Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 156335 November 28, 2007 SPOUSES RAUL and AMALIA PANLILIO, Petitioners,

vs.

CITIBANK, N.A., Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule

45 of the Rules of Court, seeking to reverse the Decision1 of the

Court of Appeals (CA) dated May 28, 2002 in CA-G.R. CV No.

66649 and its Resolution of December 11, 2002, which reversed

and set aside the Decision of the Regional Trial Court (RTC) of

Makati City.

The case originated as a Complaint2 for a sum of money and

damages, filed with the RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio (petitioners) against Citibank

N.A. (respondent).

The factual antecedents are as follows:

On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited

respondent's Makati City office and deposited one million pesos

(PhP1 million) in the bank's "Citihi" account, a fixed-term savings

account with a higher-than-average interest.3 On the same day,

Amalia also opened a current or checking account with respondent,

to which interest earnings of the Citihi account were to be

credited.4 Respondent assigned one of its employees, Jinky Suzara

Lee (Lee), to personally transact with Amalia and to handle the accounts.5

Amalia opened the accounts as ITF or "in trust for" accounts, as

they were intended to benefit her minor children, Alejandro King

Aguilar and Fe Emanuelle C. Panlilio, in case she would meet an

untimely death.6 To open these accounts, Amalia signed two

documents: a Relationship Opening Form (ROF)7 and an Investor

Profiling and Suitability Questionnaire (Questionnaire).8

Amalia's initial intention was to invest the money in a Citibank

product called the Peso Repriceable Promissory Note (PRPN), a

product which had a higher interest. However, as the PRPN was

not available that day, Amalia put her money in the Citihi savings

account.9 More than a month later, or on November 28, 1997, Amalia

phoned Citibank saying she wanted to place an investment, this

time in the amount of three million pesos (PhP3 million). Again,

she spoke with Lee, the bank employee, who introduced her to

Citibank's various investment offerings. After the phone

conversation, apparently decided on where to invest the money,

Amalia went to Citibank bringing a PCIBank check in the amount

of three million pesos (PhP3 million). During the visit, Amalia

instructed Lee on what to do with the PhP3 million. Later, she

learned that out of the said amount, PhP2,134,635.87 was placed

by Citibank in a Long-Term Commercial Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation

Camella and Palmera Homes (C&P Homes).10 The rest of the

money was placed in two PRPN accounts, in trust for each of

Amalia's two children.11

Allegations differ between petitioners and respondent as to

whether Amalia instructed Lee to place the money in the LTCP of

C&P Homes.12

An LTCP is an evidence of indebtedness, with a maturity period of

more than 365 days, issued by a corporation to any person or

entity.13 It is in effect a loan obtained by a corporation (as

borrower) from the investing public (as lender)14 and is one of many instruments that investment banks can legally buy on behalf

of their clients, upon the latter's express instructions, for

investment purposes.15 LTCPs' attraction is that they usually have

higher yields than most investment instruments. In the case of the

LTCP issued by C&P Homes, the gross interest rate was 16.25%

per annum at the time Amalia made her investment.16

On November 28, 1997, the day she made the PhP3million

investment, Amalia signed the following documents: a Directional Investment Management Agreement (DIMA),17 Term Investment

Application (TIA),18 and Directional Letter/Specific Instructions.19

Key features of the DIMA and the Directional Letter are provisions

that essentially clear Citibank of any obligation to guarantee the

principal and interest of the investment, absent fraud or negligence

on the latter's part. The provisions likewise state that all risks are to

be assumed by the investor (petitioner).

As to the amount invested, only PhP2,134,635.87 out of the PhP3

million brought by Amalia was placed in the LTCP since,

according to Lee, this was the only amount of LTCP then

available.20 According to Lee, the balance of the PhP3 million was

placed in two PRPN accounts, each one in trust for Amalia's two children, per her instructions.21

Following this investment, respondent claims to have regularly

sent confirmations of investment (COIs) to petitioners.22 A COI is

a one-page, computer generated document informing the customer

of the investment earlier made with the bank. The first of these

COIs was received by petitioners on or about December 9, 1997,

as admitted by Amalia, which is around a week after the

investment was made.23 Respondent claims that other succeeding

COIs were sent to and received by petitioners.

Amalia claims to have called Lee as soon as she received the first

COI in December 1997, and demanded that the investment in LTCP be withdrawn and placed in a PRPN.24 Respondent,

however, denies this, claiming that Amalia merely called to clarify

provisions in the COI and did not demand a withdrawal.25

On August 6, 1998, petitioners met with respondent's other

employee, Lizza Colet, to preterminate the LTCP and their other

investments. Petitioners were told that as to the LTCP, liquidation

could be made only if there is a willing buyer, a prospect which

could be difficult at that time because of the economic crisis. Still,

petitioners signed three sets of Sales Order Slip to sell the LTCP

and left these with Colet.26

On August 18, 1998, Amalia, through counsel, sent her first

formal, written demand to respondent "for a withdrawal of her investment as soon as possible."27 The same was followed by

another letter dated September 7, 1998, which reiterated the same

demands.28 In answer to the letters, respondent noted that the

investment had a 2003 maturity, was not a deposit, and thus, its

return to the investor was not guaranteed by respondent; however,

it added that the LTCP may be sold prior to maturity and had in

fact been put up for sale, but such sale was "subject to the

availability of buyers in the secondary market."29 At that time,

respondent was not able to find a buyer for the LTCP. As this

response did not satisfy petitioners, Amalia again wrote

respondent, this time a final demand letter dated September 21, 1998, asking for a reconsideration and a return of the money she

invested.30 In reply, respondent wrote a letter dated October 12,

1998 stating that despite efforts to sell the LTCP, no willing buyers

were found and that even if a buyer would come later, the price

would be lower than Amalia's original investment.31

Thus, petitioners filed with the RTC their complaint against

respondent for a sum of money and damages.

The Complaint32 essentially demanded a return of the investment,

alleging that Amalia never instructed respondent's employee Lee to

invest the money in an LTCP; and that far from what Lee

executed, Amalia's instructions were to invest the money in a "trust account" with an "interest of around 16.25% with a term of 91

days." Further, petitioners alleged that it was only later, or on

December 8, 1997, when Amalia received the first confirmation of

investment (COI) from respondent, that she and her husband

learned of Lee's infidelity to her orders. The COI allegedly

informed petitioners that the money was placed in an LTCP of

C&P Homes with a maturity in 2003, and that the investment was

not guaranteed by respondent. Petitioners also claimed that as soon as Amalia received the COI, she immediately called Lee; however,

the latter allegedly convinced her to ignore the COI, that C&P

Homes was an Ayala company, that the investment was secure,

and that it could be easily "withdrawn"; hence, Amalia decided not

to immediately "withdraw" the investment. Several months later,

or on August 6, 1998, petitioners allegedly wanted to "withdraw"

the investment to buy a property; however, they failed to do so,

since respondent told them the LTCP had not yet matured, and that

no buyers were willing to buy it. Hence, they sent various demand

letters to respondent, asking for a return of their money; and when

these went unheeded, they filed the complaint.

In its Answer,33 respondent admitted that, indeed, Amalia was its client and that she invested the amounts stated in the complaint.

However, respondent disputed the claim that Amalia opened a

"trust account" with a "request for an interest rate of around

16.25% with a term of 91 days;" instead, respondent presented

documents stating that Amalia opened a "directional investment

management account," with investments to be made in C&P

Homes' LTCP with a 2003 maturity. Respondent disputed

allegations that it violated petitioners' express instructions.

Respondent likewise denied that Amalia, upon her receipt of the

COI, immediately called respondent and protested the investment

in LTCP, its 2003 maturity and Citibank's lack of guarantee. According to respondent, no such protest was made and petitioners

actually decided to liquidate their investment only months later,

after the newspapers reported that Ayala Land, Inc. was cancelling

plans to invest in C&P Homes.

The rest of respondent's Answer denied (1) that it convinced

Amalia not to liquidate or "withdraw" her investment or to ignore

the contents of the COI; (2) that it assured Amalia that the

investment could be easily or quickly "withdrawn" or sold; (3) that

it misrepresented that C&P was an Ayala company, implying that

C&P had secure finances; and (4) that respondent had been

unfaithful to and in breach of its contractual obligations.

After trial, the RTC rendered its Decision,34 dated February 16, 2000, the dispositive portion of which states:

The foregoing considered, the court hereby rules in favor of

plaintiffs and order defendant to pay:

1. The sum of PhP2,134,635.87 representing the actual

amount deposited by plaintiffs with defendant plus

interest corresponding to time deposit during the time

material to this action from date of filing of this case until

fully paid;

2. The sum of PhP300,000.00 representing moral

damages;

3. The sum of PhP100,000.00 representing attorney's fees; 4. Costs.

SO ORDERED.35

The RTC upheld all the allegations of petitioners and concluded

that Amalia never instructed Citibank to invest the money in an

LTCP. Thus, the RTC found Citibank in violation of its contractual

and fiduciary duties and held it liable to return the money invested

by petitioners plus damages.

Respondent appealed to the CA.

On appeal, in its Decision promulgated on May 28, 2002, the CA

reversed the Decision of the RTC, thus:

WHEREFORE, premises considered, the assailed decision dated 16 February 2000 is REVERSED and SET ASIDE and a new one

entered DISMISSING Civil Case No. 99-500.36

The CA held that with respect to the amount of PhP2,134,635.87,

the account opened by Amalia was an investment management

account; as a result, the money invested was the sole and exclusive

obligation of C&P Homes, the issuer of the LTCP, and was not

guaranteed or insured by herein respondent Citibank;37 that Amalia

opened such an account as evidenced by the documents she executed with Citibank, namely, the Directional Investment

Management Agreement (DIMA), Term Investment Application

(TIA), and Directional Letter/Specific Instructions, which were all

dated November 28, 1997, the day Amalia brought the money to

Citibank. Further, the CA brushed aside petitioners' arguments that

Amalia failed to understand the true nature of the LTCP

investment, and that she failed to read the documents as they were

written in fine print. The CA ruled that petitioners could not seek

the court's aid to extricate them from their contractual obligations.

Citing jurisprudence, the CA held that the courts protected only

those who were innocent victims of fraud, and not those who

simply made bad bargains or exercised unwise judgment. On petitioners' motion for reconsideration, the CA reiterated its

ruling and denied the motion in a Resolution38 dated December 11,

2002.

Thus, the instant petition which raises issues, summarized as

follows: (1) whether petitioners are bound by the terms and

conditions of the Directional Investment Management Agreement

(DIMA), Term Investment Application (TIA), Directional

Letter/Specific Instructions, and Confirmations of Investment

(COIs); (2) and whether petitioners are entitled to take back the

money they invested from respondent bank; or stated differently,

whether respondent is obliged to return the money to petitioners upon their demand prior to maturity.

Petitioners contend that they are not bound by the terms and

conditions of the DIMA, Directional Letter and COIs because

these were inconsistent with the TIA and other documents they

signed.39 Further, they claim that the DIMA and the Directional

letter were signed in blank or contained unauthorized intercalations

by Citibank.40 Petitioners argue that contrary to the contents of the

documents, they did not instruct Citibank to invest in an LTCP or

to put their money in such high-risk, long-term instruments.41

The Court notes the factual nature of the questions raised in the

petition. Although the general rule is that only questions of law are

entertained by the Court in petitions for review on certiorari,42 as the Court is not tasked to repeat the lower courts' analysis or

weighing of evidence,43 there are instances when the Court may

resolve factual issues, such as (1) when the trial court misconstrued

facts and circumstances of substance which if considered would

alter the outcome of the case;44 and (2) when the findings of facts

of the CA and the trial court differ.45

In the instant case, the CA completely reversed the findings of

facts of the trial court on the ground that the RTC failed to

appreciate certain facts and circumstances. Thus, applying the

standing jurisprudence on the matter,46 the Court proceeded to

examine the evidence on record.

The Court's Ruling The Court finds no merit in the petition. After a careful

examination of the records, the Court affirms the CA's ruling for

being more in accord with the facts and evidence on record.

On the first issue of whether petitioners are bound by the terms and

conditions of the DIMA, TIA, Directional Letter and COIs, the

Court holds in the affirmative and finds for respondent.

The DIMA, Directional Letter and COIs are evidence of the

contract between the parties and are binding on them, following

Article 1159 of the Civil Code which states that contracts have the

force of law between the parties and must be complied with in good faith.47 In particular, petitioner Amalia affixed her signatures

on the DIMA, Directional Letter and TIA, a clear evidence of her

consent which, under Article 1330 of the same Code, she cannot

deny absent any evidence of mistake, violence, intimidation, undue

influence or fraud.48

As the documents have the effect of law, an examination is in

order to reveal what underlies petitioners' zeal to exclude these

from consideration. Under the DIMA, the following provisions appear:

4. Nature of Agreement – THIS AGREEMENT IS AN AGENCY

AND NOT A TRUST AGREEMENT. AS SUCH, THE

PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE

TO THE FUNDS AND PROPERTIES SUBJECT OF THE

ARRANGEMENT.

THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR

THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS

AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN

OR INCOME BY THE INVESTMENT MANAGER. AS SUCH,

PAST PERFORMANCE OF THE ACCOUNT IS NOT A

GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE

DEPENDING ON PREVAILING MARKET CONDITIONS.

IT IS UNDERSTOOD THAT THIS INVESTMENT

MANAGEMENT AGREEMENT IS NOT COVERED BY THE

PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)

AND THAT LOSSES, IF ANY, SHALL BE FOR THE

ACCOUNT OF THE PRINCIPAL. (Underscoring supplied.)

x x x x

6. Exemption from Liability. - In the absence of fraud, bad faith,

or gross or willful negligence on the part of the INVESTMENT

MANAGER or any person acting in its behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to the

Portfolio arising out of or in connection with any act done or

omitted or caused to be done or omitted by the INVESTMENT

MANAGER pursuant to the terms and conditions herein agreed

upon, and pursuant to and in accordance with the written

instructions of the PRINCIPAL to carry out the powers, duties and

purposes for which this Agreement is executed. The PRINCIPAL

will hold the INVESTMENT MANAGER free and harmless from

any liability, claim, damage or fiduciary responsibility that may

arise from any investment made pursuant to this Agreement and to

such letters or instructions under Paragraph 3 hereof due to the

default, bankruptcy or insolvency of the Borrower/Issuer or the Broker/Dealer handling the transaction and or their failure in any

manner to comply with any of their obligations under the aforesaid

transactions, it being the PRINCIPAL'S understanding and

intention that the investments/reinvestments under this account

shall be strictly for his/its account and risk except as indicated

above.

The INVESTMENT MANAGER shall manage the Portfolio with

the skill, care, prudence, and diligence necessary under the

prevailing circumstances that a good father of the family, acting in

a like capacity and familiar with such matters, would exercise in

the conduct of an enterprise of like character and with similar aims. (Underscoring supplied.)

x x x x

11. Withdrawal of Income/Principal – Subject to availability of

funds and taking into consideration the commitment of this

account to third parties, the PRINCIPAL may withdraw the

income/principal of the Portfolio or portion thereof upon request or

application thereof from the Bank. The INVESTMENT

MANAGER shall not be required to inquire as to the

income/principal so withdrawn from the Portfolio. Any income of

the Portfolio not withdrawn shall be accumulated and added to the

principal of the Portfolio for further investment and reinvestment.49 (Underscoring supplied.)

Under the Directional Letter, which constituted petitioners'

instructions to respondent, the following provisions are found:

In the absence of fraud, bad faith or gross or willful negligence on

your part or any person acting in your behalf, you shall not be held

liable for any loss or damage arising out of or in connection with

any act done or performed or caused to be done or performed by you pursuant to the terms and conditions of our Agreement. I/We

shall hold you free and harmless from any liability, claim, damage,

or fiduciary responsibility that may arise from this investment

made pursuant to the foregoing due to the default, bankruptcy or

insolvency of the Borrower/Issuer, or the Broker/Dealer handling

the aforesaid transactions/s, it being our intention and

understanding that the investment/reinvestment under these

transaction/s shall be strictly for my/our account and risk.

In case of default of the Borrower/Issuers, we hereby authorize you

at your sole option, to terminate the investment/s therein and

deliver to us the securities/loan documents then constituting the

assets of my/our DIMA/trust account with you for me/us to undertake the necessary legal action to collect and/or recover from

the borrower/issuers.50 (Underscoring supplied.)

The documents, characterized by the quoted provisions, generally

extricate respondent from liability in case the investment is lost.

Accordingly, petitioners assumed all risks and the task of

collecting from the borrower/issuer C&P Homes.

In addition to the DIMA and Directional Letter, respondent also

sent petitioners the COIs on a regular basis, the first of which was

received by petitioners on December 9, 1997. The COIs have the

following provisions in common:

x x x x

NATURE OF

TRANSACTION INVESTMENT IN LTCP

NAME OF

BORROWER/ISSUER C&P HOMES

x x x x

TENOR 91 DAYS

x x x x

MATURITY DATE 11/05/03

x x x x

OTHERS REPRICEABLE EVERY

91 DAYS

PURSUANT TO THE BANGKO SENTRAL REGULATIONS,

THE PRINCIPAL AND INTEREST OF YOUR INVESTMENT

ARE OBLIGATIONS OF THE BORROWER AND NOT OF

THE BANK. YOUR INVESTMENT IS NOT A DEPOSIT AND

IS NOT GUARANTEED BY CITIBANK N.A.

x x x x

Please examine this Confirmation and notify us in writing within

seven (7) days from receipt hereof of any deviation from your prior

conformity to the investment. If no notice is received by us within this period, this Confirmation shall be deemed correct and

approved by you, and we shall be released and discharged as to all

items, particulars, matters and things set forth in this

Confirmation.51

Petitioners admit receiving only the first COI on December 8,

1997.52 The evidence on record, however, supports respondent's

contentions that petitioners received the three other COIs on

February 12, 1998,53 May 14, 1998,54 and August 14, 1998,55

before petitioners' first demand letter dated August 18, 1998.56

The DIMA, Directional Letter, TIA and COIs, read together,

establish the agreement between the parties as an investment

management agreement, which created a principal-agent relationship between petitioners as principals and respondent as

agent for investment purposes. The agreement is not a trust or an

ordinary bank deposit; hence, no trustor-trustee-beneficiary or even

borrower-lender relationship existed between petitioners and

respondent with respect to the DIMA account. Respondent

purchased the LTCPs only as agent of petitioners; thus, the latter

assumed all obligations or inherent risks entailed by the transaction

under Article 1910 of the Civil Code, which provides: Article 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.

The transaction is perfectly legal, as investment management

activities may be exercised by a banking institution, pursuant to

Republic Act No. 337 or the General Banking Act of 1948, as

amended, which was the law then in effect.1avvphi1 Section 72 of

said Act provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and

loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable

objects, and rent safety deposit boxes for the safeguarding

of such effects;

(b) Act as financial agent and buy and sell, by order of

and for the account of their customers, shares,

evidences of indebtedness and all types of securities; (c) Make collections and payments for the account of

others and perform such other services for their customers

as are not incompatible with banking business. (d) Upon prior approval of the Monetary Board, act as

managing agent, adviser, consultant or administrator of

investment management/ advisory/consultancy accounts.

The banks shall perform the services permitted under

subsections (a), (b) and (c) of this section as depositories or as

agents. Accordingly, they shall keep the funds, securities and

other effects which they thus receive duly separated and apart

from the bank's own assets and liabilities. The Monetary Board may regulate the operations authorized by

this section in order to insure that said operations do not endanger

the interests of the depositors and other creditors of the banks.

(Emphasis supplied.) while Section 74 prohibits banks from guaranteeing obligations of

any person, thus:

Sec. 74. No bank or banking institution shall enter, directly, or

indirectly into any contract of guaranty or suretyship, or shall

guarantee the interest or principal of any obligation of any

person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the

following: (a) borrowing of money by banking institution through

the rediscounting of receivables; (b) acceptance of drafts or bills of

exchange (c) certification of checks; (d) transactions involving the

release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f)

repurchase agreements; (g) shipside bonds; (h) ordinary guarantees

or indorsements in favor of foreign creditors where the principal

obligation involves loans and credits extended directly by foreign

investment purposes; and (i) other transactions which the Monetary

Board may, by regulation, define or specify as not covered by the

prohibition. (Emphasis supplied.)

Nothing also taints the legality of the LTCP bought in behalf of

petitioners. C&P Homes' LTCP was duly registered with the

Securities and Exchange Commission while the issuer was

accredited by the Philippine Trust Committee.57 The evidence also sustains respondent's claim that its trust

department handled the account only because it was the

department tasked to oversee the trust, and other fiduciary and

investment management services of the bank.58 Contrary to

petitioners' claim, this did not mean that petitioners opened a "trust

account." This is consistent with Bangko Sentral ng Pilipinas

(BSP) regulations, specifically the Manual of Regulations for

Banks (MORB), which groups a bank's trust, and other fiduciary and investment management activities under the same set of

regulations, to wit:

PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND

INVESTMENT MANAGEMENT ACTIVITIES

x x x x

Sec. X402 Scope of Regulations. These regulations shall govern

the grant of authority to and the management, administration and

conduct of trust, other fiduciary business and investment

management activities (as these terms are defined in Sec. X403) of

banks. The regulations are divided into three (3)

Sub-Parts where:

A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary

business including investment management activities;

B. Investment Management Activities shall apply to

banks without trust authority but with authority to

engage in investment management activities; and

C. General Provisions shall apply to both.

x x x x

Sec. X403 Definitions. For purposes of regulating the operations of

trust and other fiduciary business and investment management

activities, unless the context clearly connotes otherwise, the

following shall have the meaning indicated. a. Trust business shall refer to any activity resulting from

a trustor-trustee relationship (trusteeship) involving the

appointment of a trustee by a trustor for the

administration, holding, management of funds and/or

properties of the trustor by the trustee for the use, benefit

or advantage of the trustor or of others called

beneficiaries.

b. Other fiduciary business shall refer to any activity

of a trust-licensed bank resulting from a contract or

agreement whereby the bank binds itself to render

services or to act in a representative capacity such as

in an agency, guardianship, administratorship of wills,

properties and estates, executorship, receivership, and

other similar services which do not create or result in

a trusteeship. It shall exclude collecting or paying

agency arrangements and similar fiduciary services

which are inherent in the use of the facilities of the

other operating departments of said bank. Investment

management activities, which are considered as among

other fiduciary business, shall be separately defined in

the succeeding item to highlight its being a major

source of fiduciary business.

c. Investment management activity shall refer to any

activity resulting from a contract or agreement

primarily for financial return whereby the bank (the

investment manager) binds itself to handle or manage

investible funds or any investment portfolio in a

representative capacity as financial or managing

agent, adviser, consultant or administrator of financial

or investment management, advisory, consultancy or

any similar arrangement which does not create or

result in a trusteeship. (Emphasis supplied.)

The Court finds no proof to sustain petitioners' contention that the

DIMA and Directional Letter contradict other papers on record, or were signed in blank, or had unauthorized intercalations.59

Petitioners themselves admit that Amalia signed the DIMA and the

Directional Letter, which bars them from disowning the contract

on the belated claim that she signed it in blank or did not read it

first because of the "fine print."60 On the contrary, the evidence

does not support these latter allegations, and it is highly

improbable that someone fairly educated and with investment

experience would sign a document in blank or without reading it first.61 Petitioners owned various businesses and were clients of

other banks, which omits the possibility of such carelessness.62

Even more damning for petitioners is that, on record, Amalia

admitted that it was not her habit to sign in blank and that the

contents of the documents were explained to her before she

signed.63

Testimonial evidence and the complaint itself contained allegations

that petitioners' reason for transferring their money from local

banks to respondent is because it is safer to do so,64 a clear indicia

of their intelligence and keen business sense which they could not

have easily surrendered upon meeting with respondent.

Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their provisions merely

conform with BSP regulations governing these types of

transactions. Specifically, the MORB mandates that investment

managers act as agents, not as trustees, of the investor;65 that the

investment manager is prohibited from guaranteeing returns on the

funds or properties;66 that a written document should state that the

account is not covered by the PDIC; and that losses are to be borne

by clients.67 That these legal requirements were communicated to

petitioners is evident in Amalia's signatures on the documents and

in testimony to this effect.68

As to the allegation that the documents were in "fine print," the Court notes that although the print may have looked smaller than

average, they were nevertheless of the same size throughout the

documents, so that no part or provision is hidden from the reader.

The Court also takes judicial notice that the print is no smaller than

those found in similar contracts in common usage, such as

insurance, mortgage, sales contracts and even ordinary bank

deposit contracts. In the documents in question, the provisions

hurtful to petitioners' cause were likewise in no smaller print than

the rest of the document, as indeed they were even highlighted

either in bold or in all caps. This disposes of the argument that they

were designed to hide their damaging nature to the signatory.69 The

conclusion is that the print is readable and should not have prevented petitioners from studying the papers before their signing.

Considering petitioners' social stature, the nature of the transaction

and the amount of money involved, the Court presumes that

petitioners exercised adequate care and diligence in studying the

contract prior to its execution.70

In Sweet Lines, Inc. v. Teves,71 the Court pronounced the general

rule regarding contracts of adhesion, thus:

x x x there are certain contracts almost all the provisions of which

have been drafted only by one party, usually a corporation. Such

contracts are called contracts of adhesion, because the only

participation of the other party is the signing of his signature or his ‗adhesion‘ thereto. Insurance contracts, bills of lading, contracts of

sale of lots on the installment plan fall into this category.

x x x it is drafted only by one party, usually the corporation, and is

sought to be accepted or adhered to by the other party x x x who

cannot change the same and who are thus made to adhere hereto on

the ‗take it or leave it‘ basis.

x x x it is hardly just and proper to expect the passengers to

examine their tickets received from crowded/congested counters,

more often than not during rush hours, for conditions that may be

printed thereon, much less charge them with having consented to

the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case.

However, Sweet Lines72 further expounded that the validity and/or

enforceability of contracts of adhesion will have to be determined

by the peculiar circumstances obtaining in each case and the nature

of the conditions or terms sought to be enforced.73 Thus, while any

ambiguity, obscurity or doubt in a contract of adhesion is

construed or resolved strictly against the party who prepared it,74 it is also equally obvious that in a case where no such ambiguity,

obscurity or doubt exists, no such construction is warranted. This

was the case in the DIMA and the Directional Letter signed by

Amalia in the instant controversy.

The parties to this case only disagree on whether petitioners were

properly informed of the contents of the documents. But as earlier

stated, petitioners were free to read and study the contents of the

papers before signing them, without compulsion to sign

immediately or even days after, as indeed the parties were even

free not to sign the documents at all. Unlike in Sweet Lines, where

the plaintiffs had no choice but to take the services of monopolistic

transport companies during rush hours, in the instant case, petitioners were under no such pressure; petitioners were free to

invest anytime and through any of the dozens of local and foreign

banks in the market.

In addition, it has been held that contracts of adhesion are not

necessarily voidable. The Court has consistently held that contracts

of adhesion, wherein one party imposes a ready-made form of

contract on the other, are contracts not entirely prohibited, since

the one who adheres to the contract is in reality free to reject it

entirely; if he adheres, he gives his consent.75 It is the rule that

these contracts are upheld unless they are in the nature of a

patently lopsided deal where blind adherence is not justified by other factual circumstances.76

Petitioners insist that other documents Amalia signed -- that is, the

ROF,77 Questionnaire78 and TIA79 -- contradict the DIMA and

Directional Letter. Specifically, they argue that under the ROF and

the Questionnaire, they manifested an intent to invest only in a

time deposit in the medium term of over a year to three years, with

no risk on the capital, or with returns in line with a time deposit.80

However, this contention is belied by the evidence and testimony

on record. Respondent explains that investors fill up the ROF and

Questionnaire only when they first visit the bank and only for the

account they first opened,81 as confirmed by the evidence on

record and the fact that there were no subsequent ROFs and Questionnaires presented by petitioners.

The ROF and Questionnaire were filled up when the PhP1 million

"Citihi" savings account was opened by Amalia on October 10,

1997, during her first visit to the bank. When Amalia returned

more than a month later on November 28, 1997, a change in her

investment attitude occurred in that she wanted to invest an even

bigger amount (PhP3 million) and her interest had shifted to high-

yield but riskier long-term instruments like PRPNs and LTCPs.

When Amalia proceeded to sign new documents like the DIMA

and the Directional Letter for the LTCP investment, despite their

obviously different contents from those she was used to signing for ordinary deposits, she essentially confirmed that she knew what

she was agreeing to and that it was different from all her previous

transactions.

In addition, even the ROF and Questionnaire signed by Amalia

during the first visit contained provisions that clearly contradict

petitioners' claims. The ROF contained the following:

I/We declare the above information to be correct. I/We hereby

acknowledge to have received, read, understood and agree to be

bound by the general terms and conditions applicable and

governing my/our account/s and/or investment/s which appear

in a separate brochure/manual as well as separate documents relative to said account/s and/or investment/s. Said terms and

conditions shall likewise apply to all our existing and future

account/s and/or investment/s with Citibank. I/We hereby further

authorize Citibank to open additional account/s and/or

investment/s in the future with the same account title as contained

in this relationship opening form subject to the rules governing the

aforementioned account/s and/or investment/s and the terms and

conditions therein or herein. I/We agree to notify you in writing of any change in the information supplied in this relationship opening

form.82 (Emphasis supplied.)

while the Questionnaire had the following provisions:

I am aware that investment products are not bank deposits or other

obligations of, or guaranteed or insured by Citibank N.A., Citicorp

or their affiliates. I am aware that the principal and interest of

my investments are obligations of the borrower/issuer. They

are subject to risk and possible loss of principal. Past

performance is not indicative of future performance. In addition,

investments are not covered by the Philippine Deposit Insurance

Corporation (PDIC) or the Federal Deposit Insurance Corporation

(FDIC).83 which do not need further elaboration on the matter.

Petitioners contend that the Term Investment Application (TIA),

viz:

TERM INVESTMENT

APPLICATION

MAKATI

Branch and Service Area

Date 1/28/97

TITLE OF ACCOUNT

_______________________________

_________

PANLILIO, AMALIA ITF

ALEJANDRO KING

AGUILAR & FE EMMANUELLE PANLILIO

CIF Keys

_____________

____

_____________

____

_____________

____

_________________

Address

______________________________________________

________

For corporations, c/o _______________________ Tel. No. ____________

Dear Sir:

THIS IS TO AUTHORIZE

CITIBANK, N. A. TO: ( ) open

( ) rollover

( ) rollover w/

added funds

( ) rollover w/

payout

Ref. No. ____

[ ] Peso Time

Depositories

[ ] NNPN

[ ] Dollar TD

[ ]

Multicurrency

TD

[ ] Confirmation

of Sale

[ ] CITIHI-Yielder

TRUST

NEW ADDED FUNDS WILL COME FROM:

( ) debit my/our account no.

________________

( ) Check No.

____________________________

( ) Cash deposit

__________________________

for P/$

_______________

for P/$

_______________

for P/$

_______________

IN THE AMOUNT AND TERMS SPECIFIED AS

FOLLOWS:

PRINCIPAL/Money

In

P/$

3,000,000

Value 11/28/97

MATURITY AMOUNT/Par Value

P/$____________

Maturity Date

_______

INTEREST RATE around

16.25%

Term 91 days

84

(Emphasis supplied.)

clearly contradicts the DIMA, Directional Letter and COIs.

Petitioners insist that the amount PhP3 million in the TIA does not

tally with the actual value of the investment which appeared on the

first COI, which was PhP2,134,635.87. Petitioners add that the

TIA's interest rate of "around 16.25%" with the term "91 days"

contradicts the COI's interest rate of 16.95% with a tenor of 75

days repriceable after 91 days.85 Further, petitioners claim that the

word "TRUST" inscribed on the TIA obviously meant that they

opened a trust account, and not any other account.86

The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3 million was placed in the LTCP since this was the

only amount of LTCP then available, while the balance was placed

in two PRPN accounts, each one in trust for Amalia's two children,

upon her instructions.87 The disparity in the interest rate is also

explained by the fact that the 16.95% rate placed in the COI is

gross and not net interest,88 and that it is subject to repricing every

91 days.

The Court gives credence to respondent's explanation that the word

"TRUST" appearing on the TIA simply means that the account is

to be handled by the bank's trust department, which handles not

only the trust business but also the other fiduciary business and

investment management activities of the bank, while the "ITF" or "in trust for" appearing on the other documents only signifies that

the money was invested by Amalia in trust for her two children, a

device that she uses even in her ordinary deposit accounts with

other banks.89 The ITF device allows the children to obtain the

money without need of paying estate taxes in case Amalia meets a

premature death.90 However, it creates a trustee-beneficiary

relationship only between Amalia and her children, and not

between Amalia, her children, and Citibank.

All the documents signed by Amalia, including the DIMA and

Directional Letter, show that her agreement with respondent is one

of agency, and not a trust. The DIMA, TIA, Directional Letter and COIs, viewed altogether,

establish without doubt the transaction between the parties, that on

November 28, 1997, with PhP3 million in tow, Amalia opened an

investment management account with respondent, under which she

instructed the latter as her agent to invest the bulk of the money in

LTCP.

Aside from their bare allegations, evidence that supports

petitioners' contentions that no such deal took place, or that the

agreement was different, simply does not exist in the records.

Petitioners were experienced and intelligent enough to be able to

demand and sign a different document to signify their real intention; but no such document exists. Thus, petitioners' acts and

omissions negate their allegations that they were essentially

defrauded by the bank.

Petitioners had other chances to protest respondent's alleged

disregard of their instructions. The COIs sent by respondent to

petitioners encapsulate the spirit of the DIMA and Directional

Letter, with the proviso that should there be any deviations from

petitioners' instructions, they may inform respondent in writing

within seven days. Assuming arguendo that respondent violated

the instructions, petitioners did not file a single timely written

protest, however, despite their admission that they received the

first COI on December 8, 1997.91 It took eight months for

petitioners to formally demand the return of their investment

through their counsel in a letter dated August 18, 1998.92 The

letter, however, did not even contest the placement of the money in an LTCP, but merely its maturity in the year 2003. Prior to the

letter, it has been shown that petitioners had received COIs on

February 12, 1998,93 May 14, 1998,94 and August 14, 1998,95 and

in between, petitioners never demanded a return of the money they

invested.

Petitioners' acts and omissions strongly indicate that they in fact

conformed to the agreement in the months after the signing. In that

period, they were receiving their bank statements and earning

interest from the investment, as in fact, C&P Homes under the

LTCP continuously paid interest even up to the time the instant

case was already on trial.96 When petitioners finally contested the

contract months after its signing, it was suspiciously during the time when newspaper reports came out that C&P Homes' stock had

plunged in value and that Ayala Land was withdrawing its offer to

invest in the company.97 The connection is too obvious to ignore. It

is reasonable to conclude that petitioners' repudiation of the

agreement was nothing more than an afterthought, a reaction to the

negative events in the market and an effort to flee from a losing

investment.

Anent the second issue, whether petitioners are entitled to recover

from respondent the amount of PhP2,134,635.87 invested under

the LTCP, the Court agrees with the CA in dismissing the

complaint filed by petitioners. Petitioners may not seek a return of their investment directly from

respondent at or prior to maturity. As earlier explained, the

investment is not a deposit and is not guaranteed by respondent.

Absent any fraud or bad faith, the recourse of petitioners in the

LTCP is solely against the issuer, C&P Homes, and only upon

maturity. The DIMA states, thus:

11. Withdrawal of Income/Principal – Subject to availability of

funds and taking into consideration the commitment of this

account to third parties, the PRINCIPAL may withdraw the

income/principal of the Portfolio or portion thereof upon

request or application thereof from the Bank. The

INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income

of the Portfolio not withdrawn shall be accumulated and added to

the principal of the Portfolio for further investment and

reinvestment.98 (Emphasis supplied.)

It is clear that since the money is committed to C&P Homes via

LTCP for five years, or until 2003, petitioners may not seek its

recovery from respondent prior to the lapse of this period.

Petitioners must wait and meanwhile just be content with receiving

their interest regularly. If petitioners want the immediate return of

their investment before the maturity date, their only way is to find

a willing buyer to purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against the respondent.

The nature of the DIMA and the other documents signed by the

parties calls for this condition. The DIMA states that respondent is

a mere agent of petitioners and that losses from both the principal

and interest of the investment are strictly on petitioners' account.

Meanwhile, the Directional Letter clearly states that the investment

is to be made in an LTCP which, by definition, has a term of more

than 365 days.99 Prior to the expiry of the term, which in the case

of the C&P Homes LTCP is five years, petitioners may not claim

back their investment, especially not from respondent bank.

Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as principals

in an agency relationship are solely obliged to observe the

solemnity of the transaction entered into by the agent on their

behalf, absent any proof that the latter acted beyond its

authority.100 Concomitant to this obligation is that the principal

also assumes the risks that may arise from the transaction.101

Indeed, as in the instant case, bank regulations prohibit banks from

guaranteeing profits or the principal in an investment management account.102 Hence, the CA correctly dismissed petitioners‘

complaint against respondent.

WHEREFORE, the Petition is DENIED. For lack of evidence,

the Decision of the Court of Appeals dated dated May 28, 2002

and its Resolution of December 11, 2002, are AFFIRMED.

Costs against the petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

FIRST DIVISION

G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner, vs.

HONORABLE COURT OF APPEALS, JOSE G. GANA

(Deceased), CLARA A. GANA, RAMON GANA, MANUEL

GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME

JAVIER GANA, CLOTILDE VDA. DE AREVALO, and

EMILY SAN JUAN, respondents.

Benjamin S. Valte for petitioner.

Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.: In this petition for review on certiorari, petitioner AIR FRANCE

assails the Decision of then respondent Court of Appeals 1

promulgated on 15 December 1980 in CA-G.R. No. 58164-R,

entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France",

which reversed the Trial Court's judgment dismissing the

Complaint of private respondents for damages arising from breach

of contract of carriage, and awarding instead P90,000.00 as moral

damages.

Sometime in February, 1970, the late Jose G. Gana and his family,

numbering nine (the GANAS), purchased from AIR FRANCE

through Imperial Travels, Incorporated, a duly authorized travel

agent, nine (9) "open-dated" air passage tickets for the

Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their economy and first class fares. Said tickets

were bought at the then prevailing exchange rate of P3.90 per

US$1.00. The GANAS also paid travel taxes of P100.00 for each

passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the

aforementioned tickets with other tickets for the same route. At

this time, the GANAS were booked for the Manila/Osaka segment

on AIR FRANCE Flight 184 for 8 May 1970, and for the

Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May

1970. The aforesaid tickets were valid until 8 May 1971, the date

written under the printed words "Non valuable apres de (meaning,

"not valid after the"). The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of

Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company

where Jose Gana was the Director and Treasurer, for the extension

of the validity of their tickets, which were due to expire on 8 May

1971. Teresita enlisted the help of Lee Ella Manager of the

Philippine Travel Bureau, who used to handle travel arrangements

for the personnel of the Sta. Clara Lumber Company. Ella sent the

tickets to Cesar Rillo, Office Manager of AIR FRANCE. The

tickets were returned to Ella who was informed that extension was

not possible unless the fare differentials resulting from the increase in fares triggered by an increase of the exchange rate of the US

dollar to the Philippine peso and the increased travel tax were first

paid. Ella then returned the tickets to Teresita and informed her of

the impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7

May 1971 or one day before the expiry date. In the morning of the

very day of their scheduled departure on the first leg of their trip,

Teresita requested travel agent Ella to arrange the revalidation of

the tickets. Ella gave the same negative answer and warned her that

although the tickets could be used by the GANAS if they left on 7

May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would then have expired on 8 May 1971.

Teresita replied that it will be up to the GANAS to make the

arrangements. With that assurance, Ella on his own, attached to the

tickets validating stickers for the Osaka/Tokyo flight, one a JAL.

sticker and the other an SAS (Scandinavian Airways System)

sticker. The SAS sticker indicates thereon that it was "Reevaluated

by: the Philippine Travel Bureau, Branch No. 2" (as shown by a

circular rubber stamp) and signed "Ador", and the date is handwritten in the center of the circle. Then appear under printed

headings the notations: JL. 108 (Flight), 16 May (Date), 1040

(Time), OK (status). Apparently, Ella made no more attempt to

contact AIR FRANCE as there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila

in the afternoon of 7 May 1971 on board AIR FRANCE Flight 184

for Osaka, Japan. There is no question with respect to this leg of

the trip.

However, for the Osaka/Tokyo flight on 17 May 1971, Japan

Airlines refused to honor the tickets because of their expiration,

and the GANAS had to purchase new tickets. They encountered

the same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able

to return only after pre-payment in Manila, through their relatives,

of the readjusted rates. They finally flew back to Manila on

separate Air France Frights on 19 May 1971 for Jose Gana and 26

May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then

Court of First Instance of Manila, Branch III, Civil Case No. 84111

for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint

and alleged that the GANAS brought upon themselves the

predicament they found themselves in and assumed the consequential risks; that travel agent Ella's affixing of validating

stickers on the tickets without the knowledge and consent of AIR

FRANCE, violated airline tariff rules and regulations and was

beyond the scope of his authority as a travel agent; and that AIR

FRANCE was not guilty of any fraudulent conduct or bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based

on Partial and Additional Stipulations of Fact as wen as on the

documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the

pendency of the appeal, Jose Gana, the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and

reversed the Trial Court's judgment in a Decision, which decreed: WHEREFORE, the decision appealed from is set

aside. Air France is hereby ordered to pay

appellants moral damages in the total sum of

NINETY THOUSAND PESOS (P90,000.00)

plus costs.

SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence,

petitioner's recourse before this instance, to which we gave due

course.

The crucial issue is whether or not, under the environmental milieu

the GANAS have made out a case for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's

affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air

Transportation Association (IATA), included in paragraphs 9, 10,

and 11 of the Stipulations of Fact between the parties in the Trial

Court, dated 31 March 1973, an airplane ticket is valid for one

year. "The passenger must undertake the final portion of his

journey by departing from the last point at which he has made a

voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That

is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if

its validity has expired before the passenger completes his trip

(parag. 3.5.1.) ... To complete the trip, the passenger must purchase

a new ticket for the remaining portion of the journey" (ibid.) 3

From the foregoing rules, it is clear that AIR FRANCE cannot be

faulted for breach of contract when it dishonored the tickets of the

GANAS after 8 May 1971 since those tickets expired on said date;

nor when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip.

Neither can it be said that, when upon sale of the new tickets, it

imposed additional charges representing fare differentials, it was

motivated by self-interest or unjust enrichment considering that an

increase of fares took effect, as authorized by the Civil Aeronautics

Board (CAB) in April, 1971. This procedure is well in accord with

the IATA tariff rules which provide:

6. TARIFF RULES

7. APPLICABLE FARE ON THE DATE OF

DEPARTURE

3.1 General Rule.

All journeys must be charged for at the fare (or charge) in effect on the date on which

transportation commences from the point of

origin. Any ticket sold prior to a change of fare

or charge (increase or decrease) occurring

between the date of commencement of the

journey, is subject to the above general rule and

must be adjusted accordingly. A new ticket must

be issued and the difference is to be collected or

refunded as the case may be. No adjustment is

necessary if the increase or decrease in fare (or

charge) occurs when the journey is already commenced. 4

The GANAS cannot defend by contending lack of knowledge of

those rules since the evidence bears out that Teresita, who handled

travel arrangements for the GANAS, was duly informed by travel

agent Ella of the advice of Reno, the Office Manager of Air

France, that the tickets in question could not be extended beyond

the period of their validity without paying the fare differentials and

additional travel taxes brought about by the increased fare rate and

travel taxes.

ATTY. VALTE

Q What did you tell Mrs.

Manucdoc, in turn after being told this by Mr. Rillo?

A I told her, because that is the

reason why they accepted

again the tickets when we

returned the tickets spin, that

they could not be extended.

They could be extended by

paying the additional fare,

additional tax and additional

exchange during that time.

Q You said so to Mrs. Manucdoc?

A Yes, sir." ... 5

The ruling relied on by respondent Appellate Court, therefore, in

KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it

would be unfair to charge respondents therein with automatic

knowledge or notice of conditions in contracts of adhesion, is

inapplicable. To all legal intents and purposes, Teresita was the

agent of the GANAS and notice to her of the rejection of the

request for extension of the validity of the tickets was notice to the

GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108 for 16 May 1971,

without clearing the same with AIR FRANCE allegedly because of

the imminent departure of the GANAS on the same day so that he

could not get in touch with Air France 6 was certainly in

contravention of IATA rules although as he had explained, he did

so upon Teresita's assurance that for the onward flight from Osaka

and return, the GANAS would make other arrangements.

Q Referring you to page 33 of the transcript of the last

session, I had this question

which reads as follows: 'But

did she say anything to you

when you said that the tickets

were about to expire?' Your

answer was: 'I am the one who

asked her. At that time I told

her if the tickets being used ...

I was telling her what about

their bookings on the return.

What about their travel on the return? She told me it is up for

the Ganas to make the

arrangement.' May I know

from you what did you mean

by this testimony of yours?

A That was on the day when

they were asking me on May 7,

1971 when they were checking

the tickets. I told Mrs.

Manucdoc that I was going to

get the tickets. I asked her what about the tickets onward

from the return from Tokyo,

and her answer was it is up for

the Ganas to make the

arrangement, because I told her

that they could leave on the

seventh, but they could take

care of that when they arrived

in Osaka.

Q What do you mean?

A The Ganas will make the

arrangement from Osaka, Tokyo and Manila.

Q What arrangement?

A The arrangement for the

airline because the tickets

would expire on May 7, and

they insisted on leaving. I

asked Mrs. Manucdoc what

about the return onward

portion because they would be

travelling to Osaka, and her

answer was, it is up to for the Ganas to make the

arrangement.

Q Exactly what were the words

of Mrs. Manucdoc when you

told her that? If you can

remember, what were her exact

words?

A Her words only, it is up for

the Ganas to make the

arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket

counter in the airport allowed the GANAS to leave is not

tantamount to an implied ratification of travel agent Ella's irregular

actuations. It should be recalled that the GANAS left in Manila the

day before the expiry date of their tickets and that "other

arrangements" were to be made with respect to the remaining segments. Besides, the validating stickers that Ella affixed on his

own merely reflect the status of reservations on the specified flight

and could not legally serve to extend the validity of a ticket or

revive an expired one.

The conclusion is inevitable that the GANAS brought upon

themselves the predicament they were in for having insisted on

using tickets that were due to expire in an effort, perhaps, to beat

the deadline and in the thought that by commencing the trip the

day before the expiry date, they could complete the trip even

thereafter. It should be recalled that AIR FRANCE was even

unaware of the validating SAS and JAL. stickers that Ella had

affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights when they

dishonored the tickets on the remaining segments of the trip and

when AIR FRANCE demanded payment of the adjusted fare rates

and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and

set aside, and the Amended Complaint filed by private respondents

hereby dismissed.

No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 88539 October 26, 1993

KUE CUISON, doing business under the firm name and

style"KUE CUISON PAPER SUPPLY," petitioner,

vs.

THE COURT OF APPEALS, VALIANT INVESTMENT

ASSOCIATES, respondents.

Leighton R. Siazon for petitioner.

Melanio L. Zoreta for private respondent.

BIDIN, J.: This petition for review assails the decision of the respondent

Court of Appeals ordering petitioner to pay private respondent,

among others, the sum of P297,482.30 with interest. Said decision reversed the appealed decision of the trial court rendered in favor

of petitioner.

The case involves an action for a sum of money filed by

respondent against petitioner anchored on the following antecedent

facts:

Petitioner Kue Cuison is a sole proprietorship engaged in the

purchase and sale of newsprint, bond paper and scrap, with places

of business at Baesa, Quezon City, and Sto. Cristo, Binondo,

Manila. Private respondent Valiant Investment Associates, on the

other hand, is a partnership duly organized and existing under the

laws of the Philippines with business address at Kalookan City. From December 4, 1979 to February 15, 1980, private respondent

delivered various kinds of paper products amounting to

P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries

were made by respondent pursuant to orders allegedly placed by

Tiu Huy Tiac who was then employed in the Binondo office of

petitioner. It was likewise pursuant to Tiac's instructions that the

merchandise was delivered to Lilian Tan. Upon delivery, Lilian

Tan paid for the merchandise by issuing several checks payable to

cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued

nine (9) postdated checks to private respondent as payment for the

paper products. Unfortunately, sad checks were later dishonored by

the drawee bank. Thereafter, private respondent made several demands upon

petitioner to pay for the merchandise in question, claiming that Tiu

Huy Tiac was duly authorized by petitioner as the manager of his

Binondo office, to enter into the questioned transactions with

private respondent and Lilian Tan. Petitioner denied any

involvement in the transaction entered into by Tiu Huy Tiac and

refused to pay private respondent the amount corresponding to the

selling price of the subject merchandise.

Left with no recourse, private respondent filed an action against

petitioner for the collection of P297,487.30 representing the price

of the merchandise. After due hearing, the trial court dismissed the complaint against petitioner for lack of merit. On appeal, however,

the decision of the trial court was modified, but was in effect

reversed by the Court of Appeals, the dispositive portion of which

reads:

WHEREFORE, the decision appealed from is

MODIFIED in that defendant-appellant Kue

Cuison is hereby ordered to pay plaintiff-

appellant Valiant Investment Associates the sum

of P297,487.30 with 12% interest from the filing

of the complaint until the amount is fully paid,

plus the sum of 7% of the total amount due as attorney's fees, and to pay the costs. In all other

respects, the decision appealed from is affirmed.

(Rollo, p. 55)

In this petition, petitioner contends that:

THE HONORABLE COURT ERRED IN

FINDING TIU HUY TIAC AGENT OF

DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS

AND CIRCUMSTANCES.

THE HONORABLE COURT ERRED IN

FINDING DEFENDANT-APPELLANT

LIABLE FOR AN OBLIGATION

UNDISPUTEDLY BELONGING TO TIU HUY

TIAC.

THE HONORABLE COURT ERRED IN REVERSING THE

WELL-FOUNDED DECISION OF THE TRIAL COURT, (Rollo,

p, 19)

The issue here is really quite simple — whether or not Tiu Huy

Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction.

This petition ought to have been denied outright, forin the final

analysis, it raises a factual issue. It is elementary that in petitions

for review under Rule 45, this Court only passes upon questions of

law. An exception thereto occurs where the findings of fact of the

Court of Appeals are at variance with the trial court, in which case

the Court reviews the evidence in order to arrive at the correct

findings based on the records.

As to the merits of the case, it is a well-established rule that one

who clothes another with apparent authority as his agent and holds

him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of

innocent third parties dealing with such person in good faith and in

the honest belief that he is what he appears to be (Macke, et al, v.

Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of

Appeals, 94 SCRA 357 [1979]). From the facts and the evidence

on record, there is no doubt that this rule obtains. The petition must

therefore fail.

It is evident from the records that by his own acts and admission,

petitioner held out Tiu Huy Tiac to the public as the manager of his

store in Sto. Cristo, Binondo, Manila. More particularly, petitioner

explicitly introduced Tiu Huy Tiac to Bernardino Villanueva,

respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who

has been doing business with petitioner for quite a while, also

testified that she knew Tiu Huy Tiac to be the manager of

petitioner's Sto. Cristo, Binondo branch. This general perception of

Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is

even made manifest by the fact that Tiu Huy Tiac is known in the

community to be the "kinakapatid" (godbrother) of petitioner. In

fact, even petitioner admitted his close relationship with Tiu Huy

Tiac when he said that they are "like brothers" (Rollo, p. 54). There

was thus no reason for anybody especially those transacting

business with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch.

In a futile attempt to discredit Villanueva, petitioner alleges that

the former's testimony is clearly self-serving inasmuch as

Villanueva worked for private respondent as its manager.

We disagree, The argument that Villanueva's testimony is self-

serving and therefore inadmissible on the lame excuse of his

employment with private respondent utterly misconstrues the

nature of "'self-serving evidence" and the specific ground for its

exclusion. As pointed out by this Court in Co v. Court of Appeals

et, al., (99 SCRA 321 [1980]):

Self-serving evidence is evidence made by a party out of court at one time; it does not include

a party's testimony as a witness in court. It is

excluded on the same ground as any hearsay

evidence, that is the lack of opportunity for

cross-examination by the adverse party, and on

the consideration that its admission would open

the door to fraud and to fabrication of testimony.

On theother hand, a party's testimony in court is sworn and affords the other party the opportunity

for cross-examination (emphasis supplied)

Petitioner cites Villanueva's failure, despite his commitment to do

so on cross-examination, to produce the very first invoice of the

transaction between petitioner and private respondent as another

ground to discredit Villanueva's testimony. Such failure, proves

that Villanueva was not only bluffing when he pretended that he

can produce the invoice, but that Villanueva was likewise

prevaricating when he insisted that such prior transactions actually

took place. Petitioner is mistaken. In fact, it was petitioner's

counsel himself who withdrew the reservation to have Villanueva

produce the document in court. As aptly observed by the Court of Appeals in its decision:

. . . However, during the hearing on March 3,

1981, Villanueva failed to present the document

adverted to because defendant-appellant's

counsel withdrew his reservation to have the

former (Villanueva) produce the document or

invoice, thus prompting plaintiff-appellant to rest

its case that same day (t.s.n., pp. 39-40, Sess. of

March 3, 1981). Now, defendant-appellant

assails the credibility of Villanueva for having

allegedly failed to produce even one single document to show that plaintiff-appellant have

had transactions before, when in fact said failure

of Villanueva to produce said document is a

direct off-shoot of the action of defendant-

appellant's counsel who withdrew his reservation

for the production of the document or invoice

and which led plaintiff-appellant to rest its case

that very day. (Rollo, p.52)

In the same manner, petitioner assails the credibility of Lilian Tan

by alleging that Tan was part of an intricate plot to defraud him.

However, petitioner failed to substantiate or prove that the subject

transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's daughter and assistant manager Imelda

Kue Cuison which confirmed the credibility of Tan as a witness.

On the witness stand, Imelda testified that she knew for a fact that

prior to the transaction in question, Tan regularly transacted

business with her father (petitioner herein), thereby corroborating

Tan's testimony to the same effect. As correctly found by the

respondent court, there was no logical explanation for Tan to

impute liability upon petitioner. Rather, the testimony of Imelda

Kue Cuison only served to add credence to Tan's testimony as

regards the transaction, the liability for which petitioner wishes to

be absolved. But of even greater weight than any of these testimonies, is

petitioner's categorical admission on the witness stand that Tiu

Huy Tiac was the manager of his store in Sto. Cristo, Binondo, to

wit:

Court:

xxx xxx xxx

Q And who was managing the

store in Sto. Cristo?

A At first it was Mr. Ang, then

later Mr. Tiu Huy Tiac but I

cannot remember the exact year.

Q So, Mr. Tiu Huy Tiac took

over the management,.

A Not that was because every

afternoon, I was there, sir.

Q But in the morning, who

takes charge? A Tiu Huy Tiac takes charge

of management and if there

(sic) orders for newsprint or

bond papers they are always

referred to the compound in

Baesa, sir. (t.s.n., p. 16,

Session of January 20, 1981,

CA decision, Rollo, p. 50,

emphasis supplied).

Such admission, spontaneous no doubt, and standing alone, is

sufficient to negate all the denials made by petitioner regarding the

capacity of Tiu Huy Tiac to enter into the transaction in question. Furthermore, consistent with and as an obvious indication of the

fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch,

three (3) months after Tiu Huy Tiac left petitioner's employ,

petitioner even sent, communications to its customers notifying

them that Tiu Huy Tiac is no longer connected with petitioner's

business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's

valuable position as petitioner's manager than any uttered

disclaimer. More than anything else, this act taken together with

the declaration of petitioner in open court amount to admissions

under Rule 130 Section 22 of the Rules of Court, to wit : "The act,

declaration or omission of a party as to a relevant fact may be given in evidence against him." For well-settled is the rule that "a

man's acts, conduct, and declaration, wherever made, if voluntary,

are admissible against him, for the reason that it is fair to presume

that they correspond with the truth, and it is his fault if they do not.

If a man's extrajudicial admissions are admissible against him,

there seems to be no reason why his admissions made in open

court, under oath, should not be accepted against him." (U.S. vs.

Ching Po, 23 Phil. 578, 583 [1912];).

Moreover, petitioner's unexplained delay in disowning the

transactions entered into by Tiu Huy Tiac despite several attempts

made by respondent to collect the amount from him, proved all the

more that petitioner was aware of the questioned commission was tantamount to an admission by silence under Rule 130 Section 23

of the Rules of Court, thus: "Any act or declaration made in the

presence of and within the observation of a party who does or says

nothing when the act or declaration is such as naturally to call for

action or comment if not true, may be given in evidence against

him."

All of these point to the fact that at the time of the transaction Tiu

Huy Tiac was admittedly the manager of petitioner's store in Sto.

Cristo, Binondo. Consequently, the transaction in question as well

as the concomitant obligation is valid and binding upon petitioner.

By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on

his behalf. It matters not whether the representations are intentional

or merely negligent so long as innocent, third persons relied upon

such representations in good faith and for value As held in the case

of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622

[1990]):

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 issolidarily 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 tortfeasors whose liability is

joint and solidary.

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 theagent's misdeed is of no

moment.

Tiu Huy Tiac, therefore, by petitioner's own representations and

manifestations, became an agent of petitioner by estoppel, an admission or representation is rendered conclusive upon the person

making it, and cannot be denied or disproved as against the person

relying thereon (Article 1431, Civil Code of the Philippines). A

party cannot be allowed to go back on his own acts and

representations to the prejudice of the other party who, in good

faith, relied upon them (Philippine National Bank v. Intermediate

Appellate Court, et al., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for the transaction entered

into by Tiu Huy Tiac on his behalf. Thus, even when the agent has

exceeded his authority, the principal is solidarily liable with the

agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar.

Finally, although it may appear that Tiu Huy Tiac defrauded his

principal (petitioner) in not turning over the proceeds of the

transaction to the latter, such fact cannot in any way relieve nor

exonerate petitioner of his liability to private respondent. For it is

an equitable maxim that as between two innocent parties, the one

who made it possible for the wrong to be done should be the one to

bear the resulting loss (Francisco vs. Government Service

Insurance System, 7 SCRA 577 [1963]).

Inasmuch as the fundamental issue of the capacity or incapacity of

the purported agent Tiu Huy Tiac, has already been resolved, the

Court deems it unnecessary to resolve the other peripheral issues raised by petitioner.

WHEREFORE, the instant petition in hereby DENIED for lack of

merit. Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 79688 February 1, 1996

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner,

vs.

COURT OF APPEALS, WILSON KEE, C.T. TORRES

ENTERPRISES, INC. and ELDRED JARDINICO,

respondents.

D E C I S I O N

PANGANIBAN, J.: Is a lot buyer who constructs improvements on the wrong property

erroneously delivered by the owner's agent, a builder in good faith?

This is the main issue resolved in this petition for review on

certiorari to reverse the Decision1 of the Court of Appeals2 in CA-

G.R. No. 11040, promulgated on August 20, 1987. By resolution dated November 13, 1995, the First Division of this

Court resolved to transfer this case (along with several others) to

the Third Division. After due deliberation and consultation, the

Court assigned the writing of this Decision to the undersigned

ponente.

The Facts

The facts, as found by respondent Court, are as follows:

Edith Robillo purchased from petitioner a parcel of land designated

as Lot 9, Phase II and located at Taculing Road, Pleasantville

Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico

bought the rights to the lot from Robillo. At that time, Lot 9 was vacant.

Upon completing all payments, Jardinico secured from the

Register of Deeds of Bacolod City on December 19, 1978 Transfer

Certificate of Title No. 106367 in his name. It was then that he

discovered that improvements had been introduced on Lot 9 by

respondent Wilson Kee, who had taken possession thereof.

It appears that on March 26, 1974, Kee bought on installment Lot 8

of the same subdivision from C.T. Torres Enterprises, Inc.

(CTTEI), the exclusive real estate agent of petitioner. Under the

Contract to Sell on Installment, Kee could possess the lot even

before the completion of all installment payments. On January 20,

1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan.

These amounts were paid prior to Kee's taking actual possession of

Lot 8. After the preparation of the lot plan and a copy thereof given

to Kee, CTTEI through its employee, Zenaida Octaviano,

accompanied Kee's wife, Donabelle Kee, to inspect Lot 8.

Unfortunately, the parcel of land pointed by Octaviano was Lot 9.

Thereafter, Kee proceeded to construct his residence, a store, an

auto repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico

confronted him. The parties tried to reach an amicable settlement,

but failed. On January 30, 1981, Jardinico's lawyer wrote Kee, demanding

that the latter remove all improvements and vacate Lot 9. When

Kee refused to vacate Lot 9, Jardinico filed with the Municipal

Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint

for ejectment with damages against Kee.

Kee, in turn, filed a third-party complaint against petitioner and

CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was

attributable to CTTEI. It further ruled that petitioner and CTTEI

could not successfully invoke as a defense the failure of Kee to

give notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on Installment and his having

built a sari-sari store without the prior approval of petitioner

required under paragraph 26 of said contract, saying that the

purpose of these requirements was merely to regulate the type of

improvements to be constructed on the Lot.3

However, the MTCC found that petitioner had already rescinded

its contract with Kee over Lot 8 for the latter's failure to pay the

installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was

instituted. The MTCC concluded that Kee no longer had any right

over the lot subject of the contract between him and petitioner.

Consequently, Kee must pay reasonable rentals for the use of Lot

9, and, furthermore, he cannot claim reimbursement for the

improvements he introduced on said lot.

The MTCC thus disposed:

IN VIEW OF ALL THE FOREGOING, judgment is

hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate the

premises of Lot 9, covered by TCT No. 106367 and to

remove all structures and improvements he introduced thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff

rentals at the rate of P15.00 a day computed from the time

this suit was filed on March 12, 1981 until he actually

vacates the premises. This amount shall bear interests

(sic) at the rate of 12 per cent (sic) per annum.

3. Third-Party Defendant C.T. Torres Enterprises, Inc.

and Pleasantville Subdivision are ordered to pay the

plaintiff jointly and severally the sum of P3,000.00 as

attorney's fees and P700.00 as cost and litigation

expenses.4 On appeal, the Regional Trial Court, Branch 48, Bacolod City

(RTC) ruled that petitioner and CTTEI were not at fault or were

not negligent, there being no preponderant evidence to show that

they directly participated in the delivery of Lot 9 to Kee5. It found

Kee a builder in bad faith. It further ruled that even assuming

arguendo that Kee was acting in good faith, he was, nonetheless,

guilty of unlawfully usurping the possessory right of Jardinico over

Lot 9 from the time he was served with notice to vacate said lot,

and thus was liable for rental.

The RTC thus disposed:

WHEREFORE, the decision appealed from is affirmed

with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate

of Title No. T-106367 of the land records of Bacolod

City; the removal of all structures and improvements

introduced thereon at his expense and the payment to

plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as

reasonable rental to be computed from January 30, 1981,

the date of the demand, and not from the date of the filing

of the complaint, until he had vacated (sic) the premises,

with interest thereon at 12% per annum. This Court

further renders judgment against the defendant to pay the

plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of litigation.

The third-party complaint against Third-Party Defendants

Pleasantville Development Corporation and C.T. Torres

Enterprises, Inc. is dismissed. The order against Third-

Party Defendants to pay attorney's fees to plaintiff and

costs of litigation is reversed.6

Following the denial of his motion for reconsideration on October

20, 1986, Kee appealed directly to the Supreme Court, which

referred the matter to the Court of Appeals.

The appellate court ruled that Kee was a builder in good faith, as

he was unaware of the "mix-up" when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery

was due to the negligence of CTTEI, and that such wrong delivery

was likewise imputable to its principal, petitioner herein. The

appellate court also ruled that the award of rentals was without

basis.

Thus, the Court of Appeals disposed:

WHEREFORE, the petition is GRANTED, the appealed

decision is REVERSED, and judgment is rendered as follows:

1. Wilson Kee is declared a builder in good faith with

respect to the improvements he introduced on Lot 9, and

is entitled to the rights granted him under Articles 448,

546 and 548 of the New Civil Code.

2. Third-party defendants C.T. Torres Enterprises, Inc.

and Pleasantville Development Corporation are solidarily

liable under the following circumstances:

A. If Eldred Jardinico decides to appropriate

the improvements and, thereafter, remove these

structures, the third-party defendants shall

answer for all demolition expenses and the value of the improvements thus destroyed or rendered

useless;

b. If Jardinico prefers that Kee buy the land, the

third-party defendants shall answer for the

amount representing the value of Lot 9 that Kee

should pay to Jardinico.

3. Third-party defendants C.T. Torres Enterprises, Inc.

and Pleasantville Development Corporation are ordered to

pay in solidum the amount of P3,000.00 to Jardinico as

attorney's fees, as well as litigation expenses.

4. The award of rentals to Jardinico is dispensed with. Furthermore, the case is REMANDED to the court of

origin for the determination of the actual value of the

improvements and the property (Lot 9), as well as for

further proceedings in conformity with Article 448 of the

New Civil Code.7

Petitioner then filed the instant petition against Kee, Jardinico and

CTTEI.

The Issues

The petition submitted the following grounds to justify a review of

the respondent Court's Decision, as follows:

1. The Court of Appeals has decided the case in a way

probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints,

by ordering third-party defendants to pay the demolition

expenses and/or price of the land;

2. The Court of Appeals has so far departed from the

accepted course of judicial proceedings, by granting to

private respondent-Kee the rights of a builder in good

faith in excess of what the law provides, thus enriching

private respondent Kee at the expense of the petitioner;

3. In the light of the subsequent events or circumstances

which changed the rights of the parties, it becomes

imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the

facts;

4. Private respondent-Kee in accordance with the findings

of facts of the lower court is clearly a builder in bad faith,

having violated several provisions of the contract to sell

on installments;

5. The decision of the Court of Appeals, holding the

principal, Pleasantville Development Corporation (liable)

for the acts made by the agent in excess of its authority is

clearly in violation of the provision of the law;

6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court

litigation.

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in good faith?

(2) What is the liability, if any, of petitioner and its agent,

C.T. Torres Enterprises, Inc.? and

(3) Is the award of attorney's fees proper?

The First Issue: Good Faith Petitioner contends that the Court of Appeals erred in reversing the

RTC's ruling that Kee was a builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings and

conclusions of the Court of Appeals that Kee was a builder in good

faith. We agree with the following observation of the Court of

Appeals:

The roots of the controversy can be traced directly to the

errors committed by CTTEI, when it pointed the wrong

property to Wilson Kee and his wife. It is highly

improbable that a purchaser of a lot would knowingly and

willingly build his residence on a lot owned by another,

deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements

thereon, not to mention the social humiliation that would

follow.

Under the circumstances, Kee had acted in the manner of

a prudent man in ascertaining the identity of his property.

Lot 8 is covered by Transfer Certificate of Title No. T-

69561, while Lot 9 is identified in Transfer Certificate of

Title No. T-106367. Hence, under the Torrens system of

land registration, Kee is presumed to have knowledge of

the metes and bounds of the property with which he is

dealing. . . . xxx xxx xxx

But as Kee is a layman not versed in the technical

description of his property, he had to find a way to

ascertain that what was described in TCT No. 69561

matched Lot 8. Thus, he went to the subdivision

developer's agent and applied and paid for the relocation

of the lot, as well as for the production of a lot plan by

CTTEI's geodetic engineer. Upon Kee's receipt of the

map, his wife went to the subdivision site accompanied by

CTTEI's employee, Octaviano, who authoritatively

declared that the land she was pointing to was indeed Lot

8. Having full faith and confidence in the reputation of CTTEI, and because of the company's positive

identification of the property, Kee saw no reason to

suspect that there had been a misdelivery. The steps Kee

had taken to protect his interests were reasonable. There

was no need for him to have acted ex-abundantia cautela,

such as being present during the geodetic engineer's

relocation survey or hiring an independent geodetic

engineer to countercheck for errors, for the final delivery

of subdivision lots to their owners is part of the regular

course of everyday business of CTTEI. Because of

CTTEI's blunder, what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to naught.8

Good faith consists in the belief of the builder that the land he is

building on is his and his ignorance of any defect or flaw in his

title 9. And as good faith is presumed, petitioner has the burden of

proving bad faith on the part of Kee 10.

At the time he built improvements on Lot 8, Kee believed that said

lot was what he bought from petitioner. He was not aware that the

lot delivered to him was not Lot 8. Thus, Kee's good faith.

Petitioner failed to prove otherwise.

To demonstrate Kee's bad faith, petitioner points to Kee's violation

of paragraphs 22 and 26 of the Contract of Sale on Installment. We disagree. Such violations have no bearing whatsoever on

whether Kee was a builder in good faith, that is, on his state of

mind at the time he built the improvements on Lot 9. These alleged

violations may give rise to petitioner's cause of action against Kee

under the said contract (contractual breach), but may not be bases

to negate the presumption that Kee was a builder in good faith.

Petitioner also points out that, as found by the trial court, the

Contract of Sale on Installment covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This

has no relevance on the liability of petitioner, as such fact does not

negate the negligence of its agent in pointing out the wrong lot. to

Kee. Such circumstance is relevant only as it gives Jardinico a

cause of action for unlawful detainer against Kee.

Petitioner next contends that Kee cannot "claim that another lot

was erroneously pointed out to him" because the latter agreed to

the following provision in the Contract of Sale on installment, to

wit:

13. The Vendee hereby declares that prior to the

execution of his contract he/she has personally examined

or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of

the lots and from the date hereof whatever consequential

change therein made due to erosion, the said Vendee shall

bear the expenses of the necessary fillings, when the same

is so desired by him/her. 11

The subject matter of this provision of the contract is the change of

the location, contour and condition of the lot due to erosion. It

merely provides that the vendee, having examined the property

prior to the execution of the contract, agrees to shoulder the

expenses resulting from such change.

We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from

petitioner's negligence. Such waiver would be contrary to public

policy and cannot be allowed. "Rights may be waived, unless the

waiver is contrary to law, public order, public policy, morals, or

good customs, or prejudicial to a third person with a right

recognized by law." 12

The Second Issue: Petitioner's Liability

Kee filed a third-party complaint against petitioner and CTTEI,

which was dismissed by the RTC after ruling that there was no

evidence from which fault or negligence on the part of petitioner

and CTTEI can be inferred. The Court of Appeals disagreed and

found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it

contends that the erroneous delivery of Lot 9 to Kee was an act

which was clearly outside the scope of its authority, and

consequently, CTTEI I alone should be liable. It asserts that "while

[CTTEI] was authorized to sell the lot belonging to the herein

petitioner, it was never authorized to deliver the wrong lot to Kee" 13.

Petitioner's contention is without merit.

The rule is that the principal is responsible for the acts of the agent,

done within the scope of his authority, and should bear the damage caused to third persons 14. On the other hand, the agent who

exceeds his authority is personally liable for the damage 15

CTTEI was acting within its authority as the sole real estate

representative of petitioner when it made the delivery to Kee. In

acting within its scope of authority, it was, however, negligent. It is

this negligence that is the basis of petitioner's liability, as principal

of CTTEI, per Articles 1909 and 1910 of the Civil Code.

Pending resolution of the case before the Court of Appeals,

Jardinico and Kee on July 24, 1987 entered into a deed of sale,

wherein the former sold Lot 9 to Kee. Jardinico and Kee did not

inform the Court of Appeals of such deal. The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee"

which is now pending appeal with the Court of Appeals,

regardless of the outcome of the decision shall be

mutually disregarded and shall not be pursued by the

parties herein and shall be considered dismissed and

without effect whatso-ever; 16 Kee asserts though that the "terms and conditions in said deed of

sale are strictly for the parties thereto" and that "(t)here is no

waiver made by either of the parties in said deed of whatever

favorable judgment or award the honorable respondent Court of

Appeals may make in their favor against herein petitioner

Pleasantville Development Corporation and/or private respondent

C.T. Torres Enterprises; Inc." 17

Obviously, the deed of sale can have no effect on the liability of

petitioner. As we have earlier stated, petitioner's liability is

grounded on the negligence of its agent. On the other hand, what

the deed of sale regulates are the reciprocal rights of Kee and

Jardinico; it stressed that they had reached an agreement independent of the outcome of the case.

Petitioner further assails the following holding of the Court of

Appeals:

2. Third-party defendants C.T. Torres Enterprises, Inc.

and Pleasantville Development Corporation are solidarily

liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the

improvements and, thereafter, remove these

structures, the third-party defendants shall

answer for all demolition expenses and the value

of the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the

third-party defendants shall answer for the

amount representing the value of Lot 9 that Kee

should pay to Jardinico. 18

Petitioner contends that if the above holding would be carried out,

Kee would be unjustly enriched at its expense. In other words, Kee

would be able to own the lot, as buyer, without having to pay

anything on it, because the aforequoted portion of respondent

Court's Decision would require petitioner and CTTEI jointly and

solidarily to "answer" or reimburse Kee therefor. We agree with petitioner.

Petitioner' s liability lies in the negligence of its agent CTTEI. For

such negligence, the petitioner should be held liable for damages.

Now, the extent and/or amount of damages to be awarded is a

factual issue which should be determined after evidence is

adduced. However, there is no showing that such evidence was

actually presented in the trial court; hence no damages could flow

be awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in

good faith and owner in good faith, respectively, are regulated by

law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight modification" in the

application of such law, on the ground of "equity". At any rate, as

it stands now, Kee and Jardinico have amicably settled through

their deed of sale their rights and obligations with regards to Lot 9.

Thus, we delete items 2 (a) and (b) of the dispositive portion of the

Court of Appeals' Decision [as reproduced above] holding

petitioner and CTTEI solidarily liable.

The Third Issue: Attorney's Fees

The MTCC awarded Jardinico attorney's fees and costs in the

amount of P3,000.00 and P700.00, respectively, as prayed for in

his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of

Appeals, however, reinstated the award of attorney's fees after

ruling that petitioner was liable for its agent's negligence.

The award of attorney's fees lies within the discretion of the court

and depends upon the circumstances of each case 19. We shall not

interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the

recovery of damages sustained as a result of the negligence of

petitioner's agent 20.

In sum, we rule that Kee is a builder in good faith. The disposition

of the Court of Appeals that Kee "is entitled to the rights granted

him under Articles 448, 546 and 548 of the New Civil Code" is

deleted, in view of the deed of sale entered into by Kee and

Jardinico, which deed now governs the rights of Jardinico and Kee

as to each other. There is also no further need, as ruled by the

appellate Court, to remand the case to the court of origin "for

determination of the actual value of the improvements and the

property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code."

WHEREFORE , the petition is partially GRANTED. The Decision

of the Court of Appeals is hereby MODIFIED as follows:

(1) Wilson Kee is declared a builder in good faith;

(2) Petitioner Pleasantville Development Corporation and

respondent C.T. Torres Enterprises, Inc. are declared

solidarily liable for damages due to negligence; however,

since the amount and/or extent of such damages was not

proven during the trial, the same cannot now be quantified

and awarded;

(3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to

pay in solidum the amount of P3,000.00 to Jardinico as

attorney's fees, as well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 137686 February 8, 2000 RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.

FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE

O. NIÑO, FELICISIMO OCFEMIA, RENATO OCFEMIA

JR, and WINSTON OCFEMIA, respondents.

PANGANIBAN, J.: When a bank, by its acts and failure to act, has clearly clothed its

manager with apparent authority to sell an acquired asset in the

normal course of business, it is legally obliged to confirm the

transaction by issuing a board resolution to enable the buyers to

register the property in their names. It has a duty to perform

necessary and lawful acts to enable the other parties to enjoy all

benefits of the contract which it had authorized. The Case

Before this Court is a Petition for Review on Certiorari

challenging the December 18, 1998 Decision of the Court of

Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May

20, 1997 Decision 2 of the Regional Trial Court (RTC) of Naga

City (Branch 28). The CA disposed as follows:

Wherefore, premises considered, the Judgment appealed

from is hereby AFFIRMED. Costs against the respondent-

appellant. 3

The dispositive portion of the judgment affirmed by the CA ruled

in this wise: WHEREFORE, in view of all the foregoing findings,

decision is hereby rendered whereby the [petitioner] Rural

Bank of Milaor (Camarines Sur), Inc. through its Board of

Directors is hereby ordered to immediately issue a Board

Resolution confirming the Deed of Sale it executed in

favor of Renato Ocfemia marked Exhibits C, C-1 and C-

2); to pay [respondents] the sum of FIVE HUNDRED

(P500.00) PESOS as actual damages; TEN THOUSAND

(P10,000.00) PESOS as attorney's fees; THIRTY

THOUSAND (P30,000.00) PESOS as moral damages;

THIRTY THOUSAND (P30,000.00) PESOS as

exemplary damages; and to pay the costs. 4 Also assailed is the February 26, 1999 CA Resolution 5 which

denied petitioner's Motion for Reconsideration.

The Facts

The trial court's summary of the undisputed facts was reproduced

in the CA Decision as follows:

This is an action for mandamus with damages. On April

10, 1996, [herein petitioner] was declared in default on

motion of the [respondents] for failure to file an answer

within the reglementary-period after it was duly served

with summons. On April 26, 1996, [herein petitioner]

filed a motion to set aside the order of default with objection thereto filed by [herein respondents].

On June 17, 1996, an order was issued denying

[petitioner's] motion to set aside the order of default. On

July 10, 1996, the defendant filed a motion for

reconsideration of the order of June 17, 1996 with

objection thereto by [respondents]. On July 12, 1996, an

order was issued denying [petitioner's] motion for

reconsideration. On July 31, 1996, [respondents] filed a

motion to set case for hearing. A copy thereof was duly

furnished the [petitioner] but the latter did not file any

opposition and so [respondents] were allowed to present their evidence ex-parte. A certiorari case was filed by the

[petitioner] with the Court of Appeals docketed as CA GR

No. 41497-SP but the petition was denied in a decision

rendered on March 31, 1997 and the same is now final.

The evidence presented by the [respondents] through the

testimony of Marife O. Niño, one of the [respondents] in

this case, show[s] that she is the daughter of Francisca

Ocfemia, a co-[respondent] in this case, and the late Renato Ocfemia who died on July 23, 1994. The parents

of her father, Renato Ocfemia, were Juanita Arellano

Ocfemia and Felicisimo Ocfemia. Her other co-

[respondents] Rowena O. Barrogo, Felicisimo Ocfemia,

Renato Ocfemia, Jr. and Winston Ocfemia are her

brothers and sisters.1âwphi1.nêt

Marife O. Niño knows the five (5) parcels of land

described in paragraph 6 of the petition which are located

in Bombon, Camarines Sur and that they are the ones

possessing them which [were] originally owned by her

grandparents, Juanita Arellano Ocfemia and Felicisimo

Ocfemia. During the lifetime of her grandparents, [respondents] mortgaged the said five (5) parcels of land

and two (2) others to the [petitioner] Rural Bank of

Milaor as shown by the Deed of Real Estate Mortgage

(Exhs. A and A-1) and the Promissory Note (Exh. B).

The spouses Felicisimo Ocfemia and Juanita Arellano

Ocfemia were not able to redeem the mortgaged

properties consisting of seven (7) parcels of land and so

the mortgage was foreclosed and thereafter ownership

thereof was transferred to the [petitioner] bank. Out of the

seven (7) parcels that were foreclosed, five (5) of them

are in the possession of the [respondents] because these five (5) parcels of land described in paragraph 6 of the

petition were sold by the [petitioner] bank to the parents

of Marife O. Niño as evidenced by a Deed of Sale

executed in January 1988 (Exhs. C, C-1 and C-2).

The aforementioned five (5) parcels of land subject of the

deed of sale (Exh. C), have not been, however transferred

in the name of the parents of Merife O. Niño after they

were sold to her parents by the [petitioner] bank because

according to the Assessor's Office the five (5) parcels of

land, subject of the sale, cannot be transferred in the name

of the buyers as there is a need to have the document of

sale registered with the Register of Deeds of Camarines Sur.

In view of the foregoing, Marife O. Niño went to the

Register of Deeds of Camarines Sur with the Deed of Sale

(Exh. C) in order to have the same registered. The

Register of Deeds, however, informed her that the

document of sale cannot be registered without a board

resolution of the [petitioner] Bank. Marife Niño then went

to the bank, showed to if the Deed of Sale (Exh. C), the

tax declaration and receipt of tax payments and requested

the [petitioner] for a board resolution so that the property

can be transferred to the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of

the other [respondents] having died already.

The [petitioner] bank refused her request for a board

resolution and made many alibi[s]. She was told that the

[petitioner] bank ha[d] a new manager and it had no

record of the sale. She was asked and she complied with

the request of the [petitioner] for a copy of the deed of

sale and receipt of payment. The president of the

[petitioner] bank told her to get an authority from her

parents and other [respondents] and receipts evidencing

payment of the consideration appearing in the deed of sale. She complied with said requirements and after she

gave all these documents, Marife O. Niño was again told

to wait for two (2) weeks because the [petitioner] bank

would still study the matter.

After two (2) weeks, Marife O. Niño returned to the

[petitioner] bank and she was told that the resolution of

the board would not be released because the [petitioner]

bank ha[d] no records from the old manager. Because of this, Marife O. Niño brought the matter to her lawyer and

the latter wrote a letter on December 22, 1995 to the

[petitioner] bank inquiring why no action was taken by

the board of the request for the issuance of the resolution

considering that the bank was already fully paid [for] the

consideration of the sale since January 1988 as shown by

the deed of sale itself (Exh. D and D-1 ).

On January 15, 1996 the [petitioner] bank answered

[respondents'] lawyer's letter (Exh. D and D-1) informing

the latter that the request for board resolution ha[d]

already been referred to the board of directors of the

[petitioner] bank with another request that the latter should be furnished with a certified machine copy of the

receipt of payment covering the sale between the

[respondents] and the [petitioner] (Exh. E). This request

of the [petitioner] bank was already complied [with] by

Marife O. Niño even before she brought the matter to her

lawyer.

On January 23, 1996 [respondents'] lawyer wrote back the

branch manager of the [petitioner] bank informing the

latter that they were already furnished the receipts the

bank was asking [for] and that the [respondents] want[ed]

already to know the stand of the bank whether the board [would] issue the required board resolution as the deed of

sale itself already show[ed] that the [respondents were]

clearly entitled to the land subject of the sale (Exh. F).

The manager of the [petitioner] bank received the letter

which was served personally to him and the latter told

Marife O. Niño that since he was the one himself who

received the letter he would not sign anymore a copy

showing him as having already received said letter (Exh.

F).

After several days from receipt of the letter (Exh. F) when

Marife O. Niño went to the [petitioner] again and

reiterated her request, the manager of the [petitioner] bank told her that they could not issue the required board

resolution as the [petitioner] bank ha[d] no records of the

sale. Because of this Merife O. Niño already went to their

lawyer and ha[d] this petition filed.

The [respondents] are interested in having the property

described in paragraph 6 of the petition transferred to

their names because their mother and co-petitioner,

Francisca Ocfemia, is very sickly and they want to

mortgage the property for the medical expenses of

Francisca Ocfemia. The illness of Francisca Ocfemia

beg[a]n after her husband died and her suffering from arthritis and pulmonary disease already became serious

before December 1995.

Marife O. Niño declared that her mother is now in serious

condition and they could not have her hospitalized for

treatment as they do not have any money and this is

causing the family sleepless nights and mental anguish,

thinking that their mother may die because they could not

submit her for medication as they do not have money. 6

The trial court granted the Petition. As noted earlier, the CA

affirmed the RTC Decision.

Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary Restraining Order directing the trial

court "to refrain and desist from executing [pending appeal] the

decision dated May 20, 1997 in Civil Case No. RTC-96-3513,

effective immediately until further orders from this Court." 8

Ruling of the Court of Appeals

The CA held that herein respondents were "able to prove their

present cause of action" against petitioner. It ruled that the RTC

had jurisdiction over the case, because (1) the Petition involved a matter incapable of pecuniary estimation; (2) mandamus fell within

the jurisdiction of RTC; and (3) assuming that the action was for

specific performance as argued by the petitioner, it was still

cognizable by the said court.

Issues

In its Memorandum, 9 the bank posed the following questions:

1. Question of Jurisdiction of the Regional Trial Court. —

Has a Regional Trial Court original jurisdiction over an

action involving title to real property with a total assessed

value of less than P20,000.00?

2. Question of Law. — May the board of directors of a

rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation

which deed of sale was executed by the bank manager

without prior authority of the board of directors of the

rural banking corporation? 10

This Court's Ruling

The present Petition has no merit.

First Issue:

Jurisdiction of the Regional Trial Court

Petitioner submits that the RTC had no jurisdiction over the case.

Disputing the ruling of the appellate court that the present action

was incapable of pecuniary estimation, petitioner argues that the matter in fact involved title to real property worth less than

P20,000. Thus, under RA 7691, the case should have been filed

before a metropolitan trial court, a municipal trial court or a

municipal circuit trial court.

We disagree. The well-settled rule is that jurisdiction is determined

by the allegations of the complaint. 11 In the present case, the

Petition for Mandamus filed by respondents before the trial court

prayed that petitioner-bank be compelled to issue a board

resolution confirming the Deed of Sale covering five parcels of

unregistered land, which the bank manager had executed in their

favor. The RTC has jurisdiction over such action pursuant to

Section 21 of BP 129, which provides: Sec. 21. Original jurisdiction in other cases. — Regional

Trial Courts shall exercise original jurisdiction;

(1) in the issuance of writ of certiorari, prohibition,

mandamus, quo warranto, habeas corpus and injunction

which may be enforced in any part of their respective

regions; and

(2) In actions affecting ambassadors and other public

ministers and consuls.

A perusal of the Petition shows that the respondents did not raise

any question involving the title to the property, but merely asked

that petitioner's board of directors be directed to issue the subject resolution. Moreover, the bank did not controvert the allegations in

the said Petition. To repeat, the issue therein was not the title to the

property; it was respondents' right to compel the bank to issue a

board resolution confirming the Deed of Sale.

Second Issue:

Authority of the Bank Manager

Respondents initiated the present proceedings, so that they could

transfer to their names the subject five parcels of land; and

subsequently, to mortgage said lots and to use the loan proceeds

for the medical expenses of their ailing mother. For the property to

be transferred in their names, however, the register of deeds required the submission of a board resolution from the bank

confirming both the Deed of Sale and the authority of the bank

manager, Fe S. Tena, to enter into such transaction. Petitioner

refused. After being given the runaround by the bank, respondents

sued in exasperation.

Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed

of Sale, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S.

Tena as the representative of the bank. Petitioner, however, failed

to specifically deny under oath the allegations in that contract. In

fact, it filed no answer at all, for which reason it was declared in

default. Pertinent provisions of the Rules of Court read:

Sec. 7. Action or defense based on document. —

Whenever an action or defense is based upon a written

instrument or document, the substance of such instrument

or document shall be set forth in the pleading, and the

original or a copy thereof shall be attached to the pleading

as an exhibit, which shall be deemed to be a part of the

pleading, or said copy may with like effect be set forth in the pleading.

Sec. 8. How to contest genuineness of such documents.—

When an action or defense is founded upon a written

instrument, copied in or attached to the corresponding

pleading as provided in the preceding section, the

genuineness and due execution of the instrument shall be

deemed admitted unless the adverse party, under oath,

specifically denies them, and sets forth what he claims to

be the facts; but this provision does not apply when the

adverse party does not appear to be a party to the

instrument or when compliance with an order for an inspection of the original instrument is refused. 12

In failing to file its answer specifically denying under oath the

Deed of Sale, the bank admitted the due execution of the said

contract. Such admission means that it acknowledged that Tena

was authorized to sign the Deed of Sale on its behalf. 13 Thus,

defenses that are inconsistent with the due execution and the

genuineness of the written instrument are cut off by an admission

implied from a failure to make a verified specific denial.

Other Acts of the Bank

In any event, the bank acknowledged, by its own acts or failure to

act, the authority of Fe S. Tena to enter into binding contracts.

After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes due thereon. If

the bank management believed that it had title to the property, it

should have taken some measures to prevent the infringement or

invasion of its title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the

bank, and the latter had acknowledged her authority. A bank is

liable to innocent third persons where representation is made in the

course of its normal business by an agent like Manager Tena, even

though such agent is abusing her authority. 14 Clearly, persons

dealing with her could not be blamed for believing that she was

authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw: 15

Settled jurisprudence has it that where similar acts have

been approved by the directors as a matter of general

practice, custom, and policy, the general manager may

bind the company without formal authorization of the

board of directors. In varying language, existence of such

authority is established, by proof of the course of

business, the usages and practices of the company and by

the knowledge which the board of directors has, or must

be presumed to have, of acts and doings of its

subordinates in and about the affairs of the corporation. So also,

. . . authority to act for and bind a corporation may be

presumed from acts of recognition in other instances

where the power was in fact exercised.

. . . Thus, when, in the usual course of business of a

corporation, an officer has been allowed in his official

capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which

he has been permitted by the directors to manage its

business.

Notwithstanding the putative authority of the manager to bind the

bank in the Deed of Sale, petitioner has failed to file an answer to

the Petition below within the reglementary period, let alone present

evidence controverting such authority. Indeed, when one of herein

respondents, Marife S. Nino, went to the bank to ask for the board

resolution, she was merely told to bring the receipts. The bank

failed to categorically declare that Tena had no authority. This

Court stresses the following:

. . . Corporate transactions would speedily come to a standstill were every person dealing with a corporation

held duty-bound to disbelieve every act of its responsible

officers, no matter how regular they should appear on

their face. This Court has observed in Ramirez vs.

Orientalist Co., 38 Phil. 634, 654-655, that —

In passing upon the liability of a corporation in

cases of this kind it is always well to keep in

mind the situation as it presents itself to the third

party with whom the contract is made. Naturally

he can have little or no information as to what

occurs in corporate meetings; and he must necessarily rely upon the external manifestation

of corporate consent. The integrity of

commercial transactions can only be maintained

by holding the corporation strictly to the liability

fixed upon it by its agents in accordance with

law; and we would be sorry to announce a

doctrine which would permit the property of man

in the city of Paris to be whisked out of his hands

and carried into a remote quarter of the earth

without recourse against the corporation whose

name and authority had been used in the manner

disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly

permits one of its officers, or any other agent, to

do acts within the scope of an apparent authority,

and thus holds him out to the public as

possessing power to do those acts, the

corporation will, as against any one who has in

good faith dealt with the corporation through

such agent, be estopped from denying his

authority; and where it is said "if the corporation

permits this means the same as "if the thing is

permitted by the directing power of the corporation." 16

In this light, the bank is estopped from questioning the authority of

the bank manager to enter into the contract of sale. If a corporation

knowingly permits one of its officers or any other agent to act

within the scope of an apparent authority, it holds the agent out to

the public as possessing the power to do those acts; thus, the

corporation will, as against anyone who has in good faith dealt

with it through such agent, be estopped from denying the agent's

authority. 17

Unquestionably, petitioner has authorized Tena to enter into the

Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondent's. Having authorized her to

sell the property, it behooves the bank to confirm the Deed of Sale

so that the buyers may enjoy its full use.

The board resolution is, in fact, mere paper work. Nonetheless, it is

paper work necessary in the orderly operations of the register of

deeds and the full enjoyment of respondents' rights. Petitioner-

bank persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in dealing with respondents

regarding this matter. In this light, the Court finds it proper to

assess the bank treble costs, in addition to the award of damages.

WHEREFORE, the Petition is hereby DENIED and the assailed

Decision and Resolution AFFIRMED. The Temporary Restraining

Order issued by this Court is hereby LIFTED. Treble costs against

petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

SECOND DIVISION

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 Decision3 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%5 prepaid

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.

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 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 supervisory position, and Apetrior, the branch manager,

confirmed that Valle had authority. While it is true that a person

dealing with an agent is put upon inquiry and must discover at his

own peril the 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.

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.

Republic of the Philippines

SUPREME COURT Manila

EN BANC

G.R. No. 126297 February 2, 2010 PROFESSIONAL SERVICES, INC., Petitioner,

vs.

THE COURT OF APPEALS and NATIVIDAD and

ENRIQUE AGANA, Respondents.

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

G.R. No. 126467

NATIVIDAD [substituted by her children Marcelino Agana

III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana

and Raymund Agana] and ENRIQUE AGANA, Petitioners,

vs.

THE COURT OF APPEALS and JUAN FUENTES, Respondents.

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

G.R. No. 127590 MIGUEL AMPIL, Petitioner,

vs.

NATIVIDAD and ENRIQUE AGANA, Respondents.

R E S O L U T I O N

CORONA, J.: With prior leave of court,1 petitioner Professional Services, Inc.

(PSI) filed a second motion for reconsideration2 urging referral

thereof to the Court en banc and seeking modification of the

decision dated January 31, 2007 and resolution dated February 11,

2008 which affirmed its vicarious and direct liability for damages to respondents Enrique Agana and the heirs of Natividad Agana

(Aganas).

Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc.

(AHI),4 and Private Hospital Association of the Philippines

(PHAP)5 all sought to intervene in these cases invoking the

common ground that, unless modified, the assailed decision and

resolution will jeopardize the financial viability of private hospitals

and jack up the cost of health care.

The Special First Division of the Court granted the motions for

intervention of MMSI, AHI and PHAP (hereafter intervenors),6

and referred en consulta to the Court en banc the motion for prior

leave of court and the second motion for reconsideration of PSI.7 Due to paramount public interest, the Court en banc accepted the

referral8 and heard the parties on oral arguments on one particular

issue: whether a hospital may be held liable for the negligence of

physicians-consultants allowed to practice in its premises.9

To recall the salient facts, PSI, together with Dr. Miguel Ampil

(Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes), was impleaded by

Enrique Agana and Natividad Agana (later substituted by her

heirs), in a complaint10 for damages filed in the Regional Trial

Court (RTC) of Quezon City, Branch 96, for the injuries suffered

by Natividad when Dr. Ampil and Dr. Fuentes neglected to remove

from her body two gauzes11 which were used in the surgery they performed on her on April 11, 1984 at the Medical City General

Hospital. PSI was impleaded as owner, operator and manager of

the hospital.

In a decision12 dated March 17, 1993, the RTC held PSI solidarily

liable with Dr. Ampil and Dr. Fuentes for damages.13 On appeal,

the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the

liability of Dr. Ampil and PSI, subject to the right of PSI to claim

reimbursement from Dr. Ampil.141avvphi1

On petition for review, this Court, in its January 31, 2007 decision,

affirmed the CA decision.15 PSI filed a motion for

reconsideration16 but the Court denied it in a resolution dated February 11, 2008.17

The Court premised the direct liability of PSI to the Aganas on the

following facts and law:

First, there existed between PSI and Dr. Ampil an employer-

employee relationship as contemplated in the December 29, 1999

decision in Ramos v. Court of Appeals18 that "for purposes of

allocating responsibility in medical negligence cases, an employer-employee relationship exists between hospitals and their

consultants."19 Although the Court in Ramos later issued a

Resolution dated April 11, 200220 reversing its earlier finding on

the existence of an employment relationship between hospital and

doctor, a similar reversal was not warranted in the present case

because the defense raised by PSI consisted of a mere general

denial of control or responsibility over the actions of Dr. Ampil.21

Second, by accrediting Dr. Ampil and advertising his

qualifications, PSI created the public impression that he was its

agent.22 Enrique testified that it was on account of Dr. Ampil's

accreditation with PSI that he conferred with said doctor about his

wife's (Natividad's) condition.23 After his meeting with Dr. Ampil, Enrique asked Natividad to personally consult Dr. Ampil.24 In

effect, when Enrigue and Natividad engaged the services of Dr.

Ampil, at the back of their minds was that the latter was a staff

member of a prestigious hospital. Thus, under the doctrine of

apparent authority applied in Nogales, et al. v. Capitol Medical

Center, et al.,25 PSI was liable for the negligence of Dr. Ampil.

Finally, as owner and operator of Medical City General Hospital,

PSI was bound by its duty to provide comprehensive medical

services to Natividad Agana, to exercise reasonable care to protect

her from harm,26 to oversee or supervise all persons who practiced

medicine within its walls, and to take active steps in fixing any form of negligence committed within its premises.27 PSI

committed a serious breach of its corporate duty when it failed to

conduct an immediate investigation into the reported missing

gauzes.28

PSI is now asking this Court to reconsider the foregoing rulings for

these reasons:

I

The declaration in the 31 January 2007 Decision vis-a-vis the 11

February 2009 Resolution that the ruling in Ramos vs. Court of

Appeals (G.R. No. 134354, December 29, 1999) that "an

employer-employee relations exists between hospital and their

consultants" stays should be set aside for being inconsistent with or contrary to the import of the resolution granting the hospital's

motion for reconsideration in Ramos vs. Court of Appeals (G.R.

No. 134354, April 11, 2002), which is applicable to PSI since the

Aganas failed to prove an employer-employee relationship

between PSI and Dr. Ampil and PSI proved that it has no control

over Dr. Ampil. In fact, the trial court has found that there is no

employer-employee relationship in this case and that the doctor's

are independent contractors.

II

Respondents Aganas engaged Dr. Miguel Ampil as their doctor

and did not primarily and specifically look to the Medical City Hospital (PSI) for medical care and support; otherwise stated,

respondents Aganas did not select Medical City Hospital (PSI) to

provide medical care because of any apparent authority of Dr.

Miguel Ampil as its agent since the latter was chosen primarily and

specifically based on his qualifications and being friend and

neighbor.

III

PSI cannot be liable under doctrine of corporate negligence since

the proximate cause of Mrs. Agana's injury was the negligence of

Dr. Ampil, which is an element of the principle of corporate

negligence.29 In their respective memoranda, intervenors raise parallel arguments

that the Court's ruling on the existence of an employer-employee

relationship between private hospitals and consultants will force a

drastic and complex alteration in the long-established and currently

prevailing relationships among patient, physician and hospital,

with burdensome operational and financial consequences and

adverse effects on all three parties.30

The Aganas comment that the arguments of PSI need no longer be entertained for they have all been traversed in the assailed decision

and resolution.31

After gathering its thoughts on the issues, this Court holds that PSI

is liable to the Aganas, not under the principle of respondeat

superior for lack of evidence of an employment relationship with

Dr. Ampil but under the principle of ostensible agency for the

negligence of Dr. Ampil and, pro hac vice, under the principle of

corporate negligence for its failure to perform its duties as a

hospital.

While in theory a hospital as a juridical entity cannot practice

medicine,32 in reality it utilizes doctors, surgeons and medical

practitioners in the conduct of its business of facilitating medical and surgical treatment.33 Within that reality, three legal

relationships crisscross: (1) between the hospital and the doctor

practicing within its premises; (2) between the hospital and the

patient being treated or examined within its premises and (3)

between the patient and the doctor. The exact nature of each

relationship determines the basis and extent of the liability of the

hospital for the negligence of the doctor.

Where an employment relationship exists, the hospital may be held

vicariously liable under Article 217634 in relation to Article 218035

of the Civil Code or the principle of respondeat superior. Even

when no employment relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the

hospital may still be vicariously liable under Article 2176 in

relation to Article 143136 and Article 186937 of the Civil Code or

the principle of apparent authority.38 Moreover, regardless of its

relationship with the doctor, the hospital may be held directly

liable to the patient for its own negligence or failure to follow

established standard of conduct to which it should conform as a

corporation.39

This Court still employs the "control test" to determine the

existence of an employer-employee relationship between hospital

and doctor. In Calamba Medical Center, Inc. v. National Labor

Relations Commission, et al.40 it held: Under the "control test", an employment relationship exists

between a physician and a hospital if the hospital controls both the

means and the details of the process by which the physician is to

accomplish his task.

x x x x x x x x x

As priorly stated, private respondents maintained specific work-

schedules, as determined by petitioner through its medical director,

which consisted of 24-hour shifts totaling forty-eight hours each

week and which were strictly to be observed under pain of

administrative sanctions.

That petitioner exercised control over respondents gains light

from the undisputed fact that in the emergency room, the

operating room, or any department or ward for that matter,

respondents' work is monitored through its nursing

supervisors, charge nurses and orderlies. Without the approval

or consent of petitioner or its medical director, no operations

can be undertaken in those areas. For control test to apply, it is

not essential for the employer to actually supervise the

performance of duties of the employee, it being enough that it

has the right to wield the power. (emphasis supplied)

Even in its December 29, 1999 decision41 and April 11, 2002

resolution42 in Ramos, the Court found the control test decisive. In the present case, it appears to have escaped the Court's attention

that both the RTC and the CA found no employment relationship

between PSI and Dr. Ampil, and that the Aganas did not question

such finding. In its March 17, 1993 decision, the RTC found "that

defendant doctors were not employees of PSI in its hospital, they

being merely consultants without any employer-employee

relationship and in the capacity of independent contractors."43 The

Aganas never questioned such finding. PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision

but only on the issues of negligence, agency and corporate liability.

In its September 6, 1996 decision, the CA mistakenly referred to

PSI and Dr. Ampil as employer-employee, but it was clear in its

discussion on the matter that it viewed their relationship as one of

mere apparent agency.45

The Aganas appealed from the CA decision, but only to question

the exoneration of Dr. Fuentes.46 PSI also appealed from the CA

decision, and it was then that the issue of employment, though long

settled, was unwittingly resurrected.

In fine, as there was no dispute over the RTC finding that PSI and

Dr. Ampil had no employer-employee relationship, such finding became final and conclusive even to this Court.47 There was no

reason for PSI to have raised it as an issue in its petition. Thus,

whatever discussion on the matter that may have ensued was

purely academic.

Nonetheless, to allay the anxiety of the intervenors, the Court holds

that, in this particular instance, the concurrent finding of the RTC

and the CA that PSI was not the employer of Dr. Ampil is correct.

Control as a determinative factor in testing the employer-employee

relationship between doctor and hospital under which the hospital

could be held vicariously liable to a patient in medical negligence

cases is a requisite fact to be established by preponderance of evidence. Here, there was insufficient evidence that PSI exercised

the power of control or wielded such power over the means and the

details of the specific process by which Dr. Ampil applied his

skills in the treatment of Natividad. Consequently, PSI cannot be

held vicariously liable for the negligence of Dr. Ampil under the

principle of respondeat superior.

There is, however, ample evidence that the hospital (PSI) held out

to the patient (Natividad)48 that the doctor (Dr. Ampil) was its

agent. Present are the two factors that determine apparent

authority: first, the hospital's implied manifestation to the patient

which led the latter to conclude that the doctor was the hospital's

agent; and second, the patient‘s reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and

prudence.49

Enrique testified that on April 2, 1984, he consulted Dr. Ampil

regarding the condition of his wife; that after the meeting and as

advised by Dr. Ampil, he "asked [his] wife to go to Medical City

to be examined by [Dr. Ampil]"; and that the next day, April 3, he

told his daughter to take her mother to Dr. Ampil.50 This timeline

indicates that it was Enrique who actually made the decision on

whom Natividad should consult and where, and that the latter

merely acceded to it. It explains the testimony of Natividad that

she consulted Dr. Ampil at the instigation of her daughter.51 Moreover, when asked what impelled him to choose Dr. Ampil,

Enrique testified:

Atty. Agcaoili

On that particular occasion, April 2, 1984, what was your reason

for choosing Dr. Ampil to contact with in connection with your

wife's illness?

A. First, before that, I have known him to be a specialist on that

part of the body as a surgeon, second, I have known him to be a

staff member of the Medical City which is a prominent and

known hospital. And third, because he is a neighbor, I expect more

than the usual medical service to be given to us, than his ordinary patients.52 (emphasis supplied)

Clearly, the decision made by Enrique for Natividad to consult Dr.

Ampil was significantly influenced by the impression that Dr.

Ampil was a staff member of Medical City General Hospital, and

that said hospital was well known and prominent. Enrique looked

upon Dr. Ampil not as independent of but as integrally related to

Medical City. PSI's acts tended to confirm and reinforce, rather than negate,

Enrique's view. It is of record that PSI required a "consent for

hospital care"53 to be signed preparatory to the surgery of

Natividad. The form reads:

Permission is hereby given to the medical, nursing and laboratory

staff of the Medical City General Hospital to perform such

diagnostic procedures and to administer such medications and

treatments as may be deemed necessary or advisable by the

physicians of this hospital for and during the confinement of xxx.

(emphasis supplied)

By such statement, PSI virtually reinforced the public impression

that Dr. Ampil was a physician of its hospital, rather than one independently practicing in it; that the medications and treatments

he prescribed were necessary and desirable; and that the hospital

staff was prepared to carry them out.1avvphi1

PSI pointed out in its memorandum that Dr. Ampil's hospital

affiliation was not the exclusive basis of the Aganas‘ decision to

have Natividad treated in Medical City General Hospital, meaning

that, had Dr. Ampil been affiliated with another hospital, he would

still have been chosen by the Aganas as Natividad's surgeon.54

The Court cannot speculate on what could have been behind the

Aganas‘ decision but would rather adhere strictly to the fact that,

under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a prominent

and known hospital. After his meeting with Dr. Ampil, Enrique

advised his wife Natividad to go to the Medical City General

Hospital to be examined by said doctor, and the hospital acted in a

way that fortified Enrique's belief.

This Court must therefore maintain the ruling that PSI is

vicariously liable for the negligence of Dr. Ampil as its ostensible

agent.

Moving on to the next issue, the Court notes that PSI made the

following admission in its Motion for Reconsideration:

51. Clearly, not being an agent or employee of petitioner PSI, PSI

[sic] is not liable for Dr. Ampil's acts during the operation. Considering further that Dr. Ampil was personally engaged as a

doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as "Captain

of the Ship", and as the Agana's doctor to advise her on what to do

with her situation vis-a-vis the two missing gauzes. In addition to

noting the missing gauzes, regular check-ups were made and

no signs of complications were exhibited during her stay at the

hospital, which could have alerted petitioner PSI's hospital to

render and provide post-operation services to and tread on Dr.

Ampil's role as the doctor of Mrs. Agana. The absence of

negligence of PSI from the patient's admission up to her

discharge is borne by the finding of facts in this case. Likewise

evident therefrom is the absence of any complaint from Mrs.

Agana after her discharge from the hospital which had she

brought to the hospital's attention, could have alerted

petitioner PSI to act accordingly and bring the matter to Dr.

Ampil's attention. But this was not the case. Ms. Agana

complained ONLY to Drs. Ampil and Fuentes, not the hospital.

How then could PSI possibly do something to fix the negligence

committed by Dr. Ampil when it was not informed about it at

all.55 (emphasis supplied)

PSI reiterated its admission when it stated that had Natividad

Agana "informed the hospital of her discomfort and pain, the hospital would have been obliged to act on it."56

The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no

power to control the means or method by which Dr. Ampil

conducted the surgery on Natividad Agana, it had the power to

review or cause the review of what may have irregularly

transpired within its walls strictly for the purpose of determining

whether some form of negligence may have attended any procedure done inside its premises, with the ultimate end of

protecting its patients.

Second, it is a judicial admission that, by virtue of the nature of its

business as well as its prominence57 in the hospital industry, it

assumed a duty to "tread on" the "captain of the ship" role of any

doctor rendering services within its premises for the purpose of

ensuring the safety of the patients availing themselves of its

services and facilities.

Third, by such admission, PSI defined the standards of its

corporate conduct under the circumstances of this case,

specifically: (a) that it had a corporate duty to Natividad even after

her operation to ensure her safety as a patient; (b) that its corporate duty was not limited to having its nursing staff note or record the

two missing gauzes and (c) that its corporate duty extended to

determining Dr. Ampil's role in it, bringing the matter to his

attention, and correcting his negligence.

And finally, by such admission, PSI barred itself from arguing in

its second motion for reconsideration that the concept of corporate

responsibility was not yet in existence at the time Natividad

underwent treatment;58 and that if it had any corporate

responsibility, the same was limited to reporting the missing

gauzes and did not include "taking an active step in fixing the

negligence committed."59 An admission made in the pleading cannot be controverted by the party making such admission and is

conclusive as to him, and all proofs submitted by him contrary

thereto or inconsistent therewith should be ignored, whether or not

objection is interposed by a party.60

Given the standard of conduct that PSI defined for itself, the next

relevant inquiry is whether the hospital measured up to it.

PSI excuses itself from fulfilling its corporate duty on the ground

that Dr. Ampil assumed the personal responsibility of informing

Natividad about the two missing gauzes.61 Dr. Ricardo Jocson,

who was part of the group of doctors that attended to Natividad,

testified that toward the end of the surgery, their group talked

about the missing gauzes but Dr. Ampil assured them that he would personally notify the patient about it.62 Furthermore, PSI

claimed that there was no reason for it to act on the report on the

two missing gauzes because Natividad Agana showed no signs of

complications. She did not even inform the hospital about her

discomfort.63

The excuses proffered by PSI are totally unacceptable.

To begin with, PSI could not simply wave off the problem and

nonchalantly delegate to Dr. Ampil the duty to review what

transpired during the operation. The purpose of such review would

have been to pinpoint when, how and by whom two surgical

gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividad‘s recovery. Certainly, PSI

could not have expected that purpose to be achieved by merely

hoping that the person likely to have mislaid the gauzes might be

able to retrace his own steps. By its own standard of corporate

conduct, PSI's duty to initiate the review was non-delegable.

While Dr. Ampil may have had the primary responsibility of

notifying Natividad about the missing gauzes, PSI imposed upon

itself the separate and independent responsibility of initiating the

inquiry into the missing gauzes. The purpose of the first would

have been to apprise Natividad of what transpired during her

surgery, while the purpose of the second would have been to pinpoint any lapse in procedure that led to the gauze count

discrepancy, so as to prevent a recurrence thereof and to determine

corrective measures that would ensure the safety of Natividad.

That Dr. Ampil negligently failed to notify Natividad did not

release PSI from its self-imposed separate responsibility.

Corollary to its non-delegable undertaking to review potential

incidents of negligence committed within its premises, PSI had the

duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when these bear earmarks of a

surgery gone awry. Thus, the record taken during the operation of

Natividad which reported a gauze count discrepancy should have

given PSI sufficient reason to initiate a review. It should not have

waited for Natividad to complain.

As it happened, PSI took no heed of the record of operation and

consequently did not initiate a review of what transpired during

Natividad‘s operation. Rather, it shirked its responsibility and

passed it on to others – to Dr. Ampil whom it expected to inform

Natividad, and to Natividad herself to complain before it took any

meaningful step. By its inaction, therefore, PSI failed its own

standard of hospital care. It committed corporate negligence. It should be borne in mind that the corporate negligence ascribed

to PSI is different from the medical negligence attributed to Dr.

Ampil. The duties of the hospital are distinct from those of the

doctor-consultant practicing within its premises in relation to the

patient; hence, the failure of PSI to fulfill its duties as a hospital

corporation gave rise to a direct liability to the Aganas distinct

from that of Dr. Ampil.

All this notwithstanding, we make it clear that PSI‘s hospital

liability based on ostensible agency and corporate negligence

applies only to this case, pro hac vice. It is not intended to set a

precedent and should not serve as a basis to hold hospitals liable for every form of negligence of their doctors-consultants under any

and all circumstances. The ruling is unique to this case, for the

liability of PSI arose from an implied agency with Dr. Ampil and

an admitted corporate duty to Natividad.64

Other circumstances peculiar to this case warrant this ruling,65 not

the least of which being that the agony wrought upon the Aganas

has gone on for 26 long years, with Natividad coming to the end of

her days racked in pain and agony. Such wretchedness could have

been avoided had PSI simply done what was logical: heed the

report of a guaze count discrepancy, initiate a review of what went

wrong and take corrective measures to ensure the safety of

Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile,

the options left to the Aganas have all but dwindled, for the status

of Dr. Ampil can no longer be ascertained.66

Therefore, taking all the equities of this case into consideration,

this Court believes P15 million would be a fair and reasonable

liability of PSI, subject to 12% p.a. interest from the finality of this

resolution to full satisfaction.

WHEREFORE, the second motion for reconsideration is

DENIED and the motions for intervention are NOTED.

Professional Services, Inc. is ORDERED pro hac vice to pay

Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and

Raymund Agana) and Enrique Agana the total amount of P15

million, subject to 12% p.a. interest from the finality of this

resolution to full satisfaction.

No further pleadings by any party shall be entertained in this case.

Let the long-delayed entry of judgment be made in this case upon

receipt by all concerned parties of this resolution.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

SECOND DIVISION

G.R. NO. 170530 July 5, 2010

SARGASSO CONSTRUCTION & DEVELOPMENT

CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC

ERECTORS, INC. (JOINT VENTURE), Petitioner,

vs.

PHILIPPINE PORTS AUTHORITY, Respondent.

D E C I S I O N

MENDOZA, J.: This is a petition for review on certiorari under Rule 45 which

seeks to annul and set aside the August 22, 2005 Decision1 of the

Court of Appeals (CA) in CA-G.R. CV No. 63180 and its

November 14, 2005 Resolution2 denying petitioner‘s motion for

the reconsideration thereof. The questioned CA decision reversed

the June 8, 1998 Decision3 of the Regional Trial Court of Manila, Branch 14, in Civil Case No. 97-83916, which granted petitioner‘s

action for specific performance.

The factual and procedural antecedents have been succinctly

recited in the subject Court of Appeals decision in this wise:4

Plaintiff Sargasso Construction and Development Corporation,

Pick and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture,

was awarded the construction of Pier 2 and the rock causeway

(R.C. Pier 2) for the port of San Fernando, La Union, after a public

bidding conducted by the defendant PPA. Implementation of the

project commenced on August 14, 1990. The port construction was

in pursuance of the development of the Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of P4,280 square meters

intended for the reclamation project as part of the overall port

development plan.

In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive

Director of the consortium, plaintiff offered to undertake the

reclamation between the Timber Pier and Pier 2 of the Port of San

Fernando, La Union, as an extra work to its existing construction

of R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03.

Defendant replied thru its Assistant General Manager Teofilo H.

Landicho who sent the following letter dated December 18, 1992:

"This is to acknowledge receipt of your letter dated 01 October

1992 offering to undertake the reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La Union as an extra

work to your existing contract.

"Your proposal to undertake the project at a total cost of THIRTY

SIX MILLION TWO HUNDRED NINETY FOUR THOUSAND

EIGHT HUNDRED FIFTY SEVEN AND 03/100 PESOS

(P36,294,857.03) is not acceptable to PPA. If you can reduce your

offer to THIRTY MILLION SEVEN HUNDRED NINETY FOUR

THOUSAND TWO HUNDRED THIRTY AND 89/100

(P30,794,230.89) we may consider favorably award of the

project in your favor, subject to the approval of higher

authority. Please signify your agreement to the reduced amount of

P30,794,230.89 by signing in the space provided below. (emphasis

in the original)

On August 26, 1993, a Notice of Award signed by PPA General

Manager Rogelio Dayan was sent to plaintiff for the phase I

Reclamation Contract in the amount of P30,794,230.89 and

instructing it to "enter into and execute the contract agreement with

this Office" and to furnish the documents representing

performance security and credit line. Defendant likewise stated

[and] made it a condition that "fendering of Pier No. 2 Port of San

Fernando, and the Port of Tabaco is completed before the approval of the contract for the reclamation project." Installation of the

rubber dock fenders in the said ports was accomplished in the year

1994. PPA Management further set a condition [that] "the

acceptance by the contractor that mobilization/demobilization cost

shall not be included in the contract and that escalation shall be

reckoned upon approval of the Supplemental Agreement." The

award of the negotiated contract as additional or supplemental

project in favor of plaintiff was intended "to save on the mobilization/demobilization costs and some items as provided for

in the original contract." Hence, then General Manager Carlos L.

Agustin presented for consideration by the PPA Board of Directors

the contract proposal for the reclamation project.

At its meeting held on September 9, 1994, the Board decided not to

approve the contract proposal, as reflected in the following excerpt

of the minutes taken during said board meeting:

"After due deliberation, the Board advised Management to bid the

project since there is no strong legal basis for Management to

award the supplemental contract through negotiation. The Board

noted that the Pier 2 Project was basically for the construction of a

pier while the supplemental agreement refers to reclamation. Thus there is no basis to compare the terms and conditions of the

reclamation project with the original contract (Pier 2 Project) of

Sargasso."5

It appears that PPA did not formally advise the plaintiff of the

Board‘s action on their contract proposal. As plaintiff learned that

the Board was not inclined to favor its Supplemental Agreement,

Mr. Go wrote General Manager Agustin requesting that the same

be presented again to the Board meeting for approval. However, no

reply was received by plaintiff from the defendant.

On June 30, 1997, plaintiff filed a complaint for specific

performance and damages before the Regional Trial Court of Manila alleging that defendant PPA‘s unjustified refusal to comply

with its undertaking, unnecessarily leading to the delay in the

implementation of the award under the August 26, 1993 Notice of

Award, has put on hold plaintiff‘s men and resources earmarked

for the project, aside from effectively tying its hands in

undertaking other projects for fear that plaintiff‘s incapacity to

undertake work might be spread thinly and it might not be able to

function efficiently if the PPA project and other projects should

require simultaneous attention. Plaintiff averred that it sought

reconsideration of the August 9, 1996 letter of PPA informing it

that it did not qualify to bid for the proposed extension of RC Pier

No. 2, Port of San Fernando, La Union for not having IAC Registration and Classification and not complying with equipment

requirement. In its letter dated September 19, 1996, plaintiff

pointed out that the disqualification was clearly unjust and totally

without basis considering that individual contractors of the joint

venture have undertaken separately bigger projects, and have been

such individual contractors for almost 16 years. It thus prayed that

judgment be rendered by the court directing the defendant (a) to

comply with its undertaking under the Notice of Award dated

August 26, 1993; and (b) to pay plaintiff actual damages

(P1,000,000.00), exemplary damages (P1,000,000.00), attorney‘s

fees (P300,000.00) and expenses of litigation and costs (P50,000.00).

Defendant PPA thru the Office of the Government Corporate

Counsel (OGCC) filed its Answer with Compulsory Counterclaim

contending that the alleged Notice of Award has already been

properly revoked when the Supplemental Agreement which should

have implemented the award was denied approval by defendant‘s

Board of Directors. As to plaintiff‘s pre-disqualification from

participating in the bidding for the extension of R.C. Pier No. 2

Project at the Port of San Fernando, La Union, the same is based

on factual determination by the defendant that plaintiff lacked IAC

Registration and Classification and equipment for the said project as communicated in the August 9, 1996 letter. Defendant

disclaimed any liability for whatever damages suffered by the

plaintiff when it "jumped the gun" by committing its alleged

resources for the reclamation project despite the fact that no Notice

to Proceed was issued to plaintiff by the defendant. The cause of

action insofar as the Extension of R.C. Pier No. 2 of the Port of

San Fernando, La Union, is barred by the statute of limitation since

plaintiff filed its request for reconsideration way beyond the seven (7) day-period allowed under IB 6-5 of the Implementing Rules

and Regulations of P.D. 1594. Defendant clarified that the

proposed Reclamation Project and Extension of R.C. Pier No. 2

San Fernando, La Union, are separate projects of PPA. The Board

of Directors denied approval of the Supplemental Agreement on

September 9, 1994 for lack of legal basis to award the

supplemental contract through negotiation which was properly

communicated to the plaintiff as shown by its letter dated

September 19, 1994 seeking reconsideration thereof. As advised by

the Board, PPA Management began to make preparations for the

public bidding for the proposed reclamation project. In the

meantime, defendant decided to pursue the extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the complaint be

dismissed]. (Emphasis supplied)

After trial, the lower court rendered a decision in favor of the

plaintiff, the dispositive portion of which reads:

"WHEREFORE, and in view of the foregoing considerations,

judgment is hereby rendered ordering the defendant to execute a

contract in favor of the plaintiff for the reclamation of the area

between the Timber Pier and Pier 2 located at San Fernando, La

Union for the price of P30,794,230.89 and to pay the costs.

The counterclaim is dismissed for lack of merit.

SO ORDERED.6 In addressing affirmatively the basic issue of whether there was a

perfected contract between the parties for the reclamation project,

the trial court ruled that the "higher authority x x adverted to does

not necessarily mean the Board of Directors (Board). Under IRR,

P.D. 1594 (1)B10.6, approval of award and contracts is vested on

the head of the infrastructure department or its duly authorized

representative. Under Sec. 9 (iii) of P.D. 857 which has amended

P.D. 505 that created the PPA, one of the particular powers and

duties of the General Manager and Assistant General Manager is to

sign contracts."7 It went on to say that "in the case of the PPA, the

power to enter into contracts is not only vested on the Board of

Directors, but also to the manager" citing Section 9 (III) of P.D. No. 857.8

The trial court added that the tenor of the Notice of Award implied

that respondent‘s general manager had been empowered by its

Board of Directors to bind respondent by contract. It noted that

whereas the letter-reply contained the phrase "approval of the

higher authority," the conspicuous absence of the same in the

Notice of Award supported the finding that the general manager

had been vested with authority to enter into the contract for and in

behalf of respondent. To the trial court, the disapproval by the PPA

Board of the supplementary contract for the reclamation on a

ground other than the general manager‘s lack of authority was an explicit recognition that the latter was so authorized to enter into

the purported contract.

Respondent moved for a reconsideration of the RTC decision but it

was denied for lack of merit. Respondent then filed its Notice of

Appeal. Subsequently, petitioner moved to dismiss the appeal on

the ground that respondent failed to perfect its appeal seasonably.

On June 27, 2000, the Court of Appeals issued a Resolution9

dismissing respondent‘s appeal for having been filed out time.

Respondent‘s motion for reconsideration of said resolution was

also denied.10

Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari under Rule 45 assailing the denial

of its appeal. On July 30, 2004, the Court rendered an en banc

decision11 granting respondent‘s petition on a liberal interpretation

of the rules of procedure, and ordering the CA to conduct further

proceedings.

On August 22, 2005, the CA rendered the assailed decision

reversing the trial court‘s decision and dismissing petitioner‘s

complaint for specific performance and damages. Thus, the dispositive portion thereof reads:

WHEREFORE, premises considered, the present appeal is hereby

GRANTED. The appealed Decision dated June 8, 1998 of the trial

court in Civil Case No. 97-83916 is hereby REVERSED and SET

ASIDE. A new judgment is hereby entered DISMISSING the

complaint for specific performance and damages filed by Plaintiff

Sargasso Construction and Development Corporation/Pick &

Shovel, Inc./Atlantic Erectors, Inc., (Joint Venture) against the

Philippine Ports Authority for lack of merit.

In setting aside the trial court‘s decision, the CA ruled that the law

itself should serve as the basis of the general manager‘s authority

to bind respondent corporation and, thus, the trial court erred in merely relying on the wordings of the Notice of Award and the

Minutes of the Board meeting in determining the limits of his

authority; that the power of the general manager "to sign contracts"

is different from the Board‘s power "to make or enter (into)

contracts"; and that, in the execution of contracts, the general

manager only exercised a delegated power, in reference to which,

evidence was wanting that the PPA Board delegated to its general

manager the authority to enter into a supplementary contract for

the reclamation project.

The CA also found the disapproval of the contract on a ground

other than the general manager‘s lack of authority rather inconsequential because Executive Order 38012 expressly

authorized the governing boards of government-owned or

controlled corporations "to enter into negotiated infrastructure

contracts involving… not more than fifty million (P50 million)."

The CA further noted that the Notice of Award was only one of

those documents that comprised the entire contract and, therefore,

did not in itself evidence the perfection of a contract.

Hence, this petition.

The issue to be resolved in this case is whether or not a contract

has been perfected between the parties which, in turn, depends on

whether or not the general manager of PPA is vested with authority

to enter into a contract for and on behalf of PPA. The petition fails.

Petitioner contends that the existence of "Notice of Award of

Contract and Contractor‘s Conforme thereto," resulting from its

negotiation with respondent, proves that a contract has already

been perfected, and that the other documents enumerated under the

amended Rules and Regulations13 implementing P.D. 159414 are

mere physical representations of the parties‘ meeting of the minds;

that the "Approval of Award by Approving Authority" is only a

"supporting document," and not an evidence of perfection of

contract, and which merely "facilitates the approval of the

contract;"15 that PPA is bound by the acts of its general manager in issuing the Notice of Award under the doctrine of apparent

authority; and that the doctrine of estoppel, being an equitable

doctrine, cannot be invoked to perpetuate an injustice against

petitioner.

At the outset, it must be stated that there are two (2) separate and

distinct, though related, projects involving the parties herein, viz:

(i) the construction of Pier 2 and the rock causeway for the port of

San Fernando, La Union, and (ii) the reclamation of the area

between the Timber Pier and Pier 2 of the same port. Petitioner‘s

action for specific performance and damages merely relates to the

latter. Every contract has the following essential elements: (i) consent,

(ii) object certain and (iii) cause. Consent has been defined as the

concurrence of the wills of the contracting parties with respect to

the object and cause which shall constitute the contract.16 In

general, contracts undergo three distinct stages, to wit: negotiation,

perfection or birth, and consummation. Negotiation17 begins from

the time the prospective contracting parties manifest their interest

in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties

agree upon the essential elements of the contract, i.e., consent,

object and price. Consummation occurs when the parties fulfill or

perform the terms agreed upon in the contract, culminating in the

extinguishment thereof. The birth or the perfection of the contract,

which is the crux of the present controversy, refers to that moment

in the life of a contract when there is finally a concurrence of the

wills of the contracting parties with respect to the object and the

cause of the contract.18

A government or public contract has been defined as a contract

entered into by state officers acting on behalf of the state, and in

which the entire people of the state are directly interested. It relates wholly to matter of public concern, and affects private rights only

so far as the statute confers such rights when its provisions are

carried out by the officer to whom it is confided to perform.19

A government contract is essentially similar to a private contract

contemplated under the Civil Code. The legal requisites of consent

of the contracting parties, an object certain which is the subject

matter, and cause or consideration of the obligation must likewise

concur. Otherwise, there is no government contract to speak of.20

As correctly found by the CA, the issue on the reclamation of the

area between Timber Pier and Pier 2 of the Port of San Fernando

involves a government infrastructure project, and it is beyond dispute that the applicable laws, rules and regulations on

government contracts or projects apply.

On the matter of entering into negotiated contracts by government-

owned and controlled corporations, the provisions of existing laws

are crystal clear in requiring the governing board‘s approval

thereof. The Court holds that the CA correctly applied the pertinent

laws, to wit:

Executive Order No. 380… provides for revised levels of authority

on approval of government contracts. Section 1 thereof

authorizes… GOCCs:

1. To enter into infrastructure contracts awarded through

public bidding regardless of the amount involved; 2. To enter into negotiated infrastructure contracts

involving not more than one hundred million pesos (P100

million) in the case of the Department of Transportation

and Communications and the Department of Public

Works and Highways, and not more than fifty million

pesos (P50 million) in the case of the other

Departments and governments corporations; Provided,

That contracts exceeding the said amounts shall only be

entered into upon prior authority from the Office of the

President; and Provided, Further, That said contracts shall

only be awarded in strict compliance with Section 5 of Executive Order No. 164, S. of 1987.

x x x

The rule on negotiated contracts, as amended on August 12, 2000

(IB 10.6.2) now reads –

1. Negotiated contract may be entered into only where

any of the following conditions exists and the

implementing office/agency/corporation is not capable of

undertaking the contract by administration:

a. In times of emergencies arising from natural

calamities where immediate action is necessary

to prevent imminent loss of life and/or property or to restore vital public services, infrastructure

and utilities such as…

b. Failure to award the contract after competitive

public bidding for valid cause or causes

c. Where the subject project is adjacent or

contiguous to an on-going project and it could be

economically prosecuted by the same contractor

provided that subject contract has similar or related scope of works and it is within the

contracting capacity of the contractor, in which

case, direct negotiation may be undertaken with

the said contractor…

x x x

In cases a and b above, bidding may be undertaken through sealed

canvass of at least three (3) qualified contractors… Authority to

negotiate contract for projects under these exceptional cases

shall be subject to prior approval by heads of agencies within

their limits of approving authority."21 (emphasis in the original)

Furthermore, the Revised Administrative Code22 lays down the

same requirement, thus: Sec. 51. Who May Execute Contracts. Contracts in behalf of the

Republic of the Philippines shall be executed by the President

unless authority therefore is expressly vested by law or by him in

any other public officer.

Contracts in behalf of the political subdivisions and corporate

agencies or instrumentalities shall be approved by their respective

governing boards or councils and executed by their respective

executive heads.

Petitioner neither disputes nor admits the application of the

foregoing statutory provisions but insists, nonetheless, that the

Notice of Award itself already embodies a perfected contract having passed the negotiation stage23 despite the clear absence

thereon of a condition requiring the prior approval of respondent‘s

higher authority.

Petitioner‘s argument is untenable. Contracts to which the

government is a party are generally subject to the same laws and

regulations which govern the validity and sufficiency of contracts

between private individuals.24 A government contract, however, is

perfected25 only upon approval by a competent authority, where

such approval is required.26

The contracting officer functions as agent of the Philippine

government for the purpose of making the contract. There arises

then, in that regard, a principal-agent relationship between the Government, on one hand, and the contracting official, on the

other. The latter though, in contemplation of law, possesses only

actual agency authority. This is to say that his contracting power

exists, where it exists at all, only because and by virtue of a law,

or by authority of law, creating and conferring it. And it is well

settled that he may make only such contracts as he is so

authorized to make. Flowing from these basic guiding principles

is another stating that the government is bound only to the extent

of the power it has actually given its officers-agents. It goes

without saying then that, conformably to a fundamental principle

in agency, the acts of such agents in entering into agreements or contracts beyond the scope of their actual authority do not bind or

obligate the Government. The moment this happens, the principal-

agent relationship between the Government and the contracting

officer ceases to exist.27 (emphasis supplied)

It was stressed that

…the contracting official who gives his consent as to the subject

matter and the consideration ought to be empowered legally to

bind the Government and that his actuations in a particular

contractual undertaking on behalf of the government come within

the ambit of his authority. On top of that, the approval of the

contract by a higher authority is usually required by law or administrative regulation as a requisite for its perfection.28

Under Article 1881 of the Civil Code, the agent must act within the

scope of his authority to bind his principal. So long as the agent

has authority, express or implied, the principal is bound by the acts

of the agent on his behalf, whether or not the third person dealing

with the agent believes that the agent has actual authority.29 Thus,

all signatories in a contract should be clothed with authority to bind the parties they represent.

P.D. 857 likewise states that one of the corporate powers of

respondent‘s Board of Directors is to "reclaim… any part of the

lands vested in the Authority." It also "exercise[s] all the powers of

a corporation under the Corporation Law." On the other hand, the

law merely vests the general manager the "general power… to sign

contracts" and "to perform such other duties as the Board may

assign…" Therefore, unless respondent‘s Board validly authorizes

its general manager, the latter cannot bind respondent PPA to a

contract.

The Court completely agrees with the CA that the petitioner failed

to present competent evidence to prove that the respondent‘s general manager possessed such actual authority delegated either

by the Board of Directors, or by statutory provision. The authority

of government officials to represent the government in any

contract must proceed from an express provision of law or valid

delegation of authority.30 Without such actual authority being

possessed by PPA‘s general manager, there could be no real

consent, much less a perfected contract, to speak of.

It is of no moment if the phrase "approval of higher authority"

appears nowhere in the Notice of Award. It neither justifies

petitioner‘s presumption that the required approval "had already

been granted" nor supports its conclusion that no other condition (than the completion of fendering of Pier 2 as stated in the Notice

of Award) ought to be complied with to create a perfected

contract.31 Applicable laws form part of, and are read into, the

contract without need for any express reference thereto;32 more so,

to a purported government contract, which is imbued with public

interest.

Adopting the trial court‘s ratiocination, petitioner further argues

that had it been true that respondent‘s general manager was

without authority to bind respondent by contract, then the former

should have disapproved the supplemental contract on that

ground.33 Petitioner also interprets the Board‘s silence on the

matter as an explicit recognition of the latter‘s authority to enter into a negotiated contract involving the reclamation project. This

posture, however, does not conform with the basic provisions of

the law to which we always go back. Section 4 of P.D. 159434

provides:35

Section 4. Bidding. Construction projects shall generally be

undertaken by contract after competitive public bidding. Projects

may be undertaken by administration or force account or by

negotiated contract only in exceptional cases where time is of the

essence, or where there is lack of qualified bidders or contractors,

or where there is a conclusive evidence that greater economy and

efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject

to the approval of the Ministry of Public Works, Transportation

and Communications, the Minister of Public Highways, or the

Minister of Energy, as the case may be, if the project cost is less

than P1 Million, and of the President of the Philippines, upon the

recommendation of the Minister, if the project cost is P1 Million or

more.

Precisely, the Board of Directors of the respondent did not see fit

to approve the contract by negotiation after finding that "the Pier 2

Project was basically for the construction of a pier while the

supplemental agreement refers to reclamation. Thus, there is no basis to compare the terms and conditions of the reclamation

project with the original contract (Pier 2 Project) of Sargasso." So

even granting arguendo that the Board‘s action or inaction is an

"explicit" recognition of the authority of the general manager, the

purported contract cannot possibly be the basis of an action for

specific performance because the negotiated contract itself

basically contravenes stringent legal requirements aimed at

protecting the interest of the public. The bottom line here is that the facts do not conform to what the law requires.

No wonder petitioner conveniently omitted any attempt at

presenting its case within the statutory exceptions, and insisted that

respondent‘s disapproval of the supplemental agreement was "a

mere afterthought" "perhaps realizing the infirmity of its excuse"

(referring to petitioner‘s belated pre-disqualification in the

construction project). But the Court, at the very outset, has

previously clarified that the two projects involved herein are

distinct from each other. Hence, petitioner‘s disqualification in the

construction project due to its lack of certain requirements has no

significant bearing in this case.

Lastly, petitioner‘s invocation of the doctrine of apparent authority36 is misplaced. This doctrine, in the realm of government

contracts, has been restated to mean that the government is NOT

bound by unauthorized acts of its agents, even though within the

apparent scope of their authority.37 Under the law on agency,

however, "apparent authority" is defined as the power to affect the

legal relations of another person by transactions with third persons

arising from the other‘s manifestations to such third person38 such

that the liability of the principal for the acts and contracts of his

agent extends to those which are within the apparent scope of the

authority conferred on him, although no actual authority to do such

acts or to make such contracts has been conferred.391avvphi1 Apparent authority, or what is sometimes referred to as the

"holding out" theory, or doctrine of ostensible agency, imposes

liability, not as the result of the reality of a contractual

relationship, but rather because of the actions of a principal or an

employer in somehow misleading the public into believing that the

relationship or the authority exists.40 The existence of apparent

authority may be ascertained through (1) the general manner in

which the corporation holds out an officer or agent as having the

power to act or, in other words, the apparent authority to act in

general, with which it clothes him; or (2) the acquiescence in his

acts of a particular nature, with actual or constructive knowledge

thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s)

executed either in its favor or in favor of other parties.41

Easily discernible from the foregoing is that apparent authority is

determined only by the acts of the principal and not by the acts of

the agent. The principal is, therefore, not responsible where the

agent‘s own conduct and statements have created the apparent

authority.42

In this case, not a single act of respondent, acting through its Board

of Directors, was cited as having clothed its general manager with

apparent authority to execute the contract with it.

With the foregoing disquisition, the Court finds it unnecessary to discuss the other arguments posed by petitioner.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 163825 July 13, 2010

VIOLETA TUDTUD BANATE, MARY MELGRID M.

CORTEL, BONIFACIO CORTEL, ROSENDO

MAGLASANG, and PATROCINIA MONILAR, Petitioners,

vs.

PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN,

CEBU), INC. and TEOFILO SOON, JR., Respondents.

D E C I S I O N

BRION, J.: Before the Court is a petition for review on certiorari1 assailing the

December 19, 2003 decision2 and the May 5, 2004 resolution3 of

the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA

decision reversed the Regional Trial Court (RTC) decision4 of June

27, 2001 granting the petitioners‘ complaint for specific performance and damages against the respondent Philippine

Countryside Rural Bank, Inc. (PCRB).5

THE FACTUAL ANTECEDENTS

On July 22, 1997, petitioner spouses Rosendo Maglasang and

Patrocinia Monilar (spouses Maglasang) obtained a loan (subject

loan) from PCRB for P1,070,000.00. The subject loan was

evidenced by a promissory note and was payable on January 18,

1998. To secure the payment of the subject loan, the spouses

Maglasang executed, in favor of PCRB a real estate mortgage over

their property, Lot 12868-H-3-C, 6 including the house constructed

thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel),

the spouses Maglasang‘s daughter and son-in-law, respectively.

Aside from the subject loan, the spouses Maglasang obtained two

other loans from PCRB which were covered by separate

promissory notes7 and secured by mortgages on their other

properties.

Sometime in November 1997 (before the subject loan became

due), the spouses Maglasang and the spouses Cortel asked PCRB‘s

permission to sell the subject properties. They likewise requested

that the subject properties be released from the mortgage since the

two other loans were adequately secured by the other mortgages.

The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo,

verbally agreed to their request but required first the full payment

of the subject loan. The spouses Maglasang and the spouses Cortel

thereafter sold to petitioner Violeta Banate the subject properties

for P1,750,000.00. The spouses Magsalang and the spouses Cortel

used the amount to pay the subject loan with PCRB. After settling

the subject loan, PCRB gave the owner‘s duplicate certificate of

title of Lot 12868-H-3-C to Banate, who was able to secure a new

title in her name. The title, however, carried the mortgage lien in

favor of PCRB, prompting the petitioners to request from PCRB a

Deed of Release of Mortgage. As PCRB refused to comply with the petitioners‘ request, the petitioners instituted an action for

specific performance before the RTC to compel PCRB to execute

the release deed.

The petitioners additionally sought payment of damages from

PCRB, which, they claimed, caused the publication of a news

report stating that they "surreptitiously" caused the transfer of

ownership of Lot 12868-H-3-C. The petitioners considered the

news report false and malicious, as PCRB knew of the sale of the

subject properties and, in fact, consented thereto.

PCRB countered the petitioners‘ allegations by invoking the cross-

collateral stipulation in the mortgage deed which states: 1. That as security for the payment of the loan or advance

in principal sum of one million seventy thousand pesos

only (P1,070,000.00) and such other loans or advances

already obtained, or still to be obtained by the

MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or

GUARANTOR(s) from the MORTGAGEE plus interest

at the rate of _____ per annum and penalty and litigation

charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s)

hereby transfer(s) and convey(s) to MORTGAGEE by

way of first mortgage the parcel(s) of land described

hereunder, together with the improvements now existing

for which may hereafter be made thereon, of which

MORTGAGOR(s) represent(s) and warrant(s) that

MORTGAGOR(s) is/are the absolute owner(s) and that

the same is/are free from all liens and encumbrances;

TRANSFER CERTIFICATE OF TITLE NO. 827468

Accordingly, PCRB claimed that full payment of the three loans,

obtained by the spouses Maglasang, was necessary before any of

the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus,

the payment does not authorize the release of the subject properties

from the mortgage lien.

PCRB considered Banate as a buyer in bad faith as she was fully

aware of the existing mortgage in its favor when she purchased the

subject properties from the spouses Maglasang and the spouses

Cortel. It explained that it allowed the release of the owner‘s

duplicate certificate of title to Banate only to enable her to annotate

the sale. PCRB claimed that the release of the title should not

indicate the corresponding release of the subject properties from

the mortgage constituted thereon. After trial, the RTC ruled in favor of the petitioners. It noted that

the petitioners, as "necessitous men," could not have bargained on

equal footing with PCRB in executing the mortgage, and

concluded that it was a contract of adhesion. Therefore, any

obscurity in the mortgage contract should not benefit PCRB.9

The RTC observed that the official receipt issued by PCRB stated

that the amount owed by the spouses Maglasang under the subject

loan was only about P1.2 million; that Mary Melgrid Cortel paid

the subject loan using the check which Banate issued as payment

of the purchase price; and that PCRB authorized the release of the

title further indicated that the subject loan had already been settled.

Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage,

pursuant to the verbal agreement that the petitioners made with

PCRB‘s branch manager, Mondigo. Thus, the RTC ordered PCRB

to execute a deed of release of mortgage over the subject

properties, and to pay the petitioners moral damages and attorney‘s

fees.10

On appeal, the CA reversed the RTC‘s decision. The CA did not

consider as valid the petitioners‘ new agreement with Mondigo,

which would novate the original mortgage contract containing the

cross-collateral stipulation. It ruled that Mondigo cannot orally

amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed

commitment allowing the release of the mortgage on the subject

properties cannot bind PCRB. Since the cross-collateral stipulation

in the mortgage contract (requiring full settlement of all three loans

before the release of any of the mortgages) is clear, the parties

must faithfully comply with its terms. The CA did not consider as

material the release of the owner‘s duplicate copy of the title, as it

was done merely to allow the annotation of the sale of the subject

properties to Banate.11

Dismayed with the reversal by the CA of the RTC‘s ruling, the

petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence.

THE PETITION

The petitioners argue that their claims are consistent with their

agreement with PCRB; they complied with the required full

payment of the subject loan to allow the release of the subject

properties from the mortgage.

Having carried out their part of the bargain, the petitioners

maintain that PCRB must honor its commitment to release the mortgage over the subject properties.

The petitioners disregard the cross-collateral stipulation in the

mortgage contract, claiming that it had been novated by the

subsequent agreement with Mondigo. Even assuming that the

cross-collateral stipulation subsists for lack of authority on the part

of Mondigo to novate the mortgage contract, the petitioners

contend that PCRB should nevertheless return the amount paid to

settle the subject loan since the new agreement should be deemed

rescinded.

The basic issues for the Court to resolve are as follows:

1. Whether the purported agreement between the

petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon

PCRB.

2. If the first issue is resolved negatively, whether Banate

can demand restitution of the amount paid for the subject

properties on the theory that the new agreement with

Mondigo is deemed rescinded.

THE COURT‘S RULING

We resolve to deny the petition.

The purported agreement did not novate the mortgage contract,

particularly the cross- collateral stipulation thereon

Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the

mortgage contract. As a general rule, a mortgage liability is usually

limited to the amount mentioned in the contract. However, the

amounts named as consideration in a contract of mortgage do not

limit the amount for which the mortgage may stand as security if,

from the four corners of the instrument, the intent to secure future

and other indebtedness can be gathered. This stipulation is valid

and binding between the parties and is known as the "blanket

mortgage clause" (also known as the "dragnet clause)."12

In the present case, the mortgage contract indisputably provides

that the subject properties serve as security, not only for the

payment of the subject loan, but also for "such other loans or advances already obtained, or still to be obtained." The cross-

collateral stipulation in the mortgage contract between the parties

is thus simply a variety of a dragnet clause. After agreeing to such

stipulation, the petitioners cannot insist that the subject properties

be released from mortgage since the security covers not only the

subject loan but the two other loans as well.

The petitioners, however, claim that their agreement with Mondigo

must be deemed to have novated the mortgage contract. They posit

that the full payment of the subject loan extinguished their

obligation arising from the mortgage contract, including the

stipulated cross-collateral provision. Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it

devolves upon PCRB to execute the corresponding Deed of

Release of Mortgage.

We find the petitioners‘ argument unpersuasive. Novation, in its

broad concept, may either be extinctive or modificatory. It is

extinctive when an old obligation is terminated by the creation of a

new obligation that takes the place of the former; it is merely

modificatory when the old obligation subsists to the extent that it

remains compatible with the amendatory agreement. An extinctive

novation results either by changing the object or principal

conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor

(subjective or personal). Under this mode, novation would have

dual functions – one to extinguish an existing obligation, the other

to substitute a new one in its place – requiring a conflux of four

essential requisites: (1) a previous valid obligation; (2) an

agreement of all parties concerned to a new contract; (3) the

extinguishment of the old obligation; and (4) the birth of a valid

new obligation.13 The second requisite is lacking in this case. Novation presupposes

not only the extinguishment or modification of an existing

obligation but, more importantly, the creation of a valid new

obligation.14 For the consequent creation of a new contractual

obligation, consent of both parties is, thus, required. As a general

rule, no form of words or writing is necessary to give effect to a

novation. Nevertheless, where either or both parties involved are

juridical entities, proof that the second contract was executed by

persons with the proper authority to bind their respective principals

is necessary.15

Section 23 of the Corporation Code16 expressly provides that the

corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide

whether the corporation should enter into a contract that will bind

the corporation are lodged in the board, subject to the articles of

incorporation, bylaws, or relevant provisions of law. In the absence

of authority from the board of directors, no person, not even its

officers, can validly bind a corporation.

However, just as a natural person may authorize another to do

certain acts for and on his behalf, the board of directors may

validly delegate some of its functions and powers to its officers,

committees or agents. The authority of these individuals to bind

the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by

habit, custom or acquiescence in the general course of business.17

The authority of a corporate officer or agent in dealing with third

persons may be actual or apparent. Actual authority is either

express or implied. The extent of an agent‘s express authority is to

be measured by the power delegated to him by the corporation,

while the extent of his implied authority is measured by his prior

acts which have been ratified or approved, or their benefits

accepted by his principal.18 The doctrine of "apparent authority,"

on the other hand, with special reference to banks, had long been

recognized in this jurisdiction. The existence of apparent authority

may be ascertained through: 1) the general manner in which the corporation holds out

an officer or agent as having the power to act, or in other

words, the apparent authority to act in general, with which

it clothes him; or

2) the acquiescence in his acts of a particular nature, with

actual or constructive knowledge thereof, within or

beyond the scope of his ordinary powers.

Accordingly, the authority to act for and to bind a corporation may

be presumed from acts of recognition in other instances when the

power was exercised without any objection from its board or

shareholders.19 Notably, the petitioners‘ action for specific performance is

premised on the supposed actual or apparent authority of the

branch manager, Mondigo, to release the subject properties from

the mortgage, although the other obligations remain unpaid. In

light of our discussion above, proof of the branch manager‘s

authority becomes indispensable to support the petitioners‘

contention. The petitioners make no claim that Mondigo had actual

authority from PCRB, whether express or implied. Rather,

adopting the trial court‘s observation, the petitioners posited that

PCRB should be held liable for Mondigo‘s commitment, on the

basis of the latter‘s apparent authority. We disagree with this position.

Under the doctrine of apparent authority, acts and contracts of the

agent, as are within the apparent scope of the authority conferred

on him, although no actual authority to do such acts or to make

such contracts has been conferred, bind the principal.20 The

principal‘s liability, however, is limited only to third persons who

have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other

words, apparent authority is determined only by the acts of the

principal and not by the acts of the agent.21 There can be no

apparent authority of an agent without acts or conduct on the part

of the principal; such acts or conduct must have been known and

relied upon in good faith as a result of the exercise of reasonable

prudence by a third party as claimant, and such acts or conduct

must have produced a change of position to the third party‘s

detriment.22

In the present case, the decision of the trial court was utterly silent

on the manner by which PCRB, as supposed principal, has

"clothed" or "held out" its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the

course of business, usages and practices of the bank about, or

knowledge that the board had or is presumed to have of, its

responsible officers‘ acts regarding bank branch affairs, was ever

adduced to establish the branch manager‘s apparent authority to

verbally alter the terms of mortgage contracts.23 Neither was there

any allegation, much less proof, that PCRB ratified Mondigo‘s act

or is estopped to make a contrary claim.24

Further, we would be unduly stretching the doctrine of apparent

authority were we to consider the power to undo or nullify solemn

agreements validly entered into as within the doctrine‘s ambit. Although a branch manager, within his field and as to third

persons, is the general agent and is in general charge of the

corporation, with apparent authority commensurate with the

ordinary business entrusted him and the usual course and conduct

thereof,25 yet the power to modify or nullify corporate contracts

remains generally in the board of directors.26 Being a mere branch

manager alone is insufficient to support the conclusion that

Mondigo has been clothed with "apparent authority" to verbally

alter terms of written contracts, especially when viewed against the

telling circumstances of this case: the unequivocal provision in the

mortgage contract; PCRB‘s vigorous denial that any agreement to

release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing

considering its legal effects on the parties‘ interests. To put it

simply, the burden of proving the authority of Mondigo to alter or

novate the mortgage contract has not been established.27

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 the agent‘s

authority, and in case either is controverted, the burden of proof is

upon them to establish it.28 As parties to the mortgage contract, the

petitioners are expected to abide by its terms. The subsequent

purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigo‘s actual or apparent authority, as above

discussed.

Rescission has no legal basis; there can be no restitution of the

amount paid

The petitioners, nonetheless, invoke equity and alternatively pray

for the restitution of the amount paid, on the rationale that if

PCRB‘s branch manager was not authorized to accept payment in

consideration of separately releasing the mortgage, then the

agreement should be deemed rescinded, and the amount paid by

them returned.

PCRB, on the other hand, counters that the petitioners‘ alternative prayer has no legal and factual basis, and insists that the clear

agreement of the parties was for the full payment of the subject

loan, and in return, PCRB would deliver the title to the subject

properties to the buyer, only to enable the latter to obtain a transfer

of title in her own name.

We agree with PCRB. Even if we were to assume that the

purported agreement has been sufficiently established, since it is

not binding on the bank for lack of authority of PCRB‘s branch manager, then the prayer for restitution of the amount paid would

have no legal basis. Of course, it will be asked: what then is the

legal significance of the payment made by Banate? Article 2154 of

the Civil Code reads:

Art 2154. If something is received when there is no right to

demand it, and it was unduly delivered through mistake, the

obligation to return it arises.1avvphi1

Notwithstanding the payment made by Banate, she is not entitled

to recover anything from PCRB under Article 2154. There could

not have been any payment by mistake to PCRB, as the check

which Banate issued as payment was to her co-petitioner Mary

Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject

loan that the Maglasangs owed PCRB.29

The mistake, if any, was in the perception of the authority of

Mondigo, as branch manager, to verbally alter the mortgage

contract, and not as to whether the Cortels, as sellers, were entitled

to payment. This mistake (on Mondigo‘s lack of authority to alter

the mortgage) did not affect the validity of the payment made to

the bank as the existence of the loan was never disputed. The

dispute was merely on the effect of the payment on the security

given.30

Consequently, no right to recover accrues in Banate‘s favor as PCRB never dealt with her. The borrowers-mortgagors, on the

other hand, merely paid what was really owed. Parenthetically, the

subject loan was due on January 18, 1998, but was paid sometime

in November 1997. It appears, however, that at the time the

complaint was filed, the subject loan had already matured.

Consequently, recovery of the amount paid, even under a claim of

premature payment, will not prosper.

In light of these conclusions, the claim for moral damages must

necessarily fail. On the alleged injurious publication, we quote

with approval the CA‘s ruling on the matter, viz:

Consequently, there is no reason to hold [respondent] PCRB liable

to [petitioners] for damages. x x x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-

judicial sale. There was no evidence submitted to prove that

[respondent] PCRB authored the words "Mortgagors

surreptitiously caused the transfer of ownership of Lot 12868-H-3-

C x x x" contained in the publication since at the bottom was x x x

Sheriff Teofilo C. Soon, Jr.‘s name. Moreover, there was not even

an iota of proof which shows damage on the part of [petitioner]

Mary Melgrid M. Cortel.31

WHEREFORE, we DENY the petitioners‘ petition for review on

certiorari for lack of merit, and AFFIRM the decision of the Court

of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION

[G.R. No. 82978, November 22, 1990]

THE MANILA REMNANT CO., INC.,

PETITIONER, VS. THE HONORABLE COURT

OF APPEALS AND AND OSCAR VENTANILLA,

JR. AND CARMEN GLORIA DIAZ,

RESPONDENTS.

D E C I S I O N

FERNAN, C.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:

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.

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.

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 I 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 sighed 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.

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 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."

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:

"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."

(Underscoring 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 jointfeasors 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:

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:

"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."

(Underscoring 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.

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.

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.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 163553 December 11, 2009 YUN KWAN BYUNG, Petitioner,

vs.

PHILIPPINE AMUSEMENT AND GAMING

CORPORATION, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

Yun Kwan Byung (petitioner) filed this Petition for

Review1 assailing the Court of Appeals‘ Decision

2

dated 27 May 2003 in CA-G.R. CV No. 65699 as well

as the Resolution3 dated 7 May 2004 denying the

Motion for Reconsideration. In the assailed decision,

the Court of Appeals (CA) affirmed the Regional Trial

Court‘s Decision4 dated 6 May 1999. The Regional

Trial Court of Manila, Branch 13 (trial court),

dismissed petitioner‘s demand against respondent

Philippine Amusement and Gaming Corporation

(PAGCOR) for the redemption of gambling chips.

The Facts

PAGCOR is a government-owned and controlled

corporation tasked to establish and operate gambling

clubs and casinos as a means to promote tourism and

generate sources of revenue for the government. To

achieve these objectives, PAGCOR is vested with the

power to enter into contracts of every kind and for any

lawful purpose that pertains to its business. Pursuant to

this authority, PAGCOR launched its Foreign

Highroller Marketing Program (Program). The Program

aims to invite patrons from foreign countries to play at

the dollar pit of designated PAGCOR-operated casinos

under specified terms and conditions and in accordance

with industry practice.5

The Korean-based ABS Corporation was one of the

international groups that availed of the Program. In a

letter-agreement dated 25 April 1996 (Junket

Agreement), ABS Corporation agreed to bring in

foreign players to play at the five designated gaming

tables of the Casino Filipino Silahis at the Grand

Boulevard Hotel in Manila (Casino Filipino). The

relevant stipulations of the Junket Agreement state:

1. PAGCOR will provide ABS Corporation with

separate junket chips. The junket chips will be

distinguished from the chips being used by other

players in the gaming tables.

ABS Corporation will distribute these junket

chips to its players and at the end of the playing

period, ABS Corporation will collect the junket

chips from its players and make an accounting

to the casino treasury.

2. ABS Corporation will assume sole

responsibility to pay the winnings of its foreign

players and settle the collectibles from losing

players.

3. ABS Corporation shall hold PAGCOR

absolutely free and harmless from any damage,

claim or liability which may arise from any

cause in connection with the Junket Agreement.

5. In providing the gaming facilities and

services to these foreign players, PAGCOR is

entitled to receive from ABS Corporation a

12.5% share in the gross winnings of ABS

Corporation or 1.5 million US dollars,

whichever is higher, over a playing period of 6

months. PAGCOR has the option to extend the

period.6

Petitioner, a Korean national, alleges that from

November 1996 to March 1997, he came to the

Philippines four times to play for high stakes at the

Casino Filipino.7 Petitioner claims that in the course of

the games, he was able to accumulate gambling chips

worth US$2.1 million. Petitioner presented as evidence

during the trial gambling chips with a face value of

US$1.1 million. Petitioner contends that when he

presented the gambling chips for encashment with

PAGCOR‘s employees or agents, PAGCOR refused to

redeem them.8

Petitioner brought an action against PAGCOR seeking

the redemption of gambling chips valued at US$2.1

million. Petitioner claims that he won the gambling

chips at the Casino Filipino, playing continuously day

and night. Petitioner alleges that every time he would

come to Manila, PAGCOR would extend to him

amenities deserving of a high roller. A PAGCOR

official who meets him at the airport would bring him

to Casino Filipino, a casino managed and operated by

PAGCOR. The card dealers were all PAGCOR

employees, the gambling chips, equipment and

furnitures belonged to PAGCOR, and PAGCOR

enforced all the regulations dealing with the operation

of foreign exchange gambling pits. Petitioner states that

he was able to redeem his gambling chips with the

cashier during his first few winning trips. But later on,

the casino cashier refused to encash his gambling chips

so he had no recourse but to deposit his gambling chips

at the Grand Boulevard Hotel‘s deposit box, every time

he departed from Manila.9

PAGCOR claims that petitioner, who was brought into

the Philippines by ABS Corporation, is a junket player

who played in the dollar pit exclusively leased by ABS

Corporation for its junket players. PAGCOR alleges

that it provided ABS Corporation with distinct junket

chips. ABS Corporation distributed these chips to its

junket players. At the end of each playing period, the

junket players would surrender the chips to ABS

Corporation. Only ABS Corporation would make an

accounting of these chips to PAGCOR‘s casino

treasury.10

As additional information for the junket players playing

in the gaming room leased to ABS Corporation,

PAGCOR posted a notice written in English and

Korean languages which reads:

NOTICE

This GAMING ROOM is exclusively operated by ABS

under arrangement with PAGCOR, the former is solely

accountable for all PLAYING CHIPS wagered on the

tables. Any financial

ARRANGEMENT/TRANSACTION between

PLAYERS and ABS shall only be binding upon said

PLAYERS and ABS.11

PAGCOR claims that this notice is a standard

precautionary measure12

to avoid confusion between

junket players of ABS Corporation and PAGCOR‘s

players.

PAGCOR argues that petitioner is not a PAGCOR

player because under PAGCOR‘s gaming rules,

gambling chips cannot be brought outside the casino.

The gambling chips must be converted to cash at the

end of every gaming period as they are inventoried

every shift. Under PAGCOR‘s rules, it is impossible for

PAGCOR players to accumulate two million dollars

worth of gambling chips and to bring the chips out of

the casino premises.13

Since PAGCOR disclaimed liability for the winnings of

players recruited by ABS Corporation and refused to

encash the gambling chips, petitioner filed a complaint

for a sum of money before the trial court.14

PAGCOR

filed a counterclaim against petitioner. Then, trial

ensued.

On 6 May 1999, the trial court dismissed the complaint

and counterclaim. Petitioner appealed the trial court‘s

decision to the CA. On 27 May 2003, the CA affirmed

the appealed decision. On 27 June 2003, petitioner

moved for reconsideration which was denied on 7 May

2004.

Aggrieved by the CA‘s decision and resolution,

petitioner elevated the case before this Court.

The Ruling of the Trial Court

The trial court ruled that based on PAGCOR‘s

charter,15

PAGCOR has no authority to lease any

portion of the gambling tables to a private party like

ABS Corporation. Section 13 of Presidential Decree

No. 1869 or the PAGCOR‘s charter states:

Sec. 13. Exemptions -

x x x

(4) Utilization of Foreign Currencies – The Corporation

shall have the right and authority, solely and

exclusively in connection with the operations of the

casino(s), to purchase, receive, exchange and disburse

foreign exchange, subject to the following terms and

conditions:

(a) A specific area in the casino(s) or gaming pit

shall be put up solely and exclusively for

players and patrons utilizing foreign currencies;

(b) The Corporation shall appoint and designate

a duly accredited commercial bank agent of the

Central Bank, to handle, administer and manage

the use of foreign currencies in the casino(s);

(c) The Corporation shall provide an office at

casino(s) exclusively for the employees of the

designated bank, agent of the Central Bank,

where the Corporation shall maintain a dollar

account which will be utilized exclusively for

the above purpose and the casino dollar treasury

employees;

(d) Only persons with foreign passports or

certificates of identity (for Hong Kong patron

only) duly issued by the government or country

of their residence will be allowed to play in the

foreign exchange gaming pit;

(e) Only foreign exchange prescribed to form

part of the Philippine International Reserve and

the following foreign exchange currencies:

Australian Dollar, Singapore Dollar, Hong

Kong Dollar, shall be used in this gaming pit;

(f) The disbursement, administration,

management and recording of foreign exchange

currencies used in the casino(s) shall be carried

out in accordance with existing foreign

exchange regulations, and periodical reports of

the transactions in such foreign exchange

currencies by the Corporation shall be duly

recorded and reported to the Central Bank thru

the designated Agent Bank; and

(g) The Corporation shall issue the necessary

rules and regulations for the guidance and

information of players qualified to participate in

the foreign exchange gaming pit, in order to

make certain that the terms and conditions as

above set forth are strictly complied with.

The trial court held that only PAGCOR could use

foreign currency in its gaming tables. When PAGCOR

accepted only a fixed portion of the dollar earnings of

ABS Corporation in the concept of a lease of facilities,

PAGCOR shared its franchise with ABS Corporation in

violation of the PAGCOR‘s charter. Hence, the Junket

Agreement is void. Since the Junket Agreement is not

permitted by PAGCOR‘s charter, the mutual rights and

obligations of the parties to this case would be resolved

based on agency and estoppel.16

The trial court found that the petitioner wanted to

redeem gambling chips that were specifically used by

ABS Corporation at its gaming tables. The gambling

chips come in distinctive orange or yellow colors with

stickers bearing denominations of 10,000 or 1,000. The

1,000 gambling chips are smaller in size and the words

"no cash value" marked on them. The 10,000 gambling

chips do not reflect the "no cash value" sign. The senior

treasury head of PAGCOR testified that these were the

gambling chips used by the previous junket operators

and PAGCOR merely continued using them. However,

the gambling chips used in the regular casino games

were of a different quality.17

The trial court pointed out that PAGCOR had taken

steps to warn players brought in by all junket operators,

including ABS Corporation, that they were playing

under special rules. Apart from the different kinds of

gambling chips used, the junket players were confined

to certain gaming rooms. In these rooms, notices were

posted that gambling chips could only be encashed

there and nowhere else. A photograph of one such

notice, printed in Korean and English, stated that the

gaming room was exclusively operated by ABS

Corporation and that ABS Corporation was solely

accountable for all the chips wagered on the gaming

tables. Although petitioner denied seeing this notice,

this disclaimer has the effect of a negative evidence that

can hardly prevail against the positive assertions of

PAGCOR officials whose credibility is also not open to

doubt. The trial court concluded that petitioner had

been alerted to the existence of these special gambling

rules, and the mere fact that he continued to play under

the same restrictions over a period of several months

confirms his acquiescence to them. Otherwise,

petitioner could have simply chose to stop gambling.18

In dismissing petitioner‘s complaint, the trial court

concluded that petitioner‘s demand against PAGCOR

for the redemption of the gambling chips could not

stand. The trial court stated that petitioner, a stranger to

the agreement between PAGCOR and ABS

Corporation, could not under principles of equity be

charged with notice other than of the apparent authority

with which PAGCOR had clothed its employees and

agents in dealing with petitioner. Since petitioner was

made aware of the special rules by which he was

playing at the Casino Filipino, petitioner could not now

claim that he was not bound by them. The trial court

explained that in an unlawful transaction, the courts

will extend equitable relief only to a party who was

unaware of all its dimensions and whose ignorance of

them exposed him to the risk of being exploited by the

other. Where the parties enter into such a relationship

with the opportunity to know all of its ramifications, as

in this case, there is no room for equitable

considerations to come to the rescue of any party. The

trial court ruled that it would leave the parties where

they are.19

The Ruling of the Court of Appeals In dismissing the appeal, the appellate court addressed

the four errors assigned by petitioner.

First, petitioner maintains that he was never a junket

player of ABS Corporation. Petitioner also denies

seeing a notice that certain gaming rooms were

exclusively operated by entities under special

agreement.20

The CA ruled that the records do not support

petitioner‘s theory. Petitioner‘s own testimony reveals

that he enjoyed special accommodations at the Grand

Boulevard Hotel. This similar accommodation was

extended to players brought in by ABS Corporation and

other junket operators. Petitioner cannot disassociate

himself from ABS Corporation for it is unlikely that an

unknown high roller would be accorded choice

accommodations by the hotel unless the

accommodation was facilitated by a junket operator

who enjoyed such privilege.21

The CA added that the testimonies of PAGCOR‘s

employees affirming that notices were posted in

English and Korean in the gaming areas are credible in

the absence of any convincing proof of ill motive.

Further, the specified gaming areas used only special

chips that could be bought and exchanged at certain

cashier booths in that area.22

Second, petitioner attacks the validity of the contents of

the notice. Since the Junket Agreement is void, the

notice, which was issued pursuant to the Junket

Agreement, is also void and cannot affect petitioner.23

The CA reasoned that the trial court never declared the

notice valid and neither did it enforce the contents

thereof. The CA emphasized that it was the act of

cautioning and alerting the players that was upheld. The

trial court ruled that signs and warnings were in place to

inform the public, petitioner included, that special rules

applied to certain gaming areas even if the very

agreement giving rise to these rules is void.24

Third, petitioner takes the position that an implied

agency existed between PAGCOR and ABS

Corporation.25

The CA disagreed with petitioner‘s view. A void

contract has no force and effect from the very

beginning. It produces no effect either against or in

favor of anyone. Neither can it create, modify or

extinguish the juridical relation to which it refers.

Necessarily, the Junket Agreement, being void from the

beginning, cannot give rise to an implied agency. The

CA explained that it cannot see how the principle of

implied agency can be applied to this case. Article

188326

of the Civil Code applies only to a situation

where the agent is authorized by the principal to enter

into a particular transaction, but instead of contracting

on behalf of the principal, the agent acts in his own

name.27

The CA concluded that no such legal fiction existed

between PAGCOR and ABS Corporation. PAGCOR

entered into a Junket Agreement to lease to ABS

Corporation certain gaming areas. It was never

PAGCOR‘s intention to deal with the junket players.

Neither did PAGCOR intend ABS Corporation to

represent PAGCOR in dealing with the junket players.

Representation is the basis of agency but unfortunately

for petitioner none is found in this case.28

The CA added that the special gaming chips, while

belonging to PAGCOR, are mere accessories in the

void Junket Agreement with ABS Corporation. In

Article 1883, the phrase "things belonging to the

principal" refers only to those things or properties

subject of a particular transaction authorized by the

principal to be entered into by its purported agent.

Necessarily, the gambling chips being mere incidents to

the void lease agreement cannot fall under this

category.29

The CA ruled that Article 215230

of the Civil Code is

also not applicable. The circumstances relating to

negotiorum gestio are non-existent to warrant an

officious manager to take over the management and

administration of PAGCOR.31

Fourth, petitioner asks for equitable relief.32

The CA explained that although petitioner was never a

party to the void Junket Agreement, petitioner cannot

deny or feign blindness to the signs and warnings all

around him. The notices, the special gambling chips,

and the separate gaming areas were more than enough

to alert him that he was playing under different terms.

Petitioner persisted and continued to play in the casino.

Petitioner also enjoyed the perks extended to junket

players of ABS Corporation. For failing to heed these

signs and warnings, petitioner can no longer be

permitted to claim equitable relief. When parties do not

come to court with clean hands, they cannot be allowed

to profit from their own wrong doing.33

The Issues

Petitioners raise three issues in this petition:

1. Whether the CA erred in holding that

PAGCOR is not liable to petitioner,

disregarding the doctrine of implied agency, or

agency by estoppel;

2. Whether the CA erred in using intent of the

contracting parties as the test for creation of

agency, when such is not relevant since the

instant case involves liability of the presumed

principal in implied agency to a third party; and

3. Whether the CA erred in failing to consider

that PAGCOR ratified, or at least adopted, the

acts of the agent, ABS Corporation.34

The Ruling of the Court

The petition lacks merit.

Courts will not enforce debts arising from illegal

gambling Gambling is prohibited by the laws of the Philippines as

specifically provided in Articles 195 to 199 of the

Revised Penal Code, as amended. Gambling is an act

beyond the pale of good morals,35

and is thus prohibited

and punished to repress an evil that undermines the

social, moral, and economic growth of the nation.36

Presidential Decree No. 1602 (PD 1602),37

which

modified Articles 195-199 of the Revised Penal Code

and repealed inconsistent provisions,38

prescribed stiffer

penalties on illegal gambling.39

As a rule, all forms of gambling are illegal. The only

form of gambling allowed by law is that stipulated

under Presidential Decree No. 1869, which gave

PAGCOR its franchise to maintain and operate

gambling casinos. The issue then turns on whether

PAGCOR can validly share its franchise with junket

operators to operate gambling casinos in the country.

Section 3(h) of PAGCOR‘s charter states:

Section 3. Corporate Powers. - The Corporation shall

have the following powers and functions, among others:

x x x

h) to enter into, make, perform, and carry out contracts

of every kind and for any lawful purpose pertaining to

the business of the Corporation, or in any manner

incident thereto, as principal, agent or otherwise, with

any person, firm, association, or corporation.

x x x

The Junket Agreement would be valid if under Section

3(h) of PAGCOR‘s charter, PAGCOR could share its

gambling franchise with another entity. In Senator

Jaworski v. Phil. Amusement and Gaming Corp.,40

the

Court discussed the extent of the grant of the legislative

franchise to PAGCOR on its authority to operate

gambling casinos:

A legislative franchise is a special privilege granted by

the state to corporations. It is a privilege of public

concern which cannot be exercised at will and pleasure,

but should be reserved for public control and

administration, either by the government directly, or by

public agents, under such conditions and regulations as

the government may impose on them in the interest of

the public. It is Congress that prescribes the conditions

on which the grant of the franchise may be made. Thus

the manner of granting the franchise, to whom it may

be granted, the mode of conducting the business, the

charter and the quality of the service to be rendered and

the duty of the grantee to the public in exercising the

franchise are almost always defined in clear and

unequivocal language.

After a circumspect consideration of the foregoing

discussion and the contending positions of the parties,

we hold that PAGCOR has acted beyond the limits of

its authority when it passed on or shared its franchise to

SAGE.

In the Del Mar case where a similar issue was raised

when PAGCOR entered into a joint venture agreement

with two other entities in the operation and

management of jai alai games, the Court, in an En Banc

Resolution dated 24 August 2001, partially granted the

motions for clarification filed by respondents therein

insofar as it prayed that PAGCOR has a valid franchise,

but only by itself (i.e. not in association with any other

person or entity), to operate, maintain and/or manage

the game of jai-alai.

In the case at bar, PAGCOR executed an agreement

with SAGE whereby the former grants the latter the

authority to operate and maintain sports betting stations

and Internet gaming operations. In essence, the grant of

authority gives SAGE the privilege to actively

participate, partake and share PAGCOR‘s franchise to

operate a gambling activity. The grant of franchise is a

special privilege that constitutes a right and a duty to be

performed by the grantee. The grantee must not

perform its activities arbitrarily and whimsically but

must abide by the limits set by its franchise and strictly

adhere to its terms and conditionalities. A corporation

as a creature of the State is presumed to exist for the

common good. Hence, the special privileges and

franchises it receives are subject to the laws of the State

and the limitations of its charter. There is therefore a

reserved right of the State to inquire how these

privileges had been employed, and whether they have

been abused. (Emphasis supplied)

Thus, PAGCOR has the sole and exclusive authority to

operate a gambling activity. While PAGCOR is allowed

under its charter to enter into operator‘s or management

contracts, PAGCOR is not allowed under the same

charter to relinquish or share its franchise. PAGCOR

cannot delegate its power in view of the legal principle

of delegata potestas delegare non potest, inasmuch as

there is nothing in the charter to show that it has been

expressly authorized to do so.41

Similarly, in this case, PAGCOR, by taking only a

percentage of the earnings of ABS Corporation from its

foreign currency collection, allowed ABS Corporation

to operate gaming tables in the dollar pit. The Junket

Agreement is in direct violation of PAGCOR‘s charter

and is therefore void.

Since the Junket Agreement violates PAGCOR‘s

charter, gambling between the junket player and the

junket operator under such agreement is illegal and may

not be enforced by the courts. Article 201442

of the

Civil Code, which refers to illegal gambling, states that

no action can be maintained by the winner for the

collection of what he has won in a game of chance.

Although not raised as an issue by petitioner, we deem

it necessary to discuss the applicability of Republic Act

No. 948743

(RA 9487) to the present case.

RA 9487 amended the PAGCOR charter, granting

PAGCOR the power to enter into special agreement

with third parties to share the privileges under its

franchise for the operation of gambling casinos:

Section 1. The Philippine Amusement and Gaming

Corporation (PAGCOR) franchise granted under

Presidential Decree No. 1869 otherwise known as the

PAGCOR Charter, is hereby further amended to read as

follows:

x x x

(2) Section 3(h) is hereby amended to read as follows:

"SEC. 3. Corporate Powers. -

"x x x

"(h) to enter into, make, conclude, perform, and carry

out contracts of every kind and nature and for any

lawful purpose which are necessary, appropriate, proper

or incidental to any business or purpose of the

PAGCOR, including but not limited to investment

agreements, joint venture agreements, management

agreements, agency agreements, whether as principal or

as an agent, manpower supply agreements, or any other

similar agreements or arrangements with any person,

firm, association or corporation." (Boldfacing supplied)

PAGCOR sought the amendment of its charter

precisely to address and remedy the legal impediment

raised in Senator Jaworski v. Phil. Amusement and

Gaming Corp.

Unfortunately for petitioner, RA 9487 cannot be

applied to the present case. The Junket Agreement was

entered into between PAGCOR and ABS Corporation

on 25 April 1996 when the PAGCOR charter then

prevailing (PD 1869) prohibited PAGCOR from

entering into any arrangement with a third party that

would allow such party to actively participate in the

casino operations.

It is a basic principle that laws should only be applied

prospectively unless the legislative intent to give them

retroactive effect is expressly declared or is necessarily

implied from the language used.44

RA 9487 does not

provide for any retroactivity of its provisions. All laws

operate prospectively absent a clear contrary language

in the text,45

and that in every case of doubt, the doubt

will be resolved against the retroactive operation of

laws.46

Thus, petitioner cannot avail of the provisions of RA

9487 as this was not the law when the acts giving rise to

the claimed liabilities took place. This makes the

gambling activity participated in by petitioner illegal.

Petitioner cannot sue PAGCOR to redeem the cash

value of the gambling chips or recover damages arising

from an illegal activity for two reasons. First, petitioner

engaged in gambling with ABS Corporation and not

with PAGCOR. Second, the court cannot assist

petitioner in enforcing an illegal act. Moreover, for a

court to grant petitioner‘s prayer would mean enforcing

the Junket Agreement, which is void.

Now, to address the issues raised by petitioner in his

petition, petitioner claims that he is a third party

proceeding against the liability of a presumed principal

and claims relief, alternatively, on the basis of implied

agency or agency by estoppel.

Article 1869 of the Civil Code states that implied

agency is derived from the acts of the principal, from

his silence or lack of action, or his failure to repudiate

the agency, knowing that another person is acting on his

behalf without authority. Implied agency, being an

actual agency, is a fact to be proved by deductions or

inferences from other facts.47

On the other hand, apparent authority is based on

estoppel and can arise from two instances. First, the

principal may knowingly permit the agent to hold

himself out as having such authority, and the principal

becomes estopped to claim that the agent does not have

such authority. Second, the principal may clothe the

agent with the indicia of authority as to lead a

reasonably prudent person to believe that the agent

actually has such authority.48

In an agency by estoppel,

there is no agency at all, but the one assuming to act as

agent has apparent or ostensible, although not real,

authority to represent another.49

The law makes no presumption of agency and proving

its existence, nature and extent is incumbent upon the

person alleging it.50

Whether or not an agency has been

created is a question to be determined by the fact that

one represents and is acting for another. 51

Acts and conduct of PAGCOR negates the existence of

an implied agency or an agency by estoppel

Petitioner alleges that there is an implied agency.

Alternatively, petitioner claims that even assuming that

no actual agency existed between PAGCOR and ABS

Corporation, there is still an agency by estoppel based

on the acts and conduct of PAGCOR showing apparent

authority in favor of ABS Corporation. Petitioner states

that one factor which distinguishes agency from other

legal precepts is control and the following undisputed

facts show a relationship of implied agency:

1. Three floors of the Grand Boulevard Hotel52

were leased to PAGCOR for conducting

gambling operations;53

2. Of the three floors, PAGCOR allowed ABS

Corporation to use one whole floor for foreign

exchange gambling, conducted by PAGCOR

dealers using PAGCOR facilities, operated by

PAGCOR employees and using PAGCOR chips

bearing the PAGCOR logo;54

3. PAGCOR controlled the release, withdrawal

and return of all the gambling chips given to

ABS Corporation in that part of the casino and

at the end of the day, PAGCOR conducted an

inventory of the gambling chips;55

4. ABS Corporation accounted for all gambling

chips with the Commission on Audit (COA), the

official auditor of PAGCOR;56

5. PAGCOR enforced, through its own

manager, all the rules and regulations on the

operation of the gambling pit used by ABS

Corporation.57

Petitioner‘s argument is clearly misplaced. The basis

for agency is representation,58

that is, the agent acts for

and on behalf of the principal on matters within the

scope of his authority and said acts have the same legal

effect as if they were personally executed by the

principal.59

On the part of the principal, there must be

an actual intention to appoint or an intention naturally

inferable from his words or actions, while on the part of

the agent, there must be an intention to accept the

appointment and act on it.60

Absent such mutual intent,

there is generally no agency.61

There is no implied agency in this case because

PAGCOR did not hold out to the public as the principal

of ABS Corporation. PAGCOR‘s actions did not

mislead the public into believing that an agency can be

implied from the arrangement with the junket operators,

nor did it hold out ABS Corporation with any apparent

authority to represent it in any capacity. The Junket

Agreement was merely a contract of lease of facilities

and services.

The players brought in by ABS Corporation were

covered by a different set of rules in acquiring and

encashing chips. The players used a different kind of

chip than what was used in the regular gaming areas of

PAGCOR, and that such junket players played

specifically only in the third floor area and did not

mingle with the regular patrons of PAGCOR.

Furthermore, PAGCOR, in posting notices stating that

the players are playing under special rules, exercised

the necessary precaution to warn the gaming public that

no agency relationship exists.1avvphi1

For the second assigned error, petitioner claims that the

intention of the parties cannot apply to him as he is not

a party to the contract.

We disagree. The Court of Appeals correctly used the

intent of the contracting parties in determining whether

an agency by estoppel existed in this case. An agency

by estoppel, which is similar to the doctrine of apparent

authority requires proof of reliance upon the

representations, and that, in turn, needs proof that the

representations predated the action taken in reliance.62

There can be no apparent authority of an agent without

acts or conduct on the part of the principal and such

acts or conduct of the principal must have been known

and relied upon in good faith and as a result of the

exercise of reasonable prudence by a third person as

claimant, and such must have produced a change of

position to its detriment.63

Such proof is lacking in this

case.

In the entire duration that petitioner played in Casino

Filipino, he was dealing only with ABS Corporation,

and availing of the privileges extended only to players

brought in by ABS Corporation. The facts that he

enjoyed special treatment upon his arrival in Manila

and special accommodations in Grand Boulevard Hotel,

and that he was playing in special gaming rooms are all

indications that petitioner cannot claim good faith that

he believed he was dealing with PAGCOR. Petitioner

cannot be considered as an innocent third party and he

cannot claim entitlement to equitable relief as well.

For his third and final assigned error, petitioner asserts

that PAGCOR ratified the acts of ABS Corporation.

The trial court has declared, and we affirm, that the

Junket Agreement is void. A void or inexistent contract

is one which has no force and effect from the very

beginning. Hence, it is as if it has never been entered

into and cannot be validated either by the passage of

time or by ratification.64

Article 1409 of the Civil Code

provides that contracts expressly prohibited or declared

void by law, such as gambling contracts, "cannot be

ratified."65

WHEREFORE, we DENY the petition. We AFFIRM

the Court of Appeals‘ Decision dated 27 May 2003 as

well as the Resolution dated 7 May 2004 as modified

by this Decision.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 94753. April 7, 1993.

MANOTOK BROTHERS, INC., petitioner,

vs.

THE HONORABLE COURT OF APPEALS, THE

HONORABLE JUDGE OF THE REGIONAL TRIAL

COURT OF MANILA (Branch VI), and SALVADOR

SALIGUMBA, respondents.

Antonio C. Ravelo for petitioner.

Remigio M. Trinidad for private respondent.

SYLLABUS

1. CIVIL LAW; AGENCY; AGENT'S COMMISSION;

WHEN ENTITLED' RULE; APPLICATION IN CASE

AT BAR. — In an earlier case, this Court ruled that

when there is a close, proximate and causal connection

between the agent's efforts and labor and the principal's

sale of his property, the agent is entitled to a

commission. We agree with respondent Court that the

City of Manila ultimately became the purchaser of

petitioner's property mainly through the efforts of

private respondent. Without discounting the fact that

when Municipal Ordinance No. 6603 was signed by the

City Mayor on May 17, 1968, private respondent's

authority had already expired, it is to be noted that the

ordinance was approved on April 26, 1968 when

private respondent's authorization was still in force.

Moreover, the approval by the City Mayor came only

three days after the expiration of private respondent's

authority. It is also worth emphasizing that from the

records, the only party given a written authority by

petitioner to negotiate the sale from July 5, 1966 to

May 14, 1968 was private respondent.

D E C I S I O N

CAMPOS, JR., J p:

Petitioner Manotok Brothers., Inc., by way of the

instant Petition docketed as G.R. No. 94753 sought

relief from this Court's Resolution dated May 3, 1989,

which reads:

"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador

Saligumba and Court of Appeals). — Considering the

manifestation of compliance by counsel for petitioner

dated April 14, 1989 with the resolution of March 13,

1989 which required the petitioner to locate private

respondent and to inform this Court of the present

address of said private respondent, the Court Resolved

to DISMISS this case, as the issues cannot be joined as

private respondent's and counsel's addresses cannot be

furnished by the petitioner to this court." 1

In addition, petitioner prayed for the issuance of a

preliminary injunction to prevent irreparable injury to

itself pending resolution by this Court of its cause.

Petitioner likewise urged this Court to hold in contempt

private respondent for allegedly adopting sinister ploy

to deprive petitioner of its constitutional right to due

process.

Acting on said Petition, this Court in a Resolution 2

dated October 1, 1990 set aside the entry of judgment

made on May 3, 1989 in case G.R. No. 78898; admitted

the amended petition; and issued a temporary

restraining order to restrain the execution of the

judgment appealed from.

The amended petition 3 admitted, by this Court sought

relief from this Court's Resolution abovequoted. In the

alternative, petitioner begged leave of court to re-file its

Petition for Certiorari 4 (G.R. No. 78898) grounded on

the allegation that petitioner was deprived of its

opportunity to be heard.

The facts as found by the appellate court, revealed that

petitioner herein (then defendant-appellant) is the

owner of a certain parcel of land and building which

were formerly leased by the City of Manila and used by

the Claro M. Recto High School, at M.F. Jhocson

Street, Sampaloc Manila.

By means of a letter 5 dated July 5, 1966, petitioner

authorized herein private respondent Salvador

Saligumba to negotiate with the City of Manila the sale

of the aforementioned property for not less than

P425,000.00. In the same writing, petitioner agreed to

pay private respondent a five percent (5%) commission

in the event the sale is finally consummated and paid.

Petitioner, on March 4, 1967, executed another letter 6

extending the authority of private respondent for 120

days. Thereafter, another extension was granted to him

for 120 more days, as evidenced by another letter 7

dated June 26, 1967.

Finally, through another letter 8 dated November 16,

1967, the corporation with Rufino Manotok, its

President, as signatory, authorized private respondent to

finalize and consummate the sale of the property to the

City of Manila for not less than P410,000.00. With this

letter came another extension of 180 days.

The Municipal Board of the City of Manila eventually,

on April 26, 1968, passed Ordinance No. 6603,

appropriating the sum of P410,816.00 for the purchase

of the property which private respondent was

authorized to sell. Said ordinance however, was signed

by the City Mayor only on May 17, 1968, one hundred

eighty three (183) days after the last letter of

authorization.

On January 14, 1969, the parties signed the deed of sale

of the subject property. The initial payment of

P200,000.00 having been made, the purchase price was

fully satisfied with a second payment on April 8, 1969

by a check in the amount of P210,816.00.

Notwithstanding the realization of the sale, private

respondent never received any commission, which

should have amounted to P20,554.50. This was due to

the refusal of petitioner to pay private respondent said

amount as the former does not recognize the latter's role

as agent in the transaction.

Consequently, on June 29, 1969, private respondent

filed a complaint against petitioner, alleging that he had

successfully negotiated the sale of the property. He

claimed that it was because of his efforts that the

Municipal Board of Manila passed Ordinance No. 6603

which appropriated the sum for the payment of the

property subject of the sale.

Petitioner claimed otherwise. It denied the claim of

private respondent on the following grounds: (1) private

respondent would be entitled to a commission only if

the sale was consummated and the price paid within the

period given in the respective letters of authority; and

(2) private respondent was not the person responsible

for the negotiation and consummation of the sale,

instead it was Filomeno E. Huelgas, the PTA president

for 1967-1968 of the Claro M. Recto High School. As a

counterclaim, petitioner (then defendant-appellant)

demanded the sum of P4,000.00 as attorney's fees and

for moral damages.

Thereafter, trial ensued. Private respondent, then

plaintiff, testified as to the efforts undertaken by him to

ensure the consummation of the sale. He recounted that

it first began at a meeting with Rufino Manotok at the

office of Fructuoso Ancheta, principal of C.M. Recto

High School. Atty. Dominador Bisbal, then president of

the PTA, was also present. The meeting was set

precisely to ask private respondent to negotiate the sale

of the school lot and building to the City of Manila.

Private respondent then went to Councilor Mariano

Magsalin, the author of the Ordinance which

appropriated the money for the purchase of said

property, to present the project. He also went to the

Assessor's Office for appraisal of the value of the

property. While these transpired and his letters of

authority expired, Rufino Manotok always renewed the

former's authorization until the last was given, which

was to remain in force until May 14, 1968. After

securing the report of the appraisal committee, he went

to the City Mayor's Office, which indorsed the matter to

the Superintendent of City Schools of Manila. The

latter office approved the report and so private

respondent went back to the City Mayor's Office, which

thereafter indorsed the same to the Municipal Board for

appropriation. Subsequently, on April 26, 1968,

Ordinance No. 6603 was passed by the Municipal

Board for the appropriation of the sum corresponding to

the purchase price. Petitioner received the full payment

of the purchase price, but private respondent did not

receive a single centavo as commission.

Fructuoso Ancheta and Atty. Dominador Bisbal both

testified acknowledging the authority of private

respondent regarding the transaction.

Petitioner presented as its witnesses Filomeno Huelgas

and the petitioner's President, Rufino Manotok.

Huelgas testified to the effect that after being inducted

as PTA president in August, 1967 he followed up the

sale from the start with Councilor Magsalin until after it

was approved by the Mayor on May 17, 1968. He. also

said that he came to know Rufino Manotok only in

August, 1968, at which meeting the latter told him that

he would be given a "gratification" in the amount of

P20,000.00 if the sale was expedited.

Rufino Manotok confirmed that he knew Huelgas and

that there was an agreement between the two of them

regarding the "gratification".

On rebuttal, Atty. Bisbal said that Huelgas was present

in the PTA meetings from 1965 to 1967 but he never

offered to help in the acquisition of said property.

Moreover, he testified that Huelgas was aware of the

fact that it was private respondent who was negotiating

the sale of the subject property.

Thereafter, the then Court of First Instance (now,

Regional Trial Court) rendered judgment sentencing

petitioner and/or Rufino Manotok to pay unto private

respondent the sum of P20,540.00 by way of his

commission fees with legal interest thereon from the

date of the filing of the complaint until payment. The

lower court also ordered petitioner to pay private

respondent the amount of P4,000.00 as and for

attorney's fees. 9

Petitioner appealed said decision, but to no avail.

Respondent Court of Appeals affirmed the said ruling

of the trial court. 10

Its Motion for Reconsideration having been denied by

respondent appellate court in a Resolution dated June

22, 1987, petitioner seasonably elevated its case on

Petition for Review on Certiorari on August 10, 1987

before this Court, docketed as G.R. No. 78898.

Acting on said Petition, this Court issued a Minute

Resolution 11 dated August 31, 1987 ordering private

respondent to comment on said Petition.

It appearing that the abovementioned Resolution was

returned unserved with the postmaster's notation

"unclaimed", this Court in another Resolution 12 dated

March 13, 1989, required petitioner to locate private

respondent and to inform this Court of the present

address of private respondent within ten (10) days from

notice. As petitioner was unsuccessful in its efforts to

locate private respondent, it opted to manifest that

private respondent's last address was the same as that

address to which this. Court's Resolution was

forwarded.

Subsequently, this Court issued a Resolution dated May

3, 1989 dismissing petitioner's case on the ground that

the issues raised in the case at bar cannot be joined.

Thus, the above-entitled case became final and

executory by the entry of judgment on May 3, 1989.

Thereafter, on January 9, 1990 private respondent filed

a Motion to Execute the said judgment before the court

of origin. Upon discovery of said development,

petitioner verified with the court of origin the

circumstances by which private respondent obtained

knowledge of the resolution of this Court. Sensing a

fraudulent scheme employed by private respondent,

petitioner then instituted this instant Petition for Relief,

on August 30, 1990. On September 13, 1990, said

petition was amended to include, in the alternative, its

petition to re-file its Petition for Certiorari (G.R. No.

78898).

The sole issue to be addressed in this petition is whether

or not private respondent is entitled to the five percent

(5%) agent's commission.

It is petitioner's contention that as a broker, private

respondent's job is to bring together the parties to a

transaction. Accordingly, if the broker does not succeed

in bringing the minds of the purchaser and the vendor to

an agreement with respect to the sale, he is not entitled

to a commission.

Private respondent, on the other hand, opposes

petitioner's position maintaining that it was because of

his efforts that a purchase actually materialized between

the parties.

We rule in favor of private respondent.

At first sight, it would seem that private respondent is

not entitled to any commission as he was not successful

in consummating the sale between the parties, for the

sole reason that when the Deed of Sale was finally

executed, his extended authority had already expired.

By this alone, one might be misled to believe that this

case squarely falls within the ambit of the established

principle that a broker or agent is not entitled to any

commission until he has successfully done the job given

to him. 13

Going deeper however into the case would reveal that it

is within the coverage of the exception rather than of

the general rule, the exception being that enunciated in

the case of Prats vs. Court of Appeals. 14 In the said

case, this Court ruled in favor of claimant-agent, despite

the expiration of his authority, when a sale was finally

consummated.

In its decision in the abovecited case, this Court said,

that while it was respondent court's (referring to the

Court of Appeals) factual findings that petitioner Prats

(claimant-agent) was not the efficient procuring cause

in bringing about the sale (prescinding from the fact of

expiration of his exclusive authority), still petitioner

was awarded compensation for his services. And We

quote:

"In equity, however, the Court notes that petitioner had

diligently taken steps to bring back together respondent

Doronila and the SSS,.

xxx xxx xxx

The court has noted on the other hand that Doronila

finally sold the property to the Social Security System

at P3.25 per square meter which was the very same

price counter-offered by the Social Security System and

accepted by him in July, 1967 when he alone was

dealing exclusively with the said buyer long before

Prats came into the picture but that on the other hand

Prats' efforts somehow were instrumental in bringing

them together again and finally consummating the

transaction at the same price of P3.25 per square meter,

although such finalization was after the expiration of

Prats' extended exclusive authority.

xxx xxx xxx

Under the circumstances, the Court grants in equity the

sum of One hundred Thousand Pesos (P100,000.00) by

way of compensation for his efforts and assistance in

the transaction, which however was finalized and

consummated after the expiration of his exclusive

authority . . ." 15 (Emphasis supplied.).

From the foregoing, it follows then that private

respondent herein, with more reason, should be paid his

commission, While in Prats vs. Court of Appeals, the

agent was not even the efficient procuring cause in

bringing about the sale, unlike in the case at bar, it was

still held therein that the agent was entitled to

compensation. In the case at bar, private respondent is

the efficient procuring cause for without his efforts, the

municipality would not have anything to pass and the

Mayor would not have anything to approve.

In an earlier case, 16 this Court ruled that when there is

a close, proximate and causal connection between the

agent's efforts and labor and the principal's sale of his

property, the agent is entitled to a commission.

We agree with respondent Court that the City of Manila

ultimately became the purchaser of petitioner's property

mainly through the efforts of private respondent.

Without discounting the fact that when Municipal

Ordinance No. 6603 was signed by the City Mayor on

May 17, 1968, private respondent's authority had

already expired, it is to be noted that the ordinance was

approved on April 26, 1968 when private respondent's

authorization was still in force. Moreover, the approval

by the City Mayor came only three days after the

expiration of private respondent's authority. It is also

worth emphasizing that from the records, the only party

given a written authority by petitioner to negotiate the

sale from July 5, 1966 to May 14, 1968 was private

respondent.

Contrary to what petitioner advances, the case of Danon

vs. Brimo, 17 on which it heavily anchors its

justification for the denial of private respondent's claim,

does not apply squarely to the instant petition.

Claimant-agent in said case fully comprehended the

possibility that he may not realize the agent's

commission as he was informed that another agent was

also negotiating the sale and thus, compensation will

pertain to the one who finds a purchaser and eventually

effects the sale. Such is not the case herein. On the

contrary, private respondent pursued with his goal of

seeing that the parties reach an agreement, on the belief

that he alone was transacting the business with the City

Government as this was what petitioner made it to

appear.

While it may be true that Filomeno Huelgas followed

up the matter with Councilor Magsalin, the author of

Municipal Ordinance No. 6603 and Mayor Villegas, his

intervention regarding the purchase came only after the

ordinance had already been passed — when the buyer

has already agreed to the purchase and to the price for

which said property is to be paid. Without the efforts of

private respondent then, Mayor Villegas would have

nothing to approve in the first place. It was actually

private respondent's labor that had set in motion the

intervention of the third party that produced the sale,

hence he should be amply compensated.

WHEREFORE, in the light of the foregoing and finding

no reversible error committed by respondent Court, the

decision of the Court of Appeals is hereby AFFIRMED.

The temporary restraining order issued by this Court in

its Resolution dated October 1, 1990 is hereby lifted.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 113074 January 22, 1997 ALFRED HAHN, petitioner,

vs. COURT OF APPEALS and BAYERSCHE

MOTOREN WERKE AKTIENGSELLSCHAFT (BMW), respondents.

MENDOZA, J.:

This is a petition for review of the decision 1 of the Court of Appeals dismissing a complaint for specific performance which petitioner had filed against private respondent on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for reconsideration. The following are the facts: Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany. On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney," which reads in full as follows:

WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device in the Philippines which ASSIGNOR uses and has been using on the products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No. 10625; WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines Patent Office; NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of the ASSIGNEE under the following terms and conditions: 1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or infringer of the BMW trademark in the Philippines; for such purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or infringement of the said trademark which comes to

his knowledge and upon such information the ASSIGNOR shall automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be the responsibility and for the account of the ASSIGNOR, 2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been usual in the past without a formal contract, and for that purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete production program with the only limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not be able to supply automobiles to ASSIGNOR.

Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993. Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive dealership. In the same letter petitioner explained that the decline in sales was due to lower prices offered for BMW cars in the United States and the fact that few customers returned for repairs and servicing because of the durability of BMW parts and the efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993. 4

At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts. Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint alleged in pertinent parts:

2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal offices at Munich, Germany. It may be served with summons and other court processes through the Secretary of the Department of Trade and Industry of the Philippines. . . . xxx xxx xxx 5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment with Special Power of Attorney covering the trademark and in consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the Assignee in the Philippines. . . . xxx xxx xxx 8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contribution from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW. xxx xxx xxx 10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer contract as adjusted to reflect the particular situation in the Philippines" subject to certain conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and any relationship for cause effective June 30, 1993. . . . xxx xxx xxx 15. The actuations of defendant BMW are in breach of the assignment agreement between itself and

plaintiff since the consideration for the assignment of the BMW trademark is the continuance of the exclusive dealership agreement. It thus, follows that the exclusive dealership should continue for so long as defendant BMW enjoys the use and ownership of the trademark assigned to it by Plaintiff.

The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies of the complaint and amended complaint were thereafter served on the private respondent through the Department of Trade and Industry, pursuant to Rule 14, §14 of the Rules of Court. The order, summons and copies of the complaint and amended complaint were later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received by the latter on June 24, 1993. On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court issued an order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary injunction was issued. On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to assemble and sell BMW cars and products without the participation of BMW and sold other products; and that Hahn was an indentor or middleman transacting business in his own name and for his own account. Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines. The trial court 6

deferred resolution of the motion to dismiss until after trial on the merits for the reason

that the grounds advanced by BMW in its motion did not seem to be indubitable. Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals alleging that:

I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF. II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the trial court's order was set aside, it would be forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in default, when the very question was whether the court had jurisdiction over it. The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the motion to dismiss. It stated:

Going by the pleadings already filed with the respondent court before it came out with its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to dismiss could be resolved then and there, and that the respondent judge's deferment of his action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion. xxx xxx xxx . . . [T]here is not much appreciable disagreement as regards the factual matters relating to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is the legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the Philippines while the latter asserts that it is not.

Then, after stating that any ruling which the trial court might make on the motion to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW was not doing business in the country and, therefore, jurisdiction over it could not be acquired through service of summons on the DTI pursuant to Rule 14, §14. 'The court upheld private respondent's contention that Hahn acted in his own name and for his own account and independently of BMW, based on Alfred Hahn's

allegations that he had invested his own money and resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held that petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW. Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that private respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's case. Petitioner's appeal is well taken. Rule 14, §14 provides:

§14. Service upon private foreign corporations. — If the defendant is a foreign corporation, or a nonresident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis added).

What acts are considered "doing business in the Philippines" are enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7

d) the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. (Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in the Philippines"

but not when the representative or distributor "transacts business in its name and for its own account." In addition, §1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) provided:

(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In particular, "doing business" includes: (1) . . . A foreign firm which does business through middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW). The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or entities interested in acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is to be considered, under governing statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the following allegations in Hahn's amended complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contributions from defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources in order to single-handedly compete against other motorcycle and car companies. . . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers and showrooms to maintain and promote the car and products of defendant BMW.

As the above quoted allegations of the amended complaint show, however, there is nothing to support the appellate court's finding that Hahn solicited orders alone and for his own account and

without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the downpayment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW. 8

These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals, stated: 9

9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices are made, the vehicles are shipped to the Philippines. (The payments may be made by the purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name of the purchasers, but Hahn-Manila is therein indicated as the person to be notified. 9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers. 9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in writing that the vehicles have been registered in the Philippines and have been serviced by him, he will receive an additional three percent (3%) of the full purchase prices as commission.

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's

alleged failure to maintain BMW standards that BMW was terminating Hahn's dealership. The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications. 10 For example, in its letter to Hahn dated February 23, 1996, BMW stated:

In the last years we have pointed out to you in several discussions and letters that we have to tackle the Philippine market more professionally and that we are through your present activities not adequately prepared to cope with the forthcoming challenges.

11 In effect, BMW was holding Hahn accountable to it under the 1967 Agreement. This case fits into the mould of Communications Materials, Inc. v. Court of Appeals, 12

in which the foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by the foreign corporation and put up a service center for the products sold locally. This Court held that these acts constituted doing business in the Philippines. The arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market and establish its presence in the Philippines. In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines. 13

The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition for certiorari before the Court of Appeals. 14 But this allegation was denied by Hahn

15 and therefore the Court of Appeals should not have cited it as if it were the fact. Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he

is considered an agent of BMW, the fact is that BMW did business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to Philippine buyers, this was done without solicitation on its part. 17

It is not true then that the question whether BMW is doing business could have been resolved simply by considering the parties' pleadings. There are genuine issues of facts which can only be determined on the basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether some allegations correspond to the proof. Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served on a foreign corporation in accordance with Rule 14, §14, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, §14. Such determination does not foreclose a contrary finding should evidence later show that it is not transacting business in the country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of

a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension, i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction.

19

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain allegations in the pleadings, disposed of the whole case with finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor was there justification for nullifying the writ of preliminary injunction issued by the trial court. Although the injunction was issued ex parte, the fact is that BMW was subsequently heard on its defense by filing a motion to dismiss. WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial court for further proceedings. SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-20726 December 20, 1923 ALBALADEJO Y CIA., S. en C., plaintiff-appellant,

vs.

The PHILIPPINE REFINING CO., as successor to

The Visayan Refining Co., defendant-appellant.

Eduardo Gutierrez Repide and Felix Socias for

plaintiff.

Manly, Goddard and Lockwood for defendant-

appellant.

Fisher, DeWitt, Perkins and Brady of counsel.

STREET, J.:

This action was instituted in the Court of First Instance

of the Province of Albay by Albaladejo y Cia., S. en C.,

to recover a sum of money from the Philippine Refining

Co., as successor to the Visayan Refining Co., two

causes of action being stated in the complaint. Upon

hearing the cause the trial judge absolved the defendant

from the first cause of action but gave judgment for the

plaintiff to recover the sum of P49,626.68, with costs,

upon the second cause of action. From this judgment

the plaintiff appealed with respect to the action taken

upon the first cause of action, and the defendant

appealed with respect to the action taken upon the

second cause of action. It results that, by the appeal of

the two parties, the decision of the lower court is here

under review as regards the action taken upon both

grounds of action set forth in the complaint.

It appears that Albaladejo y Cia. is a limited

partnership, organized in conformity with the laws of

these Islands, and having its principal place of business

at Legaspi, in the Province of Albay; and during the

transactions which gave origin to this litigation said

firm was engaged in the buying and selling of the

products of the country, especially copra, and in the

conduct of a general mercantile business in Legaspi and

in other places where it maintained agencies, or sub-

agencies, for the prosecution of its commercial

enterprises.

The Visayan Refining Co. is a corporation organized

under the laws of the Philippine Islands; and prior to

July 9, 1920, it was engaged in operating its extensive

plant at Opon, Cebu, for the manufacture of coconut oil.

On August 28, 1918, the plaintiff made a contract with

the Visayan Refining Co., the material parts of which

are as follows:

Memorandum of Agreement Re Purchase of

Copra. — This memorandum of agreement,

made and entered into by and between

Albaladejo y Compania, S. en C., of Legaspi,

Province of Albay, Philippine Islands, party of

the first part, and the Visayan Refining

Company, Inc., of Opon, Province of Cebu,

Philippine Islands, party of the second part,

Witnesseth That. — Whereas, the party of the

first part is engaged in the purchase of copra in

the Province of Albay; and Whereas, the party

of the second part is engaged in the business of

the manufacture of coconut oil, or which

purpose it must continually purchase large

quantities of copra; Now, Therefore, in

consideration of the premises and covenants

hereinafter set forth, the said parties have agreed

and do hereby contract and agree as follows, to

wit:

1. The party of the first part agrees and binds

itself to sell to the party of the second part, and

the party of the second part agrees and binds

itself to buy from the party of the first part, for a

period of one (1) year from the date of these

presents, all the copra purchased by the party of

the first part in Province of Albay.

2. The party of the second part agrees to pay the

party of the first part for the said copra the

market price thereof in Cebu at date (of)

purchase, deducting, however, from such price

the cost of transportation by sea to the factory of

the party of second part at Opon, Cebu, the

amount deducted to be ascertained from the

rates established, from time to time, by the

public utility commission, or such entity as shall

succeed to its functions, and also a further

deduction for the shrinkage of the copra from

the time of its delivery to the party of the second

part to its arrival at Opon, Cebu, plus one-half

of a real per picul in the event the copra is

delivered to boats which will unload it on the

pier of the party of the second part at Opon,

Cebu, plus one real per picul in the event that

the party of the first part shall employ its own

capital exclusively in its purchase.

3. During the continuance of this contract the

party of the second part will not appoint any

other agent for the purchase of copra in Legaspi,

nor buy copra from any vendor in Legaspi.

4. The party of the second part will, so far as

practicable, keep the party of the first part

advised of the prevailing prices paid for copra in

the Cebu market.

5. The party of the second part will provide

transportation by sea to Opon, Cebu, for the

copra delivered to it by the party of the first

part, but the party of the first part must deliver

such copra to the party of the second part free

on board the boats of the latter's ships or on the

pier alongside the latter's ships, as the case may

be.

Pursuant to this agreement the plaintiff, during the year

therein contemplated, bought copra extensively for the

Visayan Refining Co. At the end of said year both

parties found themselves satisfied with the existing

arrangement, and they therefore continued by tacit

consent to govern their future relations by the same

agreement. In this situation affairs remained until July

9, 1920, when the Visayan Refining Co. closed down

its factory at Opon and withdrew from the copra

market.

When the contract above referred to was originally

made, Albaladejo y Cia. apparently had only one

commercial establishment, i.e., that at Legaspi; but the

large requirements of the Visayan Refining Co. for

copra appeared so far to justify the extension of the

plaintiff's business that during the course of the next

two or three years it established some twenty agencies,

or subagencies, in various ports and places of the

Province of Albay and neighboring provinces.

After the Visayan Refining Co. had ceased to buy

copra, as above stated, of which fact the plaintiff was

duly notified, the supplies of copra already purchased

by the plaintiff were gradually shipped out and accepted

by the Visayan Refining Co., and in the course of the

next eight or ten months the accounts between the two

parties were liquidated. The last account rendered by

the Visayan Refining Co. to the plaintiff was for the

month of April, 1921, and it showed a balance of P288

in favor of the defendant. Under date of June 25, 1921,

the plaintiff company addressed a letter from Legaspi to

the Philippine Refining Co. (which had now succeeded

to the rights and liabilities of the Visayan Refining

Co.), expressing its approval of said account. In this

letter no dissatisfaction was expressed by the plaintiff

as to the state of affairs between the parties; but about

six weeks thereafter the present action was begun.

Upon reference to paragraph five of the contract

reproduced above it will be seen that the Visayan

Refining Co. obligated itself to provide transportation

by sea to Opon, Cebu, for the copra which should be

delivered to it by the plaintiff; and the first cause of

action set forth in the complaint is planted upon the

alleged negligent failure of the Visayan Refining Co. to

provide opportune transportation for the copra collected

by the plaintiff and deposited for shipment at various

places. In this connection we reproduce the following

allegations from the complaint:

6. That, from the month of September, 1918,

until the month of June, 1920, the plaintiff

opportunely advised the Visayan of the stocks

that the former had for shipment, and, from time

to time, requested the Visayan to send vessels to

take up said stocks; but that the Visayan

culpably and negligently allowed a great

number of days to elapse before sending the

boats for the transportation of the copra to

Opon, Cebu, and that due to the fault and

negligence of the Visayan, the stocks of copra

prepared for shipment by the plaintiff had to

remain an unnecessary length of time in

warehouses and could not be delivered to the

Visayan, nor could they be transmitted to this

latter because of the lack of boats, and that for

this reason the copra gathered by the plaintiff

and prepared for delivery to the Visayan

suffered the diminishment of weight herein

below specified, through shrinkage or excessive

drying, and, in consequence thereof, an

important diminishment in its value.

8. That the diminishment in weight suffered as

shrinkage through excessive drying by all the

lots of copra sold by the plaintiff to the Visayan,

due to the fault and negligence of the Visayan in

the sending of boats to take up said copra,

represents a total of 9,695 piculs and 56 cates,

the just and reasonable value of which, at the

rates fixed by the purchaser as the price in its

liquidation, is a total of two hundred and one

thousand, five hundred and ninety-nine pesos

and fifty-three centavos (P201,599.53),

Philippine currency, in which amount the

plaintiff has been damaged and injured by the

negligent and culpable acts and omissions of the

Visayan, as herein above stated and alleged.

In the course of the appealed decision the trial judge

makes a careful examination of the proof relative to the

movements of the fleet of boats maintained by the

Visayan Refining Co. for the purpose of collecting

copra from the various ports where it was gathered for

said company, as well as of the movements of other

boats chartered or hired by said company for the same

purpose; and upon consideration of all the facts

revealed in evidence, his Honor found that the Visayan

Refining Co. had used reasonable promptitude in its

efforts to get out the copra from the places where it had

been deposited for shipment, notwithstanding

occasional irregularities due at times to the condition of

the weather as related to transportation by sea and at

other times to the inability of the Visayan Refining Co.

to dispatch boats to the more remote ports. This finding

of the trial judge, that no negligence of the kind alleged

can properly be imputed to the Visayan Refining Co., is

in our opinion supported by the proof.

Upon the point of the loss of weight of the copra by

shrinkage, the trial judge found that this is a product

which necessarily undergoes considerable shrinkage in

the process of drying, and intelligent witnesses who are

conversant with the matter testified at the trial that

shrinkage of cobra varies from twenty to thirty per

centum of the original gross weight. It is agreed that the

shrinkage shown in all of the copra which the plaintiff

delivered to the Visayan Refining Co. amounted to only

8.187 per centum of the whole, an amount which is

notably below the normal. This showing was

undoubtedly due in part, as the trial judge suggests, to

the fact that in purchasing the copra directly from the

producers the plaintiff's buyers sometimes estimated the

picul at sixty-eight kilos, or somewhat less, but in no

case at the true weight of 63.25 kilos. The plaintiff was

therefore protected in a great measure from loss by

shrinkage by purchasing upon a different basis of

weight from that upon which he sold, otherwise the

shrinkage shown in the result must have been much

greater than that which actually appeared. But even

considering this fact, it is quite evident that the

demonstrated shrinkage of 8.187 per centum was

extremely moderate average; and this fact goes to show

that there was no undue delay on the part of the

Visayan Refining Co. in supplying transportation for

the copra collected by the plaintiff.

In the course of his well-reasoned opinion upon this

branch of the case, the trial judge calls attention to the

fact that it is expressly provided in paragraph two of the

contract that the shrinkage of copra from the time of its

delivery to the party of the second part till its arrival at

Opon should fall upon the plaintiff, from whence it is to

be interfered that the parties intended that the copra

should be paid for according to its weight upon arrival

at Opon regardless of its weight when first purchased;

and such appears to have been the uniform practice of

the parties in settling their accounts for the copra

delivered over a period of nearly two years.

From what has been said it follows that the first cause

of action set forth in the complaint is not well founded,

and the trial judge committed no error in absolving the

plaintiff therefrom.

It appears that in the first six months of the year 1919,

the plaintiff found that its transactions with the Visayan

Refining Co. had not been productive of reasonable

profit, a circumstance which the plaintiff attributed to

loss of weight or shrinkage in the copra from the time

of purchase to its arrival at Opon; and the matter was

taken up with the officials of said company, with the

result that a bounty amounting to P15,610.41 was paid

to the plaintiff by the Visayan Refining Co. In the ninth

paragraph of the complaint the plaintiff alleges that this

payment was made upon account of shrinkage, for

which the Visayan Refining Co. admitted itself to be

liable; and it is suggested that the making of this

payment operated as a recognition on the part of the

Visayan refining Co. of the justice of the plaintiff's

claim with respect to the shrinkage in all subsequent

transactions. With this proposition we cannot agree. At

most the payment appears to have been made in

recognition of an existing claim, without involving any

commitment as to liability on the part of the defendant

in the future; and furthermore it appears to have been in

the nature of a mere gratuity given by the company in

order to encourage the plaintiff and to assure that the

plaintiff's organization would be kept in an efficient

state for future activities. It is certain that no general

liability for plaintiff's losses was assumed for the

future; and the defendant on more than one occasion

thereafter expressly disclaimed liability for such losses.

As already stated purchases of copra by the defendant

were suspended in the month of July, 1920. At this time

the plaintiff had an expensive organization which had

been built up chiefly, we suppose, with a view to the

buying of copra; and this organization was maintained

practically intact for nearly a year after the suspension

of purchases by the Visayan Refining Co. Indeed in

October, 1920, the plaintiff added an additional agency

at Gubat to the twenty or more already in existence. As

a second cause of action the plaintiff seeks to recover

the sum of P110,000, the alleged amount expended by

the plaintiff in maintaining and extending its

organization as above stated. As a basis for the

defendant's liability in this respect it is alleged that said

organization was maintained and extended at the

express request, or requirement, of the defendant, in

conjunction with repeated assurances that the defendant

would soon resume activity as a purchaser of copra.

With reference to this cause of action the trial judge

found that the plaintiff, as claimed, had incurred

expenses at the request of the defendant and upon its

representation that the plaintiff would be fully

compensated therefor in the future. Instead, however, of

allowing the plaintiff the entire amount claimed, his

Honor gave judgment for only thirty per centum of said

amount, in view of the fact that the plaintiff's

transactions in copra had amounted in the past only to

about thirty per centum of the total business transacted

by it. Estimated upon this basis, the amount recognized

as constituting a just claim was found to be P49,626.68,

and for this amount judgment was rendered against the

defendant.

The discussion of this branch of the appeal involves the

sole question whether the plaintiff's expense in

maintaining and extending its organization for the

purchase of copra in the period between July, 1920, to

July, 1921, were incurred at the instance and request of

the defendant, or upon any promise of the defendant to

make the expenditure good. A careful examination of

the evidence, mostly of a documentary character, is, in

our opinion, convincing that the supposed liability does

not exist.

By recurring to paragraph four of the contract between

the plaintiff and the Visayan Refining Co. it will be

seen that the latter agreed to keep the plaintiff advised

of the prevailing prices paid for the copra in the Cebu

market. In compliance with this obligation the Visayan

Refining Co. was accustomed to send out "trade letters"

from time to time its various clients in the southern

provinces of whom the plaintiff was one. In these letters

the manager of the company was accustomed to make

comment upon the state of the market and to give such

information as might be of interest or value to the

recipients of the letters. From the series of letters thus

sent to Albaladejo y Cia. during the latter half of 1920,

we here reproduce the following excerpts:

(Letter of July 2, 1920, from K.B. Day, General

Manager of the Visayan Refining Co., to Albaladejo y

Cia.)

The copra market is still very weak. I have spent

the past two weeks in Manila studying

conditions and find that practically no business

at all is being done. A few of the mills having

provincial agents are accepting small deliveries,

but I do not suppose that 500 piculs of copra are

changing hands a day. Buyers are offering from

P13 to P15, depending on quality, and sellers

are offering to sell at anywhere from P16 to

P18, but no business can be done for the simple

reason that the banks will not lend the mills any

money to buy copra with at this time.

Reports from the United States are to the effect

that the oil market is in a very serious and

depressed condition and that large quantities of

oil cannot be disposed of at any price.

Under this conditions it is imperative that this

mill buy no more copra than it can possibly help

at the present time. We are not anxious to

compete, nor do we wish to purchase same in

competition with others. We do, however, desire

to keep our agents doing business and trust that

they will continue to hold their parroquianos

(customers), buying only minimum quantities at

present.

The local market has not changed since last

week, and our liquidating price is P14.

(Letter of July 9, 1920, from Visayan Refining Co. to

Albaladejo y Cia.)

Notify your subagents to drop out of the market

temporarily. We do not desire to purchase at

present.

(Letter of July 10, 1920, from K. B. Day, General

Manager, to Albaladejo y Cia.)

The market continues to grow weaker.

Conditions are so uncertain that this company

desires to drop out of the copra market until

conditions have a chance to readjust themselves.

We request therefore that our agents drop out of

active competition for copra temporarily. Stocks

that are at present on hand will, of course, be

liquidated, but no new stocks should be

acquired. Agents should do their best to keep

their organizations together temporarily, for we

expect to be in the market again soon stronger

than ever. We expect the cooperation of agents

in making this effective; and if they give us this

cooperation, we will endeavor to see that they

do not lose by the transaction in the long run.

This company has been receiving copra from its

agents for a long time at prices which have

netted it a loss. The company has been

supporting its agents during this period. It now

expects the same support from its agents.

Agents having stocks actually on hand in their

bodegas should telegraph us the quantity

immediately and we will protect same. But

stocks not actually in bodegas cannot be

considered.

(Letter of July 17, 1920, from K.B. Day to Albaladejo y

Cia.)

Conditions have changed very little in the copra

market since last reports. . . . We are in the same

position as last week and are out of the market.

For the benefit of our agents, we wish to explain

in a few words just why we are have been

forced to close down our mill until the arrival of

a boat to load some of our stocks on hand. We

have large stocks of copra. The market for oil is

so uncertain that we do not care to increase

these stocks until such time as we know that the

market has touched the bottom. As soon as this

period of uncertainty is over, we expect to be in

the market again stronger than ever, but it is

only the part of business wisdom to play safe at

such times as these.

Owing to the very small amounts of copra now

in the provinces, we do not think that our agents

will lose anything by our being out of the

market. On the contrary, the producers of copra

will have a chance to allow their nuts to mature

on the trees so that the quality of copra which

you will receive when we again are in the

market should be much better than what you

have been receiving in the past. Due to the high

prices and scarcity of copra a large proportion of

the copra we have received has been made from

unripe coconuts and in order to keep revenue

coming in the producers have kept harvesting

these coconuts without giving them a chance to

reach maturity. This period now should give

them the chance to let their nuts ripen and

should give you a better copra in the future

which will shrink less and be more satisfactory

both from your standpoint and ours. Please do

all you can to assist us at this time. We shall

greatly appreciate your cooperation.lawphi1.net

(Letter of August 7, 1920, from H.U. Umstead,

Assistant General Manager, to Albaladejo y Cia.)

The copra situation in Manila remains

unchanged and the outlook is still uncertain.

Arrivals continue small.

We are still out of the market and are not yet in

a position to give you buying orders. We trust,

however, that within the next few days weeks

we may be able to reenter the market and

resume our former activity.

While we are not of the market we have no

objection whatever to our agents selling copra to

other purchasers, if by doing so they are able to

keep themselves in the market and retain their

parroquianos (customers). We do not, however,

wish you to use our money, for this purpose, nor

do we want you to buy copra on speculation

with the idea in mind that we will take it off of

your hands at high prices when we reenter the

market. We wish to warn you against this now

so that you will not be working under any

misapprehension.

In this same mail, we are sending you a notice

of change of organization. In your dealings with

us hereafter, will you kindly address all

communications to the Philippine Refining

Corporation, Cebu, which you will understand

will be delivered to us.

(Letter of August 21, 1920, from Philippine Refining

Corporation, by K.B. Day, to Albaladejo y Cia.)

We are not yet in the market, but, as we have

indicated before, are hopeful of renewing our

activities soon. We shall advise all our agents

seasonably of our return to the market. . . .

We are preparing new form of agreement

between ourselves and our agents and hope to

have them completed in time to refer them to

our agents in the course of the next week or ten

days.

All agents should endeavor to liquidate

outstanding advances at this time because this is

a particularly good time to clean out old

accounts and be on a business basis when we

return to the market. We request that our agents

concentrate their attention on this point during

the coming week.lawphi1.net

(Letter of October 16, 1920, from K.B. Day, Manager,

to Albaladejo y Cia.)

Copra in Manila and coconut oil in the United

States have taken a severe drop during the past

week. The Cebu price seems to have remained

unchanged, but we look for an early drop in the

local market.

We have received orders from our president in

New York to buy no more copra until the

situation becomes more favorable. We had

hoped and expected to be in the market actively

before this time, but this most unexpected

reaction in the market makes the date of our

entry in it more doubtful.

With this in view, we hereby notify our agents

that we can accept no more copra and advance

no more money until we have permission from

our president to do so. We request, therefore,

that you go entirely out of the market, so far as

we are concerned, with the exception of

receiving copra against outstanding accounts.

In case any agent be compelled to take in copra

and desire to send same to us, we will be glad to

sell same for him to the highest bidder in Cebu.

We will make no charge for our services in this

connection, but the copra must be forwarded to

us on consignment only so that we will not

appear as buyers and be required to pay the

internal-revenue tax.

We are extremely sorry to be compelled to make

the present announcement to you, but the market

is such that our president does not deem it wise

for us to purchase copra at present, and, with

this in view, we have no alternative other than to

comply with his orders. We hope that our agents

will realize the spirit in which these orders are

given, and will do all they can to remain faithful

to us until such time as we can reenter the

market, which we hope and believe will be

within a comparatively short time.

(Special Letter of October 16, 1920, from Philippine

Refining Corporation, by K.B. Day, to Albaladejo y

Cia.)

We have received very strict instructions from

New York temporarily to suspend the purchase

of copra, and of course we must comply

therewith. However, should you find yourselves

obliged to buy copra in connection with your

business activities, and cannot dispose of it

advantageously in Cebu, we shall be glad to

receive your copra under the condition that we

shall sell it in the market on your account to the

highest bidder, or, in other words, we offer you

our services free, to sell your copra to the best

possible advantages that the local market may

offer, provided that, in doing so, we be not

obliged to accept your copra as a purchase when

there be no market for this product.

Whenever you find yourselves obliged to buy

copra in order to liquidate pending advances, we

can accept it provided that, so long as present

conditions prevail, we be not required to make

further cash advances.

We shall quote no further from letters written by the

management of the Philippine Refining Corporation to

the plaintiff, as we find nothing in the correspondence

which reflects an attitude different from that reflected in

the matter above quoted. It is only necessary to add that

the hope so frequently expressed in the letters, to the

effect that the Philippine Refining Corporation would

soon enter the market as a buyer of copra on a more

extensive scale than its predecessor, was not destined to

be realized, and the factory at Opon remained closed.

But it is quite obvious that there is nothing in these

letters on which to hold the defendant liable for the

expenses incurred by the plaintiff in keeping its

organization intact during the period now under

consideration. Nor does the oral testimony submitted by

the plaintiff materially change the situation in any

respect. Furthermore, the allegation in the complaint

that one agency in particular (Gubat) had been opened

on October 1, 1920, at the special instance and request

of the defendant, is not at all sustained by the evidence.

We note that in his letter of July 10, 1920, Mr. Day

suggested that if the various purchasing agents of the

Visayan Refining Co. would keep their organization

intact, the company would endeavor to see that they

should not lose by the transaction in the long run. These

words afford no sufficient basis for the conclusion,

which the trial judge deduced therefrom, that the

defendant is bound to compensate the plaintiff for the

expenses incurred in maintaining its organization. The

correspondence sufficiently shows on its face that there

was no intention on the part of the company to lay a

basis for contractual liability of any sort; and the

plaintiff must have understood the letters in that light.

The parties could undoubtedly have contracted about it,

but there was clearly no intention to enter into

contractual relation; and the law will not raise a

contract by implication against the intention of the

parties. The inducement held forth was that, when

purchasing should be resumed, the plaintiff would be

compensated by the profits then to be earned for any

expense that would be incurred in keeping its

organization intact. It is needless to say that there is no

proof showing that the officials of the defendant acted

in bad faith in holding out this hope.

In the appellant's brief the contention is advanced that

the contract between the plaintiff and the Visayan

Refining Co. created the relation of principal and agent

between the parties, and the reliance is placed upon

article 1729 of the Civil Code which requires the

principal to indemnify the agent for damages incurred

in carrying out the agency. Attentive perusal of the

contract is, however, convincing to the effect that the

relation between the parties was not that of principal

and agent in so far as relates to the purchase of copra by

the plaintiff. It is true that the Visayan Refining Co.

made the plaintiff one of its instruments for the

collection of copra; but it is clear that in making its

purchases from the producers the plaintiff was buying

upon its own account and that when it turned over the

copra to the Visayan Refining Co., pursuant to that

agreement, a second sale was effected. In paragraph

three of the contract it is declared that during the

continuance of this contract the Visayan Refining Co.

would not appoint any other agent for the purchase of

copra in Legaspi; and this gives rise indirectly to the

inference that the plaintiff was considered its buying

agent. But the use of this term in one clause of the

contract cannot dominate the real nature of the

agreement as revealed in other clauses, no less than in

the caption of the agreement itself. In some of the trade

letters also the various instrumentalities used by the

Visayan Refining Co. for the collection of copra are

spoken of as agents. But this designation was evidently

used for convenience; and it is very clear that in its

activities as a buyer the plaintiff was acting upon its

own account and not as agents, in the legal sense, of the

Visayan Refining Co. The title to all of the copra

purchased by the plaintiff undoubtedly remained in it

until it was delivered by way of subsequent sale to said

company.

For the reasons stated we are of the opinion that no

liability on the part of the defendant is shown upon the

plaintiff's second cause of action, and the judgment of

the trial court on this part of the case is erroneous.

The appealed judgment will therefore be affirmed in so

far as it absolves the defendant from the first cause of

action and will be reversed in so far as it gives

judgment against the defendant upon the second cause

of action; and the defendant will be completely

absolved from the complaint. So ordered

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 115838 July 18, 2002

CONSTANTE AMOR DE CASTRO and

CORAZON AMOR DE CASTRO, petitioners,

vs.

COURT OF APPEALS and FRANCISCO

ARTIGO, respondents.

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari1

seeking to annul the Decision of the Court of Appeals2

dated May 4, 1994 in CA-G.R. CV No. 37996, which

affirmed in toto the decision3 of the Regional Trial

Court of Quezon City, Branch 80, in Civil Case No. Q-

89-2631. The trial court disposed as follows:

"WHEREFORE, the Court finds defendants

Constante and Corazon Amor de Castro jointly

and solidarily liable to plaintiff the sum of:

a) P303,606.24 representing unpaid

commission;

b) P25,000.00 for and by way of moral

damages;

c) P45,000.00 for and by way of attorney's fees;

d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20,

1991."

The Antecedent Facts

On May 29, 1989, private respondent Francisco Artigo

("Artigo" for brevity) sued petitioners Constante A. De

Castro ("Constante" for brevity) and Corazon A. De

Castro ("Corazon" for brevity) to collect the unpaid

balance of his broker's commission from the De

Castros.4 The Court of Appeals summarized the facts in

this wise:

"x x x. Appellants5 were co-owners of four (4)

lots located at EDSA corner New York and

Denver Streets in Cubao, Quezon City. In a

letter dated January 24, 1984 (Exhibit "A-1, p.

144, Records), appellee6 was authorized by

appellants to act as real estate broker in the sale

of these properties for the amount of

P23,000,000.00, five percent (5%) of which will

be given to the agent as commission. It was

appellee who first found Times Transit

Corporation, represented by its president Mr.

Rondaris, as prospective buyer which desired to

buy two (2) lots only, specifically lots 14 and

15. Eventually, sometime in May of 1985, the

sale of lots 14 and 15 was consummated.

Appellee received from appellants P48,893.76

as commission.

It was then that the rift between the contending

parties soon emerged. Appellee apparently felt

short changed because according to him, his

total commission should be P352,500.00 which

is five percent (5%) of the agreed price of

P7,050,000.00 paid by Times Transit

Corporation to appellants for the two (2) lots,

and that it was he who introduced the buyer to

appellants and unceasingly facilitated the

negotiation which ultimately led to the

consummation of the sale. Hence, he sued

below to collect the balance of P303,606.24

after having received P48,893.76 in

advance.1âwphi1.nêt

On the other hand, appellants completely

traverse appellee's claims and essentially argue

that appellee is selfishly asking for more than

what he truly deserved as commission to the

prejudice of other agents who were more

instrumental in the consummation of the sale.

Although appellants readily concede that it was

appellee who first introduced Times Transit

Corp. to them, appellee was not designated by

them as their exclusive real estate agent but that

in fact there were more or less eighteen (18)

others whose collective efforts in the long run

dwarfed those of appellee's, considering that the

first negotiation for the sale where appellee took

active participation failed and it was these other

agents who successfully brokered in the second

negotiation. But despite this and out of

appellants' "pure liberality, beneficence and

magnanimity", appellee nevertheless was given

the largest cut in the commission (P48,893.76),

although on the principle of quantum meruit he

would have certainly been entitled to less. So

appellee should not have been heard to

complain of getting only a pittance when he

actually got the lion's share of the commission

and worse, he should not have been allowed to

get the entire commission. Furthermore, the

purchase price for the two lots was only P3.6

million as appearing in the deed of sale and not

P7.05 million as alleged by appellee. Thus, even

assuming that appellee is entitled to the entire

commission, he would only be getting 5% of the

P3.6 million, or P180,000.00."

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of

the trial court.

First. The Court of Appeals found that Constante

authorized Artigo to act as agent in the sale of two lots

in Cubao, Quezon City. The handwritten authorization

letter signed by Constante clearly established a contract

of agency between Constante and Artigo. Thus, Artigo

sought prospective buyers and found Times Transit

Corporation ("Times Transit" for brevity). Artigo

facilitated the negotiations which eventually led to the

sale of the two lots. Therefore, the Court of Appeals

decided that Artigo is entitled to the 5% commission on

the purchase price as provided in the contract of

agency.

Second. The Court of Appeals ruled that Artigo's

complaint is not dismissible for failure to implead as

indispensable parties the other co-owners of the two

lots. The Court of Appeals explained that it is not

necessary to implead the other co-owners since the

action is exclusively based on a contract of agency

between Artigo and Constante.

Third. The Court of Appeals likewise declared that the

trial court did not err in admitting parol evidence to

prove the true amount paid by Times Transit to the De

Castros for the two lots. The Court of Appeals ruled

that evidence aliunde could be presented to prove that

the actual purchase price was P7.05 million and not

P3.6 million as appearing in the deed of sale. Evidence

aliunde is admissible considering that Artigo is not a

party, but a mere witness in the deed of sale between

the De Castros and Times Transit. The Court of

Appeals explained that, "the rule that oral evidence is

inadmissible to vary the terms of written instruments is

generally applied only in suits between parties to the

instrument and strangers to the contract are not bound

by it." Besides, Artigo was not suing under the deed of

sale, but solely under the contract of agency. Thus, the

Court of Appeals upheld the trial court's finding that the

purchase price was P7.05 million and not P3.6 million.

Hence, the instant petition.

The Issues According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF

THE COMPLAINT FOR FAILURE TO

IMPLEAD INDISPENSABLE PARTIES-IN-

INTEREST;

II. NOT ORDERING THE DISMISSAL OF

THE COMPLAINT ON THE GROUND THAT

ARTIGO'S CLAIM HAS BEEN

EXTINGUISHED BY FULL PAYMENT,

WAIVER, OR ABANDONMENT;

III. CONSIDERING INCOMPETENT

EVIDENCE;

IV. GIVING CREDENCE TO PATENTLY

PERJURED TESTIMONY;

V. SANCTIONING AN AWARD OF MORAL

DAMAGES AND ATTORNEY'S FEES;

VI. NOT AWARDING THE DE CASTRO'S

MORAL AND EXEMPLARY DAMAGES,

AND ATTORNEY'S FEES.

The Court's Ruling The petition is bereft of merit.

First Issue: whether the complaint merits dismissal

for failure to implead other co-owners as

indispensable parties The De Castros argue that Artigo's complaint should

have been dismissed for failure to implead all the co-

owners of the two lots. The De Castros claim that

Artigo always knew that the two lots were co-owned by

Constante and Corazon with their other siblings Jose

and Carmela whom Constante merely represented. The

De Castros contend that failure to implead such

indispensable parties is fatal to the complaint since

Artigo, as agent of all the four co-owners, would be

paid with funds co-owned by the four co-owners.

The De Castros' contentions are devoid of legal basis.

An indispensable party is one whose interest will be

affected by the court's action in the litigation, and

without whom no final determination of the case can be

had.7 The joinder of indispensable parties is mandatory

and courts cannot proceed without their presence.8

Whenever it appears to the court in the course of a

proceeding that an indispensable party has not been

joined, it is the duty of the court to stop the trial and

order the inclusion of such party.9

However, the rule on mandatory joinder of

indispensable parties is not applicable to the instant

case.

There is no dispute that Constante appointed Artigo in a

handwritten note dated January 24, 1984 to sell the

properties of the De Castros for P23 million at a 5

percent commission. The authority was on a first come,

first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is

authorized as our real estate broker in

connection with the sale of our property located

at Edsa Corner New York & Denver, Cubao,

Quezon City.

Asking price P 23,000,000.00 with 5%

commission as agent's fee.

C.C. de Castro

owner & representing

co-owners

This authority is on a first-come

First serve basis –CAC"

Constante signed the note as owner and as

representative of the other co-owners. Under this note, a

contract of agency was clearly constituted between

Constante and Artigo. Whether Constante appointed

Artigo as agent, in Constante's individual or

representative capacity, or both, the De Castros cannot

seek the dismissal of the case for failure to implead the

other co-owners as indispensable parties. The De

Castros admit that the other co-owners are solidarily

liable under the contract of agency,10

citing Article

1915 of the Civil Code, which reads:

Art. 1915. If two or more persons have

appointed an agent for a common transaction or

undertaking, they shall be solidarily liable to the

agent for all the consequences of the agency.

The solidary liability of the four co-owners, however,

militates against the De Castros' theory that the other

co-owners should be impleaded as indispensable

parties. A noted commentator explained Article 1915

thus –

"The rule in this article applies even when the

appointments were made by the principals in

separate acts, provided that they are for the

same transaction. The solidarity arises from

the common interest of the principals, and

not from the act of constituting the agency.

By virtue of this solidarity, the agent can

recover from any principal the whole

compensation and indemnity owing to him by

the others. The parties, however, may, by

express agreement, negate this solidary

responsibility. The solidarity does not disappear

by the mere partition effected by the principals

after the accomplishment of the agency.

If the undertaking is one in which several are

interested, but only some create the agency,

only the latter are solidarily liable, without

prejudice to the effects of negotiorum gestio

with respect to the others. And if the power

granted includes various transactions some of

which are common and others are not, only

those interested in each transaction shall be

liable for it."11

When the law expressly provides for solidarity of the

obligation, as in the liability of co-principals in a

contract of agency, each obligor may be compelled to

pay the entire obligation.12

The agent may recover the

whole compensation from any one of the co-principals,

as in this case.

Indeed, Article 1216 of the Civil Code provides that a

creditor may sue any of the solidary debtors. This

article reads:

Art. 1216. The creditor may proceed against any

one of the solidary debtors or some or all of

them simultaneously. The demand made against

one of them shall not be an obstacle to those

which may subsequently be directed against the

others, so long as the debt has not been fully

collected.

Thus, the Court has ruled in Operators Incorporated vs.

American Biscuit Co., Inc.13

that –

"x x x solidarity does not make a solidary

obligor an indispensable party in a suit filed by

the creditor. Article 1216 of the Civil Code says

that the creditor `may proceed against anyone of

the solidary debtors or some or all of them

simultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim has been

extinguished by full payment, waiver or abandonment

The De Castros claim that Artigo was fully paid on

June 14, 1985, that is, Artigo was given "his

proportionate share and no longer entitled to any

balance." According to them, Artigo was just one of the

agents involved in the sale and entitled to a

"proportionate share" in the commission. They assert

that Artigo did absolutely nothing during the second

negotiation but to sign as a witness in the deed of sale.

He did not even prepare the documents for the

transaction as an active real estate broker usually does.

The De Castros' arguments are flimsy.

A contract of agency which is not contrary to law,

public order, public policy, morals or good custom is a

valid contract, and constitutes the law between the

parties.14

The contract of agency entered into by

Constante with Artigo is the law between them and

both are bound to comply with its terms and conditions

in good faith.

The mere fact that "other agents" intervened in the

consummation of the sale and were paid their respective

commissions cannot vary the terms of the contract of

agency granting Artigo a 5 percent commission based

on the selling price. These "other agents" turned out to

be employees of Times Transit, the buyer Artigo

introduced to the De Castros. This prompted the trial

court to observe:

"The alleged `second group' of agents came into

the picture only during the so-called `second

negotiation' and it is amusing to note that these

(sic) second group, prominent among whom are

Atty. Del Castillo and Ms. Prudencio, happened

to be employees of Times Transit, the buyer of

the properties. And their efforts were limited to

convincing Constante to 'part away' with the

properties because the redemption period of the

foreclosed properties is around the corner, so to

speak. (tsn. June 6, 1991).

x x x

To accept Constante's version of the story is to

open the floodgates of fraud and deceit. A seller

could always pretend rejection of the offer and

wait for sometime for others to renew it who are

much willing to accept a commission far less

than the original broker. The immorality in the

instant case easily presents itself if one has to

consider that the alleged `second group' are

the employees of the buyer, Times Transit and

they have not bettered the offer secured by Mr.

Artigo for P7 million. It is to be noted also that while Constante was

too particular about the unrenewed real estate

broker's license of Mr. Artigo, he did not bother

at all to inquire as to the licenses of Prudencio

and Castillo. (tsn, April 11, 1991, pp. 39-40)."15

(Emphasis supplied)

In any event, we find that the 5 percent real estate

broker's commission is reasonable and within the

standard practice in the real estate industry for

transactions of this nature.

The De Castros also contend that Artigo's inaction as

well as failure to protest estops him from recovering

more than what was actually paid him. The De Castros

cite Article 1235 of the Civil Code which reads:

Art. 1235. When the obligee accepts the

performance, knowing its incompleteness and

irregularity, and without expressing any protest

or objection, the obligation is deemed fully

complied with.

The De Castros' reliance on Article 1235 of the Civil

Code is misplaced. Artigo's acceptance of partial

payment of his commission neither amounts to a waiver

of the balance nor puts him in estoppel. This is the

import of Article 1235 which was explained in this

wise:

"The word accept, as used in Article 1235 of the

Civil Code, means to take as satisfactory or

sufficient, or agree to an incomplete or irregular

performance. Hence, the mere receipt of a

partial payment is not equivalent to the

required acceptance of performance as would

extinguish the whole obligation."16

(Emphasis

supplied)

There is thus a clear distinction between acceptance and

mere receipt. In this case, it is evident that Artigo

merely received the partial payment without waiving

the balance. Thus, there is no estoppel to speak of.

The De Castros further argue that laches should apply

because Artigo did not file his complaint in court until

May 29, 1989, or almost four years later. Hence,

Artigo's claim for the balance of his commission is

barred by laches.

Laches means the failure or neglect, for an

unreasonable and unexplained length of time, to do that

which by exercising due diligence could or should have

been done earlier. It is negligence or omission to assert

a right within a reasonable time, warranting a

presumption that the party entitled to assert it either has

abandoned it or declined to assert it.17

Artigo disputes the claim that he neglected to assert his

rights. He was appointed as agent on January 24, 1984.

The two lots were finally sold in June 1985. As found

by the trial court, Artigo demanded in April and July of

1985 the payment of his commission by Constante on

the basis of the selling price of P7.05 million but there

was no response from Constante.18

After it became

clear that his demands for payment have fallen on deaf

ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of

agency, must be brought within ten years from the time

the right of action accrues.19

The right of action accrues

from the moment the breach of right or duty occurs.

From this moment, the creditor can institute the action

even as the ten-year prescriptive period begins to run.20

The De Castros admit that Artigo's claim was filed

within the ten-year prescriptive period. The De Castros,

however, still maintain that Artigo's cause of action is

barred by laches. Laches does not apply because only

four years had lapsed from the time of the sale in June

1985. Artigo made a demand in July 1985 and filed the

action in court on May 29, 1989, well within the ten-

year prescriptive period. This does not constitute an

unreasonable delay in asserting one's right. The Court

has ruled, "a delay within the prescriptive period is

sanctioned by law and is not considered to be a delay

that would bar relief."21

In explaining that laches

applies only in the absence of a statutory prescriptive

period, the Court has stated -

"Laches is recourse in equity. Equity, however,

is applied only in the absence, never in

contravention, of statutory law. Thus, laches,

cannot, as a rule, be used to abate a collection

suit filed within the prescriptive period

mandated by the Civil Code."22

Clearly, the De Castros' defense of laches finds no

support in law, equity or jurisprudence.

Third issue: whether the determination of the

purchase price was made in violation of the Rules on

Evidence

The De Castros want the Court to re-examine the

probative value of the evidence adduced in the trial

court to determine whether the actual selling price of

the two lots was P7.05 million and not P3.6 million.

The De Castros contend that it is erroneous to base the

5 percent commission on a purchase price of P7.05

million as ordered by the trial court and the appellate

court. The De Castros insist that the purchase price is

P3.6 million as expressly stated in the deed of sale, the

due execution and authenticity of which was admitted

during the trial.

The De Castros believe that the trial and appellate

courts committed a mistake in considering incompetent

evidence and disregarding the best evidence and parole

evidence rules. They claim that the Court of Appeals

erroneously affirmed sub silentio the trial court's

reliance on the various correspondences between

Constante and Times Transit which were mere

photocopies that do not satisfy the best evidence rule.

Further, these letters covered only the first negotiations

between Constante and Times Transit which failed;

hence, these are immaterial in determining the final

purchase price.

The De Castros further argue that if there was an

undervaluation, Artigo who signed as witness benefited

therefrom, and being equally guilty, should be left

where he presently stands. They likewise claim that the

Court of Appeals erred in relying on evidence which

were not offered for the purpose considered by the trial

court. Specifically, Exhibits "B", "C", "D" and "E" were

not offered to prove that the purchase price was P7.05

Million. Finally, they argue that the courts a quo erred

in giving credence to the perjured testimony of Artigo.

They want the entire testimony of Artigo rejected as a

falsehood because he was lying when he claimed at the

outset that he was a licensed real estate broker when he

was not.

Whether the actual purchase price was P7.05 Million as

found by the trial court and affirmed by the Court of

Appeals, or P3.6 Million as claimed by the De Castros,

is a question of fact and not of law. Inevitably, this calls

for an inquiry into the facts and evidence on record.

This we can not do.

It is not the function of this Court to re-examine the

evidence submitted by the parties, or analyze or weigh

the evidence again.23

This Court is not the proper venue

to consider a factual issue as it is not a trier of facts. In

petitions for review on certiorari as a mode of appeal

under Rule 45, a petitioner can only raise questions of

law. Our pronouncement in the case of Cormero vs.

Court of Appeals24

bears reiteration:

"At the outset, it is evident from the errors

assigned that the petition is anchored on a plea

to review the factual conclusion reached by the

respondent court. Such task however is

foreclosed by the rule that in petitions for

certiorari as a mode of appeal, like this one,

only questions of law distinctly set forth may be

raised. These questions have been defined as

those that do not call for any examination of the

probative value of the evidence presented by the

parties. (Uniland Resources vs. Development

Bank of the Philippines, 200 SCRA 751 [1991]

citing Goduco vs. Court of appeals, et al., 119

Phil. 531; Hernandez vs. Court of Appeals, 149

SCRA 67). And when this court is asked to go

over the proof presented by the parties, and

analyze, assess and weigh them to ascertain if

the trial court and the appellate court were

correct in according superior credit to this or

that piece of evidence and eventually, to the

totality of the evidence of one party or the other,

the court cannot and will not do the same.

(Elayda vs. Court of Appeals, 199 SCRA 349

[1991]). Thus, in the absence of any showing

that the findings complained of are totally

devoid of support in the record, or that they are

so glaringly erroneous as to constitute serious

abuse of discretion, such findings must stand,

for this court is not expected or required to

examine or contrast the oral and documentary

evidence submitted by the parties. (Morales vs.

Court of Appeals, 197 SCRA 391 [1991] citing

Santa Ana vs. Hernandez, 18 SCRA 973

[1966])."

We find no reason to depart from this principle. The

trial and appellate courts are in a much better position

to evaluate properly the evidence. Hence, we find no

other recourse but to affirm their finding on the actual

purchase price.1âwphi1.nêt

Fourth Issue: whether award of moral damages and

attorney's fees is proper

The De Castros claim that Artigo failed to prove that he

is entitled to moral damages and attorney's fees. The De

Castros, however, cite no concrete reason except to say

that they are the ones entitled to damages since the case

was filed to harass and extort money from them.

Law and jurisprudence support the award of moral

damages and attorney's fees in favor of Artigo. The

award of damages and attorney's fees is left to the

sound discretion of the court, and if such discretion is

well exercised, as in this case, it will not be disturbed

on appeal.25

Moral damages may be awarded when in a

breach of contract the defendant acted in bad faith, or in

wanton disregard of his contractual obligation.26

On

the other hand, attorney's fees are awarded in instances

where "the defendant acted in gross and evident bad

faith in refusing to satisfy the plaintiff's plainly valid,

just and demandable claim."27

There is no reason to

disturb the trial court's finding that "the defendants' lack

of good faith and unkind treatment of the plaintiff in

refusing to give his due commission deserve censure."

This warrants the award of P25,000.00 in moral

damages and P 45,000.00 in attorney's fees. The

amounts are, in our view, fair and reasonable. Having

found a buyer for the two lots, Artigo had already

performed his part of the bargain under the contract of

agency. The De Castros should have exercised fairness

and good judgment in dealing with Artigo by fulfilling

their own part of the bargain - paying Artigo his 5

percent broker's commission based on the actual

purchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit.

The Decision of the Court of Appeals dated May 4,

1994 in CA-G.R. CV No. 37996 is AFFIRMED in

toto.

SO ORDERED

SECOND DIVISION

[G.R. No. 151038, January 18, 2012]

PETRON CORPORATION, PETITIONER, VS.

SPOUSES CESAR JOVERO AND ERMA F.

CUDILLA, SPOUSES LONITO TAN AND

LUZVILLA SAMSON, AND SPOUSES ROGELIO

LIMPOCO AND LUCIA JOSUE, BEING

REPRESENTED BY PIO JOSUE,

RESPONDENTS.

D E C I S I O N

SERENO, J.:

The present case is a Petition for Review[1]

under Rule

45 filed by petitioner Petron Corporation. Petitioner

assails the Decision[2]

of the Court of Appeals (CA),

which affirmed the Decision of the Regional Trial

Court (RTC) of Iloilo City in consolidated Civil Case

Nos. 19633, 19684, 20122, respectively filed by herein

respondents.

The facts of the case are as follows:

On 25 April 1984, Rubin Uy entered into a Contract of

Lease with Cesar J. Jovero over a property located at E.

Reyes Ave., Estancia, Iloilo for the purpose of

operating a gasoline station for a period of five (5)

years.

On 30 April 1984, petitioner, a domestic corporation

engaged in the importation and distribution of gasoline

and other petroleum products, entered into a Retail

Dealer Contract[3]

with Rubin Uy for the period 1 May

1984 to 30 April 1989. Under the dealership contract,

petitioner sold its products in quantities as ordered by

the dealer. It likewise obligated itself to deliver the

products to the dealer at the places agreed upon by the

parties. The dealer, meanwhile, obligated himself to

exclusively maintain petitioner‘s trademarks and brand

names in his gasoline station. The parties also agreed

that the dealer shall make good, settle and pay, and hold

petitioner harmless against all losses and claims

including those of the parties, their agents and

employees – for death, personal injury or property

damage arising out of any use or condition of the

dealer‘s premises or the equipment and facilities

thereon, regardless of any defects therein; the dealer‘s

non-performance of the contract; or the storage and

handling of products on the premises.

In order to comply with its obligation to deliver the

petroleum products to the dealer, petitioner contracted

the hauling services of Jose Villaruz, who did business

under the name Gale Freight Services. The hauling

contract[4]

was executed in March 1988 for a period of

three years, renewable for another three upon

agreement of the parties.

Under the hauling contract, Villaruz specifically

assigned three (3) units of tank trucks exclusively for

the hauling requirements of petitioner for the delivery

of the latter‘s products, namely tank trucks with the

plate numbers FVG 605, FVG 581 and FVG 583.

Delivery ―includes not only transportation but also

proper loading and unloading and delivery.‖[5]

The

parties also agreed that Villaruz shall save petitioner

from any and all claims of third persons arising out of,

but not necessarily limited to, his performance of the

terms and conditions of the contract. Furthermore,

Villaruz obligated himself to be answerable to

petitioner for damage to its plant, equipment and

facilities, including those of its employees, dealers and

customers, resulting from his negligence and/or lack of

diligence.

Meanwhile, on 27 October 1988, Rubin Uy executed a

Special Power of Attorney (SPA) in favor of Chiong

Uy authorizing the latter to manage and administer the

gasoline station. Chiong Uy and his wife, Dortina M.

Uy, operated the gasoline station as agents of Rubin

Uy. However, on 27 November 1990, Chiong Uy left

for Hong Kong, leaving Dortina Uy to manage the

gasoline station.

On 3 January 1991, around ten o‘clock in the morning,

Ronnie Allanaraiz, an employee of the gasoline station,

ordered from petitioner various petroleum products.

Petitioner then requested the services of Villaruz for the

delivery of the products to the gasoline station in

Estancia, Iloilo. He, however, used a tank truck

different from the trucks specifically enumerated in the

hauling contract executed with petitioner. Petitioner

nevertheless allowed the transport and delivery of its

products to Estancia in the tank truck driven by Pepito

Igdanis.

During the unloading of the petroleum from the tank

truck into the fill pipe that led to the gasoline station‘s

underground tank, for reasons unknown, a fire started in

the fill pipe and spread to the rubber hose connected to

the tank truck. During this time, driver Pepito Igdanis

was nowhere to be found. Bystanders then tried to put

out the flames. It was then that Igdanis returned to the

gasoline station with a bag of dried fish in hand. Seeing

the fire, he got into the truck without detaching the

rubber hose from the fill pipe and drove in reverse,

dragging the burning fuel hose along the way. As a

result, a conflagration started and consumed the nearby

properties of herein defendants, spouses Cesar J. Jovero

and Erma Cudilla-Jovero, amounting to P1,500,000; of

spouses Leonito Tan and Luzvilla Samson, amounting

to P800,000; and of spouses Rogelio Limpoco and

Lucia Josue Limpoco, amounting to P4,112,000.

Herein respondents thereafter filed separate actions for

damages against petitioner, Villaruz, Rubin Uy, and

Dortina Uy, docketed as Civil Case Nos. 19633, 19684

and 20122 at the Regional Trial Court (RTC) of Iloilo

City. The cases, having arisen from the same set of

facts, were subsequently consolidated. Respondents

alleged that the negligence of petitioner and its co-

defendants in the conduct of their businesses caused the

fire that destroyed the former‘s properties.

In its separate Answer, petitioner Petron alleged that the

petroleum products were already paid for and owned by

Rubin Uy and Dortina Uy. Moreover, it alleged that

Villaruz was responsible for the safe delivery of the

products by virtue of the hauling contract. Thus,

petitioner asserted, liability for the damages caused by

the fire rested on Rubin Uy and Villaruz. Petitioner

likewise filed a cross-claim against its co-defendants

for contribution, indemnity, subrogation, or other reliefs

for all expenses and damages that it may have suffered

by virtue of the incident. It also filed a counterclaim

against respondents herein.

On 27 April 1998, after trial on the merits, the RTC

rendered its Decision in favor of respondents and found

petitioner and its co-defendants solidarily liable for

damages. The dispositive portion of the Decision states:

WHEREFORE, in view of the foregoing, DECISION is

hereby rendered:

1. Declaring defendants Petron Corporation, Jose

Villaruz, Pepito Igdanis, Rubin Uy and Dortina

Uy as being negligent in the conduct of their

business activities, which led to the

conflagration of January 3, 1991 at E. Reyes

Avenue, Estancia, Iloilo, which resulted to (sic)

the damages suffered by all the plaintiffs;

2. Ordering all the aforenamed defendants to pay

solidarily all the plaintiffs as follows:

a.) In Civil Case No. 19633, plaintiffs-spouses Cesar J.

Jovero and Erma Cudilla-Jovero the amount of

P1,500,00.00 as actual damages; P2,000.00 as

litigation expenses; P4,000.00 as attorney‘s fees, and

to pay the costs;

b.) In Civil Case No. 19684, to pay plaintiffs-spouses

Leonito Tan and Luzvilla Samson the sum of

P800,000.00 as actual damages, P2,000.00 as

litigation expenses; P4,000.00 as attorney‘s fees and

to pay the costs;

c.) In Civil Case No. 20122, to pay the plaintiffs-

spouses Rogelio C. Limpoco and Lucia Josue

Limpoco the amount of P4,112,000.00 as actual

damages; P2,000.00 as litigation expenses;

P5,000.00 as attorney‘s fees, and to pay the costs.

3.

The counter-claims of the defendants against all the

plaintiffs are hereby dismissed.

The cross-claims of the defendants against each other

are likewise dismissed as they are all in ―pari delicto‖.

SO ORDERED.[6]

The RTC held that Igdanis, as the driver of the tank

truck, was negligent in the performance of his work

when he left the tank truck while it was in the process

of unloading the petroleum. He was also negligent

when he drove the truck in reverse without detaching

the burning fuel hose. The trial court stated that

defendant Villaruz failed to convince the court that he

had exercised due diligence in the hiring and

supervision of his employees.

The RTC likewise held that petitioner was negligent in

allowing Villaruz to use a tank truck that was not

included among the trucks specifically enumerated

under the hauling contract.

Finally, the court ruled that the gasoline station was

owned and operated by Rubin Uy and Dortina Uy at the

time of the incident.

Petitioner and co-defendants Dortina Uy and Rubin Uy

thereafter filed their separate Notices of Appeal.

Petitioner, in its appeal, insisted that it had already sold

and transferred ownership of its petroleum products to

the dealer, Rubin Uy, upon payment and receipt of

these products at its depot. Thus, it asserted, it ceased to

own the products even during transit and while being

unloaded at the gasoline station. It also stated that the

transportation, delivery, receipt and storage of the

petroleum products were solely the responsibility of

hauler Villaruz, who was neither an employee nor an

agent of petitioner. It reiterated that liability rested on

Rubin Uy and Villaruz pursuant to the respective

contracts it had executed with them.

Petitioner also alleged that the RTC erred in ruling that

the former was negligent in allowing the use of a tank

truck not specified in the hauling contract. Petitioner

thus insisted that it had examined the tank truck and

found it to be in good condition. It added that, since the

fire did not originate from the tank truck, the proximate

cause of the fire was not attributable to any defect in the

truck.

Finally, petitioner alleged that respondents failed to

prove that the damages they suffered were the direct

result of any culpable act or omission on its part.

Meanwhile, defendant Villaruz allegedly proved during

trial that he had exercised diligence in the selection and

supervision of his employees and, thus, he was not

responsible for the damages caused by the fire. In

addition, he alleged that Igdanis, whom respondents

failed to implead as a defendant in the lower court, did

not have a chance to defend himself. Since there was no

showing that any act or omission of Igdanis was the

proximate cause of the fire, Villaruz insisted that the

latter himself could not be held liable for the acts of his

employee, who was not even impleaded or proven to be

negligent.

Dortina Uy, in her appeal, alleged that she had no direct

participation in the management or administration of

the gasoline station. She also alleged that she was not

the employer of Igdanis, the driver of the tank truck

who had caused the fire to spread in the vicinity.

Since defendant Rubin Uy failed to file his Appellant‘s

Brief within the reglementary period, the CA dismissed

his appeal.[7]

Respondents, meanwhile, maintained that petitioner

Petron was negligent in selling and storing its products

in a gasoline station without an existing dealer‘s

contract from May 1989 up to the time of the incident

on 3 January 1991. They contended that petitioner, in

effect, was itself operating the gasoline station, with the

dealer as mere agent of the former. Respondents also

insisted that petitioner had the obligation to ensure that

the gasoline station was safe and properly maintained,

considering the products stored and sold there.

Likewise, they asserted that petitioner was responsible

for the safe delivery and proper storage of its goods in

the gasoline station, and that this responsibility would

cease only when the goods had been sold to the end

consumer.

Additionally, respondents contended that petitioner

Petron was also negligent when the latter allowed the

use of an unaccredited truck in violation of its hauling

contract with Villaruz.

On 12 December 2001, the CA promulgated its

Decision affirming that of the trial court, to wit:

WHEREFORE, premises considered, the instant

appeals are DISMISSED and the assailed consolidated

Decision of the court a quo dated 27 April 1998 in

Civil Case Nos. 19633, 19684 and 20122 is

AFFIRMED in all respects. Costs against appellants.

SO ORDERED.[8]

The appellate court upheld the findings of the RTC that

petitioner Petron was negligent for having allowed the

operation of the gasoline station absent a valid

dealership contract. Thus, the CA considered the

gasoline station as one run by petitioner itself, and the

persons managing the gasoline station as petitioner‘s

mere agents. Even if a valid dealership contract existed,

petitioner was still liable for damages, because there

was as yet no complete delivery of its products. The fire

had broken out while petroleum was being unloaded

from the tank truck to the storage tank.

The CA further held that petitioner was also negligent

in allowing Villaruz to use an unaccredited tank truck

for the transport and delivery of the petroleum at the

time of the incident.

With regard to the liability of Villaruz, the appellate

court found him to be negligent in the conduct of his

business. Thus, he was made liable for the damages

caused by his employee in accordance with Article

2180 in relation to Article 2176 of the Civil Code.

Finally, with regard to Dortina Uy, the CA held that, as

one of the operators of the gasoline station, she failed to

submit evidence that she had exercised due diligence in

the operation thereof.

Dissatisfied with the CA‘s ruling, petitioner is now

before us with the present Petition for Review.

Petitioner presents the following issues for the

resolution of this Court:

1. Whether or not Petron may be considered at

fault for continuing to do business with Rubin

Uy, an independent petroleum dealer, without

renewing or extending their expired dealership

agreement;

2. Whether or not a causal connection exists

between Petron‘s failure to renew or extend its

dealership contract with Rubin Uy and the fire

that inflicted damages on the buildings

surrounding the latter‘s gas station;

3. Whether or not Petron is liable for the fire that

occurred during the unloading by an

independent hauler of the fuel it sold to an

equally independent dealer at the latter‘s gas

station; and

4. Whether or not a supplier of fuel can be held

liable for the neglect of others in distributing

and storing such fuel. [9]

In the present case, petitioner does not implead its co-

defendants Villaruz, Rubin Uy and Dortina Uy. Neither

does it assail the dismissal by the lower courts of the

cross-claim or counterclaim it filed against its co-

defendants and herein respondents, respectively. Nor is

there any question on respondents‘ right to claim

damages. Petitioner merely prays for absolution from

liability resulting from the fire by claiming that it had

no direct participation in the incident.

In support of the issues raised above, petitioner

contends that, first, there was an implied renewal of the

dealership contract – Rubin Uy remained as the

operator of the gasoline station. It further contends that

there is no law supporting the conclusion of the CA

that, upon expiration of the contract, the dealer

automatically became the supplier‘s agent.

Second, petitioner asserts that there was no rational link

between its alleged neglect in renewing the dealership

agreement and the act that caused the fire.

Third, petitioner insists that ownership of the petroleum

products was transferred when the dealer‘s

representative, Ronnie Allanaraiz, went to petitioner‘s

oil depot, bought and paid for the gasoline, and had

Villaruz‘s tank truck receive the products for delivery.

Moreover, petitioner points out, neither Igdanis nor

Villaruz was its employee and, thus, it cannot be held

vicariously liable for the damages to respondents

caused by Igdanis. Furthermore, it asserted that the tank

truck transporting the petroleum – though not included

in the enumeration in the hauling contract – had

complied with the standards required of Villaruz.

Petitioner also alleges that there was no evidence that

the fire was attributable to its distribution and storage

safety measures.

Finally, petitioner states that both hauler and dealer

must bear the costs of their acts and those of their

employees, considering that this was an explicit

provision in their respective contracts with it.

The Petition has some merit.

We first discuss the liability of petitioner in relation to

the dealership contract.

Petitioner, as an importer and a distributer of gasoline

and other petroleum product, executed with a dealer of

these products an exclusive dealership agreement for

mutual benefit and gain. On one hand, petitioner

benefits from the sale of its products, as well as the

advertisement it gains when it broadens its geographical

coverage in contracting with independent dealers in

different areas. The products sold and the services

rendered by the dealer also contribute to its goodwill.

Thus, despite the transfer of ownership upon the sale

and delivery of its products, petitioner still imposes the

obligation on the dealer to exclusively carry its

products.

The dealer also benefits from the dealership agreement,

not only from the resale of the products of petitioner,

but also from the latter‘s goodwill.

However, with the use of its trade name and trademark,

petitioner and the dealer inform and guarantee to the

public that the products and services are of a particular

standard or quality. More importantly, the public, which

is not privy to the dealership contract, assumes that the

gasoline station is owned or operated by petitioner.

Thus, respondents, who suffered damages from the act

or omission that occurred in the gasoline station and

that caused the fire, may file an action against petitioner

based on the representations it made to the public. As

far as the public is concerned, it is enough that the

establishment carries exclusively the name and products

of petitioner to assume that the latter is liable for acts

done within the premises.

Second, respondents have a claim against petitioner

based on the dealership agreement.

The RTC and the CA ruled that, by virtue of the

expiration of the dealership contract, the dealer was

relegated to being petitioner‘s agent. On this point, we

agree with petitioner that the expiration or nonexistence

of a dealership contract did not ipso facto transform the

relationship of the dealer and petitioner into one of

agency. As far as the parties to the dealership contract

were concerned, the rights and obligations as to them

still subsisted, since they continued to mutually benefit

from the agreement. Thus, neither party can claim that

it is no longer bound by the terms of the contract and

the expiration thereof.

We then judiciously reviewed the terms of the contract

and found that petitioner is liable to respondents for the

damages caused by the fire.

As petitioner itself points out, it owns the equipment

relevant to the handling and storage of gasoline,

including the gasoline pumps and the underground

tank.[10]

It is also responsible for the delivery of the

petroleum to the dealer. The incident occurred at the

time the petroleum was being unloaded to the

underground tank petitioner owned. Aside from failing

to show the actual cause of the fire, it also failed to

rebut the presumption that it was negligent in the

maintenance of its properties and in the conduct of its

business.

Petitioner contends that under paragraph 8 of the

dealership contract, the dealer‘s liability is as follows:

LOSSES AND CLAIMS. BUYER shall make good,

settle and pay, and hold SELLER harmless against all

losses and claims (including those of the parties, their

agents and employees) for death, personal injury or

property arising out of (1) any use or condition of

BUYER‘s premises or the equipment and facilities

thereon, regardless of any defects therein (2) BUYER‘s

non-performance of this contract, or (3) the storage and

handling of products on the premises.

While both parties to the contract have the right to

provide a clause for non-liability, petitioner admits that

they both share the maintenance of its equipment.

Petitioner states that its responsibility extended to ―the

operating condition of the gasoline station, e.g. whether

the fuel pumps were functioning properly.‖[11]

Moreover, it cannot be denied that petitioner likewise

obligated itself to deliver the products to the dealer.

When the incident occurred, petitioner, through Gale

Freight Services, was still in the process of fulfilling its

obligation to the dealer. We disagree with its contention

that delivery was perfected upon payment of the goods

at its depot. There was yet no complete delivery of the

goods as evidenced by the aforementioned hauling

contract petitioner executed with Villaruz. That contract

made it clear that delivery would only be perfected

upon the complete unloading of the gasoline.

Thus, with regard to the delivery of the petroleum,

Villaruz was acting as the agent of petitioner Petron.

For a fee, he delivered the petroleum products on its

behalf. Notably, petitioner even imposed a penalty

clause in instances when there was a violation of the

hauling contract, wherein it may impose a penalty

ranging from a written warning to the termination of the

contract. Therefore, as far as the dealer was concerned

with regard to the terms of the dealership contract, acts

of Villaruz and his employees are also acts of

petitioner. Both the RTC and the CA held that Villaruz

failed to rebut the presumption that the employer was

negligent in the supervision of an employee who caused

damages to another; and, thus, petitioner should

likewise be held accountable for the negligence of

Villaruz and Igdanis.

To reiterate, petitioner, the dealer Rubin Uy – acting

through his agent, Dortina Uy – shared the

responsibility for the maintenance of the equipment

used in the gasoline station and for making sure that the

unloading and the storage of highly flammable products

were without incident. As both were equally negligent

in those aspects, petitioner cannot pursue a claim

against the dealer for the incident. Therefore, both are

solidarily liable to respondents for damages caused by

the fire.

Petitioner was likewise negligent in allowing a tank

truck different from that specifically provided under its

hauling contract with Villaruz. The enumeration and

specification of particular tank trucks in the contract

serve a purpose – to ensure the safe transportation,

storage and delivery of highly flammable products.

Under the hauling contract, these requirements are as

follows:[12]

4.3.1 Duly registered under the hired truck (TH)

classification and subject to the rules and

regulations of Land Transportation Commission

(LTC) and Board of Transportation (BOT).

4.3.2 Properly sealed and calibrated in accordance with

the requirements of NSTA.

4.3.3. Equipped with safety and other auxiliary

equipment as specified by PETROPHIL (Petron)

as per attached Annex ―8‖.[13]

4.3.4 Provided with fire permits and other permits

required by the government authorities.

4.3.5 In good working condition and in good

appearance at all times,

4.3.6 Fully complying with the tank truck color scheme,

standard truck number, bumper stripes, hauler‘s

name on cab door, and such other similar

requirements for good appearance as may be

required by PETROPHIL.

Annex ―B‖ attached to the contract, which refers to the

tank truck safety and accessories equipment, likewise

provides that the following are the specified safety

equipment and other accessories for tank truck

operations:[14]

1. Fire extinguisher, Type B & C

2. Manhole covers

3. Manhole cover gasket

4. Product level markers

5. Manhole cover pins

6. NIST Calibration and scale

7. Discharge valves (quick closing)

8. Front Fenders

9. Door glasses

10. ________ (illegible) glasses

11. Windshield

12. Wipers

13. Horn

14. Floor matting

15. Ceiling

16. Seats

17. (Illegible)

18. Air hose connector

With respect to the claims of third persons, it is not

enough for petitioner to allege that the tank truck met

the same requirements provided under the contract; it

must duly prove its allegations. This, petitioner failed to

do. To reiterate, it was not able to prove the proximate

cause of the fire, only the involvement of the tank truck

and the underground storage tank. Notably, both pieces

of equipment were under its responsibility. Absent any

positive determination of the cause of the fire, a

presumption exists that there was something wrong

with the truck or the underground storage tank, or both.

Petitioner, which had the obligation to ensure that the

truck was safe, is likewise liable for the operation of

that truck.

Petitioner maintains that by virtue of the hauling

contract, Villaruz must be held responsible for the acts

of Igdanis, the driver of the tank truck. In this aspect,

petitioner is correct. While it may be vicariously liable

to third persons for damages caused by Villaruz, the

latter is nevertheless liable to petitioner by virtue of the

non-liability clause in the hauling contract. Under this

provision, he saved petitioner from any and all claims

of third persons arising out of, but not necessarily

limited to, his performance of the terms and conditions

of this agreement. Petitioner even obligated him to

maintain an acceptable Merchandise Floater Policy to

provide insurance coverage for the products entrusted

to him; and a Comprehensive General Liability

Insurance to cover any and all claims for damages for

personal injury, including death or damages to property,

which may arise from operations under the contract.[15]

Thus, Villaruz is also liable to petitioner based on the

hauling contract. Under Rule 6, Sec. 8 of the Rules of

Court, petitioner may enforce the terms of the hauling

contract against him. However, considering that it did

not implead Villaruz in the present case, nor did it

assail the Decision of the CA in dismissing the cross-

claim, petitioner can no longer go after him based on

that cross-claim.

Nonetheless, this is not the same as saying that Villaruz

is no longer solidarily liable to respondents.

As the employer of Igdanis, Villaruz was impleaded by

herein respondents in the lower court and was found to

be solidarily liable with his other co-defendants. Absent

an appeal before this Court assailing the ruling of the

lower court and the CA, Villaruz remains to be

solidarily liable with petitioner and co-defendants

Rubin Uy and Dortina Uy. Thus, petitioner may only

claim contribution from him in accordance with Article

1217 of the Civil Code, and not by virtue of its hauling

contract, in the event that respondents decide to proceed

against petitioner alone for the satisfaction of judgment.

Art. 1217 states:

Payment made by one of the solidary debtors

extinguishes the obligation. If two or more solidary

debtors offer to pay, the creditor may choose which

offer to accept.

He who made the payment may claim from his co-

debtors only the share which corresponds to each,

with the interest for the payment already made. If the

payment is made before the debt is due, no interest for

the intervening period may be demanded. (Emphasis

supplied)

The share, meanwhile, of solidary debtors is contained

in Art. 1208, to wit:

If from the law, or the nature of the wording of the

obligations to which the preceding article refers the

contrary does not appear, the credit of debt shall be

presumed to be divided into as many equal shares as

there are creditors or debtors, the credits or debts

being considered distinct from one another, subject

to the Rules of Court governing the multiplicity of

suits. (Emphasis supplied)

To put it simply, based on the ruling of the lower

courts, there are four (4) persons who are liable to pay

damages to respondents. The latter may proceed against

any one of the solidary debtors or some or all of them

simultaneously, pursuant to Article 1216 of the Civil

Code. These solidary debtors are petitioner Petron, the

hauler Villaruz, the operator Dortina Uy and the dealer

Rubin Uy. To determine the liability of each defendant

to one another, the amount of damages shall be divided

by four, representing the share of each defendant.

Supposedly, under the hauling contract, petitioner may

require Villaruz to indemnify it for its share. However,

because it was not able to maintain the cross-claim filed

against him, it shall be liable for its own share under

Article 1208 and can no longer seek indemnification or

subrogation from him under its dismissed cross-claim.

Petitioner may not pursue its cross-claim against Rubin

Uy and Dortina Uy, because the cross-claims against

them were also dismissed; moreover, they were all

equally liable for the conflagration as discussed herein.

Finally, the incident occurred in 1992. Almost 20 years

have passed; yet, respondents, who were innocent

bystanders, have not been compensated for the loss of

their homes, properties and livelihood. Notably, neither

the RTC nor the CA imposed legal interest on the actual

damages that it awarded respondents. In Eastern

Shipping Lines v. Court of Appeals,[16]

enunciated in

PCI Leasing & Finance Inc. v. Trojan Metal Industries,

Inc.,[17]

we laid down the rules for the imposition of

legal interest as follows:

I. When an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-delicts

is breached, the contravenor can be held liable for

damages. The provisions under Title XVIII on

―Damages‖ of the Civil Code govern in determining the

measure of recoverable damages.

II. With regard particularly to an award of interest in

the concept of actual and compensatory damages, the

rate of interest, as well as the accrual thereof, is

imposed, as follows:

1. When the obligation is breached, and it consists in

the payment of a sum of money, i.e., a loan or

forbearance of money, the interest due should be that

which may have been stipulated in writing.

Furthermore, the interest due shall itself earn legal

interest from the time it is judicially demanded. In the

absence of stipulation, the rate of interest shall be 12%

per annum to be computed from default, i.e., from

judicial or extrajudicial demand under and subject to

the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or

forbearance of money, is breached, an interest on the

amount of damages awarded may be imposed at the

discretion of the court at the rate of 6% per annum. No

interest, however, shall be adjudged on unliquidated

claims or damages except when or until the demand can

be established with reasonable certainty. Accordingly,

where the demand is established with reasonable

certainty, the interest shall begin to run from the time

the claim is made judicially or extrajudicially (Art.

1169, Civil Code) but when such certainty cannot be so

reasonably established at the time the demand is made,

the interest shall begin to run only from the date the

judgment of the court is made (at which time the

quantification of damages may be deemed to have been

reasonably ascertained). The actual base for the

computation of legal interest shall, in any case, be on

the amount finally adjudged.

3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal

interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such

finality until its satisfaction, this interim period being

deemed to be by then an equivalent to a forbearance of

credit.

In the interest of substantial justice, we deem it

necessary to impose legal interest on the awarded actual

damages at the rate of 6% per annum from the time the

cases were filed with the lower court; and 12% from the

time the judgment herein becomes final and executory

up to the satisfaction of such judgment.

WHEREFORE, in view of the foregoing, we

AFFIRM the Decision of the Court of Appeals in Civil

Case No. 60845 insofar as herein petitioner has been

held solidarily liable to pay damages to respondents.

The CA Decision is, however, MODIFIED and the

actual damages awarded to respondents shall be subject

to the rate of legal interest of 6% per annum from the

time of filing of Civil Case Nos. 19633, 19684 and

20122 with the Regional Trial Court of Iloilo City up to

the time this judgment becomes final and executory.

Henceforth, the rate of legal interest shall be 12% until

the satisfaction of judgment.

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-13414 February 4, 1919 JUAN GARCIA Y PALICIO, plaintiff-appelle,

vs.

JOSEFA DE MANZANO, as administratrix of the

estate of her husband Narciso Lopez Manzano, defendant-appellant.

Godofredo Reyes for appellants.

Eduardo Gutierrez Repide and Felix Socias for

appellee.

MOIR, J.:

In order to understand this case, a brief explanation of

the facts is considered necessary.

Narciso Lopez Manzano was a merchant in Atimonan,

Tayabas, who went to Spain in May, 1910, and died

there the 8th of September, 1913. He gave a general

power-of-attorney to his son, Angel L. Manzano on the

9th of February, 1910, and on the 25th of March a

second general power-of-attorney to his wife, Josefa

Samson.

Narciso L. Manzano had various commercial dealings

before leaving for Spain.

Manzano was the owner of a half interest in a small

steamer, the San Nicolas, the other half being owned by

Ocejo, Perez & Co., with whom there was a partnership

agreement to run the steamer for a few years. When this

period expired Ocejo, Perez & Co., refused to continue

the contact and demanded that Manzano buy or sell. As

he did not want to sell at the price offered and could not

buy, Juan Garcia bought the half interest held by Ocejo,

Perez & Co., on the 15th of October, 1910. Angel L.

Manzano, acting under his power-of-attorney, sold in

July, 1911, the other half of the boat to the plaintiff, but

as Garcia is a Spaniard and could not register the boat

in his name at the Custom House, the boat was

registered in the name of Agustin Garcia, a son of the

plaintiff, who at that time, July 2d, 1913, was a minor

about twenty years old. Agustin Garcia shortly

thereafter died, leaving his parents as his heirs at law,

and as such heirs plaintiff's wife was made a party.

On the 23rd of July, 1912, Angel L. Manzano, by virtue

of the power-of-attorney from his father, Narciso L.

Manzano, executed a contract, Exhibit A, made a part

of the complaint, by which Juan Garcia agreed to

extend a credit to Narciso L. Manzano in the sum of

P12,000, and this credit was used by the house of

Manzano. To secure it a mortgage was given in the

same document on three parcels of land in Atimonan,

with their improvements. The registration of this

mortgage was refused by the registrar.

The court of First Instance of Tayabas, on the 18th of

April, 1914, named Josefa Samson y San Pedro,

administratrix of the property of Narciso L. Manzano,

and commissioners were duly appointed, and notice

was published, and no claims having been presented

against the estate to the commissioners, they so

reported to the court on the 7th of December, 1914.

On the 29th of July, 1915, the Court of First Instance

ordered the partition of the property amongst the heirs

of Narciso L. Manzano.

On the 15th day of May, 1915, the plaintiff filed his

action in the Court of First Instance of Tayabas to

foreclose the so-called mortgage in Exhibit a. Josefa de

Manzano filed a pleading stating that the estate had

already been divided; that the property mentioned in

Exhibit A of the plaintiff had been assigned, A and B,

to her and her children and C entirely to her; that her

son Angel had ceded his share to her; that all the other

children were minors and suggesting that she be made

guardian ad litem for the minors. In a second motion

filed the 25th of August, 1915, the defendant's attorney

states the amended complaint had not been presented as

stipulated in open court and prays the court that instead

of the administratrix the heirs of Narciso L. Manzano

be considered defendants and the names of the heirs

including Josefa de Manzano are given.

Plaintiff filed his amended complaint on the 24th of

August, making them individually defendants, the

minors to be represented by their guardian ad litem, and

asking for a judgment against each and all of them for

P14,087.59, being the amount then due on the open

account and for P2,700 as attorney's fees, all secured by

the so-called mortgage; and that in case the judgment

was not paid, that the mortgaged property be sold to

pay the debt.

The defendants, "Josefa de Manzano y otros," filed an

answer on September 4, 1915, stating they knew such a

mortgage document set up in the complaint existed, but

as they were not certain that Exhibit A was an exact

copy, they denied the document; they denied its

efficacy and legal effect; they denied the jurisdiction of

the court to hear and decide the case, and alleged that

the action had prescribed.

They alleged no facts in their answer.

The defendants also filed a counter-claim against Juan

Garcia and his wife, Conception Castro, in which they

allege that Narciso L. Manzano was the owner of one-

half of the small steamer San Nicolas and Juan Garcia

the owner of the half; that Garcia taking advantage of

the youth and inexperience of Angel L. Manzano

falsely and maliciously made him believe that he had

authority under the power-of-attorney from his father to

sell the half interest in the San Nicolas, and that he did

so. That Angel L. Manzano had no authority to sell the

interest in the steamer, but that since the date of said

sale, July, 1912, (1911?) the plaintiff had illegally

appropriated all rents and profits of the boat to his own

use, which amount to P30,000 per year, after paying for

all repairs, etc., and they ask the court to absolve them

from the complaint, to declare them the owners of one-

half of the steamer San Nicolas, and to order the

plaintiffs to render a detailed account of all the profits

received from the San Nicolas, and to order one-half of

the profits paid to the defendants.

There are other immaterial questions presented by the

counterclaim.

The trial court held there was not legal mortgage and

gave judgment for the plaintiff against Josefa Samson

only, for the amount admitted by her letter to be due,

i.e., P12,752.85, and dismissed the claim against the

other defendants and also dismissed the counterclaim of

defendants. The plaintiffs did not appeal. All of the

defendants presented a motion for a new trial, but only

the defendant Josefa de Manzano excepted to the order

of the court denying the motion for new trial, and she

sets up the following assignments of error in the

decision giving judgment against her individually. (The

alleged errors of the trial court regarding the

counterclaim are set out later.)

1. The court exceeded its jurisdiction in

deciding a question and granting a relief not

comprised within the pleadings and contentions

of the parties.

2. The trial court acted without jurisdiction on

judging and holding that there was a novation of

the debt.

3. The trial court erred in an essential mater in

holding that there was a novation of the debt.

The argument presented in support of the first error

assigned is that the action was against the administratrix

of the estate and not against the heirs individually.

What are the facts? The original action was presented

against Josefa de Manzano as administratrix of her

deceased husband, Narciso L. Manzano, on May 15,

1915. The defendant's attorneys on the 6th of August

filed a pleading stating that the estate had been

distributed by the court on the 27th of July, and giving

the names of the heirs and stating that some are minors

for whom the mother "is the guardian" and agreeing

that she be named guardian ad litem for the minors

which was done by the court's order dated the 4th of

September, and she took the oath prescribed by law for

such guardian.

On the 25th of August the same attorneys filed another

pleading saying the time stipulated by the parties in

open court for filing an amended complaint had passed,

that the complaint had not been presented and

"Wherefore they respectfully request the Honorable

Court that, in place of the defendant-administratrix, the

heirs of the late Narciso L. Manzano, whose names are

Josefa Samson de Manzano, widow, Paz Manzano,

Matilde Manzano, Soledad Manzano, Carmelo

Manzano, Narciso Manzano, and Jose Manzano, be

considered defendants in this case," — The first two of

legal age and the others minors, and they pray that

Josefa Samson be named guardian ad litem for the

minors, which the court did. The plaintiff's amended

complaint making all the above heirs and Angel L.

Manzano defendants by name had been filed in the

clerk's office the day before but it is assumed the

defendants were not then aware of the fact.

The defendants filed their answer on September 4th

1915, which is headed "Josefa de Manzano y Otros,

demandados." The court's judgment is against them

individually.

It is difficult to conceive what more defendants could

want in order to make them individually defendants, or

what effect they intended their pleadings to have if they

were not to be considered as defendants. The only thing

that might be considered as lacking is an order of the

court admitting the amended complaint, but his

admission was supplied by the facts of defendants

themselves. All the parties were before the court

individually and the court could only give judgment

against them individually if they were obligated

individually.

When the whole record shows that the trial proceeded

on the theory set up in an amended complaint this court

will not inquire as to whether the court actually entered

an order admitting the amended complaint. There is no

error in this part of the decision.

The other two errors assigned will be considered

together.

The nature of the action having been changed from one

against the administratrix to one against the heirs

individually, the action against the other heirs was

dismissed and judgment was given by the Court against

Josefa Samson de Manzano individually, basing its

decision on the following letter:

September 10, 1913.

Mr. Juan Garcia.

Manila, Philippine Islands.

Dear Sir: In reply to your favor which I have

received together with a copy of my current

account kept in your city, showing a balance of

P12,752.852, I have to state that I find the same

entirely satisfactory.

I hope to be able to remit a part of the sum

during the month of October.

I remain,

Yours respectfully.

(Sgd.) JOSEFA DE MANZANO.

This letter was written two days after the death of

Narciso L. Manzano. Is it a novation of the obligation

of her husband?

Article 1205 of the Civil Code reads as follows:

Novation which consists in the substitution of a

new debtor in the place of the original one may

be made without the knowledge of the later, but

not without the consent of the creditor.

If the creditor Garcia had consented to the substitution

of debtors in this case, he would not have presented his

original action against the administratrix of Narciso L.

Manzano and later against all the heirs, but against

Josefa de Manzano only.

As much as justice may plead for it, we can see nothing

in the letter which would made appellant personally

liable.

There is no denial that the debt is a justice one against

the estate. The judgment is based on the letter which

was not intended by the writer to make her personally

liable, and was not considered by the plaintiff to make

her personally responsible. There was not novation of

the obligation and the part of the judgment holding her

liable must be reversed.

The defendants set up the following assignment of

errors as to their counterclaim against plaintiffs:

1. The trial court erred in holding that the power

of attorney executed in favor of Angel L.

Manzano was not revoked, at least in so far as it

might concern the plaintiff Juan Garcia Palicio.

2. The court below erred in holding that the

power of attorney executed by Narciso L.

Manzano in favor of Angel L. Manzano

authorized the latter to alienate the vessel San

Nicolas.

3. The trial court erred in holding that the sale of

the vessel San Nicolas was approved by Narciso

L. Manzano.

4. The trial court erred in holding that Angel L.

Manzano, in executing the sale, did not do so

under the pressure of undue influences.

As to the first two alleged errors the defendants argue

that the power-of-attorney to the wife revoked the one

to the son, in accordance with article 1735 of the Civil

code, and that even if not revoked the power-of-

attorney did not authorize the sale of the boat by Angel

L. Manzano. Article 1735 of the Civil code is as

follows:

The appointment of a new agent for the same

business produces a revocation of the previous

agency from the day on which notice was given

to the former agent, excepting the provisions of

the next preceding article.

There is no proof in the record that the first agent, the

son, knew of the power-of-attorney to his mother.

It was necessary under the law for the defendants, in

order to establish their counterclaim, to prove that the

son had notice of the second power-of-attorney. They

have not done so, and it must be considered that Angel

L. Manzano was acting under a valid power-of-attorney

from his father which had not been legally revoked on

the date of the sale of the half interest in the steamer to

the plaintiff's son, which half interest was legally

inherited by the plaintiffs.

The defendant's next argument is that the power-of-

attorney, if valid, does not authorize the sale of the half

interest in the boat to the plaintiff.

There is no pretense that the boat was not sold for a fair

price, there is no denial that the value was received in

full, but he defendants allege that the power-of-attorney

under which Angel L. Manzano acted, even if a valid

power, did not authorize the sale of the boat, and they

want it back it with one-half of the profits derived from

its use by the plaintiff.

The document under which Angel L. Manzano sold the

boat reads in part as follows:

To enable him to buy or sell, absolutely or under

pacto de retro, any of the rural or urban estates

that now own and may acquire in the future, at

such price as he may deem most advantageous,

which he shall collect in cash or by installments

and under such conditions as he may consider

proper, and he shall set forth the encumbrances

on the properties and their origin. I bind myself

to warrant and defend, in accordance with law,

the titles to such properties; and if the properties

alienated by this agreement should be redeemed,

he is empowered to redeem them by paying the

price that may have been fixed, and, for this

purpose, shall execute the proper instrument.

The power-of-attorney authorizes the sale of real

property, the buying of real property and mortgaging

the same the borrowing of money and in fact is general

and complete.

The power does not expressly state that the agent may

sell the boat, but a power so full and complete

authoring the sale of real property, must necessarily

carry with it the right to sell a half interest in a small

boat. The record further shows the sale was necessary

in order to get money or a credit without which it would

be impossible to continue the business which was being

conducted in the name of Narciso L. Manzano and for

his benefit.

We consider that the authorization is so complete that it

carries with it full authority to sell the one-half interest

in the boat which was then owned by Narciso L.

Manzano.

The last assignment of error is not supported by any

reasonable evidence in the record.

That part of the judgement ordering the defendant

Josefa Samson de Manzano to pay the plaintiff

P12,752.85 is revoked, and the judgment in so far as it

dismisses the counterclaim of the defendants is

affirmed, without any declaration of costs. So ordered.

Arellano, C.J., Carson, Street and Avanceña, JJ.,

concur.

Johnson, J., took no part.

Separate Opinions

TORRES, J., dissenting:

The undersigned, regretting not to be entirely in accord

with the majority opinion, with the due respect thereto,

is of the opinion that the defendant Josefa Samson,

widow of the late Narciso Lopez Manzano, should be

obliged to pay one-half of the sum stated in her letter of

September 10, 1913, with interest at the rate of 6 per

cent per annum from January 10, 1917, the date on

which the amended complaint was filed.

It is contended that the conjugal partnership property is

directly liable for the payment of the debts of such

partnerships and that in order to determine what this

property is, in case of the death of one of the spouses, it

is indispensable that a liquidation be made of the

property that may have been left by the deceased

husband or wife, for the purpose of classifying and

separating in the estate the private property of each

spouse and such property as partakes of the nature of

community property.

The record shows that, not only was the liquidation

made, but also that the partition of the estate left by

Narciso Lopez Manzano at his death, had already been

effected, so that it appears duly determined what

property as community property would have pertained

to the widow, Josefa Samson; and, as it is a proven fact,

and one not discussed, that, on the death of the husband

Manzano, the dissolved conjugal partnership was in

debt to the plaintiff in the sum of P12, 752.85. Under

this premise it is unquestionable that the window

Samson, the surviving member of that partnership,

should be obliged to pay one-half of this sum, that is

P6,376.425, for it would not be right for her to enrich

herself by keeping possession of this amount, to the

prejudice of the plaintiff creditor.

Although, on the death of the husband, the property of

the conjugal partnership was in a mass and pro indiviso,

after the liquidation and partition of this property had

been made, the widow, a member of the dissolved

partnership, received her share of the community

property, and it would not be just that, for the collection

of one-half of the debt, for which she is liable, the

creditor should be force to subject himself to and

observe the proceedings prescribed for the collection of

the amount owing him, from the testate or intestate

estate of the deceased debtor.

We abstain in this opinion from an examination of the

right which the plaintiff creditor may have had to

collect the debt owing him from the estate of the

deceased debtor, and we restrict our opinion solely to

the debt which the defendant Josefa Samson, on her

part, had the obligation to pay, not in her capacity of

administratrix, but in that of widow member of the

partnership, the property of which is directly liable for

the debts contracted by her; and if the defendant

Samson, as lawful owner of one-half of the community

property, was entitled to receive it, and in fact did

receive it, nothing could be more just than that she

should, in turn, be compelled to pay, out of the property

she received, the one-half of the debts for which part

thereof she is liable.

The defendant Josefa Samson should, therefore, be

ordered to pay the aforesaid sum of P6,376.425, with

interest thereon at the rate of 6 per cent per annum from

January 10, 1917. That part of the judgment whereby

this defendant is ordered to pay the other one-half of the

sum mentioned therein, should be reversed, and the

dismissed of the counterclaim should be affirmed,

without special finding as to costs.

SO ORDERED

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-41420 July 10, 1992 CMS LOGGING, INC., petitioner,

vs. THE COURT OF APPEALS and D.R.

AGUINALDO CORPORATION, respondents. NOCON, J.: This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity) against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00 and the costs. The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging business, while private respondent DRACOR is engaged in the business of exporting and selling logs and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency 1 whereby the former appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a period of five (5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, 2 are as follows:

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority, subject to the conditions and limitations hereinafter set forth, to sell and export under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of five (5) years commencing upon the execution of the agreement and upon the terms and conditions hereinafter provided and DRACOR hereby accepts such appointment; xxx xxx xxx 3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISON with the buyers and arrange the procurement and schedules of the vessel or vessels for the shipment of SISON's logs in accordance with SISON's written requests, but DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the vessel or vessels to comply with the schedules agreed upon; xxx xxx xxx

9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent commission of the gross sales of logs of SISON based on F.O.B. invoice value which commission shall be deducted from the proceeds of any and/or all moneys received by DRACOR for and in behalf and for the account of SISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from September 20, 1957 to April 4, 1962. About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement, Shinko was able to collect a total of U.S. $77,264.67. 3

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered. After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of DRACOR. CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had retained the sum of P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the balance of its commission on the sales made by CMS was P42,630.82, 6 thus impliedly admitting that it retained the amount alleged by CMS. In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko received the commission of U.S.

$77,264.67 arising from the sale of CMS's logs in Japan, though the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7

The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals. The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trial court could not have made a categorical finding that Shinko collected commissions from the buyers of Sison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the amount collected by Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence its claims." 10

Moreover, the appellate court held: There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-appellee out of its own commission of 5%, as indicated in the letter of its president to the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter: . . . , I informed you that if you wanted to pay me for the service, then it would be no more than at the standard rate of 5% commission because in our own case, we pay our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 2-1/2% for the service which we would render you in the Philippines.

11

Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. Teodoro R. Dominguez, regarding the admission by Shinko's president and director that it collected a commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission

arising from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS. With regard to CMS's arguments concerning whether or not Shinko received the commission in question, We find the same unmeritorious. To begin with, these arguments question the findings of fact made by the Court of Appeals, which are final and conclusive and can not be reviewed on appeal to the Supreme Court. 12

Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agent or liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive the amount of U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms. The fact that Shinko received the commissions in question was not established by the testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented to testify on his letter. CMS's other evidence have little or no probative value at all. The statements made in the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of Daniel R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as admissions that Shinko did receive the commissions in question. The alleged admission made by Atty. Ciocon, to wit —

Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which should enable Shinko to collect a commission of US $67,747.73 only

can not be considered as such since the statement was made in the context of questioning CMS's tally of logs delivered to various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, to wit —

. . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that they paid Shinko for certain services which Shinko must have satisfactorily

performed for them in Japan otherwise they would not have paid Shinko

and that of Atty. V. E. Del Rosario, . . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself with, much less question, the right of Shinko Trading Co., Ltd. with which our client debt directly, to whatever benefits it might have derived form the ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears to be no justification for your client's contention that these benefits, whether they can be considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales.

can not be considered admissions that Shinko received the questioned commissions since neither statements declared categorically that Shinko did in fact receive the commissions and that these arose from the sale of CMS's logs.

As correctly stated by the appellate court: It is a rule that "a statement is not competent as an admission where it does not, under a reasonable construction, appear to admit or acknowledge the fact which is sought to be proved by it". An admission or declaration to be competent must have been expressed in definite, certain and unequivocal language (Bank of the Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64).

18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the letter dated March 5, 1963 of F.A. Novenario, 19 which stated:

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D. R. Aguinaldo, who is at present out of the country. xxx xxx xxx We have no record or knowledge of any such payment of commission made by Toyo Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in your letter, we knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of $77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMS itself, Exhibits "M" and "M-1". Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the

sale. This is therefore not part of the gross sales of CMS's logs. However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was entitled to its commission from the sales made by CMS to Japanese firms. The principal may revoke a contract of agency at will, and such revocation may be express, or implied, 20 and may be availed of even if the period fixed in the contract of agency as not yet expired. 21 As the principal has this absolute right to revoke the agency, the agent can not object thereto; neither may he claim damages arising from such revocation, 22

unless it is shown that such was done in order to evade the payment of agent's commission. 23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several Japanese firms. This act constituted an implied revocation of the contract of agency under Article 1924 of the Civil Code, which provides:

Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act of a contractor, who, after executing powers of attorney in favor of another empowering the latter to collect whatever amounts may be due to him from the Government, and thereafter demanded and collected from the government the money the collection of which he entrusted to his attorney-in-fact, constituted revocation of the agency in favor of the attorney-in-fact. Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale and is not entitled to retain whatever moneys it may have received as its commission for said transactions. Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to the agent for the revocation of the agency, and the case at bar is not one falling under the exception mentioned, which is to evade the payment of the agent's commission. Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention involving

Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were based on its appreciation of the evidence, and these findings are binding on this Court. In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the amount of P101,536.77. WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph. Costs de officio. SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-40681 October 2, 1934 DY BUNCIO & COMPANY, INC., plaintiff-appelle,

vs.

ONG GUAN CAN, ET AL., defendants.

JUAN TONG and PUA GIOK ENG, appellants.

Pedro Escolin for appellants.

G. Viola Fernando for appellee.

HULL, J.: This is a suit over a rice mill and camarin

situated at Dao, Province of Capiz. Plaintiff claims that

the property belongs to its judgment debtor, Ong Guan

Can, while defendants Juan Tong and Pua Giok Eng

claim as owner and lessee of the owner by virtue of a

deed dated July 31, 1931, by Ong Guan Can, Jr.

After trial the Court of First Instance of Capiz

held that the deed was invalid and that the property was

subject to the execution which has been levied on said

properties by the judgment creditor of the owner.

Defendants Juan Tong and Pua Giok bring this appeal

and insist that the deed of the 31st of July, 1931, is

valid.

The first recital of the deed is that Ong Guan

Can, Jr., as agent of Ong Guan Can, the proprietor of

the commercial firm of Ong Guan Can & Sons, sells the

rice-mill and camarin for P13,000 and gives as his

authority the power of attorney dated the 23d of May,

1928, a copy of this public instrument being attached to

the deed and recorded with the deed in the office of the

register of deeds of Capiz. The receipt of the money

acknowledged in the deed was to the agent, and the

deed was signed by the agent in his own name and

without any words indicating that he was signing it for

the principal.

Leaving aside the irregularities of the deed and

coming to the power of attorney referred to in the deed

and registered therewith, it is at once seen that it is not a

general power of attorney but a limited one and does

not give the express power to alienate the properties in

question. (Article 1713 of the Civil Code.)

Appellants claim that this defect is cured by

Exhibit 1, which purports to be a general power of

attorney given to the same agent in 1920. Article 1732

of the Civil Code is silent over the partial termination of

an agency. The making and accepting of a new power

of attorney, whether it enlarges or decreases the power

of the agent under a prior power of attorney, must be

held to supplant and revoke the latter when the two are

inconsistent. If the new appointment with limited

powers does not revoke the general power of attorney,

the execution of the second power of attorney would be

a mere futile gesture.lawphi1.net

The title of Ong Guan Can not having been

divested by the so-called deed of July 31, 1931, his

properties are subject to attachment and execution.

The judgment appealed from is therefore

affirmed. Costs against appellants. So ordered.

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 156015. August 11, 2005

REPUBLIC OF THE PHILIPPINES, represented

by LT. GEN. JOSE M. CALIMLIM, in his capacity

as former Chief of the Intelligence Service, Armed

Forces of the Philippines (ISAFP), and former

Commanding General, Presidential Security Group

(PSG), and MAJ. DAVID B. DICIANO, in his

capacity as an Officer of ISAFP and former member

of the PSG, Petitioners,

vs.

HON. VICTORINO EVANGELISTA, in his

capacity as Presiding Judge, Regional Trial Court,

Branch 223, Quezon City, and DANTE LEGASPI,

represented by his attorney-in-fact, Paul Gutierrez, Respondent.

D E C I S I O N

PUNO, J.:

The case at bar stems from a complaint for damages,

with prayer for the issuance of a writ of preliminary

injunction, filed by private respondent Dante Legaspi,

through his attorney-in-fact Paul Gutierrez, against

petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and

Maj. David Diciano before the Regional Trial Court

(RTC) of Quezon City.1

The Complaint alleged that private respondent Legaspi

is the owner of a land located in Bigte, Norzagaray,

Bulacan. In November 1999, petitioner Calimlim,

representing the Republic of the Philippines, and as

then head of the Intelligence Service of the Armed

Forces of the Philippines and the Presidential Security

Group, entered into a Memorandum of Agreement

(MOA) with one Ciriaco Reyes. The MOA granted

Reyes a permit to hunt for treasure in a land in Bigte,

Norzagaray, Bulacan. Petitioner Diciano signed the

MOA as a witness.2 It was further alleged that

thereafter, Reyes, together with petitioners, started,

digging, tunneling and blasting works on the said land

of Legaspi. The complaint also alleged that petitioner

Calimlim assigned about 80 military personnel to guard

the area and encamp thereon to intimidate Legaspi and

other occupants of the area from going near the subject

land.

On February 15, 2000, Legaspi executed a special

power of attorney (SPA) appointing his nephew, private

respondent Gutierrez, as his attorney-in-fact. Gutierrez

was given the power to deal with the treasure hunting

activities on Legaspi‘s land and to file charges against

those who may enter it without the latter‘s authority.3

Legaspi agreed to give Gutierrez 40% of the treasure

that may be found in the land.

On February 29, 2000, Gutierrez filed a case for

damages and injunction against petitioners for illegally

entering Legaspi‘s land. He hired the legal services of

Atty. Homobono Adaza. Their contract provided that as

legal fees, Atty. Adaza shall be entitled to 30% of

Legaspi‘s share in whatever treasure may be found in

the land. In addition, Gutierrez agreed to pay Atty.

Adaza P5,000.00 as appearance fee per court hearing

and defray all expenses for the cost of the litigation.4

Upon the filing of the complaint, then Executive Judge

Perlita J. Tria Tirona issued a 72-hour temporary

restraining order (TRO) against petitioners.

The case5 was subsequently raffled to the RTC of

Quezon City, Branch 223, then presided by public

respondent Judge Victorino P. Evangelista. On March

2, 2000, respondent judge issued another 72-hour TRO

and a summary hearing for its extension was set on

March 7, 2000.

On March 14, 2000, petitioners filed a Motion to

Dismiss6 contending: first, there is no real party-in-

interest as the SPA of Gutierrez to bring the suit was

already revoked by Legaspi on March 7, 2000, as

evidenced by a Deed of Revocation,7 and, second,

Gutierrez failed to establish that the alleged armed men

guarding the area were acting on orders of petitioners.

On March 17, 2000, petitioners also filed a Motion for

Inhibition8 of the respondent judge on the ground of

alleged partiality in favor of private respondent.

On March 23, 2000, the trial court granted private

respondent‘s application for a writ of preliminary

injunction on the following grounds: (1) the diggings

and blastings appear to have been made on the land of

Legaspi, hence, there is an urgent need to maintain the

status quo to prevent serious damage to Legaspi‘s land;

and, (2) the SPA granted to Gutierrez continues to be

valid.9 The trial court ordered thus:

WHEREFORE, in view of all the foregoing, the Court

hereby resolves to GRANT plaintiff‘s application for a

writ of preliminary injunction. Upon plaintiff‘s filing of

an injunction bond in the amount of ONE HUNDRED

THOUSAND PESOS (P100,000.00), let a Writ of

Preliminary Injunction issue enjoining the defendants as

well as their associates, agents or representatives from

continuing to occupy and encamp on the land of the

plaintiff LEGASPI as well as the vicinity thereof; from

digging, tunneling and blasting the said land of plaintiff

LEGASPI; from removing whatever treasure may be

found on the said land; from preventing and threatening

the plaintiffs and their representatives from entering the

said land and performing acts of ownership; from

threatening the plaintiffs and their representatives as

well as plaintiffs‘ lawyer.

On even date, the trial court issued another Order10

denying petitioners‘ motion to dismiss and requiring

petitioners to answer the complaint. On April 4, 2000, it

likewise denied petitioners‘ motion for inhibition.11

On appeal, the Court of Appeals affirmed the decision

of the trial court.12

Hence this petition, with the following assigned errors:

I

WHETHER THE CONTRACT OF AGENCY

BETWEEN LEGASPI AND PRIVATE

RESPONDENT GUTIERREZ HAS BEEN

EFFECTIVELY REVOKED BY LEGASPI.

II

WHETHER THE COMPLAINT AGAINST

PETITIONERS SHOULD BE DISMISSED.

III

WHETHER RESPONDENT JUDGE OUGHT TO

HAVE INHIBITED HIMSELF FROM FURTHER

PROCEEDING WITH THE CASE.

We find no merit in the petition.

On the first issue, petitioners claim that the special

power of attorney of Gutierrez to represent Legaspi has

already been revoked by the latter. Private respondent

Gutierrez, however, contends that the unilateral

revocation is invalid as his agency is coupled with

interest.

We agree with private respondent.

Art. 1868 of the Civil Code provides that by the

contract of agency, an agent binds himself to render

some service or do something in representation or on

behalf of another, known as the principal, with the

consent or authority of the latter.13

A contract of agency is generally revocable as it is a

personal contract of representation based on trust and

confidence reposed by the principal on his agent. As the

power of the agent to act depends on the will and

license of the principal he represents, the power of the

agent ceases when the will or permission is withdrawn

by the principal. Thus, generally, the agency may be

revoked by the principal at will.14

However, an exception to the revocability of a contract

of agency is when it is coupled with interest, i.e., if a

bilateral contract depends upon the agency.15

The

reason for its irrevocability is because the agency

becomes part of another obligation or agreement. It is

not solely the rights of the principal but also that of the

agent and third persons which are affected. Hence, the

law provides that in such cases, the agency cannot be

revoked at the sole will of the principal.

In the case at bar, we agree with the finding of the trial

and appellate courts that the agency granted by Legaspi

to Gutierrez is coupled with interest as a bilateral

contract depends on it. It is clear from the records that

Gutierrez was given by Legaspi, inter alia, the power

to manage the treasure hunting activities in the

subject land; to file any case against anyone who

enters the land without authority from Legaspi; to

engage the services of lawyers to carry out the

agency; and, to dig for any treasure within the land

and enter into agreements relative thereto. It was

likewise agreed upon that Gutierrez shall be entitled

to 40% of whatever treasure may be found in the

land. Pursuant to this authority and to protect Legaspi‘s

land from the alleged illegal entry of petitioners, agent

Gutierrez hired the services of Atty. Adaza to prosecute

the case for damages and injunction against petitioners.

As payment for legal services, Gutierrez agreed to

assign to Atty. Adaza 30% of Legaspi’s share in

whatever treasure may be recovered in the subject

land. It is clear that the treasure that may be found in

the land is the subject matter of the agency; that under

the SPA, Gutierrez can enter into contract for the legal

services of Atty. Adaza; and, thus Gutierrez and Atty.

Adaza have an interest in the subject matter of the

agency, i.e., in the treasures that may be found in the

land. This bilateral contract depends on the agency and

thus renders it as one coupled with interest, irrevocable

at the sole will of the principal Legaspi.16

When an

agency is constituted as a clause in a bilateral contract,

that is, when the agency is inserted in another

agreement, the agency ceases to be revocable at the

pleasure of the principal as the agency shall now follow

the condition of the bilateral agreement.17

Consequently, the Deed of Revocation executed by

Legaspi has no effect. The authority of Gutierrez to file

and continue with the prosecution of the case at bar is

unaffected.

On the second issue, we hold that the issuance of the

writ of preliminary injunction is justified. A writ of

preliminary injunction is an ancilliary or preventive

remedy that is resorted to by a litigant to protect or

preserve his rights or interests and for no other purpose

during the pendency of the principal action.18

It is

issued by the court to prevent threatened or continuous

irremediable injury to the applicant before his claim can

be thoroughly studied and adjudicated.19

Its aim is to

preserve the status quo ante until the merits of the case

can be heard fully, upon the applicant‘s showing of two

important conditions, viz.: (1) the right to be protected

prima facie exists; and, (2) the acts sought to be

enjoined are violative of that right.20

Section 3, Rule 58 of the 1997 Rules of Civil Procedure

provides that a writ of preliminary injunction may be

issued when it is established:

(a) that the applicant is entitled to the relief demanded,

the whole or part of such relief consists in restraining

the commission or continuance of the act or acts

complained of, or in requiring the performance of an act

or acts, either for a limited period or perpetually;

(b) that the commission, continuance or non-

performance of the act or acts complained of during the

litigation would probably work injustice to the

applicant; or

(c) that a party, court, agency or a person is doing,

threatening, or is attempting to do, or is procuring or

suffering to be done, some act or acts probably in

violation of the rights of the applicant respecting the

subject of the action or proceeding, and tending to

render the judgment ineffectual.

It is crystal clear that at the hearing for the issuance of a

writ of preliminary injunction, mere prima facie

evidence is needed to establish the applicant‘s rights or

interests in the subject matter of the main action.21

It is

not required that the applicant should conclusively

show that there was a violation of his rights as this issue

will still be fully litigated in the main case.22

Thus, an

applicant for a writ is required only to show that he

has an ostensible right to the final relief prayed for

in his complaint. 23

In the case at bar, we find that respondent judge had

sufficient basis to issue the writ of preliminary

injunction. It was established, prima facie, that

Legaspi has a right to peaceful possession of his

land, pendente lite. Legaspi had title to the subject

land. It was likewise established that the diggings were

conducted by petitioners in the enclosed area of

Legaspi‘s land. Whether the land fenced by

Gutierrez and claimed to be included in the land of

Legaspi covered an area beyond that which is

included in the title of Legaspi is a factual issue still

subject to litigation and proof by the parties in the

main case for damages. It was necessary for the trial

court to issue the writ of preliminary injunction during

the pendency of the main case in order to preserve the

rights and interests of private respondents Legaspi and

Gutierrez.

On the third issue, petitioners charge that the

respondent judge lacked the neutrality of an impartial

judge. They fault the respondent judge for not giving

credence to the testimony of their surveyor that the

diggings were conducted outside the land of Legaspi.

They also claim that respondent judge‘s rulings on

objections raised by the parties were biased against

them.

We have carefully examined the records and we find no

sufficient basis to hold that respondent judge should

have recused himself from hearing the case. There is no

discernible pattern of bias on the rulings of the

respondent judge. Bias and partiality can never be

presumed. Bare allegations of partiality will not suffice

in an absence of a clear showing that will overcome the

presumption that the judge dispensed justice without

fear or favor.24

It bears to stress again that a judge‘s

appreciation or misappreciation of the sufficiency of

evidence adduced by the parties, or the correctness of a

judge‘s orders or rulings on the objections of counsels

during the hearing, without proof of malice on the part

of respondent judge, is not sufficient to show bias or

partiality. As we held in the case of Webb vs. People,25

the adverse and erroneous rulings of a judge on the

various motions of a party do not sufficiently prove bias

and prejudice to disqualify him. To be disqualifying, it

must be shown that the bias and prejudice stemmed

from an extrajudicial source and result in an opinion on

the merits on some basis other than what the judge

learned from his participation in the case. Opinions

formed in the course of judicial proceedings, although

erroneous, as long as based on the evidence adduced,

do not prove bias or prejudice. We also emphasized that

repeated rulings against a litigant, no matter how

erroneously, vigorously and consistently expressed, do

not amount to bias and prejudice which can be a bases

for the disqualification of a judge.

Finally, the inhibition of respondent judge in hearing

the case for damages has become moot and academic in

view of the latter‘s death during the pendency of the

case. The main case for damages shall now be heard

and tried before another judge.

IN VIEW WHEREOF, the impugned Orders of the

trial court in Civil Case No. Q-00-40115, dated March

23 and April 4, 2000, are AFFIRMED. The presiding

judge of the Regional Trial Court of Quezon City to

whom Civil Case No. Q-00-40115 was assigned is

directed to proceed with dispatch in hearing the main

case for damages. No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-41182-3 April 16, 1988 DR. CARLOS L. SEVILLA and LINA O.

SEVILLA, petitioners-appellants, vs.

THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and

SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.: The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc. On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to

comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice. The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim. On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors: I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT. II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE. III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER. IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS. V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita; 2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and 3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant. In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965). 2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964). 3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having

no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.). 4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.) 5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965). 6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager.

1

xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the

petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance. The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state: I THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW. II THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) III THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS. IV THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7

Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8

in reference to the padlocking now questioned. The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we

have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment. In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13

Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities. It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes. The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators. In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she

expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name. It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership.. But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the

revocation complained of should entitle the petitioner, Lina Sevilla, to damages. As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20

Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor. The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper. The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her. It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,

personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein. This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play. We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

24 ART. 2219. Moral damages

25 may be

recovered in the following and analogous cases: xxx xxx xxx (10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity. Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor. The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25

and P5,000.00 as nominal

26 and/or temperate 27

damages, to be just, fair, and reasonable under the circumstances. WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages. Costs against said private respondents. SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 83122 October 19, 1990 ARTURO P. VALENZUELA and HOSPITALITA

N. VALENZUELA, petitioners, vs.

THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E.

PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL

INSURANCE COMPANY, INC., respondents. Albino B. Achas for petitioners.

Angara, Abello, Concepcion, Regala & Cruz for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988 resolution denying the petitioners' motion for reconsideration, which decision and resolution reversed the decision dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No. 121126 upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against private respondents. The antecedent facts of the case are as follows: Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine American General Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million from which he was entitled to a commission of 32% (Exhibit "B"). However, Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4 Million insurance coverage of the Delta Motors. During the period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid directly to Philamgen and Valenzuela's commission to which he is entitled amounted to P632,737.00. In 1977, Philamgen started to become interested in and expressed its intent to share in the

commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D"). On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated June 1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It is with great reluctance that I have to decline upon request to signify my conformity to your alternative proposal regarding the payment of the commission due me. However, I have no choice for to do otherwise would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1) Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the commission due him by not crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency transactions on a cash and carry basis; (c) threatened the cancellation of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a substantial account with Philamgen. All of these acts resulted in the decline of his business as insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition). The petitioners sought relief by filing the complaint against the private respondents in the court a quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:

xxx xxx xxx Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent by making it appear that plaintiff Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN particularly Delta Motors, Inc.'s Account, thereby prejudicing defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A"). Defendants also invoked the provisions of the Civil Code of the Philippines (Article 1868) and the provisions of the General Agency Agreement as their basis for terminating plaintiff Arturo P. Valenzuela as one of their General Agents.

That defendants' position could have been justified had the termination of plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil Code and the conditions of the General Agency Agreement. But the records will show that the principal cause of the termination of the plaintiff as General Agent of defendant PHILAMGEN was his refusal to share his Delta commission. That it should be noted that there were several attempts made by defendant Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with defendant PHILAMGEN. Not only that, defendants have also started (a) to treat separately the Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission due plaintiff Arturo P. Valenzuela by not crediting or applying said commission earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and carry basis", (d) sending threats to cancel existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other agencies, and (f) to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has substantial account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, Petition). xxx xxx xxx These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to force him to agree to the sharing of his Delta commission, which culminated in the termination of plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent, do not justify said termination of the General Agency Agreement entered into by defendant PHILAMGEN and plaintiff Arturo P. Valenzuela. That since defendants are not justified in the termination of plaintiff Arturo P. Valenzuela as one of their General Agents, defendants shall be liable for the resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)

The court accordingly rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General

Agent, and to pay plaintiffs, jointly and severally, the following: 1. The amount of five hundred twenty-one thousand nine hundred sixty four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta Commission with interest at the legal rate from the time of the filing of the complaint, which amount shall be adjusted in accordance with Article 1250 of the Civil Code of the Philippines; 2. The amount of seventy-five thousand pesos (P75,000.00) per month as compensatory damages from 1980 until such time that defendant Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general agents; 3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff as moral damages; 4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's fees; 5. Costs of the suit. (Ibid., P. 12) From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and defendants-appellants below, interposed an appeal on the following: ASSIGNMENT OF ERRORS I THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY. II THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE DELTA ACCOUNT. III THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES AND COSTS. IV ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY. V ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF PLAINTIFF ARTURO P. VALENZUELA

WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.

On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby modified accordingly and judgment is hereby rendered ordering: 1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of one million nine hundred thirty two thousand five hundred thirty-two pesos and seventeen centavos (P1,902,532.17), with legal interest thereon from the date of finality of this judgment until fully paid. 2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum of fifty thousand pesos (P50,000.00) as and by way of attorney's fees. No pronouncement is made as to costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-a-vis those of the trial court particularly on the pivotal issue whether or not Philamgen and/or its officers can be held liable for damages due to the termination of the General Agency Agreement it entered into with the petitioners. In its questioned decision the Court of Appeals observed that:

In any event the principal's power to revoke an agency at will is so pervasive, that the Supreme Court has consistently held that termination may be effected even if the principal acts in bad faith, subject only to the principal's liability for damages (Danon v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986] 696). The lower court, however, thought the termination of Valenzuela as General Agent improper because the record will show the principal cause of the termination of the plaintiff as General Agent of defendant Philamgen was his refusal to share his Delta commission. (Decision, p. 9; p. 13, Rollo, 41)

Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice to scrutinize the evidence and records of the cases. While it is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however certain exceptions to the rule which this Court has recognized and accepted, among which, are when the judgment is

based on a misapprehension of facts and when the findings of the appellate court, are contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each other, this Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when the inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse of discretion, or when the judgment is based on a misapprehension of facts, and when the findings of facts are conflict the exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]). After a painstaking review of the entire records of the case and the findings of facts of both the court a quo and respondent appellate court, we are constrained to affirm the trial court's findings and rule for the petitioners. We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of Philamgen arose from his refusal to share his Delta commission. The records sustain the conclusions of the trial court on the apparent bad faith of the private respondents in terminating the General Agency Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and cogent reasons, because the trial court is in a better position to examine the evidence as well as to observe the demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the findings and conclusions of the trial court are supported by substantial evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]). As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta Commission with them. It stated that should Delta back out from the agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta.

On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction scheme followed on June 1, 1978 by still another insistence on reducing commissions and proposing two alternative schemes for reduction. There were other pressures. Demands to settle accounts, to confer and thresh out differences regarding the petitioners' income and the threat to terminate the agency followed. The petitioners were told that the Delta commissions would not be credited to their account (Exhibit "J"). They were informed that the Valenzuela agency would be placed on a cash and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened with diversion to other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency (TSN., January 25, 1980, p. 41). The petitioners consistently opposed the pressures to hand over the agency or half of their commissions and for a treatment of the Delta account distinct from other accounts. The pressures and demands, however, continued until the agency agreement itself was finally terminated. It is also evident from the records that the agency involving petitioner and private respondent is one "coupled with an interest," and, therefore, should not be freely revocable at the unilateral will of the latter. In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination, time and money. In the case of Valenzuela, he was able to build up an Agency from scratch in 1965 to a highly productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per annum. The records sustain the finding that the private respondent started to covet a share of the insurance business that Valenzuela had built up, developed and nurtured to profitability through over thirteen (13) years of patient work and perseverance. When Valenzuela refused to

share his commission in the Delta account, the boom suddenly fell on him. The private respondents by the simple expedient of terminating the General Agency Agreement appropriated the entire insurance business of Valenzuela. With the termination of the General Agency Agreement, Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced from his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela jointly and severally liable with the insured for unpaid premiums. Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not only because of the commissions he should continue to receive from the insurance business he has solicited and procured but also for the fact that by the very acts of the respondents, he was made liable to Philamgen in the event the insured fail to pay the premiums due. They are estopped by their own positive averments and claims for damages. Therefore, the respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability" (See MEC 569 p. 406). Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the principal but for the interest of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be freely revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations are apropos:

The principal may not defeat the agent's right to indemnification by a termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32 ALR 196). Where the principal terminates or repudiates the agent's employment in violation of the contract of employment and without cause ... the agent is entitled to receive either the amount of net losses caused and gains prevented by the breach, or the reasonable value of the services rendered. Thus, the agent is entitled to prospective profits which he would have made except for such wrongful termination provided that such

profits are not conjectural, or speculative but are capable of determination upon some fairly reliable basis. And a principal's revocation of the agency agreement made to avoid payment of compensation for a result which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2 NY] 273 F 2d 340) If a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for the breach of that duty. The agent may in a proper case maintain an action at law for compensation or damages ... A wrongfully discharged agent has a right of action for damages and in such action the measure and element of damages are controlled generally by the rules governing any other action for the employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)

At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the petitioners' cause but is not the primary and compelling reason. For the pivotal factor rendering Philamgen and the other private respondents liable in damages is that the termination by them of the General Agency Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another in a manner contrary to morals, good customs and public policy shall compensate the latter for the damages" (Art. 21, id.). As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal interest thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent court erred in holding Valenzuela liable. We find

no factual and legal basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the insurance policy not binding —

Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid and binding unless and until the premiums thereof have been paid except in the case of a life or industrial life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the Insurance Code of 1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that the non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance contract does not take effect. Thus:

It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was amended by the underscored portion. Supra. Prior to the Amendment, an insurance contract was effective even if the premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis supplied)

In Philippine Phoenix Surety case, we held: Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. (Citing Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied) The foregoing findings are buttressed by Section 776 of the insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of Insurance by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)

Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much less sue Valenzuela for

the unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the policies through the nonpayment of premiums by the insured there were no more insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the non-payment of premiums does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract." The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen and addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed by Philamgen itself not only once but four (4) times on different occasions, as shown by the records. On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159-80 as of July 1977. On May 23, 1978, another statement of account with exactly the same beginning balance was sent to Valenzuela. On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the beginning balance. And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela. It was only after the filing of the complaint that a radically different statement of accounts surfaced in court. Certainly, Philamgen's own statements made by its own accountants over a long period of time and covering examinations made on four

different occasions must prevail over unconfirmed and unaudited statements made to support a position made in the course of defending against a lawsuit. It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and unaudited finding of the Banaria auditor. The records of Philamgen itself are the best refutation against figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency agreement. After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits representing the commission due from Delta and other accounts, Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it committed a mistake in its computation. The alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions where Philamgen was duly represented by its account executives. On the basis of these admissions and representations, Philamgen cannot later on assume a different posture and claim that it was mistaken in its representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80. The Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on an unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20,1976. As so aptly stated by the trial court in its decision:

Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after the controversy has started. In fact, after hearing plaintiffs have already rested their case. The results of said audit were presented in Court to show plaintiff Arturo P. Valenzuela's accountability to defendant PHILAMGEN. However, the auditor, when presented as witness in this case testified that the beginning balance of their audit report was based on an unaudited amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified and merely supplied by the officers of defendant PHILAMGEN. Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P. Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as stated in defendant Bienvenido M. Aragon's letter

dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report of Banaria dated December 24, 1980). These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela to defendant PHILAMGEN only lends credence to the claim of plaintiff Arturo P. Valenzuela that he has no outstanding account with defendant PHILAMGEN when the latter, thru defendant Bienvenido M. Aragon, terminated the General Agency Agreement entered into by plaintiff (Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and , ZZ-2).

Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with evident mala fide it necessarily follows that the former are liable in damages. Respondent Philamgen has been appropriating for itself all these years the gross billings and income that it unceremoniously took away from the petitioners. The preponderance of the authorities sustain the preposition that a principal can be held liable for damages in cases of unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith. The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos (P75,000,00) per month as compensatory damages from June 1980 until its decision becomes final and executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P-1") showing that the average gross premium collection monthly of Valenzuela over a period of four (4) months from December 1978 to February 1979, amounted to over P300,000.00 from which he is entitled to a commission of P100,000.00 more or less per month. Moreover, his annual sales production amounted to P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new Civil Code,

"indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain." The circumstances of the case, however, require that the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency shall be entertained by the courts after that date. ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall earn only legal interests without any adjustments under Article 1250 of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine American General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified. SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 151218 January 28, 2003

NATIONAL SUGAR TRADING and/or the

SUGAR REGULATORY ADMINISTRATION, petitioners,

vs.

PHILIPPINE NATIONAL BANK, respondent.

YNARES-SANTIAGO, J.: This is a petition for review which seeks to set aside the

decision of the Court of Appeals dated August 10, 2001

in CA-G.R. SP. No. 58102, 1 upholding the decision of

the Office of the President dated September 17, 1999, 2

as well as the resolution dated December 12, 2001

denying petitioners' motion for reconsideration.

The antecedent facts, as culled from the records, are as

follows:

Sometime in February 1974, then President Ferdinand

E. Marcos issued Presidential Decree No. 388 3

constituting the Philippine Sugar Commission

(PHILSUCOM), as the sole buying and selling agent of

sugar on the quedan permit level. In November of the

same year, PD 579 4 was issued, authorizing the

Philippine Exchange Company, Inc.

(PHILEXCHANGE), a wholly owned subsidiary of

Philippine National Bank (PNB) to serve as the

marketing agent of PHILSUCOM. Pursuant to PD 579,

PHILEXCHANGE's purchases of sugar shall be

financed by PNB and the proceeds of sugar trading

operations of PHILEXCHANGE shall be used to pay

its liabilities with PNB. 5

Similarly, in February 1975, PD 659 was issued,

constituting PHILEXCHANGE and/or PNB as the

exclusive sugar trading agencies of the government for

buying sugar from planters or millers and selling or

exporting them. 6 PNB then extended loans to

PHILEXCHANGE for the latter's sugar trading

operations. At first, PHILEXCHANGE religiously paid

its obligations to PNB by depositing the proceeds of the

sale of sugar with the bank. Subsequently, however,

with the fall of sugar prices in the world market,

PHILEXCHANGE defaulted in the payments of its

loans amounting to P206,070,172.57. 7

In July 1977, the National Sugar Trading Corporation

(NASUTRA) replaced PHILEXCHANGE as the

marketing agent of PHILSUCOM. Accordingly,

PHILEXCHANGE sold and turned over all sugar

quedans to NASUTRA. However, no physical

inventory of the sugar covered by the quedans was

made. 8 Neither NASUTRA nor PHILSUCOM was

required to immediately pay PHILEXCHANGE.

Notwithstanding this concession, NASUTRA and

PHILSUCOM still failed to pay the sugar stocks

covered by quedans to PHILEXCHANGE which, as of

June 30, 1984, amounted to P498,828,845.03. As a

consequence, PHILEXCHANGE was not able to pay its

obligations to PNB.

To finance its sugar trading operations, NASUTRA

applied for and was granted 9 a P408 Million Revolving

Credit Line by PNB in 1981. Every time NASUTRA

availed of the credit line, 10

its Executive Vice-

President, Jose Unson, executed a promissory note in

favor of PNB.

In order to stabilize sugar liquidation prices at a

minimum of P300.00 per picul, PHILSUCOM issued

on March 15, 1985 Circular Letter No. EC-4-85,

considering all sugar produced during crop year 1984–

1985 as domestic sugar. Furthermore, PHILSUCOM's

Chairman of Executive Committee, Armando C.

Gustillo proposed on May 14, 1985 the following

liquidation scheme of the sugar quedans 11

assigned to

PNB by the sugar planters:

Upon notice from NASUTRA, PNB shall credit the

individual producer and millers loan accounts for their

sugar proceeds and shall treat the same as loans of

NASUTRA.

Such loans shall be charged interest at the prevailing

rates and it shall commence five (5) days after receipt

by PNB of quedans from NASUTRA. 12

PNB, for its part, issued Resolution No. 353 dated May

20, 1985 approving 13

the PHILSUCOM/NASUTRA

proposal for the payment of the sugar quedans assigned

to it. Pursuant to said resolution, NASUTRA would

assume the interest on the planter/mill loan accounts.

The pertinent portion of the Resolution states:

Five (5) days after receipt of the quedans, NASUTRA

shall absorb the accruing interest on that portion of the

planter/mill loan with PNB commensurate to the net

liquidation value of the sugar delivered, or in other

words, NASUTRA proposes to assume interest that will

run on the planter/mill loan equivalent to the net

proceeds of the sugar quedans, reckoned five (5) days

after quedan delivery to PNB. 14

Despite such liquidation scheme,

NASUTRA/PHILSUCOM still failed to remit the

interest payments to PNB and its branches, which

interests amounted to P65,412,245.84 in 1986. 15

As a

result thereof, then President Marcos issued PD 2005

dissolving NASUTRA effective January 31, 1986.

NASUTRA's records of its sugar trading operations,

however, were destroyed during the Edsa Revolution in

February 1986.

On May 28, 1986, then President Corazon C. Aquino

issued Executive Order (EO) No. 18 creating the Sugar

Regulatory Administration (SRA) and abolishing

PHILSUCOM. All the assets and records of

PHILSUCOM 16

including its beneficial interests over

the assets of NASUTRA were transferred to SRA. 17

On

January 24, 1989, before the completion of the three-

year winding up period, NASUTRA established a

trusteeship to liquidate and settle its accounts. 18

This

notwithstanding, NASUTRA still defaulted in the

payment of its loans amounting to P389,246,324.60

(principal and accrued interest) to PNB.

In the meantime, PNB received remittances from

foreign banks totaling US$36,564,558.90 or the

equivalent of P696,281,405.09 representing the

proceeds of NASUTRA's sugar exports. 19

Said

remittances were then applied by PNB to the unpaid

accounts of NASUTRA/PHILSUCOM with PNB and

PHILEXCHANGE. The schedule of remittances and

applications are as follows:

SCHEDULE OF REMITTANCES & APPLICATIONS

Account of NASUTRA

July 31, 1988

REMITTANCES

Date Remitting Bank Amount

11-19-

85 Bankers Trust-New York P259,253,573.46

11-26-

85 Bankers Trust-New York 144,459,242.84

03-06-

86 Credit Lyonnais-Manila 209,880,477.07

04-22-

86 Societé Generalé-Manila 82,151,953.10

06-09-

86 Credit Lyonnais-Manila 536,158.62

Total P696,281,405.09

APPLICATIONS

Date Applied to Amount

1986

NASUTRA account with

PNB P389,246,324.60

1986

Claims of various CAB

planters 15,863,898.79

1987

Claims of various PNB

branches for interest or the

unpaid CY 1984–85 sugar

proceeds 65,412,245.84

1987& Philsucom account carried

in the books of

Philexchange

206,070,172.57

1988 P676,592,641.80

Unapplied Remittance P19,688,763.29" 20

Subsequently, PNB applied the P19,688,763.29 to

PHILSUCOM's account with PHILEXCHANGE which

in turn was applied to PHILEXCHANGE's account

with PNB. 21

Accordingly, NASUTRA requested 22

PNB to furnish it

with the necessary documents and/or explanation 23

concerning the disposition/application, accounting and

restitution of the remittances in question. Dissatisfied,

and believing that PNB failed to provide them with said

documents, NASUTRA and SRA filed a petition for

arbitration 24

with the Department of Justice on August

13, 1991.

After due proceedings, the Secretary of Justice rendered

a decision, to wit:

WHEREFORE, judgment is hereby rendered —

1. Declaring that of the amount of Six Hundred

Ninety Six Million Two Hundred Eighty One

Thousand Four Hundred Five and 09/100 Pesos

(P696,281,405.09) equivalent of

US$36,564,558.90, foreign remittances received

by respondent PNB, for and in behalf of

petitioner NASUTRA—

a) the amount of Three Hundred Eighty

Nine Million Two Hundred Forty Six

Thousand Three Hundred Twenty Four

and 60/100 Pesos (P389,246,324.60)

was validly applied to outstanding

account of NASUTRA to PNB;

b) the amount of Sixty Five Billion Four

Hundred Twelve Thousand Two

Hundred Forty Five and 84/100 Pesos

(P65,412,245.84) was validly applied to

claims of various PNB branches for

interest on the unpaid CY 1984–85 sugar

proceeds;

Or a total of Four Hundred Fifty Four Million

Six Hundred Fifty Eight Thousand Five

Hundred Seventy and 44/100 Pesos

(P454,658,570.44).

2. Ordering respondent PNB to pay petitioners

—

a) the amount of Two Hundred Six

Million Seventy Thousand One Hundred

Seventy Two and 57/100 Pesos

(P206,070,172.57) representing the

amount of remittance applied to

PHILSUCOM account carried in the

books of Philexchange;

b) the amount of Fifteen Million Eight

Hundred Sixty Three Thousand Eight

Hundred Ninety Eight and 79/100 Pesos

(P15,863,898.79) representing the

amount applied to settle Claims of

Various CAB Planters; and to pay

interest on both items, at legal rate from

date of filing of this case.

Costs of suit will be shared equally by the

parties.

SO ORDERED. 25

Both parties appealed before the Office of the

President. On September 17, 1999, the Office of the

President modified the decision of the Secretary of

Justice, to wit:

IN VIEW OF ALL THE FOREGOING, the

decision of the Secretary of Justice is hereby

AFFIRMED with the MODIFICATION that the

application by the Philippine National Bank of

the amounts of P225,758,935.86 and

P15,863,898.79 as payment of the Philippine

Sugar Commission's account carried in the

books of Philippine Exchange Co., Inc. and the

claims of various CAB planters, respectively, is

hereby declared legal and valid.

SO ORDERED. 26

Petitioners' subsequent Motion for Reconsideration was

denied by the Office of the President. 27

Thereafter,

petitioners filed a petition for review with the Court of

Appeals, alleging, inter alia, that the Office of the

President erred when it relied solely on the documents

submitted by PNB to determine the amount of the

subject remittances and in not ordering PNB to render

an accounting of the said remittances; in declaring as

valid and legal PNB's application of the subject

remittances to alleged NASUTRA's accounts with PNB

and PHILEXCHANGE without NASUTRA's

knowledge, consent and authority.

On August 10, 2001, Court of Appeals rendered

judgment dismissing the petition. 28

Petitioners filed a

Motion for Reconsideration, which was denied on

December 12, 2001.

Hence this petition, raising the lone issue:

THE CA DECIDED NOT IN ACCORD WITH

LAW AND WITH THE APPLICABLE

DECISION OF THIS HONORABLE COURT,

AND GRAVELY ABUSED ITS

DISCRETION, WHEN IT UPHELD THE

LEGALITY AND VALIDITY OF THE

OFFSETTING OR COMPENSATION OF THE

SUBJECT REMITTANCES TO ALLEGED

ACCOUNTS OF NASUTRA WITH PNB AND

PHILEX DESPITE THE FACT THAT NO

CREDITOR-DEBTOR RELATIONSHIP

EXISTED BETWEEN PNB AND NASUTRA

WITH RESPECT TO THE SAID

REMITTANCES.

In essence, NASUTRA and SRA aver that no

compensation involving the subject remittances can

take effect by operation of law since the relationship

created between PNB and NASUTRA was one of

trustee-beneficiary and not one of creditor and debtor.

They also claim that no legal compensation can take

place in favor of PHILEXCHANGE since the subject

remittances were received by PNB and not

PHILEXCHANGE, a corporation clothed with a

separate and distinct corporate personality from PNB.

They added that PHILEXCHANGE's account had

already prescribed.

Moreover, NASUTRA and SRA contend that, assuming

arguendo that creditor-debtor relationship existed

between PNB and NASUTRA, compensation was still

illegal, since PNB has not proven the existence of the

P408 million revolving credit line and the CAB Planters

Account. Petitioners also assert that the CAB Planters

Account is an unliquidated account considering that it

still has to be recomputed pursuant to the Sugar

Reconstitution Law. 29

Respondent PNB counters that it can apply the foreign

remittances on the long-overdue obligations of

NASUTRA. They were entered into by NASUTRA

with the blessing, if not with express mandate, of the

National Government in the pursuit of national interest

and policy. PNB invokes also the Letter of Intent

submitted by the National Government to the

International Monetary Fund (IMF), wherein the

government made specific reference to the immediate

payment by NASUTRA and PHILSUCOM of their

outstanding obligations with PNB to buoy up the

country's sagging economy. 30

Petitioners' arguments are specious.

Article 1306 of the New Civil Code provides:

Contracting parties may establish such stipulations,

clauses terms and conditions as they may deem

convenient provided they are not contrary to law,

morals, good customs, public order or public policy.

In the instant case, NASUTRA applied for a P408

million credit line with PNB in order to finance its

trading operations. PNB, on the other hand, approved

said credit line in its Resolution No. 68. Thereafter,

NASUTRA availed of the credit and in fact drew

P389,246,324.60, in principal and accrued interest,

from the approved credit line. Evidence shows that

every time NASUTRA availed of the credit, its

Executive Vice President, Jose Unson, executed a

promissory note 31

in favor of PNB with the following

proviso:

In the event that this note is not paid at maturity or

when the same becomes due under any of the

provisions hereof, I/We hereby authorize the Bank, at

its option and without notice, to apply to the payment of

this note, any and all moneys, securities and things of

values which may be in the hands on deposit or

otherwise belonging to me/us and for this purpose,

I/We hereby, jointly and severally, irrevocably

constitute and appoint the Bank to be my/our true

Attorney-in-Fact with full power and authority for

me/us and in my/our name and behalf and without prior

notice to negotiate, sell and transfer any moneys,

securities and things of value which it may hold, by

public or private sale and apply the proceeds thereof to

the payment of this note. (Italics ours)

While we agree with petitioners that the application of

subject remittances cannot be justified under Article

1278 in relation to Article 1279 of the Civil Code,

considering that some elements of legal compensation

were lacking, application of the subject remittances to

NASUTRA's account with PNB and the claims of

various PNB branches for interest on the unpaid CY

1984–1985 sugar proceeds is authorized under the

above-quoted stipulation. PNB correctly treated the

subject remittances for the account of NASUTRA as

moneys in its hands which may be applied for the

payment of the note.

Also, the relationship between NASUTRA/SRA and

PNB when the former constituted the latter as its

attorney-in-fact is not a simple agency.

NASUTRA/SRA has assigned and practically

surrendered its rights in favor of PNB for a substantial

consideration. 32

To reiterate, NASUTRA/SRA

executed promissory notes in favor of PNB every time

it availed of the credit line. The agency established

between the parties is one coupled with interest which

cannot be revoked or cancelled at will by any of the

parties. 33

Notwithstanding its availment of the approved credit,

NASUTRA, for reasons only known to itself, insisted in

claiming for refund of the remittances. NASUTRA's

posture is untenable. NASUTRA's actuation runs

counter to the good faith covenant in contractual

relations, required under Article 1159 of the Civil Code,

to wit:

Obligations arising from contract have the force of law

between the contracting parties and should be complied

with in good faith.

Verily, parties may freely stipulate their duties and

obligations which perforce would be binding on them.

Not being repugnant to any legal proscription, the

agreement entered into by NASUTRA/SRA and PNB

must be respected and have the force of law between

them.

With respect to the application of the sum of

P65,412,245.84, 34

the record shows that NASUTRA

failed to remit the interest payments to PNB despite its

obligation under the liquidation scheme proposed by

the Chairman of its Executive Committee, Armando C.

Gustillo, to stabilize sugar liquidation prices. Certainly,

the authority granted by NASUTRA to Armando

Gustillo to propose such liquidation scheme was an

authority to represent NASUTRA. Undisputedly, any

obligation or liability arising from such agreement shall

be binding on the parties. NASUTRA, for its part,

cannot now renege on its duties, considering that it took

advantage of the loan.

Having established that PNB validly applied the subject

remittances to the interest of NASUTRA's loan in the

amount of P65,412,245.84, the application of the

remainder of the remittance amounting to

P15,863,898.79 to the principal is proper.

With respect to the Central Azucarera de Bais (CAB)

Planters account, petitioners maintained that the subject

remittances cannot be applied to payment thereof,

considering that it is unliquidated and needs

recomputation, pursuant to Section 3 of Republic Act

No. 7202 or the Sugar Reconstitution Law, which

provides:

The Philippine National Bank of the Philippines and

other government-owned and controlled financial

institutions which have granted loans to the sugar

producers shall extend to accounts of said sugar

producers incurred from Crop Year 1974–1975 up to

and including Crop Year 1984–1985 the following:

(a) Condonation of interest charged by the

banks in excess of twelve percent (12%) per

annum and all penalties and surcharges:

(b) The recomputed loans shall be amortized for

a period of thirteen (13) years inclusive of a

three-year grace period on principal portion of

the loan will carry an interest rate of twelve

(12%) and on the outstanding balance effective

when the original promissory notes were signed

and funds released to the producer.

Section 6 of Rules and Regulations implementing RA

No. 7202 also provides:

SECTION 2. In cases, however, where sugar

producers have no outstanding loan balance

with said financial institutions as of the date of

effectivity of RA No. 7202 (i.e. sugar producers

who have fully paid their loans either through

actual payment or foreclosure of collateral, or

who have partially paid their loans and after the

computation of the interest charges, they end up

with excess payment to said financial

institutions), said producers shall be entitled to

the benefits of recomputation in accordance

with Sections 3 and 4 of RA No. 7202, but the

said financial institutions, instead of refunding

the interest in excess of twelve (12%) percent

per annum, interests, penalties and surcharges

apply the excess payment as an offset and/or as

payment for the producers' outstanding loan

obligations. Applications of restructuring banks

under Section 6 of RA No. 7202 shall be filed

with the Central Monetary Authority of the

Philippines within one (1) year from application

of excess payment.

Although it appears from said provision that PNB was

directed to condone interest, penalties and surcharges

charged in excess of 12% per annum, the passage of

said law did not forestall legal compensation that had

taken place before its effectivity. The loan had been

definitely ascertained, assessed and determined by

PNB. Pursuant to Section 4 35

of RA 7202, there would

be condonation of interest whether the accounts were

fully or partially paid.

With regard to the application of the amount of

P206,070,172.57 to the PHILSUCOM account carried

in the books of PHILEXCHANGE, petitioners maintain

that there could be no application of the subject

remittance, considering that the remittances were

received by PNB and not PHILEXCHANGE which has

a personality separate and distinct from PNB.

Petitioners' contention is not well-taken.

There exist clear indications that insofar as sugar

trading was concerned, PHILEXCHANGE and PNB

were treated as one entity. Purchases of sugar of

PHILEXCHANGE as the exclusive sugar trading arm

of PHILSUCOM were financed by PNB pursuant to PD

579. More importantly, PNB, a wholly owned bank of

the government at that time, in turn wholly owned and

controlled PHILEXCHANGE. Also, Section 2 (a), PD

659 declared as illegal the sale, transfer and assignment

of sugar by any planter, producer, miller, central, or

refinery to any person or entity other than Philippine

Exchange, Inc. and/or the PNB. To reiterate,

PHILEXCHANGE failed to pay its loans with PNB

because of the fall of the sugar prices in the world

market. When NASUTRA substituted

PHILEXCHANGE as marketing agent of

PHILSUCOM, 1,485,532.47 metric tons 36

of export

sugar were turned over by PHILEXCHANGE to

NASUTRA. To reiterate, the foreign remittances

constituted proceeds of the sale of the sugar covered by

quedans transferred by PHILEXCHANGE to

NASUTRA.

WHEREFORE, in view of the foregoing, the instant

petition for review is DENIED. The decision of the

Court of Appeals dated August 10, 2001 is

AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. Nos. 148404-05 April 11, 2002 NELITA M. BACALING, represented by her

attorney-in-fact JOSE JUAN TONG, and JOSE

JUAN TONG, in his personal capacity, petitioners,

vs.

FELOMINO MUYA, CRISPIN AMOR,

WILFREDO JEREZA, RODOLFO LAZARTE and

NEMESIO TONOCANTE, respondents.

DE LEON, JR., J.: Before us is a Petition for Review of the consolidated

Decision1 dated January 31, 2001 of the Court of

Appeals2 in CA-G.R. SP No. 54413,

3 and in CA-G.R.

SP No. 54414,4 and of its Resolution

5 dated June 5,

2001 reversing the Decision6 dated May 22, 1998 and

Resolution July 22, 1999 of the Office of the President.

The facts of the case are as follows:

Petitioner Nelita M. Bacaling and her spouse Ramon

Bacaling were the owners of three (3) parcels of land,

with a total area of 9.9631 hectares, located in

Barangay Cubay, Jaro, Iloilo City, and designated as

Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd

26685) and Lot No. 2295. These lots were duly covered

by Transfer Certificates of Title Nos. T-5801, T-5833

and T-5834, respectively. In 1955 the landholding was

subdivided into one hundred ten (110) sub-lots covered

by TCT Nos. T-10664 to T-10773, inclusive of the

Registry of Deeds of the City of Iloilo. On May 16,

1955, the landholding was processed and approved as

"residential" or "subdivision" by the National Urban

Planning Commission (NUPC).7 On May 24, 1955 the

Bureau of Lands approved the corresponding

subdivision plan for purposes of developing the said

property into a low-cost residential community which

the spouses referred to as the Bacaling-Moreno

Subdivision.8

In 1957, a real estate loan of Six Hundred Thousand

Pesos (P600,000.00) was granted to the spouses Nelita

and Ramon Bacaling by the Government Service

Insurance System (GSIS) for the development of the

subdivision.9 To secure the repayment of the loan, the

Bacalings executed in favor of the GSIS a real estate

mortgage over their parcels of land including the one

hundred ten (110) sub-lots.10

Out of the approved loan

of Six Hundred Thousand Pesos (P600,000.00), only

Two Hundred Forty Thousand Pesos (P240,000.00) was

released to them.11

The Bacalings failed to pay the

amortizations on the loan and consequently the

mortgage constituted on the one hundred ten (110) sub-

lots was foreclosed by the GSIS.12

After a court case

that reached all the way to this Court,13

Nelita Bacaling

(by then a widow) in 1989 was eventually able to

restore to herself ownership of the one hundred ten

(110) sub-lots.14

According to the findings of the Office of the President,

in 1972 and thereafter, respondents Felomino Muya,

Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and

Nemesio Tonocante clandestinely entered and occupied

the entire one hundred ten (110) sub-lots (formerly

known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot

No. 2295) and grabbed exclusively for themselves the

said 9.9631 hectare landholding.15

Apparently,

respondents took advantage of the problematic peace

and order situation at the onset of martial law and the

foreclosure of the lots by GSIS.16

They sowed the lots

as if the same were their own, and altered the roads,

drainage, boundaries and monuments established

thereon.17

Respondents, on the other hand, claim that in 1964 they

were legally instituted by Bacaling's

administrator/overseer as tenant-tillers of the subject

parcels of land on sharing basis with two and a half

(2½) hectares each for respondents Muya, Amor,

Tonocante and Lazarte, and one and a half (1½)

hectares for respondent Jereza. In 1974, their

relationship with the landowner was changed to one of

leasehold. They religiously delivered their rental

payments to Bacaling as agricultural lessor. In 1980,

they secured certificates of land transfer in their names

for the one hundred ten (110) sub-lots. They have made

various payments to the Land Bank of the Philippines

as amortizing owners-cultivators of their respective

tillage.

In 1977, however, the City Council of Iloilo enacted

Zoning Ordinance No. 212 declaring the one hundred

ten (110) sub-lots as "residential" and "non-

agricultural," which was consistent with the conversion

effected in 1955 by the NUPC and the Bureau of Lands.

In 1978, Nelita Bacaling was able to register the subject

property as the Bacaling-Moreno Subdivision with the

National Housing Authority and to obtain therefrom a

license to sell the subject one hundred ten (110) sub-

lots comprising the said subdivision to consummate the

original and abiding design to develop a low-cost

residential community.

In August 21, 1990, petitioner Jose Juan Tong, together

with Vicente Juan and Victoria Siady, bought from

Nelita Bacaling the subject one hundred ten (110) sub-

lots for One Million Seven Hundred Thousand Pesos

(P1,700,000.00).18

The said sale was effected after

Bacaling has repurchased the subject property from the

Government Service Insurance System. To secure

performance of the contract of absolute sale and

facilitate the transfer of title of the lots to Jose Juan

Tong, Bacaling appointed him in 1992 as her attorney-

in-fact, under an irrevocable special power of attorney

with the following mandate-

1. To file, defend and prosecute any case/cases

involving lots nos. 1 to 110 covered by TCT

Nos. T-10664 to T-10773 of the Register of

Deeds of the City of Iloilo;

2. To assume full control, prosecute, terminate

and enter into an amicable settlement and

compromise agreement of all cases now pending

before the DARAB, Region VI, Iloilo City,

which involved portion of Lots 1 to 110,

covered by TCT Nos. T-10664 to T-10773 of

the Register of Deeds of Iloilo City, which were

purchased by Jose Juan Tong, Vicente Juan

Tong and Victoria Siady;

3. To hire a lawyer/counsel which he may deem

fit and necessary to effect and attain the

foregoing acts and deeds; handle and prosecute

the aforesaid cases;

4. To negotiate, cause and effect a settlement of

occupation and tenants on the aforesaid lots;

5. To cause and effect the transfer of the

aforesaid lots in the name of the VENDEES;

6. To execute and deliver document/s or

instrument of whatever nature necessary to

accomplish the foregoing acts and deeds.19

It is significant to note that ten (10) years after the

perfection and execution of the sale, or on April 26,

2000, Bacaling filed a complaint to nullify the contract

of sale. The suit was, however, dismissed with

prejudice and the dismissal has long become final and

executory.20

Following the sale of the one hundred ten (110) sub-lots

and using the irrevocable special power of attorney

executed in his favor, petitioner Tong (together with

Bacaling) filed a petition for cancellation of the

certificates of land transfer against respondents and a

certain Jaime Ruel with the Department of Agrarian

Reform (DAR) Region VI Office in Iloilo City.21

The

DAR, however, dismissed the petition on the ground

that there had been no legitimate conversion of the

classification of the 110 sub-lots from agricultural to

residential prior to October 21, 1972 when Operation

Land Transfer under P.D. No. 72 took effect.22

Bacaling

and Tong appealed to the DAR Central Office but their

appeal was similarly rejected.23

The motion for

reconsideration failed to overturn the ruling of the

Central Office Order.24

On September 19, 1997, Bacaling and Tong appealed

the adverse DAR Orders to the Office of the President

which reversed them in toto in a Decision25

dated May

22, 1998 (OP Decision, for brevity), the dispositive

portion of which reads:

WHEREFORE, premises [considered], the

assailed order of the Regional Director, DAR

Region VI, dated April 3, 1996, as well as the

orders of the DAR Secretary dated December

12, 1996 and September 4, 1997, are hereby

REVERSED AND SET ASIDE and subject

landholdings declared exempt from coverage of

the CARL. The Certificates of Land Transfer

(CLTs) issued to the appellees are hereby

cancelled and the Department of Agrarian

Reform directed to implement the voluntary

offer made by appellant with respect to the

payment of disturbance compensation and

relocation of the affected parties. 1âwphi1.nêt

SO ORDERED.26

The OP Decision found that the one hundred ten (110)

parcels of land had been completely converted from

agricultural to residential lots as a result of the

declarations of the NUPC and the Bureau of Lands and

the factual circumstances, i.e., the GSIS loan with real

estate mortgage, the division of the original three (3)

parcels of land into one hundred ten (110) sub-lots

under individual certificates of title, and the

establishment of residential communities adjacent to the

subject property, which indubitably proved the

intention of Nelita and Ramon Bacaling to develop a

residential subdivision thereon. The OP Decision also

categorically acknowledged the competence of the

NUPC and the Bureau of Lands to classify the one

hundred ten (110) sub-lots into residential areas. On

July 22, 1999, separate motions for reconsideration

thereof were denied.27

Respondents elevated the OP Decision to the Court of

Appeals on a petition for review under Rule 43 of the

Rules of Civil Procedure.28

Before the petition was

resolved, or on December 2, 1999, Nelita Bacaling

manifested to the appellate court that she was revoking

the irrevocable power of attorney in favor of Jose Juan

Tong and that she was admitting the status of

respondents as her tenants of the one hundred ten (110)

sub-lots which allegedly were agricultural in character.

The manifestation was however characterized by an

obvious streak of ambivalence when her prayer therein

urged the Court of Appeals to decide the case,

curiously, "on the basis of the clear intent of Private

Respondent" and "in accordance with the perception of

this Honorable Court."29

On January 31, 2001 the Court of Appeals reversed the

OP Decision and validated the certificates of land

transfers in favor of respondents without however

promulgating a ruling on petitioner Tong's supposedly

ensuing lack of material interest in the controversy as a

result of the manifestation.30

The dispositive portion of

the decision reads:

WHEREFORE, premises considered, petition is

GRANTED; and the May 22, 1998 Decision of

the Office of the President is hereby

REVERSED and SET ASIDE. The April 3,

1996 Order of the Regional Director, DARAB,

Region VI, is REINSTATED.31

The appellate court refused to recognize the 1955

NUPC and Bureau of Lands classification of the subject

lots as residential subdivision. Tong moved for

reconsideration of the CA Decision which Bacaling did

not oppose despite her manifestation. On June 5, 2001,

again without a single reference to Bacaling's alleged

repudiation of Tong's actions, the Court of Appeals

denied reconsideration of its decision,32

Hence, this

petition for review on certiorari based on the following

assignment of errors:

I

SUBJECT LANDHOLDINGS ARE EXEMPT

FROM THE COVERAGE OF P.D. 27 AND

OPERATION LAND TRANSFER (1972, AS

WELL (sic) THE COMPREHENSIVE

AGRARIAN REFORM LAW (1988) AS

THEY WERE CLASSIFIED AS

RESIDENTIAL WAY BACK IN 1955 BY

THE THEN NATIONAL PLANNING

COMMISSION AND THE SUBDIVSION

PLAN WAS APPROVED BY THE BUREAU

OF LANDS. AS A CONSEQUENCE, THE

CLTs ISSUED TO PRIVATE RESPONENTS

IN OCTOBER, 1980 ARE INVALID AS

HAVING BEEN ISSUED WITHOUT

JURISDICTION.

II

PRIVATE RESPONDENTS ARE NOT BONA

FIDE TENANTS OF THE LANDS

INVOLVED. PUBLIC REPSONDENT'S

RULING THAT THE LATTER ARE SUCH IS

CONTRARY TO LAW AS IT IGNORED THE

FACT THAT THE LANDHOLDINGS ARE

RESIDENTIAL AND NO COMPETENT

PROOF OF CONSENT OF THE OWNER

WAS EVER PRESENTED BY PRIVATE

RESPONDENTS.

III

APPROVAL OF THE SECRETARY OF

AGRARIAN REFORM IS NOT NECESSARY

FOR THE VALID CLASSIFICATION OF

THE LANDS INVOLVED INTO

RESIDENTIAL BECAUSE THE CARL, AS

ALSO THE RELATED AGRARIAN LAWS,

HAVE NO RETROACTIVE APPLICATION.33

Long after issues were joined in the instant

proceedings, or on October 8, 2001, petitioner Nelita

Bacaling resurrected her manifestation with the Court

of Appeals and moved to withdraw/dismiss the present

petition on the ground that the irrevocable power of

attorney in favor of petitioner Jose Juan Tong had been

nullified by her and that Tong consequently lacked the

authority to appear before this Court.34

She also

manifested that, contrary to the arguments of petitioner

Tong, respondents were bona fide tenants of the one

hundred ten (110) sub-lots which were allegedly

agricultural and not residential pieces of realty.35

Accordingly, petitioner Tong was left all alone to

pursue the instant case.

The issues in this case can be summarized as follows:

(1) Does petitioner Tong have the requisite interest to

litigate this petition for review on certiorari?; (2) Are

the respondents agricultural lessees?; and (3) Are the

one hundred ten (110) sub-lots admittedly classified for

residential use by the National Urban Planning

Commission and the Bureau of Lands prior to October

21, 197236

covered by the Operation Land Transfer

under P.D. No. 72?

We hold that petitioner Jose Juan Tong possesses

adequate and legitimate interest to file the instant

petition. Under our rules of procedure, interest means

material interest, that is, an interest in issue and to be

affected by the judgment,37

while a real party in interest

is the party who would be benefited or injured by the

judgment or the party entitled to the avails of the suit.38

There should be no doubt that as transferee of the one

hundred ten (110) sub-lots through a contract of sale

and as the attorney-in-fact of Nelita Bacaling, former

owner of the subject lots, under an irrevocable special

power of attorney, petitioner Tong stands to be

benefited or injured by the judgment in the instant case

as well as the orders and decisions in the proceedings a

quo. The deed of sale categorically states that petitioner

Tong and his co-sellers have fully paid for the subject

parcels of land. The said payment has been duly

received by Bacaling. Hence, it stands to reason that he

has adequate and material interest to pursue the present

petition to finality.

Respondents put too much weight on the motion to

dismiss/withdraw filed by Nelita Bacaling. Under the

facts obtaining in this case, the motion should be treated

cautiously, and more properly, even skeptically. It is a

matter of law that when a party adopts a certain theory

in the court below, he will not be permitted to change

his theory on appeal, for to permit him to do so would

not only be unfair to the other party but it would also be

offensive to the basic rules of fair play, justice and due

process.39

Bacaling's motion to dismiss the instant

petition comes at the heels of her admission that she

had immensely benefited from selling the said one

hundred ten (110) sub-lots to petitioner Tong and of the

dismissal with prejudice of the civil case which she had

earlier filed to nullify the sale.40

It appears that the

motion to dismiss is a crude and belated attempt long

after the dismissal of the civil case to divest Tong of his

indubitable right of ownership over the one hundred ten

(110) sub-lots through the pretext of revoking the

irrevocable special power of attorney which Bacaling

had executed in his favor hoping that in the process that

her act would cause the assailed orders of the DAR to

become final and executory.

The records also bear out the fact that Bacaling's design

to dispossess petitioner Tong of material interest in the

subject matter of the instant petition appears to be

subtly coordinated with respondents' legal maneuvers

when it began as a side pleading (a mere Manifestation)

in the proceedings before the Court of Appeals (CA-

G.R. SP No. 54413 and CA-G.R. SP No. 54414) but

which was never pursued to its ultimate conclusion

until it again surfaced before this Court long after

respondents' voluminous comment to the instant

petition had been filed. Under these circumstances, we

certainly cannot place our trust upon such an

unsolicited motion having dubious roots, character and

purpose.

Substantively, we rule that Bacaling cannot revoke at

her whim and pleasure the irrevocable special power of

attorney which she had duly executed in favor of

petitioner Jose Juan Tong and duly acknowledged

before a notary public. The agency, to stress, is one

coupled with interest which is explicitly irrevocable

since the deed of agency was prepared and signed

and/or accepted by petitioner Tong and Bacaling with a

view to completing the performance of the contract of

sale of the one hundred ten (110) sub-lots. It is for this

reason that the mandate of the agency constituted Tong

as the real party in interest to remove all clouds on the

title of Bacaling and that, after all these cases are

resolved, to use the irrevocable special power of

attorney to ultimately "cause and effect the transfer of

the aforesaid lots in the name of the vendees [Tong with

two (2) other buyers] and execute and deliver

document/s or instrument of whatever nature necessary

to accomplish the foregoing acts and deeds."41

The

fiduciary relationship inherent in ordinary contracts of

agency is replaced by material consideration which in

the type of agency herein established bars the removal

or dismissal of petitioner Tong as Bacaling's attorney-

in-fact on the ground of alleged loss of trust and

confidence.

While Bacaling alleges fraud in the performance of the

contract of agency to justify its revocation, it is

significant to note that allegations are not proof, and

that proof requires the intervention of the courts where

both petitioners Tong and Bacaling are heard. Stated

otherwise, Bacaling cannot vest in herself just like in

ordinary contracts the unilateral authority of

determining the existence and gravity of grounds to

justify the rescission of the irrevocable special power of

attorney. In Sevilla v. Court of Appeals42

we thus held-

But unlike simple grants of a power of attorney,

the agency that we hereby declare to be

compatible with the intent of the parties, cannot

be revoked at will. The reason is that it is one

coupled with an interest, the agency having been

created for the mutual interest of the agent and

the principal xxx [Petitioner's] interest,

obviously, is not limited to the commissions she

earned as a result of her business transactions,

but one that extends to the very subject matter

of the power of management delegated to her. It

is an agency that, as we said, cannot be revoked

at the pleasure of the principal. Accordingly, the

revocation complained of should entitle the

petitioner x x x to damages.

The requirement of a judicial process all the more

assumes significance in light of the dismissal with

prejudice, hence, res judicata, of Bacaling's complaint

to annul the contract of sale which in turn gave rise to

the irrevocable special power of attorney. It is clear that

prima facie there are more than sufficient reasons to

deny the revocation of the said special power of

attorney which is coupled with interest. Inasmuch as no

judgment has set aside the agency relationship between

Bacaling and Tong, we rule that petitioner Tong

maintains material interest to prosecute the instant

petition with or without the desired cooperation of

Bacaling.

On the issue of whether the private respondents are

agricultural tenants and entitled to the benefits accorded

by our agrarian laws, we rule in the negative. The

requisites in order to have a valid agricultural leasehold

relationship are: (1) The parties are the landowner and

the tenant or agricultural lessee; (2) The subject matter

of the relationship is agricultural land; (3) There is

consent between the parties to the relationship; (4) the

purpose of the relationship is to bring about agricultural

production; (5) There is personal cultivation on the part

of the tenant or agricultural lessee; and (6) The harvest

is shared between the landowner and the tenant or

agricultural lessee.

We find that the first, third and sixth requisites are

lacking in the case at bar. One legal conclusion adduced

from the facts in Government Service Insurance System

v. Court of Appeals43

provides that GSIS, not Bacaling,

was the owner of the subject properties from 1961 up to

1989 as a result of the foreclosure and confirmation of

the sale of the subject properties. Although the

confirmation only came in 1975, the ownership is

deemed to have been vested to GSIS way back in 1961,

the year of the sale of the foreclosed properties. This is

due to the fact that the date of confirmation by the trial

court of the foreclosure sale retroacts to the date of the

actual sale itself.44

Thus, the respondents cannot validly claim that they are

legitimate and recognized tenants of the subject parcels

of land for the reason that their agreement to till the

land was not with GSIS, the real landowner. There is no

showing that GSIS consented to such tenancy

relationship nor is there proof that GSIS received a

share in the harvest of the tenants. Consequently, the

respondents cannot claim security of tenure and other

rights accorded by our agrarian laws considering that

they have not been validly instituted as agricultural

lessees of the subject parcels of land. And from the time

Bacaling recovered the subject properties from GSIS up

to the time the former changed her legal position in the

instant case, Bacaling has consistently disclaimed

respondents as her alleged tenants. Bacaling's current

legal posture cannot also overturn our finding since, as

earlier mentioned, the said change of mind of Bacaling

has little or no evidentiary weight under the

circumstances.

The respondents argue that GSIS cannot be considered

as the owner of the said properties from 1961 up to

1989 inasmuch as the foreclosure proceedings that

started in 1957 only attained finality during its

promulgation by this Court in 1989. Respondents

contend that GSIS was the owner of the said parcels of

land only from 1989.

We disagree. The pendency of the GSIS case cannot be

construed as a maintenance of status quo with Bacaling

as the owner from 1957 up to 1989 for the reason that

what was appealed to this Court was only the issue of

redemption, and not the validity of the foreclosure

proceedings including the public auction sale, the

confirmation of the public auction sale and the

confirmation and transfer of ownership of the

foreclosed parcels of land to GSIS. The ownership of

GSIS over the subject parcels of land was not disputed.

It was the existence of the right to redeem in a judicial

foreclosure that was the subject of the controversy. We

ruled that there was no longer any right of redemption

in a judicial foreclosure proceeding after the

confirmation of the public auction. Only foreclosures of

mortgages in favor of banking institutions and those

made extrajudicially are subject to legal redemption.

Since GSIS is not a banking institution and the

procedure of the foreclosure is not extrajudicial in

nature, no right of redemption exists after the judicial

confirmation of the public auction sale of the said lots.

With respect to the third issue, we find that the one

hundred ten (110) sub-lots are indeed residential. In

Tiongson v. Court of Appeals45

we held that if the lot in

question is not an agricultural land then the rules on

agrarian reform do not apply since the "key factor in

ascertaining whether there is a landowner-tenant

relationship xxx is the nature of the disputed

property."46

We reiterated this rule in Natalia Realty,

Inc. v. Department of Agrarian Reform47

where we

excluded lands not devoted to agricultural activity, i.e.,

lands previously converted to non-agricultural or

residential uses prior to the effectivity of the 1988

agrarian reform law (R.A. No. 6657) by agencies other

than the DAR, from the coverage of agrarian reform.

The statement of the rule is buttressed by P.D. No. 27

which by its terms applies only to "tenant-farmers of

private agricultural lands primarily devoted to rice and

corn under a system of shared-crop or lease tenancy,

whether classified as landed estate or not."48

In the case at bar, the indubitable conclusion from

established facts is that the one hundred ten (110) sub-

lots, originally three (3) parcels of land, have been

officially classified as residential since 1955. The

classification began when the NUPC and the Bureau of

Lands approved the subdivision of the original three (3)

parcels of land into one hundred ten (110) sub-lots each

covered with transfer certificates of title. To build the

subdivision project, Nelita Bacaling then obtained a real

estate mortgage loan from the GSIS which she used to

fund the project but he was unfortunately unable to

complete it due to the immensity of the project cost.

Bacaling undertook to complete the sale of the

subdivision when in 1978 she obtained the registration

thereof with the National Housing Authority as well as

a license to sell individually the one hundred ten (110)

sub-lots. Earlier, in 1977, the City Council of Iloilo also

recognized the residential classification of the same one

hundred ten (110) sub-lots when it passed the Land Use

Plan and Zoning Ordinance. In 1990, Bacaling sold the

same parcels of land to petitioner Tong who obviously

wanted to pursue the development of the subdivision

project. It is clear that Tong bought the property for

residential and not agricultural purposes upon the

strong assurance of Bacaling that the one hundred ten

(110) sub-lots were legally available for such prospect.

To be sure, the subject lots were valuable in the buyer's

market only for residential use as shown by the

example of adjacent lots which had long been utilized

for building subdivisions and the implausibility of

believing that Tong would buy the lands only to lose

them at a bargain to agrarian reform.49

Clearly, both intention and overt actions show the

classification of the one hundred ten (110) sub-lots for

residential use. There can be no other conclusion from

the facts obtaining in the instant case. Indeed, one

cannot imagine Nelita Bacaling borrowing the

substantial amount of Six Hundred Thousand Pesos

(P600,000.00) from the GSIS and spending Two

Hundred Fifty Thousand Pesos (P250,000.00) for the

purpose of developing and subdividing the original

three (3) parcels of land into one hundred ten (110)

homelots, with individual transfer certificates of title

ready and available for sale, if her purported desire

were to keep the landholding for agricultural purposes.

It also makes no sense that petitioner Tong would

invest so much money, time and effort in these sub-lots

for planting and cultivating agricultural crops when all

the mechanisms are already in place for building a

residential community. One cannot likewise deny the

consistent official government action which decreed the

said one hundred ten (110) sub-lots as most appropriate

for human settlements considering that for several times

beginning in 1955 and in accordance with relevant laws

and regulations, the said landholding was categorically

reserved as a residential subdivision.

It is also grave error to gloss over the NUPC action

since its declarations have long been recognized in

similar cases as the present one as clear and convincing

evidence of residential classification. In Magno-

Adamos v. Bagasao50

we found the endorsements of the

NUPC approving albeit tentatively a subdivision plan to

be a very strong evidence of conversion of the disputed

parcels of land into a residential subdivision which

would contradict the alleged tenancy relationship. We

found nothing objectionable in the trial court's ruling in

Santos v. de Guzman51

ejecting an alleged tenant from

the landholding "because the same was included in a

homesite subdivision duly approved by the National

Planning Commission."52

In Republic v. Castellvi53 we

gave great weight to the certification of the NUPC that

the subject parcels of land were classified as residential

areas and ordered their appraisal as residential and not

agricultural lands -

The lower court found, and declared, that the

lands of Castellvi and Toledo-Gozun are

residential lands. The finding of the lower court

is in consonance with the unanimous opinion of

the three commissioners who, in their report to

the court, declared that the lands are residential

lands. The Republic assails the finding that the

lands are residential, contending that the plans

of the appellees to convert the lands into

subdivision for residential purposes were only

on paper, there being no overt acts on the part of

the appellees which indicated that the

subdivision project had been commenced xxx.

We find evidence showing that the lands in

question had ceased to be devoted to the

production of agricultural crops, that they had

become adaptable for residential purposes, and

that the appellees had actually taken steps to

convert their lands into residential subdivisions

xxx. The evidence shows that Castellvi

broached the idea of subdividing her land into

residential lots as early as July 11, 1956 in her

letter to the Chief of Staff of the Armed Forces

of the Philippines xxx. As a matter of fact, the

layout of the subdivision plan was tentatively

approved by the National Planning Commission

on September 7, 1956 xxx. The land of Castellvi

had not been devoted to agriculture since 1947

when it was leased to the Philippine Army. In

1957 said land was classified as residential, and

taxes based on its classification as residential

had been paid since then xxx. The location of

the Castellvi land justifies its suitability for a

residential subdivision.

The NUPC was created under EO 98, s. of 194654

to

"prepare general plans, zoning ordinances, and

subdivision regulations, to guide and accomplish a

coordinated, adjusted, harmonious reconstruction and

future development of urban areas which will in

accordance with present and future needs, best promote

health, safety, morals, order, convenience, prosperity,

and general welfare, as well as efficiency and economy

in the process of development; including among other

things adequate provisions for traffic, the promotion of

safety from fire and other dangers, adequate provision

for light and air, the promotion of healthful and

convenient distribution of populations xxx."55

Under

the express terms of its mandate, the NUPC was

therefore duty-bound to act only upon realty projects

which would be used for human settlements and not for

agricultural purposes. It is in this light that we must

take stock of the 1955 NUPC conversion of the one

hundred ten (110) sub-lots from agricultural to

residential classification.

To bolster the exclusive role of the NUPC over

developmental projects for residential and industrial

purposes, the term "subdivision" (which NUPC was

mandated to review and if properly executed to

approve) was defined in EO 98 as "the division of a

tract or parcel of land into two (2) or more lots, sites or

other divisions for the purpose, whether immediate or

future, of sale or building development, and includes

resubdivision, and when appropriate to the context,

relates to the process of subdividing or to the land or

area subdivided."56

The Subdivision Regulations57

(which the NUPC adopted pursuant to EO 98) decreed

as mandatory the NUPC approval of all subdivisions of

land in the Philippines intended for residential,

commercial and industrial purposes, before lots

comprising the subdivision could be legally sold or

building development therein could validly commence -

Any owner of land wishing to subdivide land

shall submit to the Director of Planning [who

was the head of NUPC] a plat of the subdivision

which shall conform to the requirements set

forth in these Regulations. No subdivider shall

proceed with the sale of lots of a subdivision

and no plat of a subdivision shall be filed with

the Director of Lands for approval or recorded

in the Office of the Register of Deeds until such

plat shall have been approved by the Director of

Planning. Applications for plat approval

submitted to the District or City Engineer of a

town or city in the Philippines shall be

forwarded to the Director of Planning together

with the District or City Engineer's

recommendations (underscoring supplied).

We are convinced that the 1955 approval by the NUPC

of the subdivision of the subject three (3) parcels of

land owned by Nelita Bacaling and her spouse into one

hundred ten (110) sub-lots caused the conversion, if not

outright classification, of the entire landholding into a

residential community for sale to interested buyers.

This is an official classification of the sub-lots as

residential units and constitutes the only objective and

effectual means of obtaining in 1955 the classification

and reservation of private land for non-agricultural use,

i.e. residential, industrial or commercial, since neither

P.D. No. 27 nor R.A. No. 665758

(together with the

specified formal mechanisms stipulated therein for

converting a piece of agricultural land into a residential

lot) were then binding and effective. The assignment or

conversion of the one hundred ten (110) sub-lots for

residential purposes was not abrogated by P.D. No. 27

under which respondents invalidly secured their

certificates of land transfer since the decree was only

prospectively effective59

and its coverage was limited

only to agricultural lands which clearly do not include

the residential sub-lots in question.60

By virtue of the official classification made by NUPC

and the other circumstances convincingly proved

herein, the only fair and legally acceptable decision in

the instant case would be to declare, as we now indeed

rule, that the one hundred ten (110) sub-lots are truly

residential in character as well as in purpose and are

thus excluded from the coverage of P.D. No. 27.

Verily, the Certificates of Land Transfer (CLT) issued

in respondents' names are not valid and do not change

our ruling. The respondents cannot rely on said CLTS

as proof of security of tenure. It is well settled that the

certificates of land transfer are not absolute evidence of

ownership of the subject lots61

and consequently do not

bar the finding that their issuance is void from inception

since they cover residential lands contrary to the

mandate of P.D. No. 27. It follows from the fact of

nullity of the certificates of land transfer in respondents'

names that the respondents are not entitled to occupy

and possess the one hundred ten (110) sub-lots or

portions thereof without the consent of the owner,

herein petitioner Tong.1âwphi1.nêt

While not raised as issues in the instant petition, we

nevertheless rule now (conformably with Gayos v.

Gayos62

that it is a cherished rule of procedure that a

court should always strive to settle the entire

controversy in a single proceeding leaving no root or

branch to bear the seeds of future litigation) that

respondents cannot claim disturbance compensation for

the reason that the sub-lots are not and have never been

available for agrarian reform. In the same vein,

respondents also have no right to be reimbursed by

petitioner Jose Juan Tong for the value of or expenses

for improvements which they might have introduced on

the one hundred ten (110) sub-lots since they did not

allege nor prove the existence of such improvements

and their right to compensation thereto, if any.63

WHEREFORE, the Petition for Review is GRANTED.

It is further ordered and adjudged that:

1. The certificates of land transfer over the one hundred

ten (110) sub-lots located in Barangay Cubay, Jaro,

Iloilo City, in the name of respondents and/or their

successors in interest are hereby DECLARED VOID

AB INITIO. The said one hundred ten (110) sub-lots,

covered by TCT Nos. T-10664 to T-10773 of the

Registry of Deeds of the City of Iloilo, are declared

outside the coverage and operation of P.D. No. 27 and

other land reform laws.

2. The consolidated Decision of the Court of Appeals in

CA-G.R. SP No. 54413 ("Felomino Muya and Crispin

Amor v. Nelita Bacaling, represented by her attorney-

in-fact, Jose Juan Tong, and the Executive Secretary,

Office of the President") and in CA-G.R. SP No. 54414,

("Wilfredo Jereza, Rodolfo Lazarte and Nemesio

Tonocante v. Hon. Executive Secretary, Office of the

President and Nelita Bacaling") and its Resolution

dated June 5, 2001 denying petitioners' Motion for

Reconsideration are REVERSED AND SET ASIDE.

3. The Decision dated May 22, 1998 and the Resolution

dated July 22, 1999 of the Office of the President in OP

Case No. 98-K-8180 are REINSTATED with the

modification in that the respondents are not entitled to

disturbance compensation; and

4. Respondents Felomino Muya, Crispin Amor,

Wilfredo Jereza, Rodolfo Lazarte and Nemesio

Tonocante together with their assigns and successors in

interest are ordered to vacate and surrender peacefully

the possession of the one hundred ten (110) sub-lots,

covered by TCT Nos. T-10664 to T-10773-Iloilo City,

to petitioner Jose Juan Tong within thirty (30) days

from notice of this Decision.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-18616 March 31, 1964 VICENTE M. COLEONGCO, plaintiff-appellant,

vs.

EDUARDO L. CLAPAROLS, defendant-appellee.

San Juan, Africa and Benedicto for plaintiff-appellant.

Alberto Jamir for defendant-appellee.

REYES, J.B.L., J.: Appeal by plaintiff Vicente Coleongco from a decision

of the Court of First Instance of Negros Occidental (in

its Civil Case No. 4170) dismissing plaintiff's action for

damages, and ordering him to pay defendant Eduardo

Claparols the amount of P81,387.27 plus legal interest

from the filing of the counterclaim till payment thereof;

P50,000 as moral and compensatory damages suffered

by defendant; and costs.

A writ of preliminary attachment for the sum of

P100,000 was subsequently issued against plaintiff's

properties in spite of opposition thereto.

Plaintiff Coleongco, not being in conformity with the

judgment appealed to this Court directly, the claims

involved being in excess of P200,000.

The antecedent facts as found by the trial court and

shown by the records, are as follows:

Since 1951, defendant-appellee, Eduardo L. Claparols,

operated a factory for the manufacture of nails in

Talisay, Occidental Negros, under the style of

"Claparols Steel & Nail Plant". The raw material, nail

wire, was imported from foreign sources, specially

from Belgium; and Claparols had a regular dollar

allocation therefor, granted by the Import Control

Commission and the Central Bank. The marketing of

the nails was handled by the "ABCD Commercial" of

Bacolod, which was owned by a Chinaman named Kho

To.1äwphï1.ñët

Losses compelled Claparols in 1953 to look for

someone to finance his imports of nail wires. At first,

Kho To agreed to do the financing, but on April 25,

1953, the Chinaman introduced his compadre, appellant

Vicente Coleongco, to the appellee, recommending said

appellant to be the financier in the stead of Kho To.

Claparols agreed, and on April 25 of that year a

contract (Exhibit B) was perfected between them

whereby Coleongco undertook to finance and put up the

funds required for the importation of the nail wire,

which Claparols bound himself to convert into nails at

his plant. It was agreed that Coleongco would have the

exclusive distribution of the product, and the "absolute

care in the marketing of these nails and the promotion

of sales all over the Philippines", except the Davao

Agency; that Coleongco would "share the control of all

the cash" from sales or deposited in banks; that he

would have a representative in the management; that all

contracts and transactions should be jointly approved

by both parties; that proper books would be kept and

annual accounts rendered; and that profits and losses

would be shared "on a 50-50 basis". The contract was

renewed from one year to year until 1958, and

Coleongco's share subsequently increased by 5% of the

net profit of the factory (Exhibits D, E, F).

Two days after the execution of the basic agreement,

Exhibit "B", on April 27, 1953, Claparols executed in

favor of Coleongco, at the latter's behest a special

power of attorney (Exhibit C) to open and negotiate

letters of credit, to sign contracts, bills of lading,

invoices, and papers covering transactions; to represent

appellee and the nail factory; and to accept payments

and cash advances from dealers and distributors.

Thereafter, Coleongco also became the assistant

manager of the factory, and took over its business

transactions, while Claparols devoted most of his time

to the nail manufacture processes.

Around mid-November of 1956, appellee Claparols was

disagreeably surprised by service of an alias writ of

execution to enforce a judgment obtained against him

by the Philippine National Bank, despite the fact that on

the preceding September he had submitted an

amortization plan to settle the account. Worried and

alarmed, Claparols immediately left for Manila to

confer with the bank authorities. Upon arrival, he

learned to his dismay that the execution had been

procured because of derogatory information against

appellee that had reached the bank from his associate,

appellant Coleongco. On July 6, 1956, the latter,

without appellee's knowledge, had written to the bank

—

in connection with the verbal offer — for the

acquisition by me of the whole interest of Mr.

Eduardo L. Claparols in the Claparols Steel &

Nail Plant and the Claparols Hollow Blocks

Factory" (Exhibit 36);

and later, on October 29, 1956, Coleongco had written

again the bank another letter (Exhibit 35), also behind

the back of appellee, wherein Coleongco charged

Claparols with taking machines mortgaged to the bank,

and added - .

In my humble personal opinion I presume that

Mr. Eduardo L. Claparols is not serious in

meeting his obligations with your bank,

otherwise he had not taken these machines and

equipments a sign of bad faith since the factory

is making a satisfactory profit of my

administration.

Fortunately, Claparols managed to arrange matters with

the bank and to have the execution levy lifted. Incensed

at what he regarded as disloyalty of his attorney-in-fact,

he consulted lawyers. The upshot was that appellee

revoked the power of attorney (Exhibit "C"), and

informed Coleongco thereof (Exhibits T, T-1), by

registered mail, demanding a full accounting at the

same time. Coleongco, as could be expected, protested

these acts of Claparols, but the latter insisted, and on

the first of January, 1957 wrote a letter to Coleongco

dismissing him as assistant manager of the plant and

asked C. Miller & Company, auditors, to go over the

books and records of the business with a view to

adjusting the accounts of the associates. These last steps

were taken in view of the revelation made by his

machinery superintendent, Romulo Agsam, that in the

course of the preceding New Year celebrations

Coleongco had drawn Agsam aside and proposed that

the latter should pour acid on the machinery to paralyze

the factory. The examination by the auditors,

summarized in Exhibits 80 and 87, found that

Coleongco owed the Claparols Nail Factory the amount

of P87,387.37, as of June 30, 1957.

In the meantime, Claparols had found in the factory

files certain correspondence in February, 1955 between

Coleongco and the nail dealer Kho To whereby the

former proposed to Kho that the latter should cut his

monthly advances to Claparols from P2,000 to P1,000 a

month, because —

I think it is time that we do our plan to take

advantage of the difficulties of Eddie with the

banks for our benefit. If we can squeeze him

more. I am sure that we can extend our contract

with him before it ends next year, and perhaps

on better terms. If we play well our cards we

might yet own his factory (Exhibit 32);

and conformably to Coleongco's proposal, Kho To had

written to Claparols that "due to present business

conditions" the latter could only be allowed to draw

P1,000 a month beginning April, 1955 (Exhibit 33).

As the parties could not amicably settle their accounts,

Coleongco filed a suit against Claparols charging

breach of contract, asking for accounting, and praying

for P528,762.19 as damages, and attorney's fees, to

which Claparols answered, denying the charge, and

counter-claiming for the rescission of the agreement

with Coleongco for P561,387.99 by way of damages.

After trial, the court rendered judgment, as stated at the

beginning of this opinion.

In this appeal, it is first contended by the appellant

Coleongco that the power of attorney (Exhibit "C") was

made to protect his interest under the financing

agreement (Exhibit "B") and was one coupled with an

interest that the appellee Claparols had no legal power

to revoke. This point can not be sustained. The

financing agreement itself already contained clauses for

the protection of appellant's interest, and did not call for

the execution of any power of attorney in favor of

Coleongco. But granting appellant's view, it must not

be forgotten that a power of attorney can be made

irrevocable by contract only in the sense that the

principal may not recall it at his pleasure; but coupled

with interest or not, the authority certainly can be

revoked for a just cause, such as when the attorney-in-

fact betrays the interest of the principal, as happened in

this case. It is not open to serious doubt that the

irrevocability of the power of attorney may not be used

to shield the perpetration of acts in bad faith, breach of

confidence, or betrayal of trust, by the agent for that

would amount to holding that a power coupled with an

interest authorizes the agent to commit frauds against

the principal.

Our new Civil Code, in Article 1172, expressly

provides the contrary in prescribing that responsibility

arising from fraud is demandable in all obligations, and

that any waiver of action for future fraud is void. It is

also on this principle that the Civil Code, in its Article

1800, declares that the powers of a partner, appointed

as manager, in the articles of co-partnership are

irrevocable without just or lawful cause; and an agent

with power coupled with an interest can not stand on

better ground than such a partner in so far as

irrevocability of the power is concerned.

That the appellee Coleongco acted in bad faith towards

his principal Claparols is, on the record,

unquestionable. His letters to the Philippine National

Bank (Exhibits 35 and 36) attempting to undermine the

credit of the principal and to acquire the factory of the

latter, without the principal's knowledge; Coleongco's

letter to his cousin, Kho To (Exhibit 32), instructing the

latter to reduce to one-half the usual monthly advances

to Claparols on account of nail sales in order to squeeze

said appellee and compel him to extend the contract

entitling Coleongco to share in the profits of the nail

factory on better terms, and ultimately "own his

factory", a plan carried out by Kho's letter, Exhibit 33,

reducing the advances to Claparols; Coleongco's

attempt to, have Romulo Agsam pour acid on the

machinery; his illegal diversion of the profits of the

factory to his own benefit; and the surreptitious

disposition of the Yates band resaw machine in favor of

his cousin's Hong Shing Lumber Yard, made while

Claparols was in Baguio in July and August of 1956,

are plain acts of deliberate sabotage by the agent that

fully justified the revocation of the power of attorney

(Exhibit "C") by Claparols and his demand for an

accounting from his agent Coleongco.

Appellant attempts to justify his letter to the Philippine

National Bank (Exhibits 35 and 36), claiming that

Claparols' mal-administration of the business

endangered the security for the advances that he had

made under the financing contract (Exhibit "B"). But if

that were the case, it is to be expected that Coleongco

would have first protested to Claparols himself, which

he never did. Appellant likewise denies the authorship

of the letter to Kho (Exhibit 32) as well as the attempt

to induce Agsam to damage the machinery of the

factory. Between the testimony of Agsam and Claparols

and that of Coleongco, the court below whose to

believe the former, and we see no reason to alter the

lower court's conclusion on the value of the evidence

before it, considering that Kho's letter to Claparols

(Exhibit 33) plainly corroborates and dovetails with the

plan outlined in Coleongco's own letter (Exhibit 32),

signed by him, and that the credibility of Coleongco is

affected adversely by his own admission of his having

been previously convicted of estafa (t.s.n., pp. 139,

276), a crime that implies moral turpitude. Even

disregarding Coleongco's letter to his son-in-law

(Exhibit 82) that so fully reveals Coleongco's lack of

business scruples, the clear preponderance of evidence

is against appellant.

The same remarks apply to the finding of the trial court

that it was appellant Coleongco, and not Claparols, who

disposed of the band resawing equipment, since said

machine was received in July, 1956 and sold in August

of that year to the Hong Shing Lumber Co., managed

by appellant's cousin Vicente Kho. The untruth of

Coleongco's charge that Claparols, upon his return from

Baguio in September, 1956, admitted having sold the

machine behind his associate's back is further

evidenced by (a) Coleongco's letter, Exhibit "V", dated

October 29, 1956, inquiring the whereabouts of the

resaw equipment from Claparols (an inquiry

incompatible with Claparols' previous admission); (b)

by the undenied fact that the appellee was in Baguio

and Coleongco was acting for him during the months of

July and August when the machine was received and

sold; and (c) the fact that as between the two it is

Coleongco who had a clear interest in selling the

sawing machine to his cousin Kho To's lumber yard. If

Claparols wished to sell the machine without

Coleongco's knowledge, he would not have picked the

latter's cousin for a buyer.

The action of plaintiff-appellant for damages and lost

profits due to the discontinuance of the financing

agreement, Exhibit "B", may not prosper, because the

record shows that the appellant likewise breached his

part of the contract. It will be recalled that paragraph 2

of the contract, Exhibit "B", it was stipulated:

That the Party of the Second Part (Coleongco)

has agreed to finance and put up all the

necessary money which may be needed to pay

for the importation of the raw materials needed

by such nail factory and allocated by the ICC

from time to time, either in cash of with

whatever suitable means which the Party of the

Second Part may be able to make by suitable

arrangements with any well-known banking

institution recognized by the Central Bank of

the Philippines.

Instead of putting up all the necessary money needed to

finance the imports of raw material, Coleongco merely

advanced 25% in cash on account of the price and had

the balance covered by surety agreements executed by

Claparols and others as solidary, (joint and several)

guarantors (see Exhibits G, H, I). The upshot of this

arrangement was that Claparols was made to shoulder

3/4 of the payment for the imports, contrary to the

financing agreement. Paragraph 11 of the latter

expressly denied Coleongco any power or authority to

bind Claparols without previous consultation and

authority. When the balances for the cost of the

importations became due, Coleongco, in some

instances, paid it with the dealers' advances to the nail

factory against future sales without the knowledge of

Claparols (Exhibits "K" to K-11, K-13). Under

paragraphs 8 and 11 of the financing agreement,

Coleongco was to give preference to the operating

expenses before sharing profits, so that until the

operating costs were provided for, Coleongco had no

right to apply the factory's income to pay his own

obligations.

Again, the examination of the books by accountant

Atienza of C. Miller and Co., showed that from 1954

onwards Coleongco (who had the control of the

factory's cash and bank deposits, under Paragraph 11 of

Exhibit "B") never liquidated and paid in full to

Claparols his half of the profits, so that by the end of

1956 there was due to Claparols P38,068.41 on this

account (Exhibit 91). For 1957 to 1958 Claparols

financed the imports of nail wire without the help of

appellant, and in view of the latter's infringement of his

obligations, his acts of disloyalty previously discussed,

and his diversions of factory funds (he even bought two

motor vehicles with them), we find no justification for

his insistence in sharing in the factory's profit for those

years, nor for the restoration of the revoked power of

attorney.

The accountant's reports and testimony (specially

Exhibits 80 to 87) prove that as of June 30, 1957,

Coleongco owed to Claparols the sum of P83,466.34

that after some adjustment was reduced to P81,387.37,

practically accepted even by appellant's auditor. The

alleged discrepancies between the general ledger and

the result thus arrived at was satisfactorily explained by

accountant Atienza in his testimony (t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in

declaring the financing contract (Exh. B) properly

resolved by Claparols or in rendering judgment against

appellant in favor of appellee for the said amount of

P81,387.37. The basic rule of contracts requires parties

to act loyally toward each other in the pursuit of the

common end, and appellant clearly violated the rule of

good faith prescribed by Art. 1315 of the new Civil

Code.

The lower court also allowed Claparols P50,000 for

damages, material, moral, and exemplary, caused by the

appellant Coleongco's acts in maliciously undermining

appellee's credit that led the Philippine National Bank

to secure a writ of execution against Claparols.

Undeniably, the attempts of Coleongco to discredit and

"squeeze" Claparols out of his own factory and business

could not but cause the latter mental anguish and

serious anxiety, as found by the court below, for which

he is entitled to compensation; and the malevolence that

lay behind appellee's actions justified also the

imposition of exemplary or deterrent damages (Civ.

Code, Art. 2232). While the award could have been

made larger without violating the canons of justice, the

discretion in fixing such damages primarily lay in the

trial court, and we feel that the same should be

respected.

IN VIEW OF THE FOREGOING, the decision

appealed from is affirmed. Costs against appellant

Vicente Coleongco.

SO ORDERED

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner,

vs. COURT OF APPEALS, NICOLAS PARANGAN

and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents.

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1

These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2

in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject

property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows:

WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff; 4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED.

4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors:

IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA

CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.

Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5

After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree. A contract is perfected by mere consent. 7

More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8

This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide:

The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 11

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract 12

she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully

explained to the former. 13 Settled is the rule that

where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15

The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16, the latter categorically denied the allegation. 17

This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified:

Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan.

Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir.

xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas Parangan.

18 Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement — it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20

So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the

debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21

It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:

Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22

The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23

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 (Article 1911, Civil Code). 24

The mortgage directly and immediately subjects the property upon which it is imposed. 25

The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26

However, petitioner has an unquestionable right to demand proportional

indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27

in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE; 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED.