing to
construct the additional mill within the time fixed by the contract.
Development Bank of the Philippines vs. Court of Appeals

required in the assessment of said kind of damages (Civil Code of the Philippines, Art. 2216). The same
may be recovered in acts referred to in Article 2219 of the Civil Code.

AGENCY Page 96 of 99
 G.R. No. 125138. March 2, 1999.*
NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE PHILIPPINE AIRLINES, INC.,
respondent.
Evidence; As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent reasons .—To rule on the first issue,
there is a need to quote the findings below. As a rule, conclusions and findings of fact arrived at by the trial
court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons.
Agency; Common Carriers; Air Transportation; Where a passenger was fully aware of the need to send a
letter   to   a   particular   office   of   an   airline   for   the   extension   of   the   period   of   validity   of   his   ticket,   he   cannot
subsequently use what was done by airline agents, who acted without authority, in confirming his flights.—From
the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send a letter
to the legal counsel of PAL for the extension of the period of validity of his ticket. Since the PAL agents are not
privy   to   the   said   Agreement   and   petitioner   knew   that   a   written   request   to   the   legal   counsel   of   PAL   was
necessary, he cannot use what the PAL agents did to his advantage. The said agents, according to the Court of
Appeals, acted without authority when they confirmed the flights of the petitioner.
Same; Same; Same; The  acts  of  an  agent beyond  the  scope of his authority do not bind  the  principal,
unless the latter ratifies the same expressly or impliedly.—Under Article 1898 of the New Civil Code, the acts of
an   agent   beyond   the   scope   of   his   authority   do   not   bind   the   principal,   unless   the   latter   ratifies   the   same
expressly or impliedly. Furthermore, when the third person (herein petitioner) knows that the agent was acting
beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third
person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the
agent, unless the latter undertook to secure the principal’s ratification.
____________________
*
 THIRD DIVISION.
26
2 SUPREME COURT REPORTS ANNOTATED
6
Cervantes vs. Court of Appeals
Same; Same; Same; The admission by a passenger that he had to submit a letter to the airline’s legal
counsel requesting for an extension of the validity of his tickets is tantamount to knowledge on his part that mere
employees of the airline had no authority to extend the validity of his tickets.—The admission by Cervantes that
he was told by PAL’s legal counsel that he had to submit a letter requesting for an extension of the validity of
subject tickets was tantamount to knowledge on his part that the PAL employees had no authority to extend
the validity of subject tickets and only PAL’s legal counsel was authorized to do so.
AGENCY
Same; Same; Actions; Pleadings and Practice; The failure of a defendant to raise the defense of lack of
authority of its agents in its answer or in a motion to dismiss is cured where the said issue was litigated upon.—
However, notwithstanding PAL’s failure to raise the defense of lack of authority of the said PAL agents in its
answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by
the testimony of the petitioner in the course of trial.
Same; Same; Damages; In awarding moral damages for breach of contract of carriage, the breach must be
wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.—In
awarding   moral   damages   for   breach   of   contract   of   carriage,   the   breach   must   be   wanton   and   deliberately
injurious or the one responsible acted fraudulently or with malice or bad faith. Petitioner knew there was a
strong possibility that he could not use the subject ticket, so much so that he bought a back­up ticket to ensure
his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner.
What the employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner
because he had a back­up ticket should PAL refuse to accommodate him with the use of subject ticket.
Same; Same; Same; To warrant the award of exemplary dam­ages, the wrongful act must be accompanied
by bad faith, and the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.—Neither can
the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example or correction
for the public good, and the existence of bad faith is established. The wrongful act must be accompanied by bad
faith, and an award of damages would be allowed only if the guilty party acted in a wanton,
27
VOL. 304, MARCH 2, 1999 27
Cervantes vs. Court of Appeals
fraudulent, reckless or malevolent manner. Here, there is no showing that PAL acted in such a manner.
An award for attorney’s fees is also improper.
G.R. No. 150718. March 26, 2003.*
BASILIO BORJA, SR., petitioner, vs. SULYAP, INC. and THE COURT OF APPEALS, respondents.
Witnesses; The settled rule in criminal as well as in civil cases is that, in the matter of credibility of
witnesses, the findings of the trial courts are given great weight and highest degree of respect by the appellate
court.—The settled rule in criminal as well as in civil cases is that, in the matter
_______________
*
 FIRST DIVISION.
Page 97 of 99
 602
60 SUPREME COURT REPORTS ANNOTATED
2
Borja, Sr. vs. Sulyap, Inc.
of credibility of witnesses, the findings of the trial courts are given great weight and highest degree of
respect by the appellate court considering that the latter is in a better position to decide the question, having
heard   the  witnesses   themselves   and   observed   their   deportment   and   manner   of   testifying   during   the   trial,
unless it plainly overlooked certain facts of substance and value that, if considered, might affect the result of
the case.
Compromise Agreements; A judicial compromise may be annulled or modified on the ground of vitiated
consent   or   forgery.—In   the   case   at   bar,   we   are   faced   with   the   conflicting   claim   of   the   petitioner   that   the
questioned penalty clause was fraudulently added to the compromise agreement approved by the court, and the
assertion   of   private   respondent   that   the   petitioner   consented   to   the   inclusion   thereof   in   the   compromise
agreement.   A   scrutiny   of   the   records   reveal   that   the   trial   court   correctly   sustained   the   claim   of   private
respondent. While a judicial compromise may be annulled  or modified  on the ground of vitiated  consent or
forgery, we find that the testimony of the petitioner failed to establish the attendance of fraud in the instant
case. Indeed, the testimony of Atty. Leonardo Cruz is worthy of belief and credence. We are inclined to believe
that   the   petitioner   had   knowledge   of   and   consented   to   the   penalty   clause   embodied   in   the   agreement
considering that the same is less burdensome than the automatic imposition of the penalty of P250,000.00 and
attorney’s fees of P50,000.00 in case of violation of the terms of the agreement or default in payment. Moreover,
we see nothing irregular in the compromise agreement approved by the trial court. No evidence was presented
by   petitioner   other  than   his bare   allegation   that  his  former   counsel  fraudulently  attached   the page  of   the
genuine compromise agreement where he affixed his signature to the compromise agreement submitted to the
court.
Same; Attorneys; Agency; Even if a party’s counsel exceeded his authority in inserting a penalty clause in
a compromise agreement, the status of said clause is not void but merely voidable, i.e., capable of being ratified.
—Evidently,   petitioner   cannot   feign   ignorance   of   the   existence   of   the   penalty   clause   in   the   compromise
agreement approved by the court. Even assuming that Atty. Leonardo Cruz exceeded his authority in inserting
the penalty clause, the status of the said clause is not void but merely voidable, i.e., capable of being ratified.
Indeed, petitioner’s failure to question the inclusion of the 2% monthly interest and 25% attorney’s fees in the
judicial compromise despite several opportunities to do so was tantamount to ratification. Hence, he is estopped
from assailing the validity thereof.
Same; Same; Public   Officers   and   Employees; Words   and   Phrases; “Private   practice”   of   a   profession,
specifically   the   law   profession   does   not   pertain   to   an   isolated   court   appearance—rather,   it   contemplates   a
succession of acts of the same nature habitually or customarily holding one’s self
603
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Borja, Sr. vs. Sulyap, Inc.
to the public as a lawyer.—We find no merit in petitioner’s contention that the compromise agreement
should be annulled because Atty. Leonardo Cruz, who assisted him in entering into such agreement, was then
an employee of the Quezon City government, and is thus prohibited from engaging in the private practice of his
profession. Suffice it to state that the isolated assistance provided by Atty. Cruz to the petitioner in entering
into a compromise agreement does not constitute a prohibited “private practice” of law by a public official.
“Private   practice”   of   a   profession,   specifically   the   law   profession   does   not   pertain   to   an   isolated   court
appearance; rather, it contemplates a succession of acts of the same nature habitually or customarily holding
one’s self to the public as a lawyer. Such was never established in the instant case.
No. L­19118. January 30, 1965.
MARIANO A. ALBERT, plaintiff­appellant, vs.UNIVERSITY PUBLISHING CO., INC., defendant­appellee.
Corporations; Principle of corporation by estoppel; Not invokable by one who misrepresented corporation
as duly organized against his victim.—One who has induced another to act upon his wilful misrepresentation
that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim
the principle of corporation by estoppel.
Same; Person acting for corporation with no valid existence is personally liable for contracts entered into
as such agent.—A person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into or for other
acts performed as such agent.
Parties to Action; Suit against corporation with no valid existence; Real defendant is person who has
control of its proceedings.—In a suit against a corporation with no valid existence the person who had and
exercised the rights to control the proceedings, to make defense, to adduce and cross­examine witnesses, and to
appeal from a decision, is the real defendant, and .the enforcement of a judgment against the corporation upon
him is substantial observance of due process of law.
Same; Real party in interest; Person who acted as representative of non­existent principal and who reaped
benefits from its contracts.—A person who acted as representative of a non­existent principal, who reaped the
benefits resulting from a contract entered into by him as such, and who violated its terms, thereby precipitating
a suit, is the real party to the contract sued upon.
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 Due   Process   of   Law; Purpose   is   to   secure   justice   and   not   to   sacrifice   it   by   technicalities.—The   “due
process” clause of the Constitution is designed to secure justice as a living reality, not to sacrifice it by paying
undue homage to formality. For substancemust prevail over form.

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