G.R. No. 171460 July 24, 2007
T-
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their
Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented
by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision1 of the Court
of Appeals dated 12 October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R. CV No.
82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision 3 of the
Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds
of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive
portion of the assailed Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby
entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real
property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine
laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D.
Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter
to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different
parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos.
T-53618 - 3,522 Square Meters, T-46810 – 3,953 Square Meters, T-53140 – 177
Square Meters, T-21403 – 263 square Meters, T- 46807 – 39 Square Meters of the
Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos.
108954 – 600 Square Meters and RT-106338 – 805 Square Meters of the Registry of
Deeds of Pasig (now Makati);
c) Personal property – 1983 Car with Vehicle Registration No. R-16381; Model 1983;
Make – Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict dominion or ownership any sale, disposition,
mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of
rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer
Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in
conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the above-mentioned
properties, rights and interest therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the
respondent in the amount of ₱3,000,000.00, secured by real estate mortgage constituted on TCT No.
RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with
the Registry of Deeds of Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan from the respondent in the
sum of ₱5,000,000.00, evidenced by a Promissory Note 6 he executed on 5 February 1997 as another
real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT – 18206 (106338)
and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was
the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-
judicial foreclosure proceedings over the subject property which was subsequently sold at public auction
wherein the respondent was declared as the highest bidder as shown in the Sheriff’s Certificate of Sale
dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted
over the subject property on the ground that the same was not covered by the SPA and that the said
SPA, at the time the loan obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the
latter.8
Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter
dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or
sell the subject property must be with her full consent documented in the form of an SPA duly
authenticated before the Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the subject property was null
and void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings
and the auction sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner’s
allegations, the SPA in favor of Julian included the subject property, covered by one of the titles
specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig
(now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and
was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was
actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of
Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of
Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include
the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor
of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject
property in the case at bar, covered by RT – 18206 (106338) of the Registry of Deeds of Quezon City,
are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject
property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The
court a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant
to the void REM, be nullified. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners]
and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-
4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriff’s Sale and Certificate of Sale under FRE No. 2217 dated January 15,
1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of
Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real
Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT
No. RT-18206 (106338) of the Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their
attorney-in-fact Alfredo M. Perez, the original Owner’s Duplicate Copy of TCT No. RT-18206
(106338) free from the encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of ₱100,000.00 as for
attorney’s fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the
validity of the REM constituted over the subject property on the strength of the SPA. The appellate court
declared that Perla intended the subject property to be included in the SPA she executed in favor of
Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument,
cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its
Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals
raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT
PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured
with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla,
considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was
not Perla who personally mortgaged her own property to secure Julian’s loan obligations with
respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights
over immovable property are created or conveyed.12 In the SPA executed by Perla in favor of Julian on
28 May 1992, the latter was conferred with the authority to "sell, alienate, mortgage, lease and deal
otherwise" the different pieces of real and personal property registered in Perla’s name. The SPA
likewise authorized Julian "[t]o exercise any or all acts of strict dominion or ownership" over the
identified properties, and rights and interest therein. The existence and due execution of this SPA by
Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the pieces of property
identified in the SPA. However, as to whether the subject property was among those identified in the
SPA, so as to render Julian’s mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA, considering that it contained an
exclusive enumeration of the pieces of property over which Julian had authority, and these include only:
(1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953
square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an
area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of
Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No.
T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-
106338 – 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8)
Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model – 1983, Make
– Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that Julian’s authority extends to the
subject property covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of
Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is
unenforceable for having been done without authority.
Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court of
Appeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds
of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-
18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal
that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by both
certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances,
respondent argues that Perla intended to include the subject property in the SPA, and the failure of the
instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should
not defeat Perla’s clear intention.
After an examination of the literal terms of the SPA, we find that the subject property was not among
those enumerated therein. There is no obvious reference to the subject property covered by TCT No.
RT-18206 (106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the intention of Perla to
include the subject property therein. We cannot attribute such alleged intention to Perla who executed
the SPA when the language of the instrument is bare of any indication suggestive of such intention.
Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and
convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat
Perla’s true intention.
In cases where the terms of the contract are clear as to leave no room for interpretation, resort to
circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in
the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation, 13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. When the language of the contract
is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any
other intention that would contradict its main import. The clear terms of the contract should never be the
subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the
creation of a contract for the parties which they did not make themselves or the imposition upon one
party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true
meaning must be enforced, as it is to be presumed that the contracting parties know their scope and
effects.14
Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The
instrument will be held to grant only those powers which are specified therein, and the agent may
neither go beyond nor deviate from the power of attorney. 15 Where powers and duties are specified and
defined in an instrument, all such powers and duties are limited and are confined to those which are
specified and defined, and all other powers and duties are excluded. 16 This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers expressly given and those
which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the
performance of such express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a strict and limited construction of the
terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to express himself in a vague
and general way with reference to the right he confers upon another for the purpose of alienation or
hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such
excessive authority must be set down in the most formal and explicit terms, and when this is not done,
the law reasonably presumes that the principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338 registered with the
Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-
18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are
stripped of supporting proofs to verify the respondent’s claim that the two titles cover the same property.
It failed to present any certification from the Registries of Deeds concerned to support its assertion.
Neither did respondent take the effort of submitting and making part of the records of this case copies of
TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the
Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties
covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered
by the two certificates of title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage
the subject property under the terms of the SPA, the real estate mortgages Julian executed over the
said property are therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in
favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10
March 1993. To address respondent’s assertion that the said revocation was unenforceable against it
as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the
following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil Code of
the Philippines). The principal may revoke the agency at will, and compel the agent to return the
document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed and by a public
document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell the
property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon
City must have the full consent documented in the form of a special power of attorney duly
authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is of no
consequence as far as the revocation’s existence and legal effect is concerned since actual notice is
always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry
of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant
Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D.
No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or
entered in the Office of the Register of Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres.
Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was effected on
December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the
special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to
act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds
of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of
Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on
7 February 1996, then third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject property. Although the
revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the
Registry of Deeds of Quezon City nor respondent denied that Perla’s 23 January 1996 letter was
received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly
come across said letter if it indeed diligently investigated the subject property and the circumstances
surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith.
Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in
dealing with the subject property.
Elaborating, respondent claims to have carefully verified Julian’s authority over the subject property
which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT
of the subject property. Finally, after conducting an investigation, it found that the property covered by
TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA,
and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of
Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian
was indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is
the one covered by "TCT#RT-18206(106338)." On the other hand, the Special Power of Attorney
referred to TCT No. "RT-106338 – 805 Square Meters of the Registry of Deeds of Pasig now Makati."
The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian’s
SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different
cities, should have put respondent on guard. Respondent’s claim of prudence is debunked by the fact
that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the
documents, which it was relying on for its rights as mortgagee, and which significantly affected the
identification of the property being mortgaged. In Arrofo v. Quiño,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further than
what the Torrens title on its face indicates. This rule, however, is not absolute but admits of
exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go
beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee
cannot close his eyes to facts which should put a reasonable man on his guard, and then claim
that he acted in good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes
to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an
innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears
that he had such notice of the defect as would have led to its discovery had he acted with the measure
of precaution which may be required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian’s
authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an
innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where the mortgagee does not
directly deal with the registered owner of real property, the law requires that a higher degree of
prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look behind the certificate of title,
one who buys from [the] one who is not [the] registered owner is expected to examine not only the
certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in
the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not
involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a
mortgagee in the term "purchaser."22
This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus,
in the case of Cruz v. Bancom Finance Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition of a property offered to it as security for
a loan must be a standard and indispensable part of its operations. 24
Hence, considering that the property being mortgaged by Julian was not his, and there are additional
doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded
with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its
transactions to the most rigid scrutiny, since its business is impressed with public interest and its
fiduciary character requires high standards of integrity and performance.25 Where respondent acted in
undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in
the latter’s authority as agent, it failed to discharge the degree of diligence required of it as a banking
corporation.1awphil
Thus, even granting for the sake of argument that the subject property and the one identified in the SPA
are one and the same, it would not elevate respondent’s status to that of an innocent mortgagee. As a
banking institution, jurisprudence stringently requires that respondent should take more precautions
than an ordinary prudent man should, to ascertain the status and condition of the properties offered as
collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted
with the required degree of diligence, it could have acquired knowledge of the letter dated 23 January
1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the
respondent to investigate into the circumstances surrounding the mortgage of the subject property
belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the subject property are
unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage
was entered into by Julian on behalf of Perla without the latter’s authority and consequently,
unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot
be enforced by a proper action in court, unless they are ratified, because either they are entered into
without or in excess of authority or they do not comply with the statute of frauds or both of the
contracting parties do not possess the required legal capacity. 26 An unenforceable contract may be
ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked
by the other contracting party.27 Without Perla’s ratification of the same, the real estate mortgages
constituted by Julian over the subject property cannot be enforced by any action in court against Perla
and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered
by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon City are
unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property
conducted in pursuance of these unenforceable contracts are null and void. This, however, is without
prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the
amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12 October
2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are
hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch
220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate
mortgages constituted over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. No costs.
G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila, Branch 43,
MANUEL CUADY and LILIA CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:
This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the
Court of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation,
Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision of
the Regional Trial Court of Manila, Branch 43, which dismissed the complaint in Civil Case No. 82-
10478, and (2) the resolution dated February 9, 1988 denying petitioner's motion for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a
credit of P39,574.80, which amount covered the cost of one unit of Ford Escort 1300, four-door sedan.
Said obligation was evidenced by a promissory note executed by private respondents in favor of
Supercars, Inc., obligating themselves to pay the latter or order the sum of P39,574.80, inclusive of
interest at 14% per annum, payable on monthly installments of P1,098.00 starting August 16, 1977, and
on the 16th day of the next 35 months from September 16, 1977 until full payment thereof. There was
also stipulated a penalty of P10.00 for every month of late installment payment. To secure the faithful
and prompt compliance of the obligation under the said promissory note, the Cuady spouses constituted
a chattel mortage on the aforementioned motor vehicle. On July 25, 1977, Supercars, Inc. assigned the
promissory note, together with the chattel mortgage, to B.A. Finance Corporation. The Cuadys paid a
total of P36,730.15 to the B.A. Finance Corporation, thus leaving an unpaid balance of P2,344.65 as of
July 18, 1980. In addition thereto, the Cuadys owe B.A. Finance Corporation P460.00 representing
penalties or surcharges for tardy monthly installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the
renewal of the insurance coverage over the aforementioned motor vehicle for the year 1980 with Zenith
Insurance Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under
the terms and conditions of the said insurance coverage, any loss under the policy shall be payable to
the B.A. Finance Corporation (Memorandum for Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged.
The unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith
Insurance Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total
loss, and to claim from the insurer the face value of the car insurance policy and apply the same to the
payment of their remaining account and give them the surplus thereof, if any. But instead of heeding the
request of the Cuadys, B.A. Finance Corporation prevailed upon the former to just have the car
repaired. Not long thereafter, however, the car bogged down. The Cuadys wrote B.A. Finance
Corporation requesting the latter to pursue their prior instruction of enforcing the total loss provision in
the insurance coverage. When B.A. Finance Corporation did not respond favorably to their request, the
Cuadys stopped paying their monthly installments on the promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note,
B.A. Finance Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the recovery
of the said remaining installments (Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference, the case was set for trial on the merits on April 25,
1984. B.A. Finance Corporation's evidence was presented on even date and the presentation of
Cuady's evidence was set on August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the
petitioner, filed a motion for postponement, the reason being that the "handling" counsel, Atty.
Ferdinand Macibay was temporarily assigned in Cebu City and would not be back until after August 15,
1984. Said motion was, however, denied by the trial court on August 10, 1984. On August 15, 1984, the
date of hearing, the trial court allowed private respondents to adduce evidence ex-parte in the form of
an affidavit to be sworn to before any authorized officer. B.A. Finance Corporation filed a motion for
reconsideration of the order of the trial court denying its motion for postponement. Said motion was
granted in an order dated September 26, 1984, thus:
The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense that
plaintiff is allowed to adduce evidence in the form of counter-affidavits of its witnesses, to be
sworn to before any person authorized to administer oaths, within ten days from notice hereof.
(Ibid., pp. 1-2).
B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for
the trial court to render its decision on January 18, 1985, the dispositive portion of which reads as
follows:
IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion
of the said decision reads as follows:
 WHEREFORE, after consultation among the undersigned members of this Division, in
compliance with the provision of Section 13, Article VIII of the Constitution; and finding no
reversible error in the judgment appealed from, the same is hereby AFFIRMED, without any
pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was
denied by the respondent appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and required the parties to submit their
respective memoranda. The parties having complied with the submission of their memoranda, the case
was submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has waived
its right to collect the unpaid balance of the Cuady spouses on the promissory note for failure of the
former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the
chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in
the insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate
to extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining
in the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment
of obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance proceeds
on the mortgaged motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant
to the memorandum in the insurance policy which states that the "LOSS: IF ANY, under this policy shall
be payable to BA FINANCE CORP., as their respective rights and interest may appear" (Rollo, p. 91)
but also the remaining balance on the promissory note (Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when
the latter assigned the promissory note, together with the chattel mortgage constituted on the motor
vehicle in question in favor of the former. Consequently, B.A. Finance Corporation is bound by the
terms and conditions of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under
the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power
and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and
deliver the corresponding papers, receipts and documents to the Insurance Company as may be
necessary to prove the claim, and to collect from the latter the proceeds of insurance to the extent of its
interests, in the event that the mortgaged car suffers any loss or damage (Rollo, p. 89). In granting B.A.
Finance Corporation the aforementioned powers and prerogatives, the Cuady spouses created in the
former's favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance
Corporation is bound by its acceptance to carry out the agency, and is liable for damages which,
through its non-performance, the Cuadys, the principal in the case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in
question, not to mention the amount equivalent to the unpaid balance on the promissory note, when
B.A. Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the
payment of a clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to
enforce the total loss provision in the insurance policy, despite the undeniable fact that Rea Auto
Center, the auto repair shop chosen by the insurer itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court. In
this connection, the Court of Appeals said:
... Under the established facts and circumstances, it is unjust, unfair and inequitable to require
the chattel mortgagors, appellees herein, to still pay the unpaid balance of their mortgage debt
on the said car, the non-payment of which account was due to the stubborn refusal and failure
of appellant mortgagee to avail of the insurance money which became due and demandable
after the insured motor vehicle was badly damaged in a vehicular accident covered by the
insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim for
the damage to the car was not supported by evidence, the records show that instead of acting on the
instruction of the Cuadys to enforce the total loss provision in the insurance policy, the petitioner
insisted on just having the motor vehicle repaired, to which private respondents reluctantly acceded. As
heretofore mentioned, the repair shop chosen was not able to restore the aforementioned motor vehicle
to its condition prior to the accident. Thus, the said vehicle bogged down shortly thereafter. The
subsequent request of the Cuadys for the B.A. Finance Corporation to file a claim for total loss with the
insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance on the promissory
note (Memorandum for the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of
the respondent appellate court. This, of course, the Court cannot and will not generally do. It is
axiomatic that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily
be reviewed by the Supreme Court. The doctrine is, to be sure, subject to certain specific exceptions
none of which, however, obtains in the instant case (Luzon Brokerage Corporation v. Court of Appeals,
176 SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of
discretion in two instances: First, when it denied the petitioner's motion for reconsideration praying that
the counsel be allowed to cross-examine the affiant, and; second, when it seriously considered the
evidence adduced ex-parte by the Cuadys, and heavily relied thereon, when in truth and in fact, the
same was not formally admitted as part of the evidence for the private respondents (Memorandum for
the Petitioner, p. 10). This Court does not have to unduly dwell on this issue which was only raised by
B.A. Finance Corporation for the first time on appeal. A review of the records of the case shows that
B.A. Finance Corporation failed to directly raise or ventilate in the trial court nor in the respondent
appellate court the validity of the evidence adduced ex-parte by private respondents. It was only when
the petitioner filed the instant petition with this Court that it later raised the aforementioned issue. As
ruled by this Court in a long line of cases, issues not raised and/or ventilated in the trial court, let alone
in the Court of Appeals, cannot be raised for the first time on appeal as it would be offensive to the
basic rules of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v.
Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court
of Appeals, 157 SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987];
De la Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is
AFFIRMED.

SO ORDERED.
G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC., petitioner,
vs.
PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on agency.
This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and its
Resolution2dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and
severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the
Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a
memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to
sell his rights subject to reimbursement of the amounts he already paid. The contract was for
P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer,
the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00
representing the amount to be reimbursed to the original buyer and to complete the down payment to
MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments. 4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No.
28660, a new contract covering the subject lot in the name of the latter instead of old Contract No.
25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price of
P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about P75,000.00. 5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April
1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty.
Linsangan objected to the new contract price, as the same was not the amount previously agreed upon.
To convince Atty. Linsangan, Baluyot executed a document 6 confirming that while the contract price is
P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will
be issued as discounted to conform to the previous price as previously agreed upon. ---
P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract No. 28660
states that the total price of P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you under
O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price thereby
leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including interests (sic)
charges for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No.
118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00
each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12)
postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for
reasons the latter could not explain, and presented to him another proposal for the purchase of an
equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their
undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint7 for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract8 because of non-payment of arrearages.9 MMPCI
stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to
represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan
and Baluyot, as it in fact received a down payment and monthly installments as indicated in the
contract.11 Official receipts showing the application of payment were turned over to Baluyot whom Atty.
Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore, whatever
misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating
Arrangement signed by Atty. Linsangan which states that he "expressly admits that Contract No. 28660
'on account of serious delinquency…is now due for cancellation under its terms and conditions.'''12
The trial court held MMPCI and Baluyot jointly and severally liable. 13 It found that Baluyot was an agent
of MMPCI and that the latter was estopped from denying this agency, having received and enchased
the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive postdated checks
from Atty. Linsangan, which it in turn consistently encashed. 14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff
declaring Contract No. 28660 as valid and subsisting and ordering defendants to perform their
undertakings thereof which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy
Cross Memorial Park located at Novaliches, Quezon City. All payments made by plaintiff to
defendants should be credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but
with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant
Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed that Atty. Linsangan is
bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read,
understood, and signed by the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over
thirteen (13) years at the time he entered into the contract, is presumed to know his contractual
obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract
without the consent, much less the knowledge of the other contracting party, which was MMPCI. And in
this case, MMPCI did not agree to a change in the contract and in fact implemented the same pursuant
to its clear terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly cancelled
the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be
charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had full
powers as the written contract expressly stated the terms and conditions which Atty. Linsangan
accepted and understood. In canceling the contract, MMPCI merely enforced the terms and conditions
imposed therein.18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's obligation,
as a party knowingly dealing with an alleged agent, to determine the limitations of such agent's
authority, particularly when such alleged agent's actions were patently questionable. According to
MMPCI, Atty. Linsangan did not even bother to verify Baluyot's authority or ask copies of official receipts
for his payments.19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that
Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented
MMPCI's interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is
considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her
authority.20 The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter
allowed the former to act for and in its behalf and stead. While Baluyot's authority "may not have been
expressly conferred upon her, the same may have been derived impliedly by habit or custom, which
may have been an accepted practice in the company for a long period of time." 21 Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the
principal failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent
misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he
cannot at the same time deny responsibility for such misrepresentation. 22 Finally, the Court of Appeals
declared:
There being absolutely nothing on the record that would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must
be given great weight and should not be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed
decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial
Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
 SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide by the terms
thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI,
she clearly exceeded her authority and Atty. Linsangan knew or should have known about this
considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals
erred in failing to consider that the facts and the applicable law do not support a judgment against
Baluyot only "up to the extent of costs."26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and complied with them in good faith for at least two
years.27 He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the
validity of the subject contract and the case at bar.28 According to him, MMPCI had practically admitted
in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI
allowed Baluyot to act as though she had full powers to be held solidarily liable with the latter. 29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based on misapprehension of facts.30 In
BPI Investment Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals may be
reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded entirely
on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) where there is a 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 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 facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents; and (10) the findings of
fact of the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the
case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact.
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. 33 Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is
the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and
not for himself; and (iv) the agent acts within the scope of his authority. 34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and
not an agent.35However, in the same contract, Baluyot as agency manager was authorized to solicit and
remit to MMPCI offers to purchase interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact
remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by
the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on
forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms
and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a
total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has
read or has had read to him this agreement, that he understands its terms and conditions, and that
there are no covenants, conditions, warranties or representations other than those contained
herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents.
That he and Baluyot had an agreement different from that contained in the Offer to Purchase is of no
moment, and should not affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat,
Baluyot's authority was limited only to soliciting purchasers. She had no authority to alter the terms of
the written contract provided by MMPCI. The document/letter "confirming" the agreement that Atty.
Linsangan would have to pay the old price was executed by Baluyot alone. Nowhere is there any
indication that the same came from MMPCI or any of its officers.
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. 38 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.39 If he does not make such an inquiry, he is chargeable with knowledge of the
agent's authority and his ignorance of that authority will not be any excuse. 40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's
authority is no excuse to such person and the fault cannot be thrown upon the principal. 41 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 agent's 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. 42
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether
Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less
bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty.
Linsangan's friend and known to be an agent of MMPCI, her declarations and actions alone are not
sufficient to establish the fact or extent of her authority.43 Atty. Linsangan as a practicing lawyer for a
relatively long period of time when he signed the contract should have been put on guard when their
agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been
alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to
make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by several
attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out
by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty. Linsangan especially in
dealings involving legal documents. He did not even bother to ask for official receipts of his payments,
nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the
written contract, knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept responsibility
for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court,
MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing
Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On
the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to prevent
misrepresentation, and declared that in view of MMPCI's acceptance of the benefits of Baluyot's
misrepresentation, it can no longer deny responsibility therefor.
The 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 principal's ratification.
Art. 1910. The principal must comply with all the obligations that 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.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies
them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized
acts. Moreover, the principal must have knowledge of the acts he is to ratify. 44
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. 45Nevertheless, this principle does not
apply if the principal's ignorance of the material facts and circumstances was willful, or that the principal
chooses to act in ignorance of the facts.46 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.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was
for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart
amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus,
every time an installment falls due, payment was to be made through a check from Atty. Linsangan for
P1,800.00 and a cash component of P1,455.00 from Baluyot.49 However, it appears that while Atty.
Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This
was supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager of
MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted that she was
remiss in her duties when she consented to Atty. Linsangan's proposal that he will pay the old price
while the difference will be shouldered by her. She likewise admitted that the contract suffered
arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her share
of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for
the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty. Linsangan
was in accordance with the contract as well. Payments of P3,235.00 for at least two installments were
likewise in accord with the contract, albeit made through a check and partly in cash. In view of Baluyot's
failure to give her share in the payment, MMPCI received only P1,800.00 checks, which were clearly
insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused
the earlier cancellation of the contract, if not for MMPCI's application of some of the checks to his
account. However, the checks alone were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty.
Linsangan and admit to having made an error in entering such arrangement confirm that MMCPI had no
knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed that
MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a
party amounting to false representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon
by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real facts. 51
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the company. Neither is there any showing that prior to
signing Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan.
One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care and
circumspection.52 Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he still
cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and
could have easily determined, had he only been cautious and prudent, whether said agent was clothed
with the authority to change the terms of the principal's written contract. Estoppel must be intentional
and unequivocal, for when misapplied, it can easily become a most convenient and effective means of
injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCI liable on
this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant
Baluyot may not have been expressly conferred upon her; however, the same may have been derived
impliedly by habit or custom which may have been an accepted practice in their company in a long
period of time." A perusal of the records of the case fails to show any indication that there was such a
habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its
interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such
lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's
cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder
the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the
actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the
latter ratifies the same. It also bears emphasis that when the third person knows that the agent was
acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the
said third person was aware of such limits of authority, he is to blame and is not entitled to recover
damages from the agent, unless the latter undertook to secure the principal's ratification. 54
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan.
By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof.
When Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the
said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be
the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is
concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for
damages under the same contract, since there is no evidence showing that Baluyot undertook to secure
MMPCI's ratification. At best, the "agreement" between Baluyot and Atty. Linsangan bound only the two
of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty. Linsangan for
P132,250.00 under Contract No. 28660, and had in fact received several payments in accordance with
the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's recourse should
only be against Baluyot who personally undertook to pay the difference between the true contract price
of P132,250.00 and the original proposed price of P95,000.00. To surmise that Baluyot was acting on
behalf of MMPCI when she promised to shoulder the said difference would be to conclude that MMPCI
undertook to pay itself the difference, a conclusion that is very illogical, if not antithetical to its business
interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages
from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement.
To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to
complete the monthly installment payment under the contract, which, by her own admission, she was
unable to do due to personal financial difficulties. It is undisputed that Atty. Linsangan issued the
P1,800.00 as agreed upon, and were it not for Baluyot's failure to provide the balance, Contract No.
28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot,
which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June
2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in
Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and
SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
G.R. No. 126751 March 28, 2001
SAFIC ALCAN & CIE, petitioner,
vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the international
purchase, sale and trading of coconut oil. It filed with the Regional Trial Court of Manila, Branch XXV, a
complaint dated February 26, 1987 against private respondent Imperial Vegetable Oil Co., Inc.
(hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986
and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and A601655, respectively,
to be delivered within the month of January 1987. Private respondent, however, failed to deliver the said
coconut oil and, instead, offered a "wash out" settlement, whereby the coconut oil subject of the
purchase contracts were to be "sold back" to IVO at the prevailing price in the international market at
the time of wash out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing
price and the contract price of the 2,000 long tons of crude coconut oil, which amounted to
US$293,500.00. IVO failed to pay this amount despite repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil,
covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681,
A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement
narrated above, Safic demanded that IVO make marginal deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the difference between the contract price and the market
price of the coconut oil, to compensate it for the damages it suffered when it was forced to acquire
coconut oil at a higher price. IVO failed to make the prescribed marginal deposits on the eight contracts,
in the aggregate amount of US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on the customs of the trade, as governed by the
provisions of the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to
these rules becomes so impaired as to create a reasonable doubt as to the ability of such party
to perform its obligations under the contract, the other party may from time to time demand
marginal deposits to be made within forty-eight (48) hours after receipt of such demand, such
deposits not to exceed the difference between the contract price and the market price of the
goods covered by the contract on the day upon which such demand is made, such deposit to
bear interest at the prime rate plus one percent (1%) per annum. Failure to make such deposit
within the time specified shall constitute a breach of contract by the party upon whom demand
for deposit is made, and all losses and expenses resulting from such breach shall be for the
account of the party upon whom such demand is made. (Underscoring ours.) 1
FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this
contract either party shall suspend payment, commit an act of bankruptcy, notify any of his
creditors that he is unable to meet his debts or that he has suspended payment or that he is
about to suspend payment of his debts, convene, call or hold a meeting either of his creditors
or to pass a resolution to go into liquidation (except for a voluntary winding up of a solvent
company for the purpose of reconstruction or amalgamation) or shall apply for an official
moratorium, have a petition presented for winding up or shal1i have a Receiver appointed, the
contract shall forthwith be closed either at the market price then current for similar goods or, at
the option of the other party at a price to be ascertained by repurchase or resale and the
difference between the contract price and such closing-out price shall be the amount which the
other party shall be entitled to claim shall be liable to account for under this
contract (sic). Should either party be dissatisfied with the price, the matter shall be referred to
arbitration. Where no such resale or repurchase takes place, the closing-out price shall be
fixed by a Price Settlement Committee appointed by the Federation. (Underscoring ours.) 2
Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.
Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the assets of IVO be placed under receivership, in order to
ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue
because it was doing business in the Philippines without the requisite license or authority; the subject
contracts were speculative contracts entered into by IVO's then President, Dominador Monteverde, in
contravention of the prohibition by the Board of Directors against engaging in speculative paper trading,
and despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading
activity; and that under Article 2018 of the Civil Code, if a contract which purports to be for the delivery
of goods, securities or shares of stock is entered into with the intention that the difference between the
price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by
the loser to the winner, the transaction is null and void.1âwphi1.nêt
IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumor-
mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it was
unable to operate its business normally because of the arrest of most of its physical assets; that its
suppliers were driven away; and that its major creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation had foreclosed its chattel and real estate
mortgages.
During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the
parties had entered into and consummated a number of contracts for the sale of crude coconut oil. In
those transactions, Safic placed several orders and IVO faithfully filled up those orders by shipping out
the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as gambling transactions, as defined in Article 2018 of
the Civil Code, although they involved some degree of speculation. After all, the court noted, every
business enterprise carries with it a certain measure of speculation or risk. However, the contracts
performed in 1985, on one hand, and the 1986 contracts subject of this case, on the other hand,
differed in that under the 1985 contracts, deliveries were to be made within two months. This, as alleged
by Safic, was the time needed for milling and building up oil inventory. Meanwhile, the 1986 contracts
stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven to
twelve months after the placing of orders. The coconuts that were supposed to be milled were in all
likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986
contracts constituted trading in futures or in mere expectations.
The lower court further held that the subject contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the Board of Directors. It distinguished between the 1985
contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably authorized to
bind IVO, and the 1986 contracts, which were highly speculative in character. Moreover, the 1985
contracts were covered by letters of credit, while the 1986 contracts were payable by telegraphic
transfers, which were nothing more than mere promises to pay once the shipments became ready. For
these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied corporate
sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde for his
personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected
IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan &
Cie, without prejudice to any action it might subsequently institute against Dominador
Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from the subject
matter of this case. The counterclaim and supplemental counterclaim of the latter defendant
are likewise hereby dismissed for lack of merit. No pronouncement as to costs.
The writ of preliminary attachment issued in this case as well as the order placing Imperial
Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside. 3
Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE DAMAGES
SUFFERED BY DEFENDANT AND IN NOT AWARDING DEFENDANT-APPELLANT SUCH
DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR
MONTEVERDE, ENTERED INTO CONTRACTS WHICH WERE ULTRA VIRES AND WHICH
DID NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE
DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH
OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the, appeals
and affirming the judgment appealed from in toto.4
Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it
raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155 (sic)
involving 2,000 long tons of crude coconut oil, and Contracts Nos. A60l297A/B, A601385,
A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons of crude coconut
oil) were unauthorized acts of Dominador Monteverde which do not bind IVO in whose name
they were entered into. In this connection, the Court of Appeals erred when (i) it ignored its
own finding that (a) Dominador Monteverde, as IVO's President, had "an implied authority to
make any contract necessary or appropriate to the contract of the ordinary business of the
company"; and (b) Dominador Monteverde had validly entered into similar forward contracts for
and on behalf of IVO in 1985; (ii) it distinguished between the 1986 forward contracts despite
the fact that the Manila RTC has struck down IVO's objection to the 1986 forward contracts
(i.e. that they were highly speculative paper trading which the IVO Board of Directors had
prohibited Dominador Monteverde from engaging in because it is a form of gambling where the
parties do not intend actual delivery of the coconut oil sold) and instead found that the 1986
forward contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde
in concluding that the IVO Board of Directors did not authorize its President, Dominador
 Monteverde, to enter into the 1986 forward contracts; and (iv) it did not find IVO, in any case,
estopped from denying responsibility for, and liability under, the 1986 forward contracts
because IVO had recognized itself bound to similar forward contracts which Dominador
Monteverde entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding that
Dominador Monteverde was (like in the 1986 forward contracts) not expressly authorized by
the IVO Board of Directors to enter into such forward contracts;
b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that
Safic had presented not only testimonial, but also documentary, evidence which proved the
higher amount it had to pay for crude coconut oil (vis-à-vis the contract price it was to pay to
IVO) when IVO refused to deliver the crude coconut oil bought by Safic under the 1986 forward
contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out
contracts involving Contracts Nos. A601446 and A60155 (sic), despite the fact that Safic had
properly raised the issue on its appeal, and the evidence and the law support Safic's position
that IVO is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's
President, Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –
Section 3. Powers and Duties of the President. - The President shall be elected by the Board
of Directors from their own number .
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the business and operation of the corporation,
conducting the same according to, the orders, resolutions and instruction of the Board of
Directors and according to his own discretion whenever and wherever the same is not
expressly limited by such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act according to the instructions of the Board of Directors.
Even in instances when he was authorized to act according to his discretion, that discretion must not
conflict with prior Board orders, resolutions and instructions. The evidence shows that the IVO Board
knew nothing of the 1986 contracts6 and that it did not authorize Monteverde to enter into speculative
contracts.7 In fact, Monteverde had earlier proposed that the company engage in such transactions but
the IVO Board rejected his proposal.8 Since the 1986 contracts marked a sharp departure from past
IVO transactions, Safic should have obtained from Monteverde the prior authorization of the IVO Board.
Safic can not rely on the doctrine of implied agency because before the controversial 1986 contracts,
IVO did not enter into identical contracts with Safic. 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. 9 In
the case of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the rule on dealing with an agent
thus:
Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of
the agent's authority, and his ignorance of that authority will not be any excuse. 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.11
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a
supposed agency.
Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his authority do not
bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing
that when the third person knows that the agent was acting beyond his power or authority, the principal
can not be held liable for the acts of the agent. If the said third person is aware of such limits of
authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal's ratification.13
There was no such ratification in this case. When Monteverde entered into the speculative contracts
with Safic, he did not secure the Board's approval.14 He also did not submit the contracts to the Board
after their consummation so there was, in fact, no occasion at all for ratification. The contracts were not
reported in IVO's export sales book and turn-out book.15 Neither were they reflected in other books and
records of the corporation.16 It must be pointed out that the Board of Directors, not Monteverde,
exercises corporate power.17 Clearly, Monteverde's speculative contracts with Safic never bound IVO
and Safic can not therefore enforce those contracts against IVO.
To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set limitations
on the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in this regard that a
question that was never raised in the courts below can not be allowed to be raised for the first time on
appeal without offending basic rules of fair play, justice and due process. 18 Such an issue was not
brought to the fore either in the trial court or the appellate court, and would have been disregarded by
the latter tribunal for the reasons previously stated. With more reason, the same does not deserve Court
consideration by this Court.
Witness may answer if he knows.
Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations on
Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo Monteverde, Witness
who succeeded Dominador Monteverde as IVO President, testified that the IVO Board had set down the
policy of engaging in purely physical trading thus:
A. Trading future[s] contracts wherein the trader commits a price and to deliver
coconut oil in the future in which he is yet to acquire the stocks in the future.
Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?
Atty. Abad
A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the
corporation, although I was at the time already a stockholder, I think IVO is engaged in trading
oil. Q. Who established the so-called physical trading in IVO?

Q. As far as you know, what kind of trading was IVO engaged with? A. The Board of Directors, sir.

A. It was purely on physical trading. Atty. Abad.

Q. How did you know this? Q. How did you know that?

A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant A. There was a meeting held in the office at the factory and it was brought out and suggested
and from my observation, as I have to supervise and monitor purchases of copras and also the by our former president, Dominador Monteverde, that the company should engaged (sic) in
sale of the same, I observed that the policy of the corporation is for the company to engaged future[s] contract[s] but it was rejected by the Board of Directors. It was only Ador Monteverde
(sic) or to purely engaged (sic) in physical trading. who then wanted to engaged (sic) in this future[s] contract[s].

Q. What do you mean by physical trading? Q. Do you know where this meeting took place?

A. Physical Trading means - we buy and sell copras that are only available to us. We only A. As far as I know it was sometime in 1985.
have to sell the available stocks in our inventory.
Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde
Q. And what is the other form of trading? that the company should engaged (sic) in future[s] contracts?

Atty. Fernando Atty. Fernando

No basis, your Honor. Objection, your Honor, no basis.

Atty. Abad Court

Well, the witness said they are engaged in physical trading and what I am saying [is] Why don't you lay the basis?
if there are any other kind or form of trading.
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the
future[s] contract[s], were you already a member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in
future[s] contract[s] was rejected by the Board of Directors?
A. Because this future[s] contract is too risky and it partakes of gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988,
and despite [the] request of our office for us to be furnished a copy he was not able to furnish
us a copy.19
xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were against the company engaging in future[s] contracts.
As far as you know, has this policy of the Board of Directors been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the name of I.V.0. in selling future
contracts without the proper authority and consent of the company's Board of Directors?
A. Dominador Monteverde never records those transactions he entered into in connection with
these future[s] contracts in the company's books of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not entered into the books of
accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of the company, sir. 20
xxxxxxxxx
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the corporation and that we agreed
to remove the president and then I was made to replace him as president.
Q. What else?
A. And a resolution was passed disowning the illegal activities of the former president.21
Petitioner next argues that there was actually no difference between the 1985 physical contracts and
the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate
court –
Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and 1986
contracts, both of which groups of contracts were signed or authorized by IVO's President,
Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly with their
1985 predecessors, forward sales contracts in which IVO had undertaken to deliver the crude
coconut oil months after such contracts were entered into. The lead time between the closing
of the deal and the delivery of the oil supposedly allowed the seller to accumulate enough
copra to mill and to build up its inventory and so meet its delivery commitment to its foreign
buyers. SAFIC concludes that the 1986 contracts were equally binding, as the 1985 contracts
were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable
distinctions between the 1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of two months from the date of the
sale. On the other hand, the 1986 contracts were to be performed within an average of eight
and a half months from the dates of the sale. All the supposed performances fell in 1987.
Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the
execution of the contract. These pattern (sic) belies plaintiffs contention that the lead time
merely allowed for milling and building up of oil inventory. It is evident that the 1986 contracts
constituted trading in futures or in mere expectations. In all likelihood, the coconuts that were
supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the
crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru
the opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyer's letter of credit
guarantees payment to the seller as soon as the latter is able to present the shipping
documents covering the cargo, its opening usually mark[s] the fact that the transaction would
be consummated. On the other hand, seven out of the ten 1986 contracts were to be paid by
telegraphic transfer upon presentation of the shipping documents. Unlike the letter of credit, a
mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's compliance
with its contracts. This fact lends an uncertain element in the 1986 contracts.1âwphi1.nêt
3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully
complied with Central Bank Circular No. 151 dated April 1, 1963, requiring a coconut oil
exporter to submit a Report of Foreign Sales within twenty-four (24) hours "after the closing of
the relative sales contract" with a foreign buyer of coconut oil. But with respect to the disputed
1986 contracts, the parties stipulated during the hearing that none of these contracts were ever
reported to the Central Bank, in violation of its above requirement. (See Stipulation of Facts
dated June 13, 1990). The 1986 sales were, therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded
either in the 1986 accounting books of IVO or in its annual financial statement for 1986, a
document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1). Emelita
Ortega, formerly an assistant of Dominador Monteverde, testified that they were strange
goings-on about the 1986 contract. They were neither recorded in the books nor reported to
the Central Bank. What is more, in those unreported cases where profits were made, such
profits were ordered remitted to unknown accounts in California, U.S.A., by Dominador
Monteverde.
xxxxxxxxx
Evidently, Dominador Monteverde made business or himself, using the name of IVO but
concealing from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not
able to prove its claim for damages. Petitioner first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts was
proof enough and, second, that it presented purchases of coconut oil it made from others during the
period of IVO's default.
We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not binding on
IVO. Furthermore, such agreements did not prove Safic's actual losses in the transactions in question.
The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO through
Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to deliver, Safic
suffered damages to the extent that they had to buy the same commodity from others at higher prices.
The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises several
questions, to wit: 1.] Did Safic commit to deliver the quantity of oil covered by the 1986 contracts to its
own buyers? Who were these buyers? What were the terms of those contracts with respect to quantity,
price and date of delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic
have to procure the equivalent oil from other sources? If so, who were these sources? Where were their
contracts and what were the terms of these contracts as to quantity, price and date of delivery?
The records disclose that during the course of the proceedings in the trial court, IVO filed an amended
motion22 for production and inspection of the following documents: a.] contracts of resale of coconut oil
that Safic bought from IVO; b.] the records of the pooling and sales contracts covering the oil from such
pooling, if the coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase of
oil that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of IVO;
d.] all other contracts, confirmations, invoices, wash out agreements and other documents of sale
related to (a), (b) and (c). This amended motion was opposed by Safic. 23The trial court, however, in its
September 16, 1988 Order ,24 ruled that:
From the analysis of the parties' respective positions, conclusion can easily be drawn
therefrom that there is materiality in the defendant's move: firstly, plaintiff seeks to recover
damages from the defendant and these are intimately related to plaintiffs alleged losses which
 it attributes to the default of the defendant in its contractual commitments; secondly, the WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.
documents are specified in the amended motion. As such, plaintiff would entertain no
confusion as to what, which documents to locate and produce considering plaintiff to be SO ORDERED.
(without doubt) a reputable going concern in the management of the affairs which is serviced
by competent, industrious, hardworking and diligent personnel; thirdly, the desired production
and inspection of the documents was precipitated by the testimony of plaintiffs witness (Donald
O'Meara) who admitted, in open court, that they are available. If the said witness represented
that the documents, as generally described, are available, reason there would be none for the
same witness to say later that they could not be produced, even after they have been clearly
described.

Besides, if the Court may additionally dwell on the issue of damages, the production and
inspection of the desired documents would be of tremendous help in the ultimate resolution
thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which defendant
disputes. As the defendant cannot be precluded in taking exceptions to the correctness and
validity of such claim which plaintiffs witness (Donald O'Meara) testified to, and as, by this
nature of the plaintiffs claim for damages, proof thereof is a must which can be better served, if
not amply ascertained by examining the records of the related sales admitted to be in plaintiffs
possession, the amended motion for production and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full disclosure by the parties on
both sides of all documents related to the transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents,
prompting the court a quo to assume that if produced, the documents would have been adverse to
Safic's cause. In its efforts to bolster its claim for damages it purportedly sustained, Safic suggests a
substitute mode of computing its damages by getting the average price it paid for certain quantities of
coconut oil that it allegedly bought in 1987 and deducting this from the average price of the 1986
contracts. But this mode of computation if flawed .because: 1.] it is conjectural since it rests on average
prices not on actual prices multiplied by the actual volume of coconut oil per contract; and 2.] it is based
on the unproven assumption that the 1987 contracts of purchase provided the coconut oil needed to
make up for the failed 1986 contracts. There is also no evidence that Safic had contracted to supply
third parties with coconut oil from the 1986 contracts and that Safic had to buy such oil from others to
meet the requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with third
parties do not match the quantities of oil provided under the 1986 contracts. Had Safic produced the
documents that the trial court required, a substantially correct determination of its actual damages
would have been possible. This, unfortunately, was not the case. Suffice it to state in this regard that
"[T]he power of the courts to grant damages and attorney's fees demands factual, legal and equitable
justification; its basis cannot be left to speculation and conjecture." 25
G.R. No. 159489 February 4, 2008
FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568. The appellate court had affirmed the Decision 3 dated October 10, 1989 of the Regional Trial
Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly
and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by
petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January
1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program
for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a
monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977
for P10,000.4 In return, Valle issued Pedroso his personal check for P800 for the 8%5prepaid interest
and a Filipinas Life "Agent’s Receipt" No. 807838.6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such a promotion. She was even told she
could "push through with the check" she issued. From the records, the check, with the endorsement of
Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and
Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioner’s duly authorized representatives Apetrior and
Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of
her initial investment. A month after, her investment of P10,000 was returned to her after she made a
written request for its refund. The formal written request, dated February 3, 1977, was written on an
inter-office memorandum form of Filipinas Life prepared by Alcantara.7 To collect the amount, Pedroso
personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a second
investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate
of 5%8 prepaid interest a month. Upon maturity of Pedroso’s subsequent investments, Valle would take
back from Pedroso the corresponding yellow-colored agent’s receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest. However,
when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000 worth of it.
Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return her money.
With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect their respective
investments, and to inquire why they had not seen Valle for quite some time. But their attempts were
futile. Hence, respondents filed an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the respondents.
On appeal, the Court of Appeals affirmed the trial court’s ruling and subsequently denied the motion for
reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND
GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER
COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH
ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS
AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.10
Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally
liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance
company and was not engaged in the business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of
their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents. 11
On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from
them. In fact, Filipinas Life’s official documents and facilities were used in consummating the
transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and
Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the
authority of petitioner’s agents; and it is Filipinas Life that failed in its duty to ensure that its agents act
within the scope of their authority.
Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks
merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering
the assailed decision and resolution.
Footnotes
It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Life’s official 15 CIVIL CODE, Art. 1911.
receipts, whose authenticity were not disputed. Valle’s authority to solicit and receive investments was
also established by the parties. When respondents sought confirmation, Alcantara, holding a 16
supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is Id., Art. 1910. The principal must comply with all the obligations which the agent may have
true that a person dealing with an agent is put upon inquiry and must discover at his own peril the contracted within the scope of his authority.
agent’s authority, in this case, respondents did exercise due diligence in removing all doubts and in
confirming the validity of the representations made by Valle. As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. 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. 12 The general rule is that the principal is
responsible for the acts of its agent done within the scope of its authority, and should bear the damage
caused to third persons.13 When the agent exceeds his authority, the agent becomes personally liable
for the damage.14 But even when the agent exceeds his authority, the principal is still solidarily liable
together with the agent if the principal allowed the agent to act as though the agent had full powers. 15 In
other words, the acts of an agent beyond the scope of his authority do not bind the principal, unless the
principal ratifies them, expressly or impliedly.16 Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another without authority.17

Filipinas Life cannot profess ignorance of Valle’s acts. Even if Valle’s representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly
ratified Valle’s acts. It cannot even be denied that Filipinas Life benefited from the investments
deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed
Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third persons
should not be prejudiced if the principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agent’s acts beyond the latter’s authority.
The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere
videtur. "He who does a thing by an agent is considered as doing it himself."18

WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November
29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568
are AFFIRMED.

Costs against the petitioner.

SO ORDERED.
G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE
HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R.
BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set aside the Decision and Resolution of the Court of
Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R. CV No. 48282,
entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a hold-departure order] from the Philippines against Ignacio E.
Rubio. Respondent amended her complaint to include specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani, and
other co-heirs; that said vendors executed a contract of sale dated April 10, 1990 in her favor; that
Ignacio Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale that the vendors
would secure certificates of title covering their respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon presentation of their individual certificate[s] of [title]; that
Ignacio Rubio refused to receive the other half of the down payment which is P[100,000]; that Ignacio
Rubio refused and still refuses to deliver to [respondent] the certificates of title covering his share on the
two lots; that with respect to the heirs of Luz Baloloy, they also refused and still refuse to perform the
delivery of the two certificates of title covering their share in the disputed lots; that respondent was and
is ready and willing to pay Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their
individual certificates of title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been
sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was
effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondent’s title.
In their separate amended answers, petitioners denied the material allegations of the complaint and
alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale has no more force and effect
as far as the Baloloys are concerned, since they have withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that
he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia
Rubio Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the disputed lots
in favor of respondent; that the P100,000 respondent claimed he received as down payment for the lots
is a simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court declared the
Baloloys in default. They then filed a motion to lift the order declaring them in default, which was denied
by the trial court in an order dated November 27, 1991. Consequently, respondent was allowed to
adduce evidence ex parte. Thereafter, the trial court rendered a partial decision dated July 23, 1993
against the Baloloys, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an [Absolute] Deed of Sale
over their hereditary share in the properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or consignation of said amount in Court.
[For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of
Sale over their hereditary share in the property covered by TCT No. T-74392 and TCT No. T-74394 in
favor of [respondent], the Clerk of Court is ordered to execute the necessary Absolute Deed of Sale in
behalf of the Baloloys in favor of [respondent,] with a consideration of P[1,500,000]. Further[,]
[petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay
[respondent] moral damages in the amount of P[50,000] and P[20,000] for attorney’s fees. The adverse
claim annotated at the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of
Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and supplemental SO ORDERED.5
petition dated July 7, 1994. This was denied by the trial court in an order dated September 16, 1994.
Hence, appeal to the Court of Appeals was taken challenging the order denying the petition for relief. Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this petition.

Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the trial court The issues are:
rendered its assailed Decision, as follows:
I
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to the THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM
[respondent], Rufina Lim[,] the amount of P102,169.80[,] with interest at the rate of six percent (6%) per JUDGMENT FILED BY THE BALOLOYS.
annum from April 10, [1990] until the same is fully paid. Without pronouncement as to costs.
II
SO ORDERED.4
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN
On appeal, the CA affirmed the trial court’s order and partial decision, but reversed the later decision. AWARDING MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L.
The dispositive portion of its assailed Decision reads: LIM CONSIDERING THAT:

WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment and
Orders dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED. The
Order appealed from is AFFIRMED.
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN
VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

2. the Decision dismissing [respondent’s] complaint is REVERSED and SET ASIDE and a new C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS
one is entered. Accordingly, UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE
CANCELLATION THEREOF.
a. the validity of the subject contract of sale in favor of [respondent] is upheld.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO
THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the
payment of the balance of the purchase price by [respondent] within 30 days from the
receipt of the entry of judgment of this Decision. III

c. the contracts of sale between Rubio and Escueta involving Rubio’s share in the THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
disputed properties is declared NULL and VOID. CORAZON L. ESCUETA IS VALID.

d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the IV
amount of P[20,000] as moral damages and P[20,000] as attorney’s fees.
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS’
3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED. COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners’ failure to appear at the pre-trial
and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because
petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order.
Neither did the former counsel of record inform him. Consequently, the order declaring him in default is
void, and all subsequent proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia to
transact business in his behalf pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-
fact. Llamas even disowned her signature appearing on the "Joint Special Power of Attorney," which
constituted Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also the
nature and extent of the former’s authority. Besides, Virginia exceeded the authority for failing to comply
with her obligations under the "Joint Special Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment of respondent’s
debt. His acceptance and encashment of the check was not a ratification of the contract of sale.
Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The real
character of the contract is not the title given, but the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full payment of the purchase price. Together with taxes
and other fees due on the properties, these are conditions precedent for the perfection of the sale. Even
assuming that the contract is ambiguous, the same must be resolved against respondent, the party who
caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to sell
his properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold
to her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys’ answer to
the original complaint and amended complaint, the allegations relating to the personal circumstances of
the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the need x
x x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto
or inconsistent therewith should be ignored whether objection is interposed by a party or not." 9 Besides,
there is no showing that a palpable mistake has been committed in their admission or that no admission
has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives such notice and attends the pre-
trial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of
attorney in favor of their former counsel, not that they have not received the notice or been informed of
the scheduled pre-trial. Not having raised the ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of
the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after
such judgment or final order was entered, or such proceeding was taken; and must be accompanied
with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts
constituting the petitioner’s good and substantial cause of action or defense, as the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is
reckoned from the time the party acquired knowledge of the order, judgment or proceedings and not
from the date he actually read the same."13 As aptly put by the appellate court:
The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the
former counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993 on
April 5, 1994. At that time, said former counsel is still their counsel of record. The reckoning of the 60
day period therefore is the date when the said counsel of record received a copy of the partial decision
which was on April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994 which
means that 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, the records
further show that the Baloloys received the partial decision on September 13, 1993 as evidenced by
Registry return cards which bear the numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary period to file a
petition for relief from judgment[,] included in its petition the two Orders dated May 6, 1994 and June 29,
1994. The first Order denied Baloloys’ motion to fix the period within which plaintiffs-appellants pay the
balance of the purchase price. The second Order refers to the grant of partial execution, i.e. on the
aspect of damages. These Orders are only consequences of the partial decision subject of the petition
for relief, and thus, cannot be considered in the determination of the reglementary period within which to
file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for
relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x x
x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence could
not have guarded against, and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law" 17 or an excusable negligence "caused
by failure to receive notice of x x x the trial x x x that it would not be necessary for him to take an active
part in the case x x x by relying on another person to attend to the case for him, when such other
person x x x was chargeable with that duty x x x, or by other circumstances not involving fault of the
moving party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor
of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the
authority given by her father, but she will have to be "responsible for the acts of the sub-
agent,"19 among which is precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the contract of sale and "produce the
effects of an express power of agency."20 "[H]is action necessarily implies that he waived his right of
action to avoid the contract, and, consequently, it also implies the tacit, if not express, confirmation of
the said sale effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance
such repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of
the price."22
Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.23 Even the argument that a purchaser need not inquire beyond what
appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that
the subject properties are registered in common, not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from becoming
effective"24 or gives "the vendor the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period."25Petitioners themselves have failed to deliver their individual certificates of
title, for which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees,
and expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as:
(1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its
equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay for the subject properties. "The offer and the
acceptance are concurrent, since the minds of the contracting parties meet in the terms of the
agreement."27
In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price and
as proof of the perfection of the contract.28 It constitutes an advance payment to "be deducted from the
total price."29
Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be transferred to
the vendee upon actual or constructive delivery thereof." 30 In the present case, there is actual delivery
as manifested by acts simultaneous with and subsequent to the contract of sale when respondent not
only took possession of the subject properties but also allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after
having sold them to respondent. "[I]n a contract of sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded x x x." 31 The records do not
show that Ignacio Rubio asked for a rescission of the contract. What he adduced was a belated
revocation of the special power of attorney he executed in favor of Patricia Llamas. "In the sale of
immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act."32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 48282, dated

October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.
G.R. No. 136433 December 6, 2006
ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO,
JR. and ERNESTO R. SALENGA, respondents.
DECISION
VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on
Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the
November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the dismissal
of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against respondents
Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M. Mariano and Legal
Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando, Pampanga), and Ernesto
R. Salenga. The petition likewise seeks to set aside the October 30, 1998 Memorandum5of the OSP
duly approved by the Ombudsman on November 27, 1998 which denied petitioner's Motion for
Reconsideration.6 Previously, the filing of the Information against said respondents was authorized by
the May 10, 1996 Resolution7 and October 3, 1996 Order8 of the Ombudsman which found probable
cause that they granted unwarranted benefits, advantage, and preference to respondent Salenga in
violation of Section 3 (e) of RA 3019.9
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-
Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three (3)-year
period, that is, from August 7, 1990 to August 7, 1993.10 Lessee Eduardo Lapid in turn sub-leased the
fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of the original lease, that
is, from January 10, 1993 to August 7, 1993.11 Respondent Ernesto Salenga was hired by Eduardo
Lapid as fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehired respondent
Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his
January 28, 1993 demand letter12 to Rafael Lopez and Lourdes Lapid for unpaid salaries and non-
payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter that
for the last two (2) months of the sub-lease, he had given the rights over the fishpond to Mario Palad
and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a Complaint14 before
the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando, Pampanga
docketed as DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L.
Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest.
The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal Officer of the Department of
Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga, as counsel for respondent
Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal Officer of DAR Region III. The
case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his complaint. 15 The amendments included a prayer
for the issuance of a temporary restraining order (TRO) and preliminary injunction. However, before the
prayer for the issuance of a TRO could be acted upon, on June 16, 1993, respondent Salenga filed a
Motion to Maintain Status Quo and to Issue Restraining Order 16 which was set for hearing on June 22,
1993. In the hearing, however, only respondent Salenga with his counsel appeared despite notice to the
other parties. Consequently, the ex-partepresentation of respondent Salenga’s evidence in support of
the prayer for the issuance of a restraining order was allowed, since the motion was unopposed, and on
July 21, 1993, respondent Ilao, Jr. issued a TRO.17
Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did.
Accordingly, defendants Lopez and Lapid received their respective shares while respondent Salenga
was given his share under protest. In the subsequent hearing for the issuance of a preliminary
injunction, again, only respondent Salenga appeared and presented his evidence for the issuance of the
writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner Paciencia
Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the November 15,
1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing the
Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the decision before the
DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-
Affidavit18 against private respondents before the Office of the Ombudsman which was docketed as
OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and
Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy through
the issuance of the TRO in allowing respondent Salenga to retain possession of the fishpond, operate it,
harvest the produce, and keep the sales under the safekeeping of other private respondents. Moreover,
petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case No.
552-P’93 filed by respondent Salenga as there was no tenancy relation between respondent Salenga
and Rafael L. Lopez, and thus, the complaint was dismissible on its face.
Through the December 14, 1994 Order,19 the Ombudsman required private respondents to file their
counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the other
respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February 9, 1995
motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsman’s Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to court,
denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an Information for
violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996
Motion for Reconsideration and/or Re-investigation21 which was denied through the October 3, 1996
Order.22 Consequently, the March 17, 1997 Information23 was filed against all the private respondents
before the Sandiganbayan which was docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or Re-
investigation which was granted through the August 29, 1997 Order.24 On September 8, 1997,
respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did not
file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-
investigation; and the result of the re-investigation was embodied in the assailed November 26, 1997
Order26 which recommended the dismissal of the complaint in OMB-1-94-3425 against all private
respondents. Upon review, the Ombudsman approved the OSP’s recommendation on August 21, 1998.
Petitioner’s Motion for Reconsideration27 was likewise denied by the OSP through the October 30, 1998
Memorandum28 which was approved by the Ombudsman on November 27, 1998. Consequently, the
trial prosecutor moved orally before the Sandiganbayan for the dismissal of Criminal Case No. 23661
which was granted through the December 11, 1998 Order.29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS OWN
COMPLAINT.30
Before delving into the errors raised by petitioner, we first address the preliminary procedural issue of
the authority and locus standi of petitioner to pursue the instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in a court of justice x x x on a given question." 31 In
private suits, standing is governed by the "real-parties-in interest" rule found in Section 2, Rule 3 of the
1997 Rules of Civil Procedure which provides that "every action must be prosecuted or defended in the
name of the real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the avails of the suit." 32 Succinctly
put, the plaintiffs’ standing is based on their own right to the relief sought.
The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in
person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as the
Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question on his
authority and legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate and
prosecute on its own or on complaint by any person, any act or omission of any public officer or
employee, office or agency, when such act or omission appears to be illegal, unjust, improper or
inefficient (emphasis supplied)."33 The Ombudsman can act on anonymous complaints and motu
proprio inquire into alleged improper official acts or omissions from whatever source, e.g., a
newspaper.34Thus, any complainant may be entertained by the Ombudsman for the latter to initiate an
inquiry and investigation for alleged irregularities.
However, filing the petition in person before this Court is another matter. The Rules allow a non-lawyer
to conduct litigation in person and appear for oneself only when he is a party to a legal controversy.
Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. – In the court of a justice of the peace a party may
conduct his litigation in person, with the aid of an agent or friend appointed by him for that
purpose, or with the aid of an attorney. In any other court, a party may conduct his litigation
 personally or by aid of an attorney, and his appearance must be either personal or by a duly
authorized member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition? We
answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section 2,
Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear
that petitioner is not a real party in interest. Except being the complainant, the records show that
petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the
fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P’93 through her Attorney-in-
Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino
Mercado, as agent of Paciencia Regala, was granted by respondent Provincial Adjudicator Ilao, Jr.
through the November 15, 1993 Order in DARAB Case No. 552-P’93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a
Special Power of Attorney35 (SPA) from Faustino Mercado. However, such SPA is unavailing for
petitioner. For one, petitioner’s principal, Faustino Mercado, is an agent himself and as such cannot
further delegate his agency to another. Otherwise put, an agent cannot delegate to another the same
agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-
delegated, while applied primarily in political law to the exercise of legislative power, is a principle of
agency.36 For another, a re-delegation of the agency would be detrimental to the principal as the second
agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract
with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.
Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such is not
the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue the case
and not merely as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a
substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real
party in interest in the criminal proceedings conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not
being an agent of the parties in the agrarian case, he has no locus standi to pursue this petition. He
cannot be likened to an injured private complainant in a criminal complaint who has direct interest in the
outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public right"
in assailing an allegedly illegal official action, and doing so as a representative of the general public. He
is pursuing the instant case as an agent of an ineffective agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider petitioner suing as a
"stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown that
he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient interest
in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer"; more so when
there is no showing that he was injured by the dismissal of the criminal complaint before the
Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this
action and the instant petition must be forthwith dismissed on that score. Even granting arguendo that
he has locus standi, nonetheless, petitioner fails to show grave abuse of discretion of respondent
Ombudsman to warrant a reversal of the assailed November 26, 1997 Order and the October 30, 1998
Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of discretion
on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-Affidavit when
the preliminary investigation was already concluded and an Information filed with the Sandiganbayan
which assumed jurisdiction over the criminal case. This contention is utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao,
Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for re-
investigation and ordered the OSP to conduct the re-investigation through its August 29, 1997 Order, as
follows:
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao, Jr.
was not able to file his counter-affidavit in the preliminary investigation, there appears to be
some basis for granting the motion of said accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary
evidence attached, if any, with the Office of the Special Prosecutor within then (10) days from
today. The prosecution is ordered to conduct a reinvestigation within a period of thirty (30)
days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft court’s directive
to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed,
petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover, petitioner
did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to file
his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but such was
not resolved before the Resolution—finding cause to bring respondents to trial—was issued. In fact,
respondent Ilao, Jr.’s motion to dismiss was resolved only through the May 10, 1996 Resolution which
recommended the filing of an Information. Respondent Ilao, Jr.’s Motion for Reconsideration and/or Re-
investigation was denied and the Information was filed with the graft court.
Verily, courts are given wide latitude to accord the accused ample opportunity to present controverting
evidence even before trial as demanded by due process. Thus, we held in Villaflor v. Vivar that "[a]
component part of due process in criminal justice, preliminary investigation is a statutory and
substantive right accorded to the accused before trial. To deny their claim to a preliminary investigation
would be to deprive them of the full measure of their right to due process." 39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P’93 is not an
agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that respondent
Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by Paciencia Regala.
Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents in the
DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne out
by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule that
jurisdiction over the subject matter is determined by the allegations of the complaint.40 The nature of an
action is determined by the material averments in the complaint and the character of the relief
sought,41 not by the defenses asserted in the answer or motion to dismiss.42 Given that respondent
Salenga’s complaint and its attachment clearly spells out the jurisdictional allegations that he is an
agricultural tenant in possession of the fishpond and is about to be ejected from it, clearly, respondent
Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations characterize an agricultural
dispute. Besides, whatever defense asserted in an answer or motion to dismiss is not to be considered
in resolving the issue on jurisdiction as it cannot be made dependent upon the allegations of the
defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper assumption of jurisdiction by respondent
Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO was a proper
exercise of discretion. Firstly, the averments with evidence as to the existence of the need for the
issuance of the restraining order were manifest in respondent Salenga’s Motion to Maintain Status Quo
and to Issue Restraining Order,43 the attached Police Investigation Report,44 and Medical
Certificate.45 Secondly, only respondent Salenga attended the June 22, 1993 hearing despite notice to
parties. Hence, Salenga’s motion was not only unopposed but his evidence adduced ex-parte also
adequately supported the issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised his
discretion in issuing the TRO—as respondent Ilao, Jr. aptly maintained that giving due course to the
complaint and issuing the TRO do not reflect the final determination of the merits of the case. Indeed,
after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing DARAB
Case No. 552-P’93 for lack of merit.
Court will not review prosecutor’s determination of probable cause
Finally, we will not delve into the merits of the Ombudsman’s reversal of its initial finding of probable
cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the Ombudsman
committed grave abuse of discretion in rendering such reversal. Secondly, it is clear from the records
that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the filing of
respondent Ilao, Jr.’s Counter-Affidavit. Thirdly, it is the responsibility of the public prosecutor, in this
case the Ombudsman, to uphold the law, to prosecute the guilty, and to protect the innocent. Lastly, the
function of determining the existence of probable cause is proper for the Ombudsman in this case and
we will not tread on the realm of this executive function to examine and assess evidence supplied by
the parties, which is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy
Rural Bank, Inc.,46 as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon.
Desierto,47 we had occasion to rule that we cannot pass upon the sufficiency or insufficiency of
evidence to determine the existence of probable cause. 48

WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order and
the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case No. 23661
(OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.

SO ORDERED.

Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Tinga, JJ., concur.

Footnotes

9Anti-Graft and Corrupt Practices Act was approved on August 17, 1960. Section 3 (e) of this
Act provides:

SEC. 3. Corrupt practices of public officers. — x x x

(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.

37Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be
void.
G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to
petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner
shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from
receipt of the items.
Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung
hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a witness, Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter
to sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused
her to likewise fail to pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand 2 to petitioner for failure to settle
her obligation. Quilatan executed a complaint affidavit 3 against petitioner before the Office of the
Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph
1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court,
the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in
the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of
remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold
but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and
abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously
misappropriate and convert the same for her own personal use and benefit and despite oral and written
demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the
damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of
P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the
payments were remitted late;8that petitioner still owed her in the amount of P424,750.00.9
On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and
that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same, thereby causing her to default in paying
Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to
Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She
identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that
she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the
past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis;
however, due to her outstanding account with the latter, she got jewelry from petitioner instead. 13
On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the
first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the
maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of
imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to
TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as
cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the
costs.
SO ORDERED.14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the
penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of
the crime of estafa is hereby AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum
period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed
Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of
imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to
Twenty (20) Years of Reclusion Temporal.
SO ORDERED.15
Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45,
alleging that:
I it cannot be said that petitioner’s act of entrusting the jewelry to Labrador is characterized by abuse of
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS
AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS
MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO
RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17
Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the
confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her
giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her undertaking
with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which
it was originally entrusted to her. It was established that petitioner had not derived any personal benefit
from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the
same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the
Revised Penal Code are: (1) that the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such
money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or
conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended
party on the offender.18 While the first, third and fourth elements are concededly present, we find the
second element of misappropriation or conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the
lower courts’ conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the
jewelry "as if it were hers, thereby committing conversion and a clear breach of trust." 19
It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express agreement to the contrary between the agent and
the principal.20 In the case at bar, the appointment of Labrador as petitioner’s sub-agent was not
expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the
jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus,
confidence because such an act was not proscribed and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert" and "misappropriated" connote an
act of using or disposing of another’s property as if it were one’s own, or of devoting it to a purpose or
use different from that agreed upon. To misappropriate for one’s own use includes not only conversion
to one’s personal advantage, but also every attempt to dispose of the property of another without right. 21
In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to
return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn,
to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she
obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the
same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve
the very same end for which they were delivered to her in the first place. Consequently, there is no
conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed
upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
"without right." Aside from the fact that no condition or limitation was imposed on the mode or manner
by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to
necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale.
In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the
instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant
on commission basis, with the obligation to return the same in a few days if not sold. However, by
reason of the fact that the rings were delivered also for sale on commission to sub-agents who failed to
account for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his
obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-
appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a subagent to whom
the first agent had actually entrusted the property in good faith, and for the same purpose for which it
was received; there being no prohibition to do so and the chattel being delivered to the subagent before
the owner demands its return or before such return becomes due, we hold that the first agent can not
be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is
characteristic of this offense is missing under the circumstances.23
Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on People v. Flores 24 and
U.S. v. Panes25 to justify petitioner’s conviction is misplaced, considering that the factual background of
the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring
to sell under the condition that she would return it the following day if not sold and without authority to
retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the
jewelry he received upon demand, but passed on the same to a sub-agent even after demand for its
return had already been made. In the foregoing cases, it was held that there was conversion or
misappropriation.
Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v.
Trinidad,27 held that:
In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts,
and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel
cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course
the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried
out the actual misappropriation, then the accused would be answerable for the acts of his co-
conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the
accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in
order.28 (Italics copied)
Labrador admitted that she received the jewelry from petitioner and sold the same to a third person.
She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent
on the part of petitioner. There is no showing that petitioner derived personal benefit from or conspired
with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no estafa within
contemplation of the law.
Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan.
The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a sub-
agent but does so without express authority is responsible for the acts of the sub-agent.29 Considering
that the civil action for the recovery of civil liability arising from the offense is deemed instituted with the
criminal action,30 petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of
jewelry.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No.
17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE.
Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the amount of
P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in case of
insolvency.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
Footnotes
4ART. 315. Swindling (estafa). – Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
xxxxxxxxx
1. With unfaithfulness or abuse of confidence, namely:
xxxxxxxxx
(b) By misappropriating or converting to the prejudice of another, money, goods or
any other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or
to return the same, even though such obligation be totally or partially guaranteed by a
bond; or by denying having received such money, goods or other property;
20Civil Code of the Philippines, Article 1892. The agent may appoint a substitute if the principal
has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

G.R. No. L-55630 March 6, 1990
IMPERIAL INSURANCE, INC. represented by the IMPERIAL INSURANCE, INC., Cagayan de Oro
Branch Office Manager BERNARDITO R. PULVERA, petitioner,
vs.
THE HONORABLE EULALIO D. ROSETE, Judge of the Court of First Instance of Misamis
Oriental, Branch V, and CHIU ENG HUA respondents.
Ariston M. Magallanes and Jesus Ma. Jajalla for petitioner.
Quimpo, Willkom , Dadole & Mutia for private respondent.
GANCAYCO, J.:
Section 2, Rule 1 of the Rules of Court provides for the basic rule of thumb that said "rules shall be
liberally construed in order to promote its objective and to assist the parties in obtaining just, speedy,
and inexpensive determination of every action and proceeding." Its application is put into test in the
present case.
The antecedent facts are undisputed. Private respondent filed a complaint for specific performance and
damages against petitioner dated April 11, 1980 in the Court of First Instance of Misamis Oriental,
docketed as Civil Case No. 7072. After receipt of service of summons petitioner filed an answer with
counterclaim within the reglementary period.
The case was set for pre-trial conference on August 5, 1980 of which the parties and their counsel were
duly notified. At said pre-trial conference petitioner was represented by Atty. Arturo A. Magallanes who
presented a special power of attorney executed by Bernardito R. Pulvera, regional branch manager of
petitioner for Mindanao and Visayas, authorizing said counsel to represent petitioner at the pre-trial
conference, to enter into any amicable settlement and to do such other acts as may be necessary to
implement the authority. The presiding judge refused to honor the same and observed that it is only the
Board of Directors of the petitioner who may authorize the appearance of the regional manager in
behalf of petitioner and that he cannot delegate his functions. Counsel for private respondent stated he
was willing to give petitioner a chance to produce the appropriate authority. Nevertheless, the
respondent judge declared the petitioner in default in an order dated August 5, 1980 and set the
reception of the evidence for the private respondent on August 12, 1980. 1
A motion to set aside the said order of default was filed by petitioner, stating therein that the rules of
court should be liberally construed, that the special power of attorney was submitted in good faith and
that there are meritorious and good defenses as shown in the attached affidavit showing that as early
as June 1980 Pulvera had asked for such a special power of attorney from the main office in Manila but
the same had not yet arrived and will be submitted upon receipt. The motion was denied in an order
dated August 27, 1980.
A motion for reconsideration of the denial was filed by the petitioner alleging that it is within the implied
powers and duties of the regional branch manager of petitioner to represent the petitioner and in the
process to settle claims against petitioner as this has been done in a similar case that was amicably
settled before the same court docketed as Civil Case No. 6316; and that the special power of attorney
of Atty. Arturo Magallanes to represent the petitioner was executed in good faith. The motion for
reconsideration was likewise denied for lack of merit on October 17, 1982.
Hence, the herein petition for certiorari and/or mandamus wherein petitioner alleges that the respondent
judge acted without or in excess of jurisdiction and in grave abuse of discretion in declaring petitioner in
default and in denying the motion for reconsideration of the order of default.
The petition is impressed with merit.
In Civil Case No. 6316 entitled "Heirs of Ruiz Dosdos, et al. vs. Andres Tan; and Andres Tan as third
party plaintiff vs. Imperial Insurance, third party defendant", filed in the Court of First Instance of
Misamis Oriental, Cagayan de Oro City, presided by the respondent Judge, a special power of attorney
was presented dated June 20, 1979 executed by the same regional manager of petitioner in favor of
Carmelito Gaburno, production manager of sales of petitioner, to appear in behalf of petitioner in all
stages of the case and to enter into any stipulation of facts. 2 A compromise agreement was entered
into by the parties assisted by their respective counsel and the same was submitted for approval of the
court wherein Carmelito Gaburno signed for and in behalf of petitioner. In an order dated November 27,
1979 the respondent judge approved the compromise agreement by rendering judgment in accordance
therewith. 3
Thus, when at the pre-trial conference of Civil Case No. 7072 before the same respondent judge a
special power of attorney executed by Pulvera on July 31, 1980 in favor of Atty. Magallanes to appear in
behalf of petitioner and to enter into any amicable settlement 4 was presented, the court finds no cogent
reason why the respondent judge refused to honor the said special power of attorney for purposes of
the pre-trial and instead declared the petitioner to be in default.
Obviously in the earlier case, Civil Case No. 6316, the respondent judge accepted and/or
acknowledged the authority of Pulvera as regional branch manager of the petitioner to represent the
petitioner, to enter into a compromise agreement and as such to execute a special power of attorney in
favor of another person to act in his place and to represent the petitioner in the litigation.
Indeed, in another case docketed as Civil Case No. 2899 entitled Gil Ecleo vs. Lydia Sacal and Imperial
Insurance, Inc., in the Court of First Instance of Surigao del Norte, Surigao City a similar special power
of attorney for purposes of pre-trial was executed by regional branch manager Pulvera in favor of Atty.
Magallanes dated December 9, 1980. 5 A compromise agreement was entered into by Magallanes in
behalf of petitioner which was duly approved by the trial court on January 13, 1981. 6

There can be no doubt therefore that regional branch manager Pulvera, as regional manager for
Visayas and Mindanao of petitioner, was authorized to represent petitioner in any litigation and in the
process to enter into a compromise agreement or settlement thereof. As such agent of petitioner he
may appoint a substitute as he was not prohibited from doing so by his principal. 7

Moreover, even assuming for the sake of argument that the observations of the respondent judge is
correct in that a board resolution of the petitioner is required for the purposes of authorizing Pulvera
and/or Magallanes to bind the petitioner, the counsel for the private respondent manifested to the
respondent judge his willingness to give the petitioner an opportunity to comply with the requirement of
the court. Just the same, the respondent judge declared petitioner to be in default. No doubt, the
respondent judge was unnecessarily harsh when the Rules call for liberality in such cases.

This is a case where petitioner filed an answer with counterclaim and advanced apparently a
meritorious and valid defense. It should be given its day in court and the opportunity to prove its
assertions. This is the situation contemplated by the Rules. The courts must lean in favor of affording
substantial justice as against a technical requirement.

WHEREFORE, the questioned orders of the respondent judge dated August 6, 1980, August 27, 1980
and October 17, 1980 are hereby REVERSED AND SET ASIDE and the record of this case is
remanded to the trial court for further proceedings. No costs in this instance.

SO ORDERED.

Narvasa, Cruz, Grino-Aquino and Medialdea JJ., concur.

 [G.R. No. 82978. November 22, 1990.]
THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF
APPEALS and OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.
Bede S. Talingcos, for Petitioners.
Augusto Gatmaytan for Private Respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY
DESPITE KOWLEDGE THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE AGENT. —
In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its
authority as agent — and for that matter, even the law — when it undertook the double
sale of the disputed lots. Such being the case, the principal, Manila Remnant, would have
been in the clear pursuant to Article 1897 of the Civil Code which states that" (t)he agent
who acts as such is not personally liable to that 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." However, the unique relationship existing between the
principal and the agent at the time of the dual sale must be underscored. Bear in mind
that the president then of both firms was Artemio U. Valencia, the individual directly
responsible for the sale scam. Hence, despite the fact that the double sale was beyond the
power of the agent, Manila Remnant as principal was chargeable with the knowledge or
constructive notice of that fact and not having done anything to correct such an
irregularity was deemed to have ratified the same. (See Art. 1910, Civil Code.)
2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR. —
More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code
provides: "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." The
above-quoted article is new. It is intended to protect the rights of innocent persons. In
such a situation, both the principal and the agent may be considered as joint feasors
whose liability is joint and solidary (Verzosa v. Lim, 45 Phil. 416). Authority by estoppel
has arisen in the instant case because by its negligence, the principal, Manila Remnant,
has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That
the principal might not have had actual knowledge of the agent’s misdeed is of no
moment.
DECISION
FERNAN, J.:
Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of the
University of the Philippines and renting a faculty unit, dreamed of someday owning a
house and lot. Instead of attaining this dream, they became innocent victims of deceit and
found themselves in the midst of an ensuing squabble between a subdivision owner and its
real estate agent.
The facts as found by the trial court and adopted by the Appellate Court are as
follows:chanrob1es virtual 1aw library
Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in Quezon
City covered by Transfer Certificates of Title Nos. 26400, 26401, 30783 and 31986 and
constituting the subdivision known as Capital Homes Subdivision Nos. I and II. On July 25,
1972, Manila Remnant and A.U. Valencia & Co. Inc. entered into a written agreement
entitled "Confirmation of Land Development and Sales Contract" to formalize an earlier
verbal agreement whereby for a consideration of 17 and 1/2% fee, including sales
commission and management fee, A.U. Valencia and Co., Inc. was to develop the
aforesaid subdivision with authority to manage the sales thereof, execute contracts to sell
to lot buyers and issue official receipts. 1
At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc.
was Artemio U. Valencia.cralawnad
On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to
sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria
Diaz for the combined contract price of P66,571.00 payable monthly for ten years. 2 As
thus agreed in the contracts to sell, the Ventanillas paid the down payments on the two
lots even before the formal contract was signed on March 3, 1970.
Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970,
Artemio U. Valencia, as President of Manila Remnant, and without the knowledge of the
Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in favor of Carlos
Crisostomo, one of his sales agents without any consideration. 3 Artemio Valencia then
transmitted the fictitious Crisostomo contracts to Manila Remnant while he kept in his files
the contracts to sell in favor of the Ventanillas. All the amounts paid by the Ventanillas
were deposited in Valencia’s bank account.
Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of the
Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which the
former issued receipts in favor of Crisostomo. Since Valencia kept the receipts in his files
and never transmitted the same to Crisostomo, the latter and the Ventanillas remained
ignorant of Valencia’s scheme. Thus, the Ventanillas continued paying their monthly
installments.chanrobles virtual lawlibrary
Subsequently, the harmonious business relationship between Artemio Valencia and Manila
Remnant ended. On May 30, 1973, Manila Remnant, through its General Manager Karl
Landahl, wrote Artemio Valencia informing him that Manila Remnant was terminating its
existing collection agreement with his firm on account of the considerable amount of
discrepancies and irregularities discovered in its collections and remittances by virtue of
confirmations received from lot buyers. 4 As a consequence, on June 6, 1973, Artemio
Valencia was removed as President by the Board of Directors of Manila Remnant.
Therefore, from May of 1973, Valencia stopped transmitting Ventanilla’s monthly
installments which at that time had already amounted to P17,925.40 for Lot 1 and
P18,141.95 for Lot 2, (which appeared in Manila Remnant’s record as credited in the name
of Crisostomo). 5
On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the
then Court of First Instance of Manila 6 to impugn the abrogation of their agency
agreement. On June 10 and July 10, 1973, said court ordered all lot buyers to deposit
their monthly amortizations with the court. 7 But on July 17, 1973, A.U. Valencia and Co.
wrote the Ventanillas that it was still authorized by the court to collect the monthly
amortizations and requested them to continue remitting their amortizations with the
assurance that said payments would be deposited later in court. 8 On May 22, 1974, the
trial court issued an order prohibiting A.U. Valencia and Co. from collecting the monthly
installments. 9 On July 22, 1974 and February 6, 1976 the same court ordered the
Valencia firm to furnish the court with a complete list of all lot buyers who had already
made down payments to Manila Remnant before December 1972. 10 Valencia complied
with the court’s order on August 6, 1974 by submitting a list which excluded the name of
the Ventanillas. 11
Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila
Remnant caused on August 20, 1976 the publication in the Times Journal of a notice
cancelling the contracts to sell of some lot buyers including that of Carlos Crisostomo in
whose name the payments of the Ventanillas had been credited. 12
To prevent the effective cancellation of their contracts, Artemio Valencia instigated on
September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot vendees
of a complaint for specific performance with damages against Manila Remnant before the
Court of First Instance of Quezon City. The complaint alleged that Crisostomo had already
paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2, respectively. 13
It was not until March 1978 when the Ventanillas, after learning of the termination of the
agency agreement between Manila Remnant and A.U. Valencia & Co., decided to stop
paying their amortizations to the latter. The Ventanillas, believing that they had already
remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a grand total, inclusive of
interest, of P73,122.35 for the two lots, thereby leaving a balance of P13,531.58 for Lot 1
and P13,540.22 for Lot 2, went directly to Manila Remnant and offered to pay the entire
outstanding balance of the purchase price. 14 To their shock and utter consternation, they
discovered from Gloria Caballes, an accountant of Manila Remnant, that their names did
not appear in the records of A.U. Valencia and Co. as lot buyers. Caballes showed the
Ventanillas copies of the contracts to sell in favor of Carlos Crisostomo, duly signed by
Artemio U. Valencia as President of Manila Remnant. 15 Whereupon, Manila Remnant
refused the offer of the Ventanillas to pay for the remainder of the contract price because
they did not have the personality to do so. Furthermore, they were shown the published
Notice of Cancellation in the January 29, 1978 issue of the Times Journal rescinding the
contracts of delinquent buyers including Crisostomo.
Thus, on November 21, 1978, the Ventanillas commenced an action for specific
performance, annulment of deeds and damages against Manila Remnant, A.U. Valencia
and Co. and Carlos Crisostomo before the Court of First Instance of Quezon City, Branch
17-B. 16 Crisostomo was declared in default for failure to file an
answer.chanrobles.com:cralaw:red
On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to
sell issued in favor of the Ventanillas valid and subsisting and annulling the contracts to
sell in Crisostomo’s favor; 2) ordering Manila Remnant to execute in favor of the
Ventanillas an Absolute Deed of Sale free from all liens and encumbrances; and 3)
condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos
Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as
moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s fees.
The lower court also added that if, for any legal reason, the transfer of the lots could no
longer be effected, the defendants should reimburse jointly and severally to the
Ventanillas the total amount of P73,122.35 representing the total amount paid for the two
lots plus legal interest thereon from March 1970 plus damages as aforestated. With regard
to the cross claim of Manila Remnant against Valencia, the court found that Manila
Remnant could have not been dragged into this suit without the fraudulent manipulations
of Valencia. Hence, it adjudged A.U. Valencia and Co. to pay the Manila Remnant
P5,000.00 as moral damages and exemplary damages and P5,000.00 as attorney’s fees.
17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court’s
decision to the Court of Appeals through separate appeals. On October 13, 1987, the
Appellate Court affirmed in toto the decision of the lower court. Reconsideration sought by
petitioner Manila Remnant was denied, hence the instant petition.
There is no question that the contracts to sell in favor of the Ventanilla spouses are valid
and subsisting. The only issue remaining is whether or not petitioner Manila Remnant
should be held solidarily liable together with A.U. Valencia and Co. and Carlos Crisostomo
for the payment of moral, exemplary damages and attorney’s fees in favor of the
Ventanillas. 18
While petitioner Manila Remnant has not refuted the legality of the award of damages per
se, it believes that it cannot be made jointly and severally liable with its agent A.U.
Valencia and Co. since it was not aware of the illegal acts perpetrated nor did it consent or
ratify said acts of its agent.
The argument is devoid of merit.
In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its
authority as agent — and for that matter, even the law — when it undertook the double
sale of the disputed lots. Such being the case, the principal, Manila Remnant, would have
been in the clear pursuant to Article 1897 of the Civil Code which states that" (t)he agent
who acts as such is not personally liable to that 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." chanrobles.com.ph : virtual law library
However, the unique relationship existing between the principal and the agent at the time
of the dual sale must be underscored. Bear in mind that the president then of both firms
was Artemio U. Valencia, the individual directly responsible for the sale scam. Hence,
despite the fact that the double sale was beyond the power of the agent, Manila Remnant
as principal was chargeable with the knowledge or constructive notice of that fact and not
having done anything to correct such an irregularity was deemed to have ratified the
same. 19
More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary powers. Article 1911 of the Civil Code
provides:jgc:chanrobles.com.ph
"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." (Emphasis
supplied)
The above-quoted article is new. It is intended to protect the rights of innocent persons. In
such a situation, both the principal and the agent may be considered as joint feasors
whose liability is joint and solidary. 20
Authority by estoppel has arisen in the instant case because by its negligence, the
principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise
powers not granted to it. That the principal might not have had actual knowledge of the
agent’s misdeed is of no moment. Consider the following circumstances:chanrob1es virtual
1aw library
Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co. in
the sale and disposition of the subdivision lots. As a disclosed principal in the contracts to
sell in favor of the Ventanilla couple, there was no doubt that they were in fact contracting
with the principal. Section 7 of the Ventanillas’ contracts to sell
states:jgc:chanrobles.com.ph
"7. That all payments whether deposits, down payment and monthly installment agreed to
be made by the vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby
expressly understood that unauthorized payments made to real estate brokers or agents
shall be the sole and exclusive responsibility and at the risk of the vendee and any and all
such payments shall not be recognized by the vendors unless the official receipts therefor
shall have been duly signed by the vendors’ duly authorized agent, A.U. Valencia and Co.,
Inc." (Emphasis supplied)
Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to
sell, its only participation then was to accept the collections and pay the commissions to
the agent. The latter had complete control of the business arrangement. 21
Secondly, it is evident from the records that Manila Remnant was less than prudent in the
conduct of its business as a subdivision owner. For instance, Manila Remnant failed to take
immediate steps to avert any damage that might be incurred by the lot buyers as a result
of its unilateral abrogation of the agency contract. The publication of the cancelled
contracts to sell in the Times Journal came three years after Manila Remnant had revoked
its agreement with A.U. Valencia and Co.chanrobles virtual lawlibrary
Moreover, Manila Remnant also failed to check the records of its agent immediately after
the revocation of the agency contract despite the fact that such revocation was due to
reported anomalies in Valencia’s collections. Altogether, as pointed out by the counsel for
the Ventanillas, Manila Remnant could and should have devised a system whereby it could
monitor and require a regular accounting from A.U. Valencia and Co., its agent. Not having
done so, Manila Remnant has made itself liable to those who have relied on its agent and
the representation that such agent was clothed with sufficient powers to act on behalf of
the principal.

Even assuming that Manila Remnant was as much a victim as the other innocent lot
buyers, it cannot be gainsaid that it was precisely its negligence and laxity in the day to
day operations of the real estate business which made it possible for the agent to deceive
unsuspecting vendees like the Ventanillas.

In essence, therefore, the basis for Manila Remnant’s solidary liability is estoppel which, in
turn, is rooted in the principal’s neglectfulness in failing to properly supervise and control
the affairs of its agent and to adopt the needed measures to prevent further
misrepresentation. As a consequence, Manila Remnant is considered estopped from
pleading the truth that it had no direct hand in the deception employed by its agent. 22

A final word. The Court cannot help but be alarmed over the reported practice of
supposedly reputable real estate brokers of manipulating prices by allowing their own
agents to "buy" lots in their names in the hope of reselling the same at a higher price to
the prejudice of bona fide lot buyers, as precisely what the agent had intended to happen
in the present case. This is a serious matter that must be looked into by the appropriate
government housing authority.chanrobles.com.ph : virtual law library

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated
October 13, 1987 sustaining the decision of the Quezon City trial court dated November
17, 1980 is AFFIRMED. This judgment is immediately executory. Costs against petitioner.

SO ORDERED.
G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.
PURISMA, J.:
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals 1 in CA
GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air Lines Inc.", affirming in toto the
judgment of the trial court dismissing petitioner's complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein
petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until
March 27, 1990. The issuance of the said plane ticket was in compliance with a Compromise
Agreement entered into between the contending parties in two previous suits, docketed as Civil Case
Nos. 3392 and 3451 before the Regional Trial Court in Surigao City. 2
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his
arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket
with the PAL office, and it was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that
he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight In
San Francisco instead of boarding in Las Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not
allowed to board. The PAL personnel concerned marked the following notation on his ticket: "TICKET
NOT ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage
docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in
Surigao City. But the said complaint was dismissed for lack of merit. 3
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a
Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject
ticket extended the period of validity of petitioner's ticket; (2) Whether or not the defense of lack of
authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was
proper.
To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings
of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed
unless for strong and cogent reasons. 4
The facts of the case as found by the lower court 5 are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is
not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the
Conditions of Contract (Exhibit 1, page 2) as follows:
8. This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carrier's tariffs,
conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of carriage.
Carrier may refuse transportation if the applicable fare has not been
paid. 6
The question on the validity of subject ticket can be resolved in light of the ruling in the case
of Lufthansa vs. Court of Appeals. 7 In the said case, the Tolentinos were issued first class tickets on
April 3, 1982, which will be valid until April 10, 1983. On June 10, 1982, they changed their
accommodations to economy class but the replacement tickets still contained the same restriction. On
May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the
petitioner on the ground that the said tickets had already expired. The non-extension of their tickets
prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In
ruling against the award of damages, the Court held that the "ticket constitute the contract between the
parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the
contracting parties, contracts are to be interpreted according to their literal meaning."
In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PAL's
agents in Los Angeles and San Francisco changed the compromise agreement between the parties.
As aptly by the appellate court:
. . . on March 23, 1990, he was aware of the risk that his ticket
could expire, as it did, before he returned to the Philippines.' (pp.
320-321, Original Records) 8
 The question is: "Did these two (2) employees, in effect, extend the
validity or lifetime of the ticket in question? The answer is in the
negative. Both had no authority to do so. Appellant knew this from
the very start when he called up the Legal Department of appellee
in the Philippines before he left for the United States of America. He
had first hand knowledge that the ticket in question would expire on
March 27, 1990 and that to secure an extension, he would have to
file a written request for extension at the PAL's office in the
Philippines (TSN, Testimony of Nicholas Cervantes, August 2,
1991, pp. 20-23). Despite this knowledge, appellant persisted to
use the ticket in question." 9
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to
send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to
the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The
said agents, according to the Court of Appeals, 10 acted without authority when they confirmed the
flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the acts an agent beyond the scope of his authority do not
bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third
person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to
secure the principal's ratification. 12
Anent the second issue, petitioner's stance that the defense of lack of authority on the part of the PAL
employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is
unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss
is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the
answer nor in the motion to dismiss. But records show that the question of whether there was authority
on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was
presented as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth
Villanueva, were presented.
The admission by Cervantes that he was told by PAL's legal counsel that he had to submit a letter
requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part
that the PAL employees had no authority to extend the validity of subject tickets and only PAL's legal
counsel was authorized to do so.
However, notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL agents
in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon,
as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of
Civil Procedure provides:
Sec. 5. Amendment to conform, or authorize presentation of evidence. — When
issues not raised by the pleadings are tried with express or implied consent of the
parties, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the trial of these issues. . .
.
Thus, "when evidence is presented by one party, with the express or implied consent of the adverse
party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said
issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to
the evidence thus presented when the adverse party fails to object thereto." 13
Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted
in bad faith in refusing to allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. 14 Petitioner
knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a
back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that
it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury
resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate
him with the use of subject ticket.
Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of
example or correction for the public good, and the existence of bad faith is established. The wrongful
act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty
party acted in a wanton, fraudulent, reckless or malevolent manner. 15 Here, there is no showing that
PAL acted in such a manner. An award for attorney's fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995
AFFIRMED in toto. No pronouncement as to costs.
11 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 principal's ratification.
 [G.R. No. 129039. September 17, 2002]
SIREDY ENTERPRISES, INC. petitioner, vs. HON. COURT OF APPEALS and CONRADO DE
GUZMAN, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review seeking to annul the decision [1]
dated April 26, 1996 of the Court
of Appeals in CA-G.R. CV No. 30374, reversing the decision of the Regional Trial Court of Malolos,
Bulacan, and the resolution[2] dated April 22, 1997, denying petitioners motion for reconsideration.
The following are the facts as found by the Court of Appeals, [3] undisputed by the parties and
adopted by petitioner:[4]
Private respondent Conrado De Guzman is an architect-contractor doing business under the name
and style of Jigscon Construction. Herein petitioner Siredy Enterprises, Inc. (hereafter Siredy) is the
owner and developer of Ysmael Village, a subdivision in Sta. Cruz, Marilao, Bulacan.[5] The president of
Siredy is Ismael E. Yanga.[6]
As stated in its Articles of Incorporation,[7] the primary corporate purpose of Siredy is to acquire
lands, subdivide and develop them, erect buildings and houses thereon, and sell, lease or otherwise
dispose of said properties to interested buyers.[8]
Sometime before October 1978, Yanga executed an undated Letter of Authority,[9] hereunder
reproduced verbatim:
KNOW ALL MEN BY THESE PRESENTS:
That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married, resident of and with Postal address at
Poblacion, Bocaue, Bulacan and duly authorized to execute this LETTER OF AUTHORITY, do hereby authorize
MR. HERMOGENES B. SANTOS of legal age, Filipino, married, resident of and with Postal Address at 955
Banawe St., Quezon City to do and execute all or any of the following acts:
1. To negotiate and enter into contract or contracts to build Housing Units on our subdivision lots in Ysmael
Village, Sta. Rosa, Marilao, Bulacan. However, all proceeds from said contract or contracts shall be deposited in
my name, payments of all obligation in connection with the said contract or contracts should be made and the
remainder will be paid to MR. HERMOGENES B. SANTOS.
2. To sell lots on our subdivisions and;
3. To represent us, intercede and agree for or make agreements for all payments in our favor, provided that actual
receipts thereof shall be made by the undersigned.
(SGD) DR. ISMAEL E. YANGA, SR.
For myself and in my capacity as
President
of SIREDY ENTERPRISE,
INCORPORATED
PRINCIPAL
On October 15, 1978, Santos entered into a Deed of Agreement [10] with De Guzman. The deed
expressly stated that Santos was representing Siredy Enterprises, Inc. Private respondent was referred
to as contractor while petitioner Siredy was cited as principal.
In said Deed of Agreement we find the following stipulations:
1.) That, the PRINCIPAL has contracts with different SSS members employed with different
domestic entities to build for them 2-bedroom single housing units and 4-bedroom duplex
housing units;
2.) That, the site of the said housing project is at YSMAEL VILLAGE, Bo. Sta. Rosa, Marilao,
Bulacan owned and developed by SIREDY ENTERPRISES and Mr. Ismael E. Yanga, Sr.;
3.) That, the PRINCIPAL has contracted to build the said units at the amount of FORTY FIVE
THOUSAND (P45,000.00) PESOS for the 2-bedroom single and SIXTY NINE THOUSAND
(P69,000.00) PESOS, Philippine Currency for the duplex residences;
4.) That, the CONTRACTOR intends to build for the PRINCIPAL eighty (80) units singles and
eighteen (18) units duplex residences at the cost above mentioned or a lump sum total of
FOUR MILLION, EIGHT HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS,
Philippine Currency;
5.) That, the CONTRACTOR agrees to supply all Construction Materials, labor, tools and
equipments necessary for the completion of the said housing units;
6.) That, the PRINCIPAL agrees to pay all necessary permits and papers in accordance with
Government rules and regulations;
7.) That, the PRINCIPAL agrees to supply water and electrical facilities needed during the time
of construction;
8.) That, the manner of payment shall be in accordance with SSS releases. Should the SSS
fail to pay the PRINCIPAL, the PRINCIPAL is still in obligation to pay the CONTRACTOR
for whatever accomplishments the CONTRACTOR have finished provided, that the failure
of the SSS to pay is not due to defective work of the CONTRACTOR;
 9.) That, the CONTRACTOR promises to finish the project at the rate of TEN (10) units in
THIRTY (30) days or a total of THREE HUNDRED (300) working days;
10.) That, the integral part of this CONTRACT are:
a. Plans and Specifications
b. Subdivision Plan indicating the Lot location of each unit
c. Authority of the National Housing Authority;
11.) That, the CONTRACTOR agree[s] to start work on the housing units thirty (30) days after
signing of this CONTRACT.
NOW THEREFORE, for and in consideration of the amount of FOUR MILLION, EIGHT HUNDRED FORTY
TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency, the PARTIES agree and herein set their hands
on the date and place above-mentioned.
xxx
From October 1978 to April 1990, De Guzman constructed 26 residential units at Ysmael
Village. Thirteen (13) of these were fully paid but the other 13 remained unpaid. The total contractual
price of these 13 unpaid houses is P412,154.93 which was verified and confirmed to be correct by Santos,
per an Accomplishment Billing[11] that the latter signed.
De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he instituted the
action below for specific performance against Siredy, Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his whereabouts remain unknown.
In its defense, petitioner presented testimonial evidence to the effect that Siredy had no contract
with De Guzman and had not authorized Santos to enter into a contract with anyone for the construction
of housing units at Ysmael Village.
The trial court agreed with petitioner based on the doctrine of privity of contract and gave the
following rationale:[12]
The Deed of Agreement (Exh. A and A-1) clearly reflects that the said contract was entered into by and between
plaintiff De Guzman, on one hand, and defendant Hermogenes B. Santos as purported authorized representative of
defendant Siredy Enterprises, on the other. Plainly and clearly enough, defendants Siredy Enterprises and Ismael
Yanga, Sr. were neither parties nor signatories to the same. It does not bear any legal significance that Dr. Yanga
appears to have signed the Letter of Authority (Exh. B) designating defendant Santos as the authorized
representative for myself and as president of the Siredy Enterprises, Inc. For the evidentiary fact remains that
Siredy Enterprises and Dr. Yanga had absolutely had nothing to do with the fulfillment of the terms and conditions
stipulated in the Deed of Agreement, much less had they benefited in any perceptible degree therefrom.
In the light of the foregoing circumstances, Siredy Enterprises and Dr. Yanga cannot be held liable in favor of the
plaintiff in any manner whatsoever respecting the unpaid residential units constructed by the plaintiff. This is as it
should be, because contracts take effect only between the parties, their assigns and heirs, except only in the cases
provided for by law. (Art. 1311, Civil Code of the Philippines). Not one of the exceptions obtains in this case. [13]
Thus, the trial court disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
a) directing defendant Hermogenes B. Santos to pay unto plaintiff Conrado de Guzman the
amount of P412,154.93 as actual damages with legal interest thereon from the filing of the
complaint on July 29, 1982 until the same shall have been fully paid, and P25,000.00 as
attorneys fees, plus costs;
b) dismissing the above-entitled case as against defendants Siredy Enterprises, Inc. and Dr.
Ismael Yanga, Sr.
SO ORDERED.[14]
On appeal, De Guzman obtained a favorable judgment from the Court of Appeals. The appellate
court held that the Letter of Authority duly signed by Yanga clearly constituted Santos as Siredys
agent,[15] whose authority included entering into a contract for the building of housing units at Ysmael
Village. Consequently, Siredy cannot deny liability for the Deed of Agreement with private respondent De
Guzman, since the same contract was entered into by Siredys duly designated agent, Santos. There was
no need for Yanga himself to be a signatory to the contract, for him and Siredy to be bound by the terms
thereof.
Hence, the Court of Appeals held:
WHEREFORE, We find merit in the appeal and We hereby REVERSE the appealed Decision. In its stead, we
render the following verdict: Appellee Siredy Enterprises. Inc. is ordered to pay appellant Conrado de Guzman
cost (sic) and P412,154.93 as actual damage plus legal interest thereon from the filing of the Complaint on July
29, 1982 until full payment thereof. All other claims and counterclaims are dismissed.
SO ORDERED.[16]
Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review on certiorari[17] under
Rule 45 of the Rules of Court, on the following grounds:
I. RESPONDENT COURT ERRED IN HOLDING THAT A VALID AGENCY WAS
CONSTITUTED DESPITE THE FACT THAT PETITIONER WAS NOT INVOLVED IN THE
CONSTRUCTION BUSINESS;
 II. RESPONDENT COURT ERRED IN FAILING TO CONSIDER A VITAL PROVISION IN THE
DEED OF AGREEMENT (PAR. 8), WHEN IT RENDERED ITS DECISION; and
III. RESPONDENT COURT ERRED IN FAILING TO CONSIDER THAT PRIVATE
RESPONDENT WAS NOT ENTITLED TO HIS CLAIM AS HE WAS THE PARTY WHO
VIOLATED THE CONTRACT.[18]
We find two main issues presented for resolution: First, whether or not Hermogenes B. Santos was
a duly constituted agent of Siredy, with authority to enter into contracts for the construction of residential
units in Ysmael Village and thus the capacity to bind Siredy to the Deed of Agreement; and Second,
assuming arguendo that Siredy was bound by the acts of Santos, whether or not under the terms of the
Deed of Agreement, Siredy can be held liable for the amount sought to be collected by private respondent
De Guzman.
By the relationship of agency, one party called the principal authorizes another called the agent to
act for and in his behalf in transactions with third persons. 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. He who acts through another acts himself.[19]
Was Santos then an agent of Siredy? Was he acting within the scope of his authority?
Resolution of the first issue necessitates a review of the Letter of Authority executed by Ismael E.
Yanga as president of Siredy in favor of Santos. Within its terms can be found the nature and extent of
the authority granted to Santos which, in turn, determines the extent of Siredys participation in the Deed
of Agreement.
On its face, the instrument executed by Yanga clearly and unequivocally constituted Santos to do
and execute, among other things, the act of negotiating and entering into contract or contracts to
build Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan. [20] Nothing
could be more express than the written stipulations contained therein.
It was upon the authority of this document that De Guzman transacted business with Santos that
resulted in the construction contract denominated as the Deed of Agreement.
However, petitioner denies any liability by stating that: (1) the nature of Siredys business did not
involve the construction of housing units since it was merely engaged in the selling of empty lots; (2) the
Letter of Authority is defective, and hence needed reformation; (3) Santos entering into the Deed of
Agreement was invalid because the same was in excess of his authority; and (4) there is now implied
revocation of such Letter of Authority.
Testifying on the nature of the business and the business practices of Siredy, its owner Yanga
testified[21] that Siredy was interested only in the sale of lots. It was up to the buyers, as owners, to
construct their houses in the particular style they prefer. It was allegedly never the practice of the company
to sell lots with houses already erected thereon. On the basis of the foregoing testimony, petitioner states
that despite the letter of authority, it is quite certain that such provision would go against the nature of the
business of Siredy as the same has absolutely no capability of undertaking such a task as constructing
houses.
However, the self-serving contention of petitioner cannot stand against the documentary evidence
clearly showing the companys liability to De Guzman. As we stated in the case of Cuizon vs. Court of
Appeals:[22]
As it is, the mere denial of petitioner cannot outweigh the strength of the documentary evidence presented by and
the positive testimony of private respondents. As a jurist once said, I would sooner trust the smallest slip of paper
for truth than the strongest and most retentive memory ever bestowed on moral man.[23]
Aside from the Letter of Authority, Siredys Articles of Incorporation, duly approved by the Securities
and Exchange Commission, shows that Siredy may also undertake to erect buildings and houses on the
lots and sell, lease, or otherwise dispose of said properties to interested buyers. [24] Such Articles, coupled
with the Letter of Authority, is sufficient to have given De Guzman reason to believe that Santos was duly
authorized to represent Siredy for the purpose stated in the Deed of Agreement. Petitioners theory that it
merely sold lots is effectively debunked.
Thus, it was error for the trial court to have ignored the Letter of Authority. As correctly held by the
Court of Appeals:
There is absolutely no question that the Letter of Authority (Exhibit B) executed by appellee Yanga constituted
defendant Santos as his and appellee Siredys agent. As agent, he was empowered inter alia to enter into a contract
to build housing units in the Ysmael Village. This was in furtherance of appellees business of developing and
subdividing lands, erecting houses thereon, and selling them to the public.
x x x [25]
We find that a valid agency was created between Siredy and Santos, and the authority conferred
upon the latter includes the power to enter into a construction contract to build houses such as the Deed
of Agreement between Santos and De Guzmans Jigscon Construction. Hence, the inescapable
conclusion is that Siredy is bound by the contract through the representation of its agent Santos.
The basis of agency is representation, that is, the agent acts for and in behalf of the principal on matters within the
scope of his authority (Art, 1881) and said 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.[26]
Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy asserts, the
latter is still bound to pay De Guzman. De Guzman is considered a third party to the agency agreement
who had no knowledge of the specific instructions or agreements between Siredy and its agent. What De
Guzman only saw was the written Letter of Authority where Santos appears to be duly authorized. Article
1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the ordered to pay Conrado de Guzman actual damages in the amount of P412,154.93, with legal interest
agents authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact thereon from the time the case was filed until its full payment.Costs against petitioner.
exceeded the limits of his authority according to an understanding between the principal and the agent.
SO ORDERED.
The scope of the agents authority is what appears in the written terms of the power of attorney. While Bellosillo, (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.
third persons are bound to inquire into the extent or scope of the agents authority, they are not required
to go beyond the terms of the written power of attorney. Third persons cannot be adversely affected by
an understanding between the principal and his agent as to the limits of the latters authority. In the same
way, third persons need not concern themselves with instructions given by the principal to his agent
outside of the written power of attorney.
The essence of agency being the representation of another, it is evident that the obligations
contracted are for and on behalf of the principal. This is what gives rise to the juridical relation. A
consequence of this representation is the liability of the principal for the acts of his agent performed within
the limits of his authority that is equivalent to the performance by the principal himself who should answer
therefor.[27]
Petitioner belatedly asserts, however, that the Letter of Authority was defective as it allegedly failed
to reduce into writing the real intentions of the parties, and insists on its reformation.
Such an argument deserves scant consideration. As found by the Court of Appeals, being a doctor
of medicine and a businessman, Yanga knew the meaning and import of this document and had in fact
admitted having signed it. As aptly observed by the Court of Appeals, there is no evidence that ante litem,
he abrogated the Letter of Authority and withdrew the power conferred on Santos.
Siredys contention that the present case is in effect a revocation of the Letter of Authority also
deserves scant consideration. This is a patently erroneous claim considering that it was, in fact, private
respondent De Guzman who instituted the civil case before the RTC.
With regard to the second issue put forth by petitioner, this Court notes that this issue is being raised
for the first time on appeal. From the trial in the RTC to the appeal before the Court of Appeals, the alleged
violation of the Deed of Agreement by Conrado de Guzman was never put in issue. Heretofore, the
substance of petitioners defense before the courts a quoconsisted of its denial of any liability under the
Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:[28]

It must be borne in mind that a question that was never raised in the courts below cannot be allowed to be raised
for the first time on appeal without offending basic rules of fair play, justice and due process. Such an issue was
not brought to the fore either in the trial court or the appellate court, and would have been disregarded by the latter
tribunal for the reasons previously stated. With more reason, the same does not deserve consideration by this
Court.[29]

WHEREFORE, this petition is DENIED for lack of merit. The Decision of the Court of Appeals dated
April 26, 1996, in CA-G.R. CV No. 30374, is hereby AFFIRMED. Petitioner Siredy Enterprises, Inc. is
G.R. No. 85685 September 11, 1991
LAURO CRUZ, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PURE FOODS CORP., respondents.
Alfonso G. Salvador for petitioner.
Hilario, Go & De la Cruz for private respondent.
DAVIDE, JR., J.:
In C.A.-G.R. CV No. 07859 (entitled Pure Foods Corporation versus Lauro Cruz, doing business under
the name and style Mang Uro Store), a decision was promulgated on 9 August 1988 by respondent
Court of Appeals1affirming in toto the decision promulgated on 28 February 1985 of the Regional Trial
Court of Pasig (Branch 151) of the National Capital Judicial Region in Civil Case No. 496722 which, by
reason of its unusual brevity, is fully reproduced as follows:
DECISION
This is an action for sum of money. From the record, the following facts are gathered: The
plaintiff is a domestic corporation engaged in the manufacture, processing and selling of
various meat products while the defendant is the owner/manager of Mang Uro Store in Dela
Paz Street, Marikina, Metro Manila. Sometime in November 1977, the defendant was granted
by the plaintiff a credit line on which the defendant, on several occasions, bought on credit
several Purefoods products. The defendant had an unpaid balance with the plaintiff in the
amount of P57,897.63, from which the former was credited the amount of P2,651.42
representing the amount of returned goods, thereby leaving the balance of P 55,246.21.
Demands were made upon the defendant for him to settle his account with the plaintiff. A
demand letter dated January 17, 1983 was sent to and was received by the defendant who
failed to heed the same. The plaintiff, to protect its interest, was constrained to hire the
services of counsel.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
ordering the latter to pay the former the following:
1. The sum of P 55,246.21, representing his outstanding unpaid account plus interest of 12%
percent per annum to be counted from the date of the filing of this case on April 15, 1983 until
fully paid; and
2. The sum equivalent to 15% of the total amount due as and for attorney's fees and litigation
expenses.
Costs against the defendant.
SO ORDERED.
His motion for reconsideration having been denied in the resolution of respondent Court on 27 October
1988,3petitioner filed the instant appeal by certiorari under Rule 45 of the Rules of Court urging Us to
annul and set aside the aforesaid decision and resolution because respondent Court committed the
following errors — which are the very errors he ascribed to the trial court: (a) in not holding that
petitioner is not a signatory to the credit application card attached as Annex "A" of private respondent's
complaint as clearly evidenced by the fact that only the signatures of Me Cruz and Marilou Cruz, who
are not impleaded as party defendants, appear therein; (b) in not holding that his signature does not
appear in the invoices submitted by private respondent; (c) in not holding that he did not receive the
letters of demand; (d) in not finding and concluding that private respondent failed to comply with the
Order of the trial court to amend the complaint; and (e) in denying his motion for reconsideration.
The antecedent facts are not disputed.
On 15 April 1983, private respondent Pure Foods Corporation filed with the trial court a complaint 4 for
sum of money against petitioner alleging therein that sometime in November 1977, petitioner applied for
a credit line with the plaintiff which was consequently approved by the latter subject to the conditions
therein stated; pursuant to said approved credit arrangement, defendant (petitioner herein) made
various purchases from plaintiff until the early part of 1982, when he accumulated a total unpaid
account of P57,897.63 as evidenced by short payment notices and invoices; against this obligation,
defendant was credited with the amount of P2,651.42 representing the value of returned goods, thereby
leaving a balance of P55,246.21, which remained unpaid despite numerous demands made upon him.
The parties who signed the Credit Application card as applicants are Me Cruz, who signed over the
printed words name of signatory, and Marilou L. Cruz, who signed over the printed words Authorized
Signature. The opening paragraph thereof reads:
I/We hereby apply for a charge account in the amount stated above, and herewith are the
information for your consideration as a basis for the extension of credit to us:
TRADE NAME: MANG URO STORE
 Owner/Manager: Lauro Cruz
xxx xxx xxx
Petitioner did not sign any of the invoices attached to the complaint.
For failure to file an answer within the reglementary period, and upon motion of private respondent, the
trial court issued an Order on 29 September 1983 declaring the petitioner in default and authorizing the
private respondent to present its evidence ex parte on 4 October 1983.5
On 19 October 1983, petitioner filed a motion to set aside the order of default 6 alleging therein that he
did not file an answer anymore because upon examination of the records of the case, he discovered
that it was his son Rodolfo who received the summons and copy of the complaint; he never entered into
any transaction with private respondent and that although the store referred to is still licensed in his
name, it has, since 1977, been owned and operated by his son Rodolfo Cruz for the reason that he "is
getting old already and moreover, because of deteriorating physical condition;" and according to his son
Rodolfo, he had already settled the matter with the private respondent under an agreement whereby
Rodolfo would make partial payments and the private respondent would dismiss the case.
In its Order of 9 November 1983,7 the trial court granted the aforesaid motion, required petitioner to file
his responsive pleading within five (5) days, and to present his evidence on 6 January 1984.
Petitioner filed an Answer With Counterclaim on 28 March 1983. 8 He reiterates therein his allegations in
the motion to lift the default order and further avers that his signature does not even appear on the
credit application card. On the counter-claim, he prays for judgment awarding him moral damages in an
amount to be proved at the trial, and attorney's fees in the amount of P15,000.00.
Pre-trial was set on 2 January 1984. It was reset by the trial court for 19 January 1984, and further reset
for 21 February 1984 at 1:00 P.M. upon motion of private respondent. On the last mentioned date,
however, petitioner arrived late and by then, the court had already issued an order declaring him in
default for failure to appear at the pre-trial. Forthwith, he filed a motion for reconsideration which the trial
court granted in its order of 22 February 1984. Pre-trial was reset to 27 March 1984.9
Pre-trial was held as above scheduled and was concluded with the issuance of the following order:
As prayed for, the plaintiff is given ten (10) days from today to file amended complaint.
By agreement, the presentation of defendant's evidence is set for May 16, 1984, at 8:30 a.m.,
without prejudice to the filing of a compromise agreement. 10
As stated by petitioner,11 which is not denied by private respondent, the purpose of the amendment was
to implead Me Cruz and Marilou Cruz as parties defendants since they are the applicants in the credit
application card.
Both parties did not appear on 16 May 1984. Thereupon, the trial court issued an order declaring the
case as submitted for decision on the basis of the evidence on record. 12
As adverted to earlier, on 28 February 1985, the trial court rendered its decision against petitioner who,
on 21 March 1985, filed a motion to reconsider13 the decision, which the trial court denied for lack of
merit in its order of 16 May 1985.14
Petitioner appealed from the decision to the then Intermediate Appellate Court, now Court of Appeals.
The appeal was docketed as C.A.-G.R. CV No. 07859.
In his Brief in said case, petitioner attributes to the trial court the errors 15 which, as earlier mentioned,
are the very same errors submitted before Us as having been committed by the respondent court.
According to the respondent Court, these errors bring into focus one crucial issue: the liability of
petitioner for the amounts adjudged by the trial court in favor of private respondent. It held that petitioner
is liable because in his motion to set aside the order of default, he admitted that the Mang Uro Store is
still licensed under his name and the credit application card indicates that he is the owner/manager
thereof. Hence, even on the assumption that there had been a transfer of ownership and management
of the store to Rodolfo Cruz, previous to the transactions made with appellee, petitioner permitted the
business to be carried on in his name as its ostensible owner. Private respondent should not be
expected to be aware of such a transfer and whatever agreement or understanding appellant had with
petitioner's son Rodolfo regarding the store cannot bind or affect private respondent, for matters
accomplished between two parties ought not to operate to the prejudice of a third person.16 Accordingly,
it also finds as superfluous the amendment of the complaint for the purpose of impleading Rodolfo Cruz,
Marilou Cruz and Me Cruz; moreover, it contends that failure to amend the complaint is no cause for
reversal because these persons were known to private respondent as petitioner's "progeny"; besides,
the transfer of business, if indeed there was such, is a matter of defense which need not be "negatived"
in the complaint. A complaint should not, by the averments, anticipate a defense thereto.
In respect to the failure of private respondent to comply with the order of 27 March 1984 directing it to
amend the complaint, respondent Court held that the non-compliance was "muted by the subsequent
order of 16 May 1984 which considered the case submitted for decision." By such order, the trial court
gave its assent to resolving the case on the basis of the unamended complaint. Section 11 of Rule 3
(erroneously stated as Section 3 of Rule 11) of the Rules of Court provides that parties may be dropped
or added by order of the court on motion of any party or on its own initiative at any stage of the action
and on such terms as are just; in the instant case, it may be inferred that the trial court opted to resolve
the case without the proposed change in parties defendants.
Finally, it ruled that both oral and documentary evidence presented at the hearing on 3 October 1983
proved petitioner's unsatisfied obligation to the private respondent.
To bring this petition within Our authority, petitioner asserts, in effect, that at the bottom of the assigned
errors is the issue of whether the respondent Court has made conclusions of fact which are not
substantiated by the evidence on record. Petitioner asserts that it did.
We have held in a long line of cases that findings of facts of the Court of Appeals are conclusive upon
this Court.17There are, however, recognized exceptions to this rule, 18 as where the findings are totally
devoid of support in the record, or are glaringly erroneous as to constitute serious abuse of
discretion,19 or when the findings are grounded entirely on speculation, surmise or conjecture. 20
Deliberating on this case, We hold that the findings and conclusions of both the trial court and the
respondent Court are not supported by the evidence and that such conclusions are glaringly erroneous.
This petition is impressed with merit.
In its very brief decision, the trial court, without even laying the factual premises, made a sweeping
conclusion that it was the petitioner who applied for a credit line with private respondent and which the
latter approved for him; on the basis of such approval, he subsequently bought Purefoods products on
credit from private respondent. Evidently, the trial court may have in mind the Credit Application
Card21 and the several invoices for the delivery of the goods.22 But as correctly pointed out by the
petitioner, and as the documents themselves show, he did not sign any of them.
It is the respondent Court which endeavored to supply the arguments in support of the foregoing
conclusion. According to the respondent court:
In his Motion to Set Aside Order of Default filed on October 19, 1983 appellant23 admitted that
subject store is still licensed under his name ... Also, the credit application card accomplished
in behalf of the store clearly indicates appellant as owner/manager thereof ... Hence, even on
the assumption that there really had been a transfer of ownership and management of the
"Mang Uro Store" to Rodolfo Cruz previous to the transactions made with appellee24 the fact is
that appellant permitted the carrying of the business of Id store with him as ostensible owner.
Appellee should not be expected to be aware of such transfer. Whatever private agreement or
understanding appellant made with his son Rodolfo regarding the store cannot bind or affect
appellee. Insofar as the latter is concerned, the store is business property of appellant. The
maxim res inter alios acta alteri nocere non debet is square. Matters accomplished between
two parties ought not to operate to the prejudice of a third person (Blanza vs. Arcangel, 21
SCRA 4; Perez vs. Mendoza, 65 SCRA 493; Tinitigan vs. Tinitigan 100 SCRA 636).25
Unfortunately, however, this conclusion is bereft of substantial factual basis and disregards fundamental
principles concerning the primary duty of persons dealing with parties who act for others, and of
estoppel. Indisputably, the credit application card is a form prepared and supplied by private
respondent. There is no evidence, much less an allegation by private respondent, that it was petitioner
who filled up the entries in said form. It is logical to presume then that the parties who signed it (Me
Cruz and Marilou L. Cruz), or anyone of them, made or accomplished the entries. Needless to state,
since on the face of the document, the "owner/manager" of the "Mang Uro Store", which is written on
the column Trade Name, is Lauro Cruz, and not the parties signing the same, it was incumbent upon
the private respondent to inquire into the relationship of the signatories to the petitioner or to satisfy
itself as to their authority to act for or represent the petitioner. Under the circumstances, it is apparent
that petitioner had no direct participation and that the two applicants could have acted without authority
from him or as his duly authorized representatives. In either case, for the protection of its interest,
private respondent should have made the necessary inquiry verification as to the authority of the
applicants and to find out from them whether Lauro Cruz is both the owner and manager or merely
the owner or the manager, for that is what "owner/manager" in its form could signify.
A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent.26 It is for this reason that under Article No. 1902 of the Civil Code, 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, and that 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 them.
In short, petitioner is not under estoppel, as against the claim of private respondent, which seems to be
at the bottom of the respondent Court's rationalization.
In Kalalo vs. Luz,27 We held that the essential elements of estoppel in respect to the party claiming it
are: (a) lack of knowledge and of the means of knowledge of the truth as the facts in question; (b)
reliance, in good faith, upon the conduct or statements of the party to be estopped; and (c) action or
inaction based thereon of such character as to change the position or status of the party claiming the
estoppel, to his injury, detriment, or prejudice.
The above disquisitions ineluctably show the absence of said elements in this case.
In the instant case, there is no showing at all that private respondent tried to ascertain the ownership of
Mang Uro Store and the extent of the authority of the applicants to represent Lauro Cruz at any time
before it approved the credit application card.
There is as well no evidence, much less any claim by private respondent, that before Me Cruz and
Marilou Cruz signed the credit application card, it had been dealing with petitioner or the Mang Uro
Store, or that for sometime prior thereto, petitioner ever represented to it as the owner of the store that
he has authorized the above signatories to represent him in any transaction. Clearly, it was error for the
respondent Court to conclude that petitioner should be held liable to private respondent on account of
the credit application card on the theory that he permitted the carrying of the business of the store. This
theory further erroneously assumes that the business of the store before the filing of the credit
application card included the sale of products of private respondent. There is evidence on this appoint.
Moreover, it is apparent that the purpose of the request of private respondent to file an amended
complaint within ten (10) days from 27 March 1984, the date when the pre-trial was held, which the trial
court granted,28 was precisely to implead the signatories to the credit application card. This was
precisely prompted by the insistence of petitioner that he is not liable for the claims in the complaint
because he did not sign the credit card application and the invoices. In short, he is erroneously
impleaded as defendant. Since among the matters to be considered at pre-trial is the necessity or
desirability of amendments to pleadings,29 the request was seasonably and properly made.
Private respondent did not amend the complaint within the period aforesaid. So, when the case was
caned for heating on 16 May 1984, pursuant to the Order of 27 March 1984, and the parties did not
appear, the trial court should have dismissed the case for failure on the part of private respondent to file
the amended complaint. Such dismissal is authorized under Section 3 of Rule 17 of the Rules of Court.
The respondent Court, however, brushed aside this point by holding that the non-compliance by private
respondent "was muted by the subsequent order dated May 16, 1984 which submitted the case for
decision;" and that by said order "the trial court appears to have given its assent to resolving the case
on the basis of the unamended complaint," which is authorized by Section 11 of Rule 3 of the Rules of
Court. Although this justification is flimsy and begs the question, the foregoing resolution on the issue of
petitioner's liability to the private respondent renders unnecessary further discussion on the remaining
assigned errors.
WHEREFORE, the instant petition is GRANTED, and the decision of the respondent Court of Appeals
of 9 August 1988 and its resolution of 27 October 1988 in C.A.-G.R. CV No. 07859, as well as the
decision of the trial court of 28 February 1985 in Civil Case No. 49672, are hereby REVERSED and
SET ASIDE. With costs against private respondent.
SO ORDERED.
Gutierrez, Jr., J., concurs.
Bidin, Jr., J., concur in the result.
Fernan, C.J., took no part.
Separate Opinions
FELICIANO, J,: dissenting:
With much regret, I am unable to join the majority opinion. Although petitioner Lauro Cruz did not
personally sign the credit application nor the Pure Foods invoices issued under that credit line, I believe
that he is liable for the amounts due under that credit line.
While petitioner may have turned over active management of his single proprietorship enterprise to his
son, Rodolfo Cruz, petitioner remained legal or registered owner of that enterprise and he was directly
or indirectly benefitting from the revenues generated by that store. Those revenues were earned over a
period of approximately five (5) years from the time the credit application was signed by Me Cruz and
Merle Cruz. During that five-year period, credit was drawn under the Pure Foods credit line to finance
the canned goods and other items purchased from Pure Foods and sold in the Mang Uro Store and
Pure Foods invoices were paid. Thus petitioner Lauro Cruz must or should have known about the
existence of the credit line supporting at least the Pure Foods inventory of the Mang Uro Store. If there
was lack of formal authority on the part of Me Cruz and Merle Cruz to contract for the credit line, that
lack of authority must be held to have been cured by prolonged inaction on the part of petitioner and,
more importantly, by receipt of benefits by petitioner from operation of the credit line and the purchase
of Pure Foods goods on credit.
If this is a case of an unauthorized agent, I believe there was at least implied ratification on the part of
the principal. It is too late for petitioner to disclaim responsibility for the amount due to Pure Foods. It
seems to me that it would be grossly inequitable to permit petitioner to escape that liability on such a
technical basis.
I vote to DENY the Petition for Review for lack of merit.
Separate Opinions
FELICIANO, J,: dissenting:
With much regret, I am unable to join the majority opinion. Although petitioner Lauro Cruz did not
personally sign the credit application nor the Pure Foods invoices issued under that credit line, I believe
that he is liable for the amounts due under that credit line.
While petitioner may have turned over active management of his single proprietorship enterprise to his
son, Rodolfo Cruz, petitioner remained legal or registered owner of that enterprise and he was directly
or indirectly benefitting from the revenues generated by that store. Those revenues were earned over a
period of approximately five (5) years from the time the credit application was signed by Me Cruz and
Merle Cruz. During that five-year period, credit was drawn under the Pure Foods credit line to finance
the canned goods and other items purchased from Pure Foods and sold in the Mang Uro Store and
Pure Foods invoices were paid. Thus petitioner Lauro Cruz must or should have known about the
existence of the credit line supporting at least the Pure Foods inventory of the Mang Uro Store. If there
was lack of formal authority on the part of Me Cruz and Merle Cruz to contract for the credit line, that
lack of authority must be held to have been cured by prolonged inaction on the part of petitioner and,
more importantly, by receipt of benefits by petitioner from operation of the credit line and the purchase
of Pure Foods goods on credit.

If this is a case of an unauthorized agent, I believe there was at least implied ratification on the part of
the principal. It is too late for petitioner to disclaim responsibility for the amount due to Pure Foods. It
seems to me that it would be grossly inequitable to permit petitioner to escape that liability on such a
technical basis.

I vote to DENY the Petition for Review for lack of merit.

G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of
all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to
have been indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed
by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries
and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by
the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro.5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings
and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum
of P1,754,089.00 and to reinstate and credit to such account such amount existing before the
debit was made including the amount of P812,033.37 in favor of defendant Golden Savings
and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan
Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed, prompting Metrobank to file this petition
for review on the following grounds:
 1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual
terms and conditions on the deposit slips allowing Metrobank to charge back any amount
erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is
made to pay for warrants already dishonored, thereby perpetuating the fraud committed by
Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden
Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this
case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that to all appearances belonged to the depositor,
who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to
its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank
to determine the validity of the warrants through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked
by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of
the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear
that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it
allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling —
more than one and a half million pesos (and this was 1979). There was no reason why it should not
have waited until the treasury warrants had been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden
Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the
total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and
it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared
simply because of "the lapse of one week."8 For a bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks drawn on local banks and bankers and
their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden Savings when
Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could
be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree
to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on
this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a
contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the The following sections of the Negotiable Instruments Law, especially the underscored parts, are
circumstances of this case. pertinent:

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the the following requirements:
contrary, Article 1909 of the Civil Code clearly provides that —
(a) It must be in writing and signed by the maker or drawer;
Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall
be judged 'with more or less rigor by the courts, according to whether the agency was or was (b) Must contain an unconditional promise or order to pay a sum certain in money;
not for a compensation.
(c) Must be payable on demand, or at a fixed or determinable future time;
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may (d) Must be payable to order or to bearer; and
have been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but
in any case that clearance could be implied from its allowing Golden Savings to withdraw from its (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
account not only once or even twice but three times. The total withdrawal was in excess of its original therein with reasonable certainty.
balance before the treasury warrants were deposited, which only added to its belief that the treasury
warrants had indeed been cleared. xxx xxx xxx

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the proceeds
thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for
being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered
that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its
own payment to Gomez.
Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with —
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least But an order or promise to pay out of a particular fund is not unconditional.
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes
of the general manager and the auditor of the drawer corporation, has not been established. 9 This was
the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There
the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of
should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable
Appeals:10
in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this
is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument
and is entitled to the rights and privileges of a holder in due course, free from defenses. But
this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation for food
administration, is actually an Order for payment out of "a particular fund," and is not
 unconditional and does not fulfill one of the essential requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing
the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact
Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement
and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we feel
this case is inapplicable to the present controversy.1âwphi1 That case involved checks whereas this
case involves treasury warrants. Golden Savings never represented that the warrants were negotiable
but signed them only for the purpose of depositing them for clearance. Also, the fact of forgery was
proved in that case but not in the case before us. Finally, the Court found the Jai Alai Corporation
negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the
payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it.
No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited to
its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he
has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing
defendant Golden Savings & Loan Association, Inc. to withdraw the amount outstanding
thereon, if any, after the debit.

SO ORDERED.
G.R. No. 94050 November 21, 1991 also understand that the above cost includes overall exterior booth decoration and materials
but does not include interior designs which will be per our specifications and expenses.
SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS,
INC., petitioners, PARTICIPANT'S PARTICIPATION
vs. AUTHORIZED SIGNATURE: ACCEPTED BY:
EMILY A. WHITE and HOLMAN T. WHITE, respondents.
(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIA
Ramon A. Gonzales for petitioner of the Court. DATE: 8/13/80 DATE: Aug. 1, 1980

Renato S. Corpuz for private respondents. On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City
for damages against Bedia and Hontiveros & Associated Producers Phil. Yields, Inc. for damages
caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and
persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00
to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but
was dismayed to learn later that the defendants had not paid for or registered any display space in her
CRUZ, J.: name, nor were they authorized by the state fair director to recruit participants. She said she incurred
losses as a result for which the defendants should be held solidarily liable. 2
The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject
contract with private respondent Emily A. White. Both the trial court and the respondent court held she In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and
was acting in her own personal behalf. She faults this finding as reversible error and insists that she explained that no display space was registered in her name as she was only supposed to share the
was merely acting as an agent. space leased by Hontiveros in its name. She was not allowed to display her goods in that space
because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the
The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows: particular averment that she did not sign the Participation Contract on her own behalf but as an agent of
Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The
THE STATE FAIR OF TEXAS '80 defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3
PARTICIPATION CONTRACT
In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

PARTICIPANT (COMPANY NAME) EMILY WHITE

ENTERPRISES

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus
I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair
attorney's fees and the costs. The court said:
to be held in Dallas, Texas on October 3, to October 19,1980. I/We request for a 15 square
meter booth space worth $2,250.00 U.S. Dollars.
In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to
escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation.
I/We further understand that this participation contract shall be deemed non-cancellable after
It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the
payment of the said down payment, and that any intention on our part to cancel the same shall
latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code)
render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED
PRODUCERS PHILIPPINE YIELDS, INC.

FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED
PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990:
 The evidence, on the whole, shows that she definitely acted on her own. She represented
herself as authorized by the State of Texas to solicit and assign booths at the Texas fair; she
assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code,
if the agent acts in his own name, the principal has no right of action against the persons with
whom the agent had contracted.
We do not share these views.
It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began:
I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields,
Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19,
1980. Hontiveros & Associated charged me US$150.00 per square meter for display booth of
said fair. I have paid an advance of US$500.00 as partial payment for the total space of 15
square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6
should be held answerable for any obligation arising from that agreement. By moving to dismiss the
complaint against Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims
they might have proved against the latter under the contract signed for it by Bedia. It should be obvious
that having waived these claims against the principal, they cannot now assert them against the agent.
WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED
and a new judgment is rendered dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay
City.
SO ORDERED.
G.R. No. 95641 September 22, 1994
SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-
appellees.

As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it Gutierrez, Cortes & Gonzales for petitioners.
recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of
cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros bolsters this conclusion in the
absence of any showing that said stationery had been illegally used by Bedia.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it
did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the
answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation. ROMERO, J.:

If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident
Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since
"the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents company records revealed that petitioner-insured failed to pay his premiums.
cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal.

The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against
Hontiveros, 7
leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its
answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a
cause of action against Bedia for the obligation, if any, of Hontiveros.
Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her
authority when she entered into the Participation Contract on behalf of Hontiveros, it is the latter that
On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not
remitted by Teofilo M. Malapit, respondent insurance company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages due to breach of contract
instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of
damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent
insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may
have to bear, thus absolving it therefrom?
From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer
from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as
Prudential), a personal accident insurance policy covering the one-year period between noon of
November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account
issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of
P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium
tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed:
This Statement of Account must not be considered a receipt. Official Receipt will be
issued to you upon payment of this account.
If payment is made to our representative, demand for a Provisional Receipt and if our
Official Receipts is (sic) not received by you within 7 days please notify us.
If payment is made to our office, demand for an OFFICIAL RECEIPT.
On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300
to petitioner-insured for the amount of P1,609.65 3 On the lower portion of the receipt the following is
written in capital letters:
Note: This collector's provisional receipt will be confirmed by our official receipt. If our
official receipt is not received by you within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M.
Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective
as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus
documentary stamps and premium tax" to the account of the insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the issuance of an official receipt. Ang told petitioner-
insured that the cancellation of the policy was a mistake but he would personally see to its rectification.
However, petitioner-insured failed to receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that
he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015
commencing upon its receipt of his letter, or that the current commercial rate of increase on the
payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola also
warned that should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial
payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of
the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail
to pay the balance, the company's liability would cease to operate. 7
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the
company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that
the official receipt should have been issued seven days from the issuance of the provisional receipt but
because no official receipt had been issued in Areola's name, there was reason to believe that no
payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern
by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this
matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered
by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil
informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or
one year from the date when payment was received." Apologizing again for the inconvenience caused
Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided
for in the letter. 9
The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a
complaint for breach of contract with damages before the lower court.
In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official
receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on
petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to
the filing of the complaint, respondent insurance company had complied with its obligation under the
contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists
that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well
its fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the following:
 a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy, having done so only after seven months from the time
that it had taken force and effect and despite the fact of full payment of premiums and other charges on
the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower
court, meant that the protection sought by petitioner-insured from the risks insured against was never
extended by respondent insurance company. Had the insured met an accident at the time, the
insurance company would certainly have disclaimed any liability because technically, the petitioner
could not have been considered insured. Consequently, the trial court held that there was breach of
contract on the part of respondent insurance company, entitling petitioner-insured to an award of the
damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in
unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court,
convinced that the latter had erred in finding respondent insurance company in bad faith for the
cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of
Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which
must be established convincingly. On the contrary, it further observed, the following acts indicate that
respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-
insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the
premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17,
1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17,
1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon
petitioner-insured. The appellate court added that respondent insurance company even relieved
Malapit, its Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied.
Hence, this petition for review on certiorari anchored on these arguments:
I
Respondent Court of Appeals is guilty of grave abuse of discretion and committed a
serious and reversible error in not holding Respondent Prudential liable for the
cancellation of the insurance contract which was admittedly caused by the fraudulent
acts and bad faith of its own officers.
II
Respondent Court of Appeals committed serious and reversible error and abused its
discretion in ruling that the defenses of good faith and honest mistake can co-exist
with the admitted fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a reversible error in not finding that even
without considering the fraudulent acts of its own officer in misappropriating the
premium payment, the act itself in cancelling the insurance policy was done with bad
faith and/or gross negligence and wanton attitude amounting to bad faith, because
among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed the notice
of cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law
and applicable decision of the Supreme Court when it refused to award damages in
favor of herein Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance
company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of
the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and
even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-
insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act
committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an
artificial corporate being which can act only through its officers or employees. Malapit's actuation,
concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance
company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences
of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own
employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not
possibly absolve respondent insurance company from liability, there being an obvious breach of
contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no
amount of rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where reinstatement, the equitable
relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause of action on which to predicate his claim for
damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights
under the policy. Hence, whatever cause of action there might have been against it, no longer exists
and the consequent award of damages ordered by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums
paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A
corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts
are considered as its own for which it can be held to account. 11 The facts are clear as to the
relationship between private respondent insurance company and Malapit. As admitted by private
respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is
beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums
collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by provision of law, particularly under Article 1910 of the
Civil Code, is bound by the acts of its agent.
Article 1910 thus reads:
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.
Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent
insurance company; no exoneration from liability could result therefrom. The fact that private
respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said premiums to its account, does not free the same from its
obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling
in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority. A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to perpetrate a fraud
upon his principal or some other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its
earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a contract of insurance creates reciprocal obligations for
both insurer and insured. Reciprocal obligations are those which arise from the same cause and in
which each party is both a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. 15
Under the circumstances of instant case, the relationship as creditor and debtor between the parties
arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance
under whose terms, respondent insurance company promised to extend protection to petitioner-insured
against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the
law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured
party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation
in case one of the obligors, such as respondent insurance company, fails to comply with what is
incumbent upon him. However, said article entitles the injured party to payment of damages, regardless
of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement
insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its
obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no
support in our laws on obligations and contracts.
The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary
to that granted by the court below. Although the erroneous cancellation of the insurance policy
constituted a breach of contract, private respondent insurance company, within a reasonable time took
steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no
actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy
was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must
be vindicated against an invasion that has produced no actual present loss of any kind, or where there
has been a breach of contract and no substantial injury or actual damages whatsoever have been or
can be shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of
Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC
Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to
the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in
lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded
therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from
date of filing of complaint until final payment thereof.

SO ORDERED.

Feliciano, Melo and Vitug, JJ., concur.

Bidin, J., is on leave.

#Footnotes

16 Art. 1191. 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 fulfillment 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 the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.

17 Article 2221 (Civil Code) — Nominal damages are adjudicated in order that a right
of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized and not for the purpose of indemnifying the plaintiff for any
loss suffered by him.