BUSINESS ORGANIZATION I

CASE ASSIGNMENTS
AGENCY

4.

FIRST DIVISION

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

and ANTONIO K. LITONJUA,
Petitioners,
Present:
PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,*
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
ETERNIT CORPORATION
(now ETERTON MULTI-
RESOURCES CORPORATION),
ETEROUTREMER, S.A. and Promulgated:
FAR EAST BANK & TRUST
COMPANY, June 8, 2006
Respondents.

x-----------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

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

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

In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee for Asia
of ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of
the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez
so that the properties could be offered for sale to prospective buyers. Glanville later
showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to
Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12,
1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00
and that the terms of the sale were subject to negotiation.[4]

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to
Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered
to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua
siblings offer and relayed the same to Delsaux in Belgium, but the latter did not
respond.On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his
position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12,
1987 that Delsaux sent a telex to Glanville stating that, based on the Belgian/Swiss
decision, the final offer was US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation.[5]

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

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that
he had met with the buyer, which had given him the impression that he is prepared to
press for a satisfactory conclusion to the sale.[8] He also emphasized to Delsaux that the
buyers were concerned because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.[9]

Meanwhile, with the assumption of Corazon C. Aquino as President of the

Republic of the Philippines, the political situation in the Philippines had improved.
Marquez received a telephone call from Glanville, advising that the sale would no longer
proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had
been instructed by his principal to inform Marquez that the decision has been taken at a
Board Meeting not to sell the properties on which Eternit Corporation is situated. [10]

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez
L.G. Marquez, Inc.

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with
the sale of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months)
and examined the position as far as the Philippines are (sic) concerned. Considering
[the] new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila. In fact, production has started again last week, and (sic) to
recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy
would change at a later state, we would consult you again.

xxx

Yours sincerely,
(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)[11]

When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted sale. EC,
however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against
EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust
Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in
which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C.
Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as
additional defendants on account of their purchase of ESAC shares of stocks and were the
controlling stockholders of EC.
 In their answer to the complaint, EC and ESAC alleged that since Eteroutremer
was not doing business in the Philippines, it cannot be subject to the jurisdiction of
Philippine courts; the Board and stockholders of EC never approved any resolution to sell
subject properties nor authorized Marquez to sell the same; and the telex dated October
28, 1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and
dismissed the amended complaint.[12] The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-

Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no
valid and binding sale between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed
for lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources

Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.[13]

The trial court declared that since the authority of the agents/realtors was not in
writing, the sale is void and not merely unenforceable, and as such, could not have been
ratified by the principal. In any event, such ratification cannot be given any retroactive
effect. Plaintiffs could not assume that defendants had agreed to sell the property without
a clear authorization from the corporation concerned, that is, through resolutions of the
Board of Directors and stockholders. The trial court also pointed out that the supposed
sale involves substantially all the assets of defendant EC which would result in the
eventual total cessation of its operation.[14]

The Litonjuas appealed the decision to the CA, alleging that (1) the lower court
erred in concluding that the real estate broker in the instant case needed a written
authority from appellee corporation and/or that said broker had no such written authority;
and (2) the lower court committed grave error of law in holding that appellee corporation
is not legally bound for specific performance and/or damages in the absence of an
enabling resolution of the board of directors.[15] They averred that Marquez acted merely
as a broker or go-between and not as agent of the corporation; hence, it was not necessary
for him to be empowered as such by any written authority. They further claimed that an
agency by estoppel was created when the corporation clothed Marquez with apparent
authority to negotiate for the sale of the properties. However, since it was a bilateral
contract to buy and sell, it was equivalent to a perfected contract of sale, which the
corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its board of
directors to offer the property for sale. Since the sale involved substantially all of the
corporations assets, it would necessarily need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the
[16]
RTC. The Litonjuas filed a motion for reconsideration, which was also denied by the
appellate court.
 The CA ruled that Marquez, who was a real estate broker, was a special agent
within the purview of Article 1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from ECs board of directors to bind such
corporation to the sale of its properties. Delsaux, who was merely the representative of
ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA
pointed out that Delsaux was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by estoppel had been created
between the parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING

THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND

DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES.[17]

Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation. Petitioners insist that
they had accepted the counter-offer of respondent EC and that before the counter-offer
was withdrawn by respondents, the acceptance was made known to them through real
estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker,
Marquez was not an ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the properties or to
make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the
New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez
was able to communicate both the offer and counter-offer and their acceptance of
respondent ECs counter-offer, resulting in a perfected contract of sale.
 Petitioners posit that the testimonial and documentary evidence on record amply
shows that Glanville, who was the President and General Manager of respondent EC, and
Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by respondent EC to hold
themselves out in the public as having the power to sell the subject properties. Petitioners
identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then

President and General Manager of Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its

properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the

properties as evidenced by the Petitioners ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the
Security Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL

IMPLEMENT ACTION TO BUY AND SELL;

7. More importantly, Exhibits G and H of the Respondents, which evidenced the

fact that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.[18]

Petitioners insist that it is incongruous for Glanville and Delsaux to make a

counter-offer to petitioners offer and thereafter reject such offer unless they were
authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his
authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale
of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.

We regret that we could not make a deal with you this time, but in case the policy
would change at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,
 C.F. DELSAUX[19]

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux
were knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are
factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the
petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA.
They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for sale
to the petitioners, or to any other person or entity for that matter. They assert that the
decision and resolution of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through

Glanville and Delsaux, conformed to the written authority of Marquez to sell the
properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by
the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent
EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their
duties in respondent EC at the time of the transaction, and the fact that respondent ESAC
owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is
important, petitioners maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC never repudiated the acts
of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of
fact.In the absence of express written terms creating the relationship of an agency, the
existence of an agency is a fact question.[20] Whether an agency by estoppel was created
or whether a person acted within the bounds of his apparent authority, and whether the
principal is estopped to deny the apparent authority of its agent are, likewise, questions of
fact to be resolved on the basis of the evidence on record. [21] The findings of the trial
court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence
that the trial and appellate courts ignored, misconstrued, or misapplied facts and
circumstances of substance which, if considered, would warrant a modification or
reversal of the outcome of the case.[22]

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess
the evidence on record, whether testimonial and documentary. There are, however,
recognized exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.[23]

We have reviewed the records thoroughly and find that the petitioners failed to establish
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer
the properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear, certain
and specific proof.[24]

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of
the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the board
of directors or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,

obligations and transactions of the latter.[25] It may act only through its board of directors
or, when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.[26]

Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
 xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by the law and
the Constitution.

The property of a corporation, however, is not the property of the stockholders or

members, and as such, may not be sold without express authority from the board of
directors.[27] Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-
laws or by specific acts of the board of directors.[28] Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on
the corporation.[29]

While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.[30] An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is
null and void. The declarations of the agent alone are generally insufficient to establish
the fact or extent of his/her authority.[31]

By the contract of agency, a person binds himself to render some service or to do

something in representation on behalf of another, with the consent or authority of the
latter.[32]Consent of both principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in
words or conduct between them.[33]

An agency may be expressed or implied from the act of the principal, from his silence or
lack of action, or his failure to repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law requires a specific
form.[35] However, to create or convey real rights over immovable property, a special
power of attorney is necessary.[36] Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in writing, otherwise, the
sale shall be void.[37]

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution
of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux
as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC,
on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through
its Committee for Asia,[38] the Board of Directors of respondent ESAC,[39] and the
Belgian/Swiss component of the management of respondent ESAC.[40] As such, Adams
and Glanville engaged the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he
was authorized to offer for sale the property for P27,000,000.00 and the other terms of
the sale subject to negotiations. When petitioners offered to purchase the property
for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to
petitioners offer.However, as admitted by petitioners in their Memorandum, Delsaux was
unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.[41] When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the Belgian/Swiss decision the final
offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation.[42] The offer of Delsaux emanated only from the
Belgian/Swiss decision, and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams
and Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board
resolution evincing the grant of such authority is needed to bind EC to any agreement
regarding the sale of the subject properties. Such board resolution is not a mere formality
but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of another, or even all of such shares
of stocks, taken alone, will not justify their being treated as one corporation.[43]

It bears stressing that in an agent-principal relationship, the personality of the principal is

extended through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would have him
do. Such a relationship can only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court.[44]

The petitioners cannot feign ignorance of the absence of any regular and valid authority
of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for
sale and to sell the said properties to the petitioners. A person dealing with a known agent
is not authorized, under any circumstances, blindly to trust the agents; statements as to
the extent of his powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope of his
authority.[45] The settled rule is that, persons dealing with an assumed agent are bound at
their peril, and if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to prove it.[46] In this case, the petitioners failed to discharge
their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to
sell the land and the improvements thereon. However, we agree with the ruling of the
appellate court that Marquez had no authority to bind respondent EC to sell the subject
properties. A real estate broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real property does not include
an authority to sell.[47]
Equally barren of merit is petitioners contention that respondent EC is estopped to
deny the existence of a principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following must be established: (1) the
principal manifested a representation of the agents authority or knowlingly allowed the
agent to assume such

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

Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the Board
of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of

merit. Costs against the petitioners.

SO ORDERED.
5.
G.R. No. 149353 June 26, 2006

JOCELYN B. DOLES, Petitioner,

vs.
MA. AURA TINA ANGELES, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the
Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA
Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716.
Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting
to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed
of Absolute Sale",3petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No.
382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in
order to satisfy her personal loan with respondent; that this property was mortgaged to National Home
Mortgage Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that
entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the
mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent
of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred
arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of
her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated
demand, petitioner refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected
rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and
that respondent suffered damages as a result and was forced to litigate.

Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed
money from respondent, and averred that from June to September 1995, she referred her friends to
respondent whom she knew to be engaged in the business of lending money in exchange for personal
checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa
Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and
issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that
despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that,
because of this, respondent became furious and threatened petitioner that if the accounts were not settled, a
criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to
answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she
informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks
and for which reason they were subsequently dishonored; that respondent then threatened to initiate a
criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to
execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that
the said deed had no valid consideration; that she did not appear before a notary public; that the Community
Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for
falsification and perjury; and that she suffered damages and lost rental as a result.

The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid,
whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights
over the property to the respondent; and third, whether petitioner is liable for damages.

On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency
of evidence. With costs against plaintiff.

SO ORDERED.

The RTC held that the sale was void for lack of cause or consideration:5

Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that
the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or
consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the
property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No.
382532 (Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles
on the parcel of land described in this certificate of title by virtue of the special power of attorney to
mortgage, executed before the notary public, etc."

The rule under the Civil Code is that contracts without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).

Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:

THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED
OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6

On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower
court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-
appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with
the arrearages of the formers loan with the NHMFC, at the latters expense. No costs.

SO ORDERED.

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from
the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration,
which is the sum of money petitioner owed respondent amounting to P405,430.00, representing both
principal and interest.

The CA took into account the following circumstances in their entirety: the supposed friends of petitioner
never presented themselves to respondent and that all transactions were made by and between petitioner
and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while
payments made for the loan were deposited by the latter to respondents bank account;8 that petitioner
herself admitted in open court that she was "re-lending" the money loaned from respondent to other
individuals for profit;9 and that the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent.10

Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since
the same is considered just or legal if made to enforce ones claim through competent authority under Article
133511of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with
the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with
the NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental
for January 1997 supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is
denied for insufficiency of evidence.13

On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the
principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider
the fact that petitioners father, who co-owned the subject property, was not impleaded as a defendant nor
was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the
transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing
matters had already been passed upon.

On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed
the present Petition and raised the following issues:

I.

WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE

RESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO

COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.

III.

WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower
courts, jurisprudence has recognized several exceptions, at least three of which are present in the instant
case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the
courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, could justify a different conclusion.15 To arrive at a proper
judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending
parties during the trial of the case.

The Petition is meritorious.

The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.

1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is
not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own
names, which was predicated on that pre-existing debt, is void for lack of consideration.

Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain
in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that
a contract of sale is null and void and produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the moment is whether this debt can be considered
as a valid cause or consideration for the sale.

To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the
amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves
to respondent and that all transactions were made by and between petitioner and respondent;18 second; the
money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted
that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary
evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.21

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her
cross-examination:22

Atty. Diza:

q. You also mentioned that you were not the one indebted to the plaintiff?

witness:

a. Yes, sir.

Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?

witness:

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just
referred.

Atty. Diza:

q. And you have transact[ed] with the plaintiff?

witness:

a. Yes, sir.

Atty. Diza:

q. What is that transaction?

witness:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.

Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends?

witness:

a. No, sir.

Atty. Diza:

q. Your friends and the plaintiff did not meet personally?

witness:

a. Yes, sir.

Atty. Diza:

q. You are intermediaries?

witness:

a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the
name of Arsenio Pua because the money came from Arsenio Pua.

xxxx

Atty. Diza:

q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you
mentioned [a] while ago?

witness:

a. Yes, she knows the money will go to those persons.

Atty. Diza:
q. You are re-lending the money?

witness:

a. Yes, sir.

Atty. Diza:

q. What profit do you have, do you have commission?

witness:

a. Yes, sir.

Atty. Diza:

q. How much?

witness:

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.

Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent,
the real lender.

But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during
her cross examination:23

Atty. Villacorta:

q. Who is this Arsenio Pua?

witness:

a. Principal financier, sir.

Atty. Villacorta:

q. So the money came from Arsenio Pua?

witness:

a. Yes, because I am only representing him, sir.

Other portions of the testimony of respondent must likewise be considered:24

Atty. Villacorta:

q. So it is not actually your money but the money of Arsenio Pua?

witness:

a. Yes, sir.

Court:

q. It is not your money?

witness:
a. Yes, Your Honor.

Atty. Villacorta:

q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are
you aware of that?

witness:

a. I am aware of that.

Atty. Villacorta:

q. More or less she [accommodated] several friends of the defendant?

witness:

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

xxxx

Atty. Villacorta:

q. And these friends of the defendant borrowed money from you with the assurance of the
defendant?

witness:

a. They go direct to Jocelyn because I dont know them.

xxxx

Atty. Villacorta:

q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from
you her friends who [are] in need of money issued check[s] to you? There were checks issued to
you?

witness:

a. Yes, there were checks issued.

Atty. Villacorta:

q. By the friends of the defendant, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of your assistance, the friends of the defendant who are in need of money were able
to obtain loan to [sic] Arsenio Pua through your assistance?

witness:

a. Yes, sir.

Atty. Villacorta:
 q. So that occasion lasted for more than a year?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And some of the checks that were issued by the friends of the defendant bounced, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

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

witness:

a. Yes, sir.

Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends
whom she (petitioner) referred.

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or circumstantial evidence. The question is
ultimately one of intention.26Agency may even be implied from the words and conduct of the parties and the
circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal and the third
persons interested in the transaction in which he or she is engaged.28

In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers
are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual
borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit
is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals, her
friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to a
great degree, impersonal dealings where the principal need not personally know or meet the third person
with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal
through the facility of the agent.29

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are
representing someone else, and so both of them are estopped to deny the same. It is evident from the
record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan
upon which she received a commission; and that respondent transacts on behalf of her "principal financier",
a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such
ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to
extend the personality of the principal through the facility of the agent.

With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to
other individuals for profit, it must be stressed that the manner in which the parties designate the relationship
is not controlling. If an act done by one person in behalf of another is in its essential nature one of agency,
the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be
determined by the fact that one represents and is acting for another, and if relations exist which will
constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or
not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued
checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the
checks should have been drawn in her name and not directly paid to Pua.

With respect to the second point, particularly, the finding of the CA that the disbursements and payments for
the loan were made through the bank accounts of petitioner and respondent,

suffice it to say that in the normal course of commercial dealings and for reasons of convenience and
practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be
employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where
there is no stipulation to the contrary.32

In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan
between their principals. Since the sale is predicated on that loan, then the sale is void for lack of
consideration.

2. A further scrutiny of the record shows, however, that the sale might have been backed up by another
consideration that is separate and distinct from the debt: respondent averred in her complaint and testified
that the parties had agreed that as a condition for the conveyance of the property the respondent shall
assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC.33 This Court in the
recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a
sale.34

Although the record shows that petitioner admitted at the time of trial that she owned the property described
in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that
the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers
neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the
property is registered in the name of "Household Development Corporation." Although there is an entry to
the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico
Doles on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor
from any other evidence on the record, that the petitioner or her father held any direct interest on the
property in question so as to validly constitute a mortgage thereon38 and, with more reason, to effect the
delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the
TCT itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly
owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first
place, endowed with any ownership rights to validly mortgage and convey the property. As the complainant
who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the
sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been
foisted upon petitioner upon the execution of the sale.

Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the
mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her
Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to
compel petitioner to execute necessary documents to effect the transfer of title is premature.

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

SO ORDERED.
6.

THIRD DIVISION

EUROTECH INDUSTRIAL G.R. No. 167552

TECHNOLOGIES, INC.,
Present:
Petitioner,
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,

CALLEJO, SR.,

- versus - CHICO-NAZARIO, and

NACHURA, JJ.

Promulgated:

EDWIN CUIZON and ERWIN April 23, 2007

CUIZON,

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

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

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various

European industrial equipment for customers here in the Philippines. It has as one of its
customers Impact Systems Sales (Impact Systems) which is a sole proprietorship owned
by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of
Impact Systems and was impleaded in the court a quo in said capacity.

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

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

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE[6] the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the
lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.[7]

Following the execution of the Deed of Assignment, petitioner delivered to respondents

the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of the

Deed of Assignment, proceeded to collect from Toledo Power Company the amount
of P365,135.29 as evidenced by Check Voucher No. 0933[9] prepared by said power
company and an official receipt dated 15 August 1995 issued by Impact
Systems.[10] Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make partial
payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final
demand letter wherein it was stated that as of 11 June 1996, respondents total
obligations stood at P295,000.00 excluding interests and attorneys fees.[11] Because of
respondents failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary attachment
against herein respondents before the Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioners prayer for the issuance of
writ of preliminary attachment.[13]

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted

petitioners allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995.[15] He, however, disputed the
total amount of Impact Systems indebtedness to petitioner which, according to him,
amounted to only P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that he is

not a real party in interest in this case. According to him, he was acting as mere agent of
his principal, which was the Impact Systems, in his transaction with petitioner and the
latter was very much aware of this fact. In support of this argument, petitioner points to
paragraphs 1.2 and 1.3 of petitioners Complaint stating

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales (Impact Systems
for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is
the Sales Manager of Impact Systems and is sued in this action in such capacity.[17]

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default

with Motion for Summary Judgment. The trial court granted petitioners motion to
declare respondent ERWIN in default for his failure to answer within the prescribed
period despite the opportunity granted[18] but it denied petitioners motion for summary
judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16
October 2001.[19] However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and affirmative defenses raised
by respondent EDWIN.[20]

After the filing of respondent EDWINs Memorandum[21] in support of his special

and affirmative defenses and petitioners opposition[22] thereto, the trial court rendered
its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court

A study of Annex G to the complaint shows that in the Deed of Assignment, defendant
Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems
Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is
the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus
in the contract which is dated June 28, 1995. A study of Annex H to the complaint reveals that
[Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down
payment of P50,000.00 that Annex H is dated June 30, 1995 or two days after the execution of
Annex G, thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the
records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the
act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff,
therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant
case the principal has ratified the act of its agent and plaintiff knew about said
ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon
in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two
days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped
as party defendant.[23]

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the
Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a
quo.The dispositive portion of the now assailed Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the
public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.[24]

Petitioners motion for reconsideration was denied by the appellate court in its
Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole
ground for its allowance, the following:
 THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT
PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY
NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]

To support its argument, petitioner points to Article 1897 of the New Civil Code which
states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs
act of collecting the receivables from the Toledo Power Corporation notwithstanding
the existence of the Deed of Assignment signed by EDWIN on behalf of Impact
Systems. While said collection did not revoke the agency relations of respondents,
petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made personally liable for the obligations of
his principal.[26]

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
induced it into selling the one unit of sludge pump to Impact Systems and signing the
Deed of Assignment. Petitioner directs the attention of this Court to the fact that
respondents are bound not only by their principal and agent relationship but are in fact
full-blooded brothers whose successive contravening acts bore the obvious signs of
conspiracy to defraud petitioner.[27]

In his Comment,[28] respondent EDWIN again posits the argument that he is not a real
party in interest in this case and it was proper for the trial court to have him dropped as
a defendant. He insists that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latters consent.[29] The
underlying principle of the contract of agency is to accomplish results by using the
services of others to do a great variety of things like selling, buying, manufacturing, and
transporting.[30]Its purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority to act.[31] It is said
that the basis of agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal. [32] By this legal fiction, the
actual or real absence of the principal is converted into his legal or juridical presence qui
facit per alium facit per se.[33]

The elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself; (4)
the agent acts within the scope of his authority.[34]

In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present
dispute is whether respondent EDWIN exceeded his authority when he signed the Deed
of Assignment thereby binding himself personally to pay the obligations to
petitioner.Petitioner firmly believes that respondent EDWIN acted beyond the authority
granted by his principal and he should therefore bear the effect of his deed pursuant to
Article 1897 of the New Civil Code.

We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not
give the third party sufficient notice of his powers. We hold that respondent EDWIN
does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the
sales manager of Impact Systems. As discussed elsewhere, the position of manager is
unique in that it presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
 The powers of an agent are particularly broad in the case of one acting as a general
agent or manager; such a position presupposes a degree of confidence reposed and investiture
with liberal powers for the exercise of judgment and discretion in transactions and concerns
which are incidental or appurtenant to the business entrusted to his care and management. In
the absence of an agreement to the contrary, a managing agent may enter into any contracts
that he deems reasonably necessary or requisite for the protection of the interests of his
principal entrusted to his management. x x x.[35]

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-
within his authority when he signed the Deed of Assignment. To recall, petitioner
refused to deliver the one unit of sludge pump unless it received, in full, the payment
for Impact Systems indebtedness.[36] We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the amount of
fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,[37] it still
persisted in negotiating with petitioner which culminated in the execution of the Deed
of Assignment of its receivables from Toledo Power Company on 28 June 1995.[38] The
significant amount of time spent on the negotiation for the sale of the sludge pump
underscores Impact Systems perseverance to get hold of the said equipment. There is,
therefore, no doubt in our mind that respondent EDWINs participation in the Deed of
Assignment was reasonably necessary or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his
principal would have been adversely affected and he would have violated his fiduciary
relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both
from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here
that Article 1897 of the New Civil Code upon which petitioner anchors its claim against
respondent EDWIN does not hold that in case of excess of authority, both the agent and
the principal are liable to the other contracting party.[39] To reiterate, the first part of
Article 1897 declares that the principal is liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself
becomes liable to a third party when he expressly binds himself or he exceeds the limits
of his authority without giving notice of his powers to the third person. However, it
must be pointed out that in case of excess of authority by the agent, like what petitioner
claims exists here, the law does not say that a third person can recover from both the
principal and the agent.[40]

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

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

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

SO ORDERED.
7.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

G.R. No. 194128

WESTMONT INVESTMENT

CORPORATION,
Present:
Petitioner,

PERALTA, J., Acting Chairperson,

ABAD,

MENDOZA,
- versus -
SERENO, and

PERLAS-BERNABE, JJ.

AMOS P. FRANCIA, JR.,

CECILIA ZAMORA,

BENJAMIN FRANCIA, and

Promulgated:
PEARLBANK SECURITIES,

INC.,
December 7, 2011
Respondents.

x --------------------------------------------------------------------------------------- x
 DECISION

MENDOZA, J.:

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

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

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

Wincorp then filed its Answer,[7] while Pearlbank filed its Answer with
Counterclaim and Crossclaim (against Wincorp).[8]

The case was set for pre-trial but before pre-trial conference could be held, Wincorp
filed its Motion to Dismiss Crossclaim[9] of Pearlbank to which the latter filed an
opposition.[10] The RTC denied Wincorps motion to dismiss crossclaim.[11]
The pre-trial conference was later conducted after the parties had filed their respective
pre-trial briefs. The parties agreed on the following stipulation of facts, as contained in
the Pre-Trial Order[12] issued by the RTC on April 17, 2002:

1. The personal and juridical circumstances of the parties meaning, the plaintiffs and
both corporate defendants;

2. That plaintiffs caused the service of a demand letter on Pearl Bank on February 13,
2001 marked as Exhibit E;

3. Plaintiffs do not have personal knowledge as to whether or not Pearl Bank indeed
borrowed the funds allegedly invested by the plaintiff from Wincorp; and

4. That the alleged confirmation advices which indicate Pearl Bank as alleged borrower of the
funds allegedly invested by the plaintiffs in Wincorp do not bear the signature or
acknowledgment of Pearl Bank. (Emphases supplied)

After several postponements requested by Wincorp, trial on the merits finally ensued.
The gist of the testimony of Amos Francia, Jr. (Amos) is as follows:

1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank

manager of Westmont Bank, Meycauayan, Bulacan Branch, to make an
investment with Wincorp, the banks financial investment arm, as it was
offering interest rates that were 3% to 5% higher than regular bank interest
rates. Due to the promise of a good return of investment, he was convinced
to invest. He even invited his sister, Cecilia Zamora and his brother,
Benjamin Francia, to join him. Eventually, they placed their investment in
the amounts of 1,420,352.72 and 2,522,745.34 with Wincorp in
consideration of a net interest rate of 11% over a 43-day spread.Thereafter,
Wincorp, through Westmont Bank, issued Official Receipt Nos.
470844[13] and 470845,[14] both dated January 27, 2000, evidencing the said
transactions.[15]

2. When the 43-day placement matured, the Francias wanted to

retire their investments but they were told that Wincorp had no funds.
Instead, Wincorp rolled-over their placements and issued Confirmation
Advices[16] extending their placements for another 34 days. The said
confirmation advices indicated the name of the borrower as Pearlbank. The
 maturity values were 1,435,108.61 and 2,548,953.86 with a due date
of April 13, 2000.

3. On April 13, 2000, they again tried to get back the principal
amount they invested plus interest but, again, they were frustrated.[17]

4. Constrained, they demanded from Pearlbank[18] their

investments. There were several attempts to settle the case, but all proved
futile.

After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of
Evidence.[19] Pearlbank filed its Comment/Objection,[20] while Wincorp did not file any
comment or objection. After all the exhibits of the Francias were admitted for the
purposes they were offered, the Francias rested their case.

Thereafter, the case was set for the presentation of the defense evidence of
Wincorp. On March 7, 2003, three (3) days before the scheduled hearing, Wincorp filed
a written motion to postpone the hearing on even date, as its witness, Antonio T. Ong,
was unavailable because he had to attend a congressional hearing. Wincorps substitute
witness, Atty. Nemesio Briones, was likewise unavailable due to a previous commitment
in the Securities and Exchange Commission.

The RTC denied Wincorps Motion to Postpone and considered it to have waived
its right to present evidence.[21] The Motion for Reconsideration of Wincorp was likewise
denied.[22]

On August 14, 2003, Pearlbank filed its Demurrer to Evidence.[23] The RTC granted
the same in its Order[24] dated January 12, 2004. Hence, the complaint against Pearlbank
was dismissed, while the case was considered submitted for decision insofar as Wincorp
was concerned.

On September 27, 2004, the RTC rendered a decision[25] in favor of the Francias and held
Wincorp solely liable to them. The dispositive portion thereof reads:
 WHEREFORE, judgment is rendered ordering defendant Westmont Investment
Corporation to pay the plaintiffs, the following amounts:

1. 3,984,062.47 representing the aggregate amount of investment

placements made by plaintiffs, plus 11% per annum by way of stipulated
interest, to be counted from 10 March 2000 until fully paid; and

2. 10% of the above-mentioned amount as and for attorneys fees and costs
of suit.

SO ORDERED.

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

Not in conformity with the pronouncement of the RTC, Wincorp interposed an appeal
with the CA, alleging the following arguments:

I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT WINCORP AS

AGENT OF PLAINTIFFS-APPELLEES WAS LIABLE TO THE LATTER
NOTWITHSTANDING THE CLEAR WRITTEN AGREEMENT TO THE CONTRARY;

II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD THAT
PEARLBANK, THE ACTUAL BORROWER AND RECIPIENT OF THE MONEY
INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-APPELLEES; and

III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL TOGETHER THE
CROSS-CLAIM OF WINCORP AGAINST PEARLBANK.[27]

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

WHEREFORE, premises considered, the present Appeal is DENIED. The Decision

dated 27 September 2004 of the Regional Trial Court, Branch 56, Makati City in Civil
Case No. 01-507 is hereby AFFIRMED WITH MODIFICATION of the awards. Defendant-
appellant Wincorp is hereby ordered to pay plaintiffs-appellees the amounts
of 3,984,062.47 plus 11% per annum by way of stipulated interest to be computed
from 13 April 2000 until fully paid and 100,000.00 as attorneys fees and cost of suit.

SO ORDERED.
The CA explained:

After a careful and judicious scrutiny of the records of the present case, together with the
applicable laws and jurisprudence, this Court finds defendant-appellant Wincorp solely
liable to pay the amount of 3,984,062.47 plus 11% interest per annum computed
from 10 March 2000 to plaintiffs-appellees.

Preliminarily, the Court will rule on the procedural issues raised to know what pieces of
evidence will be considered in this appeal.

Section 34, Rule 132 of the Rules on Evidence states that:

The court shall consider no evidence which has not been formally offered. The purpose
for which the evidence is offered must be specified.

A formal offer is necessary because judges are mandated to rest their findings of facts
and their judgment only and strictly upon the evidence offered by the parties at the
trial.Its function is to enable the trial judge to know the purpose or purposes for which
the proponent is presenting the evidence. On the other hand, this allows opposing
parties to examine the evidence and object to its admissibility. Moreover, it facilitates
review as the appellate court will not be required to review documents not previously
scrutinized by the trial court. Evidence not formally offered during the trial can not be
used for or against a party litigant. Neither may it be taken into account on appeal.

The rule on formal offer of evidence is not a trivial matter. Failure to make a formal offer
within a considerable period of time shall be deemed a waiver to submit it.Consequently,
any evidence that has not been offered shall be excluded and rejected.

Prescinding therefrom, the very glaring conclusion is that all the documents attached in
the motion for reconsideration of the decision of the trial court and all the documents
attached in the defendant-appellants brief filed by defendant-appellant Wincorp cannot
be given any probative weight or credit for the sole reason that the said documents were not
formally offered as evidence in the trial court because to consider them at this stage will deny
the other parties the right to rebut them.

The arguments of defendant-appellant Wincorp that the plaintiffs-appellees made an

erroneous offer of evidence as the documents were offered to prove what is contrary to
its content and that they made a violation of the parol evidence rule do not hold water.
It is basic in the rule of evidence that objection to evidence must be made after the
evidence is formally offered. In case of documentary evidence, offer is made after all the
witnesses of the party making the offer have testified, specifying the purpose for which
the evidence is being offered. It is only at this time, and not at any other, that objection
to the documentary evidence may be made.

As to oral evidence, objection thereto must likewise be raised at the earliest

possible time, that is, after the objectionable question is asked or after the answer is
given if the objectionable issue becomes apparent only after the answer was given.

xxx

In the case at bench, a perusal of the records shows that the plaintiffs-appellees have
sufficiently established their cause of action by preponderance of evidence. The fact that
on 27 January 2000, plaintiffs-appellees placed their investment in the amounts
of 1,420,352.72 and 2,522,754.34 with defendant-appellant Wincorp to earn a net
interest at the rate of 11% over a 43-day period was distinctly proved by the testimony of
plaintiff-appellee Amos Francia, Jr. and supported by Official Receipt Nos. 470844 and
470845 issued by defendant-appellant Wincorp through Westmont Bank. The facts that
plaintiffs-appellees failed to get back their investment after 43 days and that their
investment was rolled over for another 34 days were also established by their oral
evidence and confirmed by the Confirmation Advices issued by defendant-appellant
Wincorp, which indicate that their investment already amounted to 1,435,108.61
and 2,548,953.86 upon its maturity on 13 April 2000. Likewise, the fact that plaintiffs-
appellees investment was not returned to them until this date by defendant-appellant
Wincorp was proved by their evidence. To top it all, defendant-appellant Wincorp never
negated these established facts because defendant-appellant Wincorps claim is that it
received the money of plaintiffs-appellees but it merely acted as an agent of plaintiffs-
appellees and that the actual borrower of plaintiffs-appellees money is defendant-
appellee PearlBank. Hence, defendant-appellant Wincorp alleges that it should be the
latter who must be held liable to the plaintiffs-appellees.

However, the contract of agency and the fact that defendant-appellee PearlBank actually
received their money were never proven. The records are bereft of any showing that
defendant-appellee PearlBank is the actual borrower of the money invested by plaintiffs-
appellees as defendant-appellant Wincorp never presented any evidence to prove the
same.

Moreover, the trial court did not err in dismissing defendant-appellant Wincorps
crossclaim as nothing in the records supports its claim. And such was solely due to
defendant-appellant Wincorp because it failed to present any scintilla of evidence that
would implicate defendant-appellee PearlBank to the transactions involved in this case.
The fact that the name of defendant-appellee PearlBank was printed in the Confirmation
Advices as the actual borrower does not automatically makes defendant-appellee
PearlBank liable to the plaintiffs-appellees as nothing therein shows that defendant-
appellee PearlBank adhered or acknowledged that it is the actual borrower of the amount
specified therein.
 Clearly, the plaintiffs-appellees were able to establish their cause of action against
defendant-appellant Wincorp, while the latter failed to establish its cause of action
against defendant-appellee PearlBank.

Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp solely
liable to pay the amount of 3,984,062.47 representing the matured value of the
plaintiffs-appellees investment as of 13 April 2000 plus 11% interest per annum by way
of stipulated interest counted from maturity date (13 April 2000).

As to the award of attorneys fees, this Court finds that the undeniable source of the
present controversy is the failure of defendant-appellant Wincorp to return the principal
amount and the interest of the investment money of plaintiffs-appellees, thus, the latter
was forced to engage the services of their counsel to protect their right. It is elementary
that when attorneys fees is awarded, they are so adjudicated, because it is in the nature
of actual damages suffered by the party to whom it is awarded, as he was constrained to
engage the services of a counsel to represent him for the protection of his interest. Thus,
although the award of attorneys fees to plaintiffs-appellees was warranted by the
circumstances obtained in this case, this Court finds it equitable to reduce the same from
10% of the total award to a fixed amount of 100,000.00.[28]

Wincorps Motion for Reconsideration was likewise denied by the CA in

its October 14, 2010 Resolution.[29]

Not in conformity, Wincorp seeks relief with this Court via this petition for review
alleging that

PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST WINCORP AS THE

EVIDENCE ON RECORD SHOWS THAT THE ACTUAL BENEFICIARY OF THE PROCEEDS OF THE
LOAN TRANSACTIONS WAS PEARLBANK

SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED BY WINCORP SHOULD BE

CONSIDERED TO DETERMINE WHO, AMONG THE PARTIES, ARE LIABLE TO PLAINTIFFS-
RESPONDENTS[30]

ISSUE

The core issue in this case is whether or not the CA is correct in finding
Wincorp solely liable to pay the Francias the amount of 3,984,062.47 plus interest of
11% per annum.

Quite clearly, the case at bench presents a factual issue.

 As a rule, a petition for review under Rule 45 of the Rules of Court
covers only questions of law. Questions of fact are not reviewable and cannot be
passed upon by this Court in the exercise of its power to review. The distinction
between questions of law and questions of fact is established. A question of
law exists when the doubt or difference centers on what the law is on a certain state
of facts. A question of fact, on the other hand, exists if the doubt centers on the
truth or falsity of the alleged facts.[31] This being so, the findings of fact of the CA are
final and conclusive and this Court will not review them on appeal.

While it goes without saying that only questions of law can be raised in a petition
for review on certiorari under Rule 45, the same admits of exceptions, namely: (1) when
the findings are grounded entirely on speculations, surmises, or conjectures; (2) when
the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a
grave abuse of discretion; (4) when the judgment is based on misappreciation of
facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the
same are contrary to the admissions of both appellant and appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners main and reply briefs are not disputed
by the respondent; and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.[32]

The Court finds that no cogent reason exists in this case to deviate from the
general rule.

Wincorp insists that the CA should have based its decision on the express terms,
stipulations, and agreements provided for in the documents offered by the Francias
as the legal relationship of the parties was clearly spelled out in the very documents
introduced by them which indicated that it merely brokered the loan transaction
between the Francias and Pearlbank.[33]

Wincorp would want the Court to rule that there was a contract of agency
between it and the Francias with the latter authorizing the former as their agent to
lend money to Pearlbank. According to Wincorp, the two Confirmation Advices
presented as evidence by the Francias and admitted by the court, were competent
proof that the recipient of the loan proceeds was Pearlbank.[34]
 The Court is not persuaded.

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

something in representation or on behalf of another with the latters consent.[35] It is
said that the underlying principle of the contract of agency is to accomplish results by
using the services of others to do a great variety of things. Its aim is to extend the
personality of the principal or the party for whom another acts and from whom he or
she derives the authority to act. Its basis is representation.[36]

Significantly, the elements of the contract of agency are: (1) consent, express or implied,
of the parties to establish the relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a representative and not for
himself; (4) the agent acts within the scope of his authority.[37]

In this case, the principal-agent relationship between the Francias and Wincorp was
not duly established by evidence. The records are bereft of any showing that
Wincorp merely brokered the loan transactions between the Francias and Pearlbank
and the latter was the actual recipient of the money invested by the former.
Pearlbank did not authorize Wincorp to borrow money for it. Neither was there a
ratification, expressly or impliedly, that it had authorized or consented to said
transaction.

As to Pearlbank, records bear out that the Francias anchor their cause of action
against it merely on the strength of the subject Confirmation Advices bearing the
name PearlBank as the supposed borrower of their investments. Apparently, the
Francias ran after Pearlbank only after learning that Wincorp was reportedly
bankrupt.[38] The Francias were consistent in saying that they only dealt with Wincorp
and not with Pearlbank. It bears noting that even in their Complaint and during the
pre-trial conference, the Francias alleged that they did not have any personal
knowledge if Pearlbank was indeed the recipient/beneficiary of their investments.

Although the subject Confirmation Advices indicate the name of Pearlbank as the
purported borrower of the said investments, said documents do not bear the
signature or acknowledgment of Pearlbank or any of its officers. This cannot prove
the position of Wincorp that it was Pearlbank which received and benefited from the
investments made by the Francias. There was not even a promissory note validly and
duly executed by Pearlbank which would in any way serve as evidence of the said
borrowing.
Another significant point which would support the stand of Pearlbank that it was not
the borrower of whatever funds supposedly invested by the Francias was the fact
that it initiated, filed and pursued several cases against Wincorp, questioning, among
others, the latters acts of naming it as borrower of funds from investors.[39]

It bears stressing too that all the documents attached by Wincorp to its pleadings
before the CA cannot be given any weight or evidentiary value for the sole reason
that, as correctly observed by the CA, these documents were not formally offered as
evidence in the trial court. To consider them now would deny the other parties the
right to examine and rebut them. Section 34, Rule 132 of the Rules of Court provides:

Section 34. Offer of evidence The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.

The offer of evidence is necessary because it is the duty of the court to rest its
findings of fact and its judgment only and strictly upon the evidence offered by the
parties. Unless and until admitted by the court in evidence for the purpose or
purposes for which such document is offered, the same is merely a scrap of paper
barren of probative weight.[40]

The Court cannot, likewise, disturb the findings of the RTC and the CA as to the
evidence presented by the Francias. It is elementary that objection to evidence must
be made after evidence is formally offered.[41] It appears that Wincorp was given
ample opportunity to file its Comment/Objection to the formal offer of evidence of
the Francias but it chose not to file any.

All told, the CA committed no reversible error in rendering the assailed July 27,
2010 Decision and in issuing the challenged October 14, 2010 Resolution.
WHEREFORE, the petition is DENIED.

SO ORDERED.
8.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 148187 April 16, 2008

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R.
SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also
assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with
Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latters mining
claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties agreement
was denominated as "Power of Attorney" and provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to
the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such
amounts as from time to time may be required by the MANAGERS within the said 3-year period, for
use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the owners account in the Sto.
Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left
with the Sto. Nino PROJECT, shall be added to such owners account.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto.
Nino PROJECT, in accordance with the following arrangements:

(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as the MANAGERS account.

(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS
as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so
paid in cash shall be added to the MANAGERS account.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT
until termination of this Agency.

(d) The MANAGERS account shall not accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property,
upon a projected termination of this Agency, the ratio which the MANAGERS account has to
the owners account will be determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims, shall be transferred to the
MANAGERS, except that such transferred assets shall not include mine development, roads,
buildings, and similar property which will be valueless, or of slight value, to the MANAGERS.
The MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets
are transferred to the MANAGERS, this Agency shall remain subsisting.
 xxxx

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS compensation.

xxxx

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future,
may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed
as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the
MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while
any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have been
paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to
the MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS
to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason
alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS
withdrawal.

x x x x5

In the course of managing and operating the project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the
years which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in the
eventual cessation of mine operations on February 20, 1982.6

Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein
Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay
the same in three segments by first assigning Baguio Golds tangible assets to petitioner, transferring to the
latter Baguio Golds equitable title in its Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio Golds indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two segments by first assigning its tangible assets for P127,838,051.00 and
then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then ascertained
that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad
debt and assessed petitioner a deficiency income tax of P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad
debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to
be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Golds long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor.

Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not be
able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to institute a judicial action for collection
against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect.

On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that the
alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a
petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty percent (50%) of the projects net profit.10

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of
merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent

Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest
due computed from February 10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount x x x up to actual date of
payment.

SO ORDERED.11

The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the nature
of a loan. It instead characterized the advances as petitioners investment in a partnership with Baguio Gold
for the development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount
partook of the nature of an investment, it could not be deducted as a bad debt from petitioners gross
income.

The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold
could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the
installment and interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the
pre-payment.

The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the management of
the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather
than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino
Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a
partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding
the Compromise Agreement and the Amended Compromise Agreement when it construed the
nature of the advances made by Philex.
 IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts
write-off.14

Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents,
allegedly evinced the parties intent to treat the advances and payments as a loan and establish a creditor-
debtor relationship between them.

The petition lacks merit.

The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining
the true nature of the business relationship between petitioner and Baguio Gold. Before resort may be had
to the two compromise agreements, the parties contractual intent must first be discovered from the
expressed language of the primary contract under which the parties business relations were founded. It
should be noted that the compromise agreements were mere collateral documents executed by the parties
pursuant to the termination of their business relationship created under the "Power of Attorney". On the
other hand, it is the latter which established the juridical relation of the parties and defined the parameters of
their dealings with one another.

The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were
executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the "Power of Attorney". The parties
entered into the compromise agreements as a consequence of the dissolution of their business relationship.
It did not define that relationship or indicate its real character.

An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by
the parties. Under a contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.15 While a
corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or
its charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. x x x It
is in fact hardly distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a specific undertaking. x x x It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should be governed
by the law of partnerships. The Supreme Court has however recognized a distinction between these
two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. x x x (Citations omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for the purpose. They also had a joint interest in the
profits of the business as shown by a 50-50 sharing in the income of the mine.

Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine.17 In this regard, we note that there is a
substantive equivalence in the respective contributions of the parties to the development and operation of
the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute
equally to the joint venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioners contribution would consist of its expertise in the
management and operation of mines, as well as the managers account which is comprised of P11M in
funds and property and petitioners "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIO MINE."18

The wording of the parties agreement as to petitioners contribution to the common fund does not detract
from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus
rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner
from withdrawing the advances until termination of the parties business relations. As can be seen, petitioner
became bound by its contributions once the transfers were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its option under paragraph 5.

There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of advances
should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the
stipulation only showed that what the parties entered into was actually a contract of agency coupled with an
interest which is not revocable at will and not a partnership.

In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and
agent.19 In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the parties relation under the agreement is one of
agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was
one of agency and not a partnership. Although the said provision states that "this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of
the MANAGERS account," it does not necessarily follow that the parties entered into an agency contract
coupled with an interest that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of
petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage and operate the latters mine
through the parties mutual contribution of material resources and industry. The essence of an agency, even
one that is coupled with interest, is the agents ability to represent his principal and bring about business
relations between the latter and third persons.20 Where representation for and in behalf of the principal is
merely incidental or necessary for the proper discharge of ones paramount undertaking under a contract,
the latter may not necessarily be a contract of agency, but some other agreement depending on the ultimate
undertaking of the parties.21

In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably lead
to the conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties
business relations, "the ratio which the MANAGERS account has to the owners account will be determined,
and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall
be transferred to petitioner.22As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties business relations. There was
nothing in the agreement that would require Baguio Gold to make payments of the advances to petitioner as
would be recognized as an item of obligation or "accounts payable" for Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto.
Nio mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or
any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same
kind and quality.23 In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner
the cash and property that it had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.

In this connection, we find no contractual basis for the execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of
their business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that
the managers account had to the owners account. Except to provide a basis for claiming the advances as a
bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the
compromise agreements, for any amount over and above the proportion agreed upon in the "Power of
Attorney".

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the
terms and conditions of such loans. The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of payment was unclear. All these point to the
inevitable conclusion that the advances were not loans but capital contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive
50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties
contractual stipulations simply leads to no other conclusion than that petitioners "compensation" is actually
its share in the income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no
such inference can be drawn against it since its share in the profits of the Sto Nio project was in the nature
of compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be
paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of
the project and had put substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no
income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it
were truly just an ordinary employee.

Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal
share in the income of the mine if it were just an employee of Baguio Gold.25 It is not surprising that
petitioner was to receive a 50% share in the net profits, considering that the "Power of Attorney" also
provided for an almost equal contribution of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties relations were indeed of partners and not employer-
employee.

All told, the lower courts did not err in treating petitioners advances as investments in a partnership known
as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter
was under no unconditional obligation to return the same to the former under the "Power of Attorney". As for
the amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no reason to depart from
the tax courts factual finding that Baguio Golds debts were not yet due and demandable at the time that
petitioner paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and
this conclusion is supported by the evidence on record.26

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

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

SO ORDERED.
 ELEMENTS

1.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

SPOUSES FERNANDO G.R. No. 188288

and LOURDES VILORIA,

Petitioners, Present:

CARPIO, J.,

Chairperson,

PEREZ,
- versus - SERENO,

REYES, and

BERNABE, JJ.

Promulgated:
CONTINENTAL AIRLINES, INC.,

Respondent.
January 16, 2012

x------------------------------------------------------------------------------------x

DECISION
REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30,
2009 Decision of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R.
1

CV No. 88586 entitled Spouses Fernando and Lourdes Viloria v. Continental Airlines,
Inc., the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74,

dated 03 April 2006, awarding US$800.00 or its peso equivalent at the time of
payment, plus legal rate of interest from 21 July 1997 until fully paid,
[P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages,
[P]40,000.00 as attorneys fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellants counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED. 2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money and damages filed
by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively
called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from
the records, below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for
himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California
to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at
US$400.00 each from a travel agency called Holiday Travel and was attended to by a
certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the
said tickets after Mager informed them that there were no available seats at Amtrak, an
intercity passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.
 Subsequently, Fernando requested Mager to reschedule their flight to Newark to an
earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental
Airlines were already fully booked and offered the alternative of a round trip flight via
Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per
passenger and would mean traveling by night, Fernando opted to request for a refund.
Mager, however, denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets within one (1)
year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats
with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and
was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
Amtrak tickets, telling her that she had misled them into buying the Continental Airlines
tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his
demand for a refund but Mager was firm in her position that the subject tickets are non-
refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998,
demanding a refund and alleging that Mager had deluded them into purchasing the subject
tickets.
3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that
his complaint had been referred to the Customer Refund Services of Continental Airlines at
Houston, Texas. 4

In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request
for a refund and advised him that he may take the subject tickets to any Continental ticketing
location for the re-issuance of new tickets within two (2) years from the date they were
issued. Continental Micronesia informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. 5
 On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue,
Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles,
California under his name. Therein, Fernando was informed that Lourdes ticket was non-
transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay
what will not be covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject
tickets as he no longer wished to have them replaced. In addition to the dubious
circumstances under which the subject tickets were issued, Fernando claimed that CAIs act
of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other
airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket, breached its
undertaking under its March 24, 1998 letter. 6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that
CAI be ordered to refund the money they used in the purchase of the subject tickets with
legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00
as exemplary damages and P250,000.00 as attorneys fees. 7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a
refund as the subject tickets are non-refundable; (b) Fernando cannot insist on using the
ticket in Lourdes name for the purchase of a round trip ticket to Los Angeles since the same
is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts;
(d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to
moral and exemplary damages and attorneys fees. CAI also invoked the following clause
printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket,
(ii) applicable tariffs, (iii) carriers conditions of carriage and related
regulations which are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in the United States
or Canada and any place outside thereof to which tariffs in force in those
countries apply. 8
 According to CAI, one of the conditions attached to their contract of carriage is the
non-transferability and non-refundability of the subject tickets.

The RTCs Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding
that Spouses Viloria are entitled to a refund in view of Magers misrepresentation in
obtaining their consent in the purchase of the subject tickets. The relevant portion of the
9

April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was
less candid and diligent in presenting to plaintiffs spouses their booking
options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but
defendants agent misled him into purchasing Continental Airlines tickets
instead on the fraudulent misrepresentation that Amtrak was fully booked. In
fact, defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked

into buying Continental Airline tickets on Ms. Magers misleading
misrepresentations. Continental Airlines agent Ms. Mager further relied on and
exploited plaintiff Fernandos need and told him that they must book a flight
immediately or risk not being able to travel at all on the couples preferred date.
Unfortunately, plaintiffs spouses fell prey to the airlines and its agents
unethical tactics for baiting trusting customers.
10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAIs
agent, hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned,
there is no issue as to whether Mager was CAIs agent in view of CAIs implied recognition
of her status as such in its March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following
are the pertinent New Civil Code provisions on agency:
 Art. 1868. By the contract of agency a person binds himself
to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.

Art. 1869. Agency may be express, or implied from the acts

of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.

Agency may be oral, unless the law requires a specific

form.

As its very name implies, a travel agency binds itself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter. This court takes judicial notice of the common
services rendered by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours as well as the
issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the

plaintiff spouses on July 21, 1997 were no different from those offered in any
other travel agency. Defendant airline impliedly if not expressly acknowledged
its principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt
feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking
to replace the subject tickets within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue.
When defendant airline still charged plaintiffs spouses US$1,867.40 or more
than double the then going rate of US$856.00 for the unused tickets when the
same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers. 12

The Appellate Courts Ruling

 On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI
cannot be held liable for Magers act in the absence of any proof that a principal-agent
relationship existed between CAI and Holiday Travel. According to the CA, Spouses
Viloria, who have the burden of proof to establish the fact of agency, failed to present
evidence demonstrating that Holiday Travel is CAIs agent. Furthermore, contrary to
Spouses Vilorias claim, the contractual relationship between Holiday Travel and CAI is not
an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel

who was in turn a ticketing agent of Holiday Travel who was in turn a ticketing
agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.

We do not agree. By the contract of agency, a person binds him/herself

to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. The elements of agency are:
(1) consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is representation,
there must be, on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principals words or actions. In the same
manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no
agency. It is likewise a settled rule that persons dealing with an assumed agent
are bound at their peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. Agency
is never presumed, neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents so far presented.
We find nothing except bare allegations of plaintiffs-appellees that
Mager/Holiday Travel was acting in behalf of Continental Airlines. From all
sides of legal prism, the transaction in issue was simply a contract of sale,
wherein Holiday Travel buys airline tickets from Continental Airlines and then,
through its employees, Mager included, sells it at a premium to clients. 13

The CA also ruled that refund is not available to Spouses Viloria as the word non-
refundable was clearly printed on the face of the subject tickets, which constitute their
contract with CAI. Therefore, the grant of their prayer for a refund would violate the
proscription against impairment of contracts.
 Finally, the CA held that CAI did not act in bad faith when they charged Spouses
Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los Angeles.
According to the CA, there is no compulsion for CAI to charge the lower amount of
US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter
of fixing the prices for its services is CAIs prerogative, which Spouses Viloria cannot
intervene. In particular:

It is within the respective rights of persons owning and/or operating business

entities to peg the premium of the services and items which they provide at a
price which they deem fit, no matter how expensive or exhorbitant said price
may seem vis--vis those of the competing companies. The Spouses Viloria
may not intervene with the business judgment of Continental Airlines. 14

The Petitioners Case

In this Petition, this Court is being asked to review the findings and conclusions of the
CA, as the latters reversal of the RTCs April 3, 2006 Decision allegedly lacks factual and
legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a
higher amount for a round trip ticket to Los Angeles considering CAIs undertaking to re-
issue new tickets to them within the period stated in their March 24, 1998 letter. CAI
likewise acted in bad faith when it disallowed Fernando to use Lourdes ticket to purchase a
round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that it is
non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the terms
and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,
the petitioners are no longer questioning the validity of the subject contracts and limited its
claim for a refund on CAIs alleged breach of its undertaking in its March 24, 1998 letter.

The Respondents Case

In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is negated
by its willingness to issue new tickets to them and to credit the value of the subject tickets
against the value of the new ticket Fernando requested. CAI argued that Spouses Vilorias
sole basis to claim that the price at which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence an advertisement appearing on a newspaper
stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00. Also,
15

the advertisement pertains to airfares in September 2000 and not to airfares prevailing in
June 1999, the time when Fernando asked CAI to apply the value of the subject tickets for
the purchase of a new one. CAI likewise argued that it did not undertake to protect Spouses
16

Viloria from any changes or fluctuations in the prices of airline tickets and its only
obligation was to apply the value of the subject tickets to the purchase of the newly issued
tickets.

With respect to Spouses Vilorias claim that they are not aware of CAIs restrictions
on the subject tickets and that the terms and conditions that are printed on them are
ambiguous, CAI denies any ambiguity and alleged that its representative informed Fernando
that the subject tickets are non-transferable when he applied for the issuance of a new ticket.
On the other hand, the word non-refundable clearly appears on the face of the subject
tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no
principal-agency relationship exists between them. As an independent contractor, Holiday
Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CAs January 30, 2009 Decision and
whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it
necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday

Travel, is CAI bound by the acts of Holiday Travels agents and
employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travels agents and
employees, can the representation of Mager as to unavailability of seats
at Amtrak be considered fraudulent as to vitiate the consent of Spouse
Viloria in the purchase of the subject tickets?
 d. Is CAI justified in insisting that the subject tickets are non-transferable and
non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los
Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses
Viloria to apply the value of the subject tickets in the purchase of new
ones when it refused to allow Fernando to use Lourdes ticket and in
charging a higher price for a round trip ticket to Los Angeles?

This Courts Ruling

I. A principal-agent relationship exists between

CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court
to review and re-examine the evidence presented by the parties below, this Court takes
exception to the general rule that the CAs findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of fact if confronted with
contrasting factual findings of the trial court and appellate court and if the findings of the CA
are contradicted by the evidence on record. 17

According to the CA, agency is never presumed and that he who alleges that it exists
has the burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented
evidence that fell short of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial

that Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the
contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed
to apply the fundamental civil law principles governing agency and differentiating it from
sale.
 In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the
18

nature of an agency and spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself, and (4) the agent acts within
the scope of his authority.

Agency is basically personal, representative, and derivative in nature.

The authority of the agent to act emanates from the powers granted to him by
his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case.
The first and second elements are present as CAI does not deny that it concluded an
agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of
carriage with third persons on CAIs behalf. The third element is also present as it is
undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and
not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel
on its behalf. The fourth element is also present considering that CAI has not made any
allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday Travel executed
with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation.
That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its
behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it
impliedly recognized the validity of the contracts entered into by Holiday Travel with
Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to
them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.

Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it
gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf.
As clearly extant from the records, CAI recognized the validity of the contracts of carriage
that Holiday Travel entered into with Spouses Viloria and considered itself bound with
Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal
testament to Holiday Travels authority to act as its agent. This Court cannot therefore allow
CAI to take an altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in recognition
of Holiday Travels authority. Estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice. Estoppel bars CAI
20

from making such denial.

As categorically provided under Article 1869 of the Civil Code, [a]gency may be
express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without
authority.

Considering that the fundamental hallmarks of an agency are present, this Court finds
it rather peculiar that the CA had branded the contractual relationship between CAI and
Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult
to discern and this Court, as early as 1970, had already formulated the guidelines that would
aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino, this Court extrapolated that the primordial differentiating consideration
21

between the two (2) contracts is the transfer of ownership or title over the property subject of
the contract. In an agency, the principal retains ownership and control over the property and
the agent merely acts on the principals behalf and under his instructions in furtherance of
the objectives for which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do with
the property as he pleases.

Since the company retained ownership of the goods, even as it delivered

possession unto the dealer for resale to customers, the price and terms of which
were subject to the company's control, the relationship between the company
and the dealer is one of agency, tested under the following criterion:

The difficulty in distinguishing between contracts of sale and the

creation of an agency to sell has led to the establishment of rules by the
application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is
the essence of sale. If such transfer puts the transferee in the attitude or
 position of an owner and makes him liable to the transferor as a debtor
for the agreed price, and not merely as an agent who must account for
the proceeds of a resale, the transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as his property, but as the
property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds
less the agent's commission upon sales made. 1 Mechem on Sales, Sec.
43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on
Sales, 1. (Salisbury v. Brooks, 94 SE 117, 118-119) 22

As to how the CA have arrived at the conclusion that the contract between CAI and
Holiday Travel is a sale is certainly confounding, considering that CAI is the one bound by
the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf.
It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines,
and this conclusively indicates the existence of a principal-agent relationship. That the
principal is bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal

can only be held liable for the tort committed by
its agents employees if it has been established by
preponderance of evidence that the principal was
also at fault or negligent or that the principal
exercise control and supervision over them.

Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI is
liable for the fault or negligence of Holiday Travels employees? Citing China Air Lines,
Ltd. v. Court of Appeals, et al., CAI argues that it cannot be held liable for the actions of the
23

employee of its ticketing agent in the absence of an employer-employee relationship.

An examination of this Courts pronouncements in China Air Lines will reveal that an
airline company is not completely exonerated from any liability for the tort committed by its
agents employees. A prior determination of the nature of the passengers cause of action is
necessary. If the passengers cause of action against the airline company is premised
on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
companys agent, there must be an independent showing that the airline company was at
fault or negligent or has contributed to the negligence or tortuous conduct committed by the
employee of its agent. The mere fact that the employee of the airline companys agent has
committed a tort is not sufficient to hold the airline company liable. There is no vinculum
juris between the airline company and its agents employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie between
the airline company and its agents employees. Article 2180 of the Civil Code does not make
the principal vicariously liable for the tort committed by its agents employees and the
principal-agency relationship per se does not make the principal a party to such tort; hence,
the need to prove the principals own fault or negligence.

On the other hand, if the passengers cause of action for damages against the airline
company is based on contractual breach or culpa contractual, it is not necessary that there be
evidence of the airline companys fault or negligence. As this Court previously stated
in China Air Lines and reiterated in Air France vs. Gillego, in an action based on a breach
24

of contract of carriage, the aggrieved party does not have to prove that the common carrier
was at fault or was negligent. All that he has to prove is the existence of the contract and the
fact of its non-performance by the carrier.

Spouses Vilorias cause of action on the basis of Magers alleged fraudulent

misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing
contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to
prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAIs alleged liability can
be substantiated. Apart from their claim that CAI must be held liable for Magers supposed
fraud because Holiday Travel is CAIs agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Magers complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by
the terms and conditions of the subject contracts, which Mager entered into with them on
CAIs behalf, in order to deny Spouses Vilorias request for a refund or Fernandos use of
Lourdes ticket for the re-issuance of a new one, and simultaneously claim that they are not
bound by Magers supposed misrepresentation for purposes of avoiding Spouses Vilorias
claim for damages and maintaining the validity of the subject contracts. It may likewise be
argued that CAI cannot deny liability as it benefited from Magers acts, which were
performed in compliance with Holiday Travels obligations as CAIs agent.
 However, a persons vicarious liability is anchored on his possession of control,
whether absolute or limited, on the tortfeasor. Without such control, there is nothing which
could justify extending the liability to a person other than the one who committed the tort.
As this Court explained in Cangco v. Manila Railroad Co.: 25

With respect to extra-contractual obligation arising from negligence,

whether of act or omission, it is competent for the legislature to elect and
our Legislature has so elected to limit such liability to cases in which the
person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without
regard to the lack of moral culpability, so as to include responsibility for
the negligence of those persons whose acts or omissions are imputable, by a
legal fiction, to others who are in a position to exercise an absolute or
limited control over them. The legislature which adopted our Civil Code has
elected to limit extra-contractual liability with certain well-defined
exceptions to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to
exercise due care in one's own acts, or in having failed to exercise due care in
the selection and control of one's agent or servants, or in the control of persons
who, by reasons of their status, occupy a position of dependency with respect to
the person made liable for their conduct. (emphasis supplied)
26

It is incumbent upon Spouses Viloria to prove that CAI exercised control or

supervision over Mager by preponderant evidence. The existence of control or supervision
cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion.
Citing Belen v. Belen, this Court ruled in Jayme v. Apostol, that:
27 28

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an
alleged employment relationship. The defendant is under no obligation to prove
the negative averment. This Court said:

It is an old and well-settled rule of the courts that the

burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his
claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of
Section 297 of the Code of Civil Procedure holding that each
party must prove his own affirmative allegations, etc. (citations
29

omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels
employees or that CAI was equally at fault, no liability can be imposed on CAI for Magers
supposed misrepresentation.

III. Even on the assumption that CAI may be

held liable for the acts of Mager, still,
Spouses Viloria are not entitled to a refund.
Magers statement cannot be considered a
causal fraud that would justify the
annulment of the subject contracts that
would oblige CAI to indemnify Spouses
Viloria and return the money they paid for
the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent
of the contracting parties was obtained through fraud, the contract is considered voidable and
may be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to
each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernandos consent to the subject contracts was supposedly secured by Mager through
fraudulent means, it is plainly apparent that their demand for a refund is tantamount to
seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine
whether Magers alleged misrepresentation constitutes causal fraud. Similar to the dispute on
the existence of an agency, whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the records if the findings of the
CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to
the making of the contract. In Samson v. Court of Appeals, causal fraud was defined as a
30 31
deception employed by one party prior to or simultaneous to the contract in order to secure
the consent of the other.32

Also, fraud must be serious and its existence must be established by clear and
convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al., mere
33

preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or

machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would not
have agreed to.

Art. 1344. In order that fraud may make a contract

voidable, it should be serious and should not have been employed
by both contracting parties.

To quote Tolentino again, the misrepresentation constituting the fraud

must be established by full, clear, and convincing evidence, and not merely by
a preponderance thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim. 34

After meticulously poring over the records, this Court finds that the fraud alleged by
Spouses Viloria has not been satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
convincing evidence that Magers statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey
on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Magers alleged fraud, which is Fernandos
testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak, to
be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that
during the intervening period of three (3) weeks from the time Fernando purchased the
subject tickets to the time he talked to said Amtrak employee, other passengers may have
cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to
accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations
and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of
Court, it is presumed that "a person is innocent of crime or wrong" and that "private
transactions have been fair and regular." Spouses Viloria failed to overcome this
35

presumption.

IV. Assuming the contrary, Spouses Viloria are

nevertheless deemed to have ratified the subject
contracts.

Even assuming that Magers representation is causal fraud, the subject contracts have
been impliedly ratified when Spouses Viloria decided to exercise their right to use the
subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,
ratification extinguishes the action to annul a voidable contract.

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as
follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood

that there is a tacit ratification if, with knowledge of the reason which renders
the contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to
waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by

acts showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. 36

Simultaneous with their demand for a refund on the ground of Fernandos vitiated
consent, Spouses Viloria likewise asked for a refund based on CAIs supposed bad faith in
reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila
to Los Angeles.
 In doing so, Spouses Viloria are actually asking for a rescission of the subject
contracts based on contractual breach. Resolution, the action referred to in Article 1191, is
based on the defendants breach of faith, a violation of the reciprocity between the
parties and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, this Court
37 38

ruled that a claim for a reimbursement in view of the other partys failure to comply with his
obligations under the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under
Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the
contract valid are present; in annulment, one of the essential elements to a formation of a
contract, which is consent, is absent. In resolution, the defect is in the consummation stage of
the contract when the parties are in the process of performing their respective obligations; in
annulment, the defect is already present at the time of the negotiation and perfection stages
of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the
Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to
demand their annulment. A party cannot rely on the contract and claim rights or obligations
under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions.39

V. Contracts cannot be rescinded for a slight or

casual breach.

CAI cannot insist on the non-transferability of the

subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated
consent, the next question is: Do Spouses Viloria have the right to rescind the contract on
the ground of CAIs supposed breach of its undertaking to issue new tickets upon surrender
of the subject tickets?

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of

the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
 rescission, even after he has chosen fulfillment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject
contracts when it refused to apply the value of Lourdes ticket for Fernandos purchase of a
round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price
fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that non-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket for $75.00, per ticket,
reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).

Clearly, there is nothing in the above-quoted section of CAIs letter from which the
restriction on the non-transferability of the subject tickets can be inferred. In fact, the words
used by CAI in its letter supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether for themselves or for
some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to
use the subject tickets for the purchase of a round trip ticket between Manila and Los
Angeles that he was informed that he cannot use the ticket in Lourdes name as payment.

Contrary to CAIs claim, that the subject tickets are non-transferable cannot be
implied from a plain reading of the provision printed on the subject tickets stating that [t]o
the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carriers conditions of
carriage and related regulations which are made part hereof (and are available on application
at the offices of carrier) x x x. As a common carrier whose business is imbued with public
interest, the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or
all of its passengers for that matter, of all the terms and conditions governing their contract
of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on transferability
is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria
thereof, CAI cannot refuse to apply the value of Lourdes ticket as payment for Fernandos
purchase of a new ticket.

CAIs refusal to accept Lourdes ticket for the

purchase of a new ticket for Fernando is only a
casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is

not absolute. The general rule is that rescission of a contract will not be permitted for a slight
or casual breach, but only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement. Whether a breach is substantial is
40

largely determined by the attendant circumstances. 41

While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment
for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets
was not clearly stipulated, it cannot, however be considered substantial. The endorsability of
the subject tickets is not an essential part of the underlying contracts and CAIs failure to
comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Vilorias surrender of the subject tickets. This Court takes note of CAIs willingness to
perform its principal obligation and this is to apply the price of the ticket in Fernandos name
to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial payment as the case may be for
the purchase of any ticket, albeit under her name and for her exclusive use. In other words,
CAIs willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes ticket is non-transferable.

Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot be
solely faulted for the fact that their agreement failed to consummate and no new ticket was
issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket
between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the
difference between the price of the subject tickets and the amount fixed by CAI. The
petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them
tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its
March 24, 1998 letter, it was clearly stated that [n]on-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket and there is nothing in
42

it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in
the prices of tickets or that the surrender of the subject tickets will be considered as full
payment for any ticket that the petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAIs right and exclusive prerogative to
fix the prices for its services and it may not be compelled to observe and maintain the prices
of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different

matter, which does not preclude CAI from fixing the price of a round trip ticket between
Manila and Los Angeles in an amount it deems proper and which does not provide Spouses
Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value
of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant
obligation to pay whatever is not covered by the value of the subject tickets whether or not
the subject tickets are transferable or not.

There is also no showing that Spouses Viloria were discriminated against in bad faith
by being charged with a higher rate. The only evidence the petitioners presented to prove
that the price of a round trip ticket between Manila and Los Angeles at that time was only
$856.00 is a newspaper advertisement for another airline company, which is inadmissible for
being hearsay evidence, twice removed. Newspaper clippings are hearsay if they were
offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court
of Appeals,:44

[N]ewspaper articles amount to hearsay evidence, twice removed and are

therefore not only inadmissible but without any probative value at all whether
objected to or not, unless offered for a purpose other than proving the truth of
the matter asserted. In this case, the news article is admissible only as evidence
that such publication does exist with the tenor of the news therein
stated. (citations omitted)
45

The records of this case demonstrate that both parties were equally in default; hence,
none of them can seek judicial redress for the cancellation or resolution of the subject
contracts and they are therefore bound to their respective obligations thereunder. As the
1st sentence of Article 1192 provides:
 Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own
damages. (emphasis supplied)

Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the
purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their
refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract
between them remains, hence, CAI is duty bound to issue new tickets for a destination
chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are
obliged to pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of
Appeals. Thus:
46

Since both parties were in default in the performance of their respective

reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they
are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue P17,000.00 debt. x x x. 47

Another consideration that militates against the propriety of holding CAI liable for
moral damages is the absence of a showing that the latter acted fraudulently and in bad faith.
Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages
are generally not recoverable in culpa contractual except when bad faith had been
proven. The award of exemplary damages is likewise not warranted. Apart from the
48

requirement that the defendant acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages. 49
 WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

4.

FIRST DIVISION

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
 [G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER

ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND
EXPRESS LINES, INC., respondents.

DECISION
MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions and
resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract
of Lease with Option to Buy with petitioners[1] (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the
lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period,
private respondent was granted an option to purchase for the amount of P3,000.00 per square
meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June
1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976
before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November
22, 1982, the City Court rendered judgment[2] ordering private respondent to vacate the leased premises
and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of
reasonable compensation for the use and occupation of the premises during the period of illegal detainer
from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12%
interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum
of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to
pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order
enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City
Court.
On September 26, 1984, the then Intermediate Appellate Court[3] (now Court of Appeals) rendered a
decision[4] stating that:

"x x x, the alleged question of whether petitioner was granted an extension of the
option to buy the property; whether such option, if any, extended the lease or whether
petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of
private respondents in consideration of the option and, whether petitioner thereafter
offered to pay the balance of the supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case from the jurisdiction of respondent
court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra),
the above matters may be raised and decided in the unlawful detainer suit as, to rule
otherwise, would be a violation of the principle prohibiting multiplicity of suits.
(Original Records, pp. 38-39)."
 The motion for reconsideration was denied. On review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for
reconsideration in a resolution dated September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City
(Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with
prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary
injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the
receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25,
1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the
decision of the then City Court for the ejectment of the private respondent, having been affirmed by the
then Intermediate Appellate Court and the Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City,
Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief
from Judgment with injunction and damages. In its decision[6] dated May 12, 1986, the trial court
dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary
injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as
attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary
injunction was reinstated, thereby restraining the execution of the City Court's judgment on the
ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On April
28, 1989, a decision[7] was rendered dismissing private respondent's complaint in Civil Case No. Q-
45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487
(annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the jurisdiction of the
City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of
sale between the parties on the leased premises and that pursuant to the option to buy agreement, private
respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private
respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which
petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the
operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny
receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went
further by stating that in fact, what was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private respondent until it has fully paid the
purchase price. Since private respondent did not consign to the court the balance of the purchase price
and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:

"WHEREFORE, the appealed decision in Case No. 46487 is AFFIRMED. The

appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET
ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of
the property in question, free from any lien or encumbrance whatsoever, in favor of
the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the
owner's duplicate of the certificate of title to said property upon payment of the
balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is
ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum,
until payment of the balance of the purchase price, as previously agreed upon by the
parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by respondent
Court of Appeals,[10] petitioners elevated the case via petition for certiorari questioning the authority of
Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting
to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioners also assail the
propriety of private respondent's exercise of the option when it tendered the said amount on June 20,
1975 which purportedly resulted in a perfected contract of sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No.
38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City,
Branch 38, for execution of the judgment[11] dated November 22, 1982 which was granted in a resolution
dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction
and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution
dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack
of merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil
Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court
ordered the issuance of a third alias writ of execution. In denying private respondent's motion for
reconsideration, it ordered the immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon
City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order
(SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as
the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an order[12] granting the issuance of a
writ of preliminary injunction upon private respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners
filed a petition[13] for certiorari and prohibition with a prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals. In its decision,[14] the Court of Appeals dismissed the
petition and ruled that:

"The avowed purpose of this petition is to enjoin the public respondent from
restraining the ejectment of the private respondent. To grant the petition would be
to allow the ejectment of the private respondent. We cannot do that now in view of
the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right
to eject private respondent has been demonstrated to be without basis in the said
civil case. The petitioners have been shown, after all, to have no right to eject
private respondents.

WHEREFORE, the petition is DENIED due course and is accordingly

DISMISSED.

SO ORDERED."[15]

Petitioners' motion for reconsideration was denied in a resolution[16] by the Court of Appeals stating
that:

"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the
plaintiff-appellant (private respondent herein) acquired the rights of a vendee in a
contract of sale, in effect, recognizing the right of the private respondent to possess
the subject premises. Considering said decision, we should not allow ejectment; to do
so would disturb the status quo of the parties since the petitioners are not in
 possession of the subject property. It would be unfair and unjust to deprive the private
respondent of its possession of the subject property after its rights have been
established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED."[17]

Hence, this instant petition.

We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject premises for
non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one
(1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to
purchase said property at P3,000.00 per square meter. After the expiration thereof, the lease was
for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners
and private respondent. However, since the rent was paid on a monthly basis, the period of lease is
considered to be from month to month in accordance with Article 1687 of the New Civil Code. [18] Where
the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring
at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. [19] In
such case, a demand to vacate is not even necessary for judicial action after the expiration of every
month.[20]
When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the
petitioners had a cause of action to institute an ejectment suit against the former with the then City
Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The
filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce
the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the
ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private
respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the
right to exercise the option still subsists at the time private respondent tendered the amount on June 20,
1975, the suit for specific performance to enforce the option to purchase was filed only on October 7,
1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of
the New Civil Code.[21]
In this case, there was a contract of lease for one (1) year with option to purchase. The contract of
lease expired without the private respondent, as lessee, purchasing the property but remained in
possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The
other terms of the original contract of lease which are revived in the implied new lease under Article
1670 of the New Civil Code[22] are only those terms which are germane to the lessees right of continued
enjoyment of the property leased.[23] Therefore, an implied new lease does not ipso facto carry with it
any implied revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is not deemed
incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private
respondents right to exercise the option to purchase expired with the termination of the original contract
of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption that
when the lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be for the
entire period corresponding to the rent which is customarily paid in this case up to the end of
the month because the rent was paid monthly.Necessarily, if the presumed will of the parties
refers to the enjoyment of possession the presumption covers the other terms of the contract
related to such possession, such as the amount of rental, the date when it must be paid, the
care of the property, the responsibility for repairs, etc. But no such presumption may be
indulged in with respect to special agreements which by nature are foreign to the right of
occupancy or enjoyment inherent in a contract of lease.[24]

Third. There was no perfected contract of sale between petitioners and private respondent. Private
respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee
thereof. Private respondent further contended that petitioners filing of the ejectment case against it based
on the contract of lease with option to buy holds petitioners in estoppel to question the authority of
petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase
price constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. Thus, the elements of a contract of sale are consent, object, and price in
money or its equivalent. It bears stressing that the absence of any of these essential elements negates the
existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show
its existence by competent proof.[25]
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru
Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid
consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by
Alice A. Dizon, as petitioners alleged agent, and private respondent. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent.[26] As provided in Article 1868 of the New Civil Code,[27] there was no
showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf
with regard to her transaction with private respondent. The most prudent thing private respondent should
have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard,
private respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of
the agents authority, and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a general or special one, are
bound at their peril, if they would hold the principal, to ascertain not only the fact of the
agency but also the nature and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it.

For the long years that private respondent was able to thwart the execution of the ejectment suit
rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to
ensure that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March
29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the
decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of
the Court of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the judgment
dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial
Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this
Court.
 However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00
which they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Melo, Kapunan and Pardo, JJ., concur.

5.

SECOND DIVISION

[G.R. No. 117356. June 19, 2000]

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and

CONSOLIDATED SUGAR CORPORATION, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV
No. 31717, as well as the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case
No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued
several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among
these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16,
1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms
and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated
October 16, 1989."[1] The transaction it covered was a "direct sale."[2] The SLDR also
contains an additional note which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated
October 25, 1989 and three checks postdated November 13, 1989 in payment. That
same day, CSC wrote petitioner that it had been authorized by STM to withdraw the
sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No.
1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our
behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." [4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with
petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October
27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside
from SLDR No. 1214M, said checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR
No. 1214M had been "sold and endorsed" to it but that it had been refused further
withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags
had been withdrawn.[5] CSC thus inquired when it would be allowed to withdraw the
remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of
sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar
covered by the cleared checks.[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of
23,000 bags.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of
STM's cleared checks had been fully withdrawn and hence, there would be no more
deliveries of the commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR
No. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil
Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of
St. Therese Merchandising) and herein petitioner. Since the former could not be served
with summons, the case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who
could not be reached through summons.[7] CSC, however, did not bother to pursue its
case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by
SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the
sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by
SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation
expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.[8] Since STM had already drawn in full all the sugar corresponding to the amount
of its cleared checks, it could no longer authorize further delivery of sugar to CSC.
Petitioner also contended that it had no privity of contract with CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title,
but mere delivery receipts issued pursuant to a series of transactions entered into
between it and STM. The SLDRs prescribed delivery of the sugar to the party specified
therein and did not authorize the transfer of said party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-
conspirator to defraud it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as
exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that
cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.

Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC,
as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in

favor of the plaintiff and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000
bags of refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of

P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary
damages and the amount of P1,357,000.00, which is 10% of the acquisition
value of the undelivered bags of refined sugar in the amount of P13,570,000.00,
as attorney's fees, plus the costs.

"SO ORDERED."[9]

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her
covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for
the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same
date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C
to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by
St. Therese Merchandising in favor of Victorias Milling Company at the time it
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said
checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling
 Company issued official receipt no. 34734 in favor of St. Therese Merchandising
for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita
Ng Go is further supported by Exhibit F, which is a computer printout of
defendant Victorias Milling Company showing the quantity and value of the
purchases made by St. Therese Merchandising, the SLDR no. issued to cover
the purchase, the official reciept no. and the status of payment. It is clear in
Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the
column of 'status of payment.'

"On the other hand, the claim of defendant Victorias Milling Company that the
purchase price of the 25,000 bags of sugar purchased by St. Therese
Merchandising covered by SLDR No. 1214 has not been fully paid is supported
only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a
sweeping barren assertion that the purchase price has not been fully paid and is
not corroborated by any positive evidence. There is an insinuation by Arnulfo
Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed to
present in Court any dishonored check or any replacement check. Said witness
likewise failed to present any bank record showing that the checks issued by the
buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by
SLDR No. 1214 were dishonored."[10]

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a
series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw bags of
sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22
SLDRs issued to STM andsince the latter had already withdrawn its full quota of sugar
under the said SLDR, CSC was already precluded from seeking delivery of the 23,000
bags of sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No.
1214M were separate and independent transactions and that the details of the series of
purchases were contained in a single statement with a consolidated summary of cleared
check payments and sugar stock withdrawals because this a more convenient system
than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR No. 1214M was a separate, independent,
and single transaction; (b) Whether or not CSC had the capacity to sue on its own on
SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to
25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver
23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No.

1214M;
 " 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."[11]

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to
read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No.
1214M;

"(2) Pay costs of suit.

"SO ORDERED."[12]

The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is
explicit that courts should consider the evidence only for the purpose for which it
was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to
afford the party against whom the evidence is presented to object thereto if he
deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that
Exhibit F' which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the proposition that 12,586 bags of
sugar remained undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33]

and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented
by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of
sugar from SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that
plaintiff-appellee had sent demand letters to defendant-appellant asking the latter
to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M.
Defendant-appellant, on the other hand, alleged that sugar delivery to the STM
corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did
not rebut plaintiff-appellee's assertions. It did not present evidence to show how
many bags of sugar had been withdrawn against SLDR No. 1214M, precisely
because of its theory that all sales in question were a series of one single
transaction and withdrawal of sugar depended on the clearing of checks paid
therefor.

"After a second look at the evidence, We see no reason to overturn the findings
of the trial court on this point."[13]

Hence, the instant petition, positing the following errors as grounds for review:
 "1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf,"
(emphasis in the original) private respondent's withdrawing 2,000 bags of sugar
for STM, and STM's empowering other persons as its agents to withdraw sugar
against the same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently claiming and proving being an assignee
of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and
estopped from doing so. (Art. 1431, Civil Code).

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for 69 bags
of sugar, and which would justify review of its conclusion of facts by this
Honorable Court.

" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279,
1285 and 1626 of the Civil Code when it ruled that compensation applied only to
credits from one SLDR or contract and not to those from two or more distinct
contracts between the same parties; and erred in denying petitioner's right to
setoff all its credits arising prior to notice of assignment from other sales or
SLDRs against private respondent's claim as assignee under SLDR No. 1214M,
so as to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts between the
same parties (emphasis in the original).

"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. F between petitioner and STM, respondent's admission of its
balance, and STM's acquiescence thereto by silence for almost one year did not
render Exh. `F' an account stated and its balance binding.

"5. The Court of Appeals erred in not holding that the conditions of the assigned
SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of
sugar being subject to its availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner from further obligation.

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine
precluded respondent from seeking judicial reliefs (sic) from petitioner, its only
remedy being against its assignor."[14]

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an
agent of STM and hence, estopped to sue upon SLDR No. 1214M as an
assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on

compensation to the transaction under SLDR No. 1214M so as to preclude
petitioner from offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence
freed petitioner from further obligations.
 (4)....Whether or not the Court of Appeals committed an error of law in not
applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first
time on appeal. It is settled that an issue which was not raised during the trial in the
court below could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process.[15] Nonetheless, the
Court of Appeals opted to address this issue, hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion
of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to

withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October
16, 1989 in the total quantity of 25, 000 bags."[16]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation. [17] On the part of
the principal, there must be an actual intention to appoint[18] or an intention naturally
inferable from his words or actions;[19] and on the part of the agent, there must be an
intention to accept the appointment and act on it,[20] and in the absence of such intent,
there is generally no agency.[21] One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent - agrees to act under the control
or direction of another - the principal. Indeed, the very word "agency" has come to
connote control by the principal.[22] The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a separate category.[23] The
Court of Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the
acts of the parties, the law makes no presumption of agency, and it is always a
fact to be proved, with the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
failed to sufficiently establish the existence of an agency relation between
plaintiff-appellee and STM. The fact alone that it (STM) had authorized
withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an agency relation ...It should be
viewed in the context of all the circumstances obtaining. Although it would seem
STM represented plaintiff-appellee as being its agent by the use of the phrase
"for and in our (STM's) behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been
"sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-
appellee has shown that the 25, 000 bags of sugar covered by the SLDR No.
1214M were sold and transferred by STM to it ...A conclusion that there was a
valid sale and transfer to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name, without need of joining its
imputed principal STM as co-plaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a buyer of
the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to
STM's control. The question of whether a contract is one of sale or agency depends on
the intention of the parties as gathered from the whole scope and effect of the language
employed.[25]That the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention
of the parties.[26] That no agency was meant to be established by the CSC and STM is
clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been
"sold and endorsed" to it.[27]The use of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that CSC was not STM's
agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists that its
debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279
of the Civil Code.[28] However, the trial court found, and the Court of Appeals concurred,
that the purchase of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single transaction or of one account
contrary to petitioner's insistence. Evidence on record shows, without being rebutted,
that petitioner had been paid for the sugar purchased under SLDR No. 1214M.
Petitioner clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were
not mutually creditors and debtors of each other. No reversible error could thereby be
imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with
the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar

and/or receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"[29]

The aforequoted terms and conditions clearly show that petitioner transferred title to the
sugar to the buyer or his assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped
from alleging the contrary. The contract is the law between the contracting
parties.[30] And where the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the contract is valid and must be
upheld.[31] Having transferred title to the sugar in question, petitioner is now obliged to
deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly
evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing
price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority
given by the latter to other persons to withdraw sugar against SLDR No. 1214M after
she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of
"clean hands" should be applied to preclude CSC from seeking judicial relief. However,
despite careful scrutiny, we find here the records bare of convincing evidence
whatsoever to support the petitioner's allegations of fraud. We are now constrained to
deem this matter purely speculative, bereft of concrete proof.
 WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

6.

FIRST DIVISION

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

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF

APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.

DECISION
PARDO, J.:

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

The Facts

The facts, as found by the Court of Appeals, are as follows:

On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum
of money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in his
capacity as manager of defendant to satisfy certain claims filed by defendants clients.

In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.

On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who,
at the time relevant to the case, was its Regional Manager for Central Luzon area.

In due time, third-party defendant Austria filed his answer.

Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29,
1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-
trial conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.

On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendants counsel which instructed him to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:

ORDER

When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain
Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to
any postponement on the ground that the note is but a mere scrap of paper and moved that
the defendant corporation be declared as in default for its failure to appear in court despite
due notice.

Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the
pre-trial conference has been repeatedly postponed on motion of the defendant Corporation,
the defendant Dominion Insurance Corporation is hereby declared (as) in default and
plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this order in open court.

SO ORDERED.

Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13,
1992. The exhibits were admitted in evidence in an order dated July 17, 1992.

On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF

DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference
was due to an unavoidable circumstance and that counsel had sent his representative on that
date to inform the trial court of his inability to appear. The Motion was vehemently opposed
by plaintiff.

On August 25, 1992 the trial court denied defendants motion for reasons, among others, that
it was neither verified nor supported by an affidavit of merit and that it further failed to
allege or specify the facts constituting his meritorious defense.

On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the
first time counsel revealed to the trial court that the reason for his nonappearance at the pre-
trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-
President purporting to explain its meritorious defense was attached to the said Motion. Just
the same, in an Order dated November 13, 1992, the trial court denied said Motion.

On November 18, 1992, the court a quo rendered judgment as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of
defendants clients;

2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;

3. The dismissal of the counter-claim of the defendant and the third-party complaint;

4. The defendant to pay the costs of suit. [4]

On December 14, 1992, Dominion appealed the decision to the Court of Appeals. [5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.[7] On July 16, 1997, the Court of Appeals denied the motion. [8]
Hence, this appeal.[9]

The Issues

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

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.[10] The basis for agency is representation.[11] On the part of the principal, there must be an
actual intention to appoint[12] or an intention naturally inferrable from his words or actions;[13] and
on the part of the agent, there must be an intention to accept the appointment and act on
it,[14] and in the absence of such intent, there is generally no agency.[15]
A perusal of the Special Power of Attorney[16] would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word special in the title of the document, the contents reveal that what
was constituted was actually a general agency. The terms of the agreement read:

That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., a corporation duly [17]

organized and existing under and by virtue of the laws of the Republic of the Philippines,
xxx represented by the undersigned as Regional Manager, xxx do hereby appoint
RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our
Agency Manager in San Fdo., for our place and stead, to do and perform the following acts
and things:

1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as
usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents
and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds
for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and
receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing
payable or transferable to said Corporation by reason of or in connection with the above-
mentioned appointment.
4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation.[19] [Emphasis supplied]
The agency comprises all the business of the principal, [20] but, couched in general terms, it
is limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not require a
special power.[22] Thus, the acts enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:

Article 1878. Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special power of attorney is required before
respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum of
Management Agreement[23] dated February 18, 1987 which enumerates the scope of
respondent Guevarras duties and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
xxx xxx xxx

1. You are hereby given authority to settle and dispose of all motor car claims in the amount
of P5,000.00 with prior approval of the Regional Office.

2. Full authority is given you on TPPI claims settlement.

xxx xxx xxx[24]

In settling the claims mentioned above, respondent Guevarras authority is further limited
by the written standard authority to pay,[25] which states that the payment shall come from
respondent Guevarras revolving fund or collection. The authority to pay is worded as follows:

This is to authorize you to withdraw from your revolving fund/collection the amount of
PESOS __________________ (P ) representing the payment on the _________________
claim of assured _______________ under Policy No. ______ in that accident of
___________ at ____________.

It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.

(sgd.) FERNANDO C. AUSTRIA

Regional Manager [26]

[Emphasis supplied]

The instruction of petitioner as the principal could not be any clearer.

Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall
come from the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code,
which states that:

The principal is not liable for the expenses incurred by the agent in the following cases:

(1) If the agent acted in contravention of the principals instructions, unless the latter should
wish to avail himself of the benefits derived from the contract;

xxx xxx xxx

However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.

In this case, when the risk insured against occurred, petitioners liability as insurer arose.
This obligation was extinguished when respondent Guevarra paid the claims and obtained
Release of Claim Loss and Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule otherwise
would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims
could best be proven by the Release of Claim Loss and Subrogation Receipts [27] which were
attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the
total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be
deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the
Court of Appeals[28] and that of the Regional Trial Court, Branch 44, San
Fernando, Pampanga,[29] in that petitioner is ordered to pay respondent Guevarra the amount of
P112,672.11 representing the total amount advanced by the latter in the payment of the claims
of petitioners clients.
No costs in this instance.
SO ORDERED.
7.

THIRD DIVISION

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

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE

CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO
ARTIGO, respondents.

DECISION
CARPIO, J.:

The Case
 Before us is a Petition for Review on Certiorari[1] seeking to annul the Decision of the Court
of Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the
decision[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-
2631. The trial court disposed as follows:

WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro
jointly and solidarily liable to plaintiff the sum of:

a) P303,606.24 representing unpaid commission;

b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorneys fees;
d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20, 1991.

The Antecedent Facts

On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners
Constante A. De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for
brevity) to collect the unpaid balance of his brokers commission from the De Castros.[4] The
Court of Appeals summarized the facts in this wise:

x x x. Appellants were co-owners of four (4) lots located at EDSA corner New York
[5]

and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984
(Exhibit A-1, p. 144, Records), appellee was authorized by appellants to act as real
[6]

estate broker in the sale of these properties for the amount of P23,000,000.00, five percent
(5%) of which will be given to the agent as commission. It was appellee who first found Times
Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which
desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of
1985, the sale of lots 14 and 15 was consummated. Appellee received from
appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appellee
apparently felt short changed because according to him, his total commission
should be P352,500.00 which is five percent (5%) of the agreed price
of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2)
lots, and that it was he who introduced the buyer to appellants and unceasingly
facilitated the negotiation which ultimately led to the consummation of the
sale. Hence, he sued below to collect the balance of P303,606.24 after having
received P48,893.76 in advance.

On the other hand, appellants completely traverse appellees claims and essentially
argue that appellee is selfishly asking for more than what he truly deserved as
commission to the prejudice of other agents who were more instrumental in the
consummation of the sale. Although appellants readily concede that it was appellee
who first introduced Times Transit Corp. to them, appellee was not designated by
them as their exclusive real estate agent but that in fact there were more or less
eighteen (18) others whose collective efforts in the long run dwarfed those of
appellees, considering that the first negotiation for the sale where appellee took
active participation failed and it was these other agents who successfully brokered
in the second negotiation. But despite this and out of appellants pure liberality,
beneficence and magnanimity, appellee nevertheless was given the largest cut in
the commission (P48,893.76), although on the principle of quantum meruit he would
have certainly been entitled to less. So appellee should not have been heard to
complain of getting only a pittance when he actually got the lions share of the
commission and worse, he should not have been allowed to get the entire
commission. Furthermore, the purchase price for the two lots was only P3.6 million
as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus,
even assuming that appellee is entitled to the entire commission, he would only be
getting 5% of the P3.6 million, or P180,000.00.

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the
sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by
Constante clearly established a contract of agency between Constante and Artigo. Thus,
Artigo sought prospective buyers and found Times Transit Corporation (Times Transit for
brevity).Artigo facilitated the negotiations which eventually led to the sale of the two
lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on
the purchase price as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to
implead as indispensable parties the other co-owners of the two lots. The Court of Appeals
explained that it is not necessary to implead the other co-owners since the action is exclusively
based on a contract of agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting
parol evidence to prove the true amount paid by Times Transit to the De Castros for the two
lots.The Court of Appeals ruled that evidence aliunde could be presented to prove that the
actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of
sale.Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in
the deed of sale between the De Castros and Times Transit. The Court of Appeals explained
that, the rule that oral evidence is inadmissible to vary the terms of written instruments is
generally applied only in suits between parties to the instrument and strangers to the contract
are not bound by it. Besides, Artigo was not suing under the deed of sale, but solely under the
contract of agency. Thus, the Court of Appeals upheld the trial courts finding that the purchase
price was P7.05 million and not P3.6 million.
Hence, the instant petition.

The Issues

According to petitioners, the Court of Appeals erred in -

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

The Courts Ruling

The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead other co-
owners as indispensable parties

The De Castros argue that Artigos complaint should have been dismissed for failure to
implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that
the two lots were co-owned by Constante and Corazon with their other siblings Jose and
Carmela whom Constante merely represented. The De Castros contend that failure to implead
such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-
owners, would be paid with funds co-owned by the four co-owners.
The De Castros contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the courts action in the
litigation, and without whom no final determination of the case can be had. [7] The joinder of
indispensable parties is mandatory and courts cannot proceed without their
presence.[8] Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and order the
inclusion of such party.[9]
However, the rule on mandatory joinder of indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January
24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent
commission. The authority was on a first come, first serve basis. The authority reads in full:

24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is authorized as our real estate broker in
connection with the sale of our property located at Edsa Corner New York & Denver,
Cubao, Quezon City.

Asking price P23,000,000.00 with

5% commission as agents fee.

C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC
Constante signed the note as owner and as representative of the other co-owners. Under
this note, a contract of agency was clearly constituted between Constante and Artigo. Whether
Constante appointed Artigo as agent, in Constantes individual or representative capacity, or
both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-
owners as indispensable parties. The De Castros admit that the other co-owners are
solidarily liable under the contract of agency,[10] citing Article 1915 of the Civil Code, which
reads:

Art. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency.

The solidary liability of the four co-owners, however, militates against the De Castros theory
that the other co-owners should be impleaded as indispensable parties. A noted commentator
explained Article 1915 thus

The rule in this article applies even when the appointments were made by the
principals in separate acts, provided that they are for the same transaction. The
solidarity arises from the common interest of the principals, and not from the
act of constituting the agency. By virtue of this solidarity, the agent can
recover from any principal the whole compensation and indemnity owing to
him by the others. The parties, however, may, by express agreement, negate this
solidary responsibility. The solidarity does not disappear by the mere partition
effected by the principals after the accomplishment of the agency.

If the undertaking is one in which several are interested, but only some create the
agency, only the latter are solidarily liable, without prejudice to the effects
of negotiorum gestio with respect to the others. And if the power granted includes
various transactions some of which are common and others are not, only those
interested in each transaction shall be liable for it. [11]

When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.[12]The agent may recover the whole compensation from any one of the co-principals,
as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary
debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.[13] that

x x x solidarity does not make a solidary obligor an indispensable party in a

suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may
proceed against anyone of the solidary debtors or some or all of them
simultaneously. (Emphasis supplied)

Second Issue: whether Artigos claim has been extinguished by full payment, waiver or
abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given
his proportionate share and no longer entitled to any balance. According to them, Artigo was
just one of the agents involved in the sale and entitled to a proportionate share in the
commission. They assert that Artigo did absolutely nothing during the second negotiation but
to sign as a witness in the deed of sale. He did not even prepare the documents for the
transaction as an active real estate broker usually does.
The De Castros arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or
good custom is a valid contract, and constitutes the law between the parties. [14] The contract of
agency entered into by Constante with Artigo is the law between them and both are bound to
comply with its terms and conditions in good faith.
The mere fact that other agents intervened in the consummation of the sale and were paid
their respective commissions cannot vary the terms of the contract of agency granting Artigo a
5 percent commission based on the selling price. These other agents turned out to be
employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the
trial court to observe:

The alleged `second group of agents came into the picture only during the so-called
`second negotiation and it is amusing to note that these (sic) second group,
prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be
employees of Times Transit, the buyer of the properties. And their efforts were
limited to convincing Constante to part away with the properties because the
redemption period of the foreclosed properties is around the corner, so to speak.
(tsn. June 6, 1991).

xxx

To accept Constantes version of the story is to open the floodgates of fraud and
deceit. A seller could always pretend rejection of the offer and wait for sometime for
others to renew it who are much willing to accept a commission far less than the
original broker. The immorality in the instant case easily presents itself if one
has to consider that the alleged `second group are the employees of the
buyer, Times Transit and they have not bettered the offer secured by Mr.
Artigo for P7 million.

It is to be noted also that while Constante was too particular about the unrenewed
real estate brokers license of Mr. Artigo, he did not bother at all to inquire as to the
licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40). (Emphasis
[15]

supplied)

In any event, we find that the 5 percent real estate brokers commission is reasonable and
within the standard practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigos inaction as well as failure to protest estops him
from recovering more than what was actually paid him. The De Castros cite Article 1235 of the
Civil Code which reads:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness
and irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.

The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of
partial payment of his commission neither amounts to a waiver of the balance nor puts him in
estoppel. This is the import of Article 1235 which was explained in this wise:

The word accept, as used in Article 1235 of the Civil Code, means to take as
satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence,
the mere receipt of a partial payment is not equivalent to the required
acceptance of performance as would extinguish the whole
obligation. (Emphasis supplied)
[16]

There is thus a clear distinction between acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial payment without waiving the balance. Thus,
there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost four years later. Hence, Artigos claim for the
balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time,
to do that which by exercising due diligence could or should have been done earlier. It is
negligence or omission to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined to assert it. [17]
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent
on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court,
Artigo demanded in April and July of 1985 the payment of his commission by Constante on the
basis of the selling price of P7.05 million but there was no response from Constante.[18] After it
became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on
May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten
years from the time the right of action accrues.[19] The right of action accrues from the moment
the breach of right or duty occurs. From this moment, the creditor can institute the action even
as the ten-year prescriptive period begins to run.[20]
The De Castros admit that Artigos claim was filed within the ten-year prescriptive
period. The De Castros, however, still maintain that Artigos cause of action is barred by
laches. Laches does not apply because only four years had lapsed from the time of the sale in
June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989,
well within the ten-year prescriptive period. This does not constitute an unreasonable delay in
asserting ones right. The Court has ruled, a delay within the prescriptive period is
sanctioned by law and is not considered to be a delay that would bar relief. [21] In
explaining that laches applies only in the absence of a statutory prescriptive period, the Court
has stated -

Laches is recourse in equity. Equity, however, is applied only in the absence, never in
contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated by the Civil Code.[22]

Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence.

Third issue: whether the determination of the purchase price was made in violation of
the Rules on Evidence

The De Castros want the Court to re-examine the probative value of the evidence adduced
in the trial court to determine whether the actual selling price of the two lots was P7.05 million
and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent
commission on a purchase price of P7.05 million as ordered by the trial court and the appellate
court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the
deed of sale, the due execution and authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and parole evidence
rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial courts
reliance on the various correspondences between Constante and Times Transit which were
mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only
the first negotiations between Constante and Times Transit which failed; hence, these are
immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as
witness benefited therefrom, and being equally guilty, should be left where he presently
stands.They likewise claim that the Court of Appeals erred in relying on evidence which were
not offered for the purpose considered by the trial court. Specifically, Exhibits B, C, D and E
were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the
courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire
testimony of Artigo rejected as a falsehood because he was lying when he claimed at the
outset that he was a licensed real estate broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and
affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of
fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on
record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or
analyze or weigh the evidence again.[23] This Court is not the proper venue to consider a factual
issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under
Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case
of Cormero vs. Court of Appeals[24] bears reiteration:

At the outset, it is evident from the errors assigned that the petition is anchored on a
plea to review the factual conclusion reached by the respondent court. Such task
however is foreclosed by the rule that in petitions for certiorari as a mode of appeal,
like this one, only questions of law distinctly set forth may be raised. These
questions have been defined as those that do not call for any examination of the
probative value of the evidence presented by the parties. (Uniland Resources vs.
Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court
of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA
67). And when this court is asked to go over the proof presented by the parties, and
analyze, assess and weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the court cannot
and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349
[1991]). Thus, in the absence of any showing that the findings complained of are
totally devoid of support in the record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this court is not
expected or required to examine or contrast the oral and documentary evidence
submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing
Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).

We find no reason to depart from this principle. The trial and appellate courts are in a
much better position to evaluate properly the evidence. Hence, we find no other recourse but
to affirm their finding on the actual purchase price.

Fourth Issue: whether award of moral damages and attorneys fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damages and
attorneys fees. The De Castros, however, cite no concrete reason except to say that they are
the ones entitled to damages since the case was filed to harass and extort money from them.
Law and jurisprudence support the award of moral damages and attorneys fees in favor of
Artigo. The award of damages and attorneys fees is left to the sound discretion of the court,
and if such discretion is well exercised, as in this case, it will not be disturbed on
appeal.[25] Moral damages may be awarded when in a breach of contract the defendant acted in
bad faith, or in wanton disregard of his contractual obligation.[26] On the other hand, attorneys
fees are awarded in instances where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid, just and demandable claim.[27] There is no reason to
disturb the trial courts finding that the defendants lack of good faith and unkind treatment of the
plaintiff in refusing to give his due commission deserve censure. This warrants the award
of P25,000.00 in moral damages and P45,000.00 in attorneys fees. The amounts are, in our
view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed
his part of the bargain under the contract of agency. The De Castros should have exercised
fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain -
paying Artigo his 5 percent brokers commission based on the actual purchase price of the two
lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of
Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.
Puno, (Chairman), and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., no part due to close family relation with a party.

EMPLOYMENT CONTRACT

2.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179382 January 14, 2013

SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, Petitioners,

vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO PEA,* AND
VICENTE GADDI, Respondents.

DECISION

PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision1 and August 16, 2007
Resolution2of the Court of Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of the said
Decision reads:

WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 rendered
by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the effect that only defendants
AIB Security Agency, Inc., Cesario Pea and Vicente Gaddi are held jointly and severally liable to pay
plaintiffs-appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of Two Hundred
Thousand Pesos (200,000.00) representing the cost of the lost vehicle, and to pay the cost of suit.
The other monetary awards are DELETED for lack of merit and/or basis.

Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.

SO ORDERED.3

The Antecedent Facts

Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since 1971.
They would park their six (6) passenger jeepneys every night at the Boy Scout of the Philippines' (BSP)
compound located at 181 Concepcion Street, Malate, Manila for a fee of 300.00 per month for each
unit. On May 26, 1995 at 8 o'clock in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles with Plate No. DCG 392 was missing
and was never recovered.4 According to the security guards Cesario Pea (Pea) and Vicente Gaddi
(Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted5 for its security and
protection, a male person who looked familiar to them took the subject vehicle out of the compound.

On November 20, 1996, Sps. Mamaril filed a complaint6 for damages before the Regional Trial Court
(RTC) of Manila, Branch 39, against BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril
averred that the loss of the subject vehicle was due to the gross negligence of the above-named
security guards on-duty who allowed the subject vehicle to be driven out by a stranger despite their
agreement that only authorized drivers duly endorsed by the owners could do so. Pea and Gaddi even
admitted their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did not heed
Sps. Mamaril's demands for a conference to settle the matter. They therefore prayed that Pea and
Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject vehicle and its
accessories in the aggregate amount of 300,000.00; (b) 275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.

In its Answer,7 BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB
with respect to the manner by which the parked vehicles would be handled, but the parking ticket8 itself
expressly stated that the "Management shall not be responsible for loss of vehicle or any of its
accessories or article left therein." It also claimed that Sps. Mamaril erroneously relied on the Guard
Service Contract. Apart from not being parties thereto, its provisions cover only the protection of BSP's
properties, its officers, and employees.

In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the selection,
training and supervision of its security guards while Pea and Gaddi claimed that the person who drove
out the lost vehicle from the BSP compound represented himself as the owners' authorized driver and
had with him a key to the subject vehicle. Thus, they contended that Sps. Mamaril have no cause of
action against them.

The RTC Ruling

After due proceedings, the RTC rendered a Decision9 dated November 28, 2001 in favor of Sps.
Mamaril. The dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines and
AIB Security Agency, with security guards Cesario Pena and Vicente Gaddi: -

1. To pay the plaintiffs jointly and severally the cost of the vehicle which is 250,000.00 plus
accessories of 50,000.00;
 2. To pay jointly and severally to the plaintiffs the daily loss of the income/boundary of the said
jeepney to be reckoned fromits loss up to the final adjudication of the case, which is 275.00 a
day;

3. To pay jointly and severally to the plaintiffs moral damages in the amount of 50,000.00;

4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of 50,000.00;

5. To pay jointly and severally the attorney's fees of 50,000.00 and appearances in court the
amount of 1,500.00 per appearance; and

6. To pay cost.

SO ORDERED.10

The RTC found that the act of Pea and Gaddi in allowing the entry of an unidentified person and
letting him drive out the subject vehicle in violation of their internal agreement with Sps. Mamaril
constituted gross negligence, rendering AIB and its security guards liable for the former's loss. BSP
was also adjudged liable because the Guard Service Contract it entered into with AIB offered protection
to all properties inside the BSP premises, which necessarily included Sps. Mamaril's vehicles.
Moreover, the said contract stipulated AIB's obligation to indemnify BSP for all losses or damages that
may be caused by any act or negligence of its security guards. Accordingly, the BSP, AIB, and security
guards Pea and Gaddi were held jointly and severally liable for the loss suffered by Sps. Mamaril.

On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from
250,000.00 to 200,000.00.11

Only BSP appealed the foregoing disquisition before the CA.

The CA Ruling

In its assailed Decision,12 the CA affirmed the finding of negligence on the part of security guards Pea
and Gaddi. However, it absolved BSP from any liability, holding that the Guard Service Contract is
purely between BSP and AIB and that there was nothing therein that would indicate any obligation
and/or liability on the part of BSP in favor of third persons, such as Sps. Mamaril. Nor was there
evidence sufficient to establish that BSP was negligent.

It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract of lease
whereby the former paid parking fees to the latter for the lease of parking slots. As such, the lessor,
BSP, was not an insurer nor bound to take care and/or protect the lessees' vehicles.

On the matter of damages, the CA deleted the award of 50,000.00 representing the value of the
accessories inside the lost vehicle and the 275.00 a day for loss of income in the absence of proof to
support them. It also deleted the award of moral and exemplary damages and attorney's fees for lack of
factual and legal bases.

Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007 Resolution.13

Issues Before the Court

Hence, the instant petition based on the following assignment of errors, to wit:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING

RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM ANY LIABILITY.

II.
 THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT
RULED THAT THE GUARD SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT OF
THE

PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING THAT THERE IS
ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON THE PART OF THE PARTIES THEREIN IN FAVOR OF
THIRD PERSONS, SUCH AS PETITIONERS HEREIN.

III.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE

INTERPRETATION OF LAW WHEN IT CONSIDERED THE AGREEMENT BETWEEN BOY
SCOUT OF THE PHILIPPINES AND PETITIONERS A CONTRACT OF LEASE, WHEREBY
THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF PETITIONERS'
VEHICLES.

IV.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT

PETITIONERS ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14

In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle based on
the Guard Service Contract and the parking ticket it issued; and (2) the CA erred in deleting the RTC
awards of damages and attorney's fees.

The Court's Ruling

The petition lacks merit.

Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the same. Similarly, Article 2176 of the Civil
Code states:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was the
negligent act of security guards Pea and Gaddi in allowing an unidentified person to drive out the
subject vehicle. Proximate cause has been defined as that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury or loss, and without which
the result would not have occurred.15

Moreover, Pea and Gaddi failed to refute Sps. Mamaril's contention16 that they readily admitted being
at fault during the investigation that ensued.

On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hence, no
reversible error was committed by the CA in absolving it from any liability for the loss of the subject
vehicle based on fault or negligence.

Neither will the vicarious liability of an employer under Article 218017 of the Civil Code apply in this
case. It is uncontested that Pea and Gaddi were assigned as security guards by AIB to BSP pursuant
to the Guard Service Contract. Clearly, therefore, no employer-employee relationship existed between
BSP and the security guards assigned in its premises. Consequently, the latter's negligence cannot be
imputed against BSP but should be attributed to AIB, the true employer of Pea and Gaddi. 18

In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:

It is settled that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards and watchmen. Liability for
illegal or harmful acts committed by the security guards attaches to the employer agency, and not to the
clients or customers of such agency. As a general rule, a client or customer of a security agency has no
hand in selecting who among the pool of security guards or watchmen employed by the agency shall be
assigned to it; the duty to observe the diligence of a good father of a family in the selection of the
guards cannot, in the ordinary course of events, be demanded from the client whose premises or
property are protected by the security guards. The fact that a client company may give instructions or
directions to the security guards assigned to it, does not, by itself, render the client responsible as an
employer of the security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in the contract for
services entered into with the security agency.20

Nor can it be said that a principal-agent relationship existed between BSP and the security guards
Pea and Gaddi as to make the former liable for the latter's complained act. Article 1868 of the Civil
Code states that "by the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter." The
basis for agency therefore is representation,21which element is absent in the instant case. Records
show that BSP merely hired the services of AIB, which, in turn, assigned security guards, solely for the
protection of its properties and premises. Nowhere can it be inferred in the Guard Service Contract that
AIB was appointed as an agent of BSP. Instead, what the parties intended was a pure principal-client
relationship whereby for a consideration, AIB rendered its security services to BSP.

Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on the basis
of the Guard Service Contract that the latter entered into with AIB and their parking agreement with
BSP.

Such contention cannot be sustained.

Article 1311 of the Civil Code states:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a
stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the contract; (3) The
contracting parties clearly and deliberately conferred a favor to the third person - the favor is not merely
incidental; (4) The favor is unconditional and uncompensated; (5) The third person communicated his
or her acceptance of the favor before its revocation; and (6) The contracting parties do not represent, or
are not authorized, by the third party.22 However, none of the foregoing elements obtains in this case.

It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract.1wphi1 Neither did the
subject agreement contain any stipulation pour autrui. And even if there was, Sps. Mamaril did not
convey any acceptance thereof. Thus, under the principle of relativity of contracts, they cannot validly
claim any rights or favor under the said agreement.23 As correctly found by the CA:

First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Security
Agency is purely between the parties therein. It may be observed that although the whereas clause of
the said agreement provides that defendant-appellant desires security and protection for its compound
and all properties therein, as well as for its officers and employees, while inside the premises, the same
should be correlated with paragraph 3(a) thereof which provides that the security agency shall
indemnify defendant-appellant for all losses and damages suffered by it attributable to any act or
negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of defendant AIB Security Agency for the
purpose of the security and protection of its properties, as well as that of its officers and employees, so
much so that in case of loss of [sic] damage suffered by it as a result of any act or negligence of the
guards, the security agency would then be held responsible therefor. There is absolutely nothing in the
said contract that would indicate any obligation and/or liability on the part of the parties therein in favor
of third persons such as herein plaintiffs-appellees.24

Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was
one of lease25 as defined under Article 164326 of the Civil Code. It has been held that the act of parking
a vehicle in a garage, upon payment of a fixed amount, is a lease.27 Even in a majority of American
cases, it has been ruled that where a customer simply pays a fee, parks his car in any available space
in the lot, locks the car and takes the key with him, the possession and control of the car, necessary
elements in bailment, do not pass to the parking lot operator, hence, the contractual relationship
between the parties is one of lease.28

In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound for a
monthly fee of 300.00 for each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP. On this score, Article 1654 of the Civil Code
provides that "the lessor (BSP) is obliged: (1) to deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended; (2) to make on the same during the lease all the
necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a
stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate enjoyment of the
lease for the entire duration of the contract." In relation thereto, Article 1664 of the same Code states
that "the lessor is not obliged to answer for a mere act of trespass which a third person may cause on
the use of the thing leased; but the lessee shall have a direct action against the intruder." Here, BSP
was not remiss in its obligation to provide Sps. Mamaril a suitable parking space for their jeepneys as it
even hired security guards to secure the premises; hence, it should not be held liable for the loss
suffered by Sps. Mamaril.

It bears to reiterate that the subject loss was caused by the negligence of the security guards in
allowing a stranger to drive out plaintiffs-appellants' vehicle despite the latter's instructions that only
their authorized drivers may do so. Moreover, the agreement with respect to the ingress and egress of
Sps. Mamaril's vehicles were coordinated only with AIB and its security guards,29 without the
knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles that resulted in
herein complained loss should be recovered only from the tort feasors (Pea and Gaddi) and their
employer, AIB; and not against the lessor, BSP.30

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

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

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

WHEREFORE premises considered, the instant petition is DENIED. The May 31, 2007 Decision and
August 16, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.
SO ORDERED.

CONTRACT OF SALE

5.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

SPOUSES FERNANDO G.R. No. 188288

and LOURDES VILORIA,

 Petitioners, Present:

CARPIO, J.,

Chairperson,

PEREZ,
- versus - SERENO,

REYES, and

BERNABE, JJ.

Promulgated:
CONTINENTAL AIRLINES, INC.,

Respondent.
January 16, 2012

x------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30,
2009 Decision of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R.
1

CV No. 88586 entitled Spouses Fernando and Lourdes Viloria v. Continental Airlines,
Inc., the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74,

dated 03 April 2006, awarding US$800.00 or its peso equivalent at the time of
payment, plus legal rate of interest from 21 July 1997 until fully paid,
[P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages,
 [P]40,000.00 as attorneys fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellants counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED. 2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money and damages filed
by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively
called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from
the records, below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for
himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California
to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at
US$400.00 each from a travel agency called Holiday Travel and was attended to by a
certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the
said tickets after Mager informed them that there were no available seats at Amtrak, an
intercity passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an

earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental
Airlines were already fully booked and offered the alternative of a round trip flight via
Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per
passenger and would mean traveling by night, Fernando opted to request for a refund.
Mager, however, denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets within one (1)
year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats
with Frontier Air.
 As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and
was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
Amtrak tickets, telling her that she had misled them into buying the Continental Airlines
tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his
demand for a refund but Mager was firm in her position that the subject tickets are non-
refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998,
demanding a refund and alleging that Mager had deluded them into purchasing the subject
tickets.
3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that
his complaint had been referred to the Customer Refund Services of Continental Airlines at
Houston, Texas. 4

In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request
for a refund and advised him that he may take the subject tickets to any Continental ticketing
location for the re-issuance of new tickets within two (2) years from the date they were
issued. Continental Micronesia informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. 5

On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue,
Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles,
California under his name. Therein, Fernando was informed that Lourdes ticket was non-
transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay
what will not be covered by the value of his San Diego to Newark round trip ticket.
 In a letter dated June 21, 1999, Fernando demanded for the refund of the subject
tickets as he no longer wished to have them replaced. In addition to the dubious
circumstances under which the subject tickets were issued, Fernando claimed that CAIs act
of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other
airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket, breached its
undertaking under its March 24, 1998 letter. 6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that
CAI be ordered to refund the money they used in the purchase of the subject tickets with
legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00
as exemplary damages and P250,000.00 as attorneys fees. 7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a
refund as the subject tickets are non-refundable; (b) Fernando cannot insist on using the
ticket in Lourdes name for the purchase of a round trip ticket to Los Angeles since the same
is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts;
(d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to
moral and exemplary damages and attorneys fees. CAI also invoked the following clause
printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket,
(ii) applicable tariffs, (iii) carriers conditions of carriage and related
regulations which are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in the United States
or Canada and any place outside thereof to which tariffs in force in those
countries apply. 8

According to CAI, one of the conditions attached to their contract of carriage is the
non-transferability and non-refundability of the subject tickets.

The RTCs Ruling

 Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding
that Spouses Viloria are entitled to a refund in view of Magers misrepresentation in
obtaining their consent in the purchase of the subject tickets. The relevant portion of the
9

April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was
less candid and diligent in presenting to plaintiffs spouses their booking
options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but
defendants agent misled him into purchasing Continental Airlines tickets
instead on the fraudulent misrepresentation that Amtrak was fully booked. In
fact, defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked

into buying Continental Airline tickets on Ms. Magers misleading
misrepresentations. Continental Airlines agent Ms. Mager further relied on and
exploited plaintiff Fernandos need and told him that they must book a flight
immediately or risk not being able to travel at all on the couples preferred date.
Unfortunately, plaintiffs spouses fell prey to the airlines and its agents
unethical tactics for baiting trusting customers. 10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAIs
agent, hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned,
there is no issue as to whether Mager was CAIs agent in view of CAIs implied recognition
of her status as such in its March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following
are the pertinent New Civil Code provisions on agency:

Art. 1868. By the contract of agency a person binds himself

to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.

Art. 1869. Agency may be express, or implied from the acts

of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
 Agency may be oral, unless the law requires a specific
form.

As its very name implies, a travel agency binds itself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter. This court takes judicial notice of the common
services rendered by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours as well as the
issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the

plaintiff spouses on July 21, 1997 were no different from those offered in any
other travel agency. Defendant airline impliedly if not expressly acknowledged
its principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt
feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking
to replace the subject tickets within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it
refused to allow Fernando to use Lourdes ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue.
When defendant airline still charged plaintiffs spouses US$1,867.40 or more
than double the then going rate of US$856.00 for the unused tickets when the
same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers. 12

The Appellate Courts Ruling

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI
cannot be held liable for Magers act in the absence of any proof that a principal-agent
relationship existed between CAI and Holiday Travel. According to the CA, Spouses
Viloria, who have the burden of proof to establish the fact of agency, failed to present
evidence demonstrating that Holiday Travel is CAIs agent. Furthermore, contrary to
Spouses Vilorias claim, the contractual relationship between Holiday Travel and CAI is not
an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel

who was in turn a ticketing agent of Holiday Travel who was in turn a ticketing
agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.

We do not agree. By the contract of agency, a person binds him/herself

to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. The elements of agency are:
(1) consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is representation,
there must be, on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principals words or actions. In the same
manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no
agency. It is likewise a settled rule that persons dealing with an assumed agent
are bound at their peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. Agency
is never presumed, neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents so far presented.
We find nothing except bare allegations of plaintiffs-appellees that
Mager/Holiday Travel was acting in behalf of Continental Airlines. From all
sides of legal prism, the transaction in issue was simply a contract of sale,
wherein Holiday Travel buys airline tickets from Continental Airlines and then,
through its employees, Mager included, sells it at a premium to clients. 13

The CA also ruled that refund is not available to Spouses Viloria as the word non-
refundable was clearly printed on the face of the subject tickets, which constitute their
contract with CAI. Therefore, the grant of their prayer for a refund would violate the
proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses
Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los Angeles.
According to the CA, there is no compulsion for CAI to charge the lower amount of
US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter
of fixing the prices for its services is CAIs prerogative, which Spouses Viloria cannot
intervene. In particular:

It is within the respective rights of persons owning and/or operating business

entities to peg the premium of the services and items which they provide at a
price which they deem fit, no matter how expensive or exhorbitant said price
may seem vis--vis those of the competing companies. The Spouses Viloria
may not intervene with the business judgment of Continental Airlines. 14

The Petitioners Case

In this Petition, this Court is being asked to review the findings and conclusions of the
CA, as the latters reversal of the RTCs April 3, 2006 Decision allegedly lacks factual and
legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a
higher amount for a round trip ticket to Los Angeles considering CAIs undertaking to re-
issue new tickets to them within the period stated in their March 24, 1998 letter. CAI
likewise acted in bad faith when it disallowed Fernando to use Lourdes ticket to purchase a
round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that it is
non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the terms
and conditions of their contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably,
the petitioners are no longer questioning the validity of the subject contracts and limited its
claim for a refund on CAIs alleged breach of its undertaking in its March 24, 1998 letter.

The Respondents Case

In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is negated
by its willingness to issue new tickets to them and to credit the value of the subject tickets
against the value of the new ticket Fernando requested. CAI argued that Spouses Vilorias
sole basis to claim that the price at which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence an advertisement appearing on a newspaper
stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00. Also,
15

the advertisement pertains to airfares in September 2000 and not to airfares prevailing in
June 1999, the time when Fernando asked CAI to apply the value of the subject tickets for
the purchase of a new one. CAI likewise argued that it did not undertake to protect Spouses
16

Viloria from any changes or fluctuations in the prices of airline tickets and its only
obligation was to apply the value of the subject tickets to the purchase of the newly issued
tickets.

With respect to Spouses Vilorias claim that they are not aware of CAIs restrictions
on the subject tickets and that the terms and conditions that are printed on them are
ambiguous, CAI denies any ambiguity and alleged that its representative informed Fernando
that the subject tickets are non-transferable when he applied for the issuance of a new ticket.
On the other hand, the word non-refundable clearly appears on the face of the subject
tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no
principal-agency relationship exists between them. As an independent contractor, Holiday
Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CAs January 30, 2009 Decision and
whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it
necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday

Travel, is CAI bound by the acts of Holiday Travels agents and
employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travels agents and
employees, can the representation of Mager as to unavailability of seats
at Amtrak be considered fraudulent as to vitiate the consent of Spouse
Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and
non-refundable?
 e. Is CAI justified in pegging a different price for the round trip ticket to Los
Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses
Viloria to apply the value of the subject tickets in the purchase of new
ones when it refused to allow Fernando to use Lourdes ticket and in
charging a higher price for a round trip ticket to Los Angeles?

This Courts Ruling

I. A principal-agent relationship exists between

CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court
to review and re-examine the evidence presented by the parties below, this Court takes
exception to the general rule that the CAs findings of fact are conclusive upon Us and our
jurisdiction is limited to the review of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of fact if confronted with
contrasting factual findings of the trial court and appellate court and if the findings of the CA
are contradicted by the evidence on record. 17

According to the CA, agency is never presumed and that he who alleges that it exists
has the burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented
evidence that fell short of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial

that Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the
contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed
to apply the fundamental civil law principles governing agency and differentiating it from
sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the
18

nature of an agency and spelled out the essential elements thereof:

 Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself, and (4) the agent acts within
the scope of his authority.

Agency is basically personal, representative, and derivative in nature.

The authority of the agent to act emanates from the powers granted to him by
his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case.
The first and second elements are present as CAI does not deny that it concluded an
agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of
carriage with third persons on CAIs behalf. The third element is also present as it is
undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and
not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel
on its behalf. The fourth element is also present considering that CAI has not made any
allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday Travel executed
with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation.
That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its
behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it
impliedly recognized the validity of the contracts entered into by Holiday Travel with
Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to
them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.

Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it
gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf.
As clearly extant from the records, CAI recognized the validity of the contracts of carriage
that Holiday Travel entered into with Spouses Viloria and considered itself bound with
Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal
testament to Holiday Travels authority to act as its agent. This Court cannot therefore allow
CAI to take an altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in recognition
of Holiday Travels authority. Estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice. Estoppel bars CAI
20

from making such denial.

As categorically provided under Article 1869 of the Civil Code, [a]gency may be
express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without
authority.

Considering that the fundamental hallmarks of an agency are present, this Court finds
it rather peculiar that the CA had branded the contractual relationship between CAI and
Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult
to discern and this Court, as early as 1970, had already formulated the guidelines that would
aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino, this Court extrapolated that the primordial differentiating consideration
21

between the two (2) contracts is the transfer of ownership or title over the property subject of
the contract. In an agency, the principal retains ownership and control over the property and
the agent merely acts on the principals behalf and under his instructions in furtherance of
the objectives for which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do with
the property as he pleases.

Since the company retained ownership of the goods, even as it delivered

possession unto the dealer for resale to customers, the price and terms of which
were subject to the company's control, the relationship between the company
and the dealer is one of agency, tested under the following criterion:

The difficulty in distinguishing between contracts of sale and the

creation of an agency to sell has led to the establishment of rules by the
application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is
the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor
for the agreed price, and not merely as an agent who must account for
the proceeds of a resale, the transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as his property, but as the
property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds
less the agent's commission upon sales made. 1 Mechem on Sales, Sec.
 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on
Sales, 1. (Salisbury v. Brooks, 94 SE 117, 118-119) 22

As to how the CA have arrived at the conclusion that the contract between CAI and
Holiday Travel is a sale is certainly confounding, considering that CAI is the one bound by
the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf.
It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines,
and this conclusively indicates the existence of a principal-agent relationship. That the
principal is bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal

can only be held liable for the tort committed by
its agents employees if it has been established by
preponderance of evidence that the principal was
also at fault or negligent or that the principal
exercise control and supervision over them.

Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI is
liable for the fault or negligence of Holiday Travels employees? Citing China Air Lines,
Ltd. v. Court of Appeals, et al., CAI argues that it cannot be held liable for the actions of the
23

employee of its ticketing agent in the absence of an employer-employee relationship.

An examination of this Courts pronouncements in China Air Lines will reveal that an
airline company is not completely exonerated from any liability for the tort committed by its
agents employees. A prior determination of the nature of the passengers cause of action is
necessary. If the passengers cause of action against the airline company is premised
on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline
companys agent, there must be an independent showing that the airline company was at
fault or negligent or has contributed to the negligence or tortuous conduct committed by the
employee of its agent. The mere fact that the employee of the airline companys agent has
committed a tort is not sufficient to hold the airline company liable. There is no vinculum
juris between the airline company and its agents employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie between
the airline company and its agents employees. Article 2180 of the Civil Code does not make
the principal vicariously liable for the tort committed by its agents employees and the
principal-agency relationship per se does not make the principal a party to such tort; hence,
the need to prove the principals own fault or negligence.
 On the other hand, if the passengers cause of action for damages against the airline
company is based on contractual breach or culpa contractual, it is not necessary that there be
evidence of the airline companys fault or negligence. As this Court previously stated
in China Air Lines and reiterated in Air France vs. Gillego, in an action based on a breach
24

of contract of carriage, the aggrieved party does not have to prove that the common carrier
was at fault or was negligent. All that he has to prove is the existence of the contract and the
fact of its non-performance by the carrier.

Spouses Vilorias cause of action on the basis of Magers alleged fraudulent

misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing
contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to
prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAIs alleged liability can
be substantiated. Apart from their claim that CAI must be held liable for Magers supposed
fraud because Holiday Travel is CAIs agent, Spouses Viloria did not present evidence that
CAI was a party or had contributed to Magers complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by
the terms and conditions of the subject contracts, which Mager entered into with them on
CAIs behalf, in order to deny Spouses Vilorias request for a refund or Fernandos use of
Lourdes ticket for the re-issuance of a new one, and simultaneously claim that they are not
bound by Magers supposed misrepresentation for purposes of avoiding Spouses Vilorias
claim for damages and maintaining the validity of the subject contracts. It may likewise be
argued that CAI cannot deny liability as it benefited from Magers acts, which were
performed in compliance with Holiday Travels obligations as CAIs agent.

However, a persons vicarious liability is anchored on his possession of control,

whether absolute or limited, on the tortfeasor. Without such control, there is nothing which
could justify extending the liability to a person other than the one who committed the tort.
As this Court explained in Cangco v. Manila Railroad Co.: 25

With respect to extra-contractual obligation arising from negligence,

whether of act or omission, it is competent for the legislature to elect and
our Legislature has so elected to limit such liability to cases in which the
person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without
 regard to the lack of moral culpability, so as to include responsibility for
the negligence of those persons whose acts or omissions are imputable, by a
legal fiction, to others who are in a position to exercise an absolute or
limited control over them. The legislature which adopted our Civil Code has
elected to limit extra-contractual liability with certain well-defined
exceptions to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to
exercise due care in one's own acts, or in having failed to exercise due care in
the selection and control of one's agent or servants, or in the control of persons
who, by reasons of their status, occupy a position of dependency with respect to
the person made liable for their conduct. (emphasis supplied)
26

It is incumbent upon Spouses Viloria to prove that CAI exercised control or

supervision over Mager by preponderant evidence. The existence of control or supervision
cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion.
Citing Belen v. Belen, this Court ruled in Jayme v. Apostol, that:
27 28

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an
alleged employment relationship. The defendant is under no obligation to prove
the negative averment. This Court said:

It is an old and well-settled rule of the courts that the

burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his
claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of
Section 297 of the Code of Civil Procedure holding that each
party must prove his own affirmative allegations, etc. (citations
29

omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels
employees or that CAI was equally at fault, no liability can be imposed on CAI for Magers
supposed misrepresentation.

III. Even on the assumption that CAI may be

held liable for the acts of Mager, still,
Spouses Viloria are not entitled to a refund.
Magers statement cannot be considered a
causal fraud that would justify the
annulment of the subject contracts that
 would oblige CAI to indemnify Spouses
Viloria and return the money they paid for
the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent
of the contracting parties was obtained through fraud, the contract is considered voidable and
may be annulled within four (4) years from the time of the discovery of the fraud. Once a
contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to
each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernandos consent to the subject contracts was supposedly secured by Mager through
fraudulent means, it is plainly apparent that their demand for a refund is tantamount to
seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine
whether Magers alleged misrepresentation constitutes causal fraud. Similar to the dispute on
the existence of an agency, whether fraud attended the execution of a contract is factual in
nature and this Court, as discussed above, may scrutinize the records if the findings of the
CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to
the making of the contract. In Samson v. Court of Appeals, causal fraud was defined as a
30 31

deception employed by one party prior to or simultaneous to the contract in order to secure
the consent of the other.
32

Also, fraud must be serious and its existence must be established by clear and
convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al., mere
33

preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil Code:

 Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would not
have agreed to.

Art. 1344. In order that fraud may make a contract

voidable, it should be serious and should not have been employed
by both contracting parties.

To quote Tolentino again, the misrepresentation constituting the fraud

must be established by full, clear, and convincing evidence, and not merely by
a preponderance thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim. 34

After meticulously poring over the records, this Court finds that the fraud alleged by
Spouses Viloria has not been satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and
convincing evidence that Magers statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey
on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Magers alleged fraud, which is Fernandos
testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak, to
be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that
during the intervening period of three (3) weeks from the time Fernando purchased the
subject tickets to the time he talked to said Amtrak employee, other passengers may have
cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to
accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations
and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of
Court, it is presumed that "a person is innocent of crime or wrong" and that "private
transactions have been fair and regular." Spouses Viloria failed to overcome this
35

presumption.
IV. Assuming the contrary, Spouses Viloria are
nevertheless deemed to have ratified the subject
contracts.

Even assuming that Magers representation is causal fraud, the subject contracts have
been impliedly ratified when Spouses Viloria decided to exercise their right to use the
subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,
ratification extinguishes the action to annul a voidable contract.

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as
follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood

that there is a tacit ratification if, with knowledge of the reason which renders
the contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to
waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by

acts showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. 36

Simultaneous with their demand for a refund on the ground of Fernandos vitiated
consent, Spouses Viloria likewise asked for a refund based on CAIs supposed bad faith in
reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila
to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject
contracts based on contractual breach. Resolution, the action referred to in Article 1191, is
based on the defendants breach of faith, a violation of the reciprocity between the
parties and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, this Court
37 38

ruled that a claim for a reimbursement in view of the other partys failure to comply with his
obligations under the contract is one for rescission or resolution.
 However, annulment under Article 1390 of the Civil Code and rescission under
Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the
contract valid are present; in annulment, one of the essential elements to a formation of a
contract, which is consent, is absent. In resolution, the defect is in the consummation stage of
the contract when the parties are in the process of performing their respective obligations; in
annulment, the defect is already present at the time of the negotiation and perfection stages
of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the
Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to
demand their annulment. A party cannot rely on the contract and claim rights or obligations
under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions.39

V. Contracts cannot be rescinded for a slight or

casual breach.

CAI cannot insist on the non-transferability of the

subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated
consent, the next question is: Do Spouses Viloria have the right to rescind the contract on
the ground of CAIs supposed breach of its undertaking to issue new tickets upon surrender
of the subject tickets?

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of

the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
 This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject
contracts when it refused to apply the value of Lourdes ticket for Fernandos purchase of a
round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price
fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that non-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket for $75.00, per ticket,
reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).

Clearly, there is nothing in the above-quoted section of CAIs letter from which the
restriction on the non-transferability of the subject tickets can be inferred. In fact, the words
used by CAI in its letter supports the position of Spouses Viloria, that each of them can use
the ticket under their name for the purchase of new tickets whether for themselves or for
some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to
use the subject tickets for the purchase of a round trip ticket between Manila and Los
Angeles that he was informed that he cannot use the ticket in Lourdes name as payment.

Contrary to CAIs claim, that the subject tickets are non-transferable cannot be
implied from a plain reading of the provision printed on the subject tickets stating that [t]o
the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carriers conditions of
carriage and related regulations which are made part hereof (and are available on application
at the offices of carrier) x x x. As a common carrier whose business is imbued with public
interest, the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or
all of its passengers for that matter, of all the terms and conditions governing their contract
of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of
carriage to impute knowledge on its passengers of and demand compliance with a certain
condition or undertaking that is not clearly stipulated. Since the prohibition on transferability
is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria
thereof, CAI cannot refuse to apply the value of Lourdes ticket as payment for Fernandos
purchase of a new ticket.

CAIs refusal to accept Lourdes ticket for the

purchase of a new ticket for Fernando is only a
casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is

not absolute. The general rule is that rescission of a contract will not be permitted for a slight
or casual breach, but only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement. Whether a breach is substantial is
40

largely determined by the attendant circumstances. 41

While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment
for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets
was not clearly stipulated, it cannot, however be considered substantial. The endorsability of
the subject tickets is not an essential part of the underlying contracts and CAIs failure to
comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses
Vilorias surrender of the subject tickets. This Court takes note of CAIs willingness to
perform its principal obligation and this is to apply the price of the ticket in Fernandos name
to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial payment as the case may be for
the purchase of any ticket, albeit under her name and for her exclusive use. In other words,
CAIs willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes ticket is non-transferable.

Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot be
solely faulted for the fact that their agreement failed to consummate and no new ticket was
issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket
between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the
difference between the price of the subject tickets and the amount fixed by CAI. The
petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them
tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its
March 24, 1998 letter, it was clearly stated that [n]on-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket and there is nothing in
42

it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in
the prices of tickets or that the surrender of the subject tickets will be considered as full
payment for any ticket that the petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAIs right and exclusive prerogative to
fix the prices for its services and it may not be compelled to observe and maintain the prices
of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different

matter, which does not preclude CAI from fixing the price of a round trip ticket between
Manila and Los Angeles in an amount it deems proper and which does not provide Spouses
Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value
of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant
obligation to pay whatever is not covered by the value of the subject tickets whether or not
the subject tickets are transferable or not.

There is also no showing that Spouses Viloria were discriminated against in bad faith
by being charged with a higher rate. The only evidence the petitioners presented to prove
that the price of a round trip ticket between Manila and Los Angeles at that time was only
$856.00 is a newspaper advertisement for another airline company, which is inadmissible for
being hearsay evidence, twice removed. Newspaper clippings are hearsay if they were
offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court
of Appeals,:44

[N]ewspaper articles amount to hearsay evidence, twice removed and are

therefore not only inadmissible but without any probative value at all whether
objected to or not, unless offered for a purpose other than proving the truth of
the matter asserted. In this case, the news article is admissible only as evidence
that such publication does exist with the tenor of the news therein
stated. (citations omitted)
45

The records of this case demonstrate that both parties were equally in default; hence,
none of them can seek judicial redress for the cancellation or resolution of the subject
contracts and they are therefore bound to their respective obligations thereunder. As the
1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined which of the parties first violated the
 contract, the same shall be deemed extinguished, and each shall bear his own
damages. (emphasis supplied)

Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the
purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their
refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract
between them remains, hence, CAI is duty bound to issue new tickets for a destination
chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are
obliged to pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of
Appeals. Thus:
46

Since both parties were in default in the performance of their respective

reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they
are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and
surcharges, for not paying his overdue P17,000.00 debt. x x x. 47

Another consideration that militates against the propriety of holding CAI liable for
moral damages is the absence of a showing that the latter acted fraudulently and in bad faith.
Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages
are generally not recoverable in culpa contractual except when bad faith had been
proven. The award of exemplary damages is likewise not warranted. Apart from the
48

requirement that the defendant acted in a wanton, oppressive and malevolent manner, the
claimant must prove his entitlement to moral damages. 49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
 CONTRACT OF BROKERAGE

1.
SPECIAL SECOND DIVISION

[G.R. No. 154499. February 27, 2004]

ALBERTO V. REYES, WILFREDO B. DOMO-ONG and HERMINIO C.

PRINCIPIO, petitioners, vs. RURAL BANK OF SAN MIGUEL
(BULACAN), INC., represented by HILARIO P. SORIANO, President
and Principal Stockholder, respondent.

RESOLUTION
Tinga, J.:

This deals with the Motion for Reconsideration of petitioners Alberto V. Reyes and Wilfredo
B. Domo-ong, both Bangko Sentral ng Pilipinas (BSP) officials,[1] and the Motion for Partial
Reconsideration of respondent Rural Bank of San Miguel (Bulacan), Inc.
In the Decision[2] of March 14, 2003, this Court found Deputy Governor Reyes and Director
Domo-ong liable for violation of the standards of professionalism prescribed by the Code of
Conduct and Ethical Standards for Public Officials and Employees (Republic Act No. 6713) in
that they used the distressed financial condition of respondent Rural Bank of San Miguel
(Bulacan), Inc. (RBSMI) as the subject of a case study in one of the BSP seminars and did the
brokering of the sale of RBSMI. The Court modified the Decision of the Court of Appeals in
CA-GR SP No. 60184[3] by reducing the penalty imposed by the appellate court from a fine
equivalent to six months salary to a fine of two months salary for Reyes and one month salary
for Domo-ong.
In the Decision, the Court exonerated petitioner Herminio C. Principio [4] of the
administrative charges. The exoneration is the subject of RBSMIs Motion For Partial
Reconsideration.
The Motion for Reconsideration of Reyes and Domo-ong is anchored on the following
grounds: (1) it was not under their auspices that the seminar which used training materials
containing two case studies on RBSMIs financial distress was conducted but under that of
another department and other officials of BSP; and, (2) they did not do any act which
constituted brokering of the sale of RBSMI or deviated from the standards of professionalism.
A brief revisit of the operative milieu is warranted to gain the needed perspective.
In a letter dated May 19, 1999, addressed to then BSP Governor Singson, RBSMI charged
the petitioners with violation of Republic Act No. 6713 (Code of Conduct and Ethical Standards
for Public Officials and Employees). The Monetary Board (MB) of the BSP created an Ad
Hoc Committee to investigate the matter.
The ensuing investigation disclosed that sometime in September 1996, RBSMI, which had
a history of major violations/exceptions dating back to 1995, underwent periodic examination
by the BSP. The examination team headed by Principio noted 20 serious exceptions/violations
and deficiencies of RBSMI.[5]
Through Resolution No. 96, the MB required RBSMI to submit within 15 days a written
explanation with respect to the findings of the examiner. It also directed the Department of
Rural Banks (DRB), to verify, monitor and report to the Deputy Governor, Supervision and
Examination Sector (SES) on the findings/exceptions noted, until the same shall have been
corrected.
As directed by the MB, another examination team conducted a special examination on
RBSMI. RBSMI President Hilario Soriano claimed that he was pressured into issuing a
memorandum to the bank employees authorizing the team to review the banks accounting and
internal control system.
Soriano also alleged that sometime in March 1997, Reyes started urging him to consider
selling the bank. He specified that on May 28, 1997, Reyes introduced him through telephone
to Mr. Exequiel Villacorta, President and Chief Executive Officer of the TA Bank. They agreed
to meet on the following day. In his Affidavit,[6] Villacorta confirmed that he and Soriano indeed
met but the meeting never got past the exploratory stage since he (Villacorta) immediately
expressed disinterest because Soriano wanted to sell all his equity shares while he was merely
contemplating a possible buy-in.
Soriano further alleged that when the talks with Villacorta failed, Reyes asked him whether
he wanted to meet another buyer, to which he answered in the affirmative. Thereafter, Reyes
introduced him by telephone to Benjamin P. Castillo of the Export and Industry Bank (EIB),
whom he met on June 26, 1997. No negotiation took place because Soriano desired a total
sale while EIB merely desired a joint venture arrangement or a buy-in to allow EIB to gain
control of RBSMI.
Meanwhile, on June 13, 1997, the MB approved Resolution No. 724[7] ordering RBSMI to
correct the major exceptions noted within 30 days from receipt of the advice, and to remit to
the BSP the amount of P2,538,483.00 as fines and penalties for incurring deficiencies in
reserves against deposit liabilities.
On July 21, 1997, Soriano submitted RBSMIs answers to the BSP exceptions/findings
mentioned. He stated that the actions taken or to be taken by the bank (RBSMI) were
deliberated and ratified by the Board of Directors in its regular meeting held on July 9, 1997.
Among the board approved actions was the banks request addressed to Domo-ong for BSP to
debit the demand deposit of the bank in the amount of P2,538,483.00 representing the
payment of fines and penalties.
More than a year after, however, the RBSMI asked for a reconsideration of
MB Resolution No. 724 insofar as the imposition of fine amounting to P2,538,483.00. On
January 21, 1999, the MB adopted Resolution No. 71,[8] authorizing the conditional reversal of
sixty percent (60%) of the penalty pending resolution of the dispute on the findings on reserve
deficiency.Subsequently, on April 7, 1999, the MB approved the interim reversal of the entire
amount of the penalty pending the outcome of the study on the legal and factual basis for the
imposition of the penalty.
The above incidents, particularly the alleged brokering by Reyes and the petitioners
unsupported recommendation to impose a penalty of P2,538,483.00 for legal reserve
deficiency, prompted the respondent to file the letter-complaint charging the petitioners with
unprofessionalism.
The Motion for Reconsideration bid of Reyes and Domo-ong is meritorious.
In pinning liability on Reyes and Domo-ong for the seminar which used the rural bank as a
case study, the court made this ratiocination, viz:

(W)hile there was indeed no evidence showing that either petitioner Reyes or petitioner
Domo-ong distributed or used the materials, the very fact that the seminar was conducted
under their auspices is enough to make them liable to a certain extent. Petitioner Reyes, as
Head of the BSP Supervision and Examination Sector, and petitioner Domo-ong, as Director
of the BSP Department of Rural Banks, should have exercised their power of control and
supervision so that the incident could have been prevented or at the very least remedied.
(Emphasis supplied)
 Plainly, conclusion on petitioners culpability is grounded, not on an established fact but on
a mere inference that the seminar was conducted under their auspices. Indeed, the
pronouncement on the petitioners role is evidently conjectural and evaluation of the extent of
their responsibility admittedly uncertain.
It is conceded that there was no evidence that the seminar was conducted under
petitioners patronage. And it was assumed, as indeed there was absolutely paucity of proof,
that they exercised supervision and control over the persons responsible in organizing the
seminar. On the contrary, as shown in the Motion For Reconsideration, it was the Bangko
Sentral ng Pilipinas Institute (BSPI), an office separate and independent from the SES which is
directly under the control and supervision of another Deputy Governor, that for the Resource
Management Sector (RMS)[9] which is charged with conducting seminars and lectures for the
BSP, including the seminar involved in this case.
In its Comment,[10] RBSMI argues that since information on the state of its finances found
its way as a training material of RMS, the event could have transpired only because the SES
permitted it. Even if the subordinates of petitioners were the source of information, RBSMI
further claims in ostensible reference to the principle of command responsibility, petitioners
could be held liable for negligence.
It is noteworthy again that petitioners alleged role in the disclosure of information is not
anchored on any concrete piece of evidence. That explains the RBSMIs effort to cast liability
vicariously on the petitioners by a superficial resort to the principle of command responsibility
which this Court did not reject. But neither the principle itself which is an accepted notion in
military or police structural dynamics or its counterpart of respondent superior in the law on
quasi-delicts[11] would be relevant in this case, involving as it does the actual performance in
office of the petitioners and given the fact that petitioners are high ranking officers of the
countrys central monetary authority. Indeed, as such officers, petitioners cannot be expected
to monitor the activities of their subalterns. In Arias v. Sandiganbayan,[12] this Court held that all
heads of offices have to rely to a reasonable extent on the good faith of their subordinates. The
case specifically involved the liability of the head of office in the preparation of bids, purchase
of supplies and contract negotiations done by his subordinates. In the same fashion,
petitioners in this case owing to their high ranks cannot be expected to acquaint themselves
with such minutiae as the flow of files and documents which leave their desks. Myriad details
such as those are, by office practice, left to subalterns and minor employees. Delegation of
function is part of sound management.
From another perspective, the negligence of the subordinate cannot be ascribed to his
superior in the absence of evidence of the latters own negligence. Indeed, the negligence of
the subordinate is not tantamount to negligence of the superior official so the Court ruled in a
case[13] where the mandated responsibilities of the superior do not include actual monitoring of
projects. In another case,[14] this Court rejected the principle of command responsibility although
the case involved a provincial constabulary commander, aptly noting that there was neither
allegation nor proof that he had been in any way guilty of fault or negligence in connection with
the unlawful raid and arrest effected by his subordinates.
The immunity of public officers from liability for the non-feasances, negligence or
omissions of duty of their official subordinates and even for the latters misfeasances or positive
wrongs rests, according to Mechem, upon obvious considerations of public policy, the
necessities of the public service and the perplexities and embarrassments of a contrary
doctrine.[15] These official subordinates, he notes further, are themselves public officers though
of an inferior grade, and therefore directly liable in the cases in which any public officer is
liable, for their own misdeeds or defaults.[16]
Significantly, Mechems disquisition provides the mooring of the Administrative Code of
1987 which provides that a head of a department or a superior officer shall not be civilly liable
for the wrongful acts, omissions of duty, negligence, or misfeasance of his subordinates,
unless he has actually authorized by written order the specific act or misconduct complained
of.[17]
 Now, the label of unprofessionalism bestowed by the Court on the petitioners at the
instance of RBSMI.
In the assailed Decision, the Court categorized Reyes telephone introduction of officials of
other banks to RBSMIs President in connection with the latters expressed desire to sell the
bank as brokering which in turn constitutes, according to the Court, violation of the standards
of professionalism. The standards are set forth in Section 4 (A) (b) of Republic Act 6713, as
follows:

Sec. 4. Norms of Conduct of Public Officials and Employees. (A) Every public official and
employee shall observe the following as standards of personal conduct in the discharge and
execution of official duties:

...

(b) Professionalism. Public officials and employees shall perform and discharge their duties
with the highest degree of excellence, professionalism, intelligence and skill. They shall
enter public service with utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or peddlers of undue patronage.

The Court equates brokering with unprofessionalism. According to Websters Third New
International Dictionary, professionalism means the conduct, aims, or qualities that
characterize or mark a profession. Any standard thesaurus defines a professional as a person
who engages in an activity with great competence. Indeed, to call a person a professional is to
describe him as competent, efficient, experienced, proficient or polished.
The crucial question, therefore, is whether Reyes conducted himself in an unprofessional
manner in doing the acts imputed to him.
The Court rules in the negative.
In the first place, the acts of Reyes do not constitute brokering. Case law[18] defines a
broker as one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator between other parties,
never acting in his own name but in the name of those who employed him. . . . a broker is one
whose occupation is to bring the parties together, in matters of trade, commerce or
navigation. According to Bouviers Law Dictionary, brokerage refers to the trade or occupation
of a broker; the commissions paid to a broker for his services, while brokers are those who are
engaged for others on the negotiation of contracts relative to property, with the custody of
which they have no concern.[19]
Thus, the word brokering clearly indicates the performance of certain acts for monetary
consideration or compensation. To give it another definition such as that imputed by RBSMI to
the acts of Reyes is to distort the accepted jurisprudential meaning of the term.
From the evidence, all that Reyes did was to introduce RBSMIs President to the President
of TA Bank and EIB. Nothing more. There was not even a hint that he was motivated by
monetary consideration or swayed by any personal interest in doing what he did.
On his part, Soriano who is RBSMIs President himself admitted that the talks with
Villacorta and Castillo never got past the exploratory stage because the two wanted a buy-in
while he was for a total sell-out. This is an indelible indication that Reyes was not personally
involved in the transaction. If he were, he would at least have an inkling of the plans of
Villacorta and Castillo; otherwise, he would not have wasted his time introducing them to
Soriano.
Indeed, RBSMI miserably failed to establish that Reyes had breached the standard of
professional conduct required of a public servant. It appears to the Court that in keeping with
the standards of professionalism and heeding the mandate of his position, he made the
telephone introductions for no other purpose but to pave the way for a possible consolidation
or merger of RBSMI with interested banks. As this Court found in its Decision, it is indeed the
policy of the BSP to promote mergers and consolidations by providing incentives to banks that
would undergo such corporate combinations.[20] To effectively implement the policy, it was
necessary that the banks be advised and assisted by a person knowledgeable about the
transactions like Reyes. The benefits which may ultimately arise out of any preliminary
facilitation step such as what Reyes undertook will not accrue to the facilitator but to the parties
to the transaction themselves and, of course, the institution whose policy initiative is being
carried out.
All told, there is neither legal nor factual support for holding Reyes and Domo-ong liable.
As to the motion for partial reconsideration filed by RBSMI, it is argued that Principio
should be administratively penalized for his undue haste in submitting his report to the MB, in
making an unsupported recommendation for imposition of penalties for legal reserve
deficiencies, and for taking charge of the examinations of RBSMI three consecutive
times. RBSMIs arguments are not new, they having been previously presented to and squarely
ruled upon by the Court.
In closing, it cannot be overemphasized that the BSP is an independent body corporate
bestowed under its charter[21] with fiscal and administrative autonomy. As such, its officials
should be granted a certain degree of flexibility in the performance of their duties and provided
insulation from interference and vexatious suits, especially when moves of the kind are
resorted to as counterfoil to the exercise of their regulatory mandate. Elsewise, the institutional
independence and autonomy of the BSP as the central mandatory authority would be rendered
illusory.
IN VIEW OF THE FOREGOING, the Court RESOLVES to GRANT the Motion for
Reconsideration of the petitioners Deputy Governor Alberto V. Reyes and Director Wilfredo B.
Domo-ong. The Decision dated March 14, 2003 is SET ASIDE and another entered,
DISMISSING the administrative complaint and EXONERATING all the petitioners. The Motion
for Partial Reconsideration of the respondent Rural Bank of San Miguel (Bulacan), Inc. is
DENIED.
SO ORDERED.
Quisumbing, (Acting Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.
Puno, (Chairman), J., on leave.
 2.
FIRST DIVISION

ABACUS SECURITIES G.R. No. 160016

CORPORATION,
Petitioner, Present:
Panganiban, CJ,
Chairman,
Ynares-Santiago,
- versus - Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
Promulgated:
RUBEN U. AMPIL,
Respondent. February 27, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, CJ:

S
tock market transactions affect the general public and the national
economy. The rise and fall of stock market indices reflect to a considerable
degree the state of the economy. Trends in stock prices tend to herald
changes in business conditions. Consequently, securities transactions are
impressed with public interest, and are thus subject
to public regulation. In particular, the laws and regulations requiring payment of
traded shares within specified periods are meant to protect the economy from
excessive stock market speculations, and are thus mandatory.

In the present case, respondent cannot escape payment of stocks validly traded
by petitioner on his behalf. These transactions took place before both parties
violated the trading law and rules. Hence, they fall outside the purview of the pari
delicto rule.

The Case

Before the Court is a Petition for Review[1] under Rule 45 of the Rules of

Court, challenging the March 21, 2003 Decision[2] and the September 19, 2003

Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 68273. The

assailed Decision disposed as follows:

UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is

hereby DISMISSED. With costs.[4]

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

The Facts
 The factual antecedents were summarized by the trial court (and
reproduced by the CA in its assailed Decision) in this wise:

Evidence adduced by the [petitioner] has established the fact that

[petitioner] is engaged in business as a broker and dealer of securities of
listed companies at the Philippine Stock Exchange Center.

Sometime in April 1997, [respondent] opened a cash or regular

account with [petitioner] for the purpose of buying and selling securities as
evidenced by the Account Application Form. The parties business
relationship was governed by the terms and conditions [stated therein] x x
x.

Since April 10, 1997, [respondent] actively traded his account, and
as a result of such trading activities, he accumulated an outstanding
obligation in favor of [petitioner] in the principal sum of P6,617,036.22 as
of April 30, 1997.

Despite the lapse of the period within which to pay his account as well as
sufficient time given by [petitioner] for [respondent] to comply with his
proposal to settle his account, the latter failed to do so. Such that
[petitioner] thereafter sold [respondents] securities to set off against his
unsettled obligations.

After the sale of [respondents] securities and application of the proceeds

thereof against his account, [respondents] remaining unsettled obligation
to [petitioner] was P3,364,313.56. [Petitioner] then referred the matter to its
legal counsel for collection purposes.

In a letter dated August 15, 1997, [petitioner] through counsel

demanded that [respondent] settle his obligation plus the agreed penalty
charges accruing thereon equivalent to the average 90-day Treasury Bill
rate plus 2% per annum (200 basis points).

In a letter dated August [26], 1997, [respondent] acknowledged

receipt of [petitioners] demand [letter] and admitted his unpaid obligation
and at the same time request[ed] for 60 days to raise funds to pay the
same, which was granted by [petitioner].

Despite said demand and the lapse of said requested extension,

[respondent] failed and/or refused to pay his accountabilities to [petitioner].
 For his defense, [respondent] claims that he was induced to trade in
a stock security with [petitioner] because the latter allowed offset
settlements wherein he is not obliged to pay the purchase price. Rather, it
waits for the customer to sell. And if there is a loss, [petitioner] only
requires the payment of the deficiency (i.e., the difference between the
higher buying price and the lower selling price). In addition, it charges a
commission for brokering the sale.

However, if the customer sells and there is a profit, [petitioner]

deducts the purchase price and delivers only the surplus after charging its
commission.

[Respondent] further claims that all his trades with [petitioner] were
not paid in full in cash at anytime after purchase or within the T+4 [4 days
subsequent to trading] and none of these trades was cancelled by
[petitioner] as required in Exhibit A-1. Neither did [petitioner] apply with
either the Philippine Stock Exchange or the SEC for an extension of time
for the payment or settlement of his cash purchases. This was not brought
to his attention by his broker and so with the requirement of collaterals in
margin account. Thus, his trade under an offset transaction with [petitioner]
is unlimited subject only to the discretion of the broker. x x x [Had
petitioner] followed the provision under par. 8 of Exh. A-1 which stipulated
the liquidation within the T+3 [3 days subsequent to trading], his net deficit
would only be P1,601,369.59. [Respondent] however affirmed that this is
not in accordance with RSA [Rule 25-1 par. C, which mandates that if you
do not pay for the first] order, you cannot subsequently make any further
order without depositing the cash price in full. So, if RSA Rule 25-1, par. C,
was applied, he was limited only to the first transaction. That [petitioner]
did not comply with the T+4 mandated in cash transaction. When
[respondent] failed to comply with the T+3, [petitioner] did not require him
to put up a deposit before it executed its subsequent orders. [Petitioner]
did not likewise apply for extension of the T+4 rule.Because of the offset
transaction, [respondent] was induced to [take a] risk which resulted [in]
the filing of the instant suit against him [because of which] he suffered
sleepless nights, lost appetite which if quantified in money, would amount
to P500,000.00 moral damages and P100,000.00 exemplary damages.[5]

In its Decision[6] dated June 26, 2000, the Regional Trial Court (RTC) of Makati
City (Branch 57) held that petitioner violated Sections 23 and 25 of the Revised
Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA
Rules) when it failed to: 1) require the respondent to pay for his stock purchases
within three (T+3) or four days (T+4) from trading; and 2) request from the
appropriate authority an extension of time for the payment of respondents cash
purchases. The trial court noted that despite respondents non-payment within
the required period, petitioner did not cancel the purchases of
respondent. Neither did it require him to deposit cash payments before it
executed the buy and/or sell orders subsequent to the first unsettled
transaction. According to the RTC, by allowing respondent to trade his account
actively without cash, petitioner effectively induced him to purchase securities
thereby incurring excessive credits.

The trial court also found respondent to be equally at fault, by incurring

excessive credits and waiting to see how his investments turned out before
deciding to invoke the RSA. Thus, the RTC concluded that petitioner and
respondent were in pari delicto and therefore without recourse against each other.

Ruling of the Court of Appeals

The CA upheld the lower courts finding that the parties were in pari

delicto. It castigated petitioner for allowing respondent to keep on trading

despite the latters failure to pay his outstanding obligations. It explained that

the reason [behind petitioners act] is elemental in its simplicity. And it is not

exactly altruistic.Because whether [respondents] trading transaction would

result in a surplus or deficit, he would still be liable to pay [petitioner] its

commission. [Petitioners] cash register will keep on ringing to the sound of

incoming money, no matter what happened to [respondent].[7]

The CA debunked petitioners contention that the trial court lacked

jurisdiction to determine violations of the RSA. The court a quo held that
petitioner was estopped from raising the question, because it had actively and
voluntarily participated in the assailed proceedings.
 Hence, this Petition.[8]

Issues

Petitioner submits the following issues for our consideration:

I.

Whether or not the Court of Appeals ruling that petitioner and respondent
are in pari delicto which allegedly bars any recovery, is in accord with law
and applicable jurisprudence considering that respondent was the first one
who violated the terms of the Account Opening Form, [which was the]
agreement between the parties.

II.

Whether or not the Court of Appeals ruling that the petitioner and
respondent are in pari delicto is in accord with law and applicable
jurisprudence considering the Account Opening Form is a valid agreement.

III.

Whether or not the Court of Appeals ruling that petitioner cannot recover
from respondent is in accord with law and applicable jurisprudence since
the evidence and admission of respondent proves that he is liable to
petitioner for his outstanding obligations arising from the stock trading
through petitioner.

IV.

Whether or not the Court of Appeals ruling on petitioners alleged violation

of the Revised Securities Act [is] in accord with law and jurisprudence
since the lower court has no jurisdiction over violations of the Revised
Securities Act.[9]

Briefly, the issues are (1) whether the pari delicto rule is applicable in the
present case, and (2) whether the trial court had jurisdiction over the case.
 The Courts Ruling

The Petition is partly meritorious.

Main Issue:

Applicability of the

Pari Delicto Principle

In the present controversy, the following pertinent facts are undisputed: (1) on
April 8, 1997, respondent opened a cash account with petitioner for his
transactions in securities;[10] (2) respondents purchases were consistently unpaid
from April 10 to 30, 1997;[11] (3) respondent failed to pay in full, or even just his
deficiency,[12] for the transactions on April 10 and 11, 1997;[13] (4) despite
respondents failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondents account on April 25 and 29; [14] (5)
petitioner did not cancel or liquidate a substantial amount of respondents stock
transactions until May 6, 1997.[15]

The provisions governing the above transactions are Sections 23 and 25 of

the RSA[16] and Rule 25-1 of the RSA Rules, which state as follows:

SEC. 23. Margin Requirements.

xxxxxxxxx

(b) It shall be unlawful for any member of an exchange or any

broker or dealer, directly or indirectly, to extend or maintain credit or

arrange for the extension or maintenance of credit to or for any customer

(1) On any security other than an exempted security, in

contravention of the rules and regulations which the Commission shall

prescribe under subsection (a) of this Section;

(2) Without collateral or on any collateral other than securities,

except (i) to maintain a credit initially extended in conformity with the rules

and regulations of the Commission and (ii) in cases where the extension or

maintenance of credit is not for the purpose of purchasing or carrying

securities or of evading or circumventing the provisions of subparagraph

(1) of this subsection.

xxxxxxxxx

SEC. 25. Enforcement of margin requirements and restrictions on borrowings. To

prevent indirect violations of the margin requirements under Section 23

hereof, the broker or dealer shall require the customer in nonmargin

transactions to pay the price of the security purchased for his account

within such period as the Commission may prescribe, which shall in no

case exceed three trading days; otherwise, the broker shall sell the

security purchased starting on the next trading day but not beyond ten

trading days following the last day for the customer to pay such purchase

price, unless such sale cannot be effected within said period for justifiable
reasons. The sale shall be without prejudice to the right of the broker or

dealer to recover any deficiency from the customer. x x x.

RSA RULE 25-1

Purchases and Sales in Cash Account

(a) Purchases by a customer in a cash account shall be paid in full

within three (3) business days after the trade date.

(b) If full payment is not received within the required time period, the
broker or dealer shall cancel or otherwise liquidate the transaction, or the
unsettled portion thereof, starting on the next business day but not beyond
ten (10) business days following the last day for the customer to pay,
unless such sale cannot be effected within said period for justifiable
reasons.

(c) If a transaction is cancelled or otherwise liquidated as a result of

non-payment by the customer, prior to any subsequent purchase during
the next ninety (90) days, the customer shall be required to deposit
sufficient funds in the account to cover each purchase transaction prior to
execution.

xxxxxxxxx

(f) Written application for an extension of the period of time required

for payment under paragraph (a) be made by the broker or dealer to the
Philippine Stock Exchange, in the case of a member of the Exchange, or to
the Commission, in the case of a non-member of the Exchange.
Applications for the extension must be based upon exceptional
circumstances and must be filed and acted upon before the expiration of
the original payment period or the expiration of any subsequent extension.
Section 23(b) above -- the alleged violation of petitioner which provides the basis
for respondents defense -- makes it unlawful for a broker to extend or maintain
credit on any securities other than in conformity with the rules and regulations
issued by Securities and Exchange Commission (SEC). Section 25 lays down the
rules to prevent indirect violations of Section 23 by brokers or dealers. RSA Rule
25-1 prescribes in detail the regulations governing cash accounts.

The United States, from which our countrys security policies are
patterned,[17] abound with authorities explaining the main purpose of the above
statute on margin[18] requirements. This purpose is to regulate the volume of
credit flow, by way of speculative transactions, into the securities market and
redirect resources into more productive uses. Specifically, the main objective of
the law on margins is explained in this wise:

The main purpose of these margin provisions xxx is not to increase the

safety of security loans for lenders. Banks and brokers normally require

sufficient collateral to make themselves safe without the help of law. Nor is

the main purpose even protection of the small speculator by making it

impossible for him to spread himself too thinly although such a result will

be achieved as a byproduct of the main purpose.

xxxxxxxxx

The main purpose is to give a [g]overnment credit agency an effective

method of reducing the aggregate amount of the nations credit resources

 which can be directed by speculation into the stock market and out of other

more desirable uses of commerce and industry x x x.[19]

A related purpose of the governmental regulation of margins is the

stabilization of the economy.[20] Restrictions on margin percentages are imposed
in order to achieve the objectives of the government with due regard for the
promotion of the economy and prevention of the use of excessive credit.[21]

Otherwise stated, the margin requirements set out in the RSA are primarily
intended to achieve a macroeconomic purpose -- the protection of the overall
economy from excessive speculation in securities. Their recognized secondary
purpose is to protect small investors.

The law places the burden of compliance with margin requirements

primarily upon the brokers and dealers.[22] Sections 23 and 25 and Rule 25-1,
otherwise known as the mandatory close-out rule,[23] clearly vest upon petitioner
the obligation, not just the right, to cancel or otherwise liquidate a customers
order, if payment is not received within three days from the date of
purchase. The word shall as opposed to the word may, is imperative and operates
to impose a duty, which may be legally enforced. For transactions subsequent to an
unpaid order, the broker should require its customer to deposit funds into the
account sufficient to cover each purchase transaction prior to its
execution. These duties are imposed upon the broker to ensure faithful
compliance with the margin requirements of the law, which forbids a broker
from extending undue credit to a customer.

It will be noted that trading on credit (or margin trading) allows investors
to buy more securities than their cash position would normally allow. [24]Investors
pay only a portion of the purchase price of the securities; their broker advances
for them the balance of the purchase price and keeps the securities as collateral
for the advance or loan.[25] Brokers take these securities/stocks to their bank and
borrow the balance on it, since they have to pay in full for the traded
stock. Hence, increasing margins[26] i.e., decreasing the amounts which brokers
may lend for the speculative purchase and carrying of stocks is the most direct
and effective method of discouraging an abnormal attraction of funds into the
stock market and achieving a more balanced use of such resources.

x x x [T]he x x x primary concern is the efficacy of security credit controls in

preventing speculative excesses that produce dangerously large and rapid

securities price rises and accelerated declines in the prices of given

securities issues and in the general price level of securities. Losses to a

given investor resulting from price declines in thinly margined securities

are not of serious significance from a regulatory point of view. When forced

sales occur and put pressures on securities prices, however, they may

cause other forced sales and the resultant snowballing effect may in turn

have a general adverse effect upon the entire market.[27]

The nature of the stock brokerage business enables brokers, not the clients, to
verify, at any time, the status of the clients account.[28] Brokers, therefore, are in
the superior position to prevent the unlawful extension of credit.[29] Because of
this awareness, the law imposes upon them the primary obligation to enforce the
margin requirements.

Right is one thing; obligation is quite another. A right may not be exercised; it
may even be waived. An obligation, however, must be performed; those who do
not discharge it prudently must necessarily face the consequence of their
dereliction or omission.[30]

Respondent Liable for the First,

But Not for the Subsequent Trades

Nonetheless, these margin requirements are applicable only to transactions

entered into by the present parties subsequent to the initial trades of April 10 and
11, 1997. Thus, we hold that petitioner can still collect from respondent to the
extent of the difference between the latters outstanding obligation as of April 11,
1997 less the proceeds from the mandatory sell out of the shares pursuant to the
RSA Rules. Petitioners right to collect is justified under the general law on
obligations and contracts.[31]

Article 1236 (second paragraph) of the Civil Code, provides:

 Whoever pays for another may demand from the debtor what he has

paid, except that if he paid without the knowledge or against the will of the

debtor, he can recover only insofar as the payment has been beneficial to

the debtor. (Emphasis supplied)

Since a brokerage relationship is essentially a contract for the employment of an

agent, principles of contract law also govern the broker-principal relationship.[32]

The right to collect cannot be denied to petitioner as the initial transactions were
entered pursuant to the instructions of respondent. The obligation of respondent
for stock transactions made and entered into on April 10 and 11, 1997 remains
outstanding. These transactions were valid and the obligations incurred by
respondent concerning his stock purchases on these dates subsist. At that time,
there was no violation of the RSA yet. Petitioners fault arose only when it failed
to: 1) liquidate the transactions on the fourth day following the stock purchases,
or on April 14 and 15, 1997; and 2) complete its liquidation no later than ten
days thereafter, applying the proceeds thereof as payment for respondents
outstanding obligation.[33]

Elucidating further, since the buyer was not able to pay for the transactions that
took place on April 10 and 11, that is at T+4, the broker was duty-bound to
advance the payment to the settlement banks without prejudice to the right of
the broker to collect later from the client.[34]
In securities trading, the brokers are essentially the counterparties to the stock
transactions at the Exchange.[35] Since the principals of the broker are generally
undisclosed, the broker is personally liable for the contracts thus made. [36] Hence,
petitioner had to advance the payments for respondents trades. Brokers have a
right to be reimbursed for sums advanced by them with the express or implied
authorization of the principal,[37] in this case, respondent.

It should be clear that Congress imposed the margin requirements to protect the
general economy, not to give the customer a free ride at the expense of the
broker.[38] Not to require respondent to pay for his April 10 and 11 trades would
put a premium on his circumvention of the laws and would enable him to enrich
himself unjustly at the expense of petitioner.

In the present case, petitioner obviously failed to enforce the terms and
conditions of its Agreement with respondent, specifically paragraph 8 thereof,
purportedly acting on the plea[39] of respondent to give him time to raise funds
therefor. These stipulations, in relation to paragraph 4,[40] constituted faithful
compliance with the RSA. By failing to ensure respondents payment of his first
purchase transaction within the period prescribed by law, thereby allowing him
to make subsequent purchases, petitioner effectively converted respondents cash
account into a credit account. However, extension or maintenance of credits on
nonmargin transactions, are specifically prohibited under Section 23(b). Thus,
petitioner was remiss in its duty and cannot be said to have come to court with
clean hands insofar as it intended to collect on transactions subsequent to the
initial trades of April 10 and 11, 1997.
Respondent Equally Guilty

for Subsequent Trades

On the other hand, we find respondent equally guilty in entering into the
transactions in violation of the RSA and RSA Rules. We are not prepared to
accept his self-serving assertions of being an innocent victim in all the
transactions. Clearly, he is not an unsophisticated, small investor merely prodded
by petitioner to speculate on the market with the possibility of large profits with
low -- or no -- capital outlay, as he pictures himself to be. Rather, he is an
experienced and knowledgeable trader who is well versed in the securities market
and who made his own investment decisions. In fact, in the Account Opening
Form (AOF), he indicated that he had excellent knowledge of stock investments;
had experience in stocks trading, considering that he had similar accounts with
other firms.[41]Obviously, he knowingly speculated on the market, by taking
advantage of the no-cash-out arrangement extended to him by petitioner.

We note that it was respondent who repeatedly asked for some time to pay his
obligations for his stock transactions. Petitioner acceded to his requests. It is only
when sued upon his indebtedness that respondent raised as a defense the
invalidity of the transactions due to alleged violations of the RSA. It was
respondents privilege to gamble or speculate, as he apparently did so by asking
for extensions of time and refraining from giving orders to his broker to sell, in
the hope that the prices would rise. Sustaining his argument now would amount
to relieving him of the risk and consequences of his own speculation and
saddling them on the petitioner after the result was known to be
unfavorable.[42] Such contention finds no legal or even moral justification and
must necessarily be overruled.Respondents conduct is precisely the behavior of
an investor deplored by the law.

In the final analysis, both parties acted in violation of the law and did not come
to court with clean hands with regard to transactions subsequent to the initial
trades made on April 10 and 11, 1997. Thus, the peculiar facts of the present
case bar the application of the pari delicto rule -- expressed in the maxims Ex dolo
malo non oritur action and In pari delicto potior est conditio defendentis -- to all the
transactions entered into by the parties. The pari delecto rule refuses legal remedy
to either party to an illegal agreement and leaves them where they were.[43] In this
case, the pari delicto rule applies only to transactions entered into after the initial
trades made on April 10 and
11, 1997.

Since the initial trades are valid and subsisting obligations, respondent is liable
for them. Justice and good conscience require all persons to satisfy their
debts.Ours are courts of both law and equity; they compel fair dealing; they do
not abet clever attempts to escape just obligations. Ineludibly, this Court would
not hesitate to grant relief in accordance with good faith and conscience.

Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction
(sold the stocks) on the fourth day following the transaction (T+4) and
completed its liquidation not later than ten days following the last day for the
customer to pay (effectively T+14). Respondents outstanding obligation is
therefore to be determined by using the closing prices of the stocks purchased at
T+14 as basis.

We consider the foregoing formula to be just and fair under the

circumstances. When petitioner tolerated the subsequent purchases of respondent
without performing its obligation to liquidate the first failed transaction, and
without requiring respondent to deposit cash before embarking on trading stocks
any further, petitioner, as the broker, violated the law at its own peril. Hence, it
cannot now complain for failing to obtain the full amount of its claim for
these latter transactions.

On the other hand, with respect to respondents counterclaim for damages for
having been allegedly induced by petitioner to generate additional purchases
despite his outstanding obligations, we hold that he deserves no legal or equitable
relief consistent with our foregoing finding that he was not an innocent investor
as he presented himself to be.

Second Issue:

Jurisdiction

It is axiomatic that the allegations in the complaint, not the defenses set up
in the answer or in the motion to dismiss determine which court has jurisdiction
over an action.[44] Were we to be governed by the latter rule, the question of
jurisdiction would depend almost entirely upon the defendant.[45]

The instant controversy is an ordinary civil case seeking to enforce rights

arising from the Agreement (AOF) between petitioner and respondent. It relates
to acts committed by the parties in the course of their business relationship. The
purpose of the suit is to collect respondents alleged outstanding debt to
petitioner for stock purchases.

To be sure, the RSA and its Rules are to be read into the Agreement
entered into between petitioner and respondent. Compliance with the terms of
the AOF necessarily means compliance with the laws. Thus, to determine
whether the parties fulfilled their obligations in the AOF, this Court had to pass
upon their compliance with the RSA and its Rules. This, in no way, deprived the
Securities and Exchange Commission (SEC) of its authority to determine willful
violations of the RSA and impose appropriate sanctions therefor, as provided
under Sections 45 and 46 of the Act.

Moreover, we uphold the SEC in its Opinion, thus:

As to the issue of jurisdiction, it is settled that a party cannot invoke the

jurisdiction of a court to secure affirmative relief against his opponent and

after obtaining or failing to obtain such relief, repudiate or question that

same jurisdiction.
 Indeed, after voluntarily submitting a cause and encountering an adverse

decision on the merits, it is too late for petitioner to question the

jurisdictional power of the court. It is not right for a party who has affirmed

and invoked the jurisdiction of a court in a particular matter to secure an

affirmative relief, to afterwards deny that same jurisdiction to escape a

penalty.[46]

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby MODIFIED. Respondent is ordered to pay petitioner the difference
between the formers outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of shares pursuant to the RSA Rules, with
interest thereon at the legal rate until fully paid.

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

respondents outstanding obligation using the closing prices of the stocks at
T+14 as basis -- counted from April 11, 1997 and to issue the proper order for
payment if warranted. It may hold trial and hear the parties to be able to make
this determination.
No finding as to costs in this instance.

SO ORDERED.
 8.
SECOND DIVISION

[G.R. No. 150678. February 18, 2005]

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs.

COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO
and ESTELA A. FLOR, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review of the Decision[1] of the Court of Appeals (CA) affirming in
toto the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case
No. 15664 which awarded to the respondents their 5% brokers commission.
The facts are as follows:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the
Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a
buyer of a foreclosed asset of the bank,[3] a 17-hectare mango plantation priced
at P2,200,000.00, located in Ibaan, Batangas.[4]
Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs.
Pacita G. Borbon, a licensed real estate broker. The two met through a previous transaction
where Lee responded to an ad in a newspaper put up by Borbon for an 8-hectare property in
Lubo, Batangas, planted with atis trees. Lee expressed that he preferred a land with mango
trees instead. Borbon promised to get back to him as soon as she would be able to find a
property according to his specifications.
Borbon relayed to her business associates and friends that she had a ready buyer for a
mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which
was up for sale. She told Flor to confer with Medrano and to give them a written authority to
negotiate the sale of the property.[5] Thus, on September 3, 1986, Medrano issued the Letter of
Authority, as follows:
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio
Campos Rueda Building
Tindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig

23 Mabini Street
Quezon City, M.M.

Dear Mesdames:

This letter will serve as your authority* to negotiate with any prospective buyer for the sale
of a certain real estate property more specifically a mango plantation which is described
more particularly therein below:

Location : Barrio Tulay-na-Patpat, Ibaan,

Batangas
 Lot Area : 17 hectares (more or less) per
attached Appendix A
Improvements : 720 all fruit-bearing mango trees
(carabao variety) and other trees
Price : P 2,200,000.00

For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a
commission of 5% of the total purchase price to be agreed upon by the buyer and seller.

Very truly yours,

(Sgd.)
B.R. Medrano
Owner

* Subject to price sale.[6]

The respondents arranged for an ocular inspection of the property together with Lee which
never materialized the first time was due to inclement weather; the next time, no car was
available for the tripping to Batangas.[7] Lee then called up Borbon and told her that he was on
his way to Lipa City to inspect another property, and might as well also take a look at the
property Borbon was offering. Since Lee was in a hurry, the respondents could no longer
accompany him at the time. Thus, he asked for the exact address of the property and the
directions on how to reach the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to
get in touch with Medranos daughter and also an officer of the bank, Mrs. Teresa Ganzon,
regarding the property.[8]
Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result
of his ocular inspection. Lee told her that the mango trees looked sick so he was bringing an
agriculturist to the property. Three weeks thereafter, Antonio called Lee again to make a
follow-up of the latters visit to Ibaan. Lee informed her that he already purchased the property
and had made a down payment of P1,000,000.00. The remaining balance of P1,200,000.00
was to be paid upon the approval of the incorporation papers of the corporation he was
organizing by the Securities and Exchange Commission. According to Antonio, Lee asked her
if they had already received their commission. She answered no, and Lee expressed surprise
over this.[9]
A Deed of Sale was eventually executed on November 6, 1986 between the bank,
represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB
Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price
of P1,200,000.00.[10] Since the sale of the property was consummated, the respondents asked
from the petitioners their commission, or 5% of the purchase price. The petitioners refused to
pay and offered a measly sum of P5,000.00 each.[11] Hence, the respondents were constrained
to file an action against herein petitioners.
The petitioners alleged that Medrano issued the letter of authority in favor of all the
respondents, upon the representation of Flor that she had a prospective buyer. Flor was the
only person known to Medrano, and he had never met Borbon and Antonio. Medrano had
asked that the name of their prospective buyer be immediately registered so as to avoid
confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had
never met nor dealt with the respondents in connection with the sale of the property. Ganzon
also asked Lee if he had an agent and the latter replied that he had none. The petitioners also
denied that the purchase price of the property was P2,200,000.00 and alleged that the
property only cost P1,200,000.00. The petitioners further contended that the letter of authority
signed by Medrano was not binding or enforceable against the bank because the latter had a
personality separate and distinct from that of Medrano. Medrano, on the other hand, denied
liability, considering that he was not the registered owner of the property, but the bank. The
petitioners, likewise, filed a counterclaim as they were constrained to hire the services of
counsel and suffered damages.[12]
After the case was submitted for decision, Medrano died, but no substitution of party was
made at this time.[13]
The trial court resolved the case based on the following common issues:
1. Whether or not the letter of authority is binding and enforceable against the defendant Bank
only or both defendants; and
2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject
property.[14]
On September 21, 1994, the trial court rendered a Decision in favor of the respondents.
The petitioners were ordered to pay, jointly and severally, the 5% brokers commission to
herein respondents. The trial court found that the letter of authority was valid and binding as
against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of
the bank, and as owner of the property, promising to pay the respondents a 5% commission
for their efforts in looking for a purchaser of the property. He is, therefore, estopped from
denying liability on the basis of the letter of authority he issued in favor of the respondents. The
trial court further stated that the sale of the property could not have been possible without the
representation and intervention of the respondents. As such, they are entitled to the brokers
commission of 5% of the selling price of P1,200,000.00 as evidenced by the deed of
sale.[15]The fallo of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs

and against the defendants, for the latter, jointly and severally:

1. To pay plaintiffs the sum of P60,000.00 representing their five percent (5%) commission
of the purchase price of the property sold based on Exh. D or 9 plus legal interest from date
of filing of the herein complaint until fully paid;

2. To pay plaintiffs the sum of P20,000.00 as and for attorneys fees;

3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses;

4. To pay the costs of the proceedings.[16]

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of
appeal.[17]
On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for
Reconsideration[18] praying that the late Bienvenido Medrano be substituted by his heirs. They
further prayed that the trial courts decision as far as Medrano was concerned be set aside and
dismissed considering his demise. The trial court denied the motion for
reconsideration.[19] Hence, the heirs of Medrano also filed their notice of appeal.[20]
On appeal, the petitioners reiterated their stance that the letter of authority was not binding
and enforceable, as the same was signed by Medrano, who was not actually the owner of the
property. They refused to give the respondents any commission, since the latter did not
perform any act to consummate the sale. The petitioners pointed out that the respondents (1)
did not verify the real owner of the property; (2) never saw the property in question; (3) never
got in touch with the registered owner of the property; and (4) neither did they perform any act
of assisting their buyer in having the property inspected and verified. [21] The petitioners further
raised the trial courts error in not dismissing the case against Bienvenido Medrano considering
his death.
On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the trial
court that the letter of authority was valid and binding. Applying the principle of agency, the
appellate court ruled that Bienvenido Medrano constituted the respondents as his agents,
granting them authority to represent and act on behalf of the former in the sale of the 17-
hectare mango plantation. The CA also ruled that the trial court did not err in finding that the
respondents were the procuring cause of the sale. Suffice it to state that were it not for the
respondents, Lee would not have known that there was a mango orchard offered for sale.
The CA further ruled that an action for a sum of money continues even after the death of
the defendant, and shall remain as a money claim against the estate of the deceased.
Undaunted by the CAs unfavorable decision, the petitioners filed the instant petition,
raising eight (8) assignments of errors, to wit:

I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE

RESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-

AUTHORITY OF PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY

RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS
OBLIGATION AND AUTHORITY CONTAINED IN MEDRANOS LETTER-
AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-
RESPONDENTS DEMAND, NOTWITHSTANDING THE NON-
PERFORMANCE OF THEIR OBLIGATION THEREUNDER;

IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON THE
PETITIONERS;

V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF

UPON THE DEFENDANTS-PETITIONERS;

VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION

WITH EVIDENCE AND INSTEAD RELIED ON INFERENCE;

VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION

WITH EVIDENCE AND MERELY RELIED ON SPECULATION AND
SURMISE;

VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED

BEFORE IT, AND CONSEQUENTLY FAILED TO CONSIDER REASONABLY
THE TWO (2) BASIC ARGUMENTS OF THE PETITIONERS.[22]

The petition is denied.

The records disclose that respondent Pacita Borbon is a licensed real estate broker [23] and
respondents Josefina Antonio and Estela A. Flor are her associates. [24] A broker is generally
defined as one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator between other parties,
never acting in his own name but in the name of those who employed him; he is strictly a
middleman and for some purposes the agent of both parties. A broker is one whose
occupation is to bring parties together, in matters of trade, commerce or navigation. [25] For the
respondents participation in finding a buyer for the petitioners property, the petitioners refuse
to pay them commission, asserting that they are not the efficient procuring cause of the sale,
and that the letter of authority signed by petitioner Medrano is not binding against the
petitioners.
 Procuring cause is meant to be the proximate cause. [26] The term procuring cause, in
describing a brokers activity, refers to a cause originating a series of events which, without
break in their continuity, result in accomplishment of prime objective of the employment of the
broker producing a purchaser ready, willing and able to buy real estate on the owners
terms.[27] A broker will be regarded as the procuring cause of a sale, so as to be entitled to
commission, if his efforts are the foundation on which the negotiations resulting in a sale are
begun.[28] The broker must be the efficient agent or the procuring cause of the sale. The means
employed by him and his efforts must result in the sale. He must find the purchaser, and the
sale must proceed from his efforts acting as broker.[29]
Indeed, the evidence on record shows that the respondents were instrumental in the sale
of the property to Lee. Without their intervention, no sale could have been consummated. They
were the ones who set the sale of the subject land in motion. [30] Upon being informed by Flor
that Medrano was selling his mango orchard, Borbon lost no time in informing Lee that they
had found a property according to his specifications. An ocular inspection of the property
together with Lee was immediately planned; unfortunately, it never pushed through for reasons
beyond the respondents control. Since Lee was in a hurry to see the property, he asked the
respondents the exact address and the directions on how to reach Ibaan, Batangas. The
respondents thereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural
Bank and the person to talk to regarding the property. While the letter-authority issued in favor
of the respondents was non-exclusive, no evidence was adduced to show that there were
other persons, aside from the respondents, who informed Lee about the property for sale.
Ganzon testified that no advertisement was made announcing the sale of the lot, nor did she
give any authority to other brokers/agents to sell the subject property. [31] The fact that it was
Lee who personally called Borbon and asked for directions prove that it was only through the
respondents that Lee learned about the property for sale.[32] Significantly, too, Ms. Teresa
Ganzon testified that there were no other persons other than the respondents who inquired
from her about the sale of the property to Lee.[33] It can thus be readily inferred that the
respondents were the only ones who knew about the property for sale and were responsible in
leading a buyer to its consummation. All these circumstances lead us to the inescapable
conclusion that the respondents were the procuring cause of the sale. When there is a close,
proximate and causal connection between the brokers efforts and the principals sale of his
property, the broker is entitled to a commission.[34]
The petitioners insist that the respondents are not entitled to any commission since they
did not actually perform any acts of negotiation as required in the letter-authority. They refuse
to pay the commission since according to them, the respondents participation in the
transaction was not apparent, if not nil. The respondents did not even look at the property
themselves; did not introduce the buyer to the seller; did not hold any conferences with the
buyer, nor take part in concluding the sale. For the non-compliance of this obligation to
negotiate, the petitioners argue, the respondents are not entitled to any commission.
We find the argument specious. The letter of authority must be read as a whole and not in
its truncated parts. Certainly, it was not the intention of Medrano to expect the respondents to
do just that (to negotiate) when he issued the letter of authority. The clear intention is to reward
the respondents for procuring a buyer for the property. Before negotiating a sale, a broker
must first and foremost bring in a prospective buyer. It has been held that a broker earns his
pay merely by bringing the buyer and the seller together, even if no sale is eventually
made.[35]The essential feature of a brokers conventional employment is merely to procure a
purchaser for a property ready, able, and willing to buy at the price and on the terms mutually
agreed upon by the owner and the purchaser. And it is not a prerequisite to the right to
compensation that the broker conduct the negotiations between the parties after they have
been brought into contact with each other through his efforts. [36] The case of Macondray v.
Sellner[37] is quite instructive:

The business of a real estate broker or agent, generally, is only to find a purchaser, and the
settled rule as stated by the courts is that, in the absence of an express contract between the
broker and his principal, the implication generally is that the broker becomes entitled to the
usual commissions whenever he brings to his principal a party who is able and willing to
take the property and enter into a valid contract upon the terms then named by the principal,
although the particulars may be arranged and the matter negotiated and completed between
the principal and the purchaser directly.

Notably, there are cases where the right of the brokers to recover commissions were
upheld where they actually took no part in the negotiations, never saw the customer, and even
some in which they did nothing except advertise the property, as long as it can be shown that
they were the efficient cause of the sale.[38]
In the case at bar, the role of the respondents in the transaction is undisputed. Whether or
not they participated in the negotiations of the sale is of no moment. Armed with an authority to
procure a purchaser and with a license to act as broker, we see no reason why the
respondents can not recover compensation for their efforts when, in fact, they are the
procuring cause of the sale.[39]
Anent the validity of the letter-authority signed by Medrano, we find no reversible error with
the findings of the appellate and trial courts that the petitioners are liable thereunder. Such
factual findings deserve this Courts respect in the absence of any cogent reason to reverse the
same. Medranos obligation to pay the respondents commission for their labor and effort in
finding a purchaser or a buyer for the described parcel of land is unquestionable. In the
absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a
contract, and is considered as the law between the parties. As such, Medrano can not renege
on the promise to pay commission on the flimsy excuse that he is not the registered owner of
the property. The evidence shows that he comported himself to be the owner of the property.
His testimony is quite telling:
Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina Antonio,
and Stella (sic) F. Flor?
WITNESS
A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them, up to
now.
Q How about the co-defendant Ibaan Rural Bank?
A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or another,
I have served several capacities from President to Chairman of the Board.
Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat, Ibaan,
Batangas, with an area of 17 hectares?
A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank.
Q And what, if any, [did] the bank do to your property after you have mortgaged the same to
it?
A After many demands for payment or redemption of my mortgage, which I failed to do so, the
Ibaan Rural Bank sold it.
Q After it was foreclosed?
A Yes, Sir.
Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding the
property?
A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my office
once and requested for a letter of authority which I issued [in] September 1986, I think,
and I gave her the letter of authority.[40]
As to the liability of the bank, we quote with favor the disquisition of the respondent court,
to wit:
Further, the appellants cannot use the flimsy excuse (only to evade liability) that (w)hat Mr.
Medrano represented to the plaintiffs-appellees, without the knowledge or consent of the
defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet. (page 8
of the Appellants Brief; page 35 of the Rollo). While it may be true that technically the Ibaan
Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation or that
the latter was no longer an officer of the said bank, still, these circumstances do not convince
this Court fully well to absolve the bank. Note that, as former President of the said bank, it is
improbable that he (Bienvenido R. Medrano) was completely oblivious of the developments
therein. By reason of his past association with the officers of the said bank (who are, in fact,
his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued the
said letter of authority without the knowledge of the said officers. Granting por aguendo that
Bienvenido R. Medrano did not act on behalf of the bank, however, We doubt that he had no
financial and/or material interest in the said sale a fact that could not possibly have eluded
Our attention.[41]

From all the foregoing, there can be no other conclusion than the respondents are indeed
the procuring cause of the sale. If not for the respondents, Lee would not have known about
the mango plantation being sold by the petitioners. The sale was consummated. The bank had
profited from such transaction. It would certainly be iniquitous if the respondents would not be
rewarded their commission pursuant to the letter of authority.
WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.
 13.
FIRST DIVISION

[G.R. No. 143978. December 3, 2002]

MANUEL B. TAN, GREGG M. TECSON and ALEXANDER

SALDAA, petitioners, vs. EDUARDO R. GULLAS and NORMA S.
GULLAS, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review seeking to set aside the decision [1] of the Court of Appeals[2] in
CA-G.R. CV No. 46539, which reversed and set aside the decision[3] of the Regional Trial Court
of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and Norma S.
Gullas, were the registered owners of a parcel of land in the Municipality of Minglanilla,
Province of Cebu, measuring 104,114 sq. m., with Transfer Certificate of Title No. 31465.[4] On
June 29, 1992, they executed a special power of attorney[5] authorizing petitioners Manuel B.
Tan, a licensed real estate broker,[6] and his associates Gregg M. Tecson and Alexander
Saldaa, to negotiate for the sale of the land at Five Hundred Fifty Pesos (P550.00) per square
meter, at a commission of 3% of the gross price. The power of attorney was non-exclusive and
effective for one month from June 29, 1992.[7]
On the same date, petitioner Tan contacted Engineer Edsel Ledesma, construction
manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer Ledesma.
Thereafter, the two men accompanied Sisters Michaela Kim and Azucena Gaviola,
representing the Sisters of Mary, to see private respondent Eduardo Gullas in his office at the
University of Visayas. The Sisters, who had already seen and inspected the land, found the
same suitable for their purpose and expressed their desire to buy it. [8] However, they requested
that the selling price be reduced to Five Hundred Thirty Pesos (P530.00) per square meter
instead of Five Hundred Fifty Pesos (P550.00) per square meter. Private respondent Eduardo
Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent Eduardo Gullas
was the owner of the property. On July 3, 1992, private respondents agreed to sell the property
to the Sisters of Mary, and subsequently executed a special power of attorney[9] in favor of
Eufemia Caete, giving her the special authority to sell, transfer and convey the land at a fixed
price of Two Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Caete executed a deed of sale in favor of the
Sisters of Mary for the price of Twenty Million Eight Hundred Twenty Two Thousand Eight
Hundred Pesos (P20,822,800.00), or at the rate of Two Hundred Pesos (P200.00) per square
meter.[10] The buyers subsequently paid the corresponding taxes. [11] Thereafter, the Register of
Deeds of Cebu Province issued TCT No. 75981 in the name of the Sisters of Mary of
Banneaux, Inc.[12]
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private respondent
Eduardo Gullas to claim their commission, but the latter told them that he and his wife have
already agreed to sell the property to the Sisters of Mary. Private respondents refused to pay
the brokers fee and alleged that another group of agents was responsible for the sale of land
to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint [13] against the defendants for recovery of
their brokers fee in the sum of One Million Six Hundred Fifty Five Thousand Four Hundred
Twelve and 60/100 Pesos (P1,655,412.60), as well as moral and exemplary damages and
attorneys fees. They alleged that they were the efficient procuring cause in bringing about the
sale of the property to the Sisters of Mary, but that their efforts in consummating the sale were
frustrated by the private respondents who, in evident bad faith, malice and in order to evade
payment of brokers fee, dealt directly with the buyer whom petitioners introduced to them.
They further pointed out that the deed of sale was undervalued obviously to evade payment of
the correct amount of capital gains tax, documentary stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners claim, they
were not the efficient procuring cause in bringing about the consummation of the sale because
another broker, Roberto Pacana, introduced the property to the Sisters of Mary ahead of the
petitioners.[14] Private respondents maintained that when petitioners introduced the buyers to
private respondent Eduardo Gullas, the former were already decided in buying the property
through Pacana, who had been paid his commission. Private respondent Eduardo Gullas
admitted that petitioners were in his office on July 3, 1992, but only to ask for the
reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,[15] petitioners alleged that although the Sisters of
Mary knew that the subject land was for sale through various agents, it was petitioners who
introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the dispositive portion
of which reads:

WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby rendered

for the plaintiffs and against the defendants. By virtue hereof, defendants Eduardo and
Norma Gullas are hereby ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg
Tecson and Alexander Saldaa;

1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED
EIGHTY FOUR PESOS (P624,684.00) as brokers fee with legal interest at the rate of 6%
per annum from the date of filing of the complaint; and

2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees and costs of
litigation.

For lack of merit, defendants counterclaim is hereby DISMISSED.

IT IS SO ORDERED. [16]

Both parties appealed to the Court of Appeals. Private respondents argued that the lower
court committed errors of fact and law in holding that it was petitioners efforts which brought
about the sale of the property and disregarding the previous negotiations between private
respondent Norma Gullas and the Sisters of Mary and Pacana. They further alleged that the
lower court had no basis for awarding brokers fee, attorneys fees and the costs of litigation to
petitioners.[17]
Petitioners, for their part, assailed the lower courts basis of the award of brokers fee given
to them. They contended that their 3% commission for the sale of the property should be
based on the price of P55,180,420.00, or at P530.00 per square meter as agreed upon and not
on the alleged actual selling price of P20,822,800.00 or at P200.00 per square meter, since the
actual purchase price was undervalued for taxation purposes. They also claimed that the lower
court erred in not awarding moral and exemplary damages in spite of its finding of bad faith;
and that the amount of P50,000.00 as attorneys fees awarded to them is insufficient. Finally,
petitioners argued that the legal interest imposed on their claim should have been pegged at
12% per annum instead of the 6% fixed by the court.[18]
The Court of Appeals reversed and set aside the lower courts decision and rendered
another judgment dismissing the complaint.[19]
Hence, this appeal.
Petitioners raise following issues for resolution:
I.

THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE

PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.

II.

IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE

PETITIONERS OF MORAL AND EXEMPLARY DAMAGES, ATTORNEYS FEES AND
INTEREST IN THE FOREBEARANCE OF MONEY.

The petition is impressed with merit.

The records show that petitioner Manuel B. Tan is a licensed real estate broker, and
petitioners Gregg M. Tecson and Alexander Saldaa are his associates. In Schmid and Oberly
v. RJL Martinez Fishing Corporation,[20] we defined a broker as one who is engaged, for others,
on a commission, negotiating contracts relative to property with the custody of which he has no
concern; the negotiator between other parties, never acting in his own name but in the name of
those who employed him. x x x a broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation. (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized by private
respondents to negotiate for the sale of their land within a period of one month reckoned from
June 29, 1992. The authority given to petitioners was non-exclusive, which meant that private
respondents were not precluded from granting the same authority to other agents with respect
to the sale of the same property. In fact, private respondent authorized another agent in the
person of Mr. Bobby Pacana to sell the same property. There was nothing illegal or amiss in
this arrangement, per se, considering the non-exclusivity of petitioners authority to sell. The
problem arose when it eventually turned out that these agents were entertaining one and the
same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that
Pacana was the one entitled to the stipulated 3% commission is untenable, considering that it
was the petitioners who were responsible for the introduction of the representatives of the
Sisters of Mary to private respondent Eduardo Gullas. Private respondents, however, maintain
that they were not aware that their respective agents were negotiating to sell said property to
the same buyer.
Private respondents failed to prove their contention that Pacana began negotiations with
private respondent Norma Gullas way ahead of petitioners. They failed to present witnesses to
substantiate this claim. It is curious that Mrs. Gullas herself was not presented in court to
testify about her dealings with Pacana. Neither was Atty. Nachura who was supposedly the
one actively negotiating on behalf of the Sisters of Mary, ever presented in court.
Private respondents contention that Pacana was the one responsible for the sale of the
land is also unsubstantiated. There was nothing on record which established the existence of a
previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The only piece of
evidence that the private respondents were able to present is an undated and unnotarized
Special Power of Attorney in favor of Pacana. While the lack of a date and an oath do not
necessarily render said Special Power of Attorney invalid, it should be borne in mind that the
contract involves a considerable amount of money. Hence, it is inconsistent with sound
business practice that the authority to sell is contained in an undated and unnotarized Special
Power of Attorney. Petitioners, on the other hand, were given the written authority to sell by the
private respondents.
The trial courts evaluation of the witnesses is accorded great respect and finality in the
absence of any indication that it overlooked certain facts or circumstances of weight and
influence, which if reconsidered, would alter the result of the case. [21]
Indeed, it is readily apparent that private respondents are trying to evade payment of the
commission which rightfully belong to petitioners as brokers with respect to the sale. There
was no dispute as to the role that petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to participate in its consummation only
because they were prevented from doing so by the acts of the private respondents. In the case
of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft
(BMW)[22] we ruled that, An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made. (Underscoring ours). Clearly, therefore,
petitioners, as brokers, should be entitled to the commission whether or not the sale of the
property subject matter of the contract was concluded through their efforts.
Having ruled that petitioners are entitled to the brokers commission, we should now
resolve how much commission are petitioners entitled to?
Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3%
commission for the sale of the land in question. Petitioners maintain that their commission
should be based on the price at which the land was offered for sale, i.e., P530.00 per square
meter. However, the actual purchase price for which the land was sold was only P200.00 per
square meter. Therefore, equity considerations dictate that petitioners commission must be
based on this price. To rule otherwise would constitute unjust enrichment on the part of
petitioners as brokers.
In the matter of attorneys fees and expenses of litigation, we affirm the amount of
P50,000.00 awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000
decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering private respondents
Eduardo Gullas and Norma S. Gullas to pay jointly and severally petitioners Manuel B. Tan,
Gregg Tecson and Alexander Saldaa the sum of Six Hundred Twenty-Four Thousand and Six
Hundred Eighty-Four Pesos (P624,684.00) as brokers fee with legal interest at the rate of 6%
per annum from the filing of the complaint; and the sum of Fifty Thousand Pesos (P50,000.00)
as attorneys fees and costs of litigation, is REINSTATED.
SO ORDERED.
Vitug, and Carpio, JJ., concur.
Davide, Jr., C.J., (Chairman), no part due to close relationship to a party.
Azcuna, J., on official leave.
 14.

SECOND DIVISION
GENEVIEVE LIM, G.R. No. 163720

Petitioner,

Present:

PUNO, J.,

- versus - Chairman,

AUSTRIA-MARTINEZ,

CALLEJO, SR.,

TINGA, and

FLORENCIO SABAN, CHICO-NAZARIO, JJ.

Respondent.

Promulgated:

December 16, 2004

x-------------------------------------------------------------------x

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing

the Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.[2]
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in
Cebu City (the lot), entered into an Agreement and Authority to Negotiate
and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on
February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban
to look for a buyer of the lot for Two Hundred Thousand Pesos
(P200,000.00) and to mark up the selling price to include the amounts
needed for payment of taxes, transfer of title and other expenses incident
to the sale, as well as Sabans commission for the sale.[3]

Through Sabans efforts, Ybaez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes
Lim (the Spouses Lim) on March 10, 1994. The price of the lot as
indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos
(P200,000.00).[4] It appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred Thousand Pesos
(P600,000.00), inclusive of taxes and other incidental expenses of the
sale. After the sale, Lim remitted to Saban the amounts of One Hundred
Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for
payment of taxes due on the transaction as well as Fifty Thousand Pesos
(P50,000.00) as brokers commission.[5] Lim also issued in the name of
Saban four postdated checks in the aggregate amount of Two Hundred
Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00).
These checks were Bank of the Philippine Islands (BPI) Check No.
1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647
dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June
26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B
dated June 20, 1994 for P168,000.00.

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim.
In the letter Ybaez asked Lim to cancel all the checks issued by her in
Sabans favor and to extend another partial payment for the lot in his
(Ybaezs) favor.[6]

After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages
against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City
on August 3, 1994.[7] The case was assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to
purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total
purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00
allegedly went to Lims agent, and P113,257.00 was given to Saban to
cover taxes and other expenses incidental to the sale. Lim also issued
four (4) postdated checks[8] in favor of Saban for the
remaining P236,743.00.[9]
Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the
lot from Ybaez and because he was not a licensed real estate broker.
Ybaez was able to convince Lim to cancel all four checks.

Saban further averred that Ybaez and Lim connived to deprive him of his
sales commission by withholding payment of the first three checks. He
also claimed that Lim failed to make good the fourth check which was
dishonored because the account against which it was drawn was closed.

In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from him and
because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement
between Ybaez and Saban, and that she issued stop payment orders for
the three checks because Ybaez requested her to pay the purchase price
directly to him, instead of coursing it through Saban. She also alleged
that she agreed with Ybaez that the purchase price of the lot was
only P200,000.00.

Ybaez died during the pendency of the case before the RTC. Upon motion
of his counsel, the trial court dismissed the case only against him
without any objection from the other parties.[10]

On May 14, 1997, the RTC rendered its Decision[11] dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and non-
negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated

its Decision[12] reversing the trial courts ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybaezs revocation of his contract of
agency with Saban was invalid because the agency was coupled with an
interest and Ybaez effected the revocation in bad faith in order to deprive
Saban of his commission and to keep the profits for himself.[14]

The appellate court found that Ybaez and Lim connived to deprive Saban
of his commission. It declared that Lim is liable to pay Saban the amount
of the purchase price of the lot corresponding to his commission because
she issued the four checks knowing that the total amount thereof
corresponded to Sabans commission for the sale, as the agent of Ybaez.
The appellate court further ruled that, in issuing the checks in payment
of Sabans commission, Lim acted as an accommodation party. She
signed the checks as drawer, without receiving value therefor, for the
purpose of lending her name to a third person. As such, she is liable to
pay Saban as the holder for value of the checks.[15]

Lim filed a Motion for Reconsideration of the appellate courts Decision,

but her Motion was denied by the Court of Appeals in a Resolution dated
May 6, 2004.[16]

Not satisfied with the decision of the Court of Appeals, Lim filed the
present petition.

Lim argues that the appellate court ignored the fact that after
paying her agent and remitting to Saban the amounts due for taxes and
transfer of title, she paid the balance of the purchase price directly to
Ybaez.[17]

She further contends that she is not liable for Ybaezs debt to Saban
under the Agency Agreement as she is not privy thereto, and that Saban
has no one but himself to blame for consenting to the dismissal of the
case against Ybaez and not moving for his substitution by his heirs.[18]

Lim also assails the findings of the appellate court that she issued
the checks as an accommodation party for Ybaez and that she connived
with the latter to deprive Saban of his commission.[19]

Lim prays that should she be found liable to pay Saban the amount
of his commission, she should only be held liable to the extent of one-
third (1/3) of the amount, since she had two co-vendees (the Spouses
Lim) who should share such liability.[20]

In his Comment, Saban maintains that Lim agreed to purchase the lot
for P600,000.00, which consisted of the P200,000.00 which would be
paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and
Sabans commission as broker for Ybaez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that Lim
and Ybaez connived to unjustly deprive him of his commission from the
negotiation of the sale.[21]

The issues for the Courts resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is
entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.

The Court gives due course to the petition, but agrees with the result
reached by the Court of Appeals.

The Court affirms the appellate courts finding that the agency was not
revoked since Ybaez requested that Lim make stop payment orders for
the checks payable to Saban only after the consummation of the sale on
March 10, 1994. At that time, Saban had already performed his
obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez
executed the Deed of Absolute Sale of the lot with Lim and the Spouses
Lim.

To deprive Saban of his commission subsequent to the sale which was

consummated through his efforts would be a breach of his contract of
agency with Ybaez which expressly states that Saban would be entitled to
any excess in the purchase price after deducting the P200,000.00 due to
Ybaez and the transfer taxes and other incidental expenses of the sale.[22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a
broker to his commission for finding a suitable buyer for the sellers
property even though the seller himself consummated the sale with the
buyer.[24] The Court held that it would be in the height of injustice to
permit the principal to terminate the contract of agency to the prejudice
of the broker when he had already reaped the benefits of the brokers
efforts.

In Infante v. Cunanan, et al.,[25] the Court upheld the right of the brokers
to their commissions although the seller revoked their authority to act in
his behalf after they had found a buyer for his properties and negotiated
the sale directly with the buyer whom he met through the brokers efforts.
The Court ruled that the sellers withdrawal in bad faith of the brokers
authority cannot unjustly deprive the brokers of their commissions as
the sellers duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable

to the present case, especially considering that Saban had completely
performed his obligations under his contract of agency with Ybaez by
finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybaez and Lim and her co-vendees. Moreover, the contract of agency very
clearly states that Saban is entitled to the excess of the mark-up of the
price of the lot after deducting Ybaezs share of P200,000.00 and the
taxes and other incidental expenses of the sale.
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an interest.
Under Article 1927 of the Civil Code, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed as
one coupled with an interest where it is established for the mutual
benefit of the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked by the principal
so long as the interest of the agent or of a third person subsists. In an
agency coupled with an interest, the agents interest must be in the
subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation. When an
agents interest is confined to earning his agreed compensation, the
agency is not one coupled with an interest, since an agents interest in
obtaining his compensation as such agent is an ordinary incident of the
agency relationship.[26]

Sabans entitlement to his commission having been settled, the

Court must now determine whether Lim is the proper party against
whom Saban should address his claim.

Sabans right to receive compensation for negotiating as broker for Ybaez

arises from the Agency Agreement between them. Lim is not a party to
the contract. However, the record reveals that she had knowledge of the
fact that Ybaez set the price of the lot at P200,000.00 and that
the P600,000.00the price agreed upon by her and Sabanwas more than
the amount set by Ybaez because it included the amount for payment of
taxes and for Sabans commission as broker for Ybaez.

According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00
directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two
Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand,
claims that on March 10, 1994, the date of execution of the Deed of
Absolute Sale, she paid directly to Ybaez the amount of One Hundred
Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for
payment of taxes and P50,000.00 as his commission,[28] and One
Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a
total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven
Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her
co-vendees paid him P400,000.00 which he said was the full amount for
the sale of the lot.[30] It thus appears that he received P100,000.00 on
March 10, 1994, acknowledged receipt (through Saban) of
the P113,257.00 earmarked for taxes and P50,000.00 for commission,
and received the balance of P130,000.00 on June 28, 1994. Thus, a total
of P230,000.00 went directly to Ybaez. Apparently, although the amount
actually paid by Lim was P393,257.00, Ybaez rounded off the amount
to P400,000.00 and waived the difference.

Lims act of issuing the four checks amounting to P236,743.00 in Sabans

favor belies her claim that she and her co-vendees did not agree to
purchase the lot at P600,000.00. If she did not agree thereto, there
would be no reason for her to issue those checks which is the balance
of P600,000.00 less the amounts of P200,000.00 (due to
Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only
logical conclusion is that Lim changed her mind about agreeing to
purchase the lot at P600,000.00 after talking to Ybaez and ultimately
realizing that Sabans commission is even more than what Ybaez received
as his share of the purchase price as vendor. Obviously, this change of
mind resulted to the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim and her co-vendees.
This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is

enlightening for the facts therein are similar to the circumstances of the
present case. In that case, Consejo Infante asked Jose Cunanan and
Juan Mijares to find a buyer for her two lots and the house built thereon
for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus whatever overprice they may
obtain for the property. Cunanan and Mijares offered the properties to
Pio Noche who in turn expressed willingness to purchase the properties.
Cunanan and Mijares thereafter introduced Noche to Infante. However,
the latter told Cunanan and Mijares that she was no longer interested in
selling the property and asked them to sign a document stating that their
written authority to act as her agents for the sale of the properties was
already cancelled. Subsequently, Infante sold the properties directly to
Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld
the right of Cunanan and Mijares to their commission, explaining that

[Infante] had changed her mind even if respondent had found a buyer who was
willing to close the deal, is a matter that would not give rise to a legal
consequence if [Cunanan and Mijares] agreed to call off the transaction in
deference to the request of [Infante]. But the situation varies if one of the
parties takes advantage of the benevolence of the other and acts in a manner
that would promote his own selfish interest. This act is unfair as would amount
to bad faith. This act cannot be sanctioned without according the party
prejudiced the reward which is due him. This is the situation in which
 [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the
services rendered by [Cunanan and Mijares], but believing that she could evade
payment of their commission, she made use of a ruse by inducing them to sign
the deed of cancellation.This act of subversion cannot be sanctioned and
cannot serve as basis for [Infante] to escape payment of the commission agreed
upon.[31]

The appellate court therefore had sufficient basis for concluding that
Ybaez and Lim connived to deprive Saban of his commission by dealing
with each other directly and reducing the purchase price of the lot and
leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the

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

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

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

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

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

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

The absence of the second requisite becomes pellucid when it is

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

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

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

SO ORDERED.
15.
THIRD DIVISION

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

(MAXICARE),

Petitioner, Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CORONA,*

NACHURA, and

REYES, JJ.

CARMELA ESTRADA/CARA HEALTH Promulgated:

SERVICES,

Respondent. January 28, 2008

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:
This petition for review on certiorari assails the Decision[1] dated June 16, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the
Decision[2]dated October 8, 1999 of the Regional Trial Court (RTC), Branch 135, of Makati
City in an action for breach of contract and damages filed by respondent Carmela
Estrada, sole proprietor of Cara Health Services, against Philippine Health-Care
Providers, Inc. (Maxicare).

The facts, as found by the CA and adopted by Maxicare in its petition, follow:

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

On September 15, 1990, [Maxicare] allegedly engaged the services of Carmela Estrada who was
doing business under the name of CARA HEALTH [SERVICES] to promote and sell the prepaid
group practice health care delivery program called MAXICARE Plan with the position of
Independent Account Executive. [Maxicare] formally appointed [Estrada] as its General Agent,
evidenced by a letter-agreement dated February 16, 1991. The letter agreement provided for
plaintiff-appellees [Estradas] compensation in the form of commission, viz.:

Commission

In consideration of the performance of your functions and duties as specified in

this letter-agreement, [Maxicare] shall pay you a commission equivalent to 15
to 18% from individual, family, group accounts; 2.5 to 10% on tailored fit plans;
and 10% on standard plans of commissionable amount on corporate accounts
from all membership dues collected and remitted by you to [Maxicare].

[Maxicare] alleged that it followed a franchising system in dealing with its agents whereby an
agent had to first secure permission from [Maxicare] to list a prospective company as
client.[Estrada] alleged that it did apply with [Maxicare] for the MERALCO account and other
accounts, and in fact, its franchise to solicit corporate accounts, MERALCO account included,
was renewed on February 11, 1991.

Plaintiff-appellee [Estrada] submitted proposals and made representations to the officers of

MERALCO regarding the MAXICARE Plan but when MERALCO decided to subscribe to the
MAXICARE Plan, [Maxicare] directly negotiated with MERALCO regarding the terms and
conditions of the agreement and left plaintiff-appellee [Estrada] out of the discussions on the
terms and conditions.
On November 28, 1991, MERALCO eventually subscribed to the MAXICARE Plan and signed a
Service Agreement directly with [Maxicare] for medical coverage of its qualified members, i.e.:
1) the enrolled dependent/s of regular MERALCO executives; 2) retired executives and their
dependents who have opted to enroll and/or continue their MAXICARE membership up to age
65; and 3) regular MERALCO female executives (exclusively for maternity benefits). Its duration
was for one (1) year from December 1, 1991 to November 30, 1992. The contract was renewed
twice for a term of three (3) years each, the first started on December 1, 1992 while the second
took effect on December 1, 1995.

The premium amounts paid by MERALCO to [Maxicare] were alleged to be the following:
a) P215,788.00 in December 1991; b) P3,450,564.00 in 1992; c) P4,223,710.00 in 1993;
d) P4,782,873.00 in 1994; e) P5,102,108.00 in 1995; and P2,394,292.00 in May 1996. As of May
1996, the total amount of premium paid by MERALCO to [Maxicare] was P20,169,335.00.

On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from [Maxicare]
that it be paid commissions for the MERALCO account and nine (9) other accounts. In reply,
[Maxicare], through counsel, denied [Estradas] claims for commission for the MERALCO and
other accounts because [Maxicare] directly negotiated with MERALCO and the other accounts(,)
and that no agent was given the go signal to intervene in the negotiations for the terms and
conditions and the signing of the service agreement with MERALCO and the other accounts so
that if ever [Maxicare] was indebted to [Estrada], it was only for P1,555.00 and P43.l2 as
commissions on the accounts of Overseas Freighters Co. and Mr. Enrique Acosta, respectively.

[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and its officers with the
Regional Trial Court (RTC) of Makati City, docketed as Civil Case No. 93-935, raffled to Branch
135.

Defendants-appellants [Maxicare] and its officers filed their Answer with Counterclaim on
September 13, 1993 and their Amended Answer with Counterclaim on September 28, 1993,
alleging that: plaintiff-appellee [Estrada] had no cause of action; the cause of action, if any,
should be is against [Maxicare] only and not against its officers; CARA HEALTHs appointment as
agent under the February 16, 1991 letter-agreement to promote the MAXICARE Plan was for a
period of one (1) year only; said agency was not renewed after the expiration of the one (1) year
period; [Estrada] did not intervene in the negotiations of the contract with MERALCO which was
directly negotiated by MERALCO with [Maxicare]; and [Estradas] alleged other clients/accounts
were not accredited with [Maxicare] as required, since the agency contract on the MAXICARE
health plans were not renewed. By way of counterclaim, defendants-appellants [Maxicare] and
its officers claimed P100,000.00 in moral damages for each of the officers of [Maxicare]
impleaded as defendant, P100,000.00 in exemplary damages, P100,000.00 in attorneys fees,
and P10,000.00 in litigation expenses.[3]
After trial, the RTC found Maxicare liable for breach of contract and ordered it to pay
Estrada actual damages in the amount equivalent to 10% of P20,169,335.00,
representing her commission for the total premiums paid by Meralco to Maxicare from
the year 1991 to 1996, plus legal interest computed from the filing of the complaint on
March 18, 1993, and attorneys fees in the amount of P100,000.00.

On appeal, the CA affirmed in toto the RTCs decision. In ruling for Estrada, both the trial
and appellate courts held that Estrada was the efficient procuring cause in the execution
of the service agreement between Meralco and Maxicare consistent with our ruling
in Manotok Brothers, Inc. v. Court of Appeals.[4]

Undaunted, Maxicare comes to this Court and insists on the reversal of the RTC Decision
as affirmed by the CA, raising the following issues, to wit:

1. Whether the Court of Appeals committed serious error in affirming Estradas entitlement to
commissions for the execution of the service agreement between Meralco and Maxicare.

2. Corollarily, whether Estrada is entitled to commissions for the two (2) consecutive renewals of
the service agreement effective on December 1, 1992[5] and December 1, 1995.[6]

We are in complete accord with the trial and appellate courts ruling. Estrada is entitled
to commissions for the premiums paid under the service agreement between Meralco
and Maxicare from 1991 to 1996.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties.[7] A review of such findings
by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower courts inference from its factual
findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record.[8] None of the foregoing exceptions which would
warrant a reversal of the assailed decision obtains in this instance.

Maxicare urges us that both the RTC and CA failed to take into account the
stipulations contained in the February 19, 1991 letter agreement authorizing the
payment of commissions only upon satisfaction of twin conditions, i.e., collection and
contemporaneous remittance of premium dues by Estrada to Maxicare. Allegedly, the
lower courts disregarded Estradas admission that the negotiations with Meralco failed.
Thus, the flawed application of the efficient procuring cause doctrine enunciated
in Manotok Brothers, Inc. v. Court of Appeals,[9] and the erroneous conclusion upholding
Estradas entitlement to commissions on contracts completed without her participation.

We are not persuaded.

Contrary to Maxicares assertion, the trial and the appellate courts carefully
considered the factual backdrop of the case as borne out by the records. Both courts
were one in the conclusion that Maxicare successfully landed the Meralco account for
the sale of healthcare plans only by virtue of Estradas involvement and participation in
the negotiations. The assailed Decision aptly states:

There is no dispute as to the role that plaintiff-appellee [Estrada] played in selling [Maxicares]
health insurance plan to Meralco. Plaintiff-appellee [Estradas] efforts consisted in being the first
to offer the Maxicare plan to Meralco, using her connections with some of Meralco Executives,
inviting said executives to dinner meetings, making submissions and representations regarding
the health plan, sending follow-up letters, etc.

These efforts were recognized by Meralco as shown by the certification issued by its Manpower
Planning and Research Staff Head Ruben A. Sapitula on September 5, 1991, to wit:

This is to certify that Ms. Carmela Estrada has initiated talks with us since
November 1990 with regards (sic) to the HMO requirements of both our rank
and file employees, managers and executives, and that it was favorably
recommended and the same be approved by the Meralco Management
Committee.

xxxx
 This Court finds that plaintiff-appellee [Estradas] efforts were instrumental in introducing the
Meralco account to [Maxicare] in regard to the latters Maxicare health insurance plans. Plaintiff-
appellee [Estrada] was the efficient intervening cause in bringing about the service agreement
with Meralco. As pointed out by the trial court in its October 8, 1999 Decision, to wit:

xxx Had not [Estrada] introduced Maxicare Plans to her bosom friends, Messrs.
Lopez and Guingona of Meralco, PHPI would still be an anonymity. xxx[10]

Under the foregoing circumstances, we are hard pressed to disturb the findings of the
RTC, which the CA affirmed.

We cannot overemphasize the principle that in petitions for review

on certiorari under Rules 45 of the Rules of Court, only questions of law may be put into
issue. Questions of fact are not cognizable by this Court. The finding of efficient
procuring cause by the CA is a question of fact which we desist from passing upon as it
would entail delving into factual matters on which such finding was based. To reiterate,
the rule is that factual findings of the trial court, especially those affirmed by the CA, are
conclusive on this Court when supported by the evidence on record.[11]

The jettisoning of the petition is inevitable even upon a close perusal of the merits of
the case.

First. Maxicares contention that Estrada may only claim commissions from membership
dues which she has collected and remitted to Maxicare as expressly provided for in the
letter-agreement does not convince us. It is readily apparent that Maxicare is
attempting to evade payment of the commission which rightfully belongs to Estrada as
the broker who brought the parties together. In fact, Maxicares former Chairman
Roberto K. Macasaet testified that Maxicare had been trying to land the Meralco
account for two (2) years prior to Estradas entry in 1990.[12] Even without that
admission, we note that Meralcos Assistant Vice-President, Donatila San Juan, in a
letter[13] dated January 21, 1992 to then Maxicare President Pedro R. Sen, categorically
acknowledged Estradas efforts relative to the sale of Maxicare health plans to Meralco,
thus:

Sometime in 1989, Meralco received a proposal from Philippine Health-Care Providers, Inc.
(Maxicare) through the initiative and efforts of Ms. Carmela Estrada, who introduced Maxicare
to Meralco. Prior to this time, we did not know that Maxicare is a major health care provider in
 the country. We have since negotiated and signed up with Maxicare to provide a health
maintenance plan for dependents of Meralco executives, effective December 1,
1991 to November 30, 1992.

At the very least, Estrada penetrated the Meralco market, initially closed to Maxicare,
and laid the groundwork for a business relationship. The only reason Estrada was not
able to participate in the collection and remittance of premium dues to Maxicare was
because she was prevented from doing so by the acts of Maxicare, its officers, and
employees.

In Tan v. Gullas,[14] we had occasion to define a broker and distinguish it from an

agent, thus:

[O]ne who is engaged, for others, on a commission, negotiating contracts relative to property
with the custody of which he has no concern; the negotiator between the other parties, never
acting in his own name but in the name of those who employed him. [A] broker is one whose
occupation is to bring the parties together, in matter of trade, commerce or navigation.[15]

An agent receives a commission upon the successful conclusion of a sale. On the other hand,
a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.[16]

In relation thereto, we have held that the term procuring cause in describing a brokers
activity, refers to a cause originating a series of events which, without break in their
continuity, result in the accomplishment of the prime objective of the employment of
the brokerproducing a purchaser ready, willing and able to buy on the owners
terms.[17] To be regarded as the procuring cause of a sale as to be entitled to a
commission, a brokers efforts must have been the foundation on which the negotiations
resulting in a sale began.[18] Verily, Estrada was instrumental in the sale of the Maxicare
health plans to Meralco. Without her intervention, no sale could have been
consummated.

Second. Maxicare next contends that Estrada herself admitted that her negotiations
with Meralco failed as shown in Annex F of the Complaint.
 The chicanery and disingenuousness of Maxicares counsel is not lost on this
Court. We observe that this Annex F is, in fact, Maxicares counsels letter dated April 10,
1992addressed to Estrada. The letter contains a unilateral declaration by Maxicare that
the efforts initiated and negotiations undertaken by Estrada failed, such that the service
agreement with Meralco was supposedly directly negotiated by Maxicare. Thus, the
latter effectively declares that Estrada is not the efficient procuring cause of the sale,
and as such, is not entitled to commissions.

Our holding in Atillo III v. Court of Appeals,[19] ironically the case cited by Maxicare
to bolster its position that the statement in Annex F amounted to an admission,
provides a contrary answer to Maxicares ridiculous contention. We intoned therein that
in spite of the presence of judicial admissions in a partys pleading, the trial court is still
given leeway to consider other evidence presented.[20] We ruled, thus:

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

For instance, if a party invokes an admission by an adverse party, but cites the
admission out of context, then the one making the admission may show that he
made no such admission, or that his admission was taken out of context.

This may be interpreted as to mean not in the sense in which the admission is
made to appear. That is the reason for the modifier such.[21]

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

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

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

After muddling the issues and representing that Estrada made an admission that
her negotiations with Meralco failed, Maxicares counsel then proceeds to cite a case
which does not, by any stretch of the imagination, bolster the flawed contention.

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

Rule 10.02 A lawyer shall not knowingly misquote or misrepresent the contents of a paper, the
language or the argument of opposing counsel, or the text of a decision or authority, or
knowingly cite as law a provision already rendered inoperative by repeal or amendment, or
assert as a fact that which has not been proved.

Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that Estrada is
entitled to 10% of the total amount of premiums paid[25] by Meralco to Maxicare as of
May 1996. Maxicares argument that assuming Estrada is entitled to commissions, such
entitlement only covers the initial year of the service agreement and should not include
the premiums paid for the succeeding renewals thereof, fails to impress. Considering
that we have sustained the lower courts factual finding of Estradas close, proximate and
causal connection to the sale of health plans, we are not wont to disturb Estradas
complete entitlement to commission for the total premiums paid until May 1996 in the
amount of P20,169,335.00.
WHEREFORE, premises considered and finding no reversible error committed by the
Court of Appeals, the petition is hereby DENIED. Costs against the petitioner.

SO ORDERED.
 FORMALITIES
3.
FIRST DIVISION

[G.R. No. 142950. March 26, 2001]

EQUITABLE PCI BANK, formerly EQUITABLE BANKING

CORPORATION, petitioner, vs. ROSITA KU, respondent.

DECISION
KAPUNAN, J.:

Can a person be evicted by virtue of a decision rendered in an ejectment case where she was not
joined as a party? This was the issue that confronted the Court of Appeals, which resolved the issue in
the negative. To hold the contrary, it said, would violate due process. Given the circumstances of the
present case, petitioner Equitable PCI Bank begs to differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku
Giok Heng, as Vice-President/General Manager of the same corporation, mortgaged the subject property
to the Equitable Banking Corporation, now known as Equitable PCI Bank to secure Noddy Inc.s loan to
Equitable. The property, a residential house and lot located in La Vista, Quezon City, was registered in
respondents name.
Noddy, Inc. subsequently failed to pay the loan secured by the mortgage, prompting petitioner to
foreclose the property extrajudicially. As the winning bidder in the foreclosure sale, petitioner was
issued a certificate of sale. Respondent failed to redeem the property. Thus, on December 10, 1984, the
Register of Deeds canceled the Transfer Certificate of Title in the name of respondent and a new one
was issued in petitioners name.
On May 10, 1989, petitioner instituted an action for ejectment before the Quezon City Metropolitan
Trial Court (MeTC) against respondents father Ku Giok Heng. Petitioner alleged that it allowed Ku
Giok Heng to remain in the property on the condition that the latter pay rent. Ku Giok Hengs failure to
pay rent prompted the MeTC to seek his ejectment. Ku Giok Heng denied that there was any lease
agreement over the property.
On December 8, 1994, the MeTC rendered a decision in favor of petitioner and ordered Ku Giok
Heng to, among other things, vacate the premises. It ruled:

x x x for his failure or refusal to pay rentals despite proper demands, the defendant had not
established his right for his continued possession of or stay in the premises acquired by the
plaintiff thru foreclosure, the title of which had been duly transferred in the name of the
plaintiff. The absence of lease agreement or agreement for the payment of rentals is of no
moment in the light of the prevailing Supreme Court ruling on the matter. Thus: It is settled
that the buyer in foreclosure sale becomes the absolute owner of the property purchased if it
is not redeemed during the period of one (1) year after the registration of the sale is as such
he is entitled to the possession of the property and the demand at any time following the
consolidation of ownership and the issuance to him of a new certificate of title. The buyer
can, in fact, demand possession of the land even during the redemption period except that he
has to post a bond in accordance with Section 7 of Act No. 3155 as amended. Possession of
the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper
application and proof of title, the issuance of a writ of possession becomes a ministerial duty
of the court. (David Enterprises vs. IBAA[,] 191 SCRA 116).[1]

Ku Giok Heng did not appeal the decision of the MeTC. Instead, he and his daughter, respondent
Rosita Ku, filed on December 20, 1994, an action before the Regional Trial Court (RTC) of Quezon City
to nullify the decision of the MeTC. Finding no merit in the complaint, the RTC on September 13, 1999
dismissed the same and ordered the execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special civil action for certiorari assailing the
decision of the RTC. She contended that she was not made a party to the ejectment suit and was,
therefore, deprived of due process. The CA agreed and, on March 31, 2000, rendered a decision
enjoining the eviction of respondent from the premises.
On May 10, 2000, Equitable PCI Bank filed in this Court a motion for an extension of 30 days from
May 10, 2000 or until June 9, 2000 to file its petition for review of the CA decision. The motion alleged
that the Bank received the CA decision on April 25, 2000.[2] The Court granted the motion for a 30-day extension
counted from the expiration of the reglementary period and conditioned upon the timeliness of the filing of [the] motion [for
extension].[3]

On June 13, 2000,[4] Equitable Bank filed its petition, contending that there was no need to name
respondent Rosita Ku as a party in the action for ejectment since she was not a resident of the premises
nor was she in possession of the property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to which he is a stranger, and strangers to a
case are not bound by judgment rendered by the court.[5] Nevertheless, a judgment in an ejectment suit is
binding not only upon the defendants in the suit but also against those not made parties thereto, if they
are:
a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate
the judgment;
b) guests or other occupants of the premises with the permission of the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the defendant.[6]
Thus, even if respondent were a resident of the property, a point disputed by the parties, she is
nevertheless bound by the judgment of the MeTC in the action for ejectment despite her being a non-
party thereto. Respondent is the daughter of Ku Giok Heng, the defendant in the action for ejectment.
Respondent nevertheless claims that the petition is defective. The bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000. A Certification dated June 6, 2000 issued by the
Manila Central Post Office reveals, however, that the copy was duly delivered to and received by Joel
Rosales (Authorized Representative) on April 24, 2000.[7] Petitioners motion for extension to file this
petition was filed on May 10, 2000, sixteen (16) days from the petitioners receipt of the CA decision
(April 24, 2000) and one (1) day beyond the reglementary period for filing the petition for review (May
9, 2000).
Petitioner however maintains its honest representation of having received [a copy of the decision]
on April 25, 2000.[8] Appended as Annex A to petitioners Reply is an Affidavit[9] dated October 27, 2000
and executed by Joel Rosales, who was mentioned in the Certification as having received the
decision. The Affidavit states:

(1) I am an employee of Unique Industrial & Allied Services, Inc. (Unique) a corporation
duly organized and existing under Philippine laws with principal place of business at 1206
Vito Cruz St., Malate, Manila, and I am assigned with the Equitable PCI Bank, Mail and
Courier Department, Equitable PCI Bank Tower II, cor. Makati Avenue and H.V. dela Costa
St., Makati City, Metro Manila;

(2) Under the contract of services between the Bank and Unique, it is my official duty and
responsibility to receive and pick-up from the Manila Central Post Office (CPO) the various
mails, letters, correspondence, and other mail matters intended for the banks various
departments and offices at Equitable Bank Building, 262 Juan Luna St., Binondo,
Manila. This building, however, also houses various other offices or tenants not related to
the Bank.

(3) I am not the constituted agent of Curato Divina Mabilog Niedo Magturo Pagaduan Law
Office whose former address is at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St.,
Binondo, Manila, for purposes of receiving their incoming mail matters; neither am I any
such agent of the various other tenants of the said Building. On occasions when I receive
mail matters for said law office, it is only to help them receive their letters promptly.

(4) On April 24, 2000, I received the registered letter sent by the Court of Appeals, covered
by Registry Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as
Annex A) together with other mail matters, and brought them to the Mail and Courier
Department;

(5) After sorting out these mail matters, on April 25, 2000, I erroneously recorded them on
page 422 of my logbook as having been received by me on said dated April 25, 2000 (copy
of page 422 is attached as Annex B).

(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law
Office whose receiving clerk Darwin Bawar opened the letter and stamped on the Notice of
Judgment their actual date of receipt: April 27, 2000 (copy of the said Notice with the date
so stamped is attached as Annex C).

(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my
actual date of receipt of this letter, and I informed him that based on my logbook, I received
it on April 25, 2000.

(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo
that Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a
certification that I received the said mail on April 24, 2000.

(9) I hereby confirm that this error was caused by an honest mistake.

Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who was not an agent of its
counsels law office, did not constitute notice to its counsel, as required by Sections 2 [10] and 10,[11] Rule
13 of the Rules of Court. To support this contention, petitioner cites Philippine Long Distance
Telephone Co. vs. NLRC.[12] In said case, the bailiff served the decision of the National Labor Relations
Commission at the ground floor of the building of the petitioner therein, the Philippine Long Distance
Telephone Co., rather than on the office of its counsel, whose address, as indicated in the notice of the
decision, was on the ninth floor of the building. We held that:

x x x practical considerations and the realities of the situation dictate that the service made
by the bailiff on March 23, 1981 at the ground floor of the petitioners building and not at the
address of record of petitioners counsel on record at the 9 floor of the PLDT building cannot
th

be considered a valid service. It was only when the Legal Services Division actually received
a copy of the decision on March 26, 1981 that a proper and valid service may be deemed to
have been made. x x x.

Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt by its
counsel was on April 27, 2000, not April 25, 2000. Following the argument to its logical conclusion, the
motion for extension to file the petition for review was even filed two (2) days before the lapse of the
15-day reglementary period. That counsel treated April 25, 2000 and not April 27, 2000 as the date of
receipt was purportedly intended to obviate respondents possible argument that the 15-day period had to
be counted from April 25, 2000.
The Court is not wholly convinced by petitioners argument. The Affidavit of Joel Rosales states that
he is not the constituted agent of Curato Divina Mabilog Nedo Magturo Pagaduan Law Office. An
agency may be express but it may also be implied from the acts of the principal, from his silence, or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.[13] Likewise, acceptance by the agent may also be express, although it may also be
implied from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.[14] In this case, Joel Rosales averred that [o]n occasions when I receive mail matters for
said law office, it is only to help them receive their letters promptly, implying that counsel had allowed
the practice of Rosales receiving mail in behalf of the former. There is no showing that counsel had
objected to this practice or took steps to put a stop to it. The facts are, therefore, inadequate for the Court
to make a ruling in petitioners favor.
Assuming the motion for extension was indeed one day late, petitioner urges the Court, in any
event, to suspend its rules and admit the petition in the interest of justice. Petitioner invokes Philippine
National Bank vs. Court of Appeals,[15] where the petition was filed three (3) days late. The Court held:

It has been said time and again that the perfection of an appeal within the period fixed by the
rules is mandatory and jurisdictional. But, it is always in the power of this Court to suspend
its own rules, or to except a particular case from its operation, whenever the purposes of
justice require it. Strong compelling reasons such as serving the ends of justice and
preventing a grave miscarriage thereof warrant the suspension of the rules.

The Court proceeded to enumerate cases where the rules on reglementary periods were
suspended. Republic vs. Court of Appeals[16] involved a delay of six days; Siguenza vs. Court of
Appeals,[17]thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,[18] one day; Cortes vs.
Court of Appeals,[19] seven days; Olacao vs. NLRC,[20] two days; Legasto vs. Court of Appeals,[21] two
days; and City Fair Corporation vs. NLRC,[22] which also concerned a tardy appeal.
The Court finds these arguments to be persuasive, especially in light of the merits of the petition.
WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court
of Appeals is REVERSED.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
 5.
SALLY YOSHIZAKI, Petitioner, v. JOY TRAINING CENTER OF AURORA, INC., Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge the February 14, 2006
Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 83773.

The Factual Antecedents

Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious educational
institution. It was the registered owner of a parcel of land and the building thereon (real properties) located in San
Luis Extension, Purok No. 1, Barangay Buhangin, Baler, Aurora. The parcel of land was designated as Lot No. 125-L
and was covered by Transfer Certificate of Title (TCT) No. T-25334.4 cralaw virtualaw li bra ry

On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a Wrangler jeep, and other
personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On the same date, a Deed of Absolute
Sale5 and a Deed of Sale of Motor Vehicle6 were executed in favor of the spouses Yoshizaki. The spouses Johnson
were members of Joy Trainings board of trustees at the time of sale. On December 7, 1998, TCT No. T-25334 was
cancelled and TCT No. T-260527 was issued in the name of the spouses Yoshizaki.

On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed an action for the
Cancellation of Sales and Damages with prayer for the issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction against the spouses Yoshizaki and the spouses Johnson before the Regional Trial Court of
Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed a Motion to Amend Complaint with the attached
Amended Complaint. The amended complaint impleaded Cecilia A. Abordo, officer-in-charge of the Register of Deeds
of Baler, Aurora, as additional defendant. The RTC granted the motion on the same date.9 cralaw virtualaw l ibra ry

In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the requisite authority
from the board of directors.10 It assailed the validity of a board resolution dated September 1, 199811 which
purportedly granted the spouses Johnson the authority to sell its real properties. It averred that only a minority of
the board, composed of the spouses Johnson and Alexander Abadayan, authorized the sale through the resolution. It
highlighted that the Articles of Incorporation provides that the board of trustees consists of seven members, namely:
the spouses Johnson, Reuben, Carmencita Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino.12 cralaw virtualaw li bra ry

Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the reglementary
period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory Counterclaims on June 23,
1999. They claimed that Joy Training authorized the spouses Johnson to sell the parcel of land. They asserted that a
majority of the board of trustees approved the resolution. They maintained that the actual members of the board of
trustees consist of five members, namely: the spouses Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie
Dayot, the corporate secretary, issued a certification dated February 20, 199814 authorizing the spouses Johnson
to act on Joy Trainings behalf. Furthermore, they highlighted that the Wrangler jeep and other personal properties
were registered in the name of the spouses Johnson.15 Lastly, they assailed the RTCs jurisdiction over the case.
They posited that the case is an intra-corporate dispute cognizable by the Securities and Exchange Commission
(SEC).16cralaw virtua law lib rary

After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in evidence photocopies
of the resolution and certification, among others.17 Joy Training objected to the formal offer of the photocopied
resolution and certification on the ground that they were not the best evidence of their contents.18 In an
Order19 dated May 18, 2004, the RTC denied the admission of the offered copies.

The RTC Ruling

The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties. However, it
held that the sale was valid because Joy Training authorized the spouses Johnson to sell the real properties. It
recognized that there were only five actual members of the board of trustees; consequently, a majority of the board
of trustees validly authorized the sale. It also ruled that the sale of personal properties was valid because they were
registered in the spouses Johnsons name.20 cralaw virtualaw l ibra ry

Joy Training appealed the RTC decision to the CA.

The CA Ruling

The CA upheld the RTCs jurisdiction over the case but reversed its ruling with respect to the sale of real properties.
It maintained that the present action is cognizable by the RTC because it involves recovery of ownership from third
parties.

It also ruled that the resolution is void because it was not approved by a majority of the board of trustees. It stated
that under Section 25 of the Corporation Code, the basis for determining the composition of the board of trustees is
the list fixed in the articles of incorporation. Furthermore, Section 23 of the Corporation Code provides that the
board of trustees shall hold office for one year and until their successors are elected and qualified. Seven trustees
constitute the board since Joy Training did not hold an election after its incorporation.

The CA did not also give any probative value to the certification. It stated that the certification failed to indicate the
date and the names of the trustees present in the meeting. Moreover, the spouses Yoshizaki did not present the
minutes that would prove that the certification had been issued pursuant to a board resolution.21 The CA also
denied22 the spouses Yoshizakis motion for reconsideration, prompting Sally23 to file the present petition.

The Petition

Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was principally for the
nullification of a corporate act. The transfer of the SECs original and exclusive jurisdiction to the RTC24 does not
have any retroactive application because jurisdiction is a substantive matter.

She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a buyer in good
faith because she merely relied on TCT No. T-25334. The title states that the spouses Johnson are Joy Trainings
representatives.

She also argues that it is a basic principle that a party dealing with a registered land need not go beyond the
certificate of title to determine the condition of the property. In fact, the resolution and the certification are mere
reiterations of the spouses Johnsons authority in the title to sell the real properties. She further claims that the
resolution and the certification are not even necessary to clothe the spouses Johnson with the authority to sell the
disputed properties. Furthermore, the contract of agency was subsisting at the time of sale because Section 108 of
Presidential Decree No. (PD) 1529 requires that the revocation of authority must be approved by a court of
competent jurisdiction and no revocation was reflected in the certificate of title.25 c ralaw vi rtualaw l ibra ry

The Case for the Respondent

In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has jurisdiction over the
case. It posits that the action is essentially for recovery of property and is therefore a case cognizable by the RTC.
Furthermore, Sally is estopped from questioning the RTCs jurisdiction because she seeks to reinstate the RTC ruling
in the present case.

Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT No. T-25334 does
not specifically grant the authority to sell the parcel of land to the spouses Johnson. It further asserts that the
resolution and the certification should not be given any probative value because they were not admitted in evidence
by the RTC. It argues that the resolution is void for failure to comply with the voting requirements under Section 40
of the Corporation Code. It also posits that the certification is void because it lacks material particulars.

The Issues

The case comes to us with the following issues: cra lawlib rary

1) Whether or not the RTC has jurisdiction over the present case; and
Whether or not there was a contract of agency to sell the real
2)
properties between Joy Training and the spouses Johnson.
As a consequence of the second issue, whether or not there was a
3) valid contract of sale of the real properties between Joy Training
and the spouses Yoshizaki.

Our Ruling

We find the petition unmeritorious.

The RTC has jurisdiction over disputes

concerning the application of the
Civil Code

Jurisdiction over the subject matter is the power to hear and determine cases of the general class to which the
proceedings before a court belong.28 It is conferred by law. The allegations in the complaint and the status or
relationship of the parties determine which court has jurisdiction over the nature of an action.29 The same test
applies in ascertaining whether a case involves an intra-corporate controversy.30 cralaw vi rtua law lib rary

The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to nullify the sale of
the real properties on the ground that there was no contract of agency between Joy Training and the spouses
Johnson. This was beyond the ambit of the SECs original and exclusive jurisdiction prior to the enactment of
Republic Act No. 8799 which only took effect on August 3, 2000. The determination of the existence of a contract of
agency and the validity of a contract of sale requires the application of the relevant provisions of the Civil Code. It is
a well-settled rule that [d]isputes concerning the application of the Civil Code are properly cognizable by courts of
general jurisdiction.31 Indeed, no special skill requiring the SECs technical expertise is necessary for the disposition
of this issue and of this case.

The Supreme Court may review questions of

fact in a petition for review on certiorari
when the findings of fact by the lower courts
are conflicting

We are aware that the issues at hand require us to review the pieces of evidence presented by the parties before the
lower courts. As a general rule, a petition for review on certiorari precludes this Court from entertaining factual
issues; we are not duty-bound to analyze again and weigh the evidence introduced in and considered by the lower
courts. However, the present case falls under the recognized exception that a review of the facts is warranted when
the findings of the lower courts are conflicting.32 Accordingly, we will examine the relevant pieces of evidence
presented to the lower court.

There is no contract of agency between Joy

Training and the spouses Johnson to sell the
parcel of land with its improvements

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person binds himself to render
some service or to do something in representation or on behalf of another, with the consent or authority of the
latter. It may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral. However, it must be written when the law requires a specific
form.33 Specifically, Article 1874 of the Civil Code provides that the contract of agency must be written for the
validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be void. A related provision,
Article 1878 of the Civil Code, states that special powers of attorney are necessary to convey real rights over
immovable properties.

The special power of attorney mandated by law must be one that expressly mentions a sale or that includes a
sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic Lumber Corporation
v. Court of Appeals34 that a special power of attorney must express the powers of the agent in clear and
unmistakable language for the principal to confer the right upon an agent to sell real estate. When there is any
reasonable doubt that the language so used conveys such power, no such construction shall be given the document.
The purpose of the law in requiring a special power of attorney in the disposition of immovable property is to protect
the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the
buyer to assure himself of the specific authorization of the putative agent.35 cralaw virt ualaw lib ra ry

In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training specially
authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the resolution, (3) and the
certification. We quote the pertinent portions of these documents for a thorough examination of Sallys claimuote
the pertinent portions of the said documents.. this Court becuse es. es Training did not e. TCT No. T-25334, entered
in the Registry of Deeds on March 5, 1998, states: cralawlib rary

A parcel of land x x x is registered in accordance with the provisions of the Property Registration Decree in the name
of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON,
both of legal age, U.S. Citizen, and residents of P.O. Box 3246, Shawnee, Ks 66203, U.S.A.36 (emphasis ours)

On the other hand, the fifth paragraph of the certification provides: c ralawli bra ry

Further, Richard A. and Linda J[.] Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes for the
corporation on ANY and all matters and decisions regarding the property and ministry here. They will
follow guidelines set forth according to their appointment and ministerial and missionary training and in that, they
will formulate and come up with by-laws which will address and serve as governing papers over the center and
corporation. They are to issue monthly and quarterly statements to all members of the corporation.37 (emphasis
ours)

The resolution states: cralawli bra ry

We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building owned by
spouses Richard A. and Linda J[.] Johnson (as described in the title SN No. 5102156 filed with the Province of
Aurora last 5th day of March, 1998. These proceeds are going to pay outstanding loans against the project and the
dissolution of the corporation shall follow the sale. This is a religious, non-profit corporation and no profits or stocks
are issued.38 (emphasis ours)

The above documents do not convince us of the existence of the contract of agency to sell the real properties. TCT
No. T-25334 merely states that Joy Training is represented by the spouses Johnson. The title does not explicitly
confer to the spouses Johnson the authority to sell the parcel of land and the building thereon. Moreover, the phrase
Rep. by Sps. Richard A. Johnson and LINDA S. JOHNSON39 only means that the spouses Johnson represented Joy
Training in land registration.

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

Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we consider the
photocopied resolution and certification, this Court will still arrive at the same conclusion.

The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by the phrase
land and building owned by spouses Richard A. and Linda J[.] Johnson.42 Even if we disregard such phrase,
the resolution must be given scant consideration. We adhere to the CAs position that the basis for determining the
board of trustees composition is the trustees as fixed in the articles of incorporation and not the actual members of
the board. The second paragraph of Section 2543 of the Corporation Code expressly provides that a majority of the
number of trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of
corporate business.

Moreover, the certification is a mere general power of attorney which comprises all of Joy Trainings
business.44 Article 1877 of the Civil Code clearly states that [a]n agency couched in general terms comprises only
acts of administration, even if the principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency should authorize a general
and unlimited management.45 cralaw virtua law lib rary

The contract of sale is unenforceable

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

At this point, we reiterate the established principle that persons dealing with an agent must ascertain not only the
fact of agency, but also the nature and extent of the agents authority. 48 A third person with whom the agent wishes
to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as
regards the agency.49 The basis for agency is representation and a person dealing with an agent is put upon inquiry
and must discover on his own peril the authority of the agent.50 Thus, Sally bought the real properties at her own
risk; she bears the risk of injury occasioned by her transaction with the spouses Johnson.

WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution dated October 3,
2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED for lack of merit.

SO ORDERED.
 6.

Agency: Apparent Authority of an Agent based on Estoppel

Reman Recio, Petitioner, vs.

Heirs and the Spouses Aguedo and Maria Altamirano, Respondents.
G.R. No. 182349; July 24, 2013

Facts: Nena Recio, mother of Reman Recio leased from the Altamiranos a parcel of land with improvements. The
Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria
Vaduvia. The sale of the land to Nena Recio did not materialize. The Altamiranos consolidated the two parcels of
land covered by the TCT and subdivided into 3 parcels of lands. Reman and his family remained in the peaceful
possession of Lot 3. He renewed Nenas option to buy the subject property. They conducted negotiations with
Alejandro who introduced himself as representing the other heirs. After which, the Altamiranos through
Alejandro entered into an oral contract of sale with the petitioner and made partial payments which Alejandro
received. Then, the petitioner offered to pay the remaining balance, but Alejandro kept on avoiding the
petitioner. Recio filed a case and while its pending, it was discovered that the property was sold to respondents
Spouses Lajarca.

The RTC ruled that the Absolute Sale between Altamiranos and the Lajarcas was Null and Void, but the
Court of Appeals modified that the sale between Alejandro and Recio is valid only with respect to the aliquot
share of Alejandro. CA held that Alejandros sale of Not. No. 3 did not bind his co-owners because a sale of real
property by one purporting to be an agent of the owner without any written authority from the latter is null and
void. An SPA from co-owners pursuant to Art 1878 of the NCC is necessary.

Issue: Can the contract of sale between Alejandro (representing the share of his co-owners) and Recio be held
valid pursuant to Apparent Authority of an Agent based on Estoppel?

Ruling: No. Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc.stressed that apparent
authority based on estoppel can rise from the principal who knowingly permit the agent with indicia of authority
that would lead a reasonable prudent person to believe that he actually has such authority. Apparent authority of
an agent arises only from acts or conducts on the part of the principal and such act or conduct of the principal
must have been known and relied upon in good faith and as a result of the exercise of a reasonable prudence by a
third person as claimant and such must have produced a change of position to its detriment. In this case, there
was no evidence on record of specific acts which the Altamiranos made before the sale to the petitioner,
indicating that they fully knew of the representation of Alejandro. All that the petitioner relied upon were acts
that happened after the sale to him. Absent the consent of Alejandros co-owners, the Court held that the sale
between the other Altamarinos and the petitioner was null and void.
 7.

SECOND DIVISION

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

Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

ROXAS ELECTRIC AND Promulgated:

CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x
DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-
G.R. CV No. 56125 reversing the Decision[2] of the Regional Trial Court of Makati, Branch
57, which ruled in favor of the petitioner.

The Antecedents
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer
Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086.A
portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondents Board of Directors

approved a resolution authorizing the corporation, through its president, Roberto B.
Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213
square meters, at a price and under such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and to execute, sign and deliver the
pertinent sales documents and receive the proceeds of the sale for and on behalf of the
company.[3]

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2
covered by TCT No. 78086 on which it planned to construct its warehouse building, and
a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van
would be able to readily enter or leave the property. In a Letter to Roxas dated June 21,
1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated
terms and conditions for P1,000 per square meter or at the price of P7,213,000.[4] One
of the terms incorporated in Dys offer was the following provision:

5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER,
that he holds a good and registrable title to the property, which shall be conveyed CLEAR
and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the
subject property already includes the area on which the right of way traverses from the
main lot (area) towards the exit to the Sumulong Highway as shown in the location plan
furnished by the Owner/Seller to the buyer. Furthermore, in the event that the right of way
is insufficient for the buyers purposes (example: entry of a 45-foot container), the seller
agrees to sell additional square meter from his current adjacent property to allow the
buyer to full access and full use of the property.[5]

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month
later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of
WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to
sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.[6] On
September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI was issued, under which
Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of which
was acknowledged by Roxas under the following terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of
and a right of way from Sumulong Highway to the property herein conveyed consists of 25
square meters wide to be used as the latters egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendees vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendees use (ex
entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the property.

The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to
the parcel of land and improvements herein conveyed, against all claims of any and all persons
or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the
said parcel of land and improvements thereon and will defend the Vendee against all present
and future claims and/or action in relation thereto, judicial and/or administrative. In particular,
the Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks
from the signing hereof. In case of failure on the part of the Vendor to eject all occupants and
squatters within the two-week period or breach of any of the stipulations, covenants and terms
and conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall
have the right to cancel the sale and demand reimbursement for all payments made to the
Vendor with interest thereon at 36% per annum.[8]

On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation
for P8,649,000 to WHI for the construction of the warehouse building on a portion of
the property with an area of 5,088 square meters.[9] WBI proposed to start the project
on October 1, 1991 and to turn over the building to WHI on February 29, 1992.[10]

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI of a 5,000-square-meter portion of the
warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa
emphasized the need for the warehouse to be ready for occupancy before April 1,
1992.[11] WHI accepted the offer. However, WBI failed to commence the construction of
the warehouse in October 1, 1991 as planned because of the presence of squatters in
the property and suggested a renegotiation of the contract after the squatters shall
have been evicted.[12] Subsequently, the squatters were evicted from the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction
of the warehouse building for P11,804,160.[13] The contractor started construction in
April 1992 even before the building officials of Antipolo City issued a building permit on
May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a
certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as
lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the
property for a monthly rental of P300,000 for a period of three years from March 1,
1993 up to February 28, 1996.[14]

In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI
were parked on a portion of the property over which WHI had been granted a right of
way.Roxas promised to look into the matter. Dy and Roxas discussed the need of the
WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 as provided for in the deed of absolute sale. However, Roxas died soon
thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to
purchase a portion of the said lot as provided for in the deed of absolute sale, and
complained about the latters failure to eject the squatters within the three-month
period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise
the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI
reiterated its demand in a Letter dated May 29, 1992. There was no response from
RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional
Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the
following in its complaint:
5. The current adjacent property referred to in the aforequoted paragraph of the Deed of
Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of
the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas
Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of
Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated beneficial
use and right of way consisting of 25 square meters and 55 square meters to the prejudice of
the plaintiff.

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild
Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot
container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of
Sale to purchase additional square meters from Roxas Electric to allow it full access and use of
the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings
request contrary to defendant Roxas Electrics obligation under the Deed of Absolute Sale
(Annex A).

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the
premises within the stipulated time frame and as a consequence thereof, plaintiffs planned
construction has been considerably delayed for seven (7) months due to the squatters who
continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred
substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction
materials and labor.

9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation under Annex
A, Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00
supposed income from rentals of the subject property for seven (7) months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with
its obligations and warranties under the Deed of Absolute Sale but notwithstanding such
demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed
plaintiffs demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and made an
integral part hereof.

11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas
Electric to particularly annotate on Transfer Certificate of Title No. N-78085 the agreement
under Annex A with respect to the beneficial use and right of way, however, Roxas Electric
unjustifiably ignored and disregarded the same.
 Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and made an
integral part hereof.

12. By reason of Roxas Electrics continuous refusal and failure to comply with Woodchild
Holdings valid demand for compliance under Annex A, the latter was constrained to litigate,
thereby incurring damages as and by way of attorneys fees in the amount of P100,000.00 plus
costs of suit and expenses of litigation.[15]

The WHI prayed that, after due proceedings, judgment be rendered in its favor,
thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings

and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25

square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it

full access and use of the purchased property pursuant to para. 5 of the
Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial

use and right of way granted to Woodchild Holdings under the Deed of
Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual

damages and unrealized income;

e) to pay attorneys fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.[16]

 In its answer to the complaint, the RECCI alleged that it never authorized its
former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No.
491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It
alleged that, under the Resolution approved on May 17, 1991, it merely authorized
Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right
of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 in the said deed are ultra vires. The RECCI further alleged that the provision
therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the
essential elements of a binding contract.[17]

In its amended answer to the complaint, the RECCI alleged that the delay in the
construction of its warehouse building was due to the failure of the WHIs contractor to
secure a building permit thereon.[18]

During the trial, Dy testified that he told Roxas that the petitioner was buying a
portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price
of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the WHI,
the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m.
and 55 sq. m.;

(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said
plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of
Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their
Deed of Absolute Sale;
 (4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiffs
unrealized income;

(5) To pay plaintiff P100,000 representing attorneys fees; and

To pay the costs of suit.

SO ORDERED.[19]

The trial court ruled that the RECCI was estopped from disowning the apparent
authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The
court reasoned that to do so would prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to bind the WHI relating to the easement
of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal of the
complaint.The CA ruled that, under the resolution of the Board of Directors of the
RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086, but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-
3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate
court also ruled that the grant of a right of way and an option to the respondent were so
lopsided in favor of the respondent because the latter was authorized to fix the location
as well as the price of the portion of its property to be sold to the respondent. Hence,
such provisions contained in the deed of absolute sale were not binding on the
RECCI. The appellate court ruled that the delay in the construction of WHIs warehouse
was due to its fault.

The Present Petition

 The petitioner now comes to this Court asserting that:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. C)
IS ULTRA VIRES.

II.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A
QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY
PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID
STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. C).

III.

THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE
STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. C) WERE DISADVANTAGEOUS TO THE
APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.

IV.

IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY
THE ASSAILED DECISION.

V.

THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE
SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH. C).

VI.

THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A
QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00
REPRESENTING ACTUAL DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL AS
ATTORNEYS FEES.[20]

The threshold issues for resolution are the following: (a) whether the respondent is
bound by the provisions in the deed of absolute sale granting to the petitioner beneficial
use and a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the
petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable
against the respondent; (b) whether the respondent failed to eject the squatters on its
property within two weeks from the execution of the deed of absolute sale; and, (c)
whether the respondent is liable to the petitioner for damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the
respondent authorized Roxas, then its president, to grant a right of way over a portion
of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to
buy a portion of the said property. The petitioner contends that when the respondent
sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of
its obligation to provide the petitioner with a means of ingress to or egress from the
property to the Sumulong Highway, since the latter had no adequate outlet to the public
highway. The petitioner asserts that it agreed to buy the property covered by TCT No.
78085 because of the grant by the respondent of a right of way and an option in its
favor to buy a portion of the property covered by TCT No. 78085. It contends that the
respondent never objected to Roxas acceptance of its offer to purchase the property
and the terms and conditions therein; the respondent even allowed Roxas to execute
the deed of absolute sale in its behalf. The petitioner asserts that the respondent even
received the purchase price of the property without any objection to the terms and
conditions of the said deed of sale. The petitioner claims that it acted in good faith, and
contends that after having been benefited by the said sale, the respondent is estopped
from assailing its terms and conditions. The petitioner notes that the respondents Board
of Directors never approved any resolution rejecting the deed of absolute sale executed
by Roxas for and in its behalf. As such, the respondent is obliged to sell a portion of Lot
No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the
price of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the
New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May 17,
1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in
favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to
the petitioner. Hence, the respondent was not bound by such provisions contained in
the deed of absolute sale. Besides, the respondent contends, the petitioner cannot
enforce its right to buy a portion of the said property since there was no agreement in
the deed of absolute sale on the price thereof as well as the specific portion and area to
be purchased by the petitioner.
We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we held that:

A corporation is a juridical person separate and distinct from its stockholders or

members. Accordingly, the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express authorization
from the corporations board of directors. Section 23 of BP 68, otherwise known as the
Corporation Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year and until
their successors are elected and qualified.

Indubitably, a corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the
normal course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law. [22]

Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code, acts
done by such officers beyond the scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or is estopped from denying them:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
 Thus, contracts entered into by corporate officers beyond the scope of authority
are unenforceable against the corporation unless ratified by the corporation.[23]

In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons

dealing with an assumed agency, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.

In this case, the respondent denied authorizing its then president Roberto B. Roxas to
sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or
burden thereon. The petitioner was thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of
the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any
interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal,
covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions
which he deems most reasonable and advantageous to the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he is
hereby authorized to execute, sign and deliver the pertinent sales documents and receive the
proceeds of sale for and on behalf of the company.[25]

Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a
portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights
thereon. Neither may such authority be implied from the authority granted to Roxas to
sell Lot No. 491-A-3-B-2 to the petitioner on such terms and conditions which he deems
most reasonable and advantageous. Under paragraph 12, Article 1878 of the New Civil
Code, a special power of attorney is required to convey real rights over immovable
property.[26] Article 1358 of the New Civil Code requires that contracts which have for
their object the creation of real rights over immovable property must appear in a public
document.[27] The petitioner cannot feign ignorance of the need for Roxas to have been
specifically authorized in writing by the Board of Directors to be able to validly grant a
right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act
of the agent is one which requires authority in writing, those dealing with him are
charged with notice of that fact.[28]

Powers of attorney are generally construed strictly and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or subject
under which the agent is to deal.[29] The general rule is
that the power of attorney must be pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done must be legally identical with that
authorized to be done.[30] In sum, then, the consent of the respondent to the assailed
provisions in the deed of absolute sale was not obtained; hence, the assailed provisions
are not binding on it.

We reject the petitioners submission that, in allowing Roxas to execute the

contract to sell and the deed of absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent authority to grant a right of way over
Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof
to the petitioner. Absent estoppel or ratification, apparent authority cannot remedy the
lack of the written power required under the statement of frauds.[31] In addition, the
petitioners fallacy is its wrong assumption of the unproved premise that the respondent
had full knowledge of all the terms and conditions contained in the deed of absolute
sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise from
two instances: first, the principal may knowingly permit the agent to so hold himself out
as having such authority, and in this way, the principal becomes estopped to claim that
the agent does not have such authority; second, the principal may so clothe the agent
with the indicia of authority as to lead a reasonably prudent person to believe that he
actually has such authority.[32] There can be no apparent authority of an agent without
acts or conduct on the part of the principal and such acts or conduct of the principal
must have been known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant and such must have produced a
change of position to its detriment. The apparent power of an agent is to be determined
by the acts of the principal and not by the acts of the agent.[33]

For the principle of apparent authority to apply, the petitioner was burdened to
prove the following: (a) the acts of the respondent justifying belief in the agency by the
petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with ordinary care and prudence.[34] In this
case, there is no evidence on record of specific acts made by the respondent[35] showing
or indicating that it had full knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to the respondent an option
to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden
or lien thereon, or that the respondent allowed him to do so.

The petitioners contention that by receiving and retaining the P5,000,000

purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified
the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the
petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that
the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken
possession of the property. As such, the respondent had the right to retain
the P5,000,000, the purchase price of the property it had sold to the petitioner. For an
act of the principal to be considered as an implied ratification of an unauthorized act of
an agent, such act must be inconsistent with any other hypothesis than that he
approved and intended to adopt what had been done in his name. [36] Ratification is
based on waiver the intentional relinquishment of a known right. Ratification cannot be
inferred from acts that a principal has a right to do independently of the unauthorized
act of the agent. Moreover, if a writing is required to grant an authority to do a
particular act, ratification of that act must also be in writing.[37] Since the respondent
had not ratified the unauthorized acts of Roxas, the same are unenforceable.[38] Hence,
by the respondents retention of the amount, it cannot thereby be implied that it had
ratified the unauthorized acts of its agent, Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioners) fault. The petitioner asserts
that the CA should have affirmed the ruling of the trial court that the respondent failed
to cause the eviction of the squatters from the property on or before September 29,
1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the
delay in the construction of the petitioners warehouse was due to its late filing of an
application for a building permit, only on May 28, 1992.

The petitioners contention is meritorious. The respondent does not deny that it
failed to cause the eviction of the squatters on or before September 29, 1991. Indeed,
the respondent does not deny the fact that when the petitioner wrote the respondent
demanding that the latter cause the eviction of the squatters on April 15, 1992, the
latter were still in the premises. It was only after receiving the said letter in April 1992
that the respondent caused the eviction of the squatters, which thus cleared the way for
the petitioners contractor to commence the construction of its warehouse and secure
the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit
before April 1992 because the squatters were still occupying the property. Because of
the respondents failure to cause their eviction as agreed upon, the petitioners
contractor failed to commence the construction of the warehouse in October 1991 for
the agreed price of P8,649,000. In the meantime, costs of construction materials
spiraled. Under the construction contract entered into between the petitioner and the
contractor, the petitioner was obliged to pay P11,804,160,[39] including the additional
work costing P1,441,500, or a net increase of P1,712,980.[40] The respondent is liable for
the difference between the original cost of construction and the increase thereon,
conformably to Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof, are liable for
damages.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned

income from the lease of the property to the Ponderosa Leather Goods Company. The
respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and
2201 of the New Civil Code:
 Art. 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen or could have reasonably foreseen
at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the obligation.

In sum, we affirm the trial courts award of damages and attorneys fees to the
petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the

assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is
ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages
and P100,000 by way of attorneys fees. No costs.

SO ORDERED.
8.

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION

COUNTRY BANKERS G.R. No. 166044

INSURANCE CORPORATION,
Petitioner, Present:

LEONARDO-DE CASTRO,*
- versus -
Acting Chairperson,

KEPPEL CEBU SHIPYARD, BERSAMIN,

UNIMARINE SHIPPING LINES,
DEL CASTILLO,
INC., PAUL RODRIGUEZ,
PETER RODRIGUEZ, ALBERT VILLARAMA, JR., and
HONTANOSAS, and
BETHOVEN QUINAIN, PERLAS-BERNABE,** JJ.
Respondents.

Promulgated:

June 18, 2012

x--------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

 This is a petition for review on certiorari[1] to reverse and set aside the January 29,
2004 Decision[2] and October 28, 2004 Resolution[3] of the Court of Appeals in CA-G.R.
CV No. 58001, wherein the Court of Appeals affirmed with modification the February
10, 1997 Decision[4] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case
No. CBB-13447.

Hereunder are the undisputed facts as culled from the records of the case.

On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation

engaged in the shipping industry, contracted the services of Keppel Cebu Shipyard,
formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry
docking and ship repair works on its vessel, the M/V Pacific Fortune.[5]

On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in
consideration for its services, which amounted to P4,486,052.00.[6] Negotiations
between Cebu Shipyard and Unimarine led to the reduction of this amount
to P3,850,000.00. The terms of this agreement were embodied in Cebu Shipyards
February 18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted in full below:

18 February 1992

Ref No.: LL92/0383

UNIMARINE SHIPPING LINES, INC.

C/O Autographics, Inc.

Gorordo Avenue, Lahug, Cebu City

Attention: Mr. Paul Rodriguez

President/General Manager

This is to confirm our agreement on the shiprepair bills charged for the repair of MV Pacific
Fortune, our invoice no. 26035.
 The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00 excluding
VAT.

Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of [P3,850,000.00] in US
Dollars to be fixed at the prevailing USDollar to Philippine Peso exchange rate at the time of
payment. The payment terms to be extended to Unimarine is as follows:

Installments Amount Due Date

1st Installment P2,350,000.00 30 May 1992

2nd Installment P1,500,000.00 30 Jun 1992

Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso
and an additional check amount of P385,000.00, representing 10% [Value Added Tax] VAT on
the above bill of P3,850,000.00. In the event that Unimarine fails to make full payment on the
above due dates in US Dollars, the post-dated checks will be deposited by CSEW in payment of
the amounts owned by Unimarine and Unimarine agree that the 10% VAT (P385,000.00) shall
also become payable to CSEW.

Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel
before full payment of the above debt, agree to present CSEW surety bonds equal to 120% of
the value of the credit extended. The total bond amount shall be P4,620,000.00.

Yours faithfully,

CEBU SHIPYARD & ENGG WORKS, INC Conforme:

(SGD) (SGD)______

SEET KENG TAT PAUL RODRIGUEZ

Treasurer/VP-Admin. Unimarine Shipping

Lines, Inc.[7]

In compliance with the agreement, Unimarine, through Paul Rodriguez, secured

from Country Bankers Insurance Corp. (CBIC), through the latters agent, Bethoven
Quinain (Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety bond) on January 15,
1992 in the amount of P3,000,000.00. The expiration of this surety bond was extended
to January 15, 1993, through Endorsement No. 33152[9] (the endorsement), which was
later on attached to and formed part of the surety bond. In addition to this, Unimarine,
on February 19, 1992, obtained another bond from Plaridel Surety and Insurance Co.
(Plaridel), PSIC Bond No. G (16)-00365[10] in the amount of P1,620,000.00.

On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of

Cebu Shipyard. The pertinent portions of the contract read as follows:

Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue, Cebu City hereby
acknowledges that in consideration of Cebu Shipyard & Engineering Works, Inc. (Cebu
Shipyard) at our request agreeing to release the vessel specified in part A of the Schedule (name
of vessel) prior to the receipt of the sum specified in part B of the Schedule (Moneys Payable)
payable in respect of certain works performed or to be performed by Cebu Shipyard and/or its
subcontractors and/or material and equipment supplied or to be supplied by Cebu Shipyard
and/or its subcontractors in connection with the vessel for the party specified in part C of the
Schedule (the Debtor), we hereby unconditionally, irrevocably undertake to make punctual
payment to Cebu Shipyard of the Moneys Payable on the terms and conditions as set out in part
B of the Schedule. We likewise hereby expressly waive whatever right of excussion we may have
under the law and equity.

This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors,
administrators, successors, and assigns and shall not be discharged until all obligation of this
contract shall have been faithfully and fully performed by the Debtor.[11]

Because Unimarine failed to remit the first installment when it became due on May 30,
1992, Cebu Shipyard was constrained to deposit the peso check corresponding to the
initial installment of P2,350,000.00. The check, however, was dishonored by the bank
due to insufficient funds.[12] Cebu Shipyard faxed a message to Unimarine, informing it
of the situation, and reminding it to settle its account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to
confirm Paul Rodriguezs promise that Unimarine will pay in full the P3,850,000.00, in US
Dollars on July 1, 1992.

Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2,
1992, through a faxed letter, asked Unimarine if the payment could be picked up the
next day. This was followed by another faxed message on July 6, 1992, wherein Cebu
Shipyard reminded Unimarine of its promise to pay in full on July 28, 1992. On August
24, 1992, Cebu Shipyard again faxed[15] Unimarine, to inform it that interest charges will
have to be imposed on their outstanding debt, and if it still fails to pay before August 28,
1992, Cebu Shipyard will have to enforce payment against the sureties and take legal
action.

On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a
[16]
letter, demanding payment, within seven days from receipt of the letter, the amount
of P4,859,458.00, broken down as follows:

B#26035 MV PACIFIC FORTUNE 4,486,052.00

LESS: ADJUSTMENT:

CN#00515-03/19/92 (636,052.00)

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

3,850,000.00

Add: VAT on repair bill no. 26035 385,000.00

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

4,235,000.00

Add: Interest/penalty charges:

Debit Note No. 02381 189,888.00

Debit Note No. 02382 434,570.00

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

4,859,458.00[17]

Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu Shipyard,
through counsel, wrote the sureties CBIC[18] on November 18, 1992, and Plaridel,[19] on
November 19, 1992, to inform them of Unimarines nonpayment, and to ask them to
fulfill their obligations as sureties, and to respond within seven days from receipt of the
demand.

However, even the sureties failed to discharge their obligations, and so Cebu Shipyard
filed a Complaint dated January 8, 1993, before the RTC, Branch 18 of Cebu City, against
Unimarine, CBIC, and Plaridel. This was docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of action. CBIC
alleged that the surety bond was issued by its agent, Quinain, in excess of his
authority. CBIC claimed that Cebu Shipyard should have doubted the authority of
Quinain to issue the surety bond based on the following:

1. The nature of the bond undertaking (guarantee payment), and the amount
involved.
2. The surety bond could only be issued in favor of the Department of Public
Works and Highways, as stamped on the upper right portion of the face of the
bond.[21] This stamp was covered by documentary stamps.
3. The issuance of the surety bond was not reported, and the corresponding
premiums were not remitted to CBIC.[22]

CBIC added that its liability was extinguished when, without its knowledge and
consent, Cebu Shipyard and Unimarine novated their agreement several
times.Furthermore, CBIC stated that Cebu Shipyards claim had already been paid or
extinguished when Unimarine executed an Assignment of Claims[23] of the proceeds of
the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC also averred that
Cebu Shipyards claim had already prescribed as the endorsement that extended the
surety bonds expiry date, was not reported to CBIC. Finally, CBIC asseverated that if it
were held to be liable, its liability should be limited to the face value of the bond and
not for exemplary damages, attorneys fees, and costs of litigation.[24]

Subsequently, CBIC filed a Motion to Admit Cross and Third Party

Complaint[25] against Unimarine, as cross defendant; Paul Rodriguez, Albert Hontanosas,
and Peter Rodriguez, as signatories to the Indemnity Agreement they executed in favor
of CBIC; and Bethoven Quinain, as the agent who issued the surety bond and
endorsement in excess of his authority, as third party defendants.[26]

CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez
executed an Indemnity Agreement, wherein they bound themselves, jointly and
severally, to indemnify CBIC for any amount it may sustain or incur in connection
with the issuance of the surety bond and the endorsement.[27] As for Quinain,
CBIC alleged that he exceeded his authority as stated in the Special Power of
Attorney, wherein he was authorized to solicit business and issue surety bonds
not exceeding P500,000.00 but only in favor of the Department of Public Works
and Highways, National Power Corporation, and other government agencies.[28]

On August 23, 1993, third party defendant Hontanosas filed his Answer
with Counterclaim, to the Cross and Third Party Complaint. Hontanosas claimed
that he had no financial interest in Unimarine and was neither a stockholder,
director nor an officer of Unimarine. He asseverated that his relationship to
Unimarine was limited to his capacity as a lawyer, being its retained counsel. He
further denied having any participation in the Indemnity Agreement executed in
favor of CBIC, and alleged that his signature therein was forged, as he neither
signed it nor appeared before the Notary Public who acknowledged such
undertaking.[29]

Various witnesses were presented by the parties during the course of the
trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She was the Chief
Accountant in charge of the custody of the documents of the company. She
corroborated Cebu Shipyards allegations and produced in court the documents to
support Cebu Shipyards claim. She also testified that while it was true that the
proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to Cebu
Shipyard, nothing was turned over to them.[30]

Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the
repairs it did on M/V Pacific Fortune, despite the extensions granted to
Unimarine. He claimed that he signed the Indemnity Agreement because he
trusted Quinain that it was a mere pre-requisite for the issuance of the surety
bond. He added that he did not bother to read the documents and he was not
aware of the consequences of signing an Indemnity Agreement. Paul Rodriguez
also alleged to not having noticed the limitation Valid only in favor of DPWH
stamped on the surety bond.[31] However, Paul Rodriguez did not contradict the
fact that Unimarine failed to pay Cebu Shipyard its obligation.[32]

CBIC presented Dakila Rianzares, the Senior Manager of its Bonding

Department. Her duties included the evaluation and approval of all applications
for and reviews of bonds issued by their agents, as authorized under the Special
Power of Attorney and General Agency Contract of CBIC. Rianzares testified that
she only learned of the existence of CBIC Surety Bond No. G (16) 29419 when she
received the summons for this case. Upon investigation, she found out that the
surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of
their General Agency Contract, which provides that all bonds issued by the agent
be reported to CBICs office within one week from the date of issuance. She
further stated that the surety bond issued in favor of Unimarine was issued
beyond Quinains authority. Rianzares added that she was not aware that an
endorsement pertaining to the surety bond was also issued by Quinain.[33]

After the trial, the RTC was faced with the lone issue of whether or not CBIC
was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of which reads:
 WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard & Engineering
Works, Incorporated and against the defendants:

1. Ordering the defendants Unimarine Shipping Lines, Incorporated, Country Bankers

Insurance Corporation and Plaridel Surety and Insurance Corporation to pay plaintiff jointly and
severally the amount of P4,620,000.00 equivalent to the value of the surety bonds;

2. Ordering further defendant Unimarine to pay plaintiff the amount of P259,458.00 to

complete its entire obligation of P4,859,458.00;

3. To pay plaintiff jointly and severally the amount of P100,000.00 in attorneys fees
and litigation expenses;

4. For Cross defendant Unimarine Shipping Lines, Incorporated and Third party
defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas: To indemnify jointly and
severally, cross plaintiff and third party plaintiff Country Bankers Insurance Corporation
whatever amount the latter is made to pay to plaintiff.[35]

The RTC held that CBIC, in its capacity as surety is bound with its principal jointly
and severally to the extent of the surety bond it issued in favor of [Cebu Shipyard]
because although the contract of surety is in essence secondary only to a valid principal
obligation, his liability to [the] creditor is said to be direct, primary[,] and absolute, in
other words, he is bound by the principal.[36] The RTC added:

Solidary obligations on the part of Unimarine and CBIC having been established and
expressly stated in the Surety Bond No. 29419 (Exh. C), [Cebu Shipyard], therefore, is entitled to
collect and enforce said obligation against any and or both of them, and if and when CBIC pays,
it can compel its co-defendant Unimarine to reimburse to it the amount it has paid.[37]

The RTC found CBICs contention that Quinain acted in excess of his authority in
issuing the surety bond untenable. The RTC held that CBIC is bound by the surety bond
issued by its agent who acted within the apparent scope of his authority. The RTC said:

[A]s far as third persons are concerned, an act is deemed to have been performed within the
scope of the agents authority, if such act is within the terms of the powers of attorney as
written, even if the agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.[38]
 All the defendants appealed this Decision to the Court of Appeals.

Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued that
Unimarines obligation under Bill No. 26035 had been extinguished by novation, as Cebu
Shipyard had agreed to accept the proceeds of the sale of the M/V Headline as payment
for the ship repair works it did on M/V Pacific Fortune. Paul Rodriguez and Peter
Rodriguez added that such novation also freed them from their liability under the
Indemnity Agreement they signed in favor of CBIC. Albert Hontanosas in turn reiterated
that he did not sign the Indemnity Agreement.[39][SC1]

CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its liability
on the surety bond as it was issued in excess of Quinains authority. Moreover, CBIC
averred, its liability under such surety had been extinguished by reasons of novation,
payment, and prescription. CBIC also questioned the RTCs order, holding it jointly and
severally liable with Unimarine and Plaridel for the amount of P4,620,000.00, a sum
larger than the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did
not hold Quinain liable to indemnify CBIC for whatever amount it was ordered to pay
Cebu Shipyard.

On January 29, 2004, the Court of Appeals promulgated its decision, with the
following dispositive portion:

WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-Appellants

Unimarine Shipping Lines, Inc. and Country Bankers Insurance Corporation; Cross-Defendant-
Appellant Unimarine Shipping Lines, Inc. and; Third-Party Defendants-Appellants Paul Rodriguez,
Peter Rodriguez and Albert Hontanosas are hereby DENIED. The decision of the RTC in Civil Case
No. CEB-13447 dated February 10, 1997 is AFFIRMED with modification that Mr. Bethoven
Quinain, CBICs agent is hereby held jointly and severally liable with CBIC by virtue of Surety
Bond No. 29419 executed in favor of plaintiff-appellee CSEW.[41]

In its decision, the Court of Appeals resolved the following issues, as it had summarized
from the parties pleadings:

I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of money arising from
the ship-repair contract;
 II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been extinguished by
novation;

III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of UNIMARINE is
liable under Surety Bond No. 29419[;]

IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party Defendants-

Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-Party Defendant
Bethoven Quinain are liable by virtue of the Indemnity Agreement executed between them and
Cross and Third Party Plaintiff CBIC;

V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award of P100,000.00

in attorneys fees and litigation expenses.[42]

The Court of Appeals held that it was duly proven that Unimarine was liable to
Cebu Shipyard for the ship repair works it did on the formers M/V Pacific Fortune. The
Court of Appeals dismissed CBICs contention of novation for lack of merit.[43] CBIC was
held liable under the surety bond as there was no novation on the agreement between
Unimarine and Cebu Shipyard that would discharge CBIC from its obligation. The Court
of Appeals also did not allow CBIC to disclaim liability on the ground that Quinain
exceeded his authority because third persons had relied upon Quinains representation,
as CBICs agent.[44] Quinain was, however, held solidarily liable with CBIC under Article
1911 of the Civil Code.[45]

Anent the liability of the signatories to the Indemnity Agreement, the Court of
Appeals held Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly and
severally liable thereunder. The Court of Appeals rejected Hontanosass claim that his
signature in the Indemnity Agreement was forged, as he was not able to prove it.[46]

The Court of Appeals affirmed the award of attorneys fees and litigation expenses to
Cebu Shipyard since it was able to clearly establish the defendants liability, which they
tried to dodge by setting up defenses to release themselves from their obligation.[47]

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

respective Motions for Reconsideration. This was, however, denied by the Court of
Appeals in its October 28, 2004 Resolution for lack of merit.

Unimarine elevated its case to this Court via a petition for review on certiorari, docketed
as G.R. No. 166023, which was denied in a Resolution dated January 19, 2005.[50]
 The lone petitioner in this case, CBIC, is now before this Court, seeking the
reversal of the Court of Appeals decision and resolution on the following grounds:

A.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE PROVISIONS OF

ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS
AGENT IN EXCESS OF AUTHORITY.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN EXTENSION OF

THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY THE CREDITOR TO THE
PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE SURETY.

C.

ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT OF
APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF
PETITIONER BEYOND THE VALUE OF THE BOND.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND

SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51]

Issue

The crux of the controversy lies in CBICs liability on the surety bond Quinain
issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying the rules
governing the contract of agency. It argued that the Special Power of Attorney granted
to Quinain clearly set forth the extent and limits of his authority with regard to
businesses he can transact for and in behalf of CBIC. CBIC added that it was incumbent
upon Cebu Shipyard to inquire and look into the power of authority conferred to
Quinain. CBIC said:

The authority to bind a principal as a guarantor or surety is one of those powers which requires
a Special Power of Attorney pursuant to Article 1878 of the Civil Code. Such power could not be
simply assumed or inferred from the mere existence of an agency. A person who enters into a
contract of suretyship with an agent without confirming the extent of the latters authority does
so at his peril. x x x.[52]

CBIC claims that the foregoing is true even if Quinain was granted the authority to
transact in the business of insurance in general, as the authority to bind the principal in
a contract of suretyship could nonetheless never be presumed.[53] Thus, CBIC claims,
that:

[T]hird persons seeking to hold the principal liable for transactions entered into by an agent
should establish the following, in case the same is controverted:

6.6.1. The fact or existence of the agency.

6.6.2. The nature and extent of authority.[54]

To go a little further, CBIC said that the correct Civil Code provision to apply in this
case is Article 1898. CBIC asserts that Cebu Shipyard was charged with knowledge of the
extent of the authority conferred on Mr. Quinain by its failure to perform due diligence
investigations.[55]
Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition for
raising factual issues. In support, Cebu Shipyard claimed that the Court of Appeals
application of Article 1911 of the Civil Code was founded on findings of facts that CBIC
now disputes. Thus, the question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was never put in issue. What has always
been debated by the parties is the extent of authority or, at the very least, apparent
authority, extended to Quinain by CBIC to transact insurance business for and in its
behalf.

In a contract of agency, a person, the agent, binds himself to represent another,

the principal, with the latters consent or authority.[57] Thus, agency is based on
representation, where the agent acts for and in behalf of the principal on matters within
the scope of the authority conferred upon him.[58] Such acts have the same legal effect
as if they were personally done by the principal. By this legal fiction of representation,
the actual or legal absence of the principal is converted into his legal or juridical
presence.[59]

The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for
the surety bond. It held that CBIC could not be allowed to disclaim liability because
Quinains actions were within the terms of the special power of attorney given to
him.[60] The Court of Appeals agreed that CBIC could not be permitted to abandon its
obligation especially since third persons had relied on Quinains representations. It based
its decision on Article 1911 of the Civil Code and found CBIC to have been negligent and
less than prudent in conducting its insurance business for its failure to supervise and
monitor the acts of its agents, to regulate the distribution of its insurance forms, and to
devise schemes to prevent fraudulent misrepresentations of its agents.[61]

This Court does not agree. Pertinent to this case are the following provisions of
the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the principals ratification.

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the terms of the power
of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.

Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as regards
the agency. Private or secret orders and instructions of the principal do not prejudice third
persons who have relied upon the power of attorney or instructions shown to them.
 Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers.

Our law mandates an agent to act within the scope of his authority.[62] The scope
of an agents authority is what appears in the written terms of the power of attorney
granted upon him.[63] Under Article 1878(11) of the Civil Code, a special power of
attorney is necessary to obligate the principal as a guarantor or surety.

In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of
his authority only if Quinains act of issuing Surety Bond No. G (16) 29419 is deemedto
have been performed within the written terms of the power of attorney he was
granted.[64]

However, contrary to what the RTC held, the Special Power of Attorney accorded
to Quinain clearly states the limits of his authority and particularly provides that in case
of surety bonds, it can only be issued in favor of the Department of Public Works and
Highways, the National Power Corporation, and other government agencies;
furthermore, the amount of the surety bond is limited to P500,000.00, to wit:

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and existing
under and by virtue of the laws of the Philippines, with head offices at 8th Floor, G.F. Antonino
Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as the Company
hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General Agent and
Attorney-in-Fact, for and in its place, name and stead, and for its own use and benefit, to do and
perform the following acts and things:
 1. To conduct, manage, carry on and transact insurance business as usually pertains to
a General Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).

2. To accept, underwrite and subscribe policies of insurance for and in behalf of the
Company under the terms and conditions specified in the General Agency Contract executed
and entered into by and between it and its said Attorney-in-Fact subject to the following
Schedule of Limits:

- SCHEDULE OF LIMITS -

a. FIRE:

xxxx
b. PERSONAL ACCIDENT:

xxxx

c. MOTOR CAR:

xxxx

d. MARINE:

xxxx

e. BONDS:

xxxx

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

Highways, Natl. Power Corp. & other. 500,000.00
Government agencies)[65]

CBIC does not anchor its defense on a secret agreement, mutual understanding,
or any verbal instruction to Quinain. CBICs stance is grounded on its contract with
Quinain, and the clear, written terms therein. This Court finds that the terms of the
foregoing contract specifically provided for the extent and scope of Quinains authority,
and Quinain has indeed exceeded them.
 Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his
authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must
be stressed though that only the principal, and not the agent, can ratify the
unauthorized acts, which the principal must have knowledge of.[66] Expounding on the
concept and doctrine of ratification in agency, this Court said:

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

on his behalf by another without authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if material facts were
suppressed or unknown, there can be no valid ratification and this regardless of the purpose
or lack thereof in concealing such facts and regardless of the parties between whom the
question of ratification may arise. Nevertheless, this principle does not apply if the principals
ignorance of the material facts and circumstances was willful, or that the principal chooses to
act in ignorance of the facts. However, in the absence of circumstances putting a reasonably
prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant
of the facts.[67] (Emphases supplied.)

Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that
it was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No.
33152. There were no allegations either that CBIC should have been put on alert with
regard to Quinains business transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether express or implied.

Article 1911, on the other hand, is based on the principle of estoppel, which is
necessary for the protection of third persons. It states that the principal is solidarily
liable with the agent even when the latter has exceeded his authority, if the principal
allowed him to act as though he had full powers. However, for an agency by estoppel to
exist, the following must be established:

1. The principal manifested a representation of the agents authority or knowingly

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

In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by estoppel,
which is similar to the doctrine of apparent authority, requires proof of reliance upon
the representations, and that, in turn, needs proof that the representations predated
the action taken in reliance.[70]

This Court cannot agree with the Court of Appeals pronouncement of negligence
on CBICs part. CBIC not only clearly stated the limits of its agents powers in their
contracts, it even stamped its surety bonds with the restrictions, in order to alert the
concerned parties. Moreover, its company procedures, such as reporting requirements,
show that it has designed a system to monitor the insurance contracts issued by its
agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his
transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.

Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC
let the public, or specifically Unimarine, believe that Quinain had the authority to issue a
surety bond in favor of companies other than the Department of Public Works and
Highways, the National Power Corporation, and other government agencies. Neither
was it shown that CBIC knew of the existence of the surety bond before the
endorsement extending the life of the bond, was issued to Unimarine. For one to
successfully claim the benefit of estoppel on the ground that he has been misled by the
representations of another, he must show that he was not misled through his own want
of reasonable care and circumspection.[71]

It is apparent that Unimarine had been negligent or less than prudent in its
dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v. Linsangan,[72] this
Court held:

It is a settled rule that persons dealing with an agent are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it. The basis for agency is representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. If he does not make
such an inquiry, he is chargeable with knowledge of the agents authority and his ignorance of
that authority will not be any excuse.

In the same case, this Court added:

 [T]he ignorance of a person dealing with an agent as to the scope of the latters authority is no
excuse to such person and the fault cannot be thrown upon the principal. A person dealing with
an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by
relying upon the agents assumption of authority that proves to be unfounded. The principal, on
the other hand, may act on the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the extent of his authority as well as the existence of his
agency.[73]

Unimarine undoubtedly failed to establish that it even bothered to inquire if

Quinain was authorized to agree to terms beyond the limits indicated in his special
power of attorney. While Paul Rodriguez stated that he has done business with Quinain
more than once, he was not able to show that he was misled by CBIC as to the extent of
authority it granted Quinain. Paul Rodriguez did not even allege that he asked for
documents to prove Quinains authority to contract business for CBIC, such as their
contract of agency and power of attorney. It is also worthy to note that even with the
Indemnity Agreement, Paul Rodriguez signed it on Quinains mere assurance and
without truly understanding the consequences of the terms of the said
agreement. Moreover, both Unimarine and Paul Rodriguez could have inquired directly
from CBIC to verify the validity and effectivity of the surety bond and endorsement; but,
instead, they blindly relied on the representations of Quinain. As this Court held
in Litonjua, Jr. v. Eternit Corp.[74]:

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

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

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

SO ORDERED.
9.
G.R. No. 171359

VILLARAMA, JR., J.:

Before us are consolidated appeals by certiorari under Rule 45 of the 1997 Rules
on Civil Procedure, as amended, assailing the January 4, 2006 Decision[1] and
January 30, 2006 and March 1, 2006 Resolutions[2] of the Sandiganbayan,
Fourth Division finding petitioners Benjamin A. Umipig, Renato B. Palomo,
Margie C. Mabitad and Carmencita Fontanilla-Payabyab guilty of violating
Section 3(e) of Republic Act (R.A.) No. 3019, or the Anti-Graft and Corrupt
Practices Act, as amended.

Factual Background

The National Maritime Polytechnic (NMP) is an attached agency of the

Department of Labor and Employment tasked to provide necessary training to
seafarers in order to qualify them for employment.

Sometime in 1995, NMP undertook an expansion program. A pre- feasibility

study conducted by the NMP identified Cavite as a possible site for the expansion
as Cavite is close to the employment market for seafarers. Thus, NMP dispatched
a team to look for a site in Cavite, andasuitable location consisting of two parcels
of land was found at Sta. Cruz de Malabon Estate in Tanza, Cavite:Lots 1730-C
and 1730-D, which areboth covered by TCT No. T-97296-648 as part of a bigger
parcel of land, Lot 1730.[3]

Petitioner Palomo, then NMP Executive Director, presented for approval to the
NMP Board of Trustees the two parcels of land they identified. On August 21,
1995, the Board approved the proposal in principle and authorized Palomo "to
start negotiations for the acquisition of the site in Cavite and if necessary to pay
the earnest money."[4]

Palomo thereafter began negotiations with Glenn Solis, a real estate broker, for
the purchase of Lots 1730-C and 1730-D. Solis is the Attorneyin- Fact of the
registered owners of said properties by virtue of a Special Power of Attorney
(SPA) executed in his favor.

On November 9, 1995, Palomo,in a handwritten memorandum to petitioners

Umipig, Fontanilla and Mabitad requested them to "cause the release of the sum
of Five Hundred Thousand Pesos (P500,000) x x x [as] EARNEST MONEY for
the purchase/acquisition of [a] 5-hectare lot for NMP extension to Luzon in favor
of MR. GLEN[N] SOLIS, holder of authority documents of the lot owners and
thereby authorized to represent the owners on their behalf for this purpose."[5]

On November 10, 1995, Disbursement Voucher No. 101-9511-1114 was prepared

for the P500,000 earnest money with Glenn B. Solis as claimant. Umipig, then
NMP Administrative Officer, after receiving the disbursement voucher and its
supporting documents, issued a memorandum on even date to Palomo
enumerating the infirmities of the supporting documents attached, to wit:

1. Contract to Sell dated January ___ 1995 for lot with TCT No. 97296 is
between Eufrocina Sosa as Vendor and Nilda L. Ramos and six (6) others
co-heir/vendor.
2. Yet the authority to sell dated November 8, 1995 was signed by Nilda I.
Ramos (only) representing herself and her group.
3. The authority to sell is not notarized (dated November 8, 1995) at
P370.00/sq. meter while the offer to NMP dated October 11, 1995 is for
P350.00/sq.m.
4. Tax declaration No. 3908 and 3907 for TCT No. T-16279 and T16356 are in
the name of Eufrocina Raquero.
5. Xerox copy of TCT No. "97267"? is illegible, hence, one can not establish its
relevance to the voucher
6. That the aforesaid documents are all photocopies/xerox, not certified as
true xerox copies.
7. That the feasibility study being work out by the NEDA and the NMP for the
expansion of NMP to Luzon, is yet to be submitted to the NMP Board of
Trustees for approval.
8. The undersigned signs subject voucher with aforesaid infirmities with
reservations and doubts as to its legality, in compliance with Management
Memo. dated November 9, 1995 for us to release the voucher.[6]

Umipig attached to the disbursement voucher his memorandum to Palomo when

he signed Box A thereof. Petitioner Fontanilla-Payabyab, then Budget Officer,
stamped the words "Fund Availability," and signed the voucher with note
"Subject to clarification as per attached note of AO dated 11/10/95." Petitioner
Mabitad, then NMP Chief Accountant, signed Box B of the voucher, and noted "as
per findings of AO per attach[ed] memo, with reservations as to [the] legality of
the transaction per observations by AOV."[7] Palomo signed Box C as approving
officer.[8]

In response to Umipig's memorandum, Palomo instructed him to clear up said

infirmities and authorized him to arrange a travel to Manila with their Finance
Officer/Accountant "to clear these acts once and for all." Palomo further added
that "[t]ime is of the essence and [they] might lose out in this transaction" and
that "the cost of the lot per square meter has been set at P350 from the
beginning."[9]

On December 10, 1995, a P2,000,000 partial payment was released for the
purchase of Lots 1730-C and 1730-D through Disbursement Voucher No. 101-
9512-082,[10] again with Solis as claimant. Umipig signed Box A but noted "Subj.
to submission of legal requirements as previously indicated on Nov[ember] 10,
1995 [Memorandum]." Mabitad signed Box B and noted "w/ reservations as to
the legality of the transactions." Palomo signed Box C as approving officer.
On December 21, 1995, a Contract to Sell was executed between Palomo and Solis
over Lots 1730-C and 1730-D with a combined area of 22,296 square meters and
a total agreed purchase price of P7,803,600 or P350 per square meter. Said
Contract to Sell eventually ripened into a consummated sale (referred hereinafter
as "the first purchase") as TCT No. T-936236[11] for Lot 1730-C and TCT No. T-
936237[12]for Lot 1730-D are now registered in the name of NMP, such titles
having been issued on November 21, 2000.

The foregoing sale transaction ("first purchase") covering Lots 1730C and
1730-D was the subject of Criminal Case No. 26512 filed in the Sandiganbayan
against Umipig, Palomo and Mabitad on February 16, 2001. On August 6, 2004,
the Sandiganbayan's Fifth Division rendered a decision[13] acquitting all three
accused of the charge of violation of Section 3 (e) of R.A. No. 3019.

After consummating the first purchase,Palomo again negotiated with Solis for the
purchase of two more parcels of land adjacent to the lots subject of the first
purchase: Lot 1731 which was covered by TCT No. 16356[14] and registered in the
name of the late Eufrocina Raqueo, married to the late Leoncio Jimenez, and
Lot 1732 covered by TCT No. 35812[15] and registered in the name of the late
Francisco Jimenez, son of Eufrocina Raqueo and Leoncio Jimenez. Solis this
time was armed with two Special Power of Attorneys(SPAs): one dated April 15,
1996 appearing to have been executed by the Jimenez heirs, all residents of
California, U.S.A., authorizing Teresita Jimenez-Trinidad to sell Lots 1731 and
1732 and to receive consideration;[16] and another dated July 12, 1996 executed by
Trinidad authorizing Solis to sell Lots 1731 and 1732 and to receive
consideration.[17]

On August 1, 1996, Palomo and Solis executed a Contract to Sell[18] over Lots 1731
and 1732. It specified a total purchase price of P11,517,100 to be paid as follows:

4.1 P6,910,260 downpayment upon [signing] of [the Contract to Sell].

4.2 Balance after fifteen (15) days upon receipt of approve[d] Extra- judicial
partition of Estate, location plan, reconstitution of owner's copy and signing of
Deed of Sale.[19]

On even date,Disbursement VoucherNo. 101-9608-787[20] was prepared for the

downpayment of P6,910,260 with Solis as payee.Fontanilla- Payabyab stamped
the words "FUND AVAILABILITY" and signed the voucher. Umipig signed Box A.
Mabitad signed Box B, while Palomo signed Box C as approving officer.

Also on August 1, 1996, a Request for Obligation of Allotments[21] was prepared by

Fontanilla-Payabyab for the P6,910,260 down payment. Mabitad certified "that
unobligated allotments are available for the obligation" and affixed her signature
thereon.On August 2, 1996, NMP issued Development Bank of the Philippines
(DBP) Check No. 0001584295[22] in the amount of P6,910,260payableto Solis.
The signatories to the check were Umipig[23] and Palomo.[24]
On December 27, 1996, Disbursement Voucher No. 101-9612-1524 was prepared
for P3,303,600 with Solis as payee.Of said amount, P1,303,600 was for the full
payment of the lots under the first purchase while the remaining P2,000,000 was
partial payment of the balance for Lots 1731 and 1732.[25] Fontanilla-Payabyab
stamped the words "FUND AVAILABILITY" and signed the voucher. Umipig
signed Box A. Mabitad signed Box B, while Palomo signed Box C as approving
officer. On even date, NMP issued DBP Check No. 0001752005[26] in the amount
of P3,303,600 payableto Solis. The signatories to the check were Umipig[27] and
Palomo.[28]

The total payments made for the"second purchase" covering Lots 1731 and
1732 was P8,910,260.00, which is the subject of the present controversy. After
receiving these payments, Solis disappeared and never showed up again at the
NMP. Palomo even sent Solis three letters dated March 4, 1998,[29] August 11,
1998,[30] and September 30, 1998,[31] to follow up the approved extrajudicial
partition of estate, location and/or subdivision plan, reconstitution of owners'
copy and signing of Deed of Absolute Sale. Under the Contract to Sell, the
submission of said documents was made a condition for payment of the balance,
being necessary for the transfer and registration of said properties in the name of
NMP.

As no reply was received from Solis, Palomo sought the assistance of the Office of
the Solicitor General (OSG) and informed the latter of the inability to locate
Solis.The OSG then inquired with the Philippine Consulate General in Los
Angeles, California as to the genuineness and authenticity of the SPA that was
executed by Urbano Jimenez, et al. authorizing Teresita Trinidad to sell Lots 1731
and 1732. In a letter[32] dated June 11, 1999, Vice Consul Bello stated that the SPA
executed by Urbano Jimenez, et al. and shown to NMP was fake. According to
Vice Consul Bello, when the Consulate searched its files for 1996, they found an
SPA authorizing the sale of Lots 1731 and 1732 but it was not the same as the
instrument given to NMP. The genuine SPA[33] for said properties, bearing the
same date, O.R. No., Service No., Document No. and Page No. but without wet
seal, was executed by Gloria Potente, Marylu Lupisan and Susan Abundo
authorizing

Presbitero J. Velasco, Jr. as attorney-in-fact. The OSG reported the Consulate's

findings to Palomo in a letter[34] dated June 17, 1999.

On July 19, 1999, Palomo filedan Affidavit-Complaint[35] against Solis before the
Tacloban City Prosecutor's Office for estafa through falsification of public
documents. Upon the request of the Tacloban City Prosecutor's Office, the
Commission on Audit (COA) conducted a special audit on the transactions
subject of the complaint filed by Palomo.

Atty. Felix M. Basallaje Jr., State Auditor III of the COA and Resident Auditor at
the NMP, set forth his findings in his Special Audit Report, to wit:
 1. Disbursement in the amount of P8,910,260.00 in favor of Mr. Glenn Solis
for the purchase of two lots covered by TCT No. 16356 and TCT No. 35812
was not supported by a Torrens Title or such other document that title is
vested in the government (NMP) in violation of Sec. 449 of GAAM Vol. I.[36]
2. The contract to sell entered between NMP and Mr. Glenn Solis is tainted
with irregularities the parties to the contract not being authorized as
required in Sec. 5 of P.D. 1369 and pertinent provisions of the Civil Code of
the Philippines.[37]

In the same report, the following persons were considered responsible for the
subject transactions:

For acting as vendor of the above subject

1. Mr. Glenn Solis -
2. Ms. Teresita Jimenez -Trinidad
3. Mr. Renato B. Palomo - Executive
Director
4. Benjamin A. Umipig - Administrative For signing Box "A" in certifying the
Officer
5. Margie C. Mabitad - Chief Accountant availability of funds, that expenditure
6. Carmencita - Fontanilla Budget
Officer
property (TCT Nos. 16356 and 35812)
without authority from the owner
thereof;
Formis[re]presentation/conspiring with
Mr. Glenn Solis by issuing a Special
Power of Attorney to sell the above
property without authority from the
owner.
For entering into a contract to sell
without authority from the NMP Board
of Directors and by signing Box "C"
approving of the voucher as payment.
payment as lawful.
For signing Box "B" certifying as to
are proper and supported by documents.
For signing in the voucher for fund
control and in the ROA for requesting
obligation of the above transactions.[38]

Atty. Basallaje thus made the following recommendations:

1. Disallow in audit all transaction[s] covering payments made to Mr. Glenn

Solis under Voucher No. 101-9608-787 and Voucher No. 1019612- 1524
with a total amount of P8,910,260.00.

2. Require Mr. Glenn Solis and his principal, Teresita Jimenez Trinidad to
restitute the amount received plus damages by filing a separate civil suit
against the vendor.

3. Institute the filing of appropriate case against parties involved, if evidence

warrants.[39]
After preliminary investigation, the Tacloban City Prosecutor's Office issued a
Resolution[40] dated January 25, 2001 finding a prima facie case of malversation
of public funds committed in conspiracy by Solis, Jimenez- Trinidad, Palomo,
Fontanilla-Payabyab, Umipig and Mabitad. Upon review, the Deputy
Ombudsman for the Visayas approved with modification the resolution of the
Tacloban City Prosecutor's Office and recommended instead the prosecution of
petitioners for violation of Section 3(e) of R.A. No. 3019, as amended, or the Anti-
Graft and Corrupt Practices Act and the filing of a separate Information for
Falsification against Solis.[41]

On May 20, 2002,petitioners were charged with violation of Section 3(e),R.A. No.
3019,under the following Information:

That on or about the 1st day of August 1996, and for sometime prior or
subsequent thereto, at Tacloban City, Province of Leyte, Philippines, and within
the jurisdiction of this Honorable Court, abovenamed accused RENATO B.
PALOMO, BENJAMIN A. UMIPIG, MARGIE C. MABITAD and CARMENCITA
FONTANILLA-PAYABYAB, public officers, being the Executive Director,
Administrative Officer, Chief Accountant and Budget Officer, respectively, of the
National Maritime Polytechnic, stationed at Cabalawan, Tacloban City, in such
capacity committing the offense in relation to office, conniving, confederating
and mutually helping with each other and with GLENN B. SOLIS and TERESITA
JIMENEZ-TRINIDAD, private individuals, with deliberate intent, with manifest
partiality, evident bad faith and/or gross inexcusable negligence, did then and
there willfully, unlawfully and feloniously enter into a Contract to Sell with
accused GLENN [B.] SOLIS, for the acquisition of two (2) parcels of land
denominated as Lot Nos. 1731 and 1732 covered with Transfer Certificate of Title
Nos. 16356 and 35812, located at Tanza, Cavite, with an area of 32,906 sq. meters
more or less, for a consideration in the amount of EIGHT MILLION, NINE
HUNDRED TEN THOUSAND, TWO HUNDRED SIXTY PESOS
(P8,910,260.00), Philippine Currency, and consequently in payment thereof
issued Development Bank of the Philippines (DBP) Check Nos. 1584295 dated
August 2, 1996, in the amount of SIX MILLION, NINE HUNDRED TEN
THOUSAND, TWO HUNDRED SIXTY PESOS (P6,910,260.00) Philippine
Currency and 1752005, dated December 27, 1996, in the amount of THREE
MILLION, THREE HUNDRED THREE THOUSAND, SIX HUNDRED PESOS,
(P3,303,600.00) Philippine Currency, respectively, through Voucher Nos.
1019608-787 and 101-9612-1524, respectively, despite the absence of a copy of a
Torrens Title of the land in the name of the National Maritime Polytechnic
(NMP) or any document showing that the title is already vested in the name of
the government, as mandated under Section 449 of the Government Accounting
and Auditing Manual, Volume I, and despite the lack of authority on the part of
the accused GLENN B. SOLIS to sell the said lands not being the real or
registered owner and the fictitious/falsified Special Power of Attorney allegedly
issued by accused TERESITA JIMENEZ-TRINIDAD, resulting to the non-
acquisition of the land by the NMP, thus, accused public officers, in the course of
the performance of their official functions had given unwarranted benefits to
accused private individuals GLENN B. SOLIS and TERESITA JIMENEZ-
TRINIDAD and to the damage and prejudice of the government particularly, the
National Maritime Polytechnic in the amount aforestated.

CONTRARY TO LAW.[42]

Palomo and Mabitad were arraigned on July 22, 2002.[43] Umipig and Fontanilla-
Payabyab were arraigned on September 23, 2002[44]and January 20,
2004,[45] respectively. They all pleaded not guilty. Solis and Jimenez- Trinidad
remained at large.

In the Sandiganbayan's Pre-Trial Order[46] dated January 20, 2004, all the parties
agreed that the following factual and legal issues would be resolved in the case:

1. Whether or not the act of accused Executive Director Renato Palomo y

Bermes in entering, in behalf of the NMP, into a Contract to Sell with
accused Glenn Solis required prior authority and/or approval from the
Board of Trustees of NMP; and,

2. Whether or not all of the accused conspired and violated Section 3(e) of
R.A. 3019, as amended.[47]

At the trial, the prosecution presented two witnesses: Atty. Basallaje, Jr.and
Emerita T. Gomez, State Auditor I, also of the COA.

Atty. Basallaje testified on the audit investigation which the COA Regional
Director instructed him to conduct on NMP regarding the transaction involving
Lots 1731 and 1732. He likewise identified the Special Audit Report he prepared
after the investigation, as well as the documents he had evaluated--only those
documents which were attached to the endorsement letter from the COA
Regional Director and those on file with him as resident auditor of NMP.[48] He
also testified that he informed the management of NMP regarding the audit only
after it was terminated. He admitted that he did not read or ask for a copy of the
minutes of the August 21, 1995 NMP Board of Trustees meeting which the NMP
Management cites as the source of authority for entering the subject transaction.
Atty. Basallaje opined that it was incumbent upon the NMP management to
support their claim that proper authority existed so he did not ask for a copy.[49]

Emerita Gomez testified that she was assigned at the NMP as auditor from the
COA from November 17, 1985 until October 5, 2003. In the course of her duties,
she recalled having received documents pertaining to the purchase of Lots 1731
and 1732. Said documents, which she identified in court, are: (1) Disbursement
Voucher No. 101-9608-787 dated August 1, 1996 for partial payment to Glenn
Solis of the amount of P6,910,260 to which a Request for Obligation of
Allotments was attached; (2) a certified true copy of Check No. 0001584295
dated August 2, 1996 in the amount of P6,910,260 paid to the order of Glenn B.
Solis; (3) Contract to Sell; (4) Special Power of Attorney executed by Teresita
Jimenez-Trinidad in favor of Glenn Solis; (5) Special Power of Attorney
purportedly executed by Urbano Jimenez, et al. in favor of Teresita Jimenez-
Trinidad; (6) a certified true copy of Disbursement Voucher No. 101-9612-1524
dated December 27, 1996 for payment of parcels of land covered by TCT Nos.
16356 and 35812 in the amount of P3,303,600 to Glenn Solis; (7) a certified true
copy of Check No. 001752005 dated December 27, 1996 in the amount of
P3,303,600 paid to the order of Glenn Solis; (8) a letter dated June 11, 1999 by
Vice Consul Bello addressed to Atty. Carlos Ortega, Assistant Solicitor General;
(9) TCT No. 16356 RT-1245 in the name of Eufrocina Raqueno; (10) TCT No. T-
35812 in the name of Francisco Jimenez; and (11) Declaration of Real Property in
the name of Eufrocina Raqueo. Gomez said she was the one who supplied the
documents to Atty. Basallaje when the latter conducted an audit investigation.
She was also tasked to encode the Special Audit Report. Gomez likewise
identified the signatures of petitioners Umipig, Fontanilla, Mabitad and Palomo
appearing on the disbursement vouchers and checks she had previously
identified, and claimed that she was familiar with their signatures.[50]

On the other hand, petitioners testified on their respective defenses, as follows:

Petitioner Palomo related the circumstances surrounding the transaction

involving Lots 1731 and 1732. He testified that his authority for the negotiation
and payment of earnest money to Glenn Solis came from the Board of Trustees as
reflected in the minutes of its August 21, 1995 meeting. He also admitted that it
was Solis who prepared the Contract to Sell and that he did not try to meet the
owner of the property. When the titles were presented to them,they believed that
on their face value, they were in order. Palomo also said that the adjoining lots
were being sold forP1,000 to P2,000 per square meter while the selling price of
the subject lots was onlyP350 per square meter. On cross-examination, Palomo
admitted that none of the registered owners are signatories to the SPAs which
Solis presented to him and that it was only when they could not anymore contact
Solis, after the latter received the payments,that he panicked and tried to check if
the documents shown to him were proper and authentic. He further disclosed
that he did not consider Section 449 of the Government Accounting and Auditing
Manual, Volume I when he transacted with Solis over the lots purchased by
NMP.[51]

Petitioner Umipig testified on his duties as NMP Administrative Officer and the
circumstances relating to the payments made in connection with the subject lots.
He stated that by signing Disbursement Voucher No. 101-9612-1524 dated
December 27, 1996, it means that the correct procedure was followed and the
voucher was prepared, typed and supported by complete documents as required.
He likewise admitted that before he signed the voucher, he presumed that
everything was in order because said document had already passed through
several offices.

On cross-examination, Umipig said that he made objections, as evidenced by a

memorandum,to the payments made for the first purchase but did not anymore
object on the payments pertaining to the second purchase because the Board of
Trustees already gave a go signal for their purchase. He also cited an alleged COA
regulation stating that if the subordinate objects in writing, he will be exonerated
if he is later proven correct.[52]

Petitioner Mabitad, meanwhile testified on her duties and responsibilities as

Accountant of NMP and identified several documents pertaining to the subject
lots. She stated that when she signed Box B of the disbursement vouchers, she
certified that funds are available for the purpose and the supporting documents
duly certified in Box A are attached. Like Umipig, she also made reservations but
she only expressed them in those vouchers pertaining to the first
purchase. Mabitad cited Section 106 of the Government Auditing Code of the
Philippines (P.D. No. 1445) which she claims relieves her from liability when she
made her reservations.She also testified that her only participation in the subject
transaction was to certify that the funds for it are available. She likewise stated
that she did not make any notations in the disbursements for the second
purchase because the first purchase was successful and titles to the lots acquired
have been registered in the name of NMP.[53]

Petitioner Fontanilla-Payabyab, for her part,testified on her duties and

responsibilities as Budget Officer of NMP. She explained that as budget officer,
she is not required to sign vouchers. She nonetheless signed Disbursement
Voucher Nos. 101-9608-787 and 101-9612-1524 for her own purpose because she
was the one who followed up the release of funds from the Department of Budget
and Management (DBM) so she can track the available cash balance of NMP as it
was her duty to follow up with the DBM the release of the agency's budget.She
further clarified that her signature does not have the effect of validating or
invalidating the voucher. She also claimed that even if she is Head of Finance, she
cannot influence the decisions of her subordinates like Mabitad because they
have specific jobs under the COA rules and under other laws.[54]

On January 4, 2006, the Fourth Division of the Sandiganbayan issued the

assailed decision, the fallo of which reads:

ACCORDINGLY, accused RENATO B. PALOMO, BENJAMIN A. UMIPIG,

MARGIE A. MABITAD and CARMENCITA FONTANILLA-PAYABYAB, are found
guilty beyond reasonable doubt of having violated RA 3019, Sec. 3(e) and are
sentenced to suffer the indeterminate penalty of SIX (6) YEARS AND ONE (1)
MONTH AS MINIMUM AND NINE (9) YEARS AS MAXIMUM, perpetual
disqualification from public office, and to indemnify jointly and severally the
Government of the Republic of the Philippines in the amount of EIGHT
MILLION NINE HUNDRED TEN THOUSAND AND TWO HUNDRED SIXTY
PESOS (Php8,910,260).

Since the Court did not acquire jurisdiction over the person of accused GLENN B.
SOLIS and TERESITA JIMENEZ-TRINIDAD, let the cases against them be, in
the meantime, archived, the same to be revived upon their arrest. Let an alias
warrant of arrest be then issued against accused GLENN B. SOLIS and
TERESITA JIMENEZ-TRINIDAD.
SO ORDERED.[55]

The Sandiganbayan's Ruling

In convicting petitioners, the Sandiganbayan ruled that the evidence on record

clearly shows that petitioners acted with evident bad faith and gross inexcusable
negligence in entering into the Contract to Sell dated August 1, 1996 with Solis
and in disbursing the amount of P8,910,260 for the second purchase.Said court
held that petitioners violated Section 449 of the Government Accounting and
Auditing Manual since the Contract to Sell does not suffice to prove that title is
vested in the Government and even contravenes the requirement that proof of
title must support the vouchers.

The Sandiganbayan faulted Palomo for breaking the law and acting with evident
bad faith when he entered into a deal that gave no guarantee that ownership
would be transferred to the Government and that such was obviously
disadvantageous to the government. The other petitioners likewise violated the
law when they signed the disbursement vouchers in the absence of any document
that would prove ownership by the Government.The Sandiganbayan said
petitioners cannot claim that they only followed the terms of the Contract to Sell
because they also violated its provisions, the last disbursement voucher for
P2,000,000 having been issued without legal basis.It pointed out that the
Contract to Sell provided that a downpayment of P6,910,260 must be given upon
its signing and the payment of the balance must be paid 15 days after receipt of
several specified documents. Petitioners, however, released a portion of the
balance even without receiving any of the said documents.

The Sandiganbayan further noted that despite being apprised of Umipig's

reservations on the legality of the transactions with Solis, petitioners deliberately
proceeded to sign the disbursement vouchers and made possible the release of
the money to Solis. Petitioners thus acted with gross inexcusable negligence when
they did not verify the authenticity of the SPAs executed by Solis and Trinidad,
and released the P2,000,000 for no valid reason.

The Sandiganbayan also ruled that the third element undue injury to the
Government as well as giving unwarranted benefits to a private party was duly
proven. Petitioners' acts unmistakably resulted in the Government's loss of
P8,910,260 when Solis disappeared after receiving said amount and also gave
Solis unwarranted benefits.

Finally, the Sandiganbayan held that the facts established conspiracy among the
petitioners because the unlawful disbursements could not have been made had
they not affixed their signatures on the disbursement vouchers and checks. When
petitioners thus signed the vouchers, they made it appear that disbursements
were valid when, in fact, they were not. Since each of the petitioners contributed
to attain the end goal, it can be concluded that their acts, taken collectively,
satisfactorily prove the existence of conspiracy among them.
The motions for reconsideration filed by Palomo, Payabyab and Mabitad were
denied by the Sandiganbayan in its Resolution dated March 1, 2006. Umipig's
motion for reconsideration was likewise denied under the Resolution dated
January 30, 2006.

These consolidated petitions were filed by Umipig (G.R. No. 171359), Payabyab
(G.R. No. 171776), Palomo and Mabitad (G.R. No. 171755).

Petitioners' Arguments

Petitioners question the application of Section 449 of the Government

Accounting and Auditing Manual as said provision does not categorically say that
disbursement vouchers for the acquisition of land may not be signed unless title
to the land is already in the name of Republic of the Philippines, or unless there is
another document showing that title is already vested in the Government. They
argue that the provision rather contemplates a situation where the evidence of
ownership comes after the purchase or when the transaction has been
consummated. They likewise contend that even if they were not charged under
the Government Accounting and Auditing Manual, it is the regulation on which
the finding of guilt was based and upon which they were held to have acted with
evident bad faith and gross inexcusable negligence.

Umipig, Palomo and Mabitad also assert that no law, rule or regulation requires
them to exercise a higher degree of diligence other than that of a good father of
the family. Umipig adds that while his failure to repeat his reservations might be
construed as an omission of duties, such omission cannot by any stretch of
imagination be construed as negligence characterized by "the want of even the
slightest care," or "omitting to act in a situation where there is a duty to act, not
inadvertently but willfully and intentionally ." He further contends that he
treated the first purchase and the subject contract as one single transaction as
both were for one expansion program of the NMP and the lands subject of said
acquisitions were contiguous. Thus, he did not see the need to repeat his written
reservations.He also argues that there is no evidence that he and his copetitioners
acted in conspiracy as there was no proof of a chain of circumstances showing
that each acted as a part of a complete whole.

Palomo and Mabitad, meanwhile assert that the SPAs in favor of Solis and
Trinidad appeared to be in order and Palomo had no reason to doubt their
authenticity. Accordingly, Palomo cannot be considered negligent or in bad faith,
and should instead be presumed to have acted in good faith in the performance of
his official duty. As with Mabitad, it is argued that she signed the vouchers as
Chief Accountant whose signature is required by Section 86 of the State Audit
Code which concerns the certification of the proper accounting official of the
agency concerned that the funds have been duly appropriated for the purpose
and the amount necessary to cover the proposed contract is available for
expenditure and account thereof, subject to verification by the auditor concerned.
Thus in signing the voucher, she merely certified as to the availability of funds
which is a ministerial duty on her part. She also cites Section 106 of
the Government Auditing Code of the Philippines since she made a prior
reservation on the vouchers pertaining to the first purchase. Palomo and
Mabitad further submit that they have no prior knowledge of perceived
infirmities contrary to what was found by the Sandiganbayan, pointing out that in
Umipig's Memorandum, there was no mention that the SPAs could possibly be
fake. They contend that it was the falsified SPAs that resulted in the filing of
charges against them so the determination of conspiracy should revolve around
the acts of falsification committed by Solis and Trinidad; hence, it was petitioners
who were the victims of said conspirators.

Finally, Fontanilla-Payabyab reiterates that her signature on the subject vouchers

was not a requirement for the disbursement as it was only a tracking or
monitoring entry on the current cash position of NMP so that she can follow up
the next cash allocation release from the DBM. She insists that the disbursement
could have been made even without her signature. She also questions the finding
of gross negligence on her part since it was not within her competence to
determine the legality or illegality of a transaction. Further, she argues that even
assuming she was indeed negligent, such finding precludes a ruling of conspiracy
since the latter requires intentional participation.

Our Ruling

Petitioners were charged with violation of Section 3(e) of R.A. No. 3019 or
the Anti-Graft and Corrupt Practices Act, as amended, which reads:

Section 3. Corrupt practices of public officers. In addition to acts or omissions of

public officers already penalized by existing law, the following shall constitute
corrupt practices of any public officer and are hereby declared to be unlawful:

xxxx

(e) Causing any undue injury to any party, including the Government, or giving
any private party any unwarranted benefits, advantage or preference in the
discharge of his official administrative or judicial functions through manifest
partiality, evident bad faith or gross inexcusable negligence. This provision shall
apply to officers and employees of offices or government corporations charged
with the grant of licenses or permits or other concessions.

xxxx

The essential elements of Section 3(e) of R.A.No. 3019, as amended, are as

follows:
 1. The accused must be a public officer discharging administrative, judicial or
official functions;

2. He must have acted with manifest partiality, evident bad faith or gross
inexcusable negligence; and

3. His action caused any undue injury to any party, including the government,
or gave any private party unwarranted benefits, advantage or preference in
the discharge of his functions.[56 ]

The Court finds it no longer necessary to discuss at length the first elementas it is
not disputed, having been stipulated by the parties during pretrial that during the
material time and date alleged in the Information, Palomo was the Executive
Director, Umipig was the Administrative Officer, Mabitad was Chief Accountant
and Fontanilla-Payabyab was the Budget Officer of NMP.The third element of
undue injury to the Government is likewise a non-issue since it was likewise
stipulated during pre-trial that after payments totaling P8,910,260 were made to
Solis for the subject lots, the latter disappeared and the SPAs he showed to NMP
were found to be fake. Clearly, this is a quantifiable loss for the Government since
NMP was not able to acquire title over the subject lots. Thus, the controversy lies
in the second element of the crime charged.

Palomoacted with evident bad faithand

gross inexcusable negligence;Umipig and
Mabitad were grosslynegligent in the
performance oftheir duties

The second element provides the different modes by which the crime may be
committed, that is, through "manifest partiality," "evident bad faith," or "gross
inexcusable negligence." There is "manifest partiality" when there is a clear,
notorious, or plain inclination or predilection to favor one side or person rather
than another.[57] "Evident bad faith" connotes not only bad judgment but also
palpably and patently fraudulent and dishonest purpose to do moral obliquity or
conscious wrongdoing for some perverse motive or ill will.[58]"Evident bad faith"
contemplates a state of mind affirmatively operating with furtive design or with
some motive of self-interest or ill will or for ulterior purposes.[59] "Gross
inexcusable negligence" refers to negligence characterized by the want of even the
slightest care, acting or omitting to act in a situation where there is a duty to act,
not inadvertently but willfully and intentionally, with conscious indifference to
consequences insofar as other persons may be affected.[60] These three modes are
distinct and different from each other. Proof of the existence of any of these
modes would suffice.[61]

We sustain the Sandiganbayan's finding of evident bad faith on the part of

Palomo who had no authority to effect substantial payments -- P8,910,260.00
out of the total consideration of P11,517,100.00 -- for the lots to be purchased by
NMP. The Minutes of the NMP Board meeting of August 21, 1995, which was
cited by Palomo, states:
The chairman after consulting the members of the board indicated that the
presentation was approved in principle. The chairman indicated that Mr. Palomo
is authorized to start negotiations for the acquisition of the site in Cavite and if
necessary to pay the earnest money.[62]

Article 1482 of the Civil Code states that: "Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract." The earnest money forms part of the consideration
only if the sale is consummated upon full payment of the purchase price. Hence,
there must first be a perfected contract of sale before we can speak of earnest
money.[63]

Palomo requested for the release of down payment in the amount of

P6,910,260.00 notwithstanding that no contract of sale had yet been
consummated, as only a contract to sell was executed by the supposed attorney-
in-fact of the vendors, Solis. As earlier mentioned, the Contract to Sell over Lots
1731 and 1732 stipulated that the balance of the total consideration is to be paid
15 days after receipt of the approved "[e]xtrajudicial partition of Estate, location
plan, reconstitution of owner's copy and signing of [the] Deed of Sale." This
clearly indicates that the parties agreed to execute the contract of sale only after
the full payment of the purchase price by the buyer and the corresponding
submission by the seller of the documents necessary for the transfer of
registration of the lots sold. We have held that where the vendor promises to
execute a deed of absolute sale upon the completion by the vendee of the
payment of the price, the contract is only a contract to sell. Such stipulation
shows that the vendor reserved title to the subject property until full payment of
the purchase price.[64]

There being no perfected contract of sale, Palomo had no authority to effect

substantial payments for the second purchase. That partial payments on the first
purchase was similarly made upon a mere contract to sell, is of no moment; it
must be noted that such contract to sell (first purchase) eventually ripened into a
consummated sale and titles over Lots 1730-C and 1730-D have been actually
transferred in the name of NMP. The second purchase transaction, however, was
not consummated despite the unauthorized down payment of P6,910,260.00.
Even worse, funds were disbursed to pay for the balance despite non-receipt of
the specified transfer documents.

Evident bad faith connotes a manifest deliberate intent on the part of the accused
to do wrong or cause damage.[65] Mere bad faith or partiality and negligence per
se are not enough for one to be held liable under the law since the act of bad faith
or partiality must in the first place be evident or manifest, respectively, while the
negligent deed should both be gross and inexcusable.[66] Negligence consists in
the disregard of some duty imposed by law; a failure to comply with some duty of
care owed by one to another.[67] Negligence is want of care required by the
circumstances. It is a relative or comparative, not an absolute term and its
application depends upon the situation of the parties, and the degree of care and
vigilance which the circumstances reasonably impose.[68]

Palomo's bad faith was evident not only in the disbursement of substantial
payment upon a mere contract to sell -- whereas the NMP Board granted him
express authority only to start negotiations and pay earnest money if needed --
but also in the disbursement of P1,000,000.00 partial balance despite non-
submission by Solis of the specified transfer documents.

As correctly observed by the Sandiganbayan, Palomo failed to give a satisfactory

explanation on the matter during cross-examination, thus:

PROS. CORESIS
In the contract to sell which I have shown to you earlier it is stated here
that the balance is to be paid fifteen (15) days upon receipt of the
Q approved extra judicial partition of the estate, location plan,
reconstitution of owner's copy and signing of the deed of sale, do you
confirm this?
A Yes, sir.
At the time that you paid the second payment which was amounting to
P3 million and part of that was for the contract to sell, there was no deed
Q
of sale executed by Glenn B. Solis in favor of National Maritime
Polytechnic, am I correct? On December 27 there was none?
A I cannot recall.
Q You cannot recall because there was in fact none, am I correct?
A It could be, sir.
xxxx
And the balance is supposed to be paid 15 days upon receipt of the extra-
Q
judicial partition and the signing of the deed of sale, is that correct?
A Yes, sir.[69] (Emphasis supplied.)

Palomo also committed gross inexcusable negligence in failing to protect the

interest of the government in causing the release of substantial sums to Solis
despite legal infirmities in the documents presented by the said broker. He
cannot seek exoneration by arguing that he merely followed the stipulated terms
of payment in the contract to sell. Applicable provisions of existing laws are
deemed written and incorporated in every government contract, hence it is the
contractual stipulations which must conform to and not contravene the law and
not the other way around. By entering into a contract that does not guarantee the
transfer of ownership to the Government, petitioner violated Sec. 449 of the
Government Accounting and Auditing Manual (GAAM) which provides:

Section 449. Purchase of land. Land purchased by agencies of the Government

shall be evidenced by a Torrens Title drawn in the name of the Republic of the
Philippines, or such other document satisfactory to the President of the
Philippines that the title is vested in the Government.

These titles and documents shall accompany the vouchers covering the purchase
of land, after which they shall be forwarded to the Records Management and
Archives Office.

The above rule requires public officers authorized to transact with private
landowners not only to ensure that lands to be purchased by Government are
covered by a Torrens title, but also that the sellers are the registered owners or
their duly authorized representatives. For otherwise, there can be no assurance
that title would be vested in the Government by virtue of the purchase. Thus,
while the provision does not require a title already issued in the name of the
Government at the time of the actual purchase, accountable officers should, at
the very least, exercise such reasonable diligence so that the titles and documents
accompanying the vouchers are genuine and authentic, and the private parties to
the contract had the legal right to transmit ownership of the land being bought by
the Government. In accordance with sound accounting rules and practice
therefore, it is mandatory for such purchase of land by the government agency or
instrumentality to be evidenced by a Torrens title in the name of the Government,
or such other document that is satisfactory to the President of the Philippines, to
show that the title is vested in the Government.

Petitioners' act of disbursing funds in the absence of documents sufficient to vest

title in NMP, the government instrumentality buying the subject lots, failed to
comply with the above statutory requirement. The authenticity of the SPAs
supposedly showing the authority of the alleged attorney-in-fact, Jimenez-
Trinidad, and the latter's sub-agent, Solis, had not been properly verified. The
purchase by NMP, which already made substantial or almost full payment of the
price, was evidenced only by a contract to sell executed by Solis who was later
discovered lacking authority to do so, the SPA in favor of Jimenez-Trinidad being
a fake document.

The settled rule is that, persons dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority.[70] In this case, Palomo dealt
with Solis who was a mere sub-agent of the alleged attorney-in-fact of the
registered owners, a certain Jimenez-Trinidad, under an SPA which was
notarized abroad. At the very least, therefore, Palomo should have exercised
reasonable diligence by ascertaining such fact of agency and sub-agency, knowing
that he is dealing with a mere broker and not the registered owners themselves
who are residents of a foreign country. As noted by the Sandiganbayan, it took
only a letter-query sent by the OSG to Consul Bello to verify the authenticity of
the SPA document shown by Solis, purportedly executed by the registered owners
in favor of Jimenez- Trinidad who in turn executed another SPA in favor of Solis.
This was the prudent course for Palomo considering that in the first purchase
transaction, Umipig had already noted legal infirmities in the documents
presented by Solis. It must also be stressed that at the time Palomo transacted
again with Solis for the second purchase in April 1996, the first purchase had not
yet resulted in the transfer of title to NMP of Lots 1730-C and 1730-D which took
place only later in the year 2000. As it turned out, the SPA for Jimenez-Trinidad
presented by Solis was found to be fake. Palomo was indeed grossly negligent in
failing to verify the authority of the alleged attorney-in-fact, Jimenez-Trinidad,
and simply relied on the representations of Solis who was not directly authorized
by the registered owners.

We also concur with the Sandiganbayan's finding that Umipig and Mabitad are
guilty of gross inexcusable negligence in the performance of their duties.

The GAAM provides for the basic requirements applicable to all classes of
disbursements that shall be complied with,[71] to wit:

Certificate of Availability of Fund. Existence of lawful appropriation, the

unexpended balance of which, free from other obligations, is sufficient to
a)
cover the expenditure, certified as available by an accounting officer or any
other official required to accomplish the certificate.
Use of moneys appropriated solely for the specific purpose for which
appropriated, and for no other, except when authorized by law or by a
corresponding appropriating body.
Approval of claim or expenditure by head of office or his duly authorized
b)
representative.
Documents to establish validity of claim. Submission of documents and other
c)
evidences to establish the validity and correctness of the claim for payment.
d) Conformity of the expenditure to existing laws and regulations.
e) Proper accounting treatment.[72]

Pursuant to COA Circular No. 92-389[73] dated November 3, 1992, Box A shall be
signed by "the responsible Officer having direct supervision and knowledge of the
facts of the transaction."[74]

Umipig, as signatory to Box A of Disbursement Voucher Nos. 101-9608-787 and

101-9612-1524 caused the release of P8,910,260 to Solis, certifying that
"Expenses, Cash Advance necessary, lawful and incurred under [his] direct
supervision." By making such certification, Umipig attests to the transactions'
legality and regularity, which signifies that he had checked all the supporting
documents before affixing his signature. If he had indeed exercised reasonable
diligence, he should have known that Palomo exceeded the authority granted to
him by the Board, and that the SPAs presented by Solis needed further
verification as to its authenticity since his authority to sell was given not by the
registered owners themselves but by another person (Jimenez-Trinidad) claiming
to be the attorney-in-fact of the owners.

Had Umipig made the proper inquiries, NMP would have discovered earlier that
the SPA in favor of Jimenez-Trinidad was fake and the unlawful disbursement of
the P8,910,260 would have been prevented. Such nonchalant stance of Umipig
who admitted to have simply presumed everything to be in order in the second
purchase and failed to scrutinize the documents presented by Solis in violation of
the accounting rules including Sec. 449 of the GAAM, constitutes gross
negligence. His reliance on the earlier written reservations/objections he
submitted to Palomo during the first purchase will not excuse his negligent acts.
The second purchase was a separate and distinct transaction from the first
purchase, involving different parcels of land and registered owners. The
infirmities he had already observed in the first purchase should have made
Umipig more circumspect in giving his approval for the disbursements in the
second purchase. Additionally, the limited authority granted by the NMP Board
to Palomo should have impelled Umipig to be more prudent in the second
purchase, as it might expose the government to even greater damage or loss if the
expenditure is later proved to have no legal basis.

As for Mabitad, she signed Box Battesting that "[a]dequate available

funds/budgetary allotment in the amount x x x; expenditure properly certified;
supported by documents marked (x) per checklist x x x; account codes proper;
previous cash advance liquidated/accounted for." Box B is accomplished by the
Accountant or other equivalent officials in the government-owned or controlled
corporation.[75]

At the trial, Mabitad affirmed that her signature in Box B means that the
expenditure is certified. She however admitted having merely relied on Umipig's
certification that the transactions were legal. Mabitad further asserted that with
respect to disbursement vouchers, her responsibilities are merely certifying that
funds are available for the purpose and check if the supporting documents which
were duly certified in Box A are attached to the voucher. But contrary to her
statement suggesting that her act of signing the disbursement voucher was
ministerial, as signatory to the said document she is not precluded from raising
questions on the legality or regularity of the transaction involved, thus:

3. Document Checklist at the Back of the Voucher The checklist at the back of the
voucher enumerates the mandatory minimum supporting documents for the
selected transactions.

It should be clear, however, that the submission of the supporting documents

enumerated under each type of transaction does not preclude reasonable
questions on the funding, legality, regularity, necessity or economy of the
expenditure or transaction. Such questions may be raised by any of the
signatories to the voucher.

The demand for additional documents or equivalents should be in writing. A

blank space is provided for additional requirements, if any, and if authorized by
any law or regulation. If the space is insufficient, separate check may be used and
attached to the voucher.[76] (Emphasis supplied.)

It bears stressing that Umipig and Mabitad are accountable officers, the nature of
their accountability under the Government Auditing Code of the Philippines (P.D.
No. 1445) was described as follows:

Accountable. (a) Having responsibility or liability for cash or other property

held in trust or under some other relationship with another. (b) [government
accounting] Personally liable for improper payments; said of a
certifying or disbursing officer. (c) Requiring entry on the books of account;
said of a transaction not yet recorded, often with reference to its timing. (d)
Responsible.

Accountable officer. An officer who, by reason of the duties of his office, is

accountable for public funds or property.[77](Emphasis and underscoring
supplied.)

As such accountable officers, Umipig and Mabitad are cognizant of the

requirement in Sec. 449 of the GAAM that purchase of land shall be evidenced by
titles or such document of transfer of ownership in favor of the government. The
Court cannot uphold their own interpretation of said provision which would
require evidence of title or transfer of ownership to Government merely for
archiving and recording purposes, as the requirement is intended to protect the
interest of the government. By approving the release of payment under
disbursement vouchers supported only by a contract to sell executed by a mere
sub-agent, Umipig and Mabitag committed gross negligence resulting in the loss
of millions of pesos paid to a bogus land broker. The Sandiganbayan therefore did
not err in convicting them under Section 3 (e) of R.A. No. 3019.

Umipig and Mabitad nevertheless tried to seek refuge in Sec. 106 of P.D. No. 1445
or the Government Auditing Code of the Philippines, which provides:

Section 106. Liability for acts done by direction of superior officer.

Noaccountable officer shall be relieved from liability by reason of his having acted
under the direction of a superior officer in paying out, applying, or disposing of
the funds or property with which he is chargeable, unless prior to that act, he
notified the superior officer in writing of the illegality of the payment,
application, or disposition. The officer directing any illegal payment or
disposition of the funds or property shall be primarily liable for the loss, while the
accountable officer who fails to serve the required notice shall be secondarily
liable.

But as already explained, the written reservations made by Umipig and Mabitad
were done only for the first purchase and not the second purchase subject of this
case. There was clearly no written notice to Palomo regarding their questions on
the legality of payments for the second purchase, either in the voucher itself or in
a separate letter/memorandum. Umipig's defense that he had treated the first
and second purchases as a single transaction and thus his previous written
objections still stand, deserves scant consideration.His certification as the
accountable officer having knowledge of facts of the subject transactionis
required each time a disbursement voucher is processed. The reason is that an
accountable officer is charged with due diligence to ensure that every expenditure
is justified and followed the proper procedure.

The negligent acts of Palomo, Umipig and Mabitad thus rendered them
personally liable for the loss incurred by the Government in the failed
transaction, in accordance with Section 105 of P.D. No. 1445 which provides that
"[e]very officer accountable for government funds shall be liable for all losses
resulting from the unlawful deposit, use, or application thereof and for all losses
attributable to negligence in the keeping of the funds."

Conspiracy Proven

In Alvizo v. Sandiganbayan,[78] this Court said:

Direct proof is not essential to show conspiracy. It need not be shown that the
parties actually came together and agreed in express terms to enter into and
pursue a common design. The existence of the assent of minds which is involved
in a conspiracy may be, and from the secrecy of the crime, usually must be,
inferred by the court from proof of facts and circumstances which, taken
together, apparently indicate that they are merely parts of some complete whole.
If it is proved that two or more persons aimed by their acts towards the
accomplishment of the same unlawful object, each doing a part so that their acts,
though apparently independent, were in fact connected and cooperative,
indicating a closeness of personal association and a concurrence of sentiments,
then a conspiracy may be inferred though no actual meeting among them to
concert means is proved. Thus, the proof of conspiracy, which is essentially
hatched under cover and out of view of others than those directly concerned, is
perhaps most frequently made by evidence of a chain of
circumstances only. (Emphasis supplied.)

Although a conspiracy may be deduced from the mode and manner by which the
offense was perpetrated,it must, like the crime itself, be proven beyond
reasonable doubt.[79] Mere knowledge, acquiescence or approval is not enough
without a showing that the participation was intentional and with a view of
furthering a common criminal design or purpose.[80]

In this case, the evidence on record clearly supports the finding of conspiracy
among petitioners Umipig, Mabitad and Palomo who all authorized the payments
on the second purchase in utter disregard of the requirement in Section 449 of
the GAAM, and with gross negligence in failing to ascertain the authority of Solis
to sell the same. The damage or injury to the government would have been
prevented, had Umipig, Mabitad and Palomo exercised reasonable diligence in
transacting with Solis and examining the supporting documents before approving
the disbursements in payment of the purchase price of Lots 1731 and
1732.Indeed, the fraudulent transaction would not have succeeded without the
cooperation of all the petitioners whose signatures on the corresponding
vouchers made possible the release of payments to Solis despite legal infirmities
in the supporting documents he submitted.

Umipig and Mabitad deliberately disregarded the rules, the limited authority
granted by the NMP Board to Palomo, and the fact that Solis had earlier
submitted questionable documents in the first purchase. Umipig and Mabitad
cannot justify their laxity in the second purchase simply because the first sale of
Lots 1730-C and 1730-D was eventually consummated and titles thereto had been
transferred to NMP. It must be noted that NMP secured titles to the said lots
under the first purchase only in November 2000, long after Umipig and Mabitad
gave their approval for subsequent disbursements for Lots 1731 and 1732 for
which Solis submitted a fake SPA. Their participation thus went beyond mere
knowledge and acquiescence to the illegal disbursements in the second purchase.
Umipig and Mabitad even signed as instrumental witnesses in the Contract to
Sell covering Lots 1731 and 1732.

Umipig and Mabitad further authorized the release of partial balance in the
amount of P1,000,000.00 also approved by Palomo, notwithstanding that the
required transfer documents were not submitted by Solis as stipulated in the
Contract to Sell. Hence, aside from causing damage or injury to the Government,
Umipig, Palomo and Mabitad also gave unwarranted benefits to Solis who --
assuming he had the requisite authority from the owners to sell Lots 1731 and
1732 had no right to receive any portion of the balance until his submission of the
required transfer documents to the buyer, NMP.

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

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

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

Although Fontanilla-Payabyab was the Head of Finance with Mabitad as one of

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

Penalty for Violation

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

The penalty for violation of Section 3(e) of R.A. No. 3019 is "imprisonment for
not less than six years and one month nor more than fifteen years, and perpetual
disqualification from public office."Under the Indeterminate Sentence Law, if the
offense is punishable by a special law, as in the present case, an indeterminate
penalty shall be imposed on the accused, the maximum term of which shall not
exceed the maximum fixed by the law, and the minimum not less than the
minimum prescribed therein.
There being no aggravating and mitigating circumstances in this case, the
Sandiganbayan correctly imposed the indeterminate prison term of six (6) years
and one (1) month, as minimum, to ten (10) years and one (1) day, as maximum,
with perpetual disqualification from public office.

Civil Liability

An offense as a general rule causes two classes of injuries: the first is the social
injury produced by the criminal act which is sought to be repaired through the
imposition of the corresponding penalty, and the second is the personal injury
caused to the victim of the crime, which injury is sought to be compensated
through indemnity, which is civil in nature.[81] Having caused injury or loss to the
Government by their gross inexcusable negligence and evident bad faith,
petitioners Palomo, Mabitad and Umipig are thus liable to restitute the amount
of P8,910,260 that was paid to Solis.

WHEREFORE, the Decisiondated January 4, 2006 and Resolutions dated

January 30, 2006 and March 1, 2006 of the Sandiganbayan, Fourth Division in
Criminal Case No. 27477 are hereby AFFIRMED with MODIFICATION. The
conviction of petitioners Benjamin A. Umipig, Margie C. Mabitad and Renato B.
Palomo under Section 3 (e) of R.A. No. 3019 is UPHELD while the conviction of
petitioner Carmencita FontanillaPayabyab is REVERSED as she is
hereby ACQUITTED of the said charge.

With costs against petitioners Benjamin A. Umipig in G.R. No. 171359 and
Renato B. Palomo and Margie C. Mabitad in G.R. No. 171755.

Costs de oficio in G.R. No. 171776.

SO ORDERED.
AGENCY BY ESTOPPEL2.

2.

SECOND DIVISION

[G.R. No. 118375. October 3, 2003]

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA

QUEAO, respondents.

DECISION
TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the
Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994 [1],
which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay
City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed
a complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had
entered into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat appealed to the Court of
Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted the present
petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao
Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate
Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to
the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand
Pesos (P95,000.00). The proceeds of these checks were to constitute the loan granted by
Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August
1980 in favor of Naguiat, and surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties.[4] On the same day, the mortgage deed was notarized, and
Queao issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00), with interest at 12% per annum, payable on 11 September
1980.[5] Queao also issued a Security Bank and Trust Company check, postdated 11
September 1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and
payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested Security
Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its
policy not to honor such requests if the check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement
of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with
Naguiat. At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan,
adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent. [7]
 Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal
Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC,[8] seeking the annulment of
the mortgage deed. The trial court eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners duplicates of her
titles to the mortgaged lots.[10] Naguiat appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The Court of Appeals promulgated the
decision now assailed before us that affirmed in toto the RTC decision. Hence, the present
petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the
issue of whether Queao had actually received the loan proceeds which were supposed to be
covered by the two checks Naguiat had issued or indorsed. Naguiat claims that being a
notarial instrument or public document, the mortgage deed enjoys the presumption that the
recitals therein are true. Naguiat also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions
of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of law may be
raised[12] as the Supreme Court is not a trier of facts.[13] The resolution of factual issues is the
function of lower courts, whose findings on these matters are received with respect and are in
fact generally binding on the Supreme Court.[14] A question of law which the Court may pass
upon must not involve an examination of the probative value of the evidence presented by the
litigants.[15] There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings
of facts of the lower courts.[17] But Naguiats case does not fall under any of the exceptions. In
any event, both the decisions of the appellate and trial courts are supported by the evidence
on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao
received the loan proceeds. Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is correct in ruling that the
presumption of truthfulness of the recitals in a public document was defeated by the clear and
convincing evidence in this case that pointed to the absence of consideration. [18] This Court has
held that the presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this case. [19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she
issued or endorsed were actually encashed or deposited. The mere issuance of the checks did
not result in the perfection of the contract of loan. For the Civil Code provides that the delivery
of bills of exchange and mercantile documents such as checks shall produce the effect of
payment only when they have been cashed.[20] It is only after the checks have produced the
effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil
Code provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding

upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
 A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
delivery of the object of the contract.[21] In this case, the objects of the contract are the loan
proceeds which Queao would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have
certainly presented the corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such proof, it follows that the
checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by
Ruebenfeldt on the ground that they could not bind her following the res inter alia acta alteri
nocere non debet rule. The Court of Appeals rejected the argument, holding that since
Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a
recognized exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of Appeals,
Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to
withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the
latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of
Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao
came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her meeting with
Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos
alleged liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel [25] citing Article
1873 of the Civil Code.[26] Apparently, it considered that at the very least, as a consequence of
the interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. In that
situation, the rule is clear. One who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties dealing with such person in good
faith, and in the honest belief that he is what he appears to be.[27] The Court of Appeals is
correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt
is irrelevant in the face of the fact that the checks issued or indorsed to Queao were never
encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the
lender did not remit and the borrower did not receive the proceeds of the loan. That being the
case, it follows that the mortgage which is supposed to secure the loan is null and void. The
consideration of the mortgage contract is the same as that of the principal contract from which
it receives life, and without which it cannot exist as an independent contract. [28] A mortgage
contract being a mere accessory contract, its validity would depend on the validity of the loan
secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against
petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

3. LITONJUA VS. ETERNIT (REFERS TO FIRST CASE IN AGENCY pp.1)

4.

SECOND DIVISION

YUN KWAN BYUNG, G.R. No. 163553

Petitioner,

Present:

CARPIO, J., Chairperson,

CARPIO MORALES,*
- versus -
LEONARDO-DE CASTRO,**

DEL CASTILLO, and

ABAD, JJ.

PHILIPPINE AMUSEMENT AND

GAMING CORPORATION,

Respondent. Promulgated:

December 11, 2009

x---------------------------------------------------x

DECISION

CARPIO, J.:
 The Case

Yun Kwan Byung (petitioner) filed this Petition for Review[1]assailing the Court of Appeals
Decision[2]dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution[3]dated 7
May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Courts Decision[4]dated6 May 1999. The
Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioners demand
against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the
redemption of gambling chips.

The Facts

PAGCOR is a government-owned and controlled corporation tasked to establish and

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

The Korean-based ABS Corporation was one of the international groups that availed of
the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS
Corporation agreed to bring in foreign players to play at the five designated gaming
tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino). The relevant stipulations of the Junket Agreement state:

1. PAGCOR will provide ABS Corporation with

separate junket chips. The junket chips will be distinguished from the
chips being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of the
playing period, ABS Corporation will collect the junket chips from its players and make
an accounting to the casino treasury.
 2. ABS Corporation will assume sole responsibility to pay
the winnings of its foreign players and settle the collectibles from
losing players.
3. ABS Corporation shall hold PAGCOR absolutely free
and harmless from any damage, claim or liability which may arise
from any cause in connection with the Junket Agreement.

5. In providing the gaming facilities and services to these foreign players,

PAGCOR is entitled to receive from ABS Corporation a 12.5% share in
the gross winnings of ABS Corporation or 1.5 million US dollars,
whichever is higher, over a playing period of 6 months. PAGCOR has
the option to extend the period.[6]

Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came
to the Philippines four times to play for high stakes at the Casino Filipino.[7]Petitioner
claims that in the course of the games, he was able to accumulate gambling chips worth
US$2.1 million. Petitioner presented as evidence during the trial gambling chips with a
face value of US$1.1 million. Petitioner contends that when he presented the gambling
chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem
them.[8]

Petitioner brought an action against PAGCOR seeking the redemption of gambling chips
valued at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino
Filipino, playing continuously day and night. Petitioner alleges that every time he would
come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A
PAGCOR official who meets him at the airport would bring him to Casino Filipino, a
casino managed and operated by PAGCOR. The card dealers were all PAGCOR
employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and
PAGCOR enforced all the regulations dealing with the operation of foreign exchange
gambling pits. Petitioner states that he was able to redeem his gambling chips with the
cashier during his first few winning trips. But later on, the casino cashier refused to
encash his gambling chips so he had no recourse but to deposit his gambling chips at the
Grand Boulevard Hotels deposit box, every time he departed from Manila.[9]

PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by ABS
Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with
distinct junket chips. ABS Corporation distributed these chips to its junket players. At the
end of each playing period, the junket players would surrender the chips to ABS
Corporation. Only ABS Corporation would make an accounting of these chips to
PAGCORs casino treasury.[10]

As additional information for the junket players playing in the gaming room leased to
ABS Corporation, PAGCOR posted a notice written in English and Korean languages
which reads:

NOTICE

This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the
former is solely accountable for all PLAYING CHIPS wagered on the tables. Any
financialARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon
said PLAYERS and ABS.[11]

PAGCOR claims that this notice is a standard precautionary measure[12]to avoid

confusion between junket players of ABS Corporation and PAGCORs players.

PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming
rules, gambling chips cannot be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are inventoried every shift.
Under PAGCORs rules, it is impossible for PAGCOR players to accumulate two million
dollars worth of gambling chips and to bring the chips out of the casino premises.[13]
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS
Corporation and refused to encash the gambling chips, petitioner filed a complaint for a
sum of money before the trial court.[14]PAGCOR filed a counterclaim against petitioner.
Then, trial ensued.

On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner
appealed the trial courts decision to the CA. On 27 May 2003, the CA affirmed the
appealed decision. On 27 June 2003, petitioner moved for reconsideration which was
denied on 7 May 2004.

Aggrieved by the CAs decision and resolution, petitioner elevated the case before this
Court.
 The Ruling of the Trial Court

The trial court ruled that based on PAGCORs charter,[15]PAGCOR has no authority to
lease any portion of the gambling tables to a private party like ABS Corporation. Section
13 of Presidential Decree No. 1869 or the PAGCORs charter states:

Sec. 13. Exemptions -

xxx
(4) Utilization of Foreign Currencies The Corporation shall have the right
and authority, solely and exclusively in connection with the operations of the
casino(s), to purchase, receive, exchange and disburse foreign exchange, subject
to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and
exclusively for players and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central
Bank, to handle, administer and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated
bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be
utilized exclusively for the above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly
issued by the government or country of their residence will be allowed to play in the foreign exchange
gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the
following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be
used in this gaming pit;
(f) The disbursement, administration, management and recording of foreign exchange currencies used in
the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and
periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be
duly recorded and reported to the Central Bank thru the designated Agent Bank; and

(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of
players qualified to participate in the foreign exchange gaming pit, in order to make certain that the
terms and conditions as above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables.
When PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation
in the concept of a lease of facilities, PAGCOR shared its franchise with ABS
Corporation in violation of the PAGCORs charter. Hence, the Junket Agreement is void.
Since the Junket Agreement is not permitted by PAGCORs charter, the mutual rights and
obligations of the parties to this case would be resolved based on agency and estoppel. [16]
The trial court found that the petitioner wanted to redeem gambling chips that were
specifically used by ABS Corporation at its gaming tables. The gambling chips come in
distinctive orange or yellow colors with stickers bearing denominations of 10,000 or
1,000. The 1,000 gambling chips are smaller in size and the words no cash value marked
on them. The 10,000 gambling chips do not reflect the no cash value sign. The senior
treasury head of PAGCOR testified that these were the gambling chips used by the
previous junket operators and PAGCOR merely continued using them. However, the
gambling chips used in the regular casino games were of a different quality.[17]

The trial court pointed out that PAGCOR had taken steps to warn players brought in by
all junket operators, including ABS Corporation, that they were playing under special
rules. Apart from the different kinds of gambling chips used, the junket players were
confined to certain gaming rooms. In these rooms, notices were posted that gambling
chips could only be encashed there and nowhere else. A photograph of one such notice,
printed in Korean and English, stated that the gaming room was exclusively operated by
ABS Corporation and that ABS Corporation was solely accountable for all the chips
wagered on the gaming tables. Although petitioner denied seeing this notice, this
disclaimer has the effect of a negative evidence that can hardly prevail against the
positive assertions of PAGCOR officials whose credibility is also not open to doubt. The
trial court concluded that petitioner had been alerted to the existence of these special
gambling rules, and the mere fact that he continued to play under the same restrictions
over a period of several months confirms his acquiescence to them. Otherwise, petitioner
could have simply chose to stop gambling.[18]
In dismissing petitioners complaint, the trial court concluded that petitioners demand
against PAGCOR for the redemption of the gambling chips could not stand. The trial
court stated that petitioner, a stranger to the agreement between PAGCOR and ABS
Corporation, could not under principles of equity be charged with notice other than of the
apparent authority with which PAGCOR had clothed its employees and agents in dealing
with petitioner. Since petitioner was made aware of the special rules by which he was
playing at the Casino Filipino, petitioner could not now claim that he was not bound by
them. The trial court explained that in an unlawful transaction, the courts will extend
equitable relief only to a party who was unaware of all its dimensions and whose
ignorance of them exposed him to the risk of being exploited by the other. Where the
parties enter into such a relationship with the opportunity to know all of its ramifications,
as in this case, there is no room for equitable considerations to come to the rescue of any
party. The trial court ruled that it would leave the parties where they are.[19]

The Ruling of the Court of Appeals

In dismissing the appeal, the appellate court addressed the four errors assigned by
petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation.
Petitioner also denies seeing a notice that certain gaming rooms were exclusively
operated by entities under special agreement.[20]
The CA ruled that the records do not support petitioners theory. Petitioners own
testimony reveals that he enjoyed special accommodations at the Grand Boulevard Hotel.
This similar accommodation was extended to players brought in by ABS Corporation and
other junket operators. Petitioner cannot disassociate himself from ABS Corporation for
it is unlikely that an unknown high roller would be accorded choice accommodations by
the hotel unless the accommodation was facilitated by a junket operator who enjoyed
such privilege.[21]
The CA added that the testimonies of PAGCORs employees affirming that notices were
posted in English and Korean in the gaming areas are credible in the absence of any
convincing proof of ill motive. Further, the specified gaming areas used only special
chips that could be bought and exchanged at certain cashier booths in that area.[22]
Second, petitioner attacks the validity of the contents of the notice. Since the Junket
Agreement is void, the notice, which was issued pursuant to the Junket Agreement, is
also void and cannot affect petitioner.[23]
The CA reasoned that the trial court never declared the notice valid and neither did it
enforce the contents thereof. The CA emphasized that it was the act of cautioning and
alerting the players that was upheld. The trial court ruled that signs and warnings were in
place to inform the public, petitioner included, that special rules applied to certain
gaming areas even if the very agreement giving rise to these rules is void.[24]

Third, petitioner takes the position that an implied agency existed between PAGCOR and
ABS Corporation.[25]
The CA disagreed with petitioners view. A void contract has no force and effect from the
very beginning. It produces no effect either against or in favor of anyone. Neither can it
create, modify or extinguish the juridical relation to which it refers. Necessarily, the
Junket Agreement, being void from the beginning, cannot give rise to an implied agency.
The CA explained that it cannot see how the principle of implied agency can be applied
to this case. Article 1883[26]of the Civil Code applies only to a situation where the agent is
authorized by the principal to enter into a particular transaction, but instead of contracting
on behalf of the principal, the agent acts in his own name.[27]
The CA concluded that no such legal fiction existed between PAGCOR and ABS
Corporation. PAGCOR entered into a Junket Agreement to lease to ABS Corporation
certain gaming areas. It was never PAGCORs intention to deal with the junket players.
Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the
junket players. Representation is the basis of agency but unfortunately for petitioner none
is found in this case.[28]
The CA added that the special gaming chips, while belonging to PAGCOR, are mere
accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the
phrase things belonging to the principal refers only to those things or properties subject of
a particular transaction authorized by the principal to be entered into by its purported
agent. Necessarily, the gambling chips being mere incidents to the void lease agreement
cannot fall under this category.[29]

The CA ruled that Article 2152[30]of the Civil Code is also not applicable. The
circumstances relating to negotiorum gestio are non-existent to warrant an officious
manager to take over the management and administration of PAGCOR.[31]

Fourth, petitioner asks for equitable relief.[32]

The CA explained that although petitioner was never a party to the void Junket
Agreement, petitioner cannot deny or feign blindness to the signs and warnings all around
him. The notices, the special gambling chips, and the separate gaming areas were more
than enough to alert him that he was playing under different terms. Petitioner persisted
and continued to play in the casino. Petitioner also enjoyed the perks extended to junket
players of ABS Corporation. For failing to heed these signs and warnings, petitioner can
no longer be permitted to claim equitable relief. When parties do not come to court with
clean hands, they cannot be allowed to profit from their own wrong doing.[33]

The Issues

Petitioners raise three issues in this petition:

1. Whether the CA erred in holding that PAGCOR is not liable to petitioner,

disregarding the doctrine of implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for
creation of agency, when such is not relevant since the instant case involves
liability of the presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least
adopted, the acts of the agent, ABS Corporation.[34]

The Ruling of the Court

The petition lacks merit.

 Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles

195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale
of good morals,[35]and is thus prohibited and punished to repress an evil that undermines
the social, moral, and economic growth of the nation.[36] Presidential Decree No. 1602
(PD 1602),[37]which modified Articles 195-199 of the Revised Penal Code and repealed
inconsistent provisions,[38]prescribed stiffer penalties on illegal gambling.[39]

As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is
that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to
maintain and operate gambling casinos. The issue then turns on whether PAGCOR can
validly share its franchise with junket operators to operate gambling casinos in the
country. Section 3(h) of PAGCORs charter states:

Section 3. Corporate Powers. - The Corporation shall have the following powers and functions,
among others:

xxx

h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose
pertaining to the business of the Corporation, or in any manner incident thereto, as principal,
agent or otherwise, with any person, firm, association, or corporation.

xxx

The Junket Agreement would be valid if under Section 3(h) of PAGCORs

charter, PAGCOR could share its gambling franchise with another entity. In Senator
Jaworski v. Phil. Amusement and Gaming Corp.,[40]the Court discussed the extent of the
grant of the legislative franchise to PAGCOR on its authority to operate gambling
casinos:

A legislative franchise is a special privilege granted by the state to corporations. It is a

privilege of public concern which cannot be exercised at will and pleasure, but should be
reserved for public control and administration, either by the government directly, or by public
agents, under such conditions and regulations as the government may impose on them in the
interest of the public. It is Congress that prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of granting the franchise, to whom it may be granted,
the mode of conducting the business, the charter and the quality of the service to be rendered
and the duty of the grantee to the public in exercising the franchise are almost always defined in
clear and unequivocal language.
 After a circumspect consideration of the foregoing discussion and the contending positions
of the parties, we hold that PAGCOR has acted beyond the limits of its authority when it
passed on or shared its franchise to SAGE.

In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint
venture agreement with two other entities in the operation and management of jai alai games,
the Court, in an En Banc Resolution dated 24 August 2001, partially granted the motions for
clarification filed by respondents therein insofar as it prayed that PAGCOR has a valid franchise,
but only by itself (i.e. not in association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.

In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants
the latter the authority to operate and maintain sports betting stations and Internet gaming
operations. In essence, the grant of authority gives SAGE the privilege to actively participate,
partake and share PAGCORs franchise to operate a gambling activity. The grant of franchise is a
special privilege that constitutes a right and a duty to be performed by the grantee. The grantee
must not perform its activities arbitrarily and whimsically but must abide by the limits set by its
franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the
State is presumed to exist for the common good. Hence, the special privileges and franchises it
receives are subject to the laws of the State and the limitations of its charter. There is therefore
a reserved right of the State to inquire how these privileges had been employed, and whether
they have been abused. (Emphasis supplied)

THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY TO

OPERATE A GAMBLING ACTIVITY. WHILE PAGCOR IS ALLOWED UNDER ITS
CHARTER TO ENTER INTO OPERATORS OR MANAGEMENT CONTRACTS,
PAGCOR IS NOT ALLOWED UNDER THE SAME CHARTER TO RELINQUISH OR
SHARE ITS FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER IN VIEW
OF THE LEGAL PRINCIPLE OF DELEGATA POTESTAS DELEGARE NON POTEST,
INASMUCH AS THERE IS NOTHING IN THE CHARTER TO SHOW THAT IT HAS
BEEN EXPRESSLY AUTHORIZED TO DO SO.[41]

Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of

ABS Corporation from its foreign currency collection, allowed ABS Corporation to
operate gaming tables in the dollar pit. The Junket Agreement is in direct violation of
PAGCORs charter and is therefore void.

Since the Junket Agreement violates PAGCORs charter, gambling between the
junket player and the junket operator under such agreement is illegal and may not be
enforced by the courts. Article 2014[42]of the Civil Code, which refers to illegal gambling,
states that no action can be maintained by the winner for the collection of what he has
won in a game of chance.

Although not raised as an issue by petitioner, we deem it necessary to discuss the

applicability of Republic Act No. 9487[43](RA 9487) to the present case.
 RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter
into special agreement with third parties to share the privileges under its franchise for the
operation of gambling casinos:

Section 1. The Philippine Amusement and

Gaming Corporation (PAGCOR) franchise granted under Presidential Decree No.
1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as
follows:
XXX
(2) SECTION 3(H) IS HEREBY AMENDED TO READ AS FOLLOWS:
SEC. 3. CORPORATE POWERS. -
xxx
(h) to enter into, make, conclude, perform, and carry out contracts of
every kind and nature and for any lawful purpose which are necessary,
appropriate, proper or incidental to any business or purpose of the
PAGCOR, including but not limited to investment agreements, joint
venture agreements, management agreements, agency agreements,
whether as principal or as an agent, manpower supply agreements, or
any other similar agreements or arrangements with any person, firm,
association or corporation. (Boldfacing supplied)

PAGCOR sought the amendment of its charter precisely to address and remedy the legal
impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp.

Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The
Junket Agreement was entered into between PAGCOR and ABS Corporation on 25 April
1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from
entering into any arrangement with a third party that would allow such party to actively
participate in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the legislative
intent to give them retroactive effect is expressly declared or is necessarily implied from
the language used.[44]RA 9487 does not provide for any retroactivity of its provisions. All
laws operate prospectively absent a clear contrary language in the text,[45]and that in
every case of doubt, the doubt will be resolved against the retroactive operation of
laws.[46]

Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law
when the acts giving rise to the claimed liabilities took place. This makes the gambling
activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem
the cash value of the gambling chips or recover damages arising from an illegal activity
for two reasons. First, petitioner engaged in gambling with ABS Corporation and not
with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act.
Moreover, for a court to grant petitioners prayer would mean enforcing the Junket
Agreement, which is void.

Now, to address the issues raised by petitioner in his petition, petitioner claims that he is
a third party proceeding against the liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by estoppel.

Article 1869 of the Civil Code states that implied agency is derived from the acts
of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority. Implied agency,
being an actual agency, is a fact to be proved by deductions or inferences from other
facts.[47]
On the other hand, apparent authority is based on estoppel and can arise from two
instances. First, the principal may knowingly permit the agent to hold himself out as
having such authority, and the principal becomes estopped to claim that the agent does
not have such authority. Second, the principal may clothe the agent with the indicia of
authority as to lead a reasonably prudent person to believe that the agent actually has
such authority.[48]In an agency by estoppel, there is no agency at all, but the one assuming
to act as agent has apparent or ostensible, although not real, authority to represent
another.[49]

The law makes no presumption of agency and proving its existence, nature and
extent is incumbent upon the person alleging it.[50]Whether or not an agency has been
created is a question to be determined by the fact that one represents and is acting for
another. [51]

Acts and conduct of PAGCOR negates the existence of an implied agency or an agency
by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that
even assuming that no actual agency existed between PAGCOR and ABS Corporation,
there is still an agency by estoppel based on the acts and conduct of PAGCOR showing
apparent authority in favor of ABS Corporation. Petitioner states that one factor which
distinguishes agency from other legal precepts is control and the following undisputed
facts show a relationship of implied agency:

1. Three floors of the Grand Boulevard Hotel[52]were leased to PAGCOR for

conducting gambling operations;[53]
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for
foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities,
operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo;[54]

3. PAGCOR controlled the release, withdrawal and return of all the

gambling chips given to ABS Corporation in that part of the casino
and at the end of the day, PAGCOR conducted an inventory of the
gambling chips;[55]

4. ABS Corporation accounted for all gambling chips with the Commission
on Audit (COA), the official auditor of PAGCOR;[56]

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

Petitioners argument is clearly misplaced. The basis for agency is representation,[58]that

is, the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally executed by
the principal.[59]On the part of the principal, there must be an actual intention to appoint
or an intention naturally inferable from his words or actions, while on the part of the
agent, there must be an intention to accept the appointment and act on it. [60]Absent
such mutual intent, there is generally no agency.[61]

There is no implied agency in this case because PAGCOR did not hold out to the
public as the principal of ABS Corporation. PAGCORs actions did not mislead the public
into believing that an agency can be implied from the arrangement with the junket
operators, nor did it hold out ABS Corporation with any apparent authority to represent
it in any capacity. The Junket Agreement was merely a contract of lease of facilities and
services.

The players brought in by ABS Corporation were covered by a different set of

rules in acquiring and encashing chips. The players used a different kind of chip than
what was used in the regular gaming areas of PAGCOR, and that such junket players
played specifically only in the third floor area and did not mingle with the regular
patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players
are playing under special rules, exercised the necessary precaution to warn the gaming
public that no agency relationship exists.

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

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

There can be no apparent authority of an agent without acts or conduct on the

part of the principal and such acts or conduct of the principal must have been known
and relied upon in good faith and as a result of the exercise of reasonable prudence by a
third person as claimant, and such must have produced a change of position to its
detriment.[63]Such proof is lacking in this case.

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

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

The trial court has declared, and we affirm, that the Junket Agreement is void. A
void or inexistent
contract is one which has no force and effect from the very beginning. Hence, it is as if it
has never been entered into and cannot be validated either by the passage of time or by
ratification.[64]Article 1409 of the Civil Code provides that contracts expressly prohibited
or declared void by law, such as gambling contracts, cannot be ratified.[65]
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 27
May 2003 as well as the Resolution dated 7 May 2004 as modified by this Decision.
SO ORDERED.
FORMAL REQUIREMENTS ON GRANT
6.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner,

vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision,1 dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the
Regional Trial Court, dated 26 July 1995, dismissing the petitioners suit.

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUERS VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday
Corporation (Businessday) with a total par value of 600,000.00, with Certificates of Stock No. 005,
No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the corporation as
Executive Vice-President of Businessday, and President of Businessday Information Systems and
Services and of Businessday Marketing Corporation, petitioner, together with respondent Raul Locsin
(Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos
dictatorship.3 Anticipating the possibility that petitioner would be arrested and detained by the Marcos
military, Locsin, Joaquin, and Hector Holifea had an unwritten agreement that, in the event that
petitioner was arrested, they would support the petitioners family by the continued payment of his
salary.4 Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his
attorneys-in-fact Locsin, Joaquin and Hofilea for the purpose of selling or transferring petitioners
shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA
in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he
was a stockholder of Businessday, in the event of a military crackdown against the opposition.5 The
parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate
Secretary of Businessday, and at the same time, a notary public for Quezon City.6

On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and
Seizure Order and detained for allegedly committing arson. During the petitioners detention, respondent
Locsin ordered fellow respondent Purugganan to cancel the petitioners shares in the books of the
corporation and to transfer them to respondent Locsins name.7

As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an employee
of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow Certificate of
Stock No. 100 for the purpose of using it as additional collateral for Businessdays then outstanding loan
with the National Investment and Development Corporation. When Fernando returned the borrowed
stock certificate, the word "cancelled" was already written therein. When the petitioner became upset,
Fernando explained that this was merely a mistake committed by respondent Locsins secretary.8
During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular
deposits, each amounting to 10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioners in-laws. The deposits were made on every 15th and 30th of the
month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to
continue paying after his arrest for the financial support of his family.10 After receiving a total of
600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner
to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused. 11

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no
longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan,
as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of
respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore to
him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a
Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale
of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of
damages.12

RESPONDENT RAUL LOCSINS VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and requested
him to sell, and, if necessary, buy petitioners shares of stock in Businessday, to assure support for
petitioners family in the event that something should happen to him, particularly if he was jailed, exiled
or forced to go underground.13 At the time petitioner was employed with Businessday, respondent
Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought
the overthrow of the Marcos government through an armed struggle.14 He denied that he made any
arrangements to continue paying the petitioners salary in the event of the latters imprisonment.15

When petitioner was detained, respondent Locsin tried to sell petitioners shares, but nobody wanted to
buy them. Petitioners reputation as an oppositionist resulted in the poor financial condition of
Businessday and discouraged any buyers for the shares of stock.16 In view of petitioners previous
instructions, respondent Locsin decided to buy the shares himself.1awphi1.net Although the capital
deficiency suffered by Businessday caused the book value of the shares to plummet below par value,
respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from
Businessday the funds he used in purchasing the shares from petitioner, and had to pay the petitioner in
installments of 10,000.00 every 15th and 30th of each month.18

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It
ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin,
in order to provide for the needs of his family should he be jailed or forced to go underground; and that
the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares
for such price and under such terms and conditions that the agents may deem proper. It further found
that petitioner consented to have respondent Locsin buy the shares himself. It also ruled that petitioner,
through his wife, received from respondent Locsin the amount of 600,000.00 as payment for the shares
of stock.19 The dispositive part of the trial courts Decision reads:

WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his causes
of action and of the facts alleged in his complaint, the instant suit is hereby ordered DISMISSED,
without pronouncement as to costs.

[Herein respondents] counterclaims, however, are hereby DISMISSED, likewise, for dearth of
substantial evidentiary support.20

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected
contract of sale.21 It further ruled that granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure to
raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioners allegation
that the money his wife received constituted his salary from Businessday since the amount he received
as his salary, 24,000.00 per month, did not correspond to the amount he received during his detention,
20,000.00 per month (deposits of 10,000.00 on every 15th and 30th of each month in the accounts of
the petitioners in-laws). On the other hand, the total amount received, 600,000.00, corresponds to the
aggregate par value of petitioners shares in Businessday. Moreover, the financial condition of
Businessday prevented it from granting any form of financial assistance in favor of the petitioner, who
was placed in an indefinite leave of absence, and, therefore, not entitled to any salary. 23

The Court of Appeals also ruled that although the manner of the cancellation of the petitioners
certificates of stock and the subsequent issuance of the new certificate of stock in favor of respondent
Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a consummated
sale.24

Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsins
claims for moral and exemplary damages due to lack of supporting evidence.25

Hence, the present petition, where the following issues were raised:

I.

THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT
OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES;

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE

ALLEGED SALE OF THE SHARES TO MR. LOCSIN;

III.

THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY

PETITIONERS IN LAWS WERE NOT PETITIONERS SALARY FROM THE CORPORATION
BUT INSTALLMENT PAYMENTS FOR THE SHARES;

IV.

THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE
ALLEGED SALE OF THE SHARES AND NOT THE CORPORATION; AND

V.

THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES
WAS VALID ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR.26

The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale since respondent Locsin exceeded
his authority under the SPA27 issued in his, Joaquin and Holifenas favor. He alleged that the authority
of the afore-named agents to sell the shares of stock was limited to the following conditions: (1) in the
event of the petitioners absence and incapacity; and (2) for the limited purpose of applying the proceeds
of the sale to the satisfaction of petitioners subsisting obligations with the companies adverted to in the
SPA.28

Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word
"absence" to a condition wherein "a person disappears from his domicile, his whereabouts being
unknown, without leaving an agent to administer his property,"29 citing Article 381 of the Civil Code,
the entire provision hereunder quoted:
ART 381. When a person disappears from his domicile, his whereabouts being unknown, and without
leaving an agent to administer his property, the judge, at the instance of an interested party, a relative, or
a friend, may appoint a person to represent him in all that may be necessary.

This same rule shall be observed when under similar circumstances the power conferred by the absentee
has expired.

Petitioner also puts forward that the word "incapacity" would be limited to mean "minority, insanity,
imbecility, the state of being deaf-mute, prodigality and civil interdiction."30 He cites Article 38 of the
Civil Code, in support of this definition, which is hereunder quoted:

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil
interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person, from
certain obligations, as when the latter arise from his acts or from property relations, such as easements.

Petitioner, thus, claims that his arrest and subsequent detention are not among the instances covered by
the terms "absence or incapacity," as provided under the SPA he executed in favor of respondent Locsin.

Petitioners arguments are unpersuasive. It is a general rule that a power of attorney must be strictly
construed; the instrument will be held to grant only those powers that are specified, and the agent may
neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should
not be applied to the extent of destroying the very purpose of the power. If the language will permit, the
construction that should be adopted is that which will carry out instead of defeat the purpose of the
appointment. Clauses in a power of attorney that are repugnant to each other should be reconciled so as
to give effect to the instrument in accordance with its general intent or predominant purpose.
Furthermore, the instrument should always be deemed to give such powers as essential or usual in
effectuating the express powers.31

In the present case, limiting the definitions of "absence" to that provided under Article 381 of the Civil
Code and of "incapacity" under Article 38 of the same Code negates the effect of the power of attorney
by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily stringent
standards that would justify the appointment of a representative by a judge. Among the standards the
said article enumerates is that no agent has been appointed to administer the property. In the present
case, petitioner himself had already authorized agents to do specific acts of administration and thus, no
longer necessitated the appointment of one by the court. Likewise, limiting the construction of
"incapacity" to "minority, insanity, imbecility, the state of being a deaf-mute, prodigality and civil
interdiction," as provided under Article 38, would render the SPA ineffective. Article 1919(3) of the
Civil Code provides that the death, civil interdiction, insanity or insolvency of the principal or of the
agent extinguishes the agency. It would be equally incongruous, if not outright impossible, for the
petitioner to require himself to qualify as a minor, an imbecile, a deaf-mute, or a prodigal before the
SPA becomes operative. In such cases, not only would he be prevented from appointing an agent, he
himself would be unable to administer his property.

On the other hand, defining the terms "absence" and "incapacity" by their everyday usage makes for a
reasonable construction, that is, "the state of not being present" and the "inability to act," given the
context that the SPA authorizes the agents to attend stockholders meetings and vote in behalf of
petitioner, to sell the shares of stock, and other related acts. This construction covers the situation
wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony.32

Petitioners contention that the shares may only be sold for the sole purpose of applying the proceeds of
the sale to the satisfaction of petitioners subsisting obligations to the company is far-fetched. The
construction, which will carry out the purpose, is that which should be applied. Petitioner had not
submitted evidence that he was in debt with Businessday at the time he had executed the SPA. Nor
could he have considered incurring any debts since he admitted that, at the time of its execution, he was
concerned about his possible arrest, death and disappearance. The language of the SPA clearly
enumerates, as among those acts that the agents were authorized to do, the act of applying the proceeds
of the sale of the shares to any obligations petitioner might have against the Businessday group of
companies. This interpretation is supported by the use of the word "and" in enumerating the authorized
acts, instead of phrases such as "only for," "for the purpose of," "in order to" or any similar terms to
indicate that the petitioner intended that the SPA be used only for a limited purpose, that of paying any
liabilities with the Businessday group of companies.

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the
shares to respondent Locsin for the price of 600,000.00. This argument is unsustainable. Petitioner
received from respondent Locsin, through his wife and in-laws, the installment payments for a total of
600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years after 1982
when petitioner demanded the return of the shares. The petitioners claim that he did not instruct
respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove that petitioner
did not give his consent to the sale since respondent Locsin was authorized, under the SPA, to negotiate
the terms and conditions of the sale including the manner of payment. Moreover, had respondent Locsin
given the proceeds directly to the petitioner, as the latter suggested in this petition, the proceeds were
likely to have been included among petitioners properties which were confiscated by the military.
Instead, respondent Locsin deposited the money in the bank accounts of petitioners in-laws, and
consequently, assured that the petitioners wife received these amounts. Article 1882 of the Civil Code
provides that the limits of an agents authority shall not be considered exceeded should it have been
performed in a manner more advantageous to the principal than that specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin had
not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando
asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even
became upset.33 In either case, both statements only prove that petitioner refused to honor his part as
seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or
given his consent to the sale, he would have given back the payments as soon as Fernando asked him to
endorse and deliver the certificates of stock, an incident which unequivocally confirmed that the funds
he received, through his wife and his in-laws, were intended as payment for his shares of stocks. Instead,
petitioner held on to the proceeds of the sale after it had been made clear to him that respondent Locsin
had considered the 600,000.00 as payment for the shares, and asked petitioner, through Fernando, to
endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioners allegation that the installment payments he was adjudged to have
received for the shares were actually salaries which Businessday promised to pay him during his
detention is unsupported and implausible. Petitioner received 20,000.00 per month through his in-laws;
this amount does not correspond to his monthly salary at 24,000.00.34 Nor does the amount received
correspond to the amount which Businessday was supposed to be obliged to pay petitioner, which was
only 45,000.00 to 60,000.00 per annum.35 Secondly, the petitioners wife did not receive funds from
respondent Locsin or Businessday for the entire duration of petitioners detention. Instead, when the
total amount received by the petitioner reached the aggregate amount of his shares at par value --
600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin denied
knowing the petitioner soon after his arrest, he believed respondent Locsins commitment to pay his
salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of
Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive
"salaries" for work he will not perform, which is not a demandable debt since petitioner was on an
extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under Article
748 of the Civil Code, if the value of the personal property donated exceeds 5,000.00, the donation and
the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present
case, petitioner admitted in his testimony38 that such arrangement was not made in writing and, hence, is
void.

The fact that some of the deposit slips and communications made to petitioners wife contain the phrase
"household expenses" does not disprove the sale of the shares. The money was being deposited to the
bank accounts of the petitioners in-laws, and not to the account of the petitioner or his wife, precisely
because some of his property had already been confiscated by the military. Had they used the phrase
"sale of shares," it would have defeated the purpose of not using their own bank accounts, which was to
conceal from the military any transaction involving the petitioners property.

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent
Locsin, was the party to the transaction. The curious facts that the payments were received on the 15th
and 30th of each month and that the payor named in the checks was Businessday, were adequately
explained by respondent Locsin. Respondent Locsin had obtained cash advances from the company,
paid to him on the 15th and 30th of the month, so that he can pay petitioner for the shares. To support
his claim, he presented Businessdays financial records and the testimony of Leo Atienza, the
Companys Accounting Manager. When asked why the term "shares of stock" was used for the entries,
instead of "cash advances," Atienza explained that the term "shares of stock" was more specific rather
than the broader phrase "cash advances."39 More to the point, had the entries been for "shares of stock,"
the issuance of shares should have been reflected in the stock and transfer books of Businessday, which
the petitioner presented as evidence. Instead the stock and transfer books reveal that the increase in
respondent Locsins shares was a result of the cancellation and transfer of petitioners shares in favor of
respondent Locsin.

Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares
of stock is void since it contravenes Article 1491 of the Civil Code, which provides that:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:

xxxx

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent
for another cannot be permitted to deal in the agency matter on his own account and for his own benefit
without the consent of his principal, freely given, with full knowledge of every detail known to the agent
which might affect the transaction.40 The prohibition against agents purchasing property in their hands
for sale or management is, however, clearly, not absolute. It does not apply where the principal consents
to the sale of the property in the hands of the agent or administrator.>41

In the present case, the parties have conflicting allegations. While respondent Locsin averred that
petitioner had permitted him to purchase petitioners shares, petitioner vehemently denies having known
of the transaction. However, records show that petitioners position is less credible than that taken by
respondent Locsin given petitioners contemporaneous and subsequent acts.42 In 1980, when Fernando
returned a stock certificate she borrowed from the petitioner, it was marked "cancelled." Although the
petitioner alleged that he was furious when he saw the word cancelled, he had not demanded the
issuance of a new certificate in his name. Instead of having been put on his guard, petitioner remained
silent over this obvious red flag and continued receiving, through his wife, payments which totalled to
the aggregate amount of the shares of stock valued at par. When the payments stopped, no demand was
made by either petitioner or his wife for further payments.

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

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and,
therefore, illegal. In the present case, the shares were transferred in the name of the buyer, respondent Locsin, without
the petitioner delivering to the buyer his certificates of stock. Section 63 of the Corporation Code provides that:
Sec.63. Certificate of stock and transfer of shares. xxx Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred. (Emphasis provided.)

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

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

SO ORDERED.

7. WOODSHIELD HOLDINGS, INC VS. ROXAS ELECTRIC AND

CONSTRUCTION CO, INC. (SEE FORMALITIES #7)
8.

SECOND DIVISION

[G.R. No. 148116. April 14, 2004]

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners, vs.

MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA,
represented by GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B.
TICZON, represented by MARY MEDIATRIX T. FERNANDEZ,
CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T.
BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN
DOES and JANE DOES, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-
G.R. CV No. 64940, which reversed and set aside the June 23, 1999 Decision [2] of the Regional
Trial Court of Pasig City, Branch 68, in Civil Case No. 65629, as well as its Resolution dated
April 30, 2001 denying the petitioners motion for reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon[3] are the owners of a parcel of land located in San
Pablo City, covered by Transfer Certificate of Title (TCT) No. T-36766 of the Register of Deeds
of San Pablo City.[4] On the other hand, the heirs of Paz Ticzon Eleosida, represented by
Gregorio T. Eleosida, are the owners of a parcel of land located in San Pablo City, covered by
TCT No. 36754, also of the Register of Deeds of San Pablo City.[5]

The Case for the Petitioners

Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as
brokers, offered to sell to the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the
parcels of land covered by TCT Nos. 36754 and 36766. The petitioners were shown a locator
plan and copies of the titles showing that the owners of the properties were represented by
Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The brokers told the
petitioners that they were authorized by respondent Fernandez to offer the property for
sale. The petitioners, thereafter, made two ocular inspections of the property, in the course of
which they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez
and the two brokers at the petitioners office in Mandaluyong City.[6] The petitioners and
respondent Fernandez agreed that the petitioners would buy the property consisting of 36,742
square meters, for the price of P150 per square meter, or the total sum of P5,098,500. They
also agreed that the owners would shoulder the capital gains tax, transfer tax and the
expenses for the documentation of the sale. The petitioners and respondent Fernandez also
agreed to meet on December 8, 1995 to finalize the sale. It was also agreed upon that on the
said date, respondent Fernandez would present a special power of attorney executed by the
owners of the property, authorizing her to sell the property for and in their behalf, and to
execute a deed of absolute sale thereon. The petitioners would also remit the purchase price
to the owners, through respondent Fernandez. However, only Agapito Fisico attended the
meeting. He informed the petitioners that respondent Fernandez was encountering some
problems with the tenants and was trying to work out a settlement with them. [7] After a few
weeks of waiting, the petitioners wrote respondent Fernandez on January 5, 1995, demanding
that their transaction be finalized by January 30, 1996.[8]
When the petitioners received no response from respondent Fernandez, the petitioners
sent her another Letter[9] dated February 1, 1996, asking that the Deed of Absolute Sale
covering the property be executed in accordance with their verbal agreement dated November
27, 1995. The petitioners also demanded the turnover of the subject properties to them within
fifteen days from receipt of the said letter; otherwise, they would have no option but to protect
their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February
14, 1996[10] and clarified her stand on the matter in this wise:

1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I
do not recall we ever discussed about them. Nonetheless, I made an assurance at that time
that there was no liens/encumbrances and tenants on my property (TCT 36755).

2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of
Absolute Sale. The truth of the matter is that you were the one who emphatically stated that
you would prepare a Contract to Sell and requested us to come back first week of December
as you would be leaving the country then. In fact, what you were demanding from us was to
apprise you of the status of the property, whether we would be able to ascertain that there are
really no tenants. Ms. Alimario and I left your office, but we did not assure you that we
would be back on the first week of December.

Unfortunately, some people suddenly appeared and claiming to be tenants for the entire
properties (including those belonging to my other relatives.) Another thing, the Barangay
Captain now refuses to give a certification that our properties are not tenanted.

Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the
appearance of alleged tenants who are demanding for a one-hectare share, my cousin and I
have thereby changed our mind and that the sale will no longer push through. I specifically
instructed her to inform you thru your broker that we will not be attending the meeting to be
held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the
property until all problems are fully settled. We have not demanded and received from you
any earnest money, thereby, no obligations exist. In the meantime, we hope that in the future
we will eventually be able to transact business since we still have other properties in San
Pablo City.[11]

Appended thereto was a copy of respondent Fernandez letter to the petitioners

dated January 16, 1996, in response to the latters January 5, 1996 letter.[12]
On April 12, 1996, the petitioners filed the instant Complaint for specific performance with
damages[13] against respondent Fernandez and the registered owners of the property. In their
complaint, the petitioners alleged, inter alia, the following:

4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land
covered by Transfer Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742
square meters in Barrio Concepcion, San Pablo City. After a brief negotiation, defendants
committed and specifically agreed to sell to plaintiffs 33,990 square meters of the two (2)
aforementioned parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:

(a) The transfer tax and all the other fees and expenses for the titling of the subject property
in plaintiffs names would be for defendants account.

(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the
aforementioned 33,990 square meters of land in plaintiffs office on 8 December 1995.

6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free
from all liens and encumbrances and that no squatters or tenants occupied them.

7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants,
pursued the purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a
letter of even date to defendants, setting the date of sale and payment on 30 January 1996.

7.1 Defendants received the letter on 12 January 1996 but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding
execution of the Deed of Sale.

8.1 Defendants received the same on 6 February 1996. Again, there was no
reply. Defendants thus reneged on their commitment a second time.

9. On 14 February 1996, defendant Fernandez sent a written communication of the same date
to plaintiffs enclosing therein a copy of her 16 January 1996 letter to plaintiffs which
plaintiffs never received before. Defendant Fernandez stated in her 16 January 1996 letter
that despite the meeting of minds among the parties over the 33,990 square meters of land
for P150.00 per square meter on 27 November 1995, defendants suddenly had a change of
heart and no longer wished to sell the same. Paragraph 6 thereof unquestionably shows
defendants previous agreement as above-mentioned and their unjustified breach of their
obligations under it.

10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract
to sell.

11. Plaintiffs intended to use the subject property for their subdivision project to support
plaintiffs quarry operations, processing of aggregate products and manufacture of
construction materials.Consequently, by reason of defendants failure to honor their just
obligations, plaintiffs suffered, and continue to suffer, actual damages, consisting in
unrealized profits and cost of money, in the amount of at least P5 Million.

12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants
fraudulent actuations for which reason defendants are liable to plaintiffs for moral damages
in the amount of at least P1.5 Million.

13. By reason of defendants above-described fraudulent actuations, plaintiffs, despite their

willingness and ability to pay the agreed purchase price, have to date been unable to take
delivery of the title to the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of example or correction for the
public good, defendants are liable to plaintiff for exemplary damages in the amount
of P500,000.00.
14. Defendants bad faith and refusal to honor their just obligations to plaintiffs constrained
the latter to litigate and to engage the services of undersigned counsel for a fee in the amount
of at least P250,000.00. [14]

The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering
the respondents to

(a) Secure at defendants expense all clearances from the appropriate government agencies
that will enable defendants to comply with their obligations under the Contract to Sell;

(b) Execute a Contract to Sell with terms agreed upon by the parties;

(c) Solidarily pay the plaintiffs the following amounts:

1. P5,000,000.00 in actual damages;

2. P1,500,000.00 in moral damages;

3. P500,000.00 in exemplary damages;

4. P250,000.00 in attorneys fees. [15]

On July 5, 1996, respondent Fernandez filed her Answer to the complaint. [16] She claimed
that while the petitioners offered to buy the property during the meeting of November 27, 1995,
she did not accept the offer; thus, no verbal contract to sell was ever perfected. She
specifically alleged that the said contract to sell was unenforceable for failure to comply with
the statute of frauds. She also maintained that even assuming arguendo that she had, indeed,
made a commitment or promise to sell the property to the petitioners, the same was not
binding upon her in the absence of any consideration distinct and separate from the price. She,
thus, prayed that judgment be rendered as follows:

1. Dismissing the Complaint, with costs against the plaintiffs;

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in

the amount of not less than P2,000,000.00 and exemplary damages in the
amount of not less than P500,000.00 and attorneys fees and reimbursement
expenses of litigation in the amount of P300,000.00. [17]

On September 24, 1997, the trial court, upon motion of the petitioners, declared the other
respondents in default for failure to file their responsive pleading within the reglementary
period.[18] At the pre-trial conference held on March 2, 1998, the parties agreed that the
following issues were to be resolved by the trial court: (1) whether or not there was a perfected
contract to sell; (2) in the event that there was, indeed, a perfected contract to sell, whether or
not the respondents breached the said contract to sell; and (3) the corollary issue of
damages.[19]
Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of
the properties in San Pablo City on a best offer basis. She was later informed by Alimario that
the petitioners were interested to buy the properties. On November 27, 1995, along with
Alimario and another person, she met with the petitioners in the latters office and told them that
she was at the conference merely to hear their offer, that she could not bind the owners of the
properties as she had no written authority to sell the same. The petitioners offered to buy the
property at P150 per square meter. After the meeting, respondent Fernandez requested Joy
Marquez to secure a barangay clearance stating that the property was free of any tenants. She
was surprised to learn that the clearance could not be secured. She contacted a cousin of
hers, also one of the owners of the property, and informed him that there was a prospective
buyer of the property but that there were tenants thereon. Her cousin told her that he was not
selling his share of the property and that he was not agreeable to the price of P150 per square
meter.She no longer informed the other owners of the petitioners offer. Respondent Fernandez
then asked Alimario to apprise the petitioners of the foregoing developments, through their
agent, Agapito Fisico. She was surprised to receive a letter from the petitioners dated January
5, 1996. Nonetheless, she informed the petitioners that she had changed her mind in pursuing
the negotiations in a Letter dated January 18, 1996. When she received petitioners February 1,
1996 Letter, she sent a Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners on June
23, 1999,[20] the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
plaintiffs ANTONIO K. LITONJUA and AURELIO K. LITONJUA and against defendants
MARY MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA,
represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS OF
DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ,
CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ,
DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES,
ordering defendants to:

1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed
upon by the parties and to secure all clearances from the concerned
government agencies and removal of any tenants from the subject
property at their expense to enable defendants to comply with their
obligations under the perfected agreement to sell; and

2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as

and by way of attorneys fees. [21]

On appeal to the Court of Appeals, the respondents ascribed the following errors to the
court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED
CONTRACT OF SALE OF THE TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF
SALE AS CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO
LITONJUA WAS UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-
APPELLANT FERNANDEZ DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE
PERFECTED SALE AND CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF
ATTORNEY WAS REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ
COULD NEGOTIATE THE SALE ON BEHALF OF THE OTHER REGISTERED CO-
OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEYS FEES IN THE DISPOSITIVE
PORTION OF THE DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID
DECISION.[22]
On February 28, 2001, the appellate court promulgated its decision reversing and setting
aside the judgment of the trial court and dismissing the petitioners complaint, as well as the
respondents counterclaim.[23] The appellate court ruled that the petitioners failed to prove that a
sale or a contract to sell over the property between the petitioners and the private respondent
had been perfected.
 Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of
Court.
The petitioners submit the following issues for the Courts resolution:

A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT

OF SALE BETWEEN THE PARTIES.

B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE

STATUTE OF FRAUDS.

C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE

BENEFITED BY THE ASSAILED DECISION OF THE COURT OF APPEALS. [24]

The petition has no merit.

The general rule is that the Courts jurisdiction under Rule 45 of the Rules of Court is
limited to the review of errors of law committed by the appellate court. As the findings of fact of
the appellate court are deemed continued, this Court is not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the court a quo.[25] This rule,
however, is not without exceptions, such as where the factual findings of the Court of Appeals
and the trial court are conflicting or contradictory.[26] Indeed, in this case, the findings of the trial
court and its conclusion based on the said findings contradict those of the appellate
court. However, upon careful review of the records of this case, we find no justification to grant
the petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was a
perfected contract of sale between the petitioners as buyers and the respondents-owners,
through respondent Fernandez, as sellers. The petitioners contend that the perfection of the
said contract is evidenced by the January 16, 1996 Letter of respondent Fernandez.[27] The
pertinent portions of the said letter are as follows:

[M]y cousin and I have thereby changed our mind and that the sale will no longer push
through. I specifically instructed her to inform you thru your broker that we will not be
attending the meeting to be held sometime first week of December.

In view thereof, I regret to formally inform you now that we are no longer selling the
property until all problems are fully settled. We have not demanded and received from you
any earnest money, thereby, no obligations exist [28]

The petitioners argue that the letter is a sufficient note or memorandum of the perfected
contract, thus, removing it from the coverage of the statute of frauds. The letter specifically
makes reference to a sale which respondent Fernandez agreed to initially, but which the latter
withdrew because of the emergence of some people who claimed to be tenants on both
parcels of land. According to the petitioners, the respondents-owners, in their answer to the
complaint, as well as respondent Fernandez when she testified, admitted the authenticity and
due execution of the said letter. Besides, when the petitioner Antonio Litonjua testified on the
contract of sale entered into between themselves and the respondents-owners, the latter did
not object thereto. Consequently, the respondents-owners thereby ratified the said contract of
sale. The petitioners thus contend that the appellate courts declaration that there was no
perfected contract of sale between the petitioners and the respondents-owners is belied by the
evidence, the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the appellate court ruled that
the Letter of respondent Fernandez dated January 16, 1996 is hardly the note or memorandum
contemplated under Article 1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein. [29]

The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said
to constitute the note or memorandum evidencing the agreement of the parties to enter into a
contract of sale as it is very clear that defendant-appellant as seller did not accept the
condition that she will be the one to pay the registration fees and miscellaneous expenses and
therein also categorically denied she had already committed to execute the deed of sale as
claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the control
of the defendant-appellant, why the sale could no longer push through because of the
problem with tenants. The trial court zeroed in on the statement of the defendant-appellant
that she and her cousin changed their minds, thereby concluding that defendant-appellant
had unilaterally cancelled the sale or backed out of her previous commitment. However, the
tenor of the letter actually reveals a consistent denial that there was any such commitment on
the part of defendant-appellant to sell the subject lands to plaintiffs-appellees. When
defendant-appellant used the words changed our mind, she was clearly referring to the
decision to sell the property at all (not necessarily to plaintiffs-appellees) and not in selling
the property to herein plaintiffs-appellees as defendant-appellant had not yet made the final
decision to sell the property to said plaintiffs-appellees. This conclusion is buttressed by the
last paragraph of the subject letter stating that we are no longer selling the property until all
problems are fully settled. To read a definite previous agreement for the sale of the property
in favor of plaintiffs-appellees into the contents of this letter is to unduly restrict the freedom
of the contracting parties to negotiate and prejudice the right of every property owner to
secure the best possible offer and terms in such sale transactions. We believe, therefore, that
the trial court committed a reversible error in finding that there was a perfected contract of
sale or contract to sell under the foregoing circumstances. Hence, the defendant-appellant
may not be held liable in this action for specific performance with damages. [30]

In Rosencor Development Corporation vs. Court of Appeals,[31] the term statute of frauds is
descriptive of statutes which require certain classes of contracts to be in writing. The statute
does not deprive the parties of the right to contract with respect to the matters therein involved,
but merely regulates the formalities of the contract necessary to render it enforceable. The
purpose of the statute is to prevent fraud and perjury in the enforcement of obligations,
depending for their existence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged. The statute is satisfied or, as it is often stated, a contract or bargain is taken within
the statute by making and executing a note or memorandum of the contract which is sufficient
to state the requirements of the statute.[32] The application of such statute presupposes the
existence of a perfected contract. However, for a note or memorandum to satisfy the statute, it
must be complete in itself and cannot rest partly in writing and partly in parol. The note or
memorandum must contain the names of the parties, the terms and conditions of the contract
and a description of the property sufficient to render it capable of identification. [33] Such note or
memorandum must contain the essential elements of the contract expressed with certainty that
may be ascertained from the note or memorandum itself, or some other writing to which it
refers or within which it is connected, without resorting to parol evidence. [34] To be binding on
the persons to be charged, such note or memorandum must be signed by the said party or by
his agent duly authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange of written correspondence
between the parties may constitute sufficient writing to evidence the agreement for purposes of
complying with the statute of frauds.
In this case, we agree with the findings of the appellate court that there was no perfected
contract of sale between the respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners specifically
authorized respondent Fernandez to sell their properties to another, including the
petitioners.Article 1878 of the New Civil Code provides that a special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration, [37] or to create or convey real rights
over immovable property,[38] or for any other act of strict dominion.[39] Any sale of real property by
one purporting to be the agent of the registered owner without any authority therefor in writing
from the said owner is null and void.[40] The declarations of the agent alone are generally
insufficient to establish the fact or extent of her authority. [41] In this case, the only evidence
adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez
openly represented herself to be the representative of the respondents-owners,[42] and that she
promised to present to the petitioners on December 8, 1996 a written authority to sell the
properties.[43] However, the petitioners claim was belied by respondent Fernandez when she
testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners of the properties, and I
was just there to listen to his proposal because that time, we were just looking for the best
offer and I did not have yet any written authorities from my brother and sisters and
relatives. I cannot agree on anything yet since it is just a preliminary meeting, and so, I
have to secure authorities and relate the matters to my relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested
me to come back on the first week of December and in the meantime, I should make an
assurance that there are no tenants in our properties, sir.[44]
The petitioners cannot feign ignorance of respondent Fernandez lack of authority to sell
the properties for the respondents-owners. It must be stressed that the petitioners are noted
businessmen who ought to be very familiar with the intricacies of business transactions, such
as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their peril,
and if they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon
them to prove it.[45] In this case, respondent Fernandez specifically denied that she was
authorized by the respondents-owners to sell the properties, both in her answer to the
complaint and when she testified. The Letter dated January 16, 1996 relied upon by the
petitioners was signed by respondent Fernandez alone, without any authority from the
respondents-owners. There is no evidence on record that the respondents-owners ratified all
the actuations of respondent Fernandez in connection with her dealings with the petitioners. As
such, said letter is not binding on the respondents as owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16, 1996 [46] is not a note or
memorandum within the context of Article 1403(2) because it does not contain the following:
(a) all the essential terms and conditions of the sale of the properties; (b) an accurate
description of the property subject of the sale; and, (c) the names of the respondents-owners
of the properties. Furthermore, the letter made reference to only one property, that covered by
TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of the
properties they were seeking to buy. In their complaint, they alleged to have agreed to buy
from the respondents-owners 33,990 square meters of the total acreage of the two lots
consisting of 36,742 square meters. In their Letter to respondent Fernandez dated January 5,
1996, the petitioners stated that they agreed to buy the two lots, with a total area of 36,742
square meters.[47] However, in their Letter dated February 1, 1996, the petitioners declared that
they agreed to buy a portion of the properties consisting of 33,990 square meters. [48] When he
testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy from the
respondents-owners 36,742 square meters at P150 per square meter or for the total price
of P5,098,500.[49]
The failure of respondent Fernandez to object to parol evidence to prove (a) the essential
terms and conditions of the contract asserted by the petitioners and, (b) her authority to sell the
properties for the respondents-registered owners did not and should not prejudice the
respondents-owners who had been declared in default.[50]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the
appellate court is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.
10.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 176405 August 20, 2008

LEO WEE, petitioner,

vs.
GEORGE DE CASTRO (on his behalf and as attorney-in-fact of ANNIE DE
CASTRO and FELOMINA UBAN) and MARTINIANA DE CASTRO, respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised
Rules of Court filed by petitioner Leo Wee, seeking the reversal and setting aside of
the Decision2 dated 19 September 2006 and the Resolution3 dated 25 January 2007
of the Court of Appeals in CA-G.R. SP No. 90906. The appellate court, in its
assailed Decision, reversed the dismissal of Civil Case. No. 1990, an action for
ejectment instituted by respondent George de Castro, on his own behalf and on
behalf of Annie de Castro, Felomina de Castro Uban and Jesus de Castro4 against
petitioner, by the Municipal Trial Court (MTC) of Alaminos City, which was affirmed
by the Regional Trial Court (RTC), Branch 54, Alaminos City, Pangasinan; and,
ruling in favor of the respondents, ordered the petitioner to vacate the subject
property. In its assailed Resolution dated 25 January 2007, the Court of Appeals
refused to reconsider its earlier Decision of 19 September 2006.

In their Complaint5 filed on 1 July 2002 with the MTC of Alaminos City, docketed as
Civil Case No. 1990, respondents alleged that they are the registered owners of the
subject property, a two-storey building erected on a parcel of land registered under
Transfer Certificate of Title (TCT) No. 16193 in the Registry of Deeds of
Pangasinan, described and bounded as follows:

A parcel of land (Lot 13033-D-2, Psd-01550-022319, being a portion of Lot

13033-D, Psd-018529, LRC Rec. No. ____) situated in Pob., Alaminos City;
bounded on the NW. along line 1-2 by Lot 13035-D-1 of the subdivision plan;
on the NE. along line 2-3 by Vericiano St.; on the SE. along line 3-4 by Lot
13033-D-2 of the subdivision plan; on the SW. along line 4-1 by Lot 575,
Numeriano Rabago. It is coverd by TCT No. 16193 of the Register of Deeds
of Pangasinan (Alaminos City) and declared for taxation purposes per T.D.
No. 2075, and assessed in the sum of P93,400.00.6

Respondents rented out the subject property to petitioner on a month to month basis
for P9,000.00 per month.7 Both parties agreed that effective 1 October 2001, the
rental payment shall be increased from P9,000.00 to P15,000.00. Petitioner,
however, failed or refused to pay the corresponding increase on rent when his rental
obligation for the month of 1 October 2001 became due. The rental dispute was
brought to the Lupon Tagapagpamayapa of Poblacion, Alaminos, Pangasinan, in an
attempt to amicably settle the matter but the parties failed to reach an agreement,
resulting in the issuance by the Barangay Lupon of a Certification to file action in
court on 18 January 2002. On 10 June 2002, respondent George de Castro sent a
letter to petitioner terminating their lease agreement and demanding that the latter
vacate and turn over the subject property to respondents. Since petitioner
stubbornly refused to comply with said demand letter, respondent George de
Castro, together with his siblings and co-respondents, Annie de Castro, Felomina de
Castro Uban and Jesus de Castro, filed the Complaint for ejectment before the
MTC.

It must be noted, at this point, that although the Complaint stated that it was being
filed by all of the respondents, the Verification and the Certificate of Non-Forum
Shopping were signed by respondent George de Castro alone. He would
subsequently attach to his position paper filed before the MTC on 28 October 2002
the Special Powers of Attorney (SPAs) executed by his sisters Annie de Castro and
Felomina de Castro Uban dated 7 February 2002 and 14 March 2002 respectively,
authorizing him to institute the ejectment case against petitioner.

Petitioner, on the other hand, countered that there was no agreement between the
parties to increase the monthly rentals and respondents' demand for an increase
was exorbitant. The agreed monthly rental was only for the amount of P9,000.00
and he was religiously paying the same every month. Petitioner then argued that
respondents failed to comply with the jurisdictional requirement of conciliation before
the Barangay Lupon prior to the filing of Civil Case. No. 1990, meriting the dismissal
of their Complaint therein. The Certification to file action issued by
the Barangay Lupon appended to the respondents' Complaint merely referred to the
issue of rental increase and not the matter of ejectment. Petitioner asserted further
that the MTC lacked jurisdiction over the ejectment suit, since respondents'
Complaint was devoid of any allegation that there was an "unlawful withholding" of
the subject property by the petitioner.8

During the Pre-Trial Conference9 held before the MTC, the parties stipulated that in
May 2002, petitioner tendered to respondents the sum of P9,000.00 as rental
payment for the month of January 2002; petitioner paid rentals for the months of
October 2001 to January 2002 but only in the amount of P9,000.00 per month;
respondents, thru counsel, sent a letter to petitioner on 10 June 2002 terminating
their lease agreement which petitioner ignored; and the Barangay Lupon did issue a
Certification to file action after the parties failed to reach an agreement before it.

After the submission of the parties of their respective Position Papers, the MTC, on
21 November 2002, rendered a Decision10 dismissing respondents' Complaint in
Civil Case No. 1990 for failure to comply with the prior conciliation requirement
before the Barangay Lupon. The decretal portion of the MTC Decision reads:

WHEREFORE, premised considered, judgment is hereby rendered ordering

the dismissal of this case. Costs against the [herein respondents].

On appeal, docketed as Civil Case No. A-2835, the RTC of Alaminos, Pangasinan,
Branch 54, promulgated its Decision11 dated 27 June 2005 affirming the dismissal of
respondents' Complaint for ejectment after finding that the appealed MTC Decision
was based on facts and law on the matter. The RTC declared that since the original
agreement entered into by the parties was for petitioner to pay only the sum
of P9.000.00 per month for the rent of the subject property, and no concession was
reached by the parties to increase such amount to P15.000.00, petitioner cannot be
faulted for paying only the originally agreed upon monthly rentals. Adopting
petitioner's position, the RTC declared that respondents' failure to refer the matter to
the Barangay court for conciliation process barred the ejectment case, conciliation
before the Lupon being a condition sine qua non in the filing of ejectment suits. The
RTC likewise agreed with petitioner in ruling that the allegation in the Complaint was
flawed, since respondents failed to allege that there was an "unlawful withholding" of
possession of the subject property, taking out Civil Case No. 1990 from the purview
of an action for unlawful detainer. Finally, the RTC decreed that respondents'
Complaint failed to comply with the rule that a co-owner could not maintain an action
without joining all the other co-owners. Thus, according to the dispositive portion of
the RTC Decision:

WHEREFORE the appellate Court finds no cogent reason to disturb the

findings of the court a quo. The Decision dated November 21, 2002 appealed
from is hereby AFFIRMED IN TOTO.12

Undaunted, respondents filed a Petition for Review on Certiorari13 with the Court of
Appeals where it was docketed as CA-G.R. SP No. 90906. Respondents argued in
their Petition that the RTC gravely erred in ruling that their failure to comply with the
conciliation process was fatal to their Complaint, since it is only respondent George
de Castro who resides in Alaminos City, Pangasinan, while respondent Annie de
Castro resides in Pennsylvania, United States of America (USA); respondent
Felomina de Castro Uban, in California, USA; and respondent Jesus de Castro, now
substituted by his wife, Martiniana, resides in Manila. Respondents further claimed
that the MTC was not divested of jurisdiction over their Complaint for ejectment
because of the mere absence therein of the term "unlawful withholding" of their
subject property, considering that they had sufficiently alleged the same in their
Complaint, albeit worded differently. Finally, respondents posited that the fact that
only respondent George de Castro signed the Verification and the Certificate of
Non-Forum Shopping attached to the Complaint was irrelevant since the other
respondents already executed Special Powers of Attorney (SPAs) authorizing him to
act as their attorney-in-fact in the institution of the ejectment suit against the
petitioner.

On 19 September 2006, the Court of Appeals rendered a Decision granting the

respondents' Petition and ordering petitioner to vacate the subject property and turn
over the same to respondents. The Court of Appeals decreed:

WHEREFORE, premises considered, the instant petition is GRANTED. The

assailed Decision dated June 27, 2005 issued by the RTC of Alaminos City,
Pangasinan, Branch 54, is REVERSED and SET ASIDE. A new one is hereby
rendered ordering [herein petitioner] Leo Wee to SURRENDER and VACATE
the leased premises in question as well as to pay the sum of P15,000.00 per
month reckoned from March, 2002 until he shall have actually turned over the
possession thereof to petitioners plus the rental arrearages of P30,000.00
representing unpaid increase in rent for the period from October, 2001 to
February, 2002, with legal interest at 6% per annum to be computed from
 June 7, 2002 until finality of this decision and 12% thereafter until full payment
thereof. Respondent is likewise hereby ordered to pay petitioners the amount
of P20,000.00 as and for attorney's fees and the costs of suit.14

In a Resolution dated 25 January 2007, the appellate court denied the Motion for
Reconsideration interposed by petitioner for lack of merit.

Petitioner is now before this Court via the Petition at bar, making the following
assignment of errors:

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DECLARING THAT CONCILIATION PROCESS IS NOT A JURISDICTIONAL
REQUIREMENT THAT NON-COMPLIANCE THEREWITH DOES NOT
AFFECT THE JURISDICTION IN EJECTMENT CASE;

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

UPHOLDING THE SUFFICIENCY OF THE ALLEGATIONS IN THE
COMPLAINT FOR EJECTMENT DESPITE THE WANT OF ALLEGATION OF
"UNLAWFUL WITHOLDING PREMISES" (sic) QUESTIONED BY
PETITIONER;

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE FILING OF THE COMPLAINT OF RESPONDENT GEORGE DE
CASTRO WITHOUT JOINING ALL HIS OTHER CO-OWNERS OVER THE
SUBJECT PROPERTY IS PROPER;

IV.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

APPLYING SUPREME COURT CIRCULAR NO. 10 WHICH DIRECTS A
PLEADER TO INDICATE IN HIS PLEADINGS HIS OFFICIAL RECEIPT OF
HIS PAYMENT OF HIS IBP DUES.15

Petitioner avers that respondents failed to go through the conciliation process before
the Barangay Lupon, a jurisdictional defect that bars the legal action for ejectment.
The Certification to file action dated 18 January 2002 issued by the Barangay
Lupon, appended by the respondents to their Complaint in Civil Case No. 1990, is of
no moment, for it attested only that there was confrontation between the parties on
the matter of rental increase but not on unlawful detainer of the subject property by
the petitioner. If it was the intention of the respondents from the very beginning to
eject petitioner from the subject property, they should have brought up the alleged
unlawful stay of the petitioner on the subject property for conciliation before
the Barangay Lupon.

The barangay justice system was established primarily as a means of easing up the
congestion of cases in the judicial courts. This could be accomplished through a
proceeding before the barangay courts which, according to the one who conceived
of the system, the late Chief Justice Fred Ruiz Castro, is essentially arbitration in
character; and to make it truly effective, it should also be compulsory. With this
primary objective of the barangay justice system in mind, it would be wholly in
keeping with the underlying philosophy of Presidential Decree No. 1508
(Katarungang Pambarangay Law), which would be better served if an out-of-court
settlement of the case is reached voluntarily by the parties.16 To ensure this
objective, Section 6 of Presidential Decree No. 1508 requires the parties to undergo
a conciliation process before the Lupon Chairman or the Pangkat ng
Tagapagkasundo as a precondition to filing a complaint in court subject to certain
exceptions. The said section has been declared compulsory in nature.17

Presidential Decree No. 1508 is now incorporated in Republic Act No. 7160 (The
Local Government Code), which took effect on 1 January 1992.

The pertinent provisions of the Local Government Code making conciliation a

precondition to the filing of complaints in court are reproduced below:

SEC. 412. Conciliation.- (a) Pre-condition to filing of complaint in court. - No

complaint, petition, action, or proceeding involving any matter within the
authority of the lupon shall be filed or instituted directly in court or any other
government office for adjudication, unless there has been a confrontation
between the parties before the lupon chairman or the pangkat, and that no
conciliation or settlement has been reached as certified by the lupon secretary
or pangkat secretary as attested to by the lupon or pangkat chairman or
unless the settlement has been repudiated by the parties thereto.

(b) Where parties may go directly to court. - The parties may go directly to
court in the following instances:

(1) Where the accused is under detention;

(2) Where a person has otherwise been deprived of personal liberty

calling for habeas corpus proceedings;

(3) Where actions are coupled with provisional remedies such as

preliminary injunction, attachment, delivery of personal property, and
support pendente lite; and

(4) Where the action may otherwise be barred by the statute of

limitations.

(c) Conciliation among members of indigenous cultural communities. - The

customs and traditions of indigenous cultural communities shall be applied in
settling disputes between members of the cultural communities.

SEC. 408. Subject Matter for Amicable Settlement; Exception Thereto. - The
lupon of each barangay shall have authority to bring together the parties
actually residing in the same city or municipality for amicable settlement of all
disputes except:
 (a) Where one party is the government or any subdivision or instrumentality
thereof;

(b) Where one party is a public officer or employee, and the dispute relates to
the performance of his official functions;

(c) Offenses punishable by imprisonment exceeding one (1) year or a fine

exceeding Five thousand pesos (P5,000.00);

(d) Offenses where there is no private offended party;

(e) Where the dispute involves real properties located in different cities or
municipalities unless the parties thereto agree to submit their differences to
amicable settlement by an appropriate lupon;

(f) Disputes involving parties who actually reside in barangays of different

cities or municipalities, except where such barangay units adjoin each other
and the parties thereto agree to submit their differences to amicable
settlement by an appropriate lupon;

(g) Such other classes of disputes which the President may determine in the
interest of justice or upon the recommendation of the Secretary of Justice.

There is no question that the parties to this case appeared before the Barangay
Lupon for conciliation proceedings. There is also no dispute that the only matter
referred to the Barangay Lupon for conciliation was the rental increase, and not the
ejectment of petitioner from the subject property. This is apparent from a perusal of
the Certification to file action in court issued by the Barangay Lupon on 18 January
2002, to wit:

CERTIFICATION TO FILE COMPLAINTS

This is to certify that:

1. There was personal confrontation between parties before the barangay

Lupon regarding rental increase of a commercial building but conciliation
failed;

2. Therefore, the corresponding dispute of the above-entitled case may now

be filed in Court/Government Office.18 (Emphasis ours.)

The question now to be resolved by this Court is whether the Certification dated 18
January 2002 issued by the Barangay Lupon stating that no settlement was reached
by the parties on the matter of rental increase sufficient to comply with the prior
conciliation requirement under the Katarungang Pambarangay Law to authorize the
respondents to institute the ejectment suit against petitioner.

The Court rules affirmatively.

While it is true that the Certification to file action dated 18 January 2002 of
the Barangay Lupon refers only to rental increase and not to the ejectment of
petitioner from the subject property, the submission of the same for conciliation
before the Barangay Lupon constitutes sufficient compliance with the provisions of
the Katarungang Pambarangay Law. Given the particular circumstances of the case
at bar, the conciliation proceedings for the amount of monthly rental should logically
and reasonably include also the matter of the possession of the property subject of
the rental, the lease agreement, and the violation of the terms thereof.

We now proceed to discuss the meat of the controversy.

The contract of lease between the parties did not stipulate a fixed period. Hence, the
parties agreed to the payment of rentals on a monthly basis. On this score, Article
1687 of the Civil Code provides:

Art. 1687. If the period for the lease has not been fixed, it is understood to
be from year to year, if the rent agreed upon is annual; from month to
month, if it is monthly; from week to week, if the rent is weekly; and from
day to day, if the rent is to be paid daily. However, even though a monthly rent
is paid, and no period for the lease has been set, the courts may fix a longer
term for the lease after the lessee has occupied the premises for over one
year. If the rent is weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six months. In case of daily
rent, the courts may also fix a longer period after the lessee has stayed in the
place for over one month. (Emphasis supplied.)

The rentals being paid monthly, the period of such lease is deemed terminated at
the end of each month. Thus, respondents have every right to demand the
ejectment of petitioners at the end of each month, the contract having expired by
operation of law. Without a lease contract, petitioner has no right of possession to
the subject property and must vacate the same. Respondents, thus, should be
allowed to resort to an action for ejectment before the MTC to recover possession of
the subject property from petitioner.

Corollarily, petitioner's ejectment, in this case, is only the reasonable consequence

of his unrelenting refusal to comply with the respondents' demand for the payment
of rental increase agreed upon by both parties. Verily, the lessor's right to rescind
the contract of lease for non-payment of the demanded increased rental was
recognized by this Court in Chua v. Victorio19:

The right of rescission is statutorily recognized in reciprocal obligations, such

as contracts of lease. In addition to the general remedy of rescission granted
under Article 1191 of the Civil Code, there is an independent provision
granting the remedy of rescission for breach of any of the lessor or lessee's
statutory obligations. Under Article 1659 of the Civil Code, the aggrieved party
may, at his option, ask for (1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for damages, allowing
the contract to remain in force.

Payment of the rent is one of a lessee's statutory obligations, and, upon

non-payment by petitioners of the increased rental in September 1994,
 the lessor acquired the right to avail of any of the three remedies
outlined above. (Emphasis supplied.)

Petitioner next argues that respondent George de Castro cannot maintain an action
for ejectment against petitioner, without joining all his co-owners.

Article 487 of the New Civil Code is explicit on this point:

ART. 487. Any one of the co-owners may bring an action in ejectment.

This article covers all kinds of action for the recovery of possession, i.e., forcible
entry and unlawful detainer (accion interdictal), recovery of possession (accion
publiciana), and recovery of ownership (accion de reivindicacion). As explained by
the renowned civilist, Professor Arturo M. Tolentino20:

A co-owner may bring such an action, without the necessity of joining

all the other co-owners as co-plaintiffs, because the suit is deemed to be
instituted for the benefit of all. If the action is for the benefit of the plaintiff
alone, such that he claims possession for himself and not for the co-
ownership, the action will not prosper. (Emphasis added.)

In the more recent case of Carandang v. Heirs of De Guzman,21 this Court declared
that a co-owner is not even a necessary party to an action for ejectment, for
complete relief can be afforded even in his absence, thus:

In sum, in suits to recover properties, all co-owners are real parties in interest.
However, pursuant to Article 487 of the Civil Code and the relevant
jurisprudence, any one of them may bring an action, any kind of action for the
recovery of co-owned properties. Therefore, only one of the co-owners,
namely the co-owner who filed the suit for the recovery of the co-owned
property, is an indispensable party thereto. The other co-owners are not
indispensable parties. They are not even necessary parties, for a complete
relief can be afforded in the suit even without their participation, since the suit
is presumed to have been filed for the benefit of all co-owners.

Moreover, respondents Annie de Castro and Felomina de Castro Uban each

executed a Special Power of Attorney, giving respondent George de Castro the
authority to initiate Civil Case No. 1990.

A power of attorney is an instrument in writing by which one person, as principal,

appoints another as his agent and confers upon him the authority to perform certain
specified acts or kinds of acts on behalf of the principal. The written authorization
itself is the power of attorney, and this is clearly indicated by the fact that it has also
been called a "letter of attorney."22
Even then, the Court views the SPAs as mere surplusage, such that the lack thereof
does not in any way affect the validity of the action for ejectment instituted by
respondent George de Castro. This also disposes of petitioner's contention that
respondent George de Castro lacked the authority to sign the Verification and the
Certificate of Non-Forum Shopping. As the Court ruled in Mendoza v. Coronel23:

We likewise hold that the execution of the certification against forum

shopping by the attorney-in-fact in the case at bar is not a violation of
the requirement that the parties must personally sign the same. The
attorney-in-fact, who has authority to file, and who actually filed the complaint
as the representative of the plaintiff co-owner, pursuant to a Special Power of
Attorney, is a party to the ejectment suit. In fact, Section 1, Rule 70 of the
Rules of Court includes the representative of the owner in an ejectment suit as
one of the parties authorized to institute the proceedings. (Emphasis
supplied.)

Failure by respondent George de Castro to attach the said SPAs to the Complaint is
innocuous, since it is undisputed that he was granted by his sisters the authority to
file the action for ejectment against petitioner prior to the institution of Civil Case No.
1990. The SPAs in his favor were respectively executed by respondents Annie de
Castro and Felomina de Castro Uban on 7 February 2002 and 14 March 2002;
while Civil Case No. 1990 was filed by respondent George de Castro on his own
behalf and on behalf of his siblings only on 1 July 2002, or way after he was given
by his siblings the authority to file said action. The Court quotes with approval the
following disquisition of the Court of Appeals:

Moreover, records show that [herein respondent] George de Castro was

indeed authorized by his sisters Annie de Castro and Felomina de Castro
Uban, to prosecute the case in their behalf as shown by the Special Power of
Attorney dated February 7, 2002 and March 14, 2002. That these documents
were appended only to [respondent George de Castro's] position paper is of
no moment considering that the authority conferred therein was given prior to
the institution of the complaint in July, 2002. x x x.24

Respondent deceased Jesus de Castro's failure to sign the Verification and

Certificate of Non-Forum Shopping may be excused since he already executed an
Affidavit25 with respondent George de Castro that he had personal knowledge of the
filing of Civil Case No. 1990. In Torres v. Specialized Packaging Development
Corporation,26 the Court ruled that the personal signing of the verification
requirement was deemed substantially complied with when, as in the instant case,
two out of 25 real parties-in-interest, who undoubtedly have sufficient knowledge
and belief to swear to the truth of the allegations in the petition, signed the
verification attached to it.

In the same vein, this Court is not persuaded by petitioner's assertion that
respondents' failure to allege the jurisdictional fact that there was "unlawful
withholding" of the subject property was fatal to their cause of action.

It is apodictic that what determines the nature of an action as well as which court
has jurisdiction over it are the allegations in the complaint and the character of the
relief sought. In an unlawful detainer case, the defendant's possession was
originally lawful but ceased to be so upon the expiration of his right to possess.
Hence, the phrase "unlawful withholding" has been held to imply possession on the
part of defendant, which was legal in the beginning, having no other source than a
contract, express or implied, and which later expired as a right and is being withheld
by defendant.27

In Barba v. Court of Appeals,28 the Court held that although the phrase "unlawfully
withholding" was not actually used by therein petitioner in her complaint, the Court
held that her allegations, nonetheless, amounted to an unlawful withholding of the
subject property by therein private respondents, because they continuously refused
to vacate the premises even after notice and demand.

In the Petition at bar, respondents alleged in their Complaint that they are the
registered owners of the subject property; the subject property was being occupied
by the petitioner pursuant to a monthly lease contract; petitioner refused to accede
to respondents' demand for rental increase; the respondents sent petitioner a letter
terminating the lease agreement and demanding that petitioner vacate and turn over
the possession of the subject property to respondents; and despite such demand,
petitioner failed to surrender the subject property to respondents.29 The Complaint
sufficiently alleges the unlawful withholding of the subject property by petitioner,
constitutive of unlawful detainer, although the exact words "unlawful withholding"
were not used. In an action for unlawful detainer, an allegation that the defendant is
unlawfully withholding possession from the plaintiff is deemed sufficient, without
necessarily employing the terminology of the law.30

Petitioner's averment that the Court of Appeals should have dismissed respondents'
Petition in light of the failure of their counsel to attach the Official Receipt of his
updated payment of Integrated Bar of the Philippines (IBP) dues is now moot and
academic, since respondents' counsel has already duly complied therewith. It must
be stressed that judicial cases do not come and go through the portals of a court of
law by the mere mandate of technicalities.31 Where a rigid application of the rules
will result in a manifest failure or miscarriage of justice, technicalities should be
disregarded in order to resolve the case. 32

Finally, we agree in the ruling of the Court of Appeals that petitioner is liable for the
payment of back rentals, attorney's fees and cost of the suit. Respondents must be
duly indemnified for the loss of income from the subject property on account of
petitioner's refusal to vacate the leased premises.

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision

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

SO ORDERED.