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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 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 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 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 those 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

EN BANC [G.R. No. 2437. February 13, 1906.] MONICA CASON, plaintiff-appellant, vs. FRANCISCO WALTERIO RICKARDS, ET AL., defendants-appellees.

W.A. Kincaid, for appellant. Pillsbury & Sutro, for appellees.

SYLLABUS 1.DEPOSIT; AGENT AND PRINCIPAL. When money is received as a deposit by an agent, and that money is by the agent turned over to his principal, with notices 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 such deposits. 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 his books in evidence strongly corroborates the testimony of the witness. 3.JUDGMENT; REVERSAL; DISCRETION OF THE COURT. When the record requires a reversal of the judgment below, this court may, in its discretion, enter final judgment, or it may remand the case to the lower court for a new trial in whole or in part.

DECISION

WILLARD, J p: 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. received and used the same. This money was not mingled with other money belonging either to Rickards 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

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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. 3. A MOTION UNDER THE PROVISIONS OF SECTION 113 (CODE OF CIVIL PROCEDURE) CONSTITUTES A GENERAL APPEARANCE. Where a wife, under the terms and provisions of section 113 of the Code of Civil Procedure, applies to the court to have a judgment against her set aside and vacated and for leave to file an answer and defend on the merits, it constitutes a general appearance as distinguished from a special appearance by reason of which she submits herself to the jurisdiction of the court. 4. WHEN THE PRINCIPAL IS NOT ESTOPPED. Where a person gave a power of attorney to an agent to appear for and represent her in all court proceedings, and where the agent fails and neglects to appear and make a defense, the principal in ka proper showing is not estopped from obtaining relief under section 113 of the Code of Civil Procedure. 5. WHEN A MERITORIOUS DEFENSE IS A CONDITION PRECEDENT TO THE GRANTING OF RELIEF. It is elementary that to entitle a party to relief from a judgment "taken against him through his mistake, inadvertence, surprise, or excusable neglect," that as a condition precedent to the granting of relief, he must show to the court that he has a meritorious defense. 6. WHEN PARTY HAS RIGHT TO DEFEND. Where it appears that a judgment was rendered against a person through her mistake, inadvertence, surprise, or excusable neglect, and it further appears upon the face of the record that she has a meritorious defense, the judgment should be set aside with leave to answer and defend on the merits. 7. WHEN WIFE IS NOT LIABLE UNDER HER POWER OF ATTORNEY FOR THE PREEXISTING DEBT OF HER HUSBAND. Where it appears that a wife gave her husband a power of attorney "to loan and borrow money" and to mortgage her property, that the fact does not carry with it or imply that he has a legal right to sign her name to a promissory note which would make her liable for the payment of a preexisting debt of the husband or that of his firm, for which she was not previously liable, or to mortgage her property to secure the debt. 8. LIMITATION ON AUTHORITY OF AGENT. Where it appears that an agent under a written authority signed his wife's name to a promissory note and executed a mortgage on her real property to secure its payment, the powers and duties of the agent are confined and limited to those which are specified and defined in his power of attorney, which limitation is a notice to, and is binding upon, the person dealing with such agent. 9. WHAT BILL OF INTERVENTION SHOULD ALLEGE AND UPON WHOM IT SHOULD BE SERVED. Where a third person, holding a prior mortgage, desires to intervene in an original suit and obtain a decree or closing its mortgage, its bill of intervention should state all of the material facts with the same formality as an original complaint, and a copy of the plea should be served both upon the plaintiff and, in particular, upon the defendants against whom it is sought to obtain the foreclosure decree. 10. HEN COURT DOES NOT HAVE JURISDICTION. Where such material facts are not alleged in the bill of intervention in which there is no prayer for a decree, and where a copy f the bill was not served upon the parties against whom the foreclosure was sought, the court does not have any jurisdiction to render a foreclosure decree on the bill of intervention, and for such reason any decree on the bill of intervention is null and void. 11. WHEN A DECREE SHOULD BE REVOKED WITHOUT PREJUDICE. In such a case, the decree rendered in the bill of intervention should be set aside and revoked without prejudice to the right of the intervenor to file an original suit to foreclose its mortgage or to file a new bill of intervention in the original suit, alleging all material facts, and serving copies of it on all adverse parties. 12. WHEN WIFE IS BOUND. Where a wife gave her husband a power of attorney "to loan and borrow money," and for such purpose to mortgage her property, and where the husband

SECOND DIVISION [G.R. No. 23181. March 16, 1925.] THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. GABRIELA ANDREA DE COSTER Y ROXAS ET AL., defendants. LA ORDEN DE DOMINICOS or PP. PREDICADORES DE LA PROVINCIA DEL SANTISIMO ROSARIO, defendantsappellees; GABRIELA ANDREA DE COSTER Y ROXAS, defendant-appellant.

Antonio M. Opisso for appellant. Araneta & Zaragoza for the bank as appellee. Perfecto Gabriel for the Dominican Corporation as appellee.

SYLLABUS 1. WHEN SERVICE SHOULD BE SET ASIDE. Where it appears that the defendant wife "has been absent from the Philippine Islands and residing in the City of Paris, France, from 1908 to April 30, 1924, service of complaint and summons was made on her in the Philippine Islands by the sheriff of the City of Manila by delivering a copy of the summons and complaint to her husband at his usual place of residence in the City of Manila, the service is voidable and should be set aside and acted upon the application the wife when a proper showing is made. 2. A MOTION TO QUASH SERVICE SHOULD BE MADE BY SPECIAL APPEARANCE ONLY. In such a case where it is designed by the wife to question the jurisdiction of the court, she should file a motion to quash the service in a special appearance only to question the jurisdiction of the court which should be for that purpose only, to which should be attached the necessary proof.

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signed his wife's name to a note and gave a mortgage on her property to secure the note and the amount of the loan was actually paid to her husband in money at the time the note and mortgage were executed, the transaction is binding upon the wife under her power of attorney, regardless of what the husband may have done with the money which he obtained in the loan. Copies of the chattel and real mortgage are attached to, and made a part of, the complaint and marked, respectively, Exhibits A and B. On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario appeared in the suit and filed the following plea: "The defendant corporation, La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario, for answer to the complaint, shows: "I. That the encumbrance above-mentioned, but not determined in paragraph V of the complaint, consisting of a first mortgage in favor of the aforesaid religious corporation on the property described in paragraph IV of the same complaint is P125,000, with interest of 10 per cent per annum;

DECISION

STATEMENT March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was a domestic banking corporation with its principal office and place of business in the City of Manila; that the defendant Gabriela Andrea de Coster y Roxas was the wife of the defendant Jean M. Poizat, both of whom were residents of the City of Manila; that the defendant J.M. Poizat & Co. was a duly registered partnership with its principal and place of business in the City of Manila; that the defendant La Orden de Dominicos or PP. Redicadores del al Provincia del Santisimo Rosario was a religious corporation duly organized and existing under the laws of the Philippine Islands with its principal office and place of business in the City Of Manila; that on December 29, 1921, for value, the defendant Gabriela Andrea de Coster y Roxas, having the consent and permission of her husband, and he acting as her agent, said defendants made to the plaintiff a certain promissory note of P292,000, payable one year after date, with interest of 9 per cent per annum, payable monthly, in which, among other things, it is provided that in the event of a suit or action, the defendants should pay the further sum of P10,000, as attorney's fees; that the note in question was a joint and several note; that to secure the payment thereof, the defendants Jean M. Poizat and J.M. Poizat & Co. executed a chattel mortgage to the plaintiff on the steamers Roger Poizat and Gabrielle Poizat, with the machinery and materials belonging to the Poizat Vegetable Oil Mills and certain merchandise; that at the same time and for the same purpose, the defendant Gabriela Andrea de Coster y Roxas, having the consent and permission of her husband, and he acting as her agent, they acknowledged and delivered to this plaintiff a mortgage in certain real property lying and being situated in the City of Manila, which is specifically described in the mortgage; that the real property was subject to a prior mortgage in favor of La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario, hence it is made a party defendant; that the note in question is long past due and owing. The plaintiff having brought action against the defendants on the note in the Court of First Instance of the City of Manila, civil case No. 25218; that in such case the court rendered judgment against the defendants Gabriela Andrea de Coster y Roxas, Jean M. Poizat and J.M. Poizat & Co. jointly and severally for P292,000, with interest at the rate of 9 per cent per annum from the 31st of August, 1923, P10,000 as attorney's fees, and P2,500 for and on account of insurance upon the steamer Gabrielle Poizat, with interest on that amount from February 9, 1924, at the rate of 9 per annum, and costs; that the said defendants have not paid the judgment or any part thereof, and that the full amount of the debt secured by the mortgage on the property described in the complaint is now due and owing. Whereof, plaintiff prays for an order of the court to direct the sheriff of the City of Manila to take immediate possession of the property described in the chattel mortgage and sell the same according to the Chattel Mortgage Law; that the property described in the real mortgage or so much thereof as may be required to pay the amount due the plaintiff be sold according to law; that out of such sales plaintiff shall be paid the amount due and owing it; and that such defendants be adjudged to pay any remaining deficiency.

"II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas, have not paid the principal or the interest stipulated and agreed upon from the 16th of December, 1921, up to the present date; "III. The interest due up to the 30th of April of the present year 1924 amounts to a total sum of P27,925.34. "Wherefore, it is prayed that the credit above-mentioned be taken into account when the second mortgage is foreclosed." May 3, 1924, in motion of the plaintiff, for failure to appear or answer, the defendants Gabriela Andrea de Coster y Roxas and Jean M. Poizat and J.M. Poizat & Co. were declared in default. Without giving any notice to the defendants Jean M. Poizat, J.M. Poizat & Co. and Gabriela Andrea de Coster y Roxas, and after the introduction of evidence on the part of the plaintiff and the defendant Dominican Fathers, on June 24, 1924, the court rendered an opinion in substance and to the effect that the plaintiff should have judgment as prayed for in its complaint, and that the Dominican Fathers should have judgment for the amount of their claim, and that the property should be sold and the proceeds applied to satisfy the respective judgments. About August 26, through her attorney, the defendant Gabriela Andrea de Coster y Roxas filed a motion in which she recites that she is the legitimate wife of the defendant Jean M. Poizat; that she had been absent from the Philippine Islands and residing in the City of Paris from the year 1908 to April 30, 1924, when she returned to Manila; that the time of filing of the complaint and the issuance of the summons, she was absent from the Philippine Islands; that the summons was delivered by the sheriff of the City of Manila to her husband, and that through his malicious negligence, default was taken and judgment entered for the respective amounts; that she never had any knowledge of the actual facts until the latter part of July, 1924, when, through the local newspapers, she learned that a default judgment had been rendered against her on July 28, 1924; that when she first knew of that fact, she was unable to obtain the rendition of accounts because her husband had rendition of accounts because her husband had left the Philippine Islands two days previous and gone to Hongkong; that she then went to Hongkong and learned that her husband had left there under a false name and had gone to the port of Singapore from whence he went to other places unknown to third defendant; that she then returned to Manila, and that in August, 1924, she came into possession of documents showing the illegality of the notes and mortgage in question; that she has a good and legal defense to the action, which involves the validity of the order of the Dominican Fathers in this, that their mortgage does not guarantee any loan made to this defendant; that it is a security only given for a credit of a third person; that the mortgage was executed without the marital consent of the wife; and that he did not have any

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authority to make her liable as surety on the debt of a third person; that as regards the notes to the plaintiff: First, it does not represent any money paid to the defendant by the bank; second, that it is exclusively the personal debt of the defendants Jean M. Poizat and J.M. Poizat & Co.; third, that it was executed by her husband, because the bank desired more security for the payment of her husband's debt to the bank; fourth, that it was executed by her husband in excess of the powers given to him under his power of attorney fifth that it was executed as the result of collusion between the bank and the defendant Jean M. Poizat, for the purpose of making this defendant liable for the obligation of a third person. That as to the mortgage: First, it was executed to secure a void obligation; second, it does not guarantee any loan made to this defendant; third, it was executed without the express marital consent which the law requires; fourth, it was executed through collusion. That if the judgment is not set aside, the defendant will suffer irreparable injury; that through surprise and negligence for which she was not responsible, this defendant was prevented from defending herself in this action; that this is a case which comes under section 113 of the Code of Civil Procedure. She prays that the judgment be annulled and set aside and the case be reopened, and that she be permitted to file an answer, and that the case be tried on its merit, and that a final judgment be rendered, absolving her from all liability. The motion was based upon, and supported by, the affidavit of the defendant wife, to which was attached a large number of exhibits all of which tended to support the motion. After counter showings by the bank and the Dominican Fathers and the arguments of respective counsel, the motion to set aside and vacate the judgment was denied. A motion for a reconsideration was the made, and the motion of the defendants file an answer and make a defense was again denied. The defendant Gabriela Andrea de Coster y Roxas appeals, assigning the following errors: PART I "AS TO THE JURISDICTION "I. The lower court erred in holding that it had acquired jurisdiction on the defendant Gabriela Andrea de Coster y Roxas, "(1) There having been no personal service of the summons on her in the manner required by section 396 of the Code of the Civil Procedure, she being absent from the Philippine Islands at the time of the filing of the complaint and of the issuance of the summons in this case, and a resident of Paris, France, where she had lived permanently and continuously for fifteen years prior thereto, and "(2) There having been no service by publication in the manner required by section 398 of the Code of the Civil Procedure. "II. The lower court erred in considering that in a case where the wife is the only necessary party, service of the summons on the husband, at a place which is not 'the usual place of residence' of the wife and where the wife has never lived or resided, is sufficient to give the court jurisdiction on the person and property of the wife and to render judgment by default against her. "III. The court erred in admitting and considering evidence, outside of the sheriff's return, of the fact that the husband of the defendant Gabriela Andrea de Coster y Roxas was her attorney in fact with power to appear for the defendant in court. "IV. The court erred in holding that the non-appearance of an agent of the defendant when service of the summons has been made on him not as the agent of the defendant but in other capacity, will entitle the plaintiff who misstated the material jurisdictional facts of the complaint to a judgment by default against the principal. "V. The lower erred in refusing to vacate a judgment by default against the defendant against the defendant Gabriela Andrea de Coster y Roxas rendered on a defective summons, served in a manner not provided for by the law, and in a case where the complaint shows that plaintiff has no right of action. "PART II "AS TO THE MERITS OF THE DEFENSE "I. The lower court erred, with abuse of discretion, in holding that the negligence, if any, of J.M. Poizat in not appearing on behalf of the defendant Gabriela Andrea de Coster y Roxas, can be imputed to this defendant, without redress, and to the advantage of the plaintiff bank who in collusion with said J.M. Poizat caused the latter to contract beyond the scope of his powers as agent of this defendant the obligation which is the subject matter of this case. "II. The lower court erred in holding that the belief on the part of J.M. Poizat that other was no defense against the claim of the plaintiff on an obligation contracted by said J.M. Poizat apparently as agent of the defendant Gabriela Andrea de Coster y Roxas, by in truth beyond the scope of his authority, and with knowledge in the part if the plaintiff bank that he was so acting beyond his powers, was such an error as can be imputed to this defendant, and against which she can obtain no redress. "III. The lower court erred in not holding that a principal is not liable for an obligation contracted by his agent beyond his power even when both the creditor and the agent believed that the latter was acting within the scope of his powers. "IV. The court erred in holding that because the agent of the defendant Gabriela Andrea de Coster y Roxas had power to appear for her in court, his non-appearance could render third defendant liable to a judgment by default, when the record shows that there was no service of the summons in accordance with any of the forms of service provided by law. "V. The lower court erred in holding that J.M. Poizat was summoned as agent of his wife, the defendant Gabriela Andrea de Coster y Roxas, and was, in that capacity, notified of all the decisions rendered in this case, there being nothing in the record to support the truth of such finding. "VI. The lower court erred in holding that in contracting the obligations in favor of the plaintiff Bank of the Philippine Islands and of the defendant Orden de PP. Predicadores de la Provincia del Santisimo Rosario, the agent of the defendant Gabriela Andrea de Coster y Roxas acted within the scope of his powers. "VII. The lower court erred in not holding that the plaintiff Bank of the Philippine Islands and the defendant Orden de PP. Predicadores de la Provincia del Santisimo Rosario had knowledge of the fact that J.M. Poizat in contracting the respective obligations in their favor, pretending to act as agent of the defendant Gabriela Andrea de Coster y Roxas, was acting beyond the scope of his powers as such agent.

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"VIII. The lower court erred in making the following statement: "'It is however alleged, by the petitioner, that these loans were obtained to pay debts, of strangers. Even so, this would not render the loan obtained by the attorney in fact null and void. The circumstance that the agent used the money, borrowed by him within the scope of his powers, to purposes for which he was not authorized by his principal, may entitle the latter to demand from him the corresponding liability for the damages suffered, but it cannot prejudice the creditor and cause the nullity of the loan. But, even admitting that the money borrowed was used by Poizat to pay debts which did not belong to his principal, even then, he would have acted within his powers since his principal, together with the power to borrow money, and the payment of the debts of a stranger would amount to a loan made by the agent on behalf of his principal to the person or entity whose debt was paid with the money obtained from the creditors.' Under oath the plaintiff, through its acting president, says: "I-II. That it admits the allegations contained in paragraphs I and II of the aforesaid motion. "III. That it admits the first part of this paragraph, to wit: That at the time that the complaint in the above entitled case was filed, the defendant Gabriela Andrea de Coster y Roxas was absent from the Philippine Islands." Paragraph 6 of section 396 of the Code of Civil Procedure provides: "In all other cases, to the defendant personally, or by leaving a copy at his usual place of residence, in the hands of some person resident therein, of sufficient discretion to receive the same. But service upon a corporation, as provided in subsections one and two, my be made by leaving the copy at the office of the proper officer thereof if such officer cannot be found." The return of the sheriff as to the service is as follows: "IX. The lower court erred in applying to this case the principle involved in the case of Palanca vs. Smith, Bell & co., 9 Phil., 131. "X. The court erred in supplying from its own imagination facts which did not take place, of which there is no evidence in the record, and which the parties never claimed to have existed, and then draw the conclusion that if under those hypothetical facts the transaction between J.M. Poizat and the Bank of the Philippine Islands might have been legal, then the transaction as it actually took place was also legal. "XI. The lower court erred in holding that defendant has not alleged any of the grounds enumerated in section 113 of the Code of Civil Procedure. "XII. The lower court erred in holding that this defendant-appellant has no meritorious defense against the Dominican Order and the Bank of the Philippine Islands. "XIII. the lower court erred in taking into consideration Exhibit A appearing at pages 156-165 of the bill of exceptions. "XIV. The lower court erred in denying the motion filed by this defendant-appellant. "XV. The lower court has acted throughout these proceedings with a clear abuse of discretion." JOHNS, J p: We will decide the case of the bank first. The petition of the appellant states under oath: "II. That this defendant has been absent from the Philippine Islands and residing in the City of Paris, France, since the year 1908 (1909), up to April 30, 1924, on which date she arrived in this City of Manila, Philippine Islands. "III. That at the time when the complaint in this case was filed and the summons issued, she was still absent from the Philippine Islands and had no knowledge either of the filing of third action or of the facts which led to it." "On this date I have served a copy of the within summons, and of the complaint attached, upon Jean M. Poizat, personally, and the copies corresponding to J.M. Poizat & Co., a company duly organized under the laws of the Philippine Islands, by delivering said copies to its President Mr. Jean M. Poizat, personally, and the copies corresponding to Gabriela Andrea de Coster y Roxas, by leaving the same in the place of her usual residence in the City of Manila and in the hands of her husband, Mr. J.M. Poizat, a person residing therein and of sufficient discretion to receive it, personally. "Done at Manila, P.I., this 13th day of March, 1924. RICARDO SUMMERS "Sheriff of Manila "BY GREGORIO GARCIA" "I hereby certify that on this date I have delivered a copy of this summons and of the complaint corresponding to the 'La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario,' through Father Pedro Pratt, Procurador General of said Orden de Domonicos or PP. Predicadores de la Provincia del Santisimo Rosario, personally. "Manila, P.I., April 1, 1924. "RICARDO SUMMERS Sheriff of Manila "BY SIMEON D. SERDEA" It will be noted that the service of summons and complaint was made in this defendant on the 13th day of March, 1924, and that it is a stipulated fact that since the year 1908 and up to April 30, 1924, she was "residing in the City of Paris, France." Even so, it is contended that the service was valid by reason of the fact that it was made at the usual place of residence and abode of there defendant husband, and that legally the residence of the wife is that of the husband. That contention is in direct conflict with the admission of the plaintiff that since the year 1908 and up to April 30, 1924, the wife was residing in the City of Paris. The residence of the wife in the City of Paris covered a period of sixteen years.

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It may be that where in the ordinary course of business the wife is absent from the residence of the husband on a pleasure trip ir for business reasons or to visit friends or relatives that, in the nature of such things, the residence of the wife would continue and remain to be that of the husband. That is not this case. For sixteen years the residence of the husband was in the City of Manila, and the residence of the wife was in the City of Paris. Upon the admitted facts, we are clearly of the opinion that the residence of the husband was not the usual place of residence of the wife. Giving full force and effect to the legal presumption that the usual place of residence of the wife is that if her husband, that presumption is overcome by the admitted fact that the wife was "residing in the City of Paris, France, since the year 1908 up to April 30, 1924." Without placing a limitation upon the length of time sufficient to overcome the legal presumption, suffice it to say that sixteen years is amply sufficient. It follows that the substituted service attempted to be made under the provisions of section 396 of the Code of Civil Procedure is null and void, and that by such service the court never acquired jurisdiction of the person of the defendant wife. In that event the plaintiff contends that under his power of attorney, the husband was the general agent of the wife with authority to accept service of process for her and in her name, and that by reason of the fact that the husband was duly served and that he failed or neglected to appear or answer, his actions and conduct were binding in the defendant wife. Be that as it may, there is nothing in the record tending to show that the husband accepted service of any process for or on account of his wife or as her agent, or that he was action for or representing her in his failure and neglect to appear or answer. The first appearance in court if the defendant wife was made when she filed the motion of August 26, 1924, in which she prays in legal effect that the judgment against her be annulled and set aside and the case reopened, and that she be permitted to file an answer and to have the case tried on its merits. That was a general appearance as distinguished from a special appearance. When she filed that motion asking to be relieved from the legal force and effect of the judgment, she submitted herself to the jurisdiction of the court. If, in the first instance, she had made a special appearance to question only the jurisdiction of the court, and had not appeared for any other or different purpose, another and a different question would have been presented. Having made a general appearance for one purpose, she is now in court for all purposes. It is an elementary rule of the law that as a condition precedent, to entitle a party to relief from a judgment "taken against him through his mistake, inadvertence, surprise or excusable neglect," that, among other things, he must show to the court that he has a meritorious defense. Based upon that legal principal the bank contends that no such a showing has been made by the defendant wife. That involves the legal construction of the power of attorney which, it is admitted, the wife gave to her husband on August 25, 1903, which, among other things material to this opinion, recites that she gave to him: "Such full and ample power as required or necessary, to the end that he may perform on my behalf and in may name and availing himself of all my rights and actions, the following acts: "5. Loan or borrow any sums of money or fungible things at the rate of interest and for the time and under the conditions which he might deem convenient, collecting or paying the capital or the interest on their respective due dates; executing and signing the corresponding public or private documents related thereto, and making all these transactions with or without mortgages, pledges or personal guaranty. "6. Enter into any kind of contracts whether civil or mercantile, gibing due form thereof either by private documents or public deeds with all clauses and requisites provided by law for their validity and effect, having due regard to the nature of each contract. "7. Draw, endorse, accept, issue and negotiate any drafts, bill of exchange, letters of credit, letters of payment, bills, vales, promissory notes and all kinds of documents representative of value; paying or collecting the value thereof on their respective due dates, or protesting them for non-acceptance or non-payment, utilizing in this case the rights granted by the Code of Commerce now in force, in order to collect the value thereof, interests, expenses and damages against whomsoever should be liable therefor. "8. Institute before the competent courts the corresponding action injustification the possession which I have or might have over any real estate, filing the necessary pleadings, evidencing them by means of documentary or oral testimony admissible by law; accepting notices and summons, and instituting all necessary proceedings for the termination thereof and the consequent inscription of said action in the corresponding office of the Register of Deeds, in the same manner in which I might do if personally present and acting. "9. Represent me in all cases before the municipal courts, justice of the peace courts, courts of first instance, supreme court and all other courts of regular or any other special jurisdiction, appearing before them in any civil or criminal proceedings, instituting and filing criminal and ordinary civil actions, claims in intestate and testamentary proceedings, insolvencies and other actions provided by law; filing complaints, answers, counterclaims, cross complaints, criminal complaints and such other pleadings as might be necessary; filing demurrers, taking and offering judicial admission, documentary, expert, oral evidence, and others provided by law, objecting to and opposing whatever contrary actions are taken, offered and presented; accepting notices, citations and summons and acknowledging their receipt to the proper judicial officials.

10. For to the end stated above and the incidents related thereto, I confer on him ample and complete power, binding myself in the most solemn manner as required by law to recognized as existing and valid all that he might do by virtue hereof." It is admitted that on December 29, 1921, the defendant husband signed the name of the defendant wife to the promissory note in question, and that to secure the payment of the note, upon the same date and as attorney in fact for his wife, the husband signed the real mortgage in question in favor of the bank, and that the mortgage was duly executed. Based upon such admissions, the bank vigorously contends that the defendant wife has not shown a meritorious defense. In fact that it appears from her own showing that she does not have a legal defense. It must be admitted that upon the face of the instruments, that fact appears to be true. To meet that contention, the defendant wife points out, first, that the note in question is a joint and several note, and second, that it appears from the evidence, which she submitted, that she is nothing more than an accommodation maker of the note. She also submits evidence which tends to show: "First. That prior to July 25, 1921, Jean m. Poizat was personally indebted to the Bank of the Philippine Islands in the sum of P290,050.02 (Exhibit H, page 66, bill of exceptions);

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"Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was converted into six promissory notes aggregating the sum of P308,458.58 of which P16,180 were paid, leaving an outstanding balance of P292,278.58 (Exhibit D, E, F, G, H and I, pages 75-80, bill of exceptions); "Third. That on December 29, 1921, the above promissory notes were cancelled and substituted by a joint and several note signed by Jean M. Poizat in his personal capacity and as agent of Gabriela Andrea de Coster y Roxas and as member of the firm J. M. Poizat & Co." In other words, that under the power of attorney, the husband had no authority for and on behalf of the wife to execute a joint and several note or to make her liable as an accommodation maker. That the debt in question was a preexisting debt of her husband and of the firm of J. M. Poizat & Co., to which she was not a party, and for which she was under no legal obligation to pay. That she never borrowed any money from the bank, and that previous to the signing of the note, she never had any dealings with the bank and was not indebted to the bank in any amount. That the old, original debts of her husband and J. M. Poizat & Co. to the bank, to which she was no a party, were all taken up and merged in the new note of December 29, 1921, in question, and that at the time the note was signed, she did not borrow any money, and that no money was loaned by the bank to the makers of the note. Assuming such facts to be true, it would be a valid defense by the defendant wife to the payment of the note. There is no claim r pretense that the bank was misled or deceived. If it had made an actual loan P292,000 at the time the note was executed, another and a different question would be presented. In the ordinary course of its business, the bank knew that not a dollar was loaned or borrowed on the strength of the note. It was given at the urgent and pressing demand of the bank to obtain security for the six different notes which it held against J. M. Poizat & Co. and Jean M. Poizat of date July 25, 1921, aggregating about P292,000, and at the time it was given, those note were taken up and merged in the note of December 29, 1921, now in question. Upon the record before us, there is no evidence that the defendant wife was a party to the notes of July 25, 1921, or that she was under any legal liability t pay them. The note and mortgage in question show upon their face that at the time they were executed, the husband was attorney in fact for the defendant wife, and the bank knew or should have known the nature and extent of his authority and the limitations upon his power. You will search the terms and provisions of the power of attorney in vain to find any authority for the husband to make his wife liable as a surety for the payment of the preexisting debt of a third person. Paragraph 5 of the power of attorney above quoted authorizes the husband for and in the name of his wife to "loan or borrow any sums of money or fungible things, etc." This should construed to mean that the husband had power only to loan his wife's money and to borrow money for or on account of his wife as her agent and attorney in fact. That does not carry with it or imply that he had the legal right to make his wife liable as a surety for the preexisting debt of a third person. Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or mercantile, giving due form thereof either by private documents or public deeds, etc." Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any drafts, bill of exchange, letters of credit, letters of payment, bills, vales, promissory notes, etc." The foregoing are the clauses in the power of attorney upon which the bank relies for the authority of the husband to execute promissory notes for and on behalf of his wife and as her agent. It will be noted that there is no provision in either of them which authorizes or empowers him to sign anything or to do anything which would make his wife liable as a surety for a preexisting debt. It is fundamental rule of construction that where in an instrument powers and duties are specified and defined, that all of such powers and duties are limited and confined those which are specified and defined, and that all other powers and duties are excluded. Paragraph 8 of the power of attorney authorizes the husband to institute, prosecute and defend all actions or proceedings in a court of justice, including "accepting notices and summons." There is nothing in the record tending to show that the husband accepted the service of any notice or summons in the action on behalf of the bank, and even so, if he had, it would not be a defense to open up and vacate a judgment under section 113 of the Code of Civil Procedure. The same thing is true as to paragraph 9 of the power of attorney. The fact that an agent failed and neglected to perform his duties and to represent the interests of his principal is not a bar to the principal obtaining legal relief for the negligence of her agent, provided that the application for such a relief is duly and properly made under the provisions of section 113. It is very apparent from the face of the instrument that the whole purpose and intent of the power of attorney was t empower and authorize the husband to look after in her name to transact any and all of her business. But nowhere does it provide or authorize him to make her liable as a surety for the payment of the preexisting debt of a third person. Hence, it follows that the husband was not authorized or empowered to sign the note in question for and on behalf of the wife as her act and deed, and that as to her the note is void for wasn't of power of her husband to execute it. The same thing is true as to the real mortgage to the bank. It was given to secure the note in question and was not given for any other purpose. The real property described in the mortgage to the bank was and is the property of the wife. The note being void as to her, it follows that as to her the real mortgage to the bank is also void for want of power to execute it. It appears that before the motion in question was filed, there were certain negotiations between the bank and the attorney for the wife with a view of compromise or settlement of the bank's claim against her, and that during such negotiations, there was some evidence or admissions on the part of her attorney that she was liable for the bank's claim. It contends that as a result of such negotiations and admissions, the wife is estopped to deny her liability. But it also appears that during such negotiations, both the wife and her attorney did not have any knowledge of the actual facts, and that she was then ignorant of the defense upon which she now relies. Be that as it may, such negotiations were more or less in the nature of a compromise which was rejected by the bank, and it appears that in any event both the wife and her attorney did not have any knowledge of the facts upon which they now rely as a defense. There is no claim or pretense that the debt in question was contracted for or on account of the "usual daily expenses of the family, incurred by the wife or by her order with the tacit consent of the husband," as provided for in article 1362 of the Civil Code. Neither is there any evidence tending to show that the wife was legally liable for any portion of the original debt evidenced by the note in question. This decision as to the bank on this motion is based on the assumption that the facts are true as set forth and alleged n the petition to set aside and vacate the judgment as to the wife, but we are not making any finding as to the actual truth of such facts. That remains for the defendant wife to prove such allege facts when the case is tried on its merits.

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It follows that the opinion of the lower court in refusing to set aside and vacate the judgment of the plaintiff bank against the defendant wife is reversed, and that judgment is vacated and set aside, and as to the bank the case is remanded to the lower court, with leave for the wife to file an answer to plaintiff's cause of action, and to have the case tried on its merits and for any further proceedings not inconsistent with this opinion. As to the judgment in favor of the Dominicans Fathers, it appears that their plea above quoted in the statement of facts was filed on April 24, 1924. In that plea they say that they have a first mortgage on the property described in paragraph IV of the complaint for P125,000 with interest at 10 per cent per annum. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas have not paid the principal or the stipulated interest from December 16, 1921, to date, which up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed that the second mortgage is foreclosed. Separate Opinions VILLAMOR, J., concurring and dissenting: I concur in the result reached by the court in ordering the remanding of the case for further proceedings, for in my opinion, the defendant-appellant against whom a judgment by default was rendered, has the right, under section 113 of the Code of Civil Procedure, to have said judgment set aside and to be given an opportunity to appear, having alleged facts which, if proven, would constitute a good defense, but I dissent from the opinion of the majority in so far as it attempts to decide certain features of the cased raised by the defendant-appellant, without waiting for the outcome of the new trial wherein the other parties must naturally have the same opportunity to present their defenses against the facts alleged by the appellant. In my opinion, the merits of the question should not now be discussed without giving the trial court an opportunity to pass upon the allegations and evidence of the parties litigant.

No other plea of any kind, nature or description was filed by it. The record shows that a copy of this alleged plea was served upon the attorneys for the plaintiff bank. There is nothing in the record which shows or tends to show that a copy of it was ever served on either one of the defendants. Neither is there any evidence that either if the defendant ever appeared in the original action. In fact, judgment was rendered against them by default. Under such s state of facts, the judgment in favor of the Dominican Fathers cannot be sustained. In the first place, the plea above quoted filed on April 24, 1924, would not be sufficient to sustain a judgment. It does not even ask for a judgment or the foreclosure of its mortgage. In the second place, no copy of the plea was ever served upon either of the defendants, who were the rest parties in interest, and against whom a judgment was rendered for the full amount of the note and the foreclosure of the mortgage. Such a proceeding cannot be sustained on any legal principle. Unless waived, a defendant has a legal right to service of process, to his day in court and to be heard in his defense. From what has been said, it follows that, if the transaction between the Dominican Fathers and Jean M. Poizat as attorney in fact for his wife was an original one and the P125,000 was actually loaned at the time the note and mortgage were executed and the money was in good faith delivered to the husband as the agent and attorney in fact of the wife, it would then be a valid exercise of the power given to the husband, regardless of the question as to what he may have done with the money. Paragraph 5 of the power of attorney specifically authorizes him to borrow money for and on account of his wife and in her name, "and making all these transactions with or without mortgages, pledges or personal guaranty." It follows that the judgment of the lower court in favor of La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario is reversed, without prejudice to its right to either file an original suit to foreclose its mortgage or to file a good and sufficient plea s intervenor in the instant suit, setting forth the facts upon which it relies for a judgment on its note and the foreclosure of its mortgage, copies of which should be served upon which it relies for a judgment on its note and the foreclosure of its mortgage, copies should be served upon the defendants. Neither party to recover costs. So ordered. Ostrand and Romualdez, JJ., concur. Johnson and Malcolm, JJ., concur in the result.

SECOND DIVISION [G.R. No. 103737. December 15, 1994.] NORA S. EUGENIO AND ALFREDO Y. EUGENIO, petitioners, vs. HON. COURT OF APPEALS AND PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES , INC., respondents.

DECISION

REGALADO, J p: Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of manufacturing, bottling and selling soft drinks and beverages to the general public. Petitioner Nora S. Eugenio was a dealer of the softdrink products of private respondent corporation. Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" ** ) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant. cdphil On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners purchased and received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners allegedly had an outstanding balance of P20,437.40 therein.

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Likewise, on various occasions in 1980, petitioners also purchased and received on credit various products from respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint alleged, they failed to pay despite oral and written demands. 1 In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The details of said receipts are as follows: TPR No.Date of IssueAmount 500320600Fulls returned5/ 6/80P23,520.00 500326600Fulls returned5/10/80P23,520.00 500344600Fulls returned5/14/80P23,520.00 500346Cash5/15/80P10,000.00 2

corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance. First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to the company, inefficiency, and loss of trust and confidence."9 The interview was reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent corporation the following amounts: Muntinlupa Plant Nora's StoreTrade AccountP38,357.20 (as of 12/3/80) 10 Loaned EmptiesP35,856.40 (as of 7/11/81) 11 Quezon City Plant Abigail Minimart Regular AccountP20,437.40 (as of 1980) 12

TotalP80,560.00 Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00,3 which was included in the computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned amounts were credited in their favor, it would be respondent corporation which would be indebted to them in the sum of P3,546.02 representing overpayment. llcd After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners, as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus 12% interest per annum until the principal amount shall have been fully paid, as well as P20,000.00 as attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on which they are based. The Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render another decision in accordance with the requirements of the Constitution. 5 In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until full payment of the amount adjudged.6 On appeal therefrom, the Court of Appeals affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion for the reconsideration of said judgment of respondent court was subsequently denied in a resolution dated January 23, 1992. 8 We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein petitioner spouses. In so-called encyclopedic sense, however, our course of action in this case and the denouement of the controversy therein takes into account the jurisprudential rule that in the present recourse we would normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the

TotalP94,651.00 A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of the loaned empties. 13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a spurious document, was deducted from their liability in their trade account with the Muntinlupa plant. 14 Thereafter Eugenio and Isip signed the reconciliation sheets reflecting these items: Muntinlupa Plant Nora Store Trade AccountP32,726.20 15 Loaned EmptiesP21,686.00 16 Quezon City Plant Abigail Minimart Trade AccountP20,437.20 17

TotalP74,849.40 After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be allowed to retire and the existing accounts be deducted from his retirement pay, but that he later withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed in the name of this petitioner were forged. 18 This makes two falsified documents to be foisted against petitioners. With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that investigation to affirm his verbal statements therein. Surprisingly,

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however, said supposed affidavit is inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified thereafter in court and what he is supposed to have done or said was merely related by Azurin. Now, on this point, respondent disagreed with herein petitioners that the testimony on the alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his affidavit dated February 5, 1982 21 wherein he affirmed his denial, are hearsay evidence because Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically denying that he issued and signed the disputed TPRs is, therefore, not hearsay," 22 there was no further explanation on this unusual doctrinal departure. prcd The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no probative value whatsoever. 24 the case at bar, except for the self-serving statement that Estrada had disappeared, no plausible explanation was given by respondent corporation. Estrada was an employee of private respondent, hence it can be assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent could not have been unaware of the importance of Estrada's testimony and the consequent legal necessity for presenting him in the trial court, through coercive process if necessary. Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not prepared by the affiants themselves but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two months after the investigation, presumably for curative purposes as it were. Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by the witness or the court with writings admitted or treated as genuine by the party against whom the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of Estrada states ". . . that the comparison that was made as to the authenticity of the signature appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any document, not even the aforementioned 201 File, containing a specimen signature of Estrada which the Court can use as a basis for comparison. Neither was any document containing a specimen of Estrada's signature presented by respondent in the formal offer of its exhibits. 32 Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of his genuine signature." 33 There is, however, no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be unable to make the necessary comparison because two signatures appear on the right margin of each and every page of the stenographic notes, without any indication whatsoever as to which of the signatures is Estrada's. The whole document was marked for identification but the signatures were not. In fact, although formally offered, it was merely introduced by the private respondent "in order to show that Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and not for the purpose of presenting any alleged signature of Estrada on the document as a basis for comparison. This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible, respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained up to the present. cdll The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in the day-to-day business transactions of the company. These trade provisional receipts are bound and given in booklets to the company sales representatives, under proper acknowledgment by them and with a record of distribution thereof. After every transaction, when a collection is made the customer is given by the sales representative a copy of the trade

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former case or proceeding, judicial or administrative, involving the same parties and subject matter, may be given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule. Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic notes, assuming arguendo that these notes are admissible in evidence, would show that the "investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no opportunity for Eugenio to object, much less to crossexamine Estrada. Even in a formal prior trial itself, if the opportunity for cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered, evidence relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his right to cross-examine. 26 Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed stenographic notes on which respondent corporation relies is unauthenticated and necessarily inadmissible for the purpose intended. Lastly, although herein private respondent insinuated that Estrada was not presented as a witness because he had disappeared, no evidence whatsoever was offered to show or even intimate that this was due to any machination or instigation of petitioners. There is no showing that his absence was procured , or that he was eloigned, through acts imputable to petitioners. In

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provisional receipt, that is the triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the collections made, are turned over by the sales representative to the appropriate company officer. 35 According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the bottom of said receipts, as to be officially confirmed by plaintiff within fifteen (15) days by delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed original copies thereof." 36 We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented in evidence by petitioners are disputably presumed in evidence as evidentiary of payments made on account of petitioners. There are presumptions juris tantum in law that private transactions have been fair and regular and that the ordinary course of business has been followed. 37 The role of presumptions in the law on evidence is to relieve the party enjoying the same of evidential burden to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners, these would necessarily continue to stand in favor in this case. Besides, even assuming arguendo that herein private respondent's cashier never received the amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their obligations to the sales representative of the private respondent using the latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would unreasonably cast the burden of supervision over its employees from respondent corporation to its customers. The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person authorized to receive it. 39 As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and his agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility of the collector to turn over the collection." 41 Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following observation: ". . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800 cases of softdrinks from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. 'D', 'D-1' to 'D-3') which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1989 or the month before." 42 We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the day-to-day movement of an account, a statement of an overdue amount is only a summary of the account, simply reflecting the balance due thereon. A statement of account, being more specific and detailed in nature, allows one to readily see and verify if indeed, deliveries were made during a specific period of time, unlike a bare statement of overdue payments. Respondent court cannot make its aforequoted categorical deduction unless supporting documents accompanying the statement of overdue amounts were submitted to enable easy and accurate verification of the facts. A perusal of the statement of overdue accounts shows that, except for a reference number given for each entry, no further details were volunteered nor offered. It is entirely possible that the statement of overdue account merely reflects the outstanding debt of a particular client, and not the specific particulars, such as deliveries made, particularly since the entries therein were surprisingly entered irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue amounts as conclusive proof of deliveries done within a particular time frame. Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of the TPRs because he was a former route manager no evidence whatsoever was presented by private respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of respondent corporation since Azurin himself admitted that their accounting department could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is significant that respondent corporation did not take proper action if indeed some receipts were actually lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the matter. We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners were able to talk to Nanette that they were able to retrieve said TPRs. He added that during the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented by petitioners. On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a payment of P80,560.00, there was consequently an overpayment of P5,710.60. All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be in vacuo, with the result

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that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case. WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former. SO ORDERED. Narvasa, C.J. and Puno, J., concur. Mendoza, J., took no part. as stated in Harry E. Keller Electric Co. vs. Rodriguez, (44 Phil. 19 [1922]) quoting Mechem on Agency: The person dealing with the 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. 2.ID.; ID.; ID.; PREROGATIVE GIVEN TO AGENT MUST RELATE OR BE GERMANE TO THE EXPRESS POWER; CASE AT BAR. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988, the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I, GERMAN A. BACALTOS . . . do hereby authorize RENE R. SAVELLON . . . to use the 'coal operating contract' of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by the way of limitation, as follows: . . There is only one express power granted to Savellon, viz., to use the coal operating contract for any legitimate purpose it may serve. The enumerated "five prerogatives " to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by the way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated . The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. 3.ID.; CONTRACTS; RULE THAT BETWEEN TWO INNOCENT PARTIES, THE ONE WHO MADE IT POSSIBLE FOR THE WRONG TO BE DONE SHOULD BE THE ONE TO BEAR THE RESULTING LOSS; RULE FOR APPLICATION; CASE AT BAR. There is no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment

FIRST DIVISION [G.R. No. 114091. June 29, 1995.] BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

SYLLABUS 1.CIVIL LAW; SPECIAL CONTRACTS; AGENCY; THIRD PERSON DEALING WITH A KNOWN AGENT MUST ACT WITH ORDINARY PRUDENCE AND REASONABLE DILIGENCE. Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Person dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of the proof is upon them to establish it. American jurisprudence summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of the reasonable diligence and prudence, the existence or non-existence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority . The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or,

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therefore be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES and delivered it to Savellon who thereupon issued a receipt. We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril. 4.REMEDIAL LAW; EVIDENCE; BEST EVIDENCE RULE; OBJECTION THERETO MUST TIMELY BE FILED. We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness." This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, SMC failed to produce the latter. This "Notice of Readiness," is not therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by the way of limitation, as follows: (1)To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2)To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3)To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4)To extend to any person or company by substitution the same extent of authority that is granted to Rene Savellon; (5)In connection with the preceding paragraphs to execute and sign documents, contracts, and other pertinent papers. Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented . . . by its Chief Operating Officer, RENE SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operation-Mandaue." Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao." As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No. 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. It demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They set up counterclaims for moral exemplary damages and attorney's fees. Savellon did not file his Answer and he was declared in default on 17 July 1990. 8 At the Pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution:

DECISION

DAVIDE, JR., J p: Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of the 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-dependant Rene R. Savellon jointly and severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows:

I, GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, Province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal

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Plaintiff 1.Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2.Whether or not defendants acted in good faith in its representations to the plaintiff; 3.Whether or not defendants Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel; 4.Whether or not defendants Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants 1.Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2.Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3.Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines; 4.Whether or not the plaintiff is liable on defendants counterclaim. 9 After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows: WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay the plaintiff: 1.The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2.The amount of P20,000.00 by way of exemplary damages; 3.The amount of P20,000.00 as attorney's fees and P5,000.00 as litigation expenses. Plus costs. 10 It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners' denial that they caused the printing of such official receipts is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit A-1") is written on paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim against him. In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by the way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality. Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors: I.THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT IN SPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II.THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND III.THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON

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AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12 After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, The Court resolve to give due course to the petition. determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I, GERMAN A. BACALTOS . . . do hereby authorize RENE R. SAVELLON . . . to use the 'coal operating contract' of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by the way of limitation, as follows: . . . [emphasis supplied] There is only one express power granted to Savellon, viz., to use the coal operating contract for any legitimate purpose it may serve. The enumerated "five prerogatives " to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause "but not by the way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated . The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2)To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Person dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of the proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows: A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without the foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or non-existence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to ascertain not only the fact of agency, but the nature and extent of the authority . The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency: The person dealing with the 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 be 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 conditions of affairs. [emphasis supplied] In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be

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unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus: Atty. Zosa ( to witness ON CROSS ) QYou said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? AYes, sir. QDid you read in the first part[y] of this authorization Mr. Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? AYes, sir. QDid it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party? AYes, sir. We discussed about the extent of his authorization and he referred is to the number 2 provision of this authorization which is to engage in trading under the style of the Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority. QIn other words, you examined this and you found out that Mr. Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines? AYes, sir. QYou doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party? AWe did not doubt his authority but we were questioning as to the extent of his operating contract. QDid you not require Mr. Savellon to produce that coal operating contract of Bacaltos Coal Mines? ANo sir. We did not. 18 Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract. A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19 in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus: SEC. 9Obligations of Operator in Coal Operating Contract The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a)The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b)Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and (c) The extraction and utilization of coal deposits. The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to: (a)Provide all the necessary service and technology;

(b)Provide the requisite financing; (c)Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree; (d)Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation; (e)Furnish the Energy Development Board promptly with all information, data and reports which it may require; (f)Maintain detailed technical records and account of its expenditures; (g)Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, noninterference with the rights of the other petroleum, mineral and natural resources operators;

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(h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i)Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same. SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with the power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the seaworthiness of the vessel. Valdescona thus declared on direct examination as follows: AIn October, a certain Rene Savellon called our office offering a shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. QDid Mr. Rene Savellon go to your office? AFew days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. QDid he mention the owner of the vessel? AYes, sir. That it is Bacaltos. QDid he present a document to you? AYes, sir. He presented to us the authorization. QWhen Mr. Rene Savellon presented to you the authorization what did you do? AOn the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on drydock that time in Danao. QWhat was the result of your inspection? A:We found out the vessel's sea worthiness to be our cargo carrier. Q:After that what did you do? A:After that we were discussing the condition of the contract. Q:Were you able to execute that contract? A:Yes, sir. 21 He further declared as follows: QWhen you entered into a trip charter contract did you check the ownership of M/V Premship? AThe representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the Strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it. COURT: (to witness) QIn other words, you just believe Rene Savellon? AYes, sir. COURT: (to witness) QYou did not check with Bacaltos Coal Mines? AThat is the representation he made. QDid he show you document regarding this M/V Premship II? ANo document shown. 22 The authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-housed surveyor who saw the vessel while drydocked in Danao and thereafter conducted a seaworthiness test could not have failed to ascertain the registered owner of the vessel. The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one.

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The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy. We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, 25 SMC failed to produce the latter. This "Notice of Readiness," is not therefore the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefore be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES (Exhibit "B") and delivered it to Savellon who thereupon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril. Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners. SO ORDERED. Bellosillo, Quiason and Kapunan, JJ., concur. Padilla, J., took no part. FIRST DIVISION [G.R. No. 116650. May 23, 1995.] TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; SALES; CONTRACT OF SALE; ELEMENT OF DEFINITENESS OF PRICE FOR PERFECTION THEREOF; NOT PRESENT IN CASE AT BAR. Article 1458 of the Civil Code defines a contract of sale and Article 1475 specifically provides when it is deemed perfected. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 2. ID.; ID.; ID.; ID.; ELEMENT OF MEETING OF MINDS; NOT ESTABLISHED IN CASE AT BAR. Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz., AGREEMENTS BETWEEN MR SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes of discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. Since B.A. Finance did not approve

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Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states: On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17, 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant, for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. 3. ID.; ID.; ID.; ID.; STAGES THEREOF; CASE AT BAR. At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. 4. ID.; DAMAGES; MORAL DAMAGES; NOT WARRANTED TO COMPENSATE MISPLACED PRIDE AND EGO. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. 5. ID.; ID.; EXEMPLARY DAMAGES; WHEN AVAILABLE. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. 6. ID.; ATTORNEY'S FEES; WHEN WARRANTED. It is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award.

DECISION

DAVIDE, JR., J p: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows: 4 June 1989 AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. 1.all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. 2.the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. 3.the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m. Very truly yours, (Sgd.) POPONG BERNARDO Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review on certiorari. llcd The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contracting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then

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signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that: 9.As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest cancelled his scheduled first visit to Marinduque in order to avoid inconvenience of taking public transportation; and (iii) his relative, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10 In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state a date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. LibLex After trial on the issue agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for a testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15 The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows: Cdpr a)downpaymentP53,148.00 b)insuranceP13,970.00 c)BLT registration feeP1,067.00 CHMO fee2,715.00 service fee500.00 accessories29,000.00 and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1.This sale is subject to availability of unit. 2.Stated Price is subject to change without prior notice. Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval of B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. prcd After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first latter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M.O. Caballes, Sosa's counsel demanded one million pesos

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1.ordering the defendant to pay the plaintiff the sum of P75,000.00 for moral damages; 2.ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages; 3.ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 Lawyer's transportation fare per trip in attending to the hearing of this case; 4.ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case and 5.ordering the defendant to pay the cost of suit. SO ORDERED. Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponencia and also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. llcd We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: ART. 1458.By the contract of the sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. and Article 1475 specifically provides when it is deemed perfected: ART. 1475.The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz., Cdpr AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation of negotiation stage of a contract sale. There are three stages in the contract of sale, namely: (a)preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b)perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c)consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22 The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. LLjur Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23

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Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states: On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff 's house and informed the plaintiff 's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17, 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant, for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff . Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied) 25 The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. Cdpr The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. cdll No pronouncement as to costs. SO ORDERED. Padilla, Bellosillo and Kapunan, JJ ., concur. Quiason, J ., is on leave.

FIRST DIVISION [G.R. No. L-30098. February 18, 1970.] THE COMMISSIONER OF PUBLIC HIGHWAYS and the AUDITOR GENERAL, petitioners, vs. HON. LOURDES P. SAN DIEGO, as Presiding Judge of the Court of First Instance of Rizal, Branch IX, sitting in Quezon City, TESTATE ESTATE OF N. T. HASHIM (Special Proceedings No. 71131 of the Court of First Instance of Manila) represented by its Judicial Administrator, Tomas N. Hashim, TOMAS N. HASHIM, personally, and as Judicial Administrator of the Estate of Hashim, Special Proceedings No. 71131 of the Court of First Instance of Manila, ALL THE LEGAL OR TESTAMENTARY HEIRS of the Estate of Hashim, MANUELA, C. FLORENDO, personally as Deputy Clerk, Court of First Instance of Rizal, Quezon City, Branch IX, BENJAMIN GARCIA, as "Special Sheriff" appointed by respondent Judge Lourdes P. San Diego, BENJAM1N V. CORUA, personally and as Chief Documentation Staff, Legal Department, Philippine National Bank, and the PHILIPPINE NATIONAL BANK, respondents.

The Solicitor General for petitioners. Paredes, Poblador, Nazareno, Abada & Tomacruz for respondent Judge Lourdes P. San Diego. Jesus B. Santos for respondent Testate estate of N. T. Hashim. Jose A. Buendia for respondent Manuela C. Florendo. Emata, Magkawas & Associates for respondent legal heir Jose H. Hashim. Alberto O. Villaraza for respondents Estate of N.T. Hashim and Tomas N. Hashim. Conrado E. Medina for respondent Philippine National Bank.

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Benjamin V. Corua for and in his own behalf. 6.ID.; SPECIAL SHERIFFS; EXECUTION OF COURT PROCESSES DEVOLVES ON REGULAR SHERIFFS; EXCEPTIONS. The Court finds this general practice of the lower courts of appointing "special sheriffs" for the service of writs of execution to be unauthorized by law. The duty of "executing all processes" of the courts in civil cases, particularly, writs of execution, devolves upon the sheriff or his deputies, under Section 183 of the Revised Administrative Code and Rule 39, section 8 of the Rules of Court. Unlike the service of summons which may be made, aside from the sheriff or other proper court officers, "for special reasons by any person especially authorized by the judge of the court issuing the summons" under Rule 14, section 5 of the Rules of Court, the law requires that the responsibility of serving writs of execution, which involve the taking delivery of money or property in trust for the judgment creditor, should be carried out by regularly bonded sheriffs or other proper court officers. Section 185 of the Revised Administrative Code restrictively authorizes the judge of the Court issuing the process or writ to deputize some suitable person only "when the sheriff is party to any action or proceeding or is otherwise incompetent to serve process therein." The only other contingency provided by law is when the office of sheriff is vacant, and the judge is then authorized, "in case of emergency, (to) make a temporary appointment to the office of sheriff . . . pending the appointment and qualification of the sheriff in due course; and he may appoint the deputy clerk of the court or other officer in the government service to act in said capacity." 7.ID.; ID.; BOND OF SHERIFF, PURPOSE. The bond required by law of the sheriff is conditioned inter alia for the delivery or payment to the Government, or the persons entitled thereto, of all the property or sums of money that shall officially come into his or their (his deputies') hands to avoid the risk of embezzlement of such properties and moneys.

SYLLABUS 1.POLITICAL LAW; EXPROPRIATION; IMMUNITY FROM SUIT, INAPPLICABLE TO EXPROPRIATION PROCEEDINGS, BASIS. It is elementary that in expropriation proceedings, the State precisely submits to the Court's jurisdiction and asks the Court to affirm its lawful right to take the property sought to be expropriated for the public use or purpose described in its complaint and to determine the amount of just compensation to be paid therefor. 2.ID.; ID.; DISBURSEMENT OF GOVERNMENT FUNDS BY LEGISLATIVE AUTHORITY, NOT SUBJECT TO EXECUTION OR GARNISHMENT. Disbursements of public funds must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as authorized by law. Judgments against the State or its agencies and instrumentalities in cases where the State has consented to be sued, operate merely to liquidate and establish the plaintiff's claim. Such judgments may not be enforced by writs of execution or garnishment and it is for the legislature to provide for their payment through the corresponding appropriation, as indicated in Act 3083. 3.ID.; ID.; PUBLIC POLICY. The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may limit claimant's action "only up to the completion of proceedings anterior to the stage of execution" and that the power of the Courts ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy. 4.ID.; ID.; DEPOSITS OF THE PHILIPPINE GOVERNMENT AT PHILIPPINE NATIONAL BANK AS OFFICIAL DEPOSITARY REMAIN GOVERNMENT FUNDS. As the official depositary of the Philippine Government, respondent bank and its officials should be the first ones to know that all government funds deposited with it by any agency or instrumentality of the government, whether by way of general or special deposit, remain government funds, since such government agencies or instrumentalities do not have any non-public or private funds of their own. Even assuming the creation of credito-debtor upon the deposit of Government funds, petitioner Bureau thereby held a credit against respondent bank whose obligation as debtor was to pay upon demand of said petitioner-creditor the public funds thus deposited with it. Even though title to the deposited funds passes to the bank under this theory since the funds become mingled with other funds which the bank may employ in its ordinary business, what was garnished was not the bank's own funds but the credit of petitioner bureau against the bank to receive payment of its funds, as a consequence of which respondent bank delivered to respondent estate the garnished amount of P209,076.00 belonging to said petitioner. Petitioner bureau's credit against respondent bank thereby never lost its character as a credit representing government funds thus deposited. 5.REMEDIAL LAW; GARNISHMENT. Respondent bank acted with improper haste and lack of circumspection in allowing the garnishment and delivery of the large amount involved, all within the period of just four days, even before the expiration of the five-day reglementary period to reply to the sheriff's notice of garnishment. It should have asked the lower court for time and opportunity to consult petitioner Bureau or the Solicitor General with regard to the garnishment and execution of said deposited public funds which were allocated to specific government projects, or f simply replied to the sheriff that what they held on deposit for petitioner Bureau were non-garnishable government funds.

DECISION

TEEHANKEE, J p: In this special civil action for certiorari and prohibition, the Court declares null and void the two questioned orders of respondent Court levying upon funds of petitioner Bureau of Public Highways on deposit with the Philippine National Bank, by virtue of the fundamental precept that government funds are not subject to execution or garnishment. The background facts follow: On or about November 20, 1940, the Government of the Philippines filed a complaint for eminent domain in the Court of First Instance of Rizal 1 for the expropriation of a parcel of land belonging to N. T. Hashim, with an area of 14,934 square meters, needed to construct a public road, now known as Epifanio de los Santos Avenue. On November 25,1940, the Government took possession of the property upon deposit with the City Treasurer of the sum of P23,413.64 fixed by the Court therein as the provisional value of all the lots needed to construct the road, including Hashim's property. The records of the expropriation case were destroyed and lost during the second world war, and neither party took any step thereafter to reconstitute the proceedings. In 1958, however, the estate of N.T. Hashim, deceased, through its Judicial Administrator, Tomas N. Hashim, filed a money claim with the Quezon City Engineer's Office in the sum of P522,620.00, alleging

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said amount to be the fair market value of the property in question, now already converted and used as a public highway. Nothing having come out of its claim, respondent estate filed on August 6, 1963, with the Court of First Instance of Rizal, Quezon City Branch, assigned to Branch IX, presided by respondent judge, 2 a complaint for the recovery of the fair market price of the said property in the sum of P672,030.00 against the Bureau of Public Highways, which complaint was amended on August 26, 1963, to include as additional defendants, the Auditor General and the City Engineer of Quezon City. 3 The issues were joined in the case with the filing by then Solicitor General Arturo A. Alafriz of the State's answer, stating that the Hashim estate was entitled only to the sum of P3,203.00 as the fair market value of the property at the time that the State took possession there of on November 25, 1940, with legal interest thereon at 6% per annum, and that said amount had been available and tendered by petitioner Bureau since 1968. The parties thereafter worked out a compromise agreement, respondent estate having proposed on April 28, 1966, a payment of P14.00 per sq. m. for its 14,934 sq.m.-parcel of land or the total amount of P209,076.00, equivalent to the land's total assessed value, 4 which was confirmed, ratified and approved in November, 1966 by the Commissioner of Public Highways and the Secretary of Public Works and Communications. On November 7, 1966, the Compromise Agreement subscribed by counsel for respondent estate and by then Solicitor General Antonio P. Barredo, now a member of this Court, was submitted to the lower Court and under date of November 8, 1966, respondent judge, as prayed for, rendered judgment approving the Compromise Agreement and ordering petitioners, as defendants therein, to pay respondent estate as plaintiff therein, the total sum of P209,076.00 for the expropriated lot. day, October 18, 1968, respondent Corua, allegedly taking advantage of his position, authorized the issuance of a cashier's check of the bank in the amount of P209,076.00, taken out of the funds of petitioner Bureau deposited in current account with the bank and paid the same to respondent estate, without notice to said petitioner. Later on December 20, 1968, petitioners, through then Solicitor General Felix V. Makasiar, wrote respondent bank complaining that the bank acted precipitately in having delivered such a substantial amount to the special sheriff without affording petitioner Bureau a reasonable time to contest the validity of the garnishment, notwithstanding the bank's being charged with legal knowledge that government funds are exempt from execution or garnishment, and demanding that the bank credit the said petitioner's account in the amount of P209,076.00, which the bank had allowed to be illegally garnished. Respondent bank replied on January 6,1969 that it was not liable for the said garnishment of government funds, alleging that it was not for the bank to decide the question of legality of the garnishment order and that much as it wanted to wait until it heard from the Bureau of Public Highways, it was "helpless to refuse delivery under the teeth" of the special order of October 18, 1968, directing immediate delivery of the garnished amount. Petitioners therefore filed on January 28, 1969 the present action against respondents, in their capacities as above stated in the title of this case, praying for judgment declaring void the question orders of respondent Court. Petitioners also sought the issuance of a writ of preliminary mandatory injunction for the immediate reimbursement of the garnished sum of P209,076.00, constituting funds of petitioner Bureau on deposit with the Philippine National Bank as official depository of Philippine Government funds, to the said petitioner's account with the bank, so as to forestall the dissipation of said funds, which the government had allocated to its public highways and infrastructure projects. The Court ordered on January 31, 1969 the issuance of the writ against the principal respondents solidarily, including respondent judge therein so that she would take forthwith all the necessary measures and processes to compel the immediate return of the said government funds to petitioner Bureau's account with respondent bank. 5 In compliance with the writ, respondent bank restored the garnished sum of P209,076.00 to petitioner Bureau's account with it. 6 The primary responsibility for the reimbursement of said amount to petitioner Bureau's account with the respondent bank, however, rested solely on respondent estate, since it is the judgment creditor that received the amount upon the questioned execution. Strangely enough, as appears now from respondent bank's memorandum in lieu of oral argument, 7 what respondent bank did, acting through respondent Corua as its counsel, was not to ask respondent estate to reimburse it in turn in the same amount, but to file with the probate court with jurisdiction over respondent estate, 8 a motion for the estate to deposit the said amount with it, purportedly in compliance with the writ. Respondent estate thereupon deposited with respondent bank as a savings account the sum of P125,446.00, on which the bank presumably would pay the usual interest, besides. As to the balance of P83,630.00, this sum had been in the interval paid as attorney's fees to Atty. Jesus B. Santos, counsel for the estate, by the administrator, allegedly without authority of the probate court. 9 Accordingly, respondent estate has not reimbursed the respondent bank either as to this last amount, and the bank has complacently not taken any steps in the lower court to require such reimbursement. The ancillary questions now belatedly raised by the State may readily be disposed of. Petitioners may not invoke the State's immunity from suit, since the case below was but a continuation in effect of the prewar expropriation proceedings instituted by the State itself. The expropriation of the property, which now forms part of Epifanio de los Santos Avenue, is a fait accompli and is not questioned by the respondent estate. The only question at issue was the amount of the just compensation due to

On October 10, 1968, respondent estate filed with the lower Court a motion for the issuance of a writ of execution, alleging that petitioners had failed to satisfy the judgment in its favor. It further filed on October 12, 1968, an ex-parte motion for the appointment of respondent Benjamin Garcia as special sheriff to serve the writ of execution. No opposition having been filed by the Solicitor General's office to the motion for execution at the hearing thereof on October 12, 1968, respondent judge, in an order dated October 14, 1968, granted both motions. On the same date, October 14, 1968, respondent Garcia, as special sheriff, forthwith served a Notice of Garnishment, together with the writ of execution dated October 14, 1968, issued by respondent Manuela C. Florendo as Deputy Clerk of Court, on respondent Philippine National Bank, notifying said bank that levy was thereby made upon funds of petitioners Bureau of Public Highways and the Auditor General on deposit, with the bank to cover the judgment of P209,076.00 in favor of respondent estate, and requesting the bank to reply to the garnishment within five days. On October 16, 1968, three days before the expiration of the five-day deadline, respondent Benjamin V. Corua in his capacity as Chief, Documentation Staff, of respondent bank's Legal Department, allegedly acting in excess of his authority and without the knowledge and consent of the Board of Directors and other ranking officials of respondent bank, replied to the notice of garnishment that in compliance therewith, the bank was holding the amount of P209,076.00 from the account of petitioner Bureau of Public Highways. Respondent bank alleged that when it was served with Notice to Deliver Money signed by respondent Garcia, as special sheriff, on October 17, 1968, it sent a letter to the officials of the Bureau of Public Highways notifying them of the notice of garnishment. Under date of October 16, 1968, respondent estate further filed with the lower Court an ex-parte motion for the issuance of an order ordering respondent bank to release and deliver to the special sheriff, respondent Garcia, the garnished amount of P209,076.00 deposited under the account of petitioner Bureau, which motion was granted by respondent judge in an order of October 18, 1968. On the same

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respondent estate in payment of the expropriated property, which properly pertained to the jurisdiction of the lower court. 10 It is elementary that in expropriation proceedings, the State precisely submits to the Court's jurisdiction and asks the Court to affirm its lawful right to take the property sought to be expropriated for the public use or purpose described in its complaint and to determine the amount of just compensation to be paid therefor. Neither may the State impugn the validity of the compromise agreement executed by the Solicitor General on behalf of the State with the approval of the proper government officials, on the ground that it was executed only by the lawyer of respondent estate, without any showing of having been specially authorized to bind the estate thereby, because such alleged lack of authority may be questioned only by the principal or client, and respondent estate as such principal has on the contrary confirmed and ratified the compromise agreement. 11 As a matter of fact, the Solicitor General, in representation of the State, makes in the petition no prayer for the annulment of the compromise agreement or of the respondent court's decision approving the same. On the principal issue, the Court holds that respondent Court's two questioned orders (1) for execution of the judgment, in pursuance whereof respondent deputy clerk issued the corresponding writ of execution and respondent special sheriff issued the notice of garnishment, and (2) for delivery of the garnished amount of P209,076.00 to respondent estate as judgment creditor through respondent special sheriff, are null and void on the fundamental ground that government funds are not subject to execution or garnishment. 1.As early as 1919, the Court has pointed out that although the Government, as plaintiff in expropriation proceedings, submits itself to the jurisdiction of the Court and thereby waives its immunity from suit, the judgment that is thus rendered requiring its payment of the award determined as just compensation for the condemned property as a condition precedent to the transfer to the title thereto in its favor, cannot be realized upon execution. 12 The Court there added that it is incumbent upon the legislature to appropriate any additional amount, over and above the provisional deposit, that may be necessary to pay the award determined in the judgment, since the Government cannot keep the land and dishonor the judgment. In another early case, where the government by an act of the Philippine Legislature, expressly consented to be sued by the plaintiff in an action for damages and waived its immunity from suit, the Court adjudged the Government as not being legally liable on the complaint, since the State under our laws would be liable only for torts caused by its special agents, specially commissioned to carry out the acts complained of outside of such agents' regular duties. We held that the plaintiff would have to look to the legislature for another legislative enactment and appropriation of sufficient funds, if the Government intended itself to be legally liable only for the damages sustained by plaintiff as a result of the negligent act of one of its employees. 13 The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may limit claimant's action "only up to the completion of proceedings anterior to the stage of execution" and that the power of the Courts ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public funds must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law.

Thus, as pointed out by the Court in Belleng vs. Republic, 14 while the State has given its consent to be sued in compensation cases, the pauper-claimant therein must look specifically to the Compensation Guarantee Fund provided by the Workmen's Compensation Act for the corresponding disbursement in satisfaction of his claim, since the State in Act 3083, the general law waiving its immunity from suit "upon any money claim involving liability arising from contract express or implied," imposed the limitation in Sec. 7 thereof that "no execution shall issue upon any judgment rendered by any Court against the Government of the (Philippines) under the provisions of this Act;" and that otherwise, the claimant would have to prosecute his money claim against the State under Commonwealth Act 327. This doctrine was again stressed by the Court in Republic vs. Palacio, 15 setting aside as null and void the order of garnishment issued by the sheriff pursuant to the lower Court's writ of execution on funds of the Pump Irrigation Trust Fund in the account of the Government's Irrigation Service Unit with the Philippine National Bank. The Court emphasized then and re-emphasized now that judgments against the State or its agencies and instrumentalities in cases where the State has consented to be sued, operate merely to liquidate and establish the plaintiff's claim; such judgments may not be enforced by writs of execution or garnishment and it is for the legislature to provide for their payment through the corresponding appropriation, as indicated in Act 3083. 2.Respondent bank and its Chief, Documentation Staff, respondent Corua, have advanced two specious arguments to justify their wrongful delivery of the garnished public funds to respondent estate. Their first contention that the said government funds by reason of their being deposited by petitioner Bureau under a current accounts subject to withdrawal by check, instead of being deposited as special trust funds, "lost their kind and character as government funds," 16 is untenable. As the official depositary of the Philippine Government, respondent bank and its officials should be the first ones to know that all government funds deposited with it by any agency or instrumentality of the government, whether by way of general or special deposit, remain government funds, since such government agencies or instrumentalities do not have any non-public or private funds of their own. Their second contention that said government funds lost their character as such "the moment they were deposited with the respondent bank", 17 since the relation between a depositor and a depository bank is that of creditor and debtor, is just as untenable, absolutely. Said respondents shockingly ignore the fact that said government funds were deposited with respondent bank as the official depositary of the Philippine Government. Assuming for the nonce the creation of such relationship of creditor and debtor, petitioner Bureau thereby held a credit against respondent bank whose obligation as debtor was to pay upon demand of said petitioner-creditor the public funds thus deposited with it; even though title to the deposited funds passes to the bank under this theory since the funds become mingled with other funds which the bank may employ in its ordinary business, what was garnished was not the bank's own funds but the credit of petitioner bureau against the bank to receive payment of its funds, as a consequence of which respondent bank delivered to respondent estate the garnished amount of P209,076.00 belonging to said petitioner. Petitioner bureau's credit against respondent bank thereby never lost its character as a credit representing government funds thus deposited. The moment the payment is made by respondent bank on such deposit, what it pays out represents the public funds thus deposited which are not garnishable and may be expended only for their legitimate objects as authorized by the corresponding legislative appropriation. Neither respondent bank nor respondent Corua are the duly authorized disbursing officers and auditors of the Government to authorize and cause payment of the public funds of petitioner Bureau for the benefit or private persons, as they wrongfully did in this case.

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3.Respondents bank and Corua next pretend that refusal on their part to obey respondent judge's order to deliver the garnished amount, "which is valid and binding unless annulled, would have exposed them for contempt of court." 18 They make no excuse for not having asked the lower court for time and opportunity to consult petitioner Bureau or the Solicitor General with regard to the garnishment and execution of said deposited public funds which were allocated to specific government projects, or for not having simply replied to the sheriff that what they held on deposit for petitioner Bureau were nongarnishable government funds. They have not given any cogent reason or explanation, charged as they were with knowledge of the nullity of the writ of execution and notice of garnishment against government funds, for in the earlier case of Republic vs. Palacio, supra, they had then prudently and timely notified the proper government officials of the attempted levy on the fund of the Irrigation Service Unit deposited with it, thus enabling the Solicitor General to take the corresponding action to annul the garnishment for their failure to follow the same prudent course in this case. Indeed, the Court is appalled at the improper haste and lack of circumspection with which respondent Corua and other responsible officials of respondent bank precipitately allowed the garnishment and delivery of the large amount involved, all within the period of just four days, even before the expiration of the five-day reglementary period to reply to the sheriff's notice of garnishment. Failure on the State's part to oppose the issuance of the writ of execution, which was patently null and void as an execution against government funds, could not relieve them of their own responsibility. 4.Respondents bank and Corua further made common cause with respondent estate beyond the legal issues that should solely concern them, by reason of their having wrongfully allowed the garnishment and delivery of government funds, instead assailing petitioners for not having come to court with "clean hands" and asserting that in fairness, justice and equity, petitioners should not impede, obstruct or in any way delay the payment of just compensation to the land owners for their property that was occupied way back in 1940. This matter of payment of respondent estate's judgment credit is of no concern to them as custodian and depositary of the public funds deposited with them, whereby they are charged with the obligation of assuring that the funds are not illegally or wrongfully paid out. Since they have gone into the records of the expropriation case, then it should be noted that they should have considered the vital fact that at the time that the compromise agreement therein was executed in November, 1966, respondent estate was well aware of the fact that the funds for the payment of the property in the amount of P209,076.00 still had to be released by the Budget Commissioner and that at the time of the garnishment, respondent estate was still making the necessary representations for the corresponding release of such amount, pursuant to the Budget Commissioner's favorable recommendation. 19 And with regard to the merits of the case, they should have likewise considered that respondent estate could have no complaint against the fair attitude of the authorities in not having insisted on their original stand in their answer that respondent estate was entitled only to the sum of P3,203.00 as the fair market value of the property at the time the State look possession thereof on November 25, 1940, with legal interests thereon, but rather agreed to pay therefor the greatly revised and increased amount of P209,076.00 at P14.00 per square meter, not to mention the consequential benefits derived by said respondent from the construction of the public highway with the resultant enhanced value of its remaining properties in the area. 5.The manner in which respondent bank's counsel and officials proceeded to comply with the writ of preliminary mandatory injunction issued by the Court commanding respondent estate, its judicial administrator and respondents bank and Corua, in sodium, to reimburse forthwith the account of petitioner Bureau in the garnished amount of P209,076.00, does not speak well of their fidelity to the bank's interests. For while respondent bank had restored with its own funds the said amount of P209,076.00 to petitioner Bureau's account, it has not required respondent estate as the party primarily liable therefor as the recipient of the garnished amount to reimburse it in turn in this same amount. Rather, said bank officials have allowed respondent estate to keep all this time the whole amount of P209,076.00 wrongfully garnished by it. For as stated above, respondent bank allowed respondent estate merely to deposit with it as a savings account, of respondent estate, the lesser sum of P125,446.00 on which the bank presumably has paid and continues paying respondent estate, besides the usual interest rates on such savings accounts, and neither has it taken any steps to require reimbursement to it from respondent estate of the remainder of P83,680.00 which respondent estate of its own doing and responsibility paid by way of attorney's fees. It thus appears that all this time, respondent bank has not been reimbursed by respondent estate as the party primarily liable for the whole amount of P209,076.00 wrongfully and illegally garnished and received by respondent estate. This grave breach of trust and dereliction of duty on the part of respondent bank's officials should be brought to the attention of respondent bank's Board of Directors and management for the appropriate administrative action and other remedial action for the bank to recover the damages it has been made to incur thereby.

6.The Solicitor General has likewise questioned the legality of respondent Court's Order of October 14, 1968, appointing respondent Garcia as "special sheriff" for the purpose of effecting service of the writ of execution, simply on respondent estate's representation that it was desirable "for a speedy enforcement of the writ." The Court finds this general practice of the lower courts of appointing "special sheriffs" for the service of writs of execution to be unauthorized by law. The duty of "executing all processes" of the courts in civil cases, particularly, writs of execution, devolves upon the sheriff or his deputies, under Section 183 of the Revised Administrative Code and Rule 39, section 8 of the Rules of Court. Unlike the service of summons which may be made, aside from the sheriff or other proper court officers, "for special reasons by any person especially authorized by the judge of the court issuing the summons" under Rule 14, section 5 of the Rules of Court, the law requires that the responsibility of serving writs of execution, which involve the taking delivery of money or property in trust for the judgment creditor, should be carried out by regularly bonded sheriffs or other proper court officers. (Sections 183 and 330, Revised Administrative Code). The bond required by law of the sheriff is conditioned inter alia, "for the delivery or payment to the Government, or the persons entitled thereto, of all the property or sums of money that shall officially come into his or their (his deputies') hands" (Section 830, idem), and thus avoids the risk of embezzlement of such properties and moneys. Section 185 of the Revised Administrative Code restrictively authorizes the judge of the Court issuing the process or writ to deputize some suitable person only "when the sheriff is party to any action or proceeding or is otherwise incompetent to serve process therein." The only other contingency provided by law is when the office of sheriff is vacant, and the judge is then authorized, "in case of emergency, (to) make a temporary appointment to the office of sheriff . . . pending the appointment and qualification of the sheriff in due course; and he may appoint the deputy clerk of the court or other officer in the government service to act in said capacity." (Section 189, idem). None of the above contingencies having been shown to be present, respondent Court's order appointing respondent Garcia as "special sheriff" to serve the writ of execution was devoid of authority. 7.No civil liability attaches, however, to respondents special sheriff and deputy clerk, since they acted strictly pursuant to orders issued by respondent judge in the discharge of her judicial functions as

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presiding judge of the lower court, and respondent judge's immunity from civil responsibility covers them, although the said orders are herein declared null and void. 20 ACCORDINGLY, the writs of certiorari and prohibition are granted. The respondent court's questioned Orders of October 14, and 18, 1968, are declared null and void, and all further proceedings in Civil Case No. Q-7441 of the Court of First Instance of Rizal, Quezon City, Branch IX are abated. The writ of preliminary mandatory injunction heretofore issued is made permanent, except as to respondent judge who is excluded therefrom, without prejudice to any cause of action that private respondents may have, inter se. Respondent estate and respondent Tomas N. Hashim as prayed for by respondent Philippine National Bank in its Answer, are ordered jointly and severally to reimburse said respondent bank in the amount of P209,076.00 with legal interest until the date of actual reimbursement. Respondents Estate of N. T. Hashim, Philippine National Bank and Benjamin Corua are ordered jointly to pay treble costs. The Clerk of Court is directed to furnish copies of this decision to the Board of Directors and to the president of respondent Philippine National Bank for their information and appropriate action. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal Zaldivar, Sanchez, Castro, Fernando and Villamor. JJ., concur. Barredo, J., took no part. 2.POWER TO SELL AND CONVEY DOES NOT CONFER POWER TO MORTGAGE. A power of attorney which vested the agent with authority "for me and in my name to sign, seal and execute, and as my act and deed, deliver and any lease, any other deed for conveying any real or personal property" or "any other deed for the conveying of any real or personal property" does not carry with it or imply that the agent for and on behalf of his principal has the power to execute a promissory note or a mortgage to secure its payment. STATEMENT The plaintiff is a domestic banking corporation with its principal office and place of business in the City of Manila. The defendant is a Chinese citizen. The complaint alleges that the defendant received from the plaintiff a loan of P300,000, for which she executed and delivered to the plaintiff her certain promissory note dated May 23, 1922, a copy of which is set out and made a part of the complaint. That to secure its payment with interest thereon at the rate of 9 per cent per annum, the defendant executed to the plaintiff a mortgage on certain real property in the City and Province of Iloilo, which instrument was duly registered in the registry of deeds of that province, a copy of which is attached to, and made a part of, the complaint, marked Exhibit A. That the mortgage provided that if the defendant should fail to comply with any of its terms or conditions, the plaintiff could foreclose it, for which it should receive the further sum of 10 per cent of the amount due and owing for and on account of attorney's fees, expenses and costs. That the amount of defendant's debt to the plaintiff with interest until November 14, 1924, was P357,075.80, no part of which has been paid, and plaintiff prays for judgment against the defendant for the amount of the debt with interest and attorney's fees, and that the property described in the mortgage be sold and the proceeds of sale applied to the satisfaction of the debt, and for judgment over for any deficiency which may remain, and for costs. For answer the defendant made a general and specific denial under oath as to the genuineness and execution of both the note and the mortgage and of the debt. At the first trial the lower court dismissed the complaint for and on account of the failure of the plaintiff to present the original document, the power of attorney, upon which its action was based. From that judgment the plaintiff appealed to this court which on December 31, 1927, 1 sustained that decision of the lower court upon the legal questions involved, but due to the importance of the case and in the interest of justice, it ordered a new trial, and remanded the case to the lower court, with leave to the plaintiff to present the power of attorney and such other evidence as it might have and wish to present. A second trial was then had, and the lower court rendered judgment in favor of the plaintiff and against the defendant for the sum of P414,333.35, with interest at the rate of P66.67 a day from April 1, 1927, and for the further sum of 5 per cent of that amount as attorney's fees, and that the defendant should pay the judgment on or before November 18, 1928, and for failure to do so, the property described in the mortgage should be sold and the proceeds of sale applied to the satisfaction of the judgment, and for any deficiency, the plaintiff might have judgment over, for which execution should issue, and also for costs. On appeal the defendant assigns the following errors: SYLLABUS 1.HOW POWER OF ATTORNEY SHOULD BE CONSTRUED. A power of attorney like any other instrument, is to be construed according to the natural import of its language; and the authority which the principal has conferred upon his agent is not to be extended by implication beyond the natural and ordinary significance of the terms in which that authority has been given The attorney has only such authority as the principal has chosen to confer upon him, and one dealing with him must ascertain at his own risk whether his acts will bind the principal. "I.The trial court erred in declaring that the power of attorney, Exhibit K, conferred upon Tan Bunco the authority to borrow money and mortgage the defendant's properties. "II.The trial court erred in assuming that Tan Bunco has mortgaged the defendant's properties to the plaintiff, has executed the promissory note, Exhibit B, and has received the value thereof. "III.The trial court erred in not declaring that even supposing that the mortgage, Exhibit E, and the promissory note, Exhibit B had been executed by Tan Bunco, nevertheless, the

FIRST DIVISION [G.R. No. 30831. September 2, 1929.] PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. TAN ONG SZE, Viuda de Tan Toco, defendant-appellant.

Soriano & Nepomuceno for appellant. Roman J. Lacson for appellee.

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defendant is not liable for the amount of said note and the mortgage does not affect her properties. "IV.The trial court erred in declaring that the defendant has ratified the acts of Tan Bunco and has been benefited by them. "V.The trial court erred in not dismissing the complaint, in sentencing the defendant to pay to the plaintiff the amounts stated in its judgment and in ordering the foreclosure sale of the defendant's properties upon her failure to pay said amounts in full." "(2). . . and also for me and in my name to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for the conveying of any real or personal property or other matter or thing wherein I am or may be personally interested or concerned." It is very apparent that the words "for the conveying and real or personal property" should read "for the conveying of real or personal property." That is to say, the defendant executed a power of attorney to Tan Bunco in which she vested him with the power "for me and in my name to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for conveying any real or personal property" or "any other deed for the conveying of any real or personal property." Plaintiff's complaint is founded upon the promissory note, known in the record as Exhibit B, which purports to have been executed in Iloilo on May 23, 1922, by her attorney-in-fact under and by virtue of the power of attorney above described, and the mortgage which purports to have been executed to plaintiff to secure the payment of the note, known in the record as Exhibit E. The question is thus squarely presented whether or not under his power, the attorneyin-fact had the authority to execute the promissory note or to execute the mortgage on real property to secure its payment. It will be noted that the language used in the power of attorney is confined and limited to the authority "to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for conveying any real or personal property," or "to sign, seal and execute, as my act and deed, deliver any lease, any other deed for the conveying of any real or personal property." Hence, does this power carry with it and imply the authority of the attorney-infact to borrow money and to execute the promissory note of the defendant and mortgage her real property to secure its payment? In an exhaustive opinion the lower court held that the power to convey real property carried with it the power to mortgage, and that the defendant was liable on both the note and the mortgage. Cyclopedia of Law and Procedure, vol. 31, p. 1390, says: "(II)TO MORTGAGE OR PLEDGE. Authority to mortgage the property of a principal is rarely to be inferred. It is not to be implied from general authority to manage, or even to sell the principal's property."

DECISION

JOHNS, J p: The defendant at all the times alleged was the owner of two parcels of land in the City and Province of Iloilo, known as lots Nos. 279 and 572, of the Iloilo cadastral survey, evidenced by certificate of title No. 329. September 14, 1916, in Amoy, China, she executed before the United States Vice Consul at that place a power of attorney, known in the record as Exhibit K, in which she made and constituted Tan Bunco as her attorney-in-fact, the material provisions of which are as follows: "Know all men by these presents, "That I, Tan Ong Sze (chinese characters) widow of late Tan Tek Co (chinese characters) of Ng Chung Village in the Tong An District, Chuancho, Perfecture, who died in H. T. 2d year 8th month 3d day (6th September, 1910) have made ordained, constituted and appointed, and by these presents do make, ordain, constitute and appoint Tan Bunco (chinese characters) to be my lawful attorney of the shop Hock Bee (chinese characters) at Iloilo, Philippine Islands, . . .and also for me and in my name to sign, seal and execute, and as my act and deed, deliver, any lease, any other deed for the conveying and real or personal property or other matter or thing wherein I am or may be personally interested or concerned. And I do hereby further authorize and empower my said attorney to substitute and appoint any other attorney or attorneys under him, for the purpose aforesaid and the same again and pleasure to revoke (and generally for me and in my name to do, perform and execute all and every other lawful and reasonable acts and things whatsoever as fully and affectually as I the said Tan Ong Sze (_______) might or could do if personally present. And I do hereby ratify and confirm all and whatsoever my said attorneys or attorney or his or their substitute or substitutes, or any of them, shall lawfully do, or cause to be done, in or about the premises, by virtue of these present . . ." It is apparent that a clerical error was made in the preparation of the instrument or an error was made in its translation, and in so far as it is material to this opinion, it should read: "(1). . . and also for me and in my name to sign, seal and execute, and as my act and deed, deliver any lease, any other deed for conveying any real or personal property or other matter or thing wherein I am or may be personally interested or concerned;

Under which, in the notes, decisions are cited from the Supreme Courts of California, Florida, Kansas, Missouri, South Carolina, and Texas, and it is said: "The power to sell and convey lands as a general rule carries no implied power to charge the principal with the responsibilities and liabilities of a mortgagor." (Citing decisions from the Supreme Courts of Kansas, Michigan, Minnesota, North Dakota, Wisconsin, and a large number of English authorities.) And on page 1395, it is said: "(IV)TO LEND OR BORROW MONEY. Power to lend or borrow money, like most other special powers of an agent, is not to be inferred without clear evidence of such a grant." And on page 1396, it is said:

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". . . And when authority is conferred, whether expressly or impliedly, it must be exercised within the limits prescribed, and burdens assumed by the agent but not authorized by the principal cannot bind the latter. . . No authority to borrow money is to be implied from a power to lend, nor merely from a power to act for the principal in his business generally or in other specific matters." And in the notes, it is said: ". . . That authority to borrow money, conferred on an agent, must be created by express terms or necessarily implied from the nature of the agency, for authority to borrow money is one of the most dangerous powers a principal can confer upon an agent. "Thus such power is not to be implied from the power to manage the principal's business, even though with authority to buy goods on credit (Hayness vs. Carpenter, 86 Mo. App., 30; Bickford vs. Menier, 107 N. Y., 490; 14 N. E., 438 (reversing 36 Hun., 446); Weekes vs. A. F. Shapleigh Hardware Co., 23 Tex. Civ. App., 577; 57 S. W., 67; Spooner vs. Thompson, 48 Vt., 259), or from authority to draw checks to make payments for property bought by the agent (Mordhurst vs. Boies, 24 Iowa, 99)." Ruling Case Law, vol. 21, p. 885, says: "An instrument empowering an attorney, among other things, 'to buy and sell real estate, and in my name to receive and execute all necessary contracts and conveyances therefor,' does not authorize such attorney to sell and convey lands to which, as the record shows, the principal had acquired title before execution of the power. . . .The attorney may not mortgage the property; nor has he authority to execute an option." The case of Hawxhurst vs. Rathgeb (15 Pacific, 846), decided by the Supreme Court of California, is square in point. The syllabus laid down this rule: "2.The language, in a power of attorney, 'to sell, transfer, and release two certain mortgages . . .; to indorse and transfer the notes secured by said mortgages; to sell and transfer my claims for said notes and mortgages . . .; and to receive payment . . .and give acquittances therefor,' confers the power to sell and transfer the title to the securities absolutely, or to collect them, but does not confer power to pledge them. "3.The act of an attorney in fact in pledging securities, when his authority only gave him power to sell or collect, is void." And the opinion says: "The effect of this language was to confer a power to sell and transfer the title to the securities absolutely, or, if not so sold, to collect them from the estate of Kunz. There is nothing in the language which by any proper construction purports to confer a power to pledge or hypothecate the securities for any purpose, or to borrow money thereon. The words 'sell and transfer,' as there used, are of no broader signification than the words 'sell and convey,' used with reference to a conveyance of real estate; and the latter, employed as the operative words in a power to convey land, do not carry authority to mortgage or otherwise dispose of the property." The case of Minnesota Stoneware Co. vs. McCrossen, 110 Wisconsin, 316; 84 American State Reports, p. 927, in the syllabus says: "A POWER OF ATTORNEY TO SELL AND CONVEY real estate does not include a power to mortgage. "POWER OF ATTORNEY INTERPRETATION. A written instrument, not ambiguous either in its literal sense or in the application of its language to the subject or purpose thereof, must be taken to mean what it says." In that case the language used in the power was this: "In my name, place and stead to sell and convey any real estate and personal property which I may now own or may hereafter acquire in the States of Wisconsin and Washington.'" Construing which, the court, on page 928 of the opinion says: "The power of attorney was a mere power to sell and convey, importing authority to sell out and out for cash and not power to mortgage. That is elementary: Jones on Mortgages, sec. 129; Devlin on Deeds, sec. 363a; Morris vs. Watson, 15 Minn., 212; Colesbury vs. Dart, 61 Ga., 620; Wood vs. Goodridge, 6 Cush., 117; 52 Am. Dec., 771; Hoyt vs. Jaques, 129 Mass., 286; Perry on Trusts, sec. 768. No departure from such general rule, worthy of consideration, we venture to say, can be found." And in the case of Campbell vs. Foster Home Association, 26 L. R. A., p. 117; 163 Pa., 609, the Supreme Court of that State says: "1.A power to mortgage land is not included in a power of attorney to sell and convey, uncoupled with any interest in the land of the fund." And on page 122, among other authorities, the opinion quotes with approval the decision of Justice Cooley, in Jeffrey vs. Hursh (49 Mich., 31), in which it is said: "'J. M. Hursh had power to sell the land, but not to mortgage it. The power is not to be extended by construction. The principal determines for himself what authority he will confer upon his agent, and there can be no implication from his authorizing a sale of his lands that he intends that his agent may at discretion charge him with the responsibilities and duties of a mortgagor.'" In fact the authorities are overwhelming that the power to sell and convey does not carry with it or imply the power to borrow money or to execute a mortgage on real property. The lower court in its opinion holds that, legally speaking, a mortgage is a conveyance and that the power to convey carries with it the power to mortgage. That theory is not sustained by any authority. By its express terms and provisions the instrument itself, upon which plaintiff relies, provides for the foreclosure of the mortgage, and the whole purpose and tenor of plaintiff's complaint is to foreclose the mortgage. If in truth and in fact it was a conveyance of the legal title to the property, there would be no reason why the plaintiff should apply to the court to foreclose it as a mortgage. The authorities cited in the opinion of the lower court are not in point, and that is specially true of 47 California, 242, 1 in which the syllabus says: "CONSTRUCTION OF POWER OF ATTORNEY. A power of attorney in which the principal authorizes the agent to make contracts, to settle

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outstanding debts, and generally to do all things that concern his interest in any way, real and personal, to use the principal's name to release others, to bind the principal as he may deem proper and expedient, and making the agent his general attorney and agent, and ratifying and confirming whatever the attorney may do by virtue of the power, authorizes the attorney to execute a lease of the principal's real estate for a term exceeding one year, and to execute any instrument affecting the real estate of the principal, unless, it may be, a conveyance of it." It will be noted that this case was decided in January, 1874. Note the marked distinction between the powers conferred in that case and in this. Yet it was there held that the agent did not have the power to convey. That case was decided in January, 1874. The lower court also cites 46 California, 603, 1 from a reading of which it will be found that the real question involved in that case was the priority of mortgages which involved the construction of section 1215 of the Code which defines the terms of the conveyance: "As embracing every instrument in writing by which any estate or interest in real property is created, aliened, mortgaged, or incumbered, or by which the title to any property may be affected, except wills." It did not involve the construction of a power of attorney, and neither of those cases are even mentioned in the decision of that court above quoted, which was rendered January 5, 1898. The case of Golinsky vs. Allison (46 Pacific, 295), also decided by the Supreme Court of California on October 7, 1896, is square in point. The syllabus says: "1.A power of attorney to an agent authorizing him to 'superintend' property of his principals, and to 'preserve, manage, sell, and dispose of' the same, and to 'manage, work, sell, and dispose of' other property, did not confer authority on the agent to execute a promissory note in the name of his principals, or to mortgage their property to secure the same, though the note was given in settlement of an antecedent debt contracted by the agent in the management of the property." And in the opinion it is said: "A power of attorney, like any other instrument, is to be construed according to the natural import of its language; and the authority which the principal has conferred upon his agent is not to be extended by implication beyond the natural and ordinary significance of the terms in which that authority has been given. The attorney has only such authority as the principal has chosen to confer upon him, and one dealing with him must ascertain at his own risk whether his acts will bind the principal. By the above letter of attorney given by Allison and Sackett to Barron, he had authority to 'superintend' the property of his principals, and to 'preserve, manage, sell, and dispose of' the same, and also to locate mill sites, mining claims, and water rights, and 'to manage, work, sell, and dispose of them.' A power to sell and convey real estate does not authorize the attorney to mortgage it. (Jeffrey vs. Hursh, 49 Mich., 31; 12 N. W., 898; Wood vs. Goodridge, 6 Cush., 117; Brown vs. Rouse, 93, Cal., 237; 28 Pac., 1044.) For an exhaustive discussion of the subject, see Campbell vs. Association (163 Pa. St., 609; 30 Atl., 222, 224). 'The power is not to be extended by construction. The principal determines for himself what authority he will confer upon his agent, and there can be no implication, from his authorizing a sale of his lands, that he intends that his agent may, at discretion, charge him with the responsibilities and duties of a mortgagor.'"

No authority of any court has been cited and none will ever be found holding that a power "to sign, seal and execute, and as my act and deed, deliver, any lease, any other deed for conveying any real or personal property" or "to sign, seal and execute, and as my act and deed, deliver, any lease, any other deed for the conveying of any real or personal property," or any similar language, standing alone and within itself, carries with it or implies the power to borrow money or to execute a real mortgage to secure the payment of a debt. The trial court also found that by her actions and conduct, the defendant had ratified and approved the acts of her agent in the execution of both the note and the mortgage. Upon that point, we have read and reread the record, and there is no legal evidence to sustain that finding. In fact there is nothing in the record which shows or tends to show that the defendant ever knew of the execution or the existence of the note or the mortgage, or that she ever had any knowledge of the transaction in question. With all due respect to the exhaustive opinion of the lower court, we are clearly of the opinion that it is fundamentally wrong, and that there is no legal principle upon which it can be sustained, from which it follows that the judgment of the lower court must be reversed. It is true that on the former appeal and in the interest of justice, this case was remanded to the lower court, with leave to the plaintiff to introduce the power of attorney in question and any other evidence which it might have to sustain its cause of action and that there should be an end to litigation. Be that as it may, the amount involved is now about one-half million pesos, and it is apparent that the Bank acted in good faith. The judgment of the lower court is reversed and the complaint is dismissed, but for such reasons and in the interest of justice, such dismissal is without prejudice to any legal rights or remedies, of any kind or nature, which the plaintiff may have against the defendant, with costs in favor of the appellant. So ordered. Avancea, C. J., Johnson, Street, Villamor, Romualdez and Villa-Real, JJ., concur.

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