Agency Cases Ch 3

7/22/2019 Agency Cases Ch 3

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BA FINANCE CORPORATION, petitioner,vs.HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court ofManila, Branch 43, MANUEL CUADY and LILIA CUADY,respondents.Valera, Urmeneta & Associates for petitioner.Pompeyo L. Bautista for private respondents.

PARAS, J.:p This is a petition for review on certiorari which seeks to reverse and set aside (1) the

decision of the Court of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522entitled "B.A. Finance Corporation, Plaintiff-Appellant, vs. Manuel Cuady and LiliaCuady, Defendants-Appellees," affirming the decision of the Regional Trial Court ofManila, Branch 43, which dismissed the complaint in Civil Case No. 82-10478, and(2) the resolution dated February 9, 1988 denying petitioner's motion forreconsideration. As gathered from the records, the facts are as follows:On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained fromSupercars, Inc. a credit of P39,574.80, which amount covered the cost of one unit ofFord Escort 1300, four-door sedan. Said obligation was evidenced by a promissorynote executed by private respondents in favor of Supercars, Inc., obligatingthemselves to pay the latter or order the sum of P39,574.80, inclusive of interest at14% per annum, payable on monthly installments of P1,098.00 starting August 16,1977, and on the 16th day of the next 35 months from September 16, 1977 until full

payment thereof. There was also stipulated a penalty of P10.00 for every month oflate installment payment. To secure the faithful and prompt compliance of theobligation under the said promissory note, the Cuady spouses constituted a chattelmortage on the aforementioned motor vehicle. On July 25, 1977, Supercars, Inc.assigned the promissory note, together with the chattel mortgage, to B.A. FinanceCorporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation,thus leaving an unpaid balance of P2,344.65 as of July 18, 1980. In addition thereto,the Cuadys owe B.A. F inance Corporation P460.00 representing penalties orsurcharges for tardy monthly installments (Rollo, pp. 27-29).Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lienobtained the renewal of the insurance coverage over the aforementioned motorvehicle for the year 1980 with Zenith Insurance Corporation, when the Cuadys failedto renew said insurance coverage themselves. Under the terms and conditions of the

said insurance coverage, any loss under the policy shall be payable to the B.A.Finance Corporation (Memorandum for Private Respondents, pp. 3-4).On April 18, 1980, the aforementioned motor vehicle figured in an accident and wasbadly damaged. The unfortunate happening was reported to the B.A. FinanceCorporation and to the insurer, Zenith Insurance Corporation. The Cuadys asked theB.A. Finance Corporation to consider the same as a total loss, and to claim from theinsurer the face value of the car insurance policy and apply the same to the paymentof their remaining account and give them the surplus thereof, if any. But instead ofheeding the request of the Cuadys, B.A. Finance Corporation prevailed upon theformer to just have the car repaired. Not long thereafter, however, the car boggeddown. The Cuadys wrote B.A. Finance Corporation requesting the latter to pursuetheir prior instruction of enforcing the total loss provision in the insurance coverage.When B.A. Finance Corporation did not respond favorably to their request, theCuadys stopped paying their monthly installments on the promissory note (Ibid ., pp.

45).

On June 29, 1982, in view of the failure of the Cuadys to pay the remaininginstallments on the note, B.A. Finance Corporation sued them in the Regional TrialCourt of Manila, Branch 43, for the recovery of the said remaining installments(Memorandum for the Petitioner, p. 1). After the termination of the pre-trial conference, the case was set for trial on themerits on April 25, 1984. B.A. Finance Corporation's evidence was presented on evendate and the presentation of Cuady's evidence was set on August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion forpostponement, the reason being that the "handling" counsel, Atty. Ferdinand Macibay

was temporarily assigned in Cebu City and would not be back until after August 15,1984. Said motion was, however, denied by the trial court on August 10, 1984. On August 15, 1984, the date of hearing, the trial court allowed private respondents toadduce evidence ex-parte in the form of an affidavit to be sworn to befo re anyauthorized officer. B.A. Finance Corporation filed a motion for reconsideration of theorder of the trial court denying its motion for postponement. Said motion was grantedin an order dated September 26, 1984, thus:

The Court grants plaintiff's motion for reconsideration dated August22, 1984, in the sense that plaintiff is allowed to adduce evidence inthe form of counter-affidavits of its witnesses, to be sworn to beforeany person authorized to administer oaths, within ten days fromnotice hereof. (Ibid ., pp. 1-2).

B.A. Finance Corporation, however, never complied with the above-mentioned order,paving the way for the trial court to render its decision on January 18, 1985, the

dispositive portion of which reads as follows:IN VIEW WHEREOF, the Court DISMISSES the complaint withoutcosts.SO ORDERED. (Rollo, p. 143)

On appeal, the respondent appellate court * affirmed the decision of the trial court.The decretal portion of the said decision reads as follows:

WHEREFORE, after consultation among the undersigned membersof this Division, in compliance with the provision of Section 13, Article VIII of the Constitution; and finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, withoutany pronouncement as to costs. (Ibid., p. 33)

B.A. Finance Corporation moved for the reconsideration of the above decision, butthe motion was denied by the respondent appellate court in a resolution dated

February 9, 1988 (Ibid ., p. 38).Hence, this present recourse.On July 11, 1990, this Court gave due course to the petition and required the partiesto submit their respective memoranda. The parties having complied with thesubmission of their memoranda, the case was submitted for decision.The real issue to be resolved in the case at bar is whether or not B.A. FinanceCorporation has waived its right to collect the unpaid balance of the Cuady spouseson the promissory note for failure of the former to enforce the total loss provision inthe insurance coverage of the motor vehicle subject of the chattel mortgage.It is the contention of B.A. F inance Corporation that even if it failed to enforce the totalloss provision in the insurance policy of the motor vehicle subject of the chattelmortgage, said failure does not operate to extinguish the unpaid balance on thepromissory note, considering that the circumstances obtaining in the case at bar donot fall under Article 1231 of the Civil Code relative to the modes of extinguishment ofobligations (Memorandum for the Petitioner, p. 11).



On the other hand, the Cuadys insist that owing to its failure to enforce the total lossprovision in the insurance policy, B.A. Finance Corporation lost not only itsopportunity to collect the insurance proceeds on the mortgaged motor vehicle in itscapacity as the assignee of the said insurance proceeds pursuant to thememorandum in the insurance policy which states that the "LOSS: IF ANY, under thispolicy shall be payable to BA FINANCE CORP., as their respective rights and interestmay appear" (Rollo, p. 91) but also the remaining balance on the promissory note(Memorandum for the Respondents, pp. 16-17).The petition is devoid of merit.

B.A. Finance Corporation was deemed subrogated to the rights and obligations ofSupercars, Inc. when the latter assigned the promissory note, together with thechattel mortgage constituted on the motor vehicle in question in favor of the former.Consequently, B.A. Finance Corporation is bound by the terms and conditions of thechattel mortgage executed between the Cuadys and Supercars, Inc. Under the deedof chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact withfull power and authority to file, follow-up, prosecute, compromise or settle insuranceclaims; to sign execute and deliver the corresponding papers, receipts anddocuments to the Insurance Company as may be necessary to prove the claim, andto collect from the latter the proceeds of insurance to the extent of its interests, in theevent that the mortgaged car suffers any loss or damage (Rollo, p. 89). In grantingB.A. Finance Corporation the aforementioned powers and prerogatives, the Cuadyspouses created in the former's favor an agency. Thus, under Article 1884 of the CivilCode of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry

out the agency, and is liable for damages which, through its non-performance, theCuadys, the principal in the case at bar, may suffer.Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value ofthe motor vehicle in question, not to mention the amount equivalent to the unpaidbalance on the promissory note, when B.A. Finance Corporation steadfastly refusedand refrained from proceeding against the insurer for the payment of a clearly validinsurance claim, and continued to ignore the yearning of the Cuadys to enforce thetotal loss provision in the insurance policy, despite the undeniable fact that Rea AutoCenter, the auto repair shop chosen by the insurer itself to repair the aforementionedmotor vehicle, misrepaired and rendered it completely useless and unserviceable(Ibid ., p. 31). Accordingly, there is no reason to depart from the ruling set down by the respondentappellate court. In this connection, the Court of Appeals said:

... Under the established facts and circumstances, it is unjust, unfairand inequitable to require the chattel mortgagors, appellees herein,to still pay the unpaid balance of their mortgage debt on the saidcar, the non-payment of which account was due to the stubbornrefusal and failure of appellant mortgagee to avail of the insurancemoney which became due and demandable after the insured motorvehicle was badly damaged in a vehicular accident covered by theinsurance risk. ... (Ibid .)

On the allegation that the respondent court's findings that B.A. Finance Corporationfailed to claim for the damage to the car was not supported by evidence, the recordsshow that instead of acting on the instruction of the Cuadys to enforce the total lossprovision in the insurance policy, the petitioner insisted on just having the motorvehicle repaired, to which private respondents reluctantly acceded. As heretoforementioned, the repair shop chosen was not able to restore the aforementioned motor

vehicle to its condition prior to the accident. Thus, the said vehicle bogged downshortly thereafter. The subsequent request of the Cuadys for the B.A. Finance

Corporation to file a claim for total loss with the insurer fell on deaf ears, promptingthe Cuadys to stop paying the remaining balance on the promissory note(Memorandum for the Respondents, pp. 4-5).Moreover, B.A. Finance Corporation would have this Court review and reverse thefactual findings of the respondent appellate court. This, of course, the Court cannotand will not generally do. It is axiomatic that the judgment of the Court of Appeals isconclusive as to the facts and may not ordinarily be reviewed by the Supreme Court.The doctrine is, to be sure, subject to certain specific exceptions none of which,however, obtains in the instant case (Luzon Brokerage Corporation v. Court of

Appeals, 176 SCRA 483 [1989]).Finally, B.A. Finance Corporation contends that respondent trial court committedgrave abuses of discretion in two instances: First, when it denied the petitioner'smotion for reconsideration praying that the counsel be allowed to cross-examine theaffiant, and; second, when it seriously considered the evidence adduced ex-parte bythe Cuadys, and heavily relied thereon, when in truth and in fact, the same was notformally admitted as part of the evidence for the private respondents (Memorandumfor the Petitioner, p. 10). This Court does not have to unduly dwell on this issue whichwas only raised by B.A. Finance Corporation for the first time on appeal. A review ofthe records of the case shows that B.A. Finance Corporation failed to directly raise orventilate in the trial court nor in the respondent appellate court the validity of theevidence adduced ex-parte by private respondents. It was only when the petitionerfiled the instant petition with this Court that it later raised the aforementioned issue. As ruled by this Court in a long line of cases, issues not raised and/or ventilated in the

trial court, let alone in the Court of Appeals, cannot be raised for the first time onappeal as it would be offensive to the basic rules of fair play, justice and due process(Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate Appellate Court, 175SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court of Appeals, 157SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987];De la Santa v. Court of Appeals, et al. , 140 SCRA 44 [1985]).PREMISES CONSIDERED, the instant petition is DENIED, and the decisionappealed from is AFFIRMED.SO ORDERED.



[G.R. No. 121824. January 29, 1998]BRITISH AIRWAYS, petit ioner , vs . COURT OF APPEALS, GOP MAHTANI, and

PHILIPPINE AIRLINES, respondents .D E C I S I O N

ROMERO, J .:In this appeal by certiorari , petitioner British Airways (BA) seeks to set aside the

decision of respondent Court of Appeals[1] promulgated on September 7, 1995, whichaffirmed the award of damages and attorney‘s fees made by the Regional Trial Courtof Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani

as well as the dismissal of its third-party complaint against Philippine Airlines (PAL).

[2]

The material and relevant facts are as follows:On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. Inanticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare histravel plans. The latter, in turn, purchased a ticket from BA where the followingitinerary was indicated:[3]

CARRIER FLIGHT DATE TIMESTATUS

―MANILA MNL PR 310Y 16 APR 1730 OK

HONGKONG HKG BA 20 M 16 APR 2100 OKBOMBAY BOM BA 19 M 23 APR 0840 OK

MANILA MNL"Since BA had no direct flights from Manila to Bombay, Mahtani had to take a

flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a connectingflight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his twopieces of luggage containing his clothings and personal effects, confident that uponreaching Hongkong, the same would be transferred to the BA flight bound forBombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggagewas missing and that upon inquiry from the BA representatives, he was told that thesame might have been diverted to London. After patiently waiting for his luggage forone week, BA finally advised him to file a claim by accomplishing the ―PropertyIrregularity Report.‖

[4]

Back in the Philippines, specifically on June 11, 1990, Mahtani filed hiscomplaint for damages and attorney‘s fees[5] against BA and Mr. Gumar before thetrial court, docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim [6] to the complaintraising, as special and affirmative defenses, that Mahtani did not have a cause ofaction against it. Likewise, on November 9, 1990, BA filed a third-partycomplaint[7] against PAL alleging that the reason for the non-transfer of the luggagewas due to the latter‘s late arrival in Hongkong, thus leaving hardly any time for theproper transfer of Mahtani‘s luggage to the BA aircraft bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, whereinit disclaimed any liability, arguing that there was, in fact, adequate time to transfer theluggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage toHongkong authorities should be considered as transfer to BA.[8]

After appropriate proceedings and trial, on March 4, 1993, the trial court

rendered its decision in favor of Mahtani,[9] the dispositive portion of which reads asfollows:

―WHEREFORE, premises considered, judgment is rendered for the plaintiffand against the defendant for which defendant is ordered to pay plaintiff thesum of Seven Thousand (P7,000.00) Pesos for the value of the two (2) suitcases; Four Hundred U.S. ($400.00) Dollars representing the value of thecontents of plaintiff‘s luggage; Fifty Thousand (P50,000.00) Pesos for moraland actual damages and twenty percent (20%) of the total amount imposedagainst the defendant for attorney‘s fees and costs of this action. The Third-Party Complaint against third-party defendant Philippine Airlinesis DISMISSED for lack of cause of action.

SO ORDERED.‖ Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed thetrial court‘s findings. Thus:

―WHEREFORE, in view of all the foregoing considerations, finding theDecision appealed from to be in accordance with law and evidence, thesame is hereby AFFIRMED in toto, with costs against defendant-appellant.SO ORDERED.‖

[10] BA is now before us seeking the reversal of the Court of Appeals‘ decision. In essence, BA assails the award of compensatory damages and attorney‘s

fees, as well as the dismissal of its third-party complaint against PAL.[11] Regarding the first assigned issue, BA asserts that the award of compensatory

damages in the separate sum of P7,000.00 for the loss of Mahtani‘s two piecesof luggage was without basis since Mahtani in his complaint[12] stated the following asthe value of his personal belongings:

―8. On said travel, plaintiff took with him the following items and itscorresponding value, to wit:1. personal belonging - - - - - - - - - - - - - - P10,000.002. gifts for his parents and relatives - - - - - $5,000.00‖ Moreover, he failed to declare a higher valuation with respect to his luggage, a

condition provided for in the ticket, which reads:[13] ―Liability for loss, delay, or damage to baggage is limited unless a highervalue is declared in advance and additional charges are paid:1. For most international travel (including domestic corporations ofinternational journeys) the liability limit is approximately U.S. $9.07 perpound (U.S. $20.00) per kilo for checked baggage and U.S. $400 perpassenger for unchecked baggage.‖ Before we resolve the issues raised by BA, it is needful to state that the nature

of an airline‘s contract of carriage partakes of two types, namely: a contract to delivera cargo or merchandise to its destination and a contract to transport passengers totheir destination. A business intended to serve the travelling public primarily, it isimbued with public interest, hence, the law governing common carriers imposes anexacting standard.[14] Neglect or malfeasance by the carrier‘s employees couldpredictably furnish bases for an action for damages.[15]

In the instant case, it is apparent that the contract of carriage was betweenMahtani and BA. Moreover, it is indubitable that his luggage never arrived in Bombayon time. Therefore, as in a number of cases[16] we have assessed the airlines‘culpability in the form of damages for breach of contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it isvital that the claimant satisfactorily prove during the trial the existence of the factualbasis of the damages and its causal connection to defendant‘s acts.

[17] In this regard, the trial court granted the following award as compensatory

damages:

http://sc.judiciary.gov.ph/jurisprudence/1998/jan1998/121824.htm#_edn1





































































―Since plaintiff did not declare the value of the contents in his luggage andeven failed to show receipts of the alleged gifts for the members of hisfamily in Bombay, the most that can be expected for compensation of hislost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or acombined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilosrepresenting the contents plus Seven Thousand (P7,000.00) Pesosrepresenting the purchase price of the two (2) suit cases.‖ However, as earlier stated, it is the position of BA that there should have been

no separate award for the luggage and the contents thereof since Mahtani failed to

declare a separate higher valuation for the luggage,

[18]

and therefore, its liability islimited, at most, only to the amount stated in the ticket.Considering the facts of the case, we cannot assent to such specious

argument. Admittedly, in a contract of air carriage a declaration by the passenger of a

higher value is needed to recover a greater amount. Article 22(1) of the WarsawConvention,[19]provides as follows:

―x x x x x x x x x(2) In the transportation of checked baggage and goods, the liability ofthe carrier shall be limited to a sum of 250 francs per kilogram, unless theconsignor has made, at the time the package was handed over to thecarrier, a special declaration of the value at delivery and has paid asupplementary sum if the case so requires. In that case the carrier will beliable to pay a sum not exceeding the declared sum, unless he proves that

the sum is greater than the actual value to the consignor at delivery.‖ American jurisprudence provides that an ai r carrier is not liable for the loss of

baggage in an amount in excess of the limits specified in the tariff which was f iled withthe proper authorities, such tariff being binding on the passenger regardless of thepassenger‘s lack of knowledge thereof or assent thereto .[20] This doctrine isrecognized in this jurisdiction.[21]

Notwithstanding the foregoing, we have, nevertheless, ruled against blindreliance on adhesion contracts where the facts and circumstances justify that theyshould be disregarded.[22]

In addition, we have held that benefits of limited liability are subject to waiversuch as when the air carrier failed to raise timely objections during the trial whenquestions and answers regarding the actual claims and damages sustained by thepassenger were asked.[23]

Given the foregoing postulates, the inescapable conclusion is that BA hadwaived the defense of limited liability when it allowed Mahtani to testify as to theactual damages he incurred due to the misplacement of his luggage, without anyobjection. In this regard, we quote the pertinent transcript of stenographic notes ofMahtani‘s direct testimony:[24]

Q - How much are you going to ask from this court? A - P100,000.00.Q - What else? A - Exemplary damages.Q - How much? A - P100,000.00.Q - What else? A - The things I lost, $5,000.00 for the gifts I lost and my

personal belongings, P10,000.00.

Q - What about the filing of this case? A - The court expenses and attorney‘s fees is 30%.‖

Indeed, it is a well-settled doctrine that where the proponent offers evidencedeemed by counsel of the adverse party to be inadmissible for any reason, the latterhas the right to object. However, such right is a mere privilege which can bewaived. Necessarily, the objection must be made at the earliest opportunity, lestsilence when there is opportunity to speak may operate as a waiver ofobjections.[25] BA has precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timelyobjection, but even conducted his own cross-examination as well.[26] In the early caseof Abrenica v. Gonda,[27] we ruled that:

―x x x (I)t has been repeatedly laid down as a rule of evidence that aprotest or objection against the admission of any evidence must be madeat the proper time, and that if not so made it will be understood to havebeen waived. The proper time to make a protest or objection is when, fromthe question addressed to the witness, or from the answer thereto, or fromthe presentation of proof, the inadmissibility of evidence is, or may beinferred.‖ Needless to say, factual findings of the trial court, as affirmed by the Court of

Appeals, are entitled to great respect.[28] Since the actual value of the luggageinvolved appreciation of evidence, a task within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a findingnot reviewable by this Court.[29]

As to the issue of the dismissal of BA‘s third-party complaint against PAL, theCourt of Appeals justified its ruling in this wise, and we quote:[30]

―Lastly, we sustain the trial court‘s ruling dismissing appellant‘s third-partycomplaint against PAL.The contract of air transportation in this case pursuant to the ticket issuedby appellant to plaintiff-appellee was exclusively between the plaintiffMahtani and defendant-appellant BA. When plaintiff boarded the PALplane from Manila to Hongkong, PAL was merely acting as a subcontractoror agent of BA. This is shown by the fact that in the ticket issued byappellant to plaintiff-appellee, it is specifically provided on the ―Conditionsof Contract,‖ paragraph 4 thereof that:

4. x x x carriage to be performed hereunder by severalsuccessive carriers is regarded as a single operation.

The rule that carriage by plane although performed by successive carriersis regarded as a single operation and that the carrier issuing the

passenger‘s ticket is considered the principal party and the other carriermerely subcontractors or agent, is a settled issue.‖ We cannot agree with the dismissal of the third-complaint.In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[31] we

expounded on the nature of a third -party complaint thus:―The third-party complaint is, therefore, a procedural device whereby a‗third party‘ who is neither a party nor privy to the act or deed complained ofby the plaintiff, may be brought into the case with leave of court, by thedefendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any otherrelief, in respect of the plaintiff‘s claim. The third-party complaint is actuallyindependent of and separate and distinct from the plaintiff‘scomplaint. Were it not for this provision of the Rules of Court, it would haveto be filed independently and separately from the original complaint by the

defendant against the third-party. But the Rules permit defendant to bring ina third-party defendant or so to speak, to litigate his separate cause of



























































action in respect of plaintiff‘s claim against a third -party in the original andprincipal case with the object of avoiding circuitry of action andunnecessary proliferation of law suits and of disposing expeditiously in onelitigation the entire subject matter arising from one particular set of facts.‖ Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA,

in view of their contract of carriage. Yet, BA adamantly disclaimed its liability andinstead imputed it to PAL which the latter naturally denies. In other words, BA andPAL are blaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportationwas exclusively between Mahtani and BA, the latter merely endorsing the Manila toHongkong leg of the former‘s journey to PAL, as its subcontractor or agent. In fact,the fourth paragraph of the ―Conditions of Contracts‖ of the ticket

[32] issued by BA toMahtani confirms that the contract was one of continuous air transportation fromManila to Bombay.

―4. x x x carriage to be performed hereunder by several successivecarriers is regarded as a single operation.‖ Prescinding from the above discussion, it is undisputed that PAL, in transporting

Mahtani from Manila to Hongkong acted as the agent of BA.Parenthetically, the Court of Appeals should have been cognizant of the well-

settled rule that an agent is also responsible for any negligence in the performanceof its function[33]and is liable for damages which the principal may suffer by reason ofits negligent act.[34] Hence, the Court of Appeals erred when it opined that BA,being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of theInternational Air Transport Association (IATA), wherein member airlines are regardedas agents of each other in the issuance of the tickets and other matters pertaining totheir relationship.[35] Therefore, in the instant case, the contractual relationshipbetween BA and PAL is one of agency, the former being the principal, since it was theone which issued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling inLufthansa German Airlines v. Court of Appeals.[36] In that case, Lufthansa issued aconfirmed ticket to Tirso Antiporda covering five-leg trip aboard differentairlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda toa specific destination ―bumped‖ him off.

An action for damages was filed against Lufthansa which, however, denied anyliability, contending that its responsibility towards its passenger is limited to the

occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from thereon, it merely acted as a ticketing agent for Air Kenya.

In rejecting Lufthansa‘s argument, we ruled: ―In the very nature of their contract, Lufthansa is clearly the principal in thecontract of carriage with Antiporda and remains to be so, regardless ofthose instances when actual carriage was to be performed by variouscarriers. The issuance of confirmed Lufthansa ticket in favor of Antipordacovering his entire five-leg trip aboard successive carriers concretely attestto this.‖ Since the instant petition was based on breach of contract of carriage, Mahtani

can only sue BA alone, and not PAL, since the latter was not a party to thecontract. However, this is not to say that PAL is relieved from any liability due to anyof its negligent acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not exactly

in point, the case, however, illustrates the principle which governs this particularsituation. In that case, we recognized that a carrier (PAL), acting as an agent of

another carrier, is also liable for its own negligent acts or omission in the performanceof its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaintagainst PAL for the purpose of ultimately determining who was primarily at fault asbetween them, is without legal basis. After all, such proceeding is in accord with thedoctrine against multiplicity of cases which would entail receiving the same or similarevidence for both cases and enforcing separate judgments therefor. It must be bornein mind that the purpose of a third-party complaint is precisely to avoid delay andcircuity of action and to enable the controversy to be disposed of in one suit.[38] It isbut logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proventhat the latter‘s negligence was the proximate cause of Mahtani‘s unfortunateexperience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals inCA-G.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstatingthe third-party complaint filed by British Airways dated November 9, 1990 againstPhilippine Airlines. No costs.

SO ORDERED.































PACIFIC REHOUSE CORPORATION, PACIFICCONCORDE CORPORATION, MIZPAH HOLDINGS,INC., FORUM HOLDINGS CORPORATION, and EAST ASIA OIL COMPANY,INC.,

Petitioners,

- versus -

EIB SECURITIES, INC., Respondent.

G.R. No. 184036

Present:

CORONA, C.J., Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,DEL CASTILLO, andPEREZ, JJ .

Promulgated:

October 13, 2010

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

D E C I S I O N

VELASCO, JR., J .:

The Case

Via this Petition for Review on Certiorari under Rule 45, petitioners seekreversal of the Decision[1] dated April 11, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 87713 which revoked the October 18, 2005 Resolution,[2] a judgment onthe pleadings, of the Regional Trial Court (RTC), Branch 66 in Makati City, in CivilCase No. 05-178 entitled Pacific Rehouse Corporation, Pacific Concorde Corporation,Mizpah Holdings, Inc., et al. v. EIB Securities, Inc ., and remanded the case for furtherproceedings. Also assailed is the CA Resolution [3] dated August 5, 2008 denyingpetitioners‘ motion for reconsideration.

Petitioners‘ initiatory pleading in Civil Case No. 05 -178 reveals the followingaverments:

COMMON ALLEGATIONS FOR ALL CAUSES OF ACTION

1. On various dates during the period June 2003 toMarch 2004, plaintiffs bought 60,790,000 Kuok Properties, Inc.(―KPP‖) shares of stock through the Philippine Stock Exchange(―PSE‖). The KPP shares were acquired by plaintiffs through theirbroker, defendant EIB.

2. The KPP shares of stock were bought by plaintiffs at

an average price of P0.22 per share.

3. Also on various dates in July and August 2003,plaintiffs bought/acquired 32,180,000 DMCI shares of stock throughthe PSE. Of these shares, 16,180,000 were likewise acquired bythe plaintiffs through their broker, defendant EIB, while theremaining 16,000,000 DMCI shares were transferred from WestlinkGlobal Equities, Inc.

4. The DMCI shares of stock were bought by plaintiffs atan average price of P0.38 per share.

5. On 01 April 2004, plaintiffs and defendant EIB agreedto sell the 60,790,000 KPP shares of plaintiffs to any party for theprice of P0.14 per share. Attached as Annexes ―A‖ to ―A-6‖ arecopies of the notices of sales sent by defendant EIB to the plaintiffs,which bear the conformity of plaintiffs‘ representative.

6. As agreed by plaintiffs and defendant, the sale of theKPP shares of plaintiffs was made with an option on the part of theplaintiffs to buy back or reacquire the said KPP shares within aperiod of thirty (30) days from the transaction date, at the buy-backprice of P0.18 per share (See Annexes ―A‖ to ―A-6‖).

7. When the last day of the 30-day buy back period for

the KPP shares came, plaintiff were undecided on whether or not toexercise their option to reacquire said shares. Thus, plaintiffs anddefendant EIB agreed that plaintiffs would have an extended periodof until 03 June 2004 to exercise their option to buy back/reacquirethe KKP shares that had been sold.

8. Eventually, plaintiffs decided not to exercise theiroption to buy back the KPP shares and did not give any buy-backinstruction/s to their broker, defendant EIB.

9. On various dates in June 2004, without plaintiffs‘ priorknowledge and consent, defendant EIB sold plaintiffs 32,180,000DMCI shares of stock for an average price of P0.24 per share.

Defendant EIB sold the DMCI shares of plaintiffs for an averageprice of only P0.24 per share despite full knowledge by defendantEIB that the sale would result in a substantial loss to the plaintiffs ofaround P4.5 Million since plaintiffs acquired the DMCI shares atP0.38 per share. (cf. Article 1888, Civil Code). Attached Annexes―B‖ to ―B-7‖ are the Sell Confirmation slips issued by defendant EIBshowing the unauthorized sale of plaintiffs‘ 32,180,000 DMCIshares.

9.1 The proceeds of said DMCI shares sold bydefendant EIB without plaintiffs‘ knowledge and consentwere used by defendant EIB to buy back 61,100,000 KPPshares earlier sold by plaintiffs on 01 April 2004. Attachedas Annexes ―C‖ to ―C-5‖ are the Buy Confirmation slipsissued by defendant showing the unauthorized ―buy back‖

of KPP shares.

http://sc.judiciary.gov.ph/jurisprudence/2010/october2010/184036.htm#_ftn1












9.2 Defendant EIB sold without authority plaintiffs‘32,180,000 DMCI shares and used the proceeds thereofto buy back 61,000,000 KPP shares because defendantEIB made an unauthorized promise and commitment tothe buyer/s of plantiffs‘ KPP shares in April 2004 thatplaintiffs would buy back the KPP shares.

9.3 Plaintiffs learned of the unauthorized sale of their32,180,000 DMCI shares and the unauthorized ―buy back‖of 61,000,000 KPP shares only much later. Upon furtherinquiry, plaintiffs also learned that all throughout theirbusiness dealings, defendant EIB had surreptitiouslycharged and collected from plaintiffs exorbitant interestamounting to thirty percent (30%) of all amounts owingfrom the plaintiffs.

10. On 05 January 2005, plaintiffs wrote to defendant EIB todemand that their 32,180,000 DMCI shares be transferred toWestlink Global Equities Inc. (―Westlink‖). Copies of the demandletters, all dated 05 January 2005, are attached as Annex ―D‖ to ―D -4‖ respectively.

11. Since the 32,180,000 DMCI shares belonging to plaintiffs

had already been sold by defendant EIB without plaintiffs‘ priorknowledge and consent as early as June 2004, defendant EIBcould not comply with the demand of plaintiffs as stated in theirdemand letters dated 05 January 2005.

12. In his letters to the plaintiffs dated 12 January 2005,defendant EIB admitted having sold the 32,180,000 DMCI shares ofstock of plaintiffs without the latter‘s prior knowledge and consent.Copies of defendant EIB‘s letters to plaintiffs, al l dated 12 January2005, are attached as Annexes ―E‖ to ―E-4‖, respectively.

12.1 Defendant EIB states in its aforesaid letters that itsent statements of account to plaintiffs in July 2004.

Defendant EIB claims, albeit erroneously, that sinceplaintiffs made no exceptions to the statements ofaccount, the sale of plaintiffs‘ DMCI shares in June 2004[was] supposedly ―validly executed‖.

13. Hence, this Complaint.

x x x x

SECOND CAUSE OF ACTION

17. Plaintiffs replead all of the foregoing allegations.

18. The sale by defendant EIB of the 32,180,000 DMCI shares

of plaintiffs was done with malice and fraudulent intent. As such,

defendant should be directed to pay plaintiffs the amount of at leastPhP3,000,000.00 as moral damages.[4]

In response, respondent EIB Securities, Inc. (EIB) submitted its Answerwhich contained the following averments:

ADMISSIONS AND DENIALS:1. Defendant admits the allegations contained inparagraphs under the heading The Parties. Likewise, defendantadmits the allegations contained in paragraph 1.2. Paragraph 2 of the Complaint is specifically denied,the truth of the matter is that the KPP shares of stock were boughtby plaintiffs at an average price of only 18 centavos per share.3. Paragraph 3 is admitted, qualified, however, that theremaining 16,000,000 DMCI shares of plaintiffs were transferred byWestlink Global Equities, Inc. and other brokerages firms to thedefendant primarily to serve as a collateral in the cash accountobligations of the plaintiffs to the defendant.4. Paragraph 4 of the Complaint is specifically denied,the truth of the matter being the DMCI shares of stock were boughtby the plaintiffs at an approximate average price of only 25centavos per share.5. Defendant admits paragraph 5 of the Complaint

insofar as the allegation that plaintiffs and defendant agreed to sellthe 60,790,000 KPP share of plaintiffs to any party for the price of14 centavos per share, qualified, however, by the presence of aprovision ―Full Cross to Seller‖ meaning that the Sellers (who arethe plaintiffs) have the obligation to buy back or reacquire theshares from the buyers.6. Defendant specifically denies paragraph 6 of theComplaint, the truth of the matter and as evidenced by the sameNotices of Sale (Annex‖A‖ to ―A-6‖ of the Complaint), plaintiffs haveno option to buy back or reacquire the said KPP shares, the natureor kind of transaction agreement is Full Cross to seller which is anobligation and not merely an option on the part of the plaintiffs tobuy back or reacquire the said KPP shares sold to buyers.

7. Defendant specifically and vehemently denies theallegations of paragraphs 7 and 8 of the Complaint. The truth of thematter is that there was no extension agreed upon by the parties forthe plaintiffs to exercise option to buy back/reacquire the KuokProperties, Inc. shares of stocks (KKP). The Contracts for the saleof KPP shares of stocks as already stated above and as clearlyshown from the same Annexes ―A‖ to ―A-6‖ of the Complaint was anobligation that there was no extension period given to the plaintiffs.8. Defendant also specifically and vehemently denies theallegations of paragraphs 9 of the Complaint and its sub-paragraphs. The truth of the matter being that under the tradingrules, honoring one‘s obligation is a sacred commitment of stocksand market traders. Considering that in the sale of the KPP sharesthere is an obligation as certified by the word Full Cross to Seller,

the KPP shares of stocks that were sold to buyers have to bebought back 30 days from the transaction date at the Buy Back







Amount of 18 centavos per share and that plaintiffs and defendanthave to honor the said buy back obligation. Considering, however,that plaintiffs were not delivering funds to the defendant in order tohonor the said buy back obligation, not to mention the Cashaccount obligations of the plaintiffs to the defendant amounting tomore or less 70 Million Pesos, defendant had no more recourse butto buy back the KPP shares from the buyers by selling the DMCIshares of the plaintiffs under the defendant‘s possession, and thus,enforcing the provisions of the Securities Dealing Accounts Agreements that was signed by the plaintiffs in favor of thedefendant, a copy of which is hereto attached and made an integralpart hereof as Annex ―1‖. Section 7 of the aforesaid SecuritiesDealing Accounts Agreements states:

―7. Lien The client agrees that all monies and/or securities

and/or all other property of the Client (plaintiffs) in theCompany‘s (defendant) custody or control held from timeto time shall be subject to a general lien in favour ofCompany for the discharge of all or any indebtedness ofthe Client to the Company. The Client shall not be entitledto withdraw any monies or securities held by the Companypending the payment in full to the Company of anyindebtedness of the Client to the Company. The company

shall be entitled at any time and without notice to theClient to retain, apply, sell or dispose of all or any ofthe [client‟s] property if any such obligation or liabilityis not discharged in full by the client when due or ondemand in or towards the payment and discharge ofsuch obligation or liability and the Company shall beunder no duty to the client as to the price obtained orany losses or liabilities incurred or arising in respectof any such sale or disposal. Subject to the relevant lawand regulation on the matter, the client hereby authorizesthe Company, on his/its behalf, at any time and withoutnotice to the client‘s property if any such obligation orliability is not discharged.‖ [Emphasis in the original.]

[Defendant] specifically denies the allegation of theplaintiffs that defendant sold the DMCI shares of plaintiffs for anaverage price of only 24 centavos for the truth of the matter beingthe average price those DMCI shares were sold was P0.2565centavos per share and likewise, that price was the controllingmarket price of DMCI share at the time of the transaction.Defendant likewise, specifically denies the allegation that defendantsurreptitiously charged and collected an interest of 30% from theplaintiff for the truth of the matter is that what defendant did notcharge such interest.

Moreoever, and contrary to the allegations of theComplaint, plaintiffs are fully aware and knowledgeable of the saleof their DMCI shares as early as June 2004 and that the proceedsthereof were not even enough to fully pay the buy back obligation of

the plaintiffs to the buyers of KPP shares of stocks.

Plaintiffs, in order to feign ignorance of the sale of theirDMCI shares had attached in the Complaint various SalesConfirmations Receipts which were marked thereto as Annexes ―B‖to ―B-7‖. Wittingly or unwittingly, plaintiffs attached only theReceipts that do not bear the corresponding acknowledgementsignatures of their respective officers. As averred by the defendant,plaintiffs were fully aware and knowledgeable of the sale of theirDMCI shares as early June 2004, and to expose the real truth,defendant hereto attaches the identical Sales ConfirmationReceipts hereto marked as Annexes “2” to “2-G”.

In the same manner that in each and every SalesConfirmation Receipts (Annexes ―2‖ to ―2-G‖) the followingIMPORTANT NOTICE is written:

―All transaction are subject to the rules andcustoms of the Exchange and its Clearing House. It isagreed that all securities shall secure all my/our liabilitiesto e.securities and is authorized in their discretion to allor any of them without notice to we/us whenever inthe opinion of e.securities my/our account is notproperly secured.‖ [Emphasis in the original.]

Likewise, after each and every transaction, defendant sentStatement of Accounts showing a detailed transaction that wereentered into and that plaintiffs duly received aforesaid Statement of

Accounts from the defendants as evidenced by the signatures ofplaintiffs‘ respective officers hereto marked as Annexes ―3‖ to ―3-G‖.

In each and every Statements of Accounts the followingNotice is clearly printed therein:

―This statement will be considered correct unlesswe receive notice in writing of any exceptions within 5days from receipt. Please address all correspondenceconcerning exceptions to our OPERATIONSDEPARTMENT. Kindly notify us in writing of any changesin your address.‖

Hence, plaintiffs, may have other ulterior motives in filingthis baseless Complaint since they fully knew and consentedalmost a year ago of the nature of their transactions with the

defendant.9. Defendant admits paragraphs 10 to 12 inclusive of thesubparagraphs only to the existence of the plaintiffs‘ demand lettersall dated January 5, 20[0]5, but qualifies that the aforesaid lettershad been answered by the defendant on January 12, 2005. Therest of the allegations are being specifically denied. In defendant‘sreply to the said letters, defendant clearly pointed out that plaintiffshad been duly notified of the subject transactions as early as June9, 2004. That defendant had furnished the plaintiffs as early as July14, 2004 Statements of Accounts of all their transactions for theperiod of June 1-20, 2004 which included the sale of the subjectshares with a clear instruction to notify the defendant in writingwithin five (5) days from receipt thereof of any exception therein.That if no correspondence was received by the defendant from the

plaintiffs, the sale shall be considered as validly executed.[5]







On July 19, 2005, petitioners registered a Motion for Judgment on thePleadings,[6] asserting that EIB materially admitted the allegations of their complaintby not tendering any genuine issue in its answer. This was opposed[7] by EIB, withboth parties subsequently filing their respective reply and rejoinder. On October 7,2005, petitioners moved that the trial court resolve their motion for judgment on thepleadings.

The Ruling of the RTC

On October 18, 2005, the RTC rendered its judgment on the pleadingsthrough a Resolution, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is herebyrendered directing the defendant [EIB] to return the plaintiffs‘[petitioners] 32,180,000 DMCI shares, as of judicial demand.

On the other hand, plaintiffs are directed to reimburse thedefendant the amount of P10,942,200.00, representing the buyback price of the 60,790,000 KPP shares of stocks at P0.18 pershare.

Defendant‘s Motion to Discharge Writ of Preliminary Attachment, based on the submitted counter bond issued by Intra

Strata Assurance Corporation is hereby GRANTED.

SO ORDERED.[8]

The trial court found merit in rendering a judgment on the pleadings: first ,the assailed transactions were all documented; second , the transactions wereadmitted by the parties; and third , the main issues can be resolved based on theparties‘ documentary evidence appended to the pleadings.

The RTC, interpreting the agreement agreed upon by the parties, held thatthe sale of the Kuok Properties, Inc. (KKP) shares was with a buy-back obligation andnot an option as petitioners argued. However, it found that, as per their notices of

sale agreements, the collateral for the sale transactions is the same KKPshares. Thus, it held that EIB erred in selling the DMCI shares instead of the KKPshares which served as collateral. It ruled that Section 7 of the Securities Dealings Account Agreement (SDAA) does not apply, since it provided for a general agreementexecuted prior to the subsequent and specific agreements entered into by the partiesspecifically for the sale and repurchase of the KKP shares. Thus, the trial courtconcluded that EIB went beyond its authority in selling petitioners‘ DMCI shares inorder to buy back the KKP shares.

Anent petitioners‘ apparent lack of objection to the account statementsissued by EIB and the sales confirmation receipts covering the sale of DMCI shares,the RTC viewed it as not constituting ratification by petitioners for said documents didnot disclose the purpose of the sale, applying the rule that any ambiguity in a writtendocument should be strictly construed against the party who caused its

preparation. In fine, it held that since the parties‘ relation is fiduciary in nature, with

more reason that EIB should have been more forthright in getting the prior consent ofpetitioners before selling the DMCI shares.

EIB timely filed its motion for partial reconsideration of the RTC Resolutiondated October 18, 2005. In the meantime, EIB moved to inhibit Judge Rommel O.Baybay from further handling the case. Both motions of EIB were opposed bypetitioners.

On April 28, 2006, RTC Judge Baybay inhibited himself .[9]

Subsequently, on July 26, 2006, the RTC, Branch 66, through its newPresiding Judge, Joselito C. Villarosa, denied EIB‘s motion for partialreconsideration.[10] After oral arguments on June 23, 2006, the RTC affirmed thepropriety of the judgment on the pleadings rendered by Pairing JudgeBaybay. Citing Savellano v. Northwest Airlines,[11] on the strict construal of anyambiguity on a written document on the party issuing it, the trial court reiterated itsruling that petitioners are not estopped from assailing the sale by EIB of their DMCIshares, for the sale confirmation receipts do not disclose the purpose of the salesmade.

The Ruling of the CA

On April 11, 2008, the appellate court rendered the assailed decision,

revoking the RTC‘s judgment on the pleadings and remanding the case back to theRTC for further proceedings. The fallo reads:

WHEREFORE, premises considered, the instant appealis GRANTED. Accordingly, the Court a quo‘s Resolution dated 18October 2005 is REVOKED and SET ASIDE and this case isordered remanded to the Court a quo which is directed to conductfurther proceedings hereof with dispatch.

SO ORDERED.[12]

While EIB raised six issues on appeal, the CA resolved ––what it considered

the pivotal issue ––the propriety of the rendition by the trial court of a judgment on thepleadings. The CA found that while some material allegations in petitioners‘complaint were admitted by EIB, the latter‘s answer nonetheless raised other genuineissues which it viewed can only be threshed out in a full- blown trial, like ―the averageprice of the KPP shares of stock, the scope of the collaterals stated in the Notices ofSale and the monetary claims of the Appellant [EIB] against the Appellees[petitioners].‖

[13]

Petitioners filed their motion for reconsideration, while EIB filed aManifestation with Motion for Clarification/Deletion which was opposed bypetitioners. In its motion for clarification/deletion, EIB took exception to the appellatecourt‘s pronouncement that it (EIB) admitted the sale of petitioners‘ DMCI shares forthe purpose of buying back the KKP sha res, which strengthened petitioners‘ claim ofthe nullity of the sale. Both motions were denied by the assailed resolution issued on

August 5, 2008.



































Thus, we have this petition.

The Issues

I

CONTRARY TO THE RULING OF THE COURT OF APPEALS,THE TRIAL COURT WAS CORRECT IN RENDERINGJUDGMENT ON THE PLEADINGS IN THE CASE BEFORE IT.

II

THE TRIAL COURT WAS CORRECT IN RULING THATPETITIONERS‘ DMCI SHARES COULD NOT BE SOLD BYRESPONDENT EIB UNDER THE NOTICES OF SALE.

III

THE TRIAL COURT WAS CORRECT IN HOLDING THATRESPONDENT EIB COULD NOT INVOKE SECTION 7 OF THESECURITIES DEALINGS ACCOUNT AGREEMENT AS BASISFOR THE SALE OF PETITIONERS‘ DMCI SHARES.

IV

THE TRIAL COURT WAS CORRECT IN HOLDING THATPETITIONERS WERE NOT BARRED BY RATIFICATION,LACHES OR ESTOPPEL FROM QUESTIONING THEUNAUTHORIZED SALE OF THEIR DMCI SHARES.

V

THE TRIAL COURT HAD JURISDICTION OVER THE CASEFILED BEFORE IT BY PETITIONERS WHO HAD FULLY PAIDTHE DOCKET FEES ASSESSED BY THE CLERK OF COURT.

VIUNDER PREVAILING JURISPRUDENCE, THE PAIRING JUDGEDID NOT COMMIT GRAVE ABUSE OF DISCRETION. IN ANYEVENT, THE APPOINTMENT OF A PRESIDING JUDGE WHOEVENTUALLY DENIED RESPONDENT‘S MOTION FORRECONSIDERATION RENDERED THE MATTER MOOT AND ACADEMIC.[14]

The Court‟s Ruling

We grant the petition.

Threshold Issue: Proper Payment of Docket Fees

EIB asserts that the trial court has no jurisdiction over the complaint onaccount of insufficient dockets fees. Although petitioners paid a total of PhP120,758.80[15] in legal fees with the RTC, EIB argues that what was paid is basedmerely on petitioners‘ prayer for moral damages of PhP 3 million, exemplarydamages of PhP 3 million, and attorney‘s fees of PhP 2 million, but not includingpetitioners‘ claim for PhP 4.5 million as actual damages as averred in paragraph 9 ofthe complaint. Thus, EIB, relying on Manchester Development Corporation v. Courtof Appeal s

[16] (Manchester ) and Sun Insurance Office, Ltd. v. Asuncion,[17]maintains

that the RTC should not have entertained the case.

It is hornbook law that courts acquire jurisdiction over a case only uponpayment of the prescribed docket fee. A plain reading of the prayer does not showthat petitioners asked for the payment of actual damages of PhP 4.5 million. Thereliefs asked by petitioners in the prayer are:

1. Upon the filing of the Complaint, a writ of preliminaryattachment be issued ex parte against defendant pursuant toSection 2, Rule 57 of the 1997 Rules of Civil Procedure;

2. After trial, judgment rendered in favor of plaintiffs and againstdefendant as follows:

On the FIRST CAUSE OF ACTION – declaring void thesale by defendant of the 32,180,000 DMCI shares of stock of

plaintiffs and directing defendant to return to plaintiffs thelatter‘s 32,180,000 DMCI shares of stock, or in the event thereturn thereof is not possible, holding defendant liable under Articles 1888,1889,1909 and other pertinent provisions of theCivil Code.

On the SECOND CAUSE OF ACTION – directingdefendant to pay plaintiffs moral damages in the amount of atleast P3,000,000.00;

On the THIRD CAUSE OF ACTION – directing defendantto pay plaintiffs exemplary damages in the amount of at leastP3,000,000.00; and

On the FOURTH CAUSE OF ACTION – directingdefendant to pay plaintiffs attorney‘s fees in the amount of

P2,000,000.00 and such amounts as may be proven at the trialas litigation expenses.Other just and equitable relief are likewise prayed for .[18]

Since the prayer did not ask for the payment of actual damages of PhP 4.5million, the clerk of court correctly assessed the amount of PhP 120,758.80 as docketfees based on the total amount of PhP 8 million consisting of PhP 3 million as moraldamages, PhP 3 million as exemplary damages, and PhP 2 million as attorney‘s fees.

In disputing the fees paid by petitioners, respondent relies on our rulingin Manchester , where we said that ―all complaints, petitions, answers and othersimilar pleadings should specify the amount of damages being prayed for not only inthe body of the pleading but also in the prayer, and said damages shall be consideredin the assessment of the filing fees in any case.‖

[19]


























EIB insinuates that petitioners, by alleging the substantial loss of PhP 4.5million from the sale of the DMCI shares but not specifying the amount in their prayer,circumvented the Manchester ruling to evade the payment of the correct filing fees.This postulation is incorrect. It is clear that petitioners demanded the return of theDMCI shares in the prayer of the complaint and NOT the alleged loss in the value ofthe shares. If the DMCI shares are returned, then no actual damages are suffered bypetitioners. A recall of the averment in par. 9 of the complaint shows that the allegedloss of PhP 4.5 million to petitioners resulted from the sale of DMCI shares at PhP0.24 per share when they acquired it at PhP 0.38 per share. More importantly, thecourt was proscribed by the Manchester ruling from granting actual damages of PhP4.5 million to petitioners, because precisely the alleged damages were never soughtin the prayer. Ergo, EIB‘s attack on the trial court‘s assumption of jurisdiction mustfail.

Procedural Issue: Judgment on the Pleadings

At the outset, we lay stress on the Court‘s policy that cases should bepromptly and expeditiously resolved. The Rules of Court seeks to abbreviate courtprocedure in order to allow the swift disposition of cases. Specifically, specialstrategies like demurrer to evidence, judgment on the pleadings, and summary judgment were adopted to attain this avowed goal. Full-blown trial is dispensed withand judgment is rendered on the basis of the pleadings, supporting affidavits,

depositions, and admissions of the parties.

In the instant petition, the Court is confronted with the propriety of the judgment on the pleadings rendered by the Makati City RTC. Petit ioners claim suchadjudication on said papers and attachments is proper.

The petitioner‘s position is impressed with merit.

Rule 34 of the Rules of Court provides that ―where an answer fails to tenderan issue or otherwise admits the material allegations of the adverse party‘s pleading,the court may, on motion of that party, direct judgment on such pleading.‖ Judgmenton the pleadings is, therefore, based exclusively upon the allegations appearing in thepleadings of the parties and the annexes, if any, without consideration of any

evidence aliunde.

[20]

When what is left are not genuinely issues requiring trial but questions

concerning the proper interpretation of the provisions of some written contractattached to the pleadings, judgment on the pleadings is proper .[21]

From the pleadings, the parties admitted the following facts:

(1) EIB is the stockbroker of petitioners.

(2) Petitioners and EIB entered into a SDAA, Annex ―1‖ of EIB‘s answer,which governed the relationship between petitioners as clients and EIB asstockbroker. Sec. 7 of the SDAA provides:

7. Lien

The client agrees that all monies and/or securities and/orall other property of the Client (plaintiffs) in the Company‟s(defendant) custody or control held from time to time shall besubject to a general lien in favour of Company for thedischarge of all or any indebtedness of the Client to theCompany. The Client shall not be entitled to withdraw anymonies or securities held by the Company pending thepayment in full to the Company of any indebtedness of theClient to the Company. The company shall be entitled at any timeand without notice to the Client to retain, apply, sell or dispose of allor any of the [client‘s] property if any such obligation or liability isnot discharged in full by the client when due or on demand in ortowards the payment and discharge of such obligation or liabilityand the Company shall be under no duty to the client as to the priceobtained or any losses or liabilities incurred or arising in respect ofany such sale or disposal. Subject to the relevant law andregulation on the matter, the client hereby authorizes the Company,on his/its behalf, at any time and without notice to the client‘sproperty if any such obligation or liability is notdischarged.[22] (Emphasis supplied.)

It is clear from the SDAA that all monies, securities, and other properties ofpetitioners in EIB‘s custody or control shall be subject to a general lien in favor ofthe latter solely for the discharge of all or any indebtedness to EIB.

(3) From June 2003 to March 2004, petitioners, through their broker, EIB,bought 60,790,000 KKP shares of stock at the Philippine Stock Exchange (PSE).

(4) On various dates in July and August 2003, petitioners bought16,180,000 DMCI shares of stock through EIB likewise at the PSE, while 16,000,000DMCI shares of petitioners were transferred to EIB by Westlink Global Equities, Inc.Thus, a total of 32,180,000 DMCI shares of stock owned by petitioners were placed inthe custody or control of EIB.

(5) On April 1, 2004, petitioners ordered the sale of 60,790,000 KPP sharesto any buyer at the price of PhP 0.14 per share. The KPP shares were eventually soldat PhP 0.14 per share to interested buyers.

(6) Petitioners failed to reacquire or buy back the KPP shares at PhP 0.18per share after 30 days from date of transaction.

(7) As petitioners failed to deliver funds to EIB to honor the buy-backobligation, not to mention the cash account obligations of petitioners in the amount ofPhP 70 million to EIB, EIB had no recourse but to sell the DMCI shares of petitionersto reacquire the KPP shares.

(8) Thus, on various dates in June 2004, EIB, without petitioners‘ knowledgeand consent, sold petitioners‘ 32,180,000 DMCI shares at the controlling market

price. EIB later sent sales confirmation receipts to petitioners regarding the sale oftheir DMCI shares, said receipts containing the common notice, which reads:















All transaction[s] are subject to the rules and customs of

the Exchange and its Clearing House. It is agreed that allsecurities shall secure all my/our liabilities to e.securities andis authorized in their discretion to sell all or any of them withoutnotice to we/us whenever in the opinion of e.securities my/ouraccount is not properly secured.[23] (Emphasis supplied.)

(9) EIB sent statements of accounts to petitioners showing the sale of theDMCI shares which uniformly contained the following notice:

This statement will be considered correct unless we receivenotice in writing of any exceptions within 5 days from receipt.Please address all correspondence concerning exceptions to ourOPERATIONS DEPARTMENT. Kindly notify us in writing of anychanges in your address.[24]

(10) On January 12, 2005, petitioners wrote EIB demanding the return ofthe 32,180,000 DMCI shares.

(11) On January 12, 2005, EIB rejected petitioners demand for the return ofthe DMCI shares, as those were already sold to cover the buy back of the KPP

shares.

(12) Petitioners‘ prayer is the return of the 32,180,000 DMCI shares by EIBto them.

The principal issue in petitioners‘ complaint is whether EIB can be compelledto return DMCI shares to petitioners based on the alleged unauthorized disposal orsale of said shares to comply with the buy back of the KKP shares. The thresholdissue raised in the answer is the lack of jurisdiction over the complaint due to thealleged nonpayment of the proper docket fees. Affirmative defenses presented arethat EIB disposed of the DMCI shares pursuant to Sec. 7 of the SDAA, and thenotices of sale, ratification and laches.

Based on the admissions in the pleadings and documents attached, theCourt finds that the issues presented by the complaint and the answer can beresolved within the four corners of said pleadings without need to conduct furtherhearings. As explained by the Court in Philippine National Bank v. Utility Assurance &Surety Co., Inc .,[25] when what remains to be done is the proper interpretation ofthe contracts or documents attached to the pleadings, then judgment on thepleadings is proper . In the case at bar, the issue of whether the sale of DMCIshares to effectuate the buy back of the KKP shares is valid can be decided by thetrial court based on the SDAA, Notices of Sale, Sales Confirmation Receipts, theletters of the parties, and other appendages to the pleadings in conjunction with theallegations or admissions contained in the pleadings without need of trial. The MakatiCity RTC is, therefore, correct in issuing the October 18, 2005 Resolution granting theMotion for Judgment on the Pleadings.

The CA nullified the October 18, 2005 Resolution on the ground that thereare other issues that must be resolved during a full-blown trial, ratiocinating this way:

While it may be true that the Appellant has alreadyadmitted that the sale of the DMCI shares was for the purpose ofbuying back the KPP shares and that such admission strengthened Appellees‘ claim that the sale of the DMCI shares is a nullity, therewere other issues raised by the Appellant that can only be threshedout during a full blown trial, viz : the average price of the KPPshares of stock, the scope of the collaterals stated in the Notices ofSale and the monetary claims of the Appellant against the Appellees.[26]

To the mind of the Court, these matters are not genuinely triable issues butactually minor issues or mere incidental questions that can be resolved by construingthe statements embodied in the appendages to the pleadings. The facts that gaverise to the side issues are undisputed and were already presented to the trial courtrendering trial unnecessary.

On the disparity in the average price of KPP shares of stock, petitionersclaim that the average purchase price of the KPP share is PhP 0.22 per share (par. 2of the complaint), while EIB claims it is only PhP 0.18 per share (par. 2 of theanswer). The dissimilarity in the acquisition price paid by petitioners for the KPPshares is a non-issue, since the relief prayed for is the return of the DMCI shares andnot the KPP shares. Petitioners did not even claim actual damages in the prayer of

the complaint.

On the scope of the collaterals stated in the Notices of Sale, it is clear fromthe notices that the collateral is ―KPP Shares/Property‖:

April 01, 2004

PACIFIC REHOUSE CORP.Makati CityPhilippine[s]

RE: SALE OF KUOK PROPERTIES INC., (KPP)

As agreed upon the above mentioned stock will be sold to a partywith the following conditions attached:

NUMBER OF SHARES : 5,800,000/SHARES AMOUNT @ SHARE : PHP 0.14CHARGES : Sellers AccountBUY BACK DATE : after 30 days (used on transaction date)BUY BACK AMOUNT : PHP 0.18DATE OF EXECUTION : APRIL 01, 200[4]KIND OF TRANSACTION : FULL CROSS TO SELLERCOLLATERAL : KPP SHARES/PROPERTY

For and behalf of EIB Securities.

[Signed]



















PAULINE TAN[27]

April 01, 2004

FORUM HOLDINGS CORP.Makati CityPhilippine[s]





[Signed]PAULINE TAN[28]

April 01, 2004

MIZPAH HOLDINGS INC.Makati CityPhilippine[s]






April 01, 2004

REXLON REALTY GROUP INC.Makati CityPhilippine[s]






April 01, 2004

RECOVERY DEVELOPMENT CORP.Makati CityPhilippine[s]



NUMBER OF SHARES : 12,350,000/SHARES AMOUNT @ SHARE : PHP 0.14CHARGES : Sellers AccountBUY BACK DATE : after 30 days (used on transaction date)BUY BACK AMOUNT : PHP 0.18DATE OF EXECUTION : APRIL 01, 200[4]

KIND OF TRANSACTION : FULL CROSS TO SELLERCOLLATERAL : KPP SHARES/PROPERTY

















April 01, 2004

PACIFIC WIDE REALTY DEVELOPMENT CORP.Makati CityPhilippine[s]



NUMBER OF SHARES : 9,000,000/SHARES AMOUNT @ SHARE : PHP 0.14CHARGES : Sellers AccountBUY BACK DATE : after 30 days (used on transaction date)BUY BACK AMOUNT : PHP 0.18DATE OF EXECUTION : APRIL 01, 200[4]

KIND OF TRANSACTION : FULL CROSS TO SELLERCOLLATERAL : KPP SHARES/PROPERTY

For and behalf of EIB Securities


The determination of the collateral in said notices can easily be made fromthe notices itself and Sec. 7 of the SDAA. The KPP shares stated in the notices referto the KPP shares owned by the ―Petitioners‖ and sold to third parties by EIB. Theword ―Property‖ in the notices is elucidated in the aforementioned Sec. 7 as ―allmonies and/or securities and/or all other property of the Client in the company‘scustody or control held from time to time (Client‘s Property) x x x.‖ These propertiesshall be subject to ―a general lien in favour of the Company for the discharge of all orany indebtedness and other obligations of the client to [EIB].‖

[33] Thus, the DMCIshares owned by petitioners are covered by the word ―Property‖ in the Notices ofSale.

On the monetary claims by petitioners against EIB, said claims are not a barto a judgment on the pleadings. While it was averred by petitioners under par. 9 of thecomplaint that they suffered a loss of PhP 4.5 million from the sale of the DMCIshares, the claim for actual damages was not set up as a relief in the prayer and,therefore, the Manchester doctrine precludes such award to petitioners. Anent theclaim for moral damages of PhP 3 million, exemplary damages of PhP 3 million, andattorney‘s fees of PhP 2 million, the claim is not proper in a judgment on the

pleadings in the absence of proof .[34] Sans such proof extent on record, the claim fordamages is a non-issue.

In sum, there are no genuine issues that cannot be determined based onthe pleadings. Ergo, the assailed October 18, 2005 Resolution of the Makati CityRTC granting judgment on the pleadings is in accord with Rule 34 of the Rules ofCourt and settled jurisprudence.

Authority of EIB to Sell DMCI Shares of Petitioners

Petitioners assert the inapplicability of Sec. 7 of the SDAA to their liability toreacquire the KKP shares, as the DMCI shares were not sold to pay for their PhP 70million obligation to EIB but to settle their obligation to the buyers of their KKPshares.

Petitioners‘ position is impressed with merit. We rule that EIB has no legalauthority to sell the DMCI shares for the purpose or reacquiring the KKP shares.

Sec. 7 of the SDAA pertains to outstanding obligations or indebtedness ofpetitioners to EIB but does not cover any obligation of petitioners to third-partypurchasers to reacquire its KKP shares under the ―full cross to seller‖ buy -backobligation subject of the various notices of sale.

Let us scrutinize anew Sec. 7 of the SDAA:

7. Lien

The client agrees that all monies and/or securities and/orall other property of the Client (plaintiffs) in the Company‟s(defendant) custody or control held from time to time shall besubject to a general lien in favour of Company for thedischarge of all or any indebtedness of the Client to theCompany. The Client shall not be entitled to withdraw any moniesor securities held by the Company pending the payment in full tothe Company of any indebtedness of the Client to the Company.The company shall be entitled at any time and without notice to theClient to retain, apply, sell or dispose of all or any of the [client‘s]property if any such obligation or liability is not discharged in full bythe client when due or on demand in or towards the payment anddischarge of such obligation or liability and the Company shall beunder no duty to the client as to the price obtained or any losses orliabilities incurred or arising in respect of any such sale ordisposal. Subject to the relevant law and regulation on the matter,the client hereby authorizes the Company, on his/its behalf, at anytime and without notice to the client‘s property if any such obligationor liability is not discharged. (Emphasis supplied.)

As couched, the lien in favor of EIB attaches to any money, securities, orproperties of petitioners which are in EIB‘s possession for the discharge of all or any

indebtedness and obligations of petitioners to EIB. For this, petitioners are alsobarred from withdrawing its assets that are in the possession of EIB pending full

















payment by petitioners of their indebtedness to EIB. The above proviso also givesEIB the authority to sell or dispose of petitioners‘ securities or properties in itspossession to pay for petitioners‘ indebtedness to EIB. It is, thus, evident from theabove SDAA provision that said lien and authority granted to EIB to dispose ofpetitioners‟ securities or properties in the former‟s possession apply only todischarge and pay off petitioners‟ indebtedness to EIB and nothing more.

Sec. 7 of the SDAA does not apply to petitioners‘ obligations to third -partypurchasers of their KKP shares under the ―full cross to seller‖ obligation, and certainlyEIB could not use said provision for the repurchase of the KKP shares. Indubitably,the sale of the DMCI shares made by EIB is null and void for lack of authority to doso, for petitioners never gave their consent or permission to the sale.

Moreover, Article 1881 of the Civil Code provides tha t ―the agent must actwithin the scope of his authority.‖ Pursuant to the authority given by the principal, theagent is granted the right ―to affect the legal relations of his principal by theperformance of acts effectuated in accordance with the principal‘s manifestation ofconsent.‖[35] In the case at bar, the scope of authority of EIB as agent of petitioners is―to retain, apply, sell or dispose of all or any of the client‘s [petitioners‘] property,‖ if allor any indebtedness or other obligations of petitioners to EIB are not discharged in fullby petitioners ―when due or on demand in or towards the payment and discharge ofsuch obligation or liability.‖ The right to sell or dispose of the properties of petitionersby EIB is unequivocally confined to payment of the obligations and liabilities of

petitioners to EIB and none other. Thus, when EIB sold the DMCI shares to buy backthe KKP shares, it paid the proceeds to the vendees of said shares, the act of whichis clearly an obligation to a third party and, hence, is beyond the ambit of its authorityas agent. Such act is surely illegal and does not bind petitioners as principals of EIB.

As a last-ditch effort, EIB seeks refuge from the notices of sales it issued topetitioners:

Let us scrutinize a typical notice of sale issued to petitioners, thus:

RE: SALE OF KUOK PROPERTIES INC. (KPP)


NUMBER OF SHARES : x x x/SHARES AMOUNT @ SHARE : PHP 0.14CHARGES : Sellers AccountBUY BACK DATE : After 30 days [based on

transactionDate]

BUY BACK AMOUNT : PHP 0.18DATE OF EXECUTION : APRIL 1, 200[4]KIND OF TRANSACTION : FULL CROSS TO SELLERCOLLATERAL : KPP SHARES/PROPERTY


[Signed]PAULINE TAN

The above notice states that the collateral is KPP Shares/Property.

EIB asserts that the word ―Property‖ refers to all the ―monies and/or securitiesand/or all other property‖ of petitioners in EIB‘s custody or control pursuant to Sec. 7of the SDAA. This postulation is correct. The DMCI shares are included in the word―Property‖ under Sec. 7 of the SDAA. However, EIB‘s theory stops there. As earlierexplained, the SDAA, more particularly its Sec. 7, cannot be made the legal basis forEIB to sell petitioners‘ properties in its possession or custody to pay petitioners‘obligations to third parties. The SDAA is confined only to obligations of petitioners toEIB and not to third parties like the purchases of the KKP shares. Thus, the sale ofthe DMCI shares to buy back the KPP shares is illegal and ineffective, since it is onlyanswerable for the liabilities of petitioners to EIB and no one else.

The notices of sale issued by EIB covering the sale of the KKP shares ofpetitioners clearly show that the very same KKP shares sold to third parties albeitunder a buy-back arrangement and the ―Property‖ of petitioners were made thecollaterals to secure the payment of the reacquisition. Since the possession of theKKP shares and the ―Property‖ were placed in EIB, a third party by commonagreement, then the accessory contract in the case at bar is a contract of pledge

governed by Arts. 2085 to 2092 of the Civil Code, which are provisions common topledge and mortgage, and Arts. 2093 to 2139 on pledge.

The query is whether or not the pledge on ―KKP Shares/Property‖ isvalid. The answer is no.

Art. 2085 of the Civil Code provides:

Art. 2085. The following requisites are essential to thecontracts of pledge and mortgage:

(1) That they be constituted to secure thefulfillment of a principal obligation;

(2) That the pledgor or mortgator be the absoluteowner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge ormortgage have the free disposal of their property, and in theabsence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principalobligation may secure the latter by pledging or mortgaging theirown property.

It is indispensable that the pledgor is the absolute owner of the thingpledged (second element). In the case at bar, the KKP shares were sold to third

parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownershipover the KKP shares. Hence, from the time of the sale, petitioners were no longer the







absolute owners of said shares, making the pledge constituted over said KKP sharesnull and void.[36]

Also, it is necessary under Art. 2085 that the person constituting the pledge hasthe free disposal of his or her property, and in the absence of that free disposal, thathe or she be legally authorized for the purpose (third element). This element is absentin the case at bar. Petitioners no longer have the free disposal of the KKP shareswhen EIB sold said shares at the stock exchange as they are no longer the owners ofthe shares. Thus, there was no valid pledge constituted on the KKP shares.

The notice of sale, assuming it incorporates the accessory contract of pledge,merely stated ―Property‖ as collateral in addition to KKP shares. This is a blatantviolation of Art. 2096, which provides that ―a pledge shall not take effect against thirdpersons if description of the thing pledged and the date of the pledge do not appear ina public instrument.‖ The thing pledged must be amply and clearly described andspecifically identified. Evidently, the word ―Property‖ is vague, broad, and confusingas to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of theCode. Worse, the notice of sale is not in a public instrument as required by said legalprovision; therefore, the pledge on ―property‖ is void and without legal effect.

Moreover, the notices of sale must be construed against EIB. Any ambiguity ina contract whose terms are susceptible of different interpretations must be readagainst the party who drafted it.[37]

The DMCI shares which EIB construed to be included within the ambit of theword ―property‖ cannot be considered the thing pledged to secure the buy back of theKKP shares in view of the vagueness of the word ―Property‖ and the non -applicabilityof the SDAA to the sale of the KKP shares.

Lastly, the appellate court ruled that the affirmative defense of estoppel wasraised by EIB due to the alleged failure of petitioners to object to the sale of the DMCIshares.

The principle of estoppel rests on the rule that:

[W]here a party, by his or her deed or conduct, hasinduced another to act in particular manner, estoppel effectivelybars the former from adopting an inconsistent position, attitude orcourse of conduct that causes loss or injury to the latter. Thedoctrine of estoppel is based upon the grounds of public policy, fairdealing, good faith and justice, and its purpose is to forbid one tospeak against his own act, representations, or commitments to theinjury of one whom they were directed and who reasonably reliedthereon.[38]

The essential elements of estoppel as related to the party estopped are: (1)conduct which amounts to a false representation or concealment of material facts, or,at least, which calculated to convey the impression that the facts are otherwise than,and inconsistent with, those which the party subsequently attempts to assert; (2)

intention, or at least expectation, that such conduct shall be acted upon by the otherparty; and (3) knowledge, actual or constructive, of the actual facts.[39]

Reliance by respondent EIB on estoppel is misplaced. The first elementdoes not obtain from the factual setting presented by the pleadings, attachments, andadmissions. There is no allegation that petitioners performed an act which can beconsidered as false representation that EIB can sell their DMCI shares to reacquirethe KKP shares, or concealed a material fact. Sec. 7 of the SDAA is unequivocal thatEIB can only sell the shares of petitioners for payment of any indebtedness to EIB.There was no act or concealment on the part of petitioners that made known orconveyed the impression to EIB that it can sell the DMCI shares of petitioners for thelatter‘s indebtedness or obligation to a third party in contravention of EIB‘s authority

under Sec. 7 of the SDAA. Moreover, the second element is also absent. There wasno showing that petitioners authorized EIB to pay a third party from the proceeds ofthe sale of their DMCI shares. Lastly, on the third element, petitioners had noknowledge of the fact that the proceeds of the sale of DMCI shares were paid to buyback the KPP shares. Reliance of EIB on the sales confirmation receipts [40]issued topetitioners does not help any. The condition printed on said receipts explicitly statesthat the ―securities shall secure [petitioners‘] liabilities to e.securities.‖ Even theaccount statements[41] issued by EIB do not reflect the payment of the proceeds of thesale of DMCI shares owned by petitioners to buy back the KKP shares previouslyowned by petitioners. All that these accounts show is the crediting of the proceeds ofthe sale of DMCI shares to petitioners and nothing more. There was no disclosure ofthe purpose of the sale of the DMCI shares. Clearly, there is no estoppel.

WHEREFORE, the petition is GRANTED. The CA Decision dated April 11,2008 in CA-G.R. CV No. 87713 is REVERSED and SET ASIDE. The RTC Resolutiondated October 18, 2005 in Civil Case No. 05-178 is hereby REINSTATED.

No costs.

SO ORDERED.


























[G.R. No. 125138. March 2, 1999]NICHOLAS Y. CERVANTES, petit ioner, vs. COURT OF APPEALS AND THE

PHILIPPINE AIR LINES, INC., respondent . D E C I S I O N

PURISIMA, J .:This Petition for Review on certiorari assails the 25 July 1995 decision of the

Court of Appeals[1] in CA GR CV No. 41407, entitled ―Nicholas Y. Cervantes vs.Philippine Air Lines Inc.‖, affirming in toto the judgment of the trial court dismissingpetitioner‘s complaint for damages. On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issuedto the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket forManila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided anexpiry of date of one year from issuance, i.e., until March 27, 1990. The issuance ofthe said plane ticket was in compliance with a Compromise Agreement entered intobetween the contending parties in two previous suits, docketed as Civil Case Nos.3392 and 3451 before the Regional Trial Court in Surigao City.[2]

On March 23, 1990, four days before the expiry date of subject ticket, thepetitioner used it. Upon his arrival in Los Angeles on the same day, he immediatelybooked his Los Angeles-Manila return ticket with the PAL office, and it was confirmedfor the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in SanFrancisco, and considering that he would be there on April 2, 1990, petitioner madearrangements with PAL for him to board the flight in San Francisco instead of

boarding in Los Angeles.On April 2, 1990, when the petitioner checked in at the PAL counter in SanFrancisco, he was not allowed to board. The PAL personnel concerned marked thefollowing notation on his ticket: ―TICKET NOT ACCEPTED DUE EXPIRATION OFVALIDITY.‖

Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach ofcontract of carriage docketed as Civil Case No. 3807 before Branch 32 of theRegional Trial Court of Surigao del Norte in Surigao City. But the said complaint wasdismissed for lack of merit.[3]

On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a Decision, on July 25, 1995, upholding the dismissalof the case.

On May 22, 1996, petitioner came to this Court via the Petition for Review underconsideration.

The issues raised for resolution are: (1) Whether or not the act of the PALagents in confirming subject ticket extended the period of validity of petitioner‘s ticket;(2) Whether or not the defense of lack of authority was correctly ruled upon; and (3)Whether or not the denial of the award for damages was proper.

To rule on the first issue, there is a need to quote the findings below. As a rule,conclusions and findings of fact arrived at by the trial court are entitled to great weighton appeal and should not be disturbed unless for strong and cogent reasons.[4] The facts of the case as found by the lower cour t[5] are, as follows:―The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it isnot valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 ofthe Conditions of Contract (Exhibit 1, page 2) as follows:"8. This ticket is good for carriage for one year from date of issue, except asotherwise provided in this ticket, in carrier‘s tariffs, conditions of carriage, or related

regulations. The fare for carriage hereunder is subject to change prior to

commencement of carriage. Carrier may refuse transportation if the applicable farehas not been paid.‖[6]

The question on the validity of subject ticket can be resolved in light of the rulingin the case of Lufthansa vs. Court of Appeals

[7]. In the said case, the Tolentinos were

issued first class tickets on April 3, 1982, which will be valid until April 10,1983. OnJune 10, 1982, they changed their accommodations to economy class but thereplacement tickets still contained the same restriction. On May 7, 1983, Tolentinorequested that subject tickets be extended, which request was refused by thepetitioner on the ground that the said tickets had already expired. The non-extensionof their tickets prompted the Tolentinos to bring a complaint for breach of contract ofcarriage against the petitioner. In ruling against the award of damages, the Courtheld that the ―ticket constitute the contract between the parties. It is axiomatic thatwhen the terms are clear and leave no doubt as to the intention of the contractingparties, contracts are to be interpreted according to their literal meaning.‖

In his effort to evade this inevitable conclusion, petitioner theorized that theconfirmation by the PAL‘s agents in Los Angeles and San Francisco changed thecompromise agreement between the parties.

As aptly ruled by the appellate court:―xxx on March 23, 1990, he was awar e of the risk that his ticket could expire, as it did,before he returned to the Philippines.‘ (pp. 320-321, Original Records)‖

[8] ―The question is: ‗Did these two (2) employees, in effect , extend the validity or

lifetime of the ticket in question? The answer is in the negative. Both had no authorityto do so. Appellant knew this from the very start when he called up the Legal

Department of appellee in the Philippines before he left for the United States of America. He had first hand knowledge that the ticket in question would expire onMarch 27,1990 and that to secure an extension, he would have to file a writtenrequest for extension at the PAL‘s office in the Ph ilippines (TSN, Testimony ofNicholas Cervantes, August 2, 1991, pp 20-23). Despite this knowledge, appellantpersisted to use the ticket in question.‖

[9] From the aforestated facts, it can be gleaned that the petitioner was fully aware

that there was a need to send a letter to the legal counsel of PAL for the extension ofthe period of validity of his ticket.

Since the PAL agents are not privy to the said Agreement and petitioner knewthat a written request to the legal counsel of PAL was necessary, he cannot use whatthe PAL agents did to his advantage. The said agents, according to the Court of Appeals,[10] acted without authority when they confirmed the flights of the petitioner.

Under Article 1898[11] of the New Civil Code, the acts of an agent beyond thescope of his authority do not bind the principal, unless the latter ratifies the sameexpressly or impliedly. Furthermore, when the third person (herein petitioner) knowsthat the agent was acting beyond his power or authority, the principal cannot be heldliable for the acts of the agent. If the said third person is aware of such limits ofauthority, he is to blame, and is not entitled to recover damages from the agent,unless the latter undertook to secure the principal‘s ratification.[12]

Anent the second issue, petitioner‘s stance that the defense of lack of authorityon the part of the PAL employees was deemed waived under Rule 9, Section 2 of theRevised Rules of Court, is unsustainable. Thereunder, failure of a party to put updefenses in their answer or in a motion to dismiss is a waiver thereof.

Petitioner stresses that the alleged lack of authority of the PAL employees wasneither raised in the answer nor in the motion to dismiss. But records show that thequestion of whether there was authority on the part of the PAL employees was acted

upon by the trial court when Nicholas Cervantes was presented as a witness and the

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depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, werepresented.

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

However, notwithstanding PAL‘s failure to raise the defense of lack of authorityof the said PAL agents in its answer or in a motion to dismiss, the omission was curedsince the said issue was litigated upon, as shown by the testimony of the petitioner inthe course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:―Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not raised by the pleadings are tried with express or implied consentof the parties, as if they had been raised in the pleadings. Such amendment of thepleadings as may be necessary to cause them to conform to the evidence and toraise these issues may be made upon motion of any party at any t ime, even after judgment; but failure to amend does not affect the result of the trial of these issues.xxx‖

Thus, ―when evidence is presented by one party, with the express or impliedconsent of the adverse party, as to issues not alleged in the pleadings, judgment maybe rendered validly as regards the said issue, which shall be treated as if they havebeen raised in the pleadings. There is implied consent to the evidence thuspresented when the adverse party fails to object thereto.‖

[13]

Re: the third issue, an award of damages is improper because petitioner failedto show that PAL acted in bad faith in refusing to allow him to board its plane in SanFrancisco.In awarding moral damages for breach of contract of carriage, the breach must bewanton and deliberately injurious or the one responsible acted fraudulently or withmalice or bad faith.[14] Petitioner knew there was a strong possibility that he could notuse the subject ticket, so much so that he bought a back-up ticket to ensure hisdeparture. Should there be a finding of bad faith, we are of the opinion that it shouldbe on the petitioner. What the employees of PAL did was one of simplenegligence. No injury resulted on the part of petitioner because he had a back-upticket should PAL refuse to accommodate him with the use of subject ticket.

Neither can the claim for exemplary damages be upheld. Such kind of damagesis imposed by way of example or correction for the public good, and the existence ofbad faith is established. The wrongful act must be accompanied by bad faith, and anaward of damages would be allowed only if the guilty party acted in a wanton,fraudulent, reckless or malevolent manner .[15] Here, there is no showing that PALacted in such a manner. An award for attorney‘s fees is also improper.

WHEREFORE, the Petition is DENIED and the decision of the Court of Appealsdated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.














[G.R. No. 150718. March 26, 2003]BASILIO BORJA, SR.,petit ioner, vs . SULYAP, INC. and THE COURT OF

APPEALS, respondents .D E C I S I O N

YNARES-SANTIAGO, J .:This is a petition for review assailing the April 20, 2001 Decision[1] of the Court of

Appeals in CA-G.R. CV No. 62237, and its October 31, 2001 Resolution [2] denyingpetitioner‘s motion for reconsideration.

The antecedent facts reveal that petitioner Basilio Borja, Sr., as lessor, andprivate respondent Sulyap Inc., as lessee, entered into a contract of lease involving aone-storey office building owned by the petitioner and located at 12 th Street, NewManila, Quezon City. Pursuant to the lease, private respondent paid, among others,advance rentals, association dues and deposit for electrical and telephoneexpenses. Upon the expiration of their lease contract, private respondent demandedthe return of the said advance rentals, dues and deposit but the petitioner refused todo so. Thus, on October 5, 1995, the former filed with the Regional Trial Court ofQuezon City, Branch 80, a complaint for sum of money against thepetitioner .[3] Subsequently, the parties entered into and submitted to the trial court a―Compromise Agreement‖ dated October 16, 1995.[4] On the basis thereof, the trialcourt, on October 24, 1995 rendered a decision [5] approving the compromiseagreement. The full text of the said decision reads:Parties thru counsel submitted the following compromise agreement:―1. That the parties agree that defendant is the LESSOR and owner of the

premises subject of the herein complaint and that herein plaintiff is the LESSEEthereof who is to vacate the leased premises peacefully on November 7, 1995;2. That in the possession of defendant are the following amounts:

a) P20,000.00 – deposited by plaintiff to defendant onJune 7, 1994 for utilities;

b) 5,400.00 – as returnable association dues to plaintiff;c) 30,000.00 – deposited by the plaintiff to defendant on

August 30, 1994, for telephone [expenses];d) 55,000.00 – … [rental] deposit [to be applied as rental

payment] for the period of October 7 to November 7,1995.

3. That likewise plaintiff paid for the 5% withholding taxes to the Bureau ofInternal Revenue for the rentals which is due from the defendant amounting toP25,175.00 covering the period from July 1994, to July of 1995, whereon plaintiff ishereto attaching proof of payment or receipts as annexes ―A‖ and ―B‖ of saidwithholding taxes and had been credited to the defendant entitling plaintiff to fullreimbursement;4. That it is expressly agreed that prior to or on November 7, 1995, defendantwill reimburse to plaintiff the withholding taxes paid to the Bureau of Internal Revenuein the name of defendant upon signing of the herein compromise agreement plus theassociation dues of P5,400.00 or a total of P30,575.00;5. That with the P55,000.00 consumed by way of rentals up to November 7,1995, there will be left in the possession of defendant of plaintiff‘s money in theamount of P50,000.00; said amount shall be turned over by defendant to plaintiffwithin 5 days from arrival of billings for telephone, electrical and water charges only;6. That the amount shall be subject to actual billings ending November 7, 1995only and shall immediately as stated, be hand[ed] over to plaintiff;

7. That it is expressly agreed that the parties shall comply in good faith to theterms of the herein compromise agreement and that any amount due not paid

within the period stated in this agreement shall earn 2% interest per month untilfully paid plus twenty five 25% attorney‟s fees of the amount collectible and thatwrit of execution shall be issued as a matter of right. (Emphasis supplied)WHEREFORE, in light of the above, it is respectfully prayed of this Honorable Courtthat judgment be rendered on the basis of the above compromise agreement.Manila for Quezon CityOctober 16, 1995.‖ Finding the foregoing compromise agreement to be not contrary to law, morals andpublic policy, the same is hereby APPROVED.WHEREFORE, judgment is hereby rendered in accordance with the terms andconditions set forth in the compromise agreement and the parties are hereby enjoinedto comply with and abide by the said terms and conditions thereof.SO ORDERED.[6]

Petitioner, however, failed to pay the amounts of P30,575.00 and P50,000.00stated in the judicial compromise. Hence, private respondent filed a motion for theissuance of a writ of execution for the total amounts of P30,575.00 and P50,000.00 ora total of P102,733.12, inclusive of 2% interest and 25% attorney‘s fees.

[7] The trialcourt, in its February 7, 1996 order ,[8] granted the motion over the opposition[9] of thepetitioner. On May 24, 1996, the latter filed a motion to quash the writ of execution,contending that the penalty of 2% monthly interest and 25% attorne y‘s fees shouldnot be imposed on him because his failure to pay the amounts of P30,575.00 andP50,000.00 within the agreed period was due to private respondent‘s fault.[10]

On February 20, 1997, petitioner filed another motion praying for the quashal of

the writ of execution and modification of the decision.[11]

This time, he contended thatthere was fraud in the execution of the compromise agreement. He claimed that 3sets of compromise agreement were submitted for his approval. Among them, heallegedly chose and signed the compromise agreement which contained nostipulation as to the payment of 2% monthly interest and 25% attorney‘s fees in caseof default in payment. He alleged that his former counsel, Atty. Leonardo Cruz, whoassisted him in entering into the said agreement, removed the page of the genuinecompromise agreement where he affixed his signature and fraudulently attached thesame to the compromise agreement submitted to the court in order to make it appearthat he agreed to the penalty clause embodied therein.

Private respondent, on the other hand, vehemently denied the contention of thepetitioner. To refute the latter‘s claim, he presented Atty. Leonardo Cruz, whodeclared that the petitioner gave his consent to the inclusion of the penalty clause of2% monthly interest and 25% attorney‘s fees in the compromise agreement. Headded that the compromise agreement approved by the court was in fact signed bythe petitioner inside the courtroom before the same was submitted for approval. Atty.Cruz stressed that the penalty clause of 2% interest per month until full payment ofthe amount due, plus 25% thereof as attorney‘s fees, in case of default in payment,was actually chosen by the petitioner over another proposed more burdensomepenalty clause which states – ―That it is expressly agreed that the p arties shallcomply in good faith to the terms of the herein compromise agreement and that anyviolation thereof shall automatically entitle the aggrieved party to damages in theamount of P250,000.00 plus P50,000.00 attorney‘s fees.‖

[12] On October 26, 1998, the trial court issued the assailed order denying

petitioner‘s motion seeking to quash the writ of execution and to modify the judgmenton compromise. It gave credence to the testimony of Atty. Leonardo Cruz thatpetitioner consented to the penalty clause in the compromise agreement. The court

further noted that it was only on February 20, 1997, or more than one year fromreceipt of the judgment on compromise on October 25, 1995, when he questioned the

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inclusion of the penalty clause in the approved compromise agreement despiteseveral opportunities to raise said objection. The dispositive portion of the said orderstates:WHEREFORE, premises considered, and as earlier stated, the defendant‘s motion toquash the writ of execution and modification of judgment is denied.SO ORDERED.[13]

On appeal by the petitioner to the Court of Appeals, the latter affirmed thechallenged order of the trial court.

Hence, the instant petition.Is the petitioner bound by the penalty clause in the compromise agreement?

The settled rule in criminal as well as in civil cases is that, in the matter ofcredibility of witnesses, the findings of the trial courts are given great weight andhighest degree of respect by the appellate court considering that the latter is in abetter position to decide the question, having heard the witnesses themselves andobserved their deportment and manner of testifying during the trial, unless it plainlyoverlooked certain facts of substance and value that, if considered, might affect theresult of the case.

In the case at bar, we are faced with the conflicting claim of the petitioner thatthe questioned penalty clause was fraudulently added to the compromise agreementapproved by the court, and the assertion of private respondent that the petitionerconsented to the inclusion thereof in the compromise agreement. A scrutiny of therecords reveal that the trial court correctly sustained the claim of privaterespondent. While a judicial compromise may be annulled or modified on the ground

of vitiated consent or forgery,[14]

we find that the testimony of the petitioner failed toestablish the attendance of fraud in the instant case. Indeed, the testimony of Atty.Leonardo Cruz is worthy of belief and credence. We are inclined to believe that thepetitioner had knowledge of and consented to the penalty clause embodied in theagreement considering that the same is less burdensome than the automaticimposition of the penalty of P250,000.00 and attorney‘s fees of P50,000.00 in case ofviolation of the terms of the agreement or default in payment. Moreover, we seenothing irregular in the compromise agreement approved by the trial court. Noevidence was presented by petitioner other than his bare allegation that his formercounsel fraudulently attached the page of the genuine compromise agreement wherehe affixed his signature to the compromise agreement submitted to the court.

What further militates against the claim of the petitioner is his conduct afterreceiving the judgment based on the compromise agreement. From October 25,1995, when he received the judgment reproducing the full text of the compromiseagreement, to February 19, 1997, he never raised the issue of the fraudulentinclusion of the penalty clause in their agreement. We note that petitioner is a doctorof medicine. He must have read and understood the contents of the judgment oncompromise. In fact, on November 13, 1995, he filed, without the assistance ofcounsel, a motion praying that the amounts of P50,000.00 and 37,575.00 be withheldfrom his total obligation and instead be applied to the expenses for the repair of theleased premises which was allegedly vandalized by the private respondent.[15] He didnot question the penalty clause in the compromise agreement. Even when thepetitioner was already represented by his new counsel, Atty. Felixberto F. Abad, towhom he allegedly confided his former counsel‘s fraudulent i nclusion of the penaltyclause, the issue of fraud was never brought to the trial court‘s attention. On January31, 1996, when petitioner filed an opposition to the private respondent‘s motion forthe issuance of a writ of execution, he likewise failed to mention the fraud complained

of. On May 24, 1996, petitioner filed a motion to quash the writ of execution butbased on a different ground. He argued that the penalty of 2% monthly interest and

25% attorney‘s fees cannot be imposed on him considering th at his failure to pay ontime was due to the fault of the private respondent. He allegedly refused to paybecause the person sent by private respondent to collect payment did not present aspecial power of attorney authorizing him to receive said payment.[16] In effect,therefore, petitioner acknowledged the validity of the penalty clause.

Evidently, petitioner cannot feign ignorance of the existence of the penaltyclause in the compromise agreement approved by the court. Even assuming that Atty. Leonardo Cruz exceeded his authority in inserting the penalty clause, the statusof the said clause is not void but merely voidable, i.e., capable of beingratified.[17] Indeed, petitioner‘s failure to question the inclusion of the 2% monthly

interest and 25% attorney‘s fees in the judicial compromise despite severalopportunities to do so was tantamount to ratification. Hence, he is estopped fromassailing the validity thereof .[18]

Finally, we find no merit in petitioner‘s contention that the compromiseagreement should be annulled because Atty. Leonardo Cruz, who assisted him inentering into such agreement, was then an employee of the Quezon City government,and is thus prohibited from engaging in the private practice of his profession. Sufficeit to state that the isolated assistance provided by Atty. Cruz to the petitioner inentering into a compromise agreement does not constitute a prohibited ―privatepractice‖ of law by a public official. ―Private practice‖ of a profession, specif ically thelaw profession does not pertain to an isolated court appearance; rather, itcontemplates a succession of acts of the same nature habitually or customarilyholding one‘s self to the public as a lawyer .

[19] Such was never established in the

instant case.WHEREFORE, in view of all the foregoing, the instant petition is DENIED. TheDecision of the Court of Appeals in CA-G.R. CV No. 62237, which sustained the trialcourt‘s denial of petitioner‘s motion to quash the writ of execution and to modify thecompromise judgment, is AFFIRMED.

SO ORDERED.































G.R. No. 167812 December 19, 2006 JESUS M. GOZUN, petitioner,vs.JOSE TEOFILO T. MERCADO a.k.a. „DON PEPITO MERCADO, respondent.

D E C I S I O N

CARPIO MORALES, J .: On challenge via petition for review on certiorari is the Court of Appeals‘ Decision ofDecember 8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV No.763091 reversing the trial court‘s decision

2 against Jose Teofilo T. Mercado a.k.a. DonPepito Mercado (respondent) and accordingly dismissing the complaint of Jesus M.Gozun (petitioner).In the local elections of 1995, respondent vied for the gubernatorial post inPampanga. Upon respondent‘s request, petitioner, owner of JMG Publishing House,a printing shop located in San Fernando, Pampanga, submitted to respondent draftsamples and price quotation of campaign materials.By petitioner‘s claim, respondent‘s wife had told him that respondent alreadyapproved his price quotation and that he could start printing the campaign materials,hence, he did print campaign materials like posters bearing respondent‘sphotograph,3 leaflets containing the slate of party candidates,4 sample ballots,5 poll

watcher identification cards,6

and stickers.Given the urgency and limited time to do the job order, petitioner availed of theservices and facilities of Metro Angeles Printing and of St. Joseph Printing Press,owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun,respectively.7 Petitioner delivered the campaign materials to respondent‘s headquarters alongGapan-Olongapo Road in San Fernando, Pampanga.8 Meanwhile, on March 31, 1995, respondent‘s sister -in-law, Lilian Soriano (Lilian)obtained from petitioner "cash advance" of P253,000 allegedly for the allowances ofpoll watchers who were attending a seminar and for other related expenses. Lilianacknowledged on petitioner‘s 1995 diar y9 receipt of the amount.10 Petitioner later sent respondent a Statement of Account11 in the total amountof P2,177,906 itemized as follows:P640,310 for JMG Publishing House; P837,696 forMetro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000, the"cash advance" obtained by Lilian.On August 11, 1995, respondent‘s wife partially paid P1,000,000 to petitioner whoissued a receipt12 therefor.Despite repeated demands and respondent‘s promise to pay, respondent failed tosettle the balance of his account to petitioner.Petitioner and respondent being compadres, they having been principal sponsors atthe weddings of their respective daughters, waited for more than three (3) years forrespondent to honor his promise but to no avail, compelling petitioner to endorse thematter to his counsel who sent respondent a demand letter .13 Respondent, however,failed to heed the demand.14 Petitioner thus filed with the Regional Trial Court of Angeles City on November 25,1998 a complaint15 against respondent to collect the remaining amount of P1,177,906plus "inflationary adjustment" and attorney‘s fees.

In his Answer with Compulsory Counterclaim,16

respondent denied having t ransactedwith petitioner or entering into any contract for the printing of campaign materials. He

alleged that the various campaign materials delivered to him were represented asdonations from his family, friends and political supporters. He added that all contractsinvolving his personal expenses were coursed through and signed by him to ensurecompliance with pertinent election laws.On petitioner‘s claim that Lilian, on his (respondent‘s) behalf, had obtained from him acash advance of P253,000, respondent denied having given her authority to do soand having received the same. At the witness stand, respondent, reiterating his allegations in his Answer, claimedthat petitioner was his over-all coordinator in charge of the conduct of seminars forvolunteers and the monitoring of other matters bearing on his candidacy; and that

while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was authorizedto approve details with regard to printing materials, presented him some campaignmaterials, those were partly donated.17 When confronted with the official receipt issued to his wife acknowledging herpayment to JMG Publishing House of the amount of P1,000,000, respondent claimedthat it was his first time to see the receipt, albeit he belatedly came to know from hiswife and Cabalu that the P1,000,000 represented "compensation [to petitioner] whohelped a lot in the campaign as a gesture of goodwill."18 Acknowledging that petitioner is engaged in the printing business, respondentexplained that he sometimes discussed with petitioner strategies relating to hiscandidacy, he (petitioner) having actively volunteered to help in his campaign; that hiswife was not authorized to enter into a contract with petitioner regarding campaignmaterials as she knew her limitations; that he no longer questioned the P1,000,000

his wife gave petitioner as he thought that it was just proper to compensate him for a job well done; and that he came to know about petitioner‘s claim against him onlyafter receiving a copy of the complaint, which surprised him because he knew fullywell that the campaign materials were donations.19 Upon questioning by the trial court, respondent could not, however, confirm if it washis understanding that the campaign materials delivered by petitioner were donationsfrom third parties.20 Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaignmaterial is donated, it must be so stated on its face, acknowledged that nothing ofthat sort was written on all the materials made by petitioner .21 As adverted to earlier, the trial court rendered judgment in favor of petitioner, thedispositive portion of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action bypreponderance of evidence, the Court hereby renders a decision in favor ofthe plaintiff ordering the defendant as follows:1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest perannum from the filing of this complaint until fully paid;2. To pay the sum of P50,000.00 as attorney‘s fees and the costs of suit. SO ORDERED.22

Also as earlier adverted to, the Court of Appeals reversed the trial court‘s decisionand dismissed the complaint for lack of cause of action.In reversing the trial court‘s decision, the Court of Appeals held that other thanpetitioner‘s testimony, there was no evidence to support his claim that Lilian wasauthorized by respondent to borrow money on his behalf. It noted that theacknowledgment receipt23 signed by Lilian did not specify in what capacity shereceived the money. Thus, applying Article 131724 of the Civil Code, it held thatpetitioner‘s claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House – P640,310, Metro Angeles Printing – P837,696, and St. Joseph Printing Press – P446,900, the

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appellate court, noting that since the owners of the last two printing presses were notimpleaded as parties to the case and it was not shown that petitioner was authorizedto prosecute the same in their behalf, held that petitioner could not collect theamounts due them.Finally, the appellate court, noting that respondent‘s wife had paid P1,000,000 topetitioner, the latter‘s claim of P640,310 (after excluding the P253,000) had alreadybeen settled.Hence, the present petition, faulting the appellate court to have erred:

1. . . . when it dismissed the complaint on the ground that there is noevidence, other than petitioner‘s own testimony, to prove that Lilian R.

Soriano was authorized by the respondent to receive the cash advance fromthe petitioner in the amount of P253,000.00.x x x x2. . . . when it dismissed the complaint, with respect to the amounts due tothe Metro Angeles Press and St. Joseph Printing Press on the ground thatthe complaint was not brought by the real party in interest.x x x x25

By the contract of agency a person binds himself to render some service or to dosomething in representation or on behalf of another, with the consent or authority ofthe latter .26 Contracts entered into in the name of another person by one who hasbeen given no authority or legal representation or who has acted beyond his powersare classified as unauthorized contracts and are declared unenforceable, unless theyare ratified.27

Generally, the agency may be oral, unless the law requires a specificform.28 However, a special power of attorney is necessary for an agent to, as in thiscase, borrow money, unless it be urgent and indispensable for the preservation of thethings which are under administration.29 Since nothing in this case involves thepreservation of things under administration, a determination of whether Soriano hadthe special authority to borrow money on behalf of respondent is in order.Lim Pin v. Liao Tian, et al .

30 held that the requirement of a special power of attorneyrefers to the nature of the authorization and not to its form.

. . . The requirements are met if there is a clear mandate from the principalspecifically authorizing the performance of the act. As early as 1906, thisCourt in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandatemay be either oral or written. The one thing vital being that i t shall beexpress. And more recently, We stated that, if the special authority is notwritten, then it must be duly established by evidence:"…the Rules require, for attorneys to compromise the litigation of theirclients, a special authority. And while the same does not state that thespecial authority be in writing the Court has every reason to expect that, ifnot in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority was verbally givenhim."31 (Emphasis and underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondenthad authorized Lilian to obtain a loan from him, viz:

Q : Another caption appearing on Exhibit "A" is cash advance, it states givenon 3-31-95 received by Mrs. Lilian Soriano in behalf of Mrs. AnnieMercado, amount P253,000.00, will you kindly tell the Court and explainwhat does that caption means? A : It is the amount representing the money borrowed from me by the

defendant when one morning they came very early and talked tome and told me that they were not able to go to the bank to get money for

the allowances of Poll Watchers who were having a seminar at theheadquarters plus other election related expenses during that day, sir.Q : Considering that this is a substantial amount which according to you wastaken by Lilian Soriano, did you happen to make her acknowledge theamount at that time? A : Yes, sir .32 (Emphasis supplied)

Petitioner‘s testimony failed to categorically state, however, whether the loan wasmade on behalf of respondent or of his wife. While petitioner claims that Lilian wasauthorized by respondent, the statement of account marked as Exhibit "A" states thatthe amount was received by Lilian "in behalf of Mrs. Annie Mercado."

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informedhim that he had authorized Lilian to obtain the loan, hence, following Macke v.Camps

34 which holds that one who clothes another with apparent authority as hisagent, and holds him out to the public as such, respondent cannot be permitted todeny the authority.Petitioner‘s submission does not persuade. As the appellate court observed:

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim unfortunately only indicates the Two HundredFifty Three Thousand Pesos (P253,0000.00) was received by one Lilian R.Soriano on 31 March 1995, but without specifying for what reason the saidamount was delivered and in what capacity did Lilian R. Soriano received[sic] the money. The note reads:

"3-31-95

261,120 ADVANCE MONEY FOR TRAINEE – RECEIVED BYRECEIVED FROM JMG THE AMOUNT OF 253,000 TWOHUNDRED FIFTY THREE THOUSAND PESOS

(SIGNED)LILIAN R. SORIANO

3-31-95"Nowhere in the note can it be inferred that defendant-appellant wasconnected with the said transaction. Under Article 1317 of the New CivilCode, a person cannot be bound by contracts he did not authorize to beentered into his behalf .35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicatingtherein that she was acting for and in behalf of respondent. She thus bound herself inher personal capacity and not as an agent of respondent or anyone for that matter.It is a general rule in the law of agency that, in order to bind the principal by amortgage on real property executed by an agent, it must upon its face purport to bemade, signed and sealed in the name of the principal, otherwise, it will bind the agentonly. It is not enough merely that the agent was in fact authorized to make themortgage, if he has not acted in the name of the principal. x x x36 (Emphasis andunderscoring supplied)On the amount due him and the other two printing presses, petitioner explains that hewas the one who personally and di rectly contracted with respondent and he merelysub-contracted the two printing establishments in order to deliver on time thecampaign materials ordered by respondent.Respondent counters that the claim of sub-contracting is a change in petitioner‘stheory of the case which is not allowed on appeal.In Oco v. Limbaring ,37 this Court ruled:

The parties to a contract are the real parties in interest in an action upon it,as consistently held by the Court. Only the contracting parties are bound by























































the stipulations in the contract; they are the ones who would benefit fromand could violate it. Thus, one who is not a party to a contract, and forwhose benefit it was not expressly made, cannot maintain an action on it.One cannot do so, even if the contract performed by the contracting partieswould incidentally inure to one's benefit.38 (Underscoring supplied)

In light thereof, petitioner is the r eal party in interest in this case. The trial court‘sfindings on the matter were affirmed by the appellate court.39 It erred, however, in notdeclaring petitioner as a real party in interest insofar as recovery of the cost ofcampaign materials made by petitioner‘s mother and sister are concerned, upon thewrong notion that they should have been, but were not, impleaded as plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaignmaterials delivered by petitioner in the total of P1,924,906, less the partial paymentof P1,000,000, or P924,906.WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 andthe Resolution dated April 14, 2005 of the Court of Appeals arehereby REVERSED and SET ASIDE.The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, isREINSTATED mutatis mutandis, in light of the foregoing discussions. The trial court‘sdecision is modified in that the amount payable by respondent to petitioner is reducedto P924,906.SO ORDERED.











CARIDAD SEGARRA SAZON, Petitioner,

- versus -

LETECIA VASQUEZ-MENANCIO, represented byattorney-in-fact EDGAR S. SEGARRA,

Respondent.

G.R. No. 192085

Present:

CARPIO, J ., Chairperson,VILLARAMA,* PEREZ,SERENO, and

REYES, JJ.

Promulgated:

February 22, 2012

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

D E C I S I O N

SERENO, J .:

The present case stems from a Complaint for Recovery of Possession ofReal Properties, Accounting and Injunction[1] filed by Leticia Vasquez-Menancio(respondent) against Caridad S. Sazon (petitioner) in the Regional Trial Court (RTC)of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed itself whenpetitioner filed a Motion for Reconsideration (MR). Respondent appealed the case tothe Court of Appeals (CA), but it affirmed the first Decision of the RTC. She filedanother MR, but the CA denied it for lack of merit.

The Case

Before us is a Petition for Review[2]

under Rule 45 of the Rules of Court,assailing the 26 November 2009 Decision[3] of the appellate court in CA-GR CV No.91570. The challenged Decision disposed as follows:

WHEREFORE, the appealis DISMISSED. The Decision dated 31 July 2007 of the RegionalTrial Court, Branch 13, Ligao City, in Civil Case No. T-1944is AFFIRMED withMODIFICATION in that Caridad S. Sazonis ORDERED to pay Leticia Vasquez-Menancio the amount of₱908,112.62, representing the unremitted fruits and income of thesubject properties from 1979 to 1997. This is already net ofadministration expenses, allowance for compensation and provedreal estate taxes paid. The Decision is affirmed in all otherrespects.

SO ORDERED .[4]

Antecedents Respondent is a resident of the United States of America. Sometime in

1979, she entrusted the management, administration, care and preservation of herproperties to petitioner. These properties are more specifically described as follows:

I. Residential lot, with an area of 573 sq. m.,located in Zone III, Libon, Albay,declared under Tax No. 097-03-0066 inthe sum of ₱24,070.00

II. Residential lot, with an area of 299 sq. m.,located in Zone III, Libon, Albay,declared under Tax No. 097-003-00115 in the sum of ₱12,560.00

III. Residential lot, with an area of 873 sq. m.,located in San Antonio St., Libon, Albay, declared under Tax No. 097-003-00068 in the sum of ₱36,670.00

IV. Irrigated riceland, Cad. Lot No. 852, with anarea of 3.1304 hectares, located atSan Isidro, Libon, Albay, declaredunder Tax No. 07-039-235 in the sum

of ₱96,580.00

V. Irrigated riceland, with an area of 1.5652hectares, located at Bololo Centro,Libon, Albay, declared under Tax No.07-005-104 in the sum of ₱48,290.00

VI. Irrigated riceland, with an area of .6720hectares, located at Bololo Centro,Libon, Albay, declared under Tax No.07-005-103 in the sum of ₱29,730.00

VII. Irrigated riceland, with an area of .6380hectares, located at Balagon Centro,Libon, Albay, declared under Tax No.07-005-222 in the sum of ₱19,680.00

VIII. Coconut land, with an area of ten (10)hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in the sum of ₱42,840.00

IX. Coconut land, with an area of 3.7102hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in the sum of ₱15,740.00

[5]

The properties shall hereinafter be referred to individually as ―Lot I,‖ ―Lot II‖and so on for brevity.

Respondent avers that Lots I to IX are productive, and that petitioner as the

administrator has collected and received all the fruits and income accruing therefrom.Petitioner, on the other hand, claims that several of the properties do not produce any

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fruit or generate any income at all,[6] and that any supposed income derived fromthem is not sufficient to answer for all the expenses incurred to maintain them.[7]

According to respondent, petitioner never rendered a full accounting of thefruits and income derived from the properties, but has instead appropriated and in factapplied these for her own use and benefit. Denying this allegation, petitionerpresented five letters—dated 21 January 1983, 12 March 1984, 15 September 1986,2 December 1988, and one undated—which had been sent to respondent as proof ofthe accounting.[8]

Furthermore, petitioner denies receipt of any letter asking her to make anaccounting or to remit the fruits collected from the properties. [9] She further avers that,

since the start of her agency agreement with respondent, the latter never answered―any of the communications‖ petitioner had sought to initiate.[10]

As a result of the foregoing, respondent revoked, in writing, al l the powersand authority of administration granted to petitioner effective March 1997. Thereafter,the former demanded that petitioner return and/or turn over the possession andadministration of the properties.

Respondent claims that she made repeated verbal, and served written,demands upon petitioner, asking the latter to render an accounting and to remit theowner‘s share of the fruits. Petitioner, however, continued to fail and to refuse toperform her obligation.[11] In fact, she continues to hold on to the properties and themanagement and administration thereof. Further, she continues to collect, receive,and keep all the income generated by the properties.

Thus, on 30 October 1997, respondent filed her Complaint with Preliminary

Injunction,[12]

praying that the RTC order petitioner to render an accounting and remitall the fruits and income the latter, as the administrator, received from the properties.In her Answer with Counterclaim,[13] petitioner alleges as follows:

2.a. Lot area of 573 sq.m.-is being leased by Salome S.Segarra which is duly covered by a Lease Contractexecuted during the effectivity of the Special Powerof Attorney granted to the hereindefendant. Furthermore, the said Lease Contractwas entered into with the express consent, andwithout any objection on the part of the plaintiff sinceshe was consulted prior to its execution; xxx,

2.b. Lot area of 299 sq. m. – This is included in the [L]ease[C]ontract above-mentioned.

2.c. Lot area of 873 sq. m. – This is likewise duly coveredby a Lease Contract executed between the hereindefendant as lessee and Ana C. Segarra when thelatter was still the administrator of the properties ofthe plaintiff. The said Lease Contract was likewiseentered into with the express consent and withoutany objection on the part of the plaintiff since shewas again consulted prior to its execution; xxx.

2.d. Lot area of 3.1304 hectares – this is administered as

to 2/3 of the total land area but not as to the other1/3 as the same is owned by the defendant‘s mother

Ana C. Segarra by virtue of a contract of sale fromMrs. Josefina Segarra, the co-owner of the plaintiffover the said land; xxx,

2.e. Lot area of 1.5652 hectares and .6720 hectares arenot owned by the plaintiff but that of the mother ofthe herein defendant Ana C. Segarra by virtue of aDeed of Redemption, as in fact, they are inpossession thereof as owners and not asadministrator of the plaintiff; xxx,

2.f. Lot area of .6380 hectares – said land is presentlypossessed by the alleged administrator of theplaintiff yet the plaintiff still seeks the return of thesame which constitutes an act that trifles with theadministration of justice and further prove that thisgroundless case was filed with this court purely toharass the herein defendant;

2.g. Lot area of 10 hectares and Lot area of 3.7102hectares – the herein defendant is no longer inpossession of these lots as in fact, the fruits of theselands are not being turned over to the defendant

ever since the plaintiff revoked the authority given tothe defendant, xxx.[14]

In short, petitioner argues that respondent has no cause of action againsther for the following reasons:[15]

1. The properties that cannot be returned because they are under validlease agreements—Lots I-III—and those that have been transferred to athird party by virtue of contracts of sale with corresponding deeds ofredemption—Lots V and VI—can no longer be given to respondent;[16]

2. Some properties are already in respondent‘s possession—Lots IV andVII-IX.[17]

By way of compulsory counterclaim, petitioner is asking this Court to orderrespondent to return the one-third portion of Lot IV allegedly owned by petitioner‘s

mother and the fruits collected therefrom.[18] During the pretrial conference held on 24 July 1998, the parties agreed that

respondent already had possession over Lots IV, VII, VIII, and IX. They also agreedthat all the income derived from Lots I to IX since 1979 were received by petitioner .[19]

In a Decision[20] dated 31 July 2007, the RTC ruled in favor of respondents.The dispositive portion thereof reads:

WHEREFORE, the foregoing premises dulyconsidered, judgment is hereby rendered in favor of plaintiffLeticia Vasquez-Menancio and against defendant Caridad S.Sazon, as follows:

a) ordering the defendant to turnover the possession, management and

administration of all the properties enumeratedin paragraph 2 of the complaint, except parcels





























































4, 7, 8 and 9 which were already underplaintiff‘s possession since August, 1977, tothe plaintiff, thru attorney-in-fact Edgar S.Segarra;

b) ordering the defendant to remitto the plaintiff the total sum of ₱1,265,493.75representing unremitted fruits and income ofthe subject properties, less the amount of₱150,000.00 by way of administration

expenses incurred by defendant;

c) ordering the defendant to paythe plaintiff the sum of ₱50,000.00 as moraldamages;

d) ordering the defendant toreimburse the plaintiff the sum of ₱20,000.00as and for attorney‘s fees, plus the sum of₱1,000.00 for every court appearance ofcounsel; and —

e) ordering the defendant to pay

the costs of the suit.

On the other hand, plaintiff Leticia Vasquez-Menanciois hereby ordered to pay defendant Caridad S. Sazon the totalsum of ₱180,000.00, representing the latter‘s compensation inadministering the former‘s properties based on quantummeruit.

SO ORDERED.[21]

Petitioner filed her MR on 20 August 2007 questioning the trial court‘sDecision to rely on the computation made by respondent‘s attorney -in-fact. Thesecomputations, reflected in paragraph (b) of the dispositive portion, were used by theRTC to determine the prices of palay , corn and copra at the time that petitioneradministered the properties. Realizing, however, that it should have considered theCertifications issued by the National Food Authority (NFA) and the Philippine Coconut Authority (PCA) for that purpose, the RTC ruled in favor of respondent and partlyreversed its 28 March 2008 Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises dulyconsidered, the Court resolves to set aside the Decision datedJuly 31, 2007. In lieu thereof, a new decision is hereby renderedas follows:

a) ordering the defendant Caridad S.Sazon to turn over the possession, management andadministration of all the properties enumerated inparagraph 2 of the complaint, except parcels 4, 7, 8

and 9 which were already under plaintiff‘spossession since August, 2007, to plaintiff Leticia

Vasquez-Menancio, thru her attorney-in-fact EdgarS. Segarra;

b) ordering the defendant to render full,accurate and complete accounting of all the fruitsand proceeds of the subject properties during theperiod of her administration; and

c) ordering the defendant to reimbursethe plaintiff the sum of ₱20,000.00, as and for

attorney‘s fees;

Costs against defendant.

SO ORDERED.[22] (Emphasis supplied in the original)

Still aggrieved, petitioner raised the matter to the CA, but it dismissed herappeal. It affirmed the trial court‘s 31 July 2007 Decision, except for the amountordered to be remitted to respondent, which was reduced to ₱908,112.62. The MRfiled by petitioner was also denied on 29 April 2010.[23]

Petitioner is now asking this Court to set aside the CA‘s Decision.[24] In questioning the Decision of the CA, petitioner first raises a procedural

issue. She argues that the appellate court should not have affirmed the RTC Decision

in this case, because when the trial court abandoned its original Decision, the latterimpliedly admitted that it had ―committed erroneous findings of facts.‖ [25] Respondentargues that the CA had the power to affirm the RTC‘s second Decision—theResolution on the MR—because the entire case was opened for review upon appeal.

We agree with respondent.In Heirs of Carlos Alcaraz v. Republic of the Philippines,[26] we reiterated the

cardinal rule that when a case is appealed, the appellate court has the power thereview the case in its entirety, to wit:

In any event, when petitioners interposed an appeal to theCourt of Appeals, the appealed case was thereby thrown wide openfor review by that court, which is thus necessarily empowered tocome out with a judgment as it thinks would be a just determinationof the controversy. Given this power, the appellate court has theauthority to either affirm, reverse or modify the appealed decision ofthe trial court. To withhold from the appellate court its power torender an entirely new decision would violate its power of reviewand would, in effect, render it incapable of correcting patent errorscommitted by the lower courts.

Thus, we agree with respondent that the CA was free to affirm, reverse, ormodify either the Decision or the Order of the RTC.

Next, petitioner avers that she cannot turn over possession of Lots I to III,because these are subject of valid lease agreements. None of the parties questionthe appellate cour t‘s finding that the lease agreements covering Lots I -III should berespected. After all, when petitioner entered into these agreements, she acted withinher authority as respondent‘s agent.

[27] In this matter, we agree with the CA in its ruling that even though the lease

agreements covering these lots should be respected, petitioner must turn over theadministration of the leases to respondent‘s attorney-in-fact.[28] The reason is that



































respondent has already revoked the authority of petitioner as administrator. Hence,the latter no longer has the right to administer the properties or to receive the incomethey generate on respondent‘s behalf.

With respect to the one-third portion of Lot IV, the parties also agree that thesale of one-third of this lot to petitioner‘s mother should be respected byrespondent.[29] Lot IV has been in the latter‘s possession since 1997. Since it is notcontroverted that one-third of this lot is now owned by petitioner‘s mother, respondentshould turn over possession of the corresponding one-third portion and remit all fruitscollected therefrom since 1997.

Petitioner questions the factual findings of the appellate court. She claims

that the CA erred in finding that ―the reason why petitioner allegedly never renderedan accounting of income is because the respondent never demandedit.‖

[30] According to petitioner, she never claimed that this was the reason why shenever rendered an accounting of income. In fact, she insists that she actually sentletters of accounting to respondent. Supposedly, she only said that respondent neverdemanded accounting from her to refute the claim of respondent that such demandletter was sent to her.

Petitioner insists, however, that Article 1891 of the Civil Code contains a fewof the obligations owed by an agent to his principal, viz :

Art. 1891. Every agent is bound to render anaccount of his transactions and to deliver to theprincipal whatever he may have received byvirtue of the agency, even though it may not be

owing to the principal.

Every stipulation exempting the agent fromthe obligation to render an account shall be void.

It is evident that the reason behind the failure of petitioner to render anaccounting to respondent is immaterial. What is important is that the former fulfill herduty to render an account of the relevant transactions she entered into asrespondent‘s agent.

Petitioner claims that in the course of her administration of the properties, theletters she sent to respondent should be considered as a fulfillment of her obligation,as respondent‘s agent, to render an accounting of her administration.[31] Both the RTCand the CA found these letters insufficient. We agree. Petitioner was the administratorof respondent‘s properties for 18 years or from 1979 to 1997, and four letters within18 years can hardly be considered as sufficient to keep the principal informed andupdated of the condition and status of the latter‘s properties.

As to Lots V and VI, petitioner avers that ownership thereof was transferredto her mother through a Deed of Redemption,[32] viz :

Defendant averred that her mother owned parcels 5 and 6.She Identified a Deed of Redemption purporting to have transferredthe property to her mother. When the deed was executed, plaintiffwas in the United States but defendant‘s mother notified her. Shesaw her mother putting 100-peso bills amounting to ₱6,500.00 in abig brown envelope to pay for the lot. Her father Simeon Segarrawho just came from the United States gave her the money.[33]

On this matter, the RTC found thus:

As regards parcels 5 and 6, the defendant averred thatthey were owned by her mother Ana Segarra because she was the

one who redeemed the properties. But the evidence extant in therecords disclosed that the said parcels of land were declared fortaxation purposes in the name of plaintiff Leticia Vasquez-Menancio. In many cases, it has been repeatedly held that althoughtax declarations are not conclusive evidence of ownership,nevertheless, they are good indicia of possession in the concept ofan owner for no one in his right mind would be paying taxes for aproperty that is not under his actual or at least constructivepossession. Hence, the fruits and profits of these properties shallstill incur to the plaintiff .[34]

For its part, the CA held as follows:To prove that one of Leticia‘s properties now belongs to

her mother, Ana Segarra, Sazon presented evidence showing thatwhen Ana was still the administrator of Leticia‘s properties, sheredeemed Leticia‘s property that was sold by Leticia‘s father tovendee-a-retro, Loreto San Andres-Seda. However, the Deed ofRedemption clearly shows that Ana redeemed the property only inher capacity as attorney-in-fact of Leticia, and not in her personalcapacity.[35]

Factual findings of the trial court are accorded high respect and aregenerally not disturbed by appellate courts, unless found to be clearly arbitrary orbaseless.[36]This Court does not review the factual findings of an appellate court,

unless these findings are ―mistaken, absurd, speculative, conjectural, conflicting,tainted with grave abuse of discretion, or contrary to the findings culled by the trialcourt of origin.‖

[37] Although the pronouncement of the trial court is not identical to that of the CA,

the declaration of one corroborates the findings of the other. We rule that the findingsof the lower court and the CA regarding Lots V and VI should be respected. Themother of petitioner purchased both of these lots in her capacity as respondent‘sattorney-in-fact, which explains why these lots were—for taxation purposes—declaredin the name of respondent.

Petitioner bewails the appellate court‘s supposed fa ilure to rule on her claimthat respondent promised to give the former a 20% commission for the sale ofrespondent‘s properties in Las Piñas, Quiapo; and Fraternal, Sampaloc,Manila.[38] We rule that petitioner failed to prove that this agreement had been enteredinto. No other evidence, except for her testimony, was presented to prove that anagreement of this nature had been entered into between the parties.[39]

Finally, the crux of the present Petition is the determination of the value of allthe fruits and proceeds collected from respondent‘s properties from 1979 to 1997 andthe total sum thereof.

Petitioner does not deny that she never remitted to respondent any of thefruits or income derived from the properties. Instead, petitioner claims that (1) theproperties did not produce any fruit or generate any income at all ;[40] (2) anysupposed income derived from the properties was not sufficient to answer for all theexpenses incurred to maintain them;[41] and (3) she was never compensated for theservices she rendered as the administrator of respondent‘s properties.

As previously mentioned, every agent is bound to deliver to the principalwhatever the former may have received by virtue of the agency, even though thatamount may not be owed to the principal.[42]



























































In determining the value of the fruits, the RTC—in its original Decision—relied on the computation submitted by respondent‘s attorney -in-fact and orderedpetitioner to remit to respondent the total sum of ₱1,265,493.75, to wit:

At the outset, it may be stated that plaintiff‘s attorney-in-factEdgar S. Segarra, being a farmer himself and a resident of the areawhere the subject properties are located can best testify regardingthe income thereof. In preparing a computation of income of hisprincipal, plaintiff Leticia Vasquez-Menancio, he consulted peoplefrom the agrarian sector, as well as grains buyers. He also referredto the lease contracts entered into between the former

administratrix and the tenants. Based on his computation, theamount which represented the fruits of the properties beingadministered by the defendant but were not remitted to the plaintifftotaled ₱1,265,493.75 xxx, which amount to the mind of the Court,is not colossal but a reasonable claim, especially in this instancewhere the subject properties have been administered by defendantand her mother for more than (10) years.[43] The computation is based on the alleged prevailing price of ₱8.75 per kilo

for palay and ₱12 per kilo for copra. The trial court also ordered respondent toreimburse petitioner in the amount of ₱150,000 representing the administrativeexpenses the latter incurred as the agent. Furthermore, petitioner was awarded₱180,000 as compensation for administering respondent‘s properties. Lastly,petitioner was ordered to pay respondent attorney‘s fees in the amount of ₱20,000

plus ₱1,000 for every appearance of counsel. In the Order of the RTC reversing its Decision, it found that it should haveconsidered the Certifications issued by the NFA and PCA with respect to theprevailing prices of palay , corn, and copra at the time of petitioner‘s administration.These Certifications revealed that the prevailing prices from 1979 to 1997 were asfollows: (1) from ₱1.75 to ₱8 per kilo for palay ; (2) from ₱1to ₱6 per kilo for corn; and(3) from ₱3.15 to ₱10.77 per kilo for copra. The RTC found that the parties failed toprove the exact quantity and quality of harvests for the period. Consequently, itordered petitioner to ―render full, accurate, and complete accounting of all the fruitsand proceeds of the subject properties during the period of her administration.‖

[44] The CA affirmed the RTC‘s original Decision and ordered petitioner to pay

respondent the amount of ₱1,315,533.75—even though the trial court had orderedthe return of only ₱1,265,493.75—representing the total value of the fruits and rentsderived from the properties from 1979 to 1997 less the ₱150,000 administrative

expenses, the ₱180,000 compensation for administering the properties, and the₱77,221.13 real estate taxes paid by petitioner from 1979 to 1997.

We disagree with the appellate court‘s finding with respect to the total valueof fruits and rents earned by the properties from 1979 to 1997.

As found by the RTC, the following computation of the amounts owed bypetitioner to respondent was submitted by the latter‘s attorney-in-fact, Edgar S.Segarra:

Witness Edgar S. Segarra testified that the properties whichwere administered by defendant Caridad S. Sazon consisted ofresidential and agricultural lands. Caridad Sazon leased theresidential lots to one Salome Segarra in the amount of 100 pesosa month since 1988. Another parcel of land was leased todefendant‘s mother Ana Segarra in exchange for one sack or 46

kilograms of palay for a period of 20 years. A cornland which isbeing tenanted by Orlando Macalinao produced ₱72,000.00. The

computation was based on a 75/25 sharing plan multiplied by theprice of corn at 6 pesos and again multiplied by 15 years, thenumber of years that the properties were being tenanted. Anotherriceland was tilled by the defendant‘s husband. This 1.56 hectaresRiceland produced 1,932 kilograms of rice per year and at ₱8.75 akilogram, for 14 years, the amount which was not remitted to theplaintiff amounted to ₱836,670.00. Another property, located atLibon, Albay, containing an area of .6720 hectare and tilled bydefendant‘s husband produced harvest amounting to ₱121,030.00.Further, a riceland with an area of .6380 hectare being farmed by

the defendant‘s daughter produced ₱183,720.00. Two coconutlands, located at Macabugos, Libon, Albay, produced coconutsmade into copras, thus bringing in profits of about ₱705,600.00.

The foregoing amounts correspond to the years by which theproperties were administered by the defendant, the number ofcrops they harvested, the sharing plan, and the prevailing price ofthe produce during the years of administration. He also asked thecomprador (buyer of grains) about the prices and consultedemployees of the department of Agrarian Reform regarding thesharing of the crops. The lease contracts affecting the propertieswere also considered. All these amounts were never remitted bythe defendant to the owner-plaintiff. [45]

Petitioner correctly posits that it was wrong for the CA to base thecomputation of unremitted fruits and rents solely on the evidence submitted byrespondent‘s attorney-in-fact, as this computation was obviously self-serving.Furthermore, the Certifications issued by the NFA and PCA should have been begiven weight, as they are documentary evidence issued by government offices mainlyresponsible for determining the buying/selling price of palay , corn, and other food andcoconut products.

We shall review the findings of fact of the Court of Appeals in view of someinconsistencies with those of the trial court and the evidence on record.

This Court is convinced that the Certifications are genuine, authentic, valid,and issued in the proper exercise and regular performance of the issuing authority‘sofficial duties. Under Section 3(m), Rule 131 of the Revised Rules of Court, there is alegal presumption that official duty has been regularly performed. No evidence waspresented to rebut or dispute this presumption.

Petitioner claims that several of the properties did not produce any fruit orgenerate any income at all.[46] However, the trial court found that not only was thereevidence on record showing that the properties administered yielded agriculturalproduce and rents, but petitioner herself had testified that the properties increasedwhen she served as administrator. In effect, she admitted that the properties indeedgenerated income.[47]

This Court is left with no other choice but to order both parties to presenttheir evidence in support of their respective claims considering that no evidence wassubmitted to prove the quantity and quali ty of harvests for the relevant period. Neitherthe RTC nor the CA was able to explain or present a breakdown to show how itarrived at the supposed amount representing the total value of the fruits and rentsderived from the properties.

The trial court correctly ordered petitioner to ―render full, accurate, and

complete accounting of all the fruits and proceeds of the subject properties during theperiod of her administration.‖ However, it should have also ordered petitioner to























present all her evidence regarding the alleged transportation expenses, attorney‘sfees, docket fees, and other fees; [48] the total amount expended for the purchase ofrespondent‘s Las Piñas property;

[49] and the total amount of real property taxes paid.These claimed expenses, if and when duly proven by sufficient evidence, should bededucted from the total income earned by the properties.

Both parties should be required to present their evidence to finally resolvethe following issues: (1) the total amount of the income generated by Lots I to IXduring the administration of petitioner; and (2) the total amount of expenses incurredby petitioner that should be borne by respondent as the owner of the properties, orthe total deductibles in petitioner‘s favor.

There is no doubt that petitioner is entitled to compensation for the servicesshe rendered. Respondent does not deny that she never paid the former, since theyhad no agreement regarding the amount, the determination of which she left topetitioner .[50]

Petitioner now argues that since the expenses for the maintenance of theproperties exceeded whatever income they generated, then whatever is left of theincome should now belong to her as compensation.[51] She says that the ―admissionof the respondent admitted during cross-examination that she expected petitioner tofix her own salary out of the remaining income, if any, of the administered property‖ isenough reason to reverse and Decision and Resolution of the CA.[52]

The contention is not acceptable. Considering that neither of the parties wasable to prove how much the properties earned, this Court cannot just agree withpetitioner‘s claim that whatever is left of this income, after the expenses have been

deducted, should be considered as her salary. To begin with, she repeatedly claimedthat all the income derived from these properties was insufficient to cover even justthe expenses; thus, there is no ―remaining income‖ left to speak of.

We have already ruled that petitioner should be compensated for theservices she rendered. Since there was no exact amount agreed upon, and she failedto fix her own salary despite the authority given to her, the RTC correctly applied thedoctrine of quantum meruit . With respect to this matter, the trial court found thus:

And where the payment is based on quantum meruit , theamount of recovery would only be the reasonable value of thething or services rendered regardless of any agreement as tovalue. In the instant case, the amount of ₱1,000.00 per monthfor 15 years representing defendant‘s compensation foradministering plaintiff‘s properties appears to be just,reasonable and fair .[53]

The doctrine of quantum meruit (as much as one deserves) prevents undueenrichment based on the equitable postulate that it is unjust for a person to retainbenefit without paying for it.[54] Being an equitable principle, it should only be applied ifno express contract was entered into, and no specific statutory provision isapplicable. Although petitioner was given the authority to set the amount of her salary,she failed to do so. Thus, she should at least be given what she merits for herservices. We find no reason to reverse the finding of both the RTC and the CA that₱1,000 per month for 15 years is a just, reasonable, and fair compensation topetitioner for administering respondent‘s properties. The lower court is ordered to addthis amount to the deductibles that petitioner is able to prove or, if the deductiblesexceed the monetary value of the income generated by the properties, to add thisamount to whatever respondent ends up owing petitioner.

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

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

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

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

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

(a) ORDER petitioner to render full, accurate, and completeaccounting of all the fruits and proceeds earned byrespondent‘s properties during petitioner‘s administrationthereof;

(b) ORDER petitioner to submit a detailed list with a breakdownof all her claimed expenses, including but not limited to thefollowing: maintenance expenses including transportationexpenses, legal expenses, attorney‘s fees, docket fees,etc; the total amount expended for the purchase ofrespondent‘s Las Piñas property;

[55] and the total amount ofreal property taxes paid, all for the period 1979 to 1997;

(c) ORDER the parties to submit their evidence to prove theexact quantity and quality of the harvests or the fruits

produced by the properties and all the expenses incurred inmaintaining them from 1979 to 1997;(d) DETERMINE the total amount earned by the properties by

using as basis the declaration of the National Food Authorityand the Philippine Coconut Authority with respect to theprevailing prices of palay , corn, and copra for the period1979 to 1997; and

(e) SUBTRACT from the determined total amount the expensesproven by petitioner and the ₱180,000 serving as hercompensation for administering the properties from 1979 to1997.

COSTS against petitioner.SO ORDERED.



































[G.R. No. 195482 : June 21, 2011]

ELIZA M. HERNANDEZ, ET AL. V. PLACER DOME, INC.

Sirs/Mesdames:

Please take notice that the Court en banc issued a Resolution datedJUNE 21,2011, which reads as follows: "G.R. No. 195482 (ELIZA M. HERNANDEZ, ET AL. v. PLACER DOME, INC.)

RESOLUTION

In the Resolution dated 8 March 2011, the Court granted petitioners' prayer for theissuance of a Writ of Kalikasan and for the service of said writ as well as thesummons issued in the case, by their counsel and representative, Civic Action GroupLtd./APS International, Ltd. In the same resolution, the Court likewise orderedrespondents Placer Dome, Inc. (PDI) and Barrick Gold Corporation (BGC) to make averified return of the same writ and referred the case to the Court of Appeals (CA) forhearing, reception of evidence and rendition of judgment. On 29 March 2011, theCourt additionally issued a resolution granting petitioners' motion for the inclusionof AI Legal Service & Training Ltd.andSelect Document Services among thoseauthorized to serve summons on respondents, on the ground that Civic Action GroupLtd./APS International, Ltd.had limited their services to the United States of America.Subsequent to its filing of a 29 March 2011 Urgent Motion to Suspend Filing ofReturn, BGC filed a 31 March 2011 Urgent Motion for Ruling on Jurisdiction,

questioning the constitutionality of Rule 7 of theRules of Procedure for EnvironmentalCases (AMC No. 09-6-8-SC) as well as the validity of the issuance and service ofsummons in the case. On 4 April 2011, BGC also filed a Return Ad Cautelam,accompanied by a Manifestation dated 4 April 2011, undertaking to submit within areasonable time the authenticated copies of the sworn statements attached tosaid Return in view of time constraints. On 12 April 2011, the Court issued aResolution noting the foregoing motions and incidents and requiring petitioners to filetheir comment to BGC's Urgent Motion for Ruling on Jurisdiction.On 12 April 2011, petitioners also filed an Urgent Motion of even date, seeking leaveto serve summons upon respondents through any of in the means provided underSection 12, Rule 14 of theRules of Court . As amended by A.M. No. 11-3-6-SC whichwas issued on 15 March 2011, said provision allows service of summons through anyof the following means to a foreign private juridical entity not registered in thePhilippines or without a resident agent, viz.: (a) by personal service coursed through

the appropriate court in the foreign country with the assistance of the Department ofForeign Affairs; (b) by publication once in a newspaper of general circulation in thecountry where the defendant may be found and by serving a copy of the summonsand the court order by registered mail at the last known address of the defendant; (c)by facsimile or any recognized electronic means that could generate proof of service;and, (d) by such other means as the court may in its discretion direct.On 18 April 2011, petitioners filed a Manifestation and Compliance dated 15 April2011, submitting the affidavit executed by Brian Nolan of the Civic Action GroupLtd./APS International, Ltd.attesting to the 25 March 2011 service of summons onBGC. Without prejudice to the Urgent Motion for Ruling on Jurisdiction it earlier filed,BGC in turn filed a Submission dated 19 April 2011, proffering the originalauthenticated copies of the affidavits executed by Debra Bilous and James DonaldRobertson and reiterating its commitment to submit within a reasonable time the

authenticated copies of the other affidavits attached to its Return Ad Cautelam. On 6May 2011, Sycip Salazar Hernandez and Gatmaitan, BGC's counsel of record, filed

a Manifestation dated 5 May 2011 stating, among other matters, that they have beenserved with copies of petitioners' Notice of Deposition, Interrogatories and Motion forProduction of Inspection of Documents (Discovery Papers) intended for their client, inconnection with the proceedings pending before the CA as CA-G.R. SP No. 00001;that being for the limited purpose of raising constitutional and jurisdictional issues,their special appearance is not of such nature as would authorize them to receivesaid Discovery Papers for and in behalf of BCG.On 12 May 2011, petitioners filed their Manifestation with Reiterated Motion dated 11May 2011, alleging that they have received a copy of the 3 May 2011 Manifestationand Motion filed before the CA by the Office of the Solicitor General (OSG) on behalf

of the Department of Trade and Industry (DTI), praying that petitioners be directed tomanifest whether they have already caused the service of summons upon PDI and, ifnot, to coordinate with the OSG with respect to the mode of service as well as themanner of payment thereof; that although it had been served with copies of theirpetition and its annexes by registered mail, PDI has yet to be served with summons;and, that while they are willing to coordinate with the OSG regarding the mode andmanner of payment for the service of summons to PDI, the Court has yet to resolvetheir motions for the inclusion of AI Legal Service & Training Ltd. and SelectDocument Services among those authorized to serve summons on respondents andfor the service of summons in accordance with Section 12, Rule 15 of the Rules ofCourt , as amended.On 17 May 2011, BGC filed a Clarificatory Manifestation dated 16 May 2011, allegingthat it received the Resolution dated 4 May 2011 issued by the CA's First Division in

CA-G.R. SP No. 00001, the decretal portion of which states:"ACTING on the pending incidents, We hereby resolve as follows:1) In order to attain a judicious determination of the Urgent Motion for Ruling on

Jurisdiction, the petitioners are DIRECTED to submit their COMMENT within ten(10) days from receipt hereof. Perforce, Our resolution on petitioners' Motion forProduction and Inspection of Documents is held in abeyance;

2) Petitioners are ORDERED to manifest whether or not respondent Placer Domehas been served with Summons and if none had been served yet, to coordinatewith the DTI, through the OSG, for the implementation thereof.

SO ORDERED." BGC calls the attention of the Court to the fact, among other matters, that theforegoing resolution is in conflict with our resolution dated 12 April 2011 which

required petitioners to file their comment to itsUrgent Motion for Ruling onJurisdiction; and, that consequently, there is a need to clarify which court exercises jurisdiction over the case in order to shed light to the procedural paths available to theparties. Subsequent to its filing of a Submission dated 18 May 2011 submitting theoriginal of the authenticated affidavit of Geoffrey Marlow, BGC fileda Manifestation dated 6 June 2011 reiterating the need for said clarification, in view ofpetitioners' filing on 2 June 2011 of their Opposition to its Urgent Motion for Ruling onJurisdiction. Pursuant to Section 3, Rule VII of the Rules of Procedure for Environmental Cases,petitions for theWrit of Kalikasan "shall be filed with the Supreme Court or with any ofthe stations of the Court of Appeals." It was in consonance with this provision that, on8 March 2011, the Court issued the Resolution which, after granting the Writ ofKalikasan sought by petitioners, referred the case to the CA for hearing, reception ofevidence and rendition of judgment. Considering said referral of the case to the CA,its re-docketing of the petition as CA-G.R. SP No. 00001 and its conduct of



proceedings relative thereto, it is imperative that the various motions and incidentsfiled by the parties, together with the entire records of the case, be likewise referred tosaid Court in observance of the doctrine of hierarchy of courts and in the interest ofthe orderly and expeditious conduct of the proceedings in the case. With respect topetitioners' Manifestation with Reiterated Motion dated 11 May 2011, attention is,however, called to the fact that the motion for the inclusion of AI Legal Service &Training Ltd . andSelect Document Services among those authorized to servesummons on respondents had already been granted in the Court's 29 March 2011Resolution.WHEREFORE, premises considered, the records of the case are REFERRED to the

CA, for appropriate action on the various motions and incidents filed by the parties."



FIRST DIVISION

CORAZON L. ESCUETA, assisted by her husband EDGARESCUETA, IGNACIO E. RUBIO, THE HEIRS OF LUZ R.BALOLOY, namely, ALEJANDRINO R. BALOLOY andBAYANI R. BALOLOY,

Petitioners,

G.R. No. 137162

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,CORONA, AZCUNA, and

- versus - GARCIA, JJ.

Promulgated:

January 24, 2007RUFINA LIM,

Respondent.x --------------------------------------------------------------------------------------- x

DECISION AZCUNA, J .:

This is an appeal by certiorar i[1] to annul and set aside the Decision andResolution of the Court of Appeals (CA) dated October 26, 1998 and January 11,1999, respectively, in CA-G.R. CV No. 48282, entitled ―Rufina Lim v. Corazon L.Escueta, etc., et. al.‖

The facts[2] appear as follows:Respondent Rufina Lim filed an action to remove cloud on, or

quiet title to, real property, with preliminary injunction and issuanceof [a hold-departure order] from the Philippinesagainst Ignacio E.Rubio. Respondent amended her complaint to include specific

performance and damages.

In her amended complaint, respondent averred interalia that she bought the hereditary shares (consisting of 10 lots) ofIgnacio Rubio [and] the heirs of Luz Baloloy, namely: Alejandrino,Bayani, and other co-heirs; that said vendors executed a contract ofsale dated April 10, 1990 in her favor; that Ignacio Rubio and theheirs of Luz Baloloy received [a down payment] or earnest moneyin the amount of P102,169.86 and P450,000, respectively; that itwas agreed in the contract of sale that the vendors would securecertificates of title covering their respective hereditary shares; thatthe balance of the purchase price would be paid to each heir uponpresentation of their individual certificate[s] of [title]; that Ignacio

Rubio refused to receive the other half of the down payment whichis P[100,000]; that Ignacio Rubio refused and still refuses to deliver

to [respondent] the certificates of title covering his share on the twolots; that with respect to the heirs of Luz Baloloy, they also refusedand still refuse to perform the delivery of the two certificates of titlecovering their share in the disputed lots; that respondent was and isready and willing to pay Ignacio Rubio and the heirs of Luz Baloloyupon presentation of their individual certificates of title, free fromwhatever lien and encumbrance;

As to petitioner Corazon Escueta, in spite of her knowledgethat the disputed lots have already been sold by Ignacio Rubio to

respondent, it is alleged that a simulated deed of sale involving saidlots was effected by Ignacio Rubio in her favor; and that thesimulated deed of sale by Rubio to Escueta has raised doubts andclouds over respondent‘s title.

In their separate amended answers, petitioners denied thematerial allegations of the complaint and alleged inter alia thefollowing:

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent has no cause of action, because the subjectcontract of sale has no more force and effect as far as the Baloloys

are concerned, since they have withdrawn their offer to sell for thereason that respondent failed to pay the balance of the purchaseprice as orally promised on or before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) andCorazon Escueta (Escueta for brevity):

Respondent has no cause of action, because Rubio has notentered into a contract of sale with her; that he has appointed hisdaughter Patricia Llamas to be his attorney-in-fact and not in favorof Virginia Rubio Laygo Lim (Lim for brevity) who was the one whorepresented him in the sale of the disputed lots in favor ofrespondent; that the P100,000 respondent claimed he received asdown payment for the lots is a simple transaction by way of a loan

with Lim.

The Baloloys failed to appear at the pre-trial. Upon motionof respondent, the trial court declared the Baloloys in default. Theythen filed a motion to lift the order declaring them in default, whichwas denied by the trial court in an order dated November 27,1991. Consequently, respondent was allowed to adduceevidence ex parte. Thereafter, the trial court rendered a partialdecision dated July 23, 1993 against the Baloloys, the dispositiveportion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of

[respondent] and against [petitioners, heirs] ofLuz R. Balolo[y], namely: Alejandrino Baloloy and

http://sc.judiciary.gov.ph/jurisprudence/2007/jan2007/137162.htm#_ftn1










Bayani Baloloy. The [petitioners] A lejandrinoBaloloy and Bayani Baloloy are ordered toimmediately execute an [Absolute] Deed of Saleover their hereditary share in the propertiescovered by TCT No. 74392 and TCT No. 74394,after payment to them by [respondent] theamount of P[1,050,000] or consignation of saidamount in Court. [For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy toexecute the Absolute Deed of Sale over their

hereditary share in the property covered by TCTNo. T-74392 and TCT No. T-74394 in favor of[respondent], the Clerk of Court is ordered toexecute the necessary Absolute Deed of Sale inbehalf of the Baloloys in favor of [respondent,]with a consideration of P[1,500,000]. Further[,][petitioners] Alejandrino Baloloy and BayaniBaloloy are ordered to jointly and severally pay[respondent] moral damages in the amountof P[50,000] and P[20,000] for attorney‘sfees. The adverse claim annotated at the back ofTCT No. T-74392 and TCT No. T-74394[,] insofaras the shares of Alejandrino Baloloy and Bayani

Baloloy are concerned[,] [is] ordered cancelled.With costs against [petitioners]

Alejandrino Baloloy and Bayani Baloloy.

SO ORDERED.[3]

The Baloloys filed a petition for relief from judgment andorder dated July 4, 1994 and supplemental petition dated July 7,1994. This was denied by the trial court in an orderdatedSeptember 16, 1994. Hence, appeal to the Court of Appealswas taken challenging the order denying the petition for relief.

Trial on the merits ensued between respondent and Rubio

and Escueta. After trial, the trial court rendered its assailedDecision, as follows:

IN VIEW OF THE FOREGOING, thecomplaint [and] amended complaint aredismissed against [petitioners] Corazon L.Escueta, Ignacio E. Rubio[,] and the Registerof Deeds. The counterclaim of [petitioners][is] also dismissed. However, [petitioner] IgnacioE. Rubio is ordered to return to the [respondent],Rufina Lim[,] the amount of P102,169.80[,] withinterest at the rate of six percent (6%) per annumfrom April 10, [1990] until the same is fully

paid. Without pronouncement as to costs.

SO ORDERED.[4]

On appeal, the CA affirmed the trial court‘s order and partial decision, butreversed the later decision. The dispositive portion of its assailed Decision reads:

WHEREFORE, upon all the foregoing premises considered,this Court rules:

1. the appeal of the Baloloys from the Order denyingthe Petition for Relief from Judgment and Orders dated July 4,

1994 and Supplemental Petition dated July 7,1994 isDISMISSED. The Order appealed from is AFFIRMED.

2. the Decision dismissing [respondent‘s] complaintis REVERSED and SET ASIDE and a new one isentered. Accordingly,

a. the validity of the subject contract of sale in favorof [respondent] is upheld.

b. Rubio is directed to execute a Deed of AbsoluteSale conditioned upon the payment of the balance of the purchaseprice by [respondent] within 30 days from the receipt of the entry of

judgment of this Decision.c. the contracts of sale between Rubio and Escueta

involving Rubio‘s share in the disputed properties isdeclared NULL and VOID.

d. Rubio and Escueta are ordered to pay jointly andseverally the [respondent] the amount of P[20,000] as moraldamages and P[20,000] as attorney‘s fees.

3. the appeal of Rubio and Escueta on the denial oftheir counterclaim is DISMISSED.

SO ORDERED.[5]

Petitioners‘ Motion for Reconsideration of the CA Decision was denied. Hence,this petition.

The issues are:

ITHE HONORABLE COURT OF APPEALS ERRED IN DENYINGTHE PETITION FOR RELIEF FROM JUDGMENT FILED BY THEBALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED INREINSTATING THE COMPLAINT AND IN AWARDING MORAL















DAMAGES AND ATTORNEY‘S FEES IN FAVOR OFRESPONDENT RUFINA L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACTOF SALE BETWEEN VIRGINIA LAYGO-LIM ANDRUFINA LIM.

B. THE CONTRACT ENTERED INTO BETWEEN RUFINALIM AND VIRGINIA LAYGO-LIM IS A CONTRACT TOSELL AND NOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITHHER OBLIGATIONS UNDER THE CONTRACT TO SELLTHEREBY WARRANTING THE CANCELLATIONTHEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOODFAITH IN ENTERING INTO THE CONTRACTOF SALE WITH IGNACIO E. RUBIO.

IIITHE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E.RUBIO AND CORAZON L. ESCUETA IS VALID.

IVTHE HONORABLE COURT OF APPEALS ERRED INDISMISSING PETITIONERS‘ COUNTERCLAIMS.

Briefly, the issue is whether the contract of sale between petitioners andrespondent is valid.

Petitioners argue, as follows:

First , the CA did not consider the circumstances surrounding petitioners‘ failureto appear at the pre-trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident and/or

excusable neglect, because petitioner Bayani was in the United States. There wasno service of the notice of pre-trial or order. Neither did the former counsel of recordinform him. Consequently, the order declaring him in default is void, and allsubsequent proceedings, orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of attorney toappear on behalf of Bayani at the pre-trial conference.

Second , the sale by Virginia to respondent is not binding. Petitioner Rubio didnot authorize Virginia to transact business in his behalf pertaining to theproperty. The Special Power of Attorney was constituted in favor of Llamas, and thelatter was not empowered to designate a substitute attorney-in-fact. Llamas evendisowned her signature appearing on the ―Joint Special Power of Attorney,‖ which

constituted Virginia as her true and lawful attorney-in-fact in selling Rubio‘sproperties.

Dealing with an assumed agent, respondent should ascertain not only the factof agency, but also the nature and extent of the former‘sauthority. Besides,Virginia exceeded the authority for failing to comply with herobligations under the ―Joint Special Power of Attorney.‖

The amount encashed by Rubio represented not the down payment, but thepayment of respondent‘s debt. His acceptance and encashment of the check was nota ratification of the contract of sale.

Third , the contract between respondent and Virginia is a contract to sell, not acontract of sale. The real character of the contract is not the title given, but theintention of the parties. They intended to reserve ownership of the property topetitioners pending full payment of the purchase price. Together with taxes and otherfees due on the properties, these are conditions precedent for the perfection of thesale. Even assuming that the contract is ambiguous, the same must be resolvedagainst respondent, the party who caused the same.

Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus,Rubio had the right to sell his properties to Escueta who exercised due diligence inascertaining ownership of the properties sold to her. Besides, a purchaser need notinquire beyond what appears in a Torrens title.

The petition lacks merit. The contract of sale between petitioners andrespondent is valid.

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. Inthe Baloloys‘ answer to the original complaint and amended complaint, the allegationsrelating to the personal circumstances of the Baloloys are clearly admitted.

―An admission, verbal or written, made by a party in the course of theproceedings in the same case, does not require proof.‖

[6] The ―factual admission inthe pleadings on record [dispenses] with the need x x x to present evidence to provethe admitted fact.‖[7] It cannot, therefore, ―be controverted by the party making suchadmission, and [is] conclusive‖[8] as to them. All proofs submitted by them ―contrarythereto or inconsistent therewith should be ignored whether objection is interposed bya party or not.‖[9] Besides, there is no showing that a palpable mistake has been

committed in their admission or that no admission has been made by them.

Pre-trial is mandatory.[10] The notices of pre-trial had been sent to both theBaloloys and their former counsel of record. Being served with notice, he is―chargedwith the duty of notifying the party represented by him.‖[11] He must ―see to it that hisclient receives such notice and attends the pre-trial.‖

[12] What the Baloloys and theirformer counsel have alleged instead in their Motion to Lift Order of As In Defaultdated December 11, 1991 is the belated receipt of Bayani Baloloy‘s special power ofattorney in favor of their former counsel, not that they have not received the notice orbeen informed of the scheduled pre-trial. Not havingraised the ground of lack of aspecial power of attorney in their motion, they are now deemed to have waivedit. Certainly, they cannot raise it at this late stage of the proceedings. For lackof representation, Bayani Baloloy was properly declared in default.

Section 3 of Rule 38 of the Rules of Court states:































SEC. 3. Time for filing petition; contents and verification. – A

petition provided for in either of the preceding sections of this Rulemust be verified, filed within sixty (60) days after the petitionerlearns of the judgment, final order, or other proceeding to be setaside, and not more than six (6) months after such judgment or finalorder was entered, or such proceeding was taken; and must beaccompanied with affidavits showing the fraud, accident, mistake,or excusable negligence relied upon, and the facts constituting thepetitioner‘s good and substantial cause of action or defense, as the

case may be.There is no reason for the Baloloys to ignore the effects of the above-cited

rule. ―The 60-day period is reckoned from the time the party acquired knowledge ofthe order, judgment or proceedings and not from the date he actually read thesame.‖[13] As aptly put by the appellate court:

The evidence on record as far as this issue is concernedshows that Atty. Arsenio Villalon, Jr., the former counsel of recordof the Baloloys received a copy of the partial decision dated June23, 1993 on April 5, 1994. At that time, said former counsel is stilltheir counsel of record. The reckoning of the 60 day periodtherefore is the date when the said counsel of record received acopy of the partial decision which was on April 5, 1994. The

petition for relief was filed by the new counsel on July 4,1994 which means that 90 days have already lapsed or 30 daysbeyond the 60 day period. Moreover, the records further show thatthe Baloloys received the partial decision on September 13,1993 as evidenced by Registry return cards which bear thenumbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to cure the lapse ofthe aforesaid reglementary period to file a petition for relief from judgment[,] included in its petition the two Orders datedMay 6,1994 and June 29, 1994. The first Order denied Baloloys‘ motionto fix the period within which plaintiffs-appellants pay the balance ofthe purchase price. The second Order refers to the grant of partialexecution, i.e. on the aspect of damages. These Orders are only

consequences of the partial decision subject of the petition forrelief, and thus, cannot be considered in the determination of thereglementary period within which to file the said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence exists inorder that the petition for relief may be granted.[14] There is no proof of extrinsicfraud that ―prevents a party from having a trial x x x or from presenting all of his caseto the court‖

[15] or an ―accident x x x which ordinary prudence could not have guardedagainst, and by reason of which the party applying has probably been impaired in hisrights.‖[16] There is also no proof of either a ―mistake x x x of law‖[17]or an excusablenegligence ―caused by failure to receive notice of x x x the trial x x x that it would notbe necessary for him to take an active part in the case x x x by relying on another

person to attend to the case for him, when such other person x x x was chargeable

with that duty x x x, or by other circumstances not involving fault of the movingparty.‖[18]

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute if the principalhas not prohibited him from doing so; but he shall be responsiblefor the acts of the substitute:

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

Applying the above-quoted provision to the special power of attorney executedby Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she isnot prohibited from appointing a substitute. By authorizing Virginia Lim to sell thesubject properties, Patricia merely acted within the limits of the authority given by herfather, but she will have to be ―responsible for the acts of the sub-agent,‖

[19] amongwhich is precisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties,the contract she executed in favor of respondent is not void, but simplyunenforceable,under the second paragraph of Article 1317 of the Civil Code which reads:

Art. 1317. x x x A contract entered into in the name of another by one whohas no authority or legal representation, or who has acted beyondhis powers, shall be unenforceable, unless it is ratified, expressly orimpliedly, by the person on whose behalf it has been executed,before it is revoked by the other contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, withoutsubstantiation, that what he received was a loan, not the down payment for the saleof the subject properties. His acceptance and encashment of the check, however,constitute ratification of the contract of sale and ―produce the effects of an expresspower of agency.‖[20] ―[H]is action necessarily implies that he waived his right ofaction to avoid the contract, and, consequently, it also implies the tacit, if not express,confirmation of the said sale effected‖ by Virginia Lim in favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they acceptedand enjoyed its benefits. ―The doctrine of estoppel applicable to petitioners here isnot only that which prohibits a party from assuming inconsistent positions, based onthe principle of election, but that which precludes him from repudiating an obligationvoluntarily assumed after having accepted benefits therefrom. To countenance suchrepudiation would be contrary to equity, and would put a premium on fraud ormisrepresentation.‖[21]

Indeed, Virginia Lim and respondent have entered into a contract of sale. Notonly has the title to the subject properties passed to the latter upon delivery of thething sold, but there is also no stipulation in the contract that states the ownershipis to be reserved in or ―retained by the vendor until full payment of the price.‖

[22]










































Applying Article 1544 of the Civil Code, a second buyer of the property whomay have had actual or constructive knowledge of such defect in the seller‘s title, orat least was charged with the obligation to discover such defect, cannot be aregistrant in good faith. Such second buyer cannot defeat the first buyer‘s title. Incase a title is issued to the second buyer, the first buyer may seek reconveyance ofthe property subject of the sale.[23] Even the argument that a purchaser need notinquire beyond what appears in a Torrens title does not hold water. A perusal of thecertificates of title alone will reveal that the subject properties are registered incommon, not in the individual names of the heirs.

Nothing in the contract ―prevents the obligation of the vendor to convey titlefrom becoming effective‖

[24] or gives ―the vendor the right to unilaterally resolve thecontract the moment the buyer fails to pay within a fixed period.‖

[25] Petitionersthemselves have failed to deliver their individual certificates of ti tle, for which reason itis obvious that respondent cannot be expected to pay the stipulated taxes, fees, andexpenses.

―[A]ll the elements of a valid contract of sale under Article 1458 of the CivilCode are present, such as: (1) consent or meeting of the minds; (2) determinatesubject matter; and (3) price certain in money or its equivalent.‖

[26] Ignacio Rubio, theBaloloys, and their co-heirs sold their hereditary shares for a price certain to whichrespondent agreed to buy and pay for the subject properties. ―The offer and theacceptance are concurrent, since the minds of the contracting parties meet in the

terms of the agreement.‖

[27]

In fact, earnest money has been given by respondent. ―[I]t shall be considered

as part of the price and as proof of the perfection of the contract.[28] It constitutes anadvance payment to ―be deducted from the total price.‖[29]

Article 1477 of the same Code also states that ―[t]he ownership of the thing soldshall be transferred to the vendee upon actual or constructive delivery thereof. ‖ [30] Inthe present case, there is actual delivery as manifested by acts simultaneous withand subsequent to the contract of sale when respondent not only took possession ofthe subject properties but also allowed their use as parking terminal for jeepneys andbuses. Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to

Corazon Escueta, after having sold them to respondent. ―[I]n a contract of sale, thevendor loses ownership over the property and cannot recover it until and unless thecontract is resolved or rescinded x x x.‖

[31] The records do not show that IgnacioRubio asked for a rescission of the contract. What he adduced was a belatedrevocation of the special power of attorney he executed in favor of PatriciaLlamas. ―In the sale of immovable property, even though it may have been stipulatedthat upon failure to pay the price at the time agreed upon the rescission of thecontract shall of right take place, the vendee may pay, even after the expiration of theperiod, as long as no demand for rescission of the contract has been made upon himeither judicially or by a notarial act.‖

[32]

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

26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs againstpetitioners.SO ORDERED.

[G.R. No. 130423. November 18, 2002]VIRGIE SERONA, petit ioner, vs . HON. COURT OF APPEALS and THE PEOPLE

OF THE PHILIPPINES, respondents .D E C I S I O N

YNARES-SANTIAGO, J .:During the period from July 1992 to September 1992, Leonida Quilatan

delivered pieces of jewelry to petitioner Virgie Serona to be sold on commissionbasis. By oral agreement of the parties, petitioner shall remit payment or return thepieces of jewelry if not sold to Quilatan, both within 30 days from receipt of the items.

Upon petitioner‘s failure to pay on September 24, 1992, Quilatan required her to

execute an acknowledgment receipt (Exhibit B) indicating their agreement and thetotal amount due, to wit: Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ngmga alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabaliksa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.Las Pinas, September 24, 1992.[1]

The receipt was signed by petitioner and a witness, Rufina G. Navarette.Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu

Labrador for the latter to sell on commission basis. Petitioner was not able to collectpayment from Labrador, which caused her to likewise fail to pay her obligation toQuilatan.

Subsequently, Quilatan, through counsel, sent a formal letter of demand [2] to

petitioner for fai lure to settle her obligation. Quilatan executed a complaintaffidavit[3] against petitioner before the Office of the Assistant Provincial Prosecutor.Thereafter, an information for estafa under Art icle 315, paragraph 1(b)[4] of theRevised Penal Code was filed against petitioner, which was raffled to Branch 255 ofthe Regional Trial Court of Las Pinas. The information alleged:That on or about and sometime during the period from July 1992 up to September1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the said accused received in trust from thecomplainant Leonida E. Quilatan various pieces of jewelry in the total value ofP567,750.00 to be sold on commission basis under the express duty and obligation ofremitting the proceeds thereof to the said complainant if sold or returning the same tothe latter if unsold but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, didthen and there willfully, unlawfully and feloniously misappropriate and convert the

same for her own personal use and benefit and despite oral and written demands,she failed and refused to account for said jewelry or the proceeds of sale thereof, tothe damage and prejudice of complainant Leonida E. Quilatan in the aforestated totalamount of P567,750.00.CONTRARY TO LAW.[5]

Petitioner pleaded not guilty to the charge upon arraignment.[6] Trial on themerits thereafter ensued.

Quilatan testified that petitioner was able to remit P100,000.00 and returnedP43,000.00 worth of jewelriy;[7] that at the start, petitioner was prompt in settling herobligation; however, subsequently the payments were remitted late;[8] that petitionerstill owed her in the amount of P424,750.00.[9]

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that she indeed failed to pay for the same. She claimed that

she entrusted the pieces of jewelry to Marichu Labrador who failed to pay for thesame, thereby causing her to default in paying Quilatan.[10] She presented































http://sc.judiciary.gov.ph/jurisprudence/2002/nov2002/130423.htm#_ftn1



















































handwritten receipts (Exhibits 1 & 2)[11]evidencing payments made to Quilatan prior tothe filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from petitionerworth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)[12] signedby her dated July 5, 1992 and testified that she sold the jewelry to a person whoabsconded without paying her. Labrador also explained that in the past, she too haddirectly transacted with Quilatan for the sale of jewelry on commission basis;however, due to her outstanding account with the latter, she got jewelry frompetitioner instead.[13]

On November 17, 1994, the trial court rendered a decision finding petitioner

guilty of estafa, the dispositive portion of which reads:WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Seronaguilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00the penalty provided under the first paragraph of Article 315 of the Revised PenalCode has to be imposed which shall be in the maximum period plus one (1) year forevery additional P10,000.00. Applying the Indeterminate Sentence Law, the said accused is hereby sentenced tosuffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAYof prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prisionmayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs.SO ORDERED.[14]

Petitioner appealed to the Court of Appeals, which affirmed the judgment of

conviction but modified the penalty as follows:WHEREFORE, the appealed decision finding the accused-appellant guilty beyondreasonable doubt of the crime of estafa is hereby AFFIRMED with the followingMODIFICATION:Considering that the amount involved is P424,750.00, the penalty should be imposedin its maximum period adding one (1) year for each additional P10,000.00 albeit thetotal penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging fromFour (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20)Years of Reclusion Temporal .SO ORDERED.[15]

Upon denial of her motion for reconsideration,[16] petitioner filed the instantpetition under Rule 45, alleging that:

I

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDINGTHAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONERIN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FORSALE ON COMMISSION TO PROSPECTIVE BUYERS.

IIRESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDINGTHAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OFPETITIONER WHEN SHE FAILED TO RETURN THE SUBJECTJEWELRIES (sic) TO PRIVATE COMPLAINANT.[17]

Petitioner argues that the prosecution failed to establish the elementsof estafa as penalized under Article 315, par. 1(b) of the Revised Penal Code. Inparticular, she submits that she neither abused the confidence reposed upon her byQuilatan nor converted or misappropriated the subject jewelry; that her giving the

pieces of jewelry to a sub-agent for sale on commission basis did not violate herundertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador

under the same terms upon which it was originally entrusted to her. It wasestablished that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted thesame.

We find merit in the petition.The elements of estafa through misappropriation or conversion as defined in

Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good orother personal property is received by the offender in trust, or on commission, or foradministration, or under any other obligation involving the duty to make delivery of, orto return, the same; (2) that there be misappropriation or conversion of such money or

property by the offender or denial on his part of such receipt; (3) that suchmisappropriation or conversion or denial is to the prejudice of another; and (4) thatthere is a demand made by the offended party on the offender .[18] While the first, thirdand fourth elements are concededly present, we find the second element ofmisappropriation or conversion to be lacking in the case at bar.

Petitioner did not ipso facto commit the crime of estafa through conversion ormisappropriation by delivering the jewelry to a sub-agent for sale on commissionbasis. We are unable to agree with the lower courts‘ conclusion that this fact alone issufficient ground for holding that petitioner disposed of the jewelry ―as if it were hers,thereby committing conversion and a clear breach of t rust.‖

[19] It must be pointed out that the law on agency in our jurisdiction allows the

appointment by an agent of a substitute or sub-agent in the absence of an expressagreement to the contrary between the agent and the principal .[20] In the case at bar,

the appointment of Labrador as petitioner‘s sub -agent was not expressly prohibited byQuilatan, as the acknowledgment receipt, Exhibit B, does not contain any suchlimitation. Neither does it appear that petitioner was verbally forbidden by Quilatanfrom passing on the jewelry to another person before the acknowledgment receiptwas executed or at any other time. Thus, it cannot be said that petitioner‘s act ofentrusting the jewelry to Labrador is characterized by abuse of confidence becausesuch an act was not proscribed and is, in fact, legally sanctioned.

The essence of estafa under Article 315, par. 1(b) is the appropriation orconversion of money or property received to the prejudice of the owner. The words―convert‖ and ―misappropriated‖ connote an act of using or disposing of another‘sproperty as if it were one‘s own, or of devoting it to a purpose or use differ ent fromthat agreed upon. To misappropriate for one‘s own use includes not only conversionto one‘s personal advantage, but also every attempt to dispose of the property ofanother without right.[21]

In the case at bar, it was established that the inability of petitioner as agent tocomply with her duty to return either the pieces of jewelry or the proceeds of its saleto her principal Quilatan was due, in turn, to the failure of Labrador to abide by heragreement with petitioner. Notably, Labrador testified that she obligated herself to sellthe jewelry in behalf of petitioner also on commission basis or to return the same ifnot sold. In other words, the pieces of jewelry were given by petitioner to Labrador toachieve the very same end for which they were delivered to her in the first place.Consequently, there is no conversion since the pieces of jewelry were not devoted toa purpose or use different f rom that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry ordelivered them to Labrador ―without right.‖ Aside from the fact that no condition orlimitation was imposed on the mode or manner by which petitioner was to effect thesale, it is also consistent with usual practice for the seller to necessarily part with the

valuables in order to find a buyer and allow inspection of the items for sale.















































In People v. Nepomuceno,[22] the accused-appellant was acquitted of estafa onfacts similar to the instant case. Accused-appellant therein undertook to sell twodiamond rings in behalf of the complainant on commission basis, with the obligationto return the same in a few days if not sold. However, by reason of the fact that therings were delivered also for sale on commission to sub-agents who failed to accountfor the rings or the proceeds of its sale, accused-appellant likewise failed to makegood his obligation to the complainant thereby giving rise to the charge of estafa. Inabsolving the accused-appellant of the crime charged, we held:Where, as in the present case, the agents to whom personal property was entrustedfor sale, conclusively proves the inability to return the same is solely due to

malfeasance of a subagent to whom the f irst agent had actually entrusted theproperty in good faith, and for the same purpose for which it was received; therebeing no prohibition to do so and the chattel being delivered to the subagent beforethe owner demands its return or before such return becomes due, we hold that thefirst agent can not be held guilty of estafa by either misappropriation or conversion.The abuse of confidence that is characteristic of this offense is missing under thecircumstances.[23]

Accordingly, petitioner herein must be acquitted. The lower courts‘ relianceon People v. Flores

[24] and U.S. v. Panes

[25] to justify petitioner‘s conviction is

misplaced, considering that the factual background of the cited cases differ fromthose which obtain in the case at bar. In Flores, the accused received a ring tosell under the condition that she would return it the following day if not soldandwithout authority to retain the ring or to give it to a sub-agent. The accusedin Panes, meanwhile, was obliged to return the jewelry he received upondemand, but passed on the same to a sub-agent even after demand for its returnhad already been made. In the foregoing cases, it was held that there wasconversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,[26] the Court, citing Nepomuceno andthe case of People v. Trinidad ,[27] held that:In cases of estafa the profit or gain must be obtained by the accused personally,through his own acts, and his mere negligence in permitting another to takeadvantage or benefit from the entrusted chattel cannot constitute estafa under Article315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence shoulddisclose that the agent acted in conspiracy or connivance with the one who carriedout the actual misappropriation, then the accused would be answerable for the acts ofhis co-conspirators. If there is no such evidence, direct or circumstantial, and if theproof is clear that the accused herself was the innocent victim of her sub-agent‘s

faithlessness, her acquittal is in order .[28] (Italics copied)Labrador admitted that she received the jewelry from petitioner and sold the

same to a third person. She further acknowledged that she owed petitionerP441,035.00, thereby negating any criminal intent on the part of petitioner. There isno showing that petitioner derived personal benefit from or conspired with Labrador todeprive Quilatan of the jewelry or its value. Consequently, there is no estafa withincontemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from anyliability towards Quilatan. The rule is that an accused acquitted of estafa maynevertheless be held civilly liable where the facts established by the evidence sowarrant. Then too, an agent who is not prohibited from appointing a sub-agent butdoes so without express authority is responsible for the acts of the sub-agent.[29] Considering that the civil action for the recovery of civil liability arising from

the offense is deemed instituted with the criminal action ,

[30]

petitioner is liable to paycomplainant Quilatan the value of the unpaid pieces of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appealsin CA-G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28,1997 areREVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of thecrime charged, but is held civilly liable in the amount of P424,750.00 as actualdamages, plus legal interest, without subsidiary imprisonment in case of insolvency.

SO ORDERED.







































G.R. No. L-32977 November 17, 1930 THE MUNICIPAL COUNCIL OF ILOILO, plaintiff-appellee,vs.JOSE EVANGELISTA, ET AL., defendants-appellees.TAN ONG SZE VDA. DE TAN TOCO, appellant.Trenas & Laserna for defendant-appellant.Provincial Fiscal Blanco of Iloilo for plaintiff-appellees.Felipe Ysmael for appellee Mauricio Cruz & Co.No appearance for other appellees.

VILLA-REAL, J .: This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment of the Court of First Instance of Iloilo, providing as follows:

Wherefore, judgment is hereby rendered, declaring valid and binding thedeed of assignment of the credit executed by Tan Toco's widow, through herattorney-in-fact Tan Buntiong, in favor of late Antero Soriano; likewise theassignment executed by the latter during his lifetime in favor of thedefendant Mauricio Cruz & Co., Inc., and the plaintiff is hereby ordered topay the said Mauricio Cruz & Co., Inc., the balance of P30,966.40; theplaintiff is also ordered to deposit said sum in a local bank within the periodof ninety days from the time this judgment shall become final, at the disposalof the aforesaid Mauricio Cruz & Co. Inc., and in case that the p laintiff shallnot make such deposit in the manner indicated, said amount shall bear thelegal interest of six percent per annum from the date when the plaintiff shallfail to make the deposit within the period herein set forth, until fully paid.Without special pronouncement of costs.

In support of its appeal, the appellant assigns the following alleged errors ascommitted by the trial court in its decision, to wit:

1. The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco, andExhibit 4-B, Tan Toco.2. The lower court erred in sustaining the validity of the deed of assignmentof the credit, Exhibit 2-Cruz, instead of finding that said assignment made byTan Buntiong to Attorney Antero Soriano was null and void.3. The lower court erred in upholding the assignment of that credit by AnteroSoriano to Mauricio Cruz & Co., Inc., instead of declaring it null and void.4. The court below erred in holding that the balance of the credit against themunicipality of Iloilo should be adjudicated to the appellant herein, Tan

Toco's widow.5. The lower court erred in denying the motion for a new trial filed by thedefendant-appellant.

The facts of the case are as follows:On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civilcase No. 3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Tocowas the plaintiff, and the municipality of Iloilo the defendant, and the former sought torecover of the latter the value of a strip of land belonging to said plaintiff taken by thedefendant to widen a public street; the judgment entitled the plaintiff to recoverP42,966.40, representing the value of said strip of land, from the defendant (Exhibit A). On appeal to this court (G. R. No .22617) 1 the judgment was affirmed onNovember 28, 1924 (Exhibit B). After the case was remanded to the court of origin, and the judgment rendered

therein had become final and executory, Attorney Jose Evangelista, in his own behalfand as counsel for the administratrix of Jose Ma .Arroyo's intestate estate, filed a

claim in the same case for professional services rendered by him, which the court,acting with the consent of the appellant widow, fixed at 15 per cent of the amount ofthe judgment (Exhibit 22 — Soriano). At the hearing on said claim, the claimants appeared, as did also the PhilippineNational Bank, which prayed that the amount of the judgment be turned over to itbecause the land taken over had been mortgaged to it . Antero Soriano also appearedclaiming the amount of the judgment as it had been assigned to him, and by him, inturn, assigned to Mauricio Cruz & Co., Inc. After hearing all the adverse claims on the amount of the judgment the court orderedthat the attorney's lien in the amount of 15 per cent of the judgment, be recorded in

favor of Attorney Jose Evangelista, in his own behalf and as counsel for theadministratrix of the deceased Jose Ma .Arroyo, and directed the municipality of Iloiloto file an action of interpleading against the adverse claimants, the Philippine NationalBank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista and Jose Arroyo, aswas done, the case being filed in the Court of First Instance of Iloilo as civil case No.7702. After due hearing, the court rendered the decision quoted from at the beginning.On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditorof the provincial treasurer of Iloilo and of the Executive Bureau, paid the late AnteroSoriano the amount of P6,000 in part payment of the judgment mentioned above,assigned to him by Tan Boon Tiong, acting as attorney-in-fact of the appellant herein,Tan Ong Sze Vda. de Tan Toco.On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk ofthe Court of First Instance of Iloilo the amount of P6,000 on account of the judgmentrendered in said civil case No. 3514. In pursuance of the resolution of the court belowordering that the attorney's lien in the amount of 15 per cent of the judgment berecorded in favor of Attorney Jose Evangelista, in his own behalf and as counsel forthe late Jose Ma. Arroyo, the said clerk of court delivered on the same date to said Attorney Jose Evangelista the said amount of P6,000. At the hearing of the instantcase, the codefendants of Attorney Jose Evangelista agreed not to discuss thepayment made to the latter by the clerk of the Court of Fi rst Instance of Iloilo of theamount of P6,000 mentioned above in consideration of said lawyer's waiver of theremainder of the 15 per cent of said judgment amounting to P444.69.With these two payments of P6,000 each making a total of P12,000, the judgment forP42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which wasadjudicated by said court to Mauricio Cruz & Co.This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee

of the rights of the late Attorney Antero Soriano by virtue of the said judgment inpayment of professional services rendered by him to the said widow and her coheirs.The only question to be decided in this appeal is the legality of the assignment madeby Tan Boon Tiong as attorney-in-fact of the appellant Tan Ong Sze Viuda de TanToco, to Attorney Antero Soriano, of all the credits, rights and interests belonging tosaid appellant Tan Ong Sze Viuda de Tan Toco by virtue of the judgment rendered incivil case No .3514 of the Court of First Instance of Iloilo, entitled Viuda de Tan Tocovs. The Municipal Council of Iloilo, adjudicating to said widow the amount ofP42,966.40, plus the costs of court, against said municipal council of Iloilo, inconsideration of the professional services rendered by said attorney to said widow ofTan Toco and her coheirs, by virtue of the deed Exhibit 2.The appellant contends, in the first place, that said assignments was not made inconsideration of professional services by Attorney Antero Soriano, for they had

already been satisfied before the execution of said deed of assignment, but in orderto facilitate the collection of the amount of said judgment in favor of the appellant, for



the reason that, being Chinese, she had encountered many difficulties in trying tocollect.lawphil.net In support of her contention on this point, the appellant alleges that the paymentsadmitted by the court in its judgment, as made by Tan Toco's widow to Attorney Antero Soriano for professional services rendered to her and to her coheirs,amounting to P2,900, must be added to the P700 evidenced by Exhibits 4-A, TanToco, and 4-B Tan Toco, respectively, which exhibits the court below rejected asevidence, on the ground that they were considered as payments made forprofessional services rendered, not by Antero Soriano personally, by the f irm ofSoriano & Arroyo.

A glance at these receipts shows that those amounts were received by Attorney Antero Soriano for the firm of Soriano & Arroyo, which is borne out by the stamp onsaid receipts reading, "Befete Soriano & Arroyo," and the manner in which saidattorney receipted for them, "Soriano & Arroyo, by A. Soriano."Therefore, the appellant's contention that the amounts of P200 and P500 evidence bysaid receipts should be considered as payments made to Attorney Antero Soriano forprofessional services rendered by him personally to the interests of the widow of TanToco, is untenable.Besides, if at the time of the assignments to the late Antero Soriano his professionalservices to the appellant widow of Tan Toco had already been paid for, no reason canbe given why it was necessary to write him money in payment of professionalservices on March 14, 1928 (Exhibit 5-G Tan Toco) and December 15, of the sameyear (Exhibit 5-H Tan Toco) after the deed of assignment, (Exhibit 2-Cruz) datedSeptember 27, 1927, had been executed. In view of the fact that the amountsinvolved in the cases prosecuted by Attorney Antero Soriano as counsel for TanToco's widow, some of which cases have been appealed to this court, run into thehundreds of thousands of pesos, and considering that said attorney had won severalof those cases for his clients, the sum of P10,000 to date paid to him for professionalservices is wholly inadequate, and shows, even if indirectly, that the assignments ofthe appellant's rights and interests made to the late Antero Soriano and determined inthe judgment aforementioned, was made in consideration of the professional servicesrendered by the latter to the aforesaid widow and her coheirs.The defendant-appellant also contends that the deed of assignment Exhibit 2 -Cruzwas drawn up in contravention of the prohibition contained in article 1459, case 5, ofthe Civil Code, which reads as follows:

ART. 1459. The following persons cannot take by purchase, even at a publicor judicial auction, either in person or through the mediation of another:

x x x x x x x x x5. Justices, judges, members of the department of public prosecution, clerksof superior and inferior courts, and other officers of such courts, the propertyand rights in litigation before the court within whose jurisdiction or territorythey perform their respective duties .This prohibition shall include theacquisition of such property by assignment. Actions between co-heirs concerning the hereditary property, assignments inpayment of debts, or to secure the property of such persons, shall beexcluded from this rule.The prohibition contained in this paragraph shall include lawyers andsolicitors with respect to any property or rights involved in any litigation inwhich they may take part by virtue of their profession and office.

It does not appear that the Attorney Antero Soriano was counsel for the herein

appellant in civil case No. 3514 of the Court of First Instance of Iloilo, which sheinstituted against the municipality of Iloilo, Iloilo, for the recovery of the value of a strip

of land expropriated by said municipality for the widening of a certain public street.The only lawyers who appear to have represented her in that case were Arroyo andEvangelista, who filed a claim for their professional fees .When the appellant's credit,right, and interests in that case were assigned by her attorney-in-fact Tan BoonTiong, to Attorney Antero Soriano in payment of professional services rendered bythe latter to the appellant and her coheirs in connection with other cases, thatparticular case had been decided, and the only thing left to do was to collect the judgment. There was no relation of attorney and client, then, between Antero Sorianoand the appellant, in the case where that judgment was rendered; and therefore theassignment of her credit, right and interests to said lawyer did not violate the

prohibition cited above. As to whether Tan Boon Tiong as attorney-in-fact of the appellant, was empoweredby his principal to make as assignment of credits, rights and interests, in payment ofdebts for professional services rendered by lawyers, in paragraph VI of the power ofattorney, Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ and contract for theservices of lawyers upon such conditions as he may deem convenient, to take chargeof any actions necessary or expedient for the interests of his principal, and to defendsuits brought against her. This power necessarily implies the authority to pay for theprofessional services thus engaged. In the present case, the assignment made byTan Boon Tiong, as Attorney-in-fact for the appellant, in favor of Attorney AnteroSoriano for professional services rendered in other cases in the interests of theappellant and her coheirs, was that credit which she had against the municipality ofIloilo, and such assignment was equivalent to the payment of the amount of saidcredit to Antero Soriano for professional services.With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano,authorized by Exhibit 1 — Tan Toco, to consent to the deed of assignment, the latterbeing also authorized to pay, in the name and behalf of the principal, all her debts andthe liens and encumbrances her property, the very fact that different letters ofattorney were given to each of these two representatives shows that it was not theprincipal's intention that they should act jointly in order to make their acts valid.Furthermore, the appellant was aware of that assignment and she not only did notrepudiate it, but she continued employing Atto rney Antero Soriano to represent her incourt.For the foregoing considerations, the court is of opinion and so holds: (1) That anagent of attorney-in -fact empowered to pay the debts of the principal, and to employlawyers to defend the latter's interests, is impliedly empowered to pay the lawyer'sfees for services rendered in the interests of said principal, and may satisfy them by

an assignment of a judgment rendered in favor of said principal; (2) that when aperson appoints two attorneys-in-fact independently, the consent of the one will notbe required to validate the acts of the other unless that appears positively to havebeen the principal's attention; and (3) that the assignment of the amount of a judgment made by a person to his attorney, who has not taken any part in the casewherein said judgment was rendered, made in payment of professional services inother cases, does not contravene the prohibition of article 1459, case 5, of the CivilCode.By virtue whereof, and finding no error in the judgment appealed from, the same isaffirmed in its entirety, with costs against the appellant. So ordered.



[ G . R . No . 110668 . February 6 , 1997 ] paragraphSMITH , BELL & CO . , INC . , petit ioner , vs . COURT OF APPEALS and

JOSEPH BENGZON CHUA , [1]

respondents . paragraphD E C I S I O N paragraph

PANGANIBAN , J . : paragraphThe main issue raised in this case is whether a local claim or settling agent is

personally and / or solidarily liable upon a marine insurance policy issued by itsdisclosed foreign principal . paragraph

This is a petition for review on certiorari of the Decision of respondentCour t[2] promulgated on January 20 , 1993 in CA - G . R . CV No . 31812 affirming

the decision[3]

of the trial cour t[4]

which disposed as follows : [5]

paragraph― Wherefore , the Court renders judgment condemning the defendants ( petitionerand First Insurance Co . Ltd . ) jointly and severally to pay the plaintiff ( privaterespondent ) the amount of US$7 , 359 . 78 . plus 24% interest thereon annuallyuntil the claim is fully paid , 10% as and for attorney ‗ s fees , and the cost. ― paragraph

The Facts paragraphThe facts are undisputed by the parties , [6] and are narrated by respondent

Court , quoting the trial court , as follows : [7] paragraph― The undisputed facts of the case have been succintly ( sic ) summarized by thelower court ( , ) as follows : paragraph‗ x x x in July 1982 , the plaintiffs , doing business under the style of Tic Hin Chiong, Importer , bought and imported to the Philippines from the firm Chin Gact Co. , Ltd . of Taipei , Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F -15% valued at US$13 , 000 . 00 CIF Manila . These were contained in 1 , 250 bagsand shipped from the Port of Kaohsiung , Taiwan on Board S . S . ‗ GOLDENWEALTH ‗ for the Port on ( sic ) Manila . On July 27 , 1982 , this shipment wasinsured by the defendant First Insurance Co . for US$19 , 500 . 00 àgainst all risks‗ at port of departure under Marine Policy No . 1000M82070033219 , with the note`Claim , if any , payable in U . S . currency at Manila ( Exh . `1 ‗ , `D ‗ for theplaintiff ) and with defendant Smith , Bell , and Co . stamped at the lower left side ofthe policy as `Claim Agent . ‗ paragraphThe cargo arrived at the Port of Manila on September 1 , 1982 aboard the above -mentioned carrying vessel and landed at port on September 2 , 1982 . Thereafter, the entire cargo was discharged to the local arrastre contractor , MetroportServices Inc . with a number of the cargo in apparent bad order condition . OnSeptember 27 , 1982 , the plaintiff secured the services of a cargo surveyor to

conduct a survey of the damaged cargo which were ( sic ) delivered by plaintiff ‗ sbroker on said date to the plaintiff ‗ s premises at 12th Avenue , Grace Park, Caloocan City . The surveyor ‗ s report ( Exh . È ‗ ) showed that of the 1 , 250bags of the imported material , 600 were damaged by tearing at the sides of thecontainer bags and the contents partly empty . Upon weighing , the contents of thedamaged bags were found to be 18 , 546 . 0 kg short . Accordingly , on October 16following , the plaintiff filed with Smith , Bell , and Co . , Inc . a formal statement ofclaim ( Exh . `G ‗ ) with proof of loss and a demand for settlement of thecorresponding value of the losses , in the sum of US$7 , 357 . 78 . 00 . ( sic ) Afterpurportedly conveying the claim to its principal , Smith , Bell , and Co . , Inc. informed the plaintiff by letter dated February 15 , 1983 ( Exh . `G - 2 ‗ ) that itsprincipal offered only 50% of the claim or US$3 , 616 . 17 as redress , on the allegedground of discrepancy between the amounts contained in the shipping agent ‗ s reply

to the claimant of only US$90 . 48 with that of Metroport ‗ s . The offer not beingacceptable to the plaintiff , the latter wrote Smith , Bell , & Co . expressing his

refusal to the `redress ‗ offer , contending that the discrepancy was a result of lossfrom vessel to arrastre to consignees ‗ warehouse which losses were still within theàll risk ‗ insurance cover . No settlement of the claim having been made , theplaintiff then caused the instant case to be filed . ( p . 2 , RTC Decision ; p . 142, Record ) . ‗ paragraphDenying any liability , defendant - appellant averred in its answer that it is merely asettling or claim agent of defendant insurance company and as such agent , it is notpersonally liable under the policy in which it has not even taken part of . It thenalleged that plaintiff - appellee has no cause of action against it . paragraphDefendant The First Insurance Co . Ltd . did not file an Answer , hence it was

declared in default . paragraph After due trial and proceeding , the lower court rendered a decision favorable toplaintiff - appellee . It ruled that plaintiff - appellee has fully established the liability ofthe insurance firm on the subject insurance contract as the former presented concreteevidence of the amount of losses resulting from the risks insured against which weresupported by reliable report and assessment of professional cargo surveyor . Asregards defendant - appellant , the lower court held that since it is admittedly a claimagent of the foreign insurance firm doing business in the Philippines justice is betterserved if said agent is made liable without prejudice to its right of action against itsprincipal , the insurance firm . x x x ― paragraph

The Issue paragraph― Whether or not a local settling or claim agent of a disclosed principal - - a foreign

insurance company - - can be held jointly and severally liable with said principalunder the latter ‗ s marine cargo insurance policy , given that the agent is not a partyto the insurance contract ― [8] - - is the sole issue raised by petitioner . paragraphPetitioner rejects liability under the said insurance contract , claiming that : ( 1 ) it ismerely an agent and thus not personally liable to the party with whom it contracts onbehalf of its principal ; ( 2 ) it had no participation at all in the contract of insurance; and ( 3 ) the suit is not brought against the real party - in - interest . [9] paragraphOn the other hand , respondent Court in ruling against petitioner disposed of themain issue by citing a case it decided in 1987 , where petitioner was also a party -litigant . [10] In that case , respondent Court held that petitioner as resident agent ofFirst Insurance Co . Ltd . was ― authorized to settle claims against its principal . Itsdefense that its authority excluded personal liability must be proven satisfactorily. There is a complete dearth of evidence supportive of appellant ‗ s non -responsibility as resident agent . ― The ruling continued with the statement that ― theinterest of justice is better served by holding the settling or claim agent jointly and

severally liable with its principal . ― [11] paragraphLikewise , private respondent disputed the applicability of the cases of E

. Macias & Co . vs . Warner , Barnes & Co . [12] and Salonga vs . Warner , Barnes

& Co . , Ltd . [13]invoked by petitioner in its appeal . According to private respondent

, these two cases impleaded only the ― insurance agent ― and did not include theprincipal . While both the foreign principal - - which was declared in default by thetrial court - - and petitioner , as claim agent , were found to be solidarily liable inthis case , petitioner still had ― recourse ― against its foreign principal . Also , beinga contract of adhesion , an insurance agreement must be strictly construed againstthe insurer . [14] paragraph

The Court „ s Ruling paragraph There are three reasons why we find for petitioner . paragraph

First Reason : Existing Jurispru dence paragraph

Petitioner , undisputedly a settling agent acting within the scope of its authority, cannot be held personally and / or solidarily liable for the obligations of its disclosed

http://miso-calr/working%20dir/cathy/110668.htm%23_edn1


























































principal merely because there is allegedly a need for a speedy settlement of theclaim of private respondent . In the leading case of Salonga vs . Warner , Barnes &Co . , Ltd . this Court ruled in this wise : [15] paragraph― We agree with counsel for the appellee that the defendant is a settlement andadjustment agent of the foreign insurance company and that as such agent it has theauthority to settle all the losses and claims that may arise under the policies that maybe issued by or in behalf of said company in accordance with the instructions it mayreceive from time to time from its principal , but we disagree with counsel in hiscontention that as such adjustment and settlement agent , the defendant hasassumed personal liability under said policies , and , therefore , it can be sued in its

own right . An adjustment and settlement agent is no different from any other agentfrom the point of view of his responsibilty ( sic ) , for he also acts in a representativecapacity . Whenever he adjusts or settles a claim , he does it in behalf of hisprincipal , and his action is binding not upon himself but upon his principal . Andhere again , the ordinary rule of agency applies . The following authorities bear thisout : paragraph‗ An insurance adjuster is ordinarily a special agent for the person or company forwhom he acts , and his authority is prima facie coextensive with the businessintrusted to him . * * * ‗ paragraph‗ An adjuster does not discharge functions of a quasi - judicial nature , butrepresents his employer , to whom he owes faithful service , and for his acts , in theemployer ‗ s interest , the employer is responsible so long as the acts are done whilethe agent is acting within the scope of his employment . ‗ ( 45 C . J . S . , 1338 -1340 . ) paragraph

It , therefore , clearly appears that the scope and extent of the functions of anadjustment and settlement agent do not include personal liability . His functions aremerely to settle and adjusts claims in behalf of his principal if those claims are provenand undisputed , and if the claim is disputed or is disapproved by the principal , likein the instant case , the agent does not assume any personal liability . The recourseof the insured is to press his claim against the principal . ― ( Underscoring supplied) . paragraph

The foregoing doctrine may have been enunciated by this Court in 1951 , butthe passage of time has not eroded its value or merit . It still applies with equal forceand vigor . paragraph

Private respondent ‗ s contention that Salonga does not apply simply becauseonly the agent was sued therein while here both agent and principal were impleadedand found solidarily liable is without merit . Such distinction is immaterial . The

agent can not be sued nor held liable whether singly or solidarily with its principal. paragraph

Every cause of action ex contractu must be founded upon a contract , oral orwritten , either express or implied . [16] The only ― involvement ― of petitioner in thesubject contract of insurance was having its name stamped at the bottom left portionof the policy as ― Claim Agent . ― Without anything else to back it up , such stampcannot even be deemed by the remotest interpretation to mean that petitionerparticipated in the preparation of said contract . Hence , there is no privity ofcontract , and correspondingly there can be no obligation or liability , and thus nocause of action against petitioner attaches . Under Article 1311[17] of the Civil Code, contracts are binding only upon the parties ( and their assigns and heirs ) whoexecute them . The subject cargo insurance was between the First InsuranceCompany , Ltd . and the Chin Gact Co . , Ltd . , both of Taiwan , and was signed

in Taipei , Taiwan by the president of the First Insurance Company , Ltd . and the

president of the Chin Gact Co . , Ltd . [18] There is absolutely nothing in the contractwhich mentions the personal liability of petitioner . paragraph

Second Reason : Absenc e of Solidary Liability paragraph May then petitioner , in its capacity as resident agent ( as found in the case

cited by the respondent Court ) [19] be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that ― ( t ) here is a solidary liabilityonly when the obligation expressly so states , or when the law or the nature of theobligation requires solidarity . ― The well - entrenched rule is that solidary obligationcannot lightly be inferred . It must be positively and clearly expressed . Thecontention that , in the end , it would really be First Insurance Company , Ltd

. which would be held liable is specious and cannot be accepted . Such a stancewould inflict injustice upon petitioner which would be made to advance the funds tosettle the claim without any assurance that it can collect from the principal whichdisapproved such claim , in the first place . More importantly , such position wouldhave absolutely no legal basis . paragraph

The Insurance Code is quite clear as to the purpose and role of a resident agent. Such agent , as a representative of the foreign insurance company , is taskedonly to receive legal processes on behalf of its principal and not to answer personallyfor any insurance claims . We quote : paragraph― SEC . 190 . The Commissioner must require as a condition precedent to the

transaction of insurance business in the Philippines by any foreign insurancecompany , that such company file in his office a written power of attorney designatingsome person who shall be a resident of the Philippines as its general agent , onwhom any notice provided by law or by any insurance policy , proof of loss, summons and other legal processes may be served in all actions or other legalproceedings against such company , and consenting that service upon such generalagent shall be admitted and held as valid as if served upon the foreign company at itshome office . Any such foreign company shall , as further condition precedent to thetransaction of insurance business in the Philippines , make and file with theCommissioner an agreement or stipulation , executed by the proper authorities ofsaid company in form and substance as follows : paragraph‗ The ( name of company ) does hereby stipulate and agree in consideration of the

permission granted by the Insurance Commissioner to transact business in thePhilippines , that if at any time such company shall leave the Philippines , or ceaseto transact business therein , or shall be without any agent in the Philippines onwhom any notice , proof of loss , summons , or legal process may be served , thenin any action or proceeding arising out of any business or t ransaction which occurred

in the Philippines , service of any notice provided by law , or insurance policy , proofof loss , summons , or other legal process may be made upon the InsuranceCommissioner shall have the same force and effect as if made upon the company. ‗ paragraph

Whenever such service of notice , proof of loss , summons , or other legalprocess shall be made upon the Commissioner he must , within ten days thereafter, transmit by mail , postage paid , a copy of such notice , proof of loss , summons, or other legal process to the company at its home or principal office . The sendingof such copy of the Commissioner shall be necessary part of the service of the notice, proof of loss , or other legal process . ― ( Underscoring supplied ) . paragraph

Further , we note that in the case cited by respondent Court , petitioner wasfound to be a resident agent of First Insurance Co . Ltd . In the instant casehowever , the trial court had to order the service of summons upon First Insurance

Co . , Ltd . which would not have been necessary if petitioner was its resident agent. Indeed , from our reading of the records of this case , we find no factual and legal























bases for the finding of respondent Court that petitioner is the resident agent of FirstInsurance Co . , Ltd . . paragraph

Third Reason : Not Real Party - In - Interest paragraph Lastly , being a mere agent and representative , petitioner is also not the real

party - in - interest in this case . An action is brought for a practical purpose , that is, to obtain actual and positive relief . If the party sued is not the proper party , anydecision that may be rendered against him would be futile , for the decision cannotbe enforced or executed . Section 2 , Rule 3 of the Rules of Court identifies who thereal parties - in - interest are , thus : paragraph― Section 2 . Parties in interest . - Every action must be prosecuted and defended

in the name of the real party in interest . All persons having an interest in the subjectof the action and in obtaining the relief demanded shall be joined as plaintiffs . Allpersons who claim an interest in the controversy or the subject thereof adverse to theplaintiff , or who are necessary to a complete determination or settlement of thequestions involved therein shall be joined as defendants . ― paragraph

The cause of action of private respondent is based on a contract of insurancewhich as already shown was not participated in by petitioner . It is not a ― personwho claim ( s ) an interest adverse to the plaintiff ― nor is said respondent ―necessary to a complete determination or settlement of the questions involved ― inthe controversy . Petitioner is improperly impleaded for not being a real - party -interest . It will not benefit or suffer in case the action prospers . [20] paragraph

Resort to Equity Misplaced paragraph Finally , respondent Court also contends that ― the interest of justice is better

served by holding the settling agent jointly and severally liable with its principal. ― As no law backs up such pronouncement , the appellate Court is thus resortingto equity . However , equity which has been aptly described as ― justice outsidelegality , ― is availed of only in the absence of , and never against , statutory law or judicial pronouncements . [21] Upon the other hand , the liability of agents is clearlyprovided for by our laws and existing jurisprudence . paragraph

WHEREFORE , in view of the foregoing considerations , the Petitionis GRANTED and the Decision appealed from is REVERSED and SET ASIDE . paragraph

No costs . paragraphSO ORDERED .











G.R. Nos. 112438-39 December 12, 1995CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC),petitioner,vs.THE HONORABLE COURT OF APPEALS JAIME Y. GONZALES, as Assignee ofthe Bank of the Philippine Islands (BPI), RIZAL COMMERCIAL BANKINGCORPORATION (RCBC), LAND BANK OF THE PHILIPPINES (LBP), PHILIPPINECOMMERCIAL & INTERNATIONAL BANK (PCIB) and THE PHILIPPINEINVESTMENT SYSTEM ORGANIZATION (PISO), respondents.G.R. No. 113394 December 12, 1995PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS ASSIGNEE JAIME Y.

GONZALES) petitioner,vs.HONORABLE COURT OR APPEALS and CHEMPHIL EXPORT AND IMPORTCORPORATION (CEIC),respondents.

KAPUNAN, J. : Before us is a legal tug-of-war between the Chemphil Export and Import Corporation(hereinafter referred to as CEIC), on one side, and the PISO and Jaime Gonzales asassignee of the Bank of the Philippine Islands (BPI), Rizal Commercial BankingCorporation (RCBC), Land Bank of the Philippines (LBP) and Philippine CommercialInternational Bank (PCIB), on the other (hereinafter referred to as the consortium),over 1,717,678 shares of stock (hereinafter referred to as the "disputed shares") inthe Chemical Industries of the Philippines (Chemphil/CIP).Our task is to determine who is the rightful owner of the disputed shares.Pursuant to our resolution dated 30 May 1994, the instant case is a consolidation oftwo petitions for review filed before us as follows:In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of the Court of Appeals (former Twelfth Division) promulgated on 30 June 1993 and its resolution of29 October 1993, denying petitioner's motion for reconsideration in the consolidatedcases entitled "Dynetics, Inc., et al. v. PISO, et al." (CA-G.R. No. 20467) and"Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-Appellee" (CA-G.R. CV No.26511).The dispositive portion of the assailed decision reads, thus:

WHEREFORE, this Court resolves in these consolidated cases asfollows:1. The Orders of the Regional Trial Court, dated March 25, 1988,and May 20, 1988, subject of CA-G.R. CV No. 10467, are SET

ASIDE and judgment is hereby rendered in favor of the consortiumand against appellee Dynetics, Inc., the amount of the judgment, tobe determined by Regional Trial Court, taking into account thevalue of assets that the consortium may have already recoveredand shall have recovered in accordance with the other portions ofthis decision.2. The Orders of the Regional Trial Court dated December 19, 1989and March 5, 1990 are hereby REVERSED and SET ASIDE and judgment is hereby rendered confirming the ownership of theconsortium over the Chemphil shares of stock, subject of CA-G.R.CV No. 26511, and the Order dated September 4, 1989, isreinstated.No pronouncement as to costs.SO ORDERED. 1

In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for the annulmentof the Court of Appeals' decision (former Special Ninth Division) promulgated on 26March 1993 in "PCIB v. Hon. Job B. Madayag & CEIC" (CA-G.R. SP NO. 20474)dismissing the petition for certiorari , prohibition and mandamus filed by PCIB and ofsaid court's resolution dated 11 January 1994 denying their motion for reconsiderationof its decision. 2 The antecedent facts leading to the aforementioned controversies are as follows:On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed a complaint fordeclaratory relief and/or injunction against the PISO, BPI, LBP, PCIB and RCBC orthe consortium with the Regional Trial Court of Makati, Branch 45 (Civil Case No.

8527), seeking judicial declaration, construction and interpretation of the validity of thesurety agreement that Dynetics and Garcia had entered into with the consortium andto perpetually enjoin the latter from claiming, collecting and enforcing any purportedobligations which Dynetics and Garcia might have undertaken in said agreement. 3 The consortium filed their respective answers with counterclaims alleging that thesurety agreement in question was valid and binding and that Dynetics and Garciawere liable under the terms of the said agreement. It likewise applied for the issuanceof a writ of preliminary attachment against Dynetics and Garcia. 4 Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia and MatrixManagement & Trading Corporation filed a complaint for declaratory relief and/orinjunction against the Security Bank & Trust Co. (SBTC case) before the RegionalTrial Court of Makati, Branch 135 docketed as Civil Case No. 10398. 5 On 2 July 1985, the trial court granted SBTC's prayer for the issuance of a writ ofpreliminary attachment and on 9 July 1985, a notice of garnishment covering Garcia'sshares in CIP/Chemphil (including the disputed shares) was served on Chemphilthrough its then President. The notice of garnishment was duly annotated in the stockand transfer books of Chemphil on the same date. 6 On 6 September 1985, the writ of attachment in favor of SBTC was l ifted. However,the same was reinstated on 30 October 1985. 7 In the meantime, on 12 July 1985, the Regional Trial Court in Civil Case No. 8527(the consortium case) denied the application of Dynetics and Garcia for preliminaryinjunction and instead granted the consortium's prayer for a consolidated writ ofpreliminary attachment. Hence, on 19 July 1985, after the consortium had filed therequired bond, a writ of attachment was issued and various real and personalproperties of Dynetics and Garcia were garnished, including the disputedshares. 8 This garnishment, however, was not annotated in Chemphil's stock andtransfer book.

On 8 September 1987, PCIB filed a motion to dismiss the complaint of Dynetics andGarcia for lack of interest to prosecute and to submit its counterclaims for decision,adopting the evidence it had adduced at the hearing of its application for preliminaryattachment. 9 On 25 March 1988, the Regional Trial Court dismissed the complaint of Dynetics andGarcia in Civil Case No. 8527, as well as the counterclaims of the consortium, thus:

Resolving defendant's, Philippine Commercial International Bank,MOTION TO DISMISS WITH MOTION TO SUBMIT DEFENDANTPCIBANK's COUNTERCLAIM FOR DECISION, dated September7, 1987:(1) The motion to dismiss is granted; and the instant case is herebyordered dismissed pursuant to Sec. 3, Rule 17 of the RevisedRules of Court, plaintiff having failed to comply with the order dated

July 16, 1987, and having not taken further steps to prosecute thecase; and



(2) The motion to submit said defendant's counterclaim for decisionis denied; there is no need; said counterclaim is likewise dismissedunder the authority of Dalman vs. City Court of Dipolog City , L-63194, January 21, 1985, wherein the Supreme Court stated that ifthe civil case is dismissed, so also is the counterclaim filed therein."A person cannot eat his cake and have it at the same time" (p.645, record, Vol. I). 10

The motions for reconsideration filed by the consortium were, likewise, denied by thetrial court in its order dated 20 May 1988:

The Court could have stood pat on its order dated 25 March 1988,

in regard to which the defendants-banks concerned filed motionsfor reconsideration. However, inasmuch as plaintiffs commented onsaid motions that: "3). In any event, so as not to unduly forecloseon the rights of the respective parties to refile and prosecute theirrespective causes of action, plaintiffs manifest their conformity tothe modification of this Honorable Court's order to indicate that thedismissal of the complaint and the counterclaims is withoutprejudice." (p. 2, plaintiffs' COMMENT etc. dated May 20, 1988).The Court is inclined to so modify the said order.WHEREFORE , the order issued on March 25, 1988, is herebymodified in the sense that the dismissal of the complaint as well asof the counterclaims of defendants RCBC, LBP, PCIB and BPI shallbe considered as without prejudice (p. 675, record, Vol. I). 11

Unsatisfied with the aforementioned order, the consortium appealed to the Court of Appeals, docketed as CA-G.R. CV No. 20467.On 17 January 1989 during the pendency of consortium's appeal in CA-G.R. CV No.20467, Antonio Garcia and the consortium entered into a Compromise Agreementwhich the Court of Appeals approved on 22 May 1989 and became the basis of its judgment by compromise. Antonio Garcia was dropped as a party to the appealleaving the consortium to proceed solely against Dynetics, Inc. 12 On 27 June 1989,entry of judgment was made by the Clerk of Court. 13 Hereunder quoted are the salient portions of said compromise agreement:

xxx xxx xxx3. Defendants, in consideration of avoiding an extended litigation,having agreed to limit their claim against plaintiff Antonio M. Garciato a principal sum of P145 Million immediately demandable and towaive all other claims to interest, penalties, attorney's fees and

other charges. The aforesaid compromise amount of indebtednessof P145 Million shall earn interest of eighteen percent (18%) fromthe date of this Compromise.4. Plaintiff Antonio M. Garcia and herein defendants have no furtherclaims against each other.5. This Compromise shall be without prejudice to such claims asthe parties herein may have against plaintiff Dynetics, Inc.6. Plaintiff Antonio M. Garcia shall have two (2) months from date ofthis Compromise within which to work for the entry and participationof his other creditor, Security Bank and Trust Co., into thisCompromise. Upon the expiration of this period, without SecurityBank and Trust Co. having joined, this Compromise shall besubmitted to the Court for its information and approval (pp. 27, 28-31, rollo, CA-G.R. CV No. 10467). 14

It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale transferred toFerro Chemicals, Inc. (FCI) the disputed shares and other properties forP79,207,331.28. It was agreed upon that part of the purchase price shall be paid byFCI directly to SBTC for whatever judgment credits that may be adjudged in thelatter's favor and against Antonio Garcia in the aforementioned SBTC case. 15 On 6 March 1989, FCI, through its President Antonio M. Garcia, issued a Bank of America Check No. 860114 in favor of SBTC in the amount ofP35,462,869.62. 16

SBTC refused to accept the check claiming that the amount wasnot sufficient to discharge the debt. The check was thus consigned by Antonio Garciaand Dynetics with the Regional Trial Court as payment of their judgment debt in the

SBTC case. 17

On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil, which included thedisputed shares, to petitioner CEIC. The shares were registered and recorded in thecorporate books of Chemphil in CEIC's name and the corresponding stock certificateswere issued to it. 18 Meanwhile, Antonio Garcia, in the consortium case, failed to comply with the terms ofthe compromise agreement he entered into with the consortium on 17 January 1989. As a result, on 18 July 1989, the consortium filed a motion for execution which wasgranted by the trial court on 11 August 1989. Among Garcia's properties that werelevied upon on execution were his 1,717,678 shares in Chemphil (the disputedshares) previously garnished on 19 July 1985. 19 On 22 August 1989, the consortium acquired the disputed shares of stock at thepublic auction sale conducted by the sheriff for P85,000,000.00. 20

On same day, aCertificate of Sale covering the disputed shares was issued to it.On 30 August 1989, 21 the consortium filed a motion (dated 29 August 1989) to orderthe corporate secretary of Chemphil to enter in its stock and transfer books thesheriff's certificate of sale dated 22 August 1989, and to issue new certificates ofstock in the name of the banks concerned. The trial court granted said motion in itsorder dated 4 September 1989, thus:

For being legally proper, defendant's MOTION TO ORDER THECORPORATE SECRETARY OF CHEMICAL INDUSTRIES OFTHE PHILS., INC. (CHEMPIL) TO ENTER IN THE STOCK ANDTRANSFER BOOKS OF CHEMPHIL THE SHERIFF'SCERTIFICATE OF SALE DATED AUGUST 22, 1989 AND TOISSUE NEW CERTIFICATES OF STOCK IN THE NAME OF THEDEFENDANT BANKS, dated August 29, 1989, is hereby granted.WHEREFORE, the corporate secretary of the aforesaid

corporation, or whoever is acting for and in his behalf, is herebyordered to (1) record and/or register the Certificate of Sale dated August 22, 1989 issued by Deputy Sheriff Cristobal S. Jabson ofthis Court; (2) to cancel the certificates of stock of plaintiff AntonioM. Garcia and all those which may have subsequently been issuedin replacement and/or in substitution thereof; and (3) to issue in lieuof the said shares new shares of stock in the name of thedefendant Banks, namely, PCIB, BPI, RCBC, LBP and PISO bankin such proportion as their respective claims would appear in thissuit (p. 82, record, Vol. II). 22

On 26 September 1989, CEIC f iled a motion to intervene (dated 25 September 1989)in the consortium case seeking the recall of the abovementioned order on groundsthat it is the rightful owner of the disputed shares. 23 It further alleged that the disputedshares were previously owned by Antonio M. Garcia but subsequently sold by him on



15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn assigned the same to CEICin an agreement dated 26 June 1989.On 27 September 1989, the trial court granted CEIC's motion allowing it to intervene,but limited only to the incidents covered by the order dated 4 September 1989. In thesame order, the trial court directed Chemphil's corporate secretary to temporarilyrefrain from implementing the 4 September 1989order. 24 On 2 October 1989, the consortium filed their opposition to CEIC's motion forintervention alleging that their attachment lien over the disputed shares of stocksmust prevail over the private sale in favor of the CEIC considering that said shares of

stock were garnished in the consortium's favor as early as 19 July 1985. 25

On 4 October 1989, the consortium filed their opposition to CEIC's motion to set asidethe 4 September 1989 order and moved to lift the 27 September 1989 order. 26 On 12 October 1989, the consortium filed a manifestation and motion to lift the 27September 1989 order, to reinstate the 4 September 1989 order and to direct CEIC tosurrender the disputed stock certificates of Chemphil in its possession within twenty-four (24) hours, failing in which the President, Corporate Secretary and stock andtransfer agent of Chemphil be directed to register the names of the banks making upthe consortium as owners of said shares, sign the new certificates of stocksevidencing their ownership over said shares and to immediately deliver the stockcertificates to them. 27 Resolving the foregoing motions, the trial court rendered an order dated 19 December1989, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the Urgent Motion datedSeptember 25, 1989 filed by CEIC is hereby GRANTED. Accordingly, the Order of September 4, 1989, is hereby SET ASIDE, and any and all acts of the Corporate Secretary ofCHEMPHIL and/or whoever is acting for and in his behalf, as mayhave already been done, carried out or implemented pursuant tothe Order of September 4, 1989, are hereby nullified.PERFORCE, the CONSORTIUM'S Motions dated October 3, 1989and October 11, 1989, are both hereby denied for lack of merit.The Cease and Desist Order dated September 27, 1989, is hereby AFFIRMED and made PERMANENT.SO ORDERED. 28

In so ruling, the trial court ratiocinated in this wise:xxx xxx xxx

After careful and assiduous consideration of the facts andapplicable law and jurisprudence, the Court holds that CEIC'sUrgent Motion to Set Aside the Order of September 4, 1989 isimpressed with merit. The CONSORTIUM has admitted that thewrit of attachment/garnishment issued on July 19, 1985 on theshares of stock belonging to plaintiff Antonio M. Garcia was notannotated and registered in the stock and transfer books ofCHEMPHIL. On the other hand, the prior attachment issued in favorof SBTC on July 2, 1985 by Branch 135 of this Court in Civil CaseNo. 10398, against the same CHEMPHIL shares of Antonio M.Garcia, was duly registered and annotated in the stock and transferbooks of CHEMPHIL. The matter of non-recording of theConsortium's attachment in Chemphil's stock and transfer book onthe shares of Antonio M. Garcia assumes significance consideringCEIC's position that FCI and later CEIC acquired the CHEMPHIL

shares of Antonio M. Garcia without knowledge of the attachmentof the CONSORTIUM. This is also important as CEIC claims that ithas been subrogated to the rights of SBTC since CEIC'spredecessor-in-interest, the FCI, had paid SBTC the amount ofP35,462,869.12 pursuant to the Deed of Sale and Purchase ofShares of Stock executed by Antonio M. Garcia on July 15, 1988.By reason of such payment, sale with the knowledge and consentof Antonio M. Garcia, FCI and CEIC, as party-in-interest to FCI, aresubrogated by operation of law to the rights of SBTC. The Court isnot unaware of the citation in CEIC's reply that "as between two (2)

attaching creditors, the one whose claims was first registered onthe books of the corporation enjoy priority." (SamahangMagsasaka, Inc. vs. Chua Gan, 96 Phil. 974.)The Court holds that a levy on the shares of corporate stock to bevalid and binding on third persons, the notice of attachment orgarnishment must be registered and annotated in the stock andtransfer books of the corporation, more so when the shares of thecorporation are listed and traded in the stock exchange, as in thiscase. As a matter of fact, in the CONSORTIUM's motion of August30, 1989, they specifically move to "order the Corporate Secretaryof CHEMPHIL to enter in the stock and transfer books ofCHEMPHIL the Sheriff's Certificate of Sale dated August 22, 1989."This goes to show that, contrary to the arguments of theCONSORTIUM, in order that attachment, garnishment and/orencumbrances affecting rights and ownership on shares of acorporation to be valid and binding, the same has to be recorded inthe stock and transfer books.Since neither CEIC nor FCI had notice of the CONSORTIUM'sattachment of July 19, 1985, CEIC's shares of stock in CHEMPHIL,legally acquired from Antonio M. Garcia, cannot be levied upon inexecution to satisfy his judgment debts. At the time of the Sheriff'slevy on execution, Antonio M. Garcia has no more in CHEMPHILwhich could be levied upon. 29

xxx xxx xxxOn 23 January 1990, the consortium and PCIB filed separate motions forreconsideration of the aforestated order which were opposed by petitionerCEIC. 30

On 5 March 1990, the trial court denied the motions forreconsideration. 31 On 16 March 1990, the consortium appealed to the Court of Appeals (CA-G.R. No.26511). In its Resolution dated 9 August 1990, the Court of Appeals consolidated CA-G.R. No. 26511 with CA-G.R. No. 20467. 32 The issues raised in the two cases, as formulated by the Court of Appeals, are asfollows:

IWHETHER OR NOT, UNDER THE PECULIAR CIRCUMSTANCESOF THE CASE, THE TRIAL COURT ERRED IN DISMISSING THECOUNTERCLAIMS OF THE CONSORTIUM IN CIVIL CASE NO.8527;

IIWHETHER OR NOT THE DISMISSAL OF CIVIL CASE NO. 8527RESULTED IN THE DISCHARGE OF THE WRIT OF



ATTACHMENT ISSUED THEREIN EVEN AS THE CONSORTIUM APPEALED THE ORDER DISMISSING CIVIL CASE NO. 8527;

IIIWHETHER OR NOT THE JUDGMENT BASED ONCOMPROMISE RENDERED BY THIS COURT ON MAY 22, 1989HAD THE EFFECT OF DISCHARGING THE ATTACHMENTSISSUED IN CIVIL CASE NO. 8527;

IVWHETHER OR NOT THE ATTACHMENT OF SHARES OFSTOCK, IN ORDER TO BIND THIRD PERSONS, MUST BE

RECORDED IN THE STOCK AND TRANSFER BOOK OF THECORPORATION; ANDV

WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITSSUCCESSOR-IN-INTEREST, CEIC, WERE SUBROGATED TOTHE RIGHTS OF SECURITY BANK & TRUST COMPANY (SBTC)IN A SEPARATE CIVIL ACTION. (This issue appears to bematerial as SBTC is alleged to have obtained an earlier attachmentover the same Chemphil shares that the consortium seeks torecover in the case at bar). 33

On 6 April 1990, the PCIB separately filed with the Court of Appeals a petitionfor certiorari , prohibition andmandamus with a prayer for the issuance of a writ ofpreliminary injunction (CA-G.R. No. SP-20474), likewise, assailing the very sameorders dated 19 December 1989 and 5 March 1990, subject of CA-G.R. No. 26511. 34 On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R. No. 26511 andCA-G.R. No. 20467 rendered a decision reversing the orders of the trial court andconfirming the ownership of the consortium over the disputed shares. CEIC's motionfor reconsideration was denied on 29 October 1993. 35 In ruling for the consortium, the Court of Appeals made the following ratiocination: 36

On the first issue, it ruled that the evidence offered by theconsortium in support of its counterclaims, coupled with the failureof Dynetics and Garcia to prosecute their case, was sufficient basisfor the RTC to pass upon and determine the consortium'scounterclaims.The Court of Appeals found no application for the ruling in Dalmanv . City Court of Dipolog , 134 SCRA 243 (1985) that "a personcannot eat his cake and have it at the same time. If the civil case is

dismissed, so also is the counterclaim filed therein" because thefactual background of the present action is different. In the instantcase, both Dynetics and Garcia and the consortium presentedtestimonial and documentary evidence which clearly should havesupported a judgment on the merits in favor of the consortium. Asthe consortium correctly argued, the net atrocious effect of theRegional Trial Court's ruling is that it allows a situation where aparty litigant is forced to plead and prove compulsory counterclaimsonly to be denied those counterclaims on account of the adverseparty's failure to prosecute his case. Verily, the consortium had noalternative but to present its counterclaims in Civil Case No. 8527since its counterclaims are compulsory in nature.On the second issue, the Court of Appeals opined that unless a writof attachment is lifted by a special order specifically providing forthe discharge thereof, or unless a case has been finally dismissed

against the party in whose favor the attachment has been issued,the attachment lien subsists. When the consortium, therefore, tookan appeal from the Regional Trial Court's orders of March 25, 1988and May 20, 1988, such appeal had the effect of preserving theconsortium's attachment liens secured at the inception of Civil CaseNo. 8527, invoking the rule in Olib v . Pastoral,188 SCRA 692(1988) that where the main action is appealed, the attachmentissued in the said main case is also considered appealed. Anent the third issue, the compromise agreement between theconsortium and Garcia dated 17 January 1989 did not result in the

abandonment of its attachment lien over his properties. Saidagreement was approved by the Court of Appeals in a Resolutiondated 22 May 1989. The judgment based on the compromiseagreement had the effect of preserving the said attachment lien assecurity for the satisfaction of said judgment (citing BF Homes, Inc.v. CA, 190 SCRA 262, [1990]). As to the fourth issue, the Court of Appeals agreed with theconsortium's position that the attachment of shares of stock in acorporation need not be recorded in the corporation's stock andtransfer book in order to bind third persons.Section 7(d), Rule 57 of the Rules of Court was complied with bythe consortium (through the Sheriff of the trial court) when thenotice of garnishment over the Chemphil shares of Garcia wasserved on the president of Chemphil on July 19, 1985. Indeed, tobind third persons, no law requires that an attachment of shares ofstock be recorded in the stock and transfer book of a corporation.The statement attributed by the Regional Trial Court to theSupreme Court in Samahang Magsasaka, Inc .vs. Gonzalo ChuaGuan, G.R. No. L-7252, February 25, 1955 (unreported), to theeffect that "as between two attaching creditors, the one whoseclaim was registered first on the books of the corporation enjoyspriority," is an obiter dictum that does not modify the procedure laiddown in Section 7(d), Rule 57 of the Rules of Court.Therefore, ruled the Court of Appeals, the attachment made overthe Chemphil shares in the name of Garcia on July 19, 1985 wasmade in accordance with law and the lien created thereby remainedvalid and subsisting at the time Garcia sold those shares to FCI

(predecessor-in-interest of appellee CEIC) in 1988. Anent the last issue, the Court of Appeals rejected CEIC'ssubrogation theory based on Art. 1302 (2) of the New Civil Codestating that the obligation to SBTC was paid by Garcia himself andnot by a third party (FCI).The Court of Appeals further opined that while the check used topay SBTC was a FCI corporate check, it was funds of Garcia in FCIthat was used to pay off SBTC. That the funds used to pay offSBTC were funds of Garcia has not been refuted by FCI or CEIC. Itis clear, therefore, that there was an attempt on the part of Garciato use FCI and CEIC as convenient vehicles to deny the consortiumits right to make itself whole through an execution sale of theChemphil shares attached by the consortium at the inception ofCivil Case No. 8527. The consortium, therefore, is entitled to theissuance of the Chemphil shares of stock in its favor. The Regional



Trial Court's order of September 4, 1989, should, therefore, bereinstated in toto. Accordingly, the question of whether or not the attachment lien infavor of SBTC in the SBTC case is superior to the attachment lienin favor of the consortium in Civil Case No. 8527 becomesimmaterial with respect to the right of intervenor-appellee CEIC.The said issue would have been relevant had CEIC established itssubrogation to the rights of SBTC.

On 26 March 1993, the Court of Appeals (Special Ninth Division) in CA-G.R. No. SP20474 rendered a decision denying due course to and dismissing PCIB's petition

for certiorari on grounds that PCIB violated the rule against forum-shopping and thatno grave abuse of discretion was committed by respondent Regional Trial Court inissuing its assailed orders dated 19 December 1989 and 5 March 1990. PCIB'smotion for reconsideration was denied on 11 January 1994. 37 On 7 July 1993, the consortium, with the exception of PISO, assigned withoutrecourse all its rights and interests in the disputed shares to Jaime Gonzales. 38 On 3 January 1994, CEIC filed the instant petition for review docketed as G.R. Nos.112438-39 and assigned the following errors:

I.THE RESPONDENT COURT OF APPEALS GRAVELY ERRED INSETTING ASIDE AND REVERSING THE ORDERS OF THEREGIONAL TRIAL COURT DATED DECEMBER 5, 1989 ANDMARCH 5, 1990 AND IN NOT CONFIRMING PETITIONER'SOWNERSHIP OVER THE DISPUTED CHEMPHIL SHARES AGAINST THE FRIVOLOUS AND UNFOUNDED CLAIMS OF THECONSORTIUM.

II.THE RESPONDENT COURT OF APPEALS GRAVELY ERRED:

(1) In not holding that the Consortium'sattachment over the disputed Chemphil sharesdid not vest any priority right in its favor andcannot bind third parties since admittedly itsattachment on 19 July 1985 was not recorded inthe stock and transfer books of Chemphil, andsubordinate to the attachment of SBTC whichSBTC registered and annotated in the stock andtransfer books of Chemphil on 2 July 1985, and

that the Consortium's attachment failed to complywith Sec. 7(d), Rule 57 of the Rules as evidencedby the notice of garnishment of the deputy sheriffof the trial court dated 19 July 1985 (annex "D")which the sheriff served on a certain Thelly Ruizwho was neither President nor managing agentof Chemphil;(2) In not applying the case law enunciated bythis Honorable Supreme Court inSamahangMagsasaka, Inc . vs. Gonzalo Chua Guan, 96Phil. 974 that as between two attaching creditors,the one whose claim was registered first in thebooks of the corporation enjoys priority, andwhich respondent Court erroneouslycharacterized as mere obiter dictum;

(3) In not holding that the dismissal of the appealof the Consortium from the order of the trial courtdismissing its counterclaim against Antonio M.Garcia and the finality of the compromiseagreement which ended the litigation betweenthe Consortium and Antonio M. Garcia inthe Dynetics case had ipso jure discharged theConsortium's purported attachment over thedisputed shares.

III.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED INNOT HOLDING THAT CEIC HAD BEEN SUBROGATED TO THERIGHTS OF SBTC SINCE CEIC'S PREDECESSOR IN INTERESTHAD PAID SBTC PURSUANT TO THE DEED OF SALE ANDPURCHASE OF STOCK EXECUTED BY ANTONIO M. GARCIAON JULY 15, 1988, AND THAT BY REASON OF SUCHPAYMENT, WITH THE CONSENT AND KNOWLEDGE OF ANTONIO M. GARCIA, FCI AND CEIC, AS PARTY IN INTERESTTO FCI, WERE SUBROGATED BY OPERATION OF LAW TO THERIGHTS OF SBTC.

IV.THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND MADE UNWARRANTED INFERENCES ANDCONCLUSIONS, WITHOUT ANY SUPPORTING EVIDENCE,THAT THERE WAS AN ATTEMPT ON THE PART OF ANTONIOM. GARCIA TO USE FCI AND CEIC AS CONVENIENT VEHICLESTO DENY THE CONSORTIUM ITS RIGHTS TO MAKE ITSELFWHOLE THROUGH AN EXECUTION OF THE CHEMPHILSHARES PURPORTEDLY ATTACHED BY THE CONSORTIUMON 19 JULY 1985. 39

On 2 March 1994, PCIB filed its own petition for review docketed as G.R. No. 113394wherein it raised the following issues:

I. RESPONDENT COURT OF APPEALS COMMITTED SERIOUSERROR IN RENDERING THE DECISION AND RESOLUTION INQUESTION (ANNEXES A AND B) IN DEFIANCE OF LAW ANDJURISPRUDENCE BY FINDING RESPONDENT CEIC ASHAVING BEEN SUBROGATED TO THE RIGHTS OF SBTC BY

THE PAYMENT BY FCI OF GARCIA'S DEBTS TO THE LATTERDESPITE THE FACT THAT — A. FCI PAID THE SBTC DEBT BY VIRTUE OF ACONTRACT BETWEEN FCI AND GARCIA,THUS, LEGAL SUBROGATION DOES NOT ARISE;B. THE SBTC DEBT WAS PAID BY GARCIAHIMSELF AND NOT BY FCI, HENCE,SUBROGATION BY PAYMENT COULD NOTHAVE OCCURRED;C. FCI DID NOT ACQUIRE ANY RIGHT OVERTHE DISPUTED SHARES AS SBTC HAD NOTYET LEVIED UPON NOR BOUGHT THOSESHARES ON EXECUTION. ACCORDINGLY,WHAT FCI ACQUIRED FROM SBTC WAS



SIMPLY A JUDGMENT CREDIT AND AN ATTACHMENT LIEN TO SECURE ITSSATISFACTION.

II. RESPONDENT COURT OF APPEALS COMMITTED SERIOUSERROR IN SUSTAINING THE ORDERS OF THE TRIAL COURTDATED DECEMBER 19, 1989 AND MARCH 5, 1990 WHICHDENIED PETITIONER'S OWNERSHIP OVER THE DISPUTEDSHARES NOTWITHSTANDING PROVISIONS OF LAW ANDEXTANT JURISPRUDENCE ON THE MATTER THATPETITIONER AND THE CONSORTIUM HAVE PREFERRED

SENIOR RIGHTS THEREOVER.III. RESPONDENT COURT OF APPEAL COMMITTED SERIOUSERROR IN CONCLUDING THAT THE DISMISSAL OF THECOMPLAINT AND THE COUNTERCLAIM IN CIVIL CASE NO.8527 ALSO RESULTED IN THE DISCHARGE OF THE WRIT OF ATTACHMENT DESPITE THE RULINGS OF THIS HONORABLECOURT IN BF HOMES VS. COURT OF APPEALS, G.R. NOS.76879 AND 77143, OCTOBER 3, 1990, 190 SCRA 262, ANDIN OLIB VS. PASTORAL, G.R. NO. 81120, AUGUST 20, 1990, 188SCRA 692 TO THE CONTRARY.IV. RESPONDENT COURT OF APPEALS EXCEEDED ITSJURISDICTION IN RULING ON THE MERITS OF THE MAINCASE NOTWITHSTANDING THAT THOSE MATTERS WERENOT ON APPEAL BEFORE IT.V. RESPONDENT COURT OF APPEALS COMMITTED SERIOUSERROR IN HOLDING THAT PETITIONER IS GUILTY OF FORUMSHOPPING DESPITE THE FACT THAT SC CIRCULAR NO. 28-91WAS NOT YET IN FORCE AND EFFECT AT THE TIME THEPETITION WAS FILED BEFORE RESPONDENT APPELLATECOURT, AND THAT ITS COUNSEL AT THAT TIME HAD ADEQUATE BASIS TO BELIEVE THAT CERTIORARI AND NOT AN APPEAL OF THE TRIAL COURT'S ORDERS WAS THE APPROPRIATE RELIEF. 40

As previously stated, the issue boils down to who is legally entitled to the disputedshares of Chemphil. We shall resolve this controversy by examining the validity of theclaims of each party and, thus, determine whose claim has priority.

CEIC's claim

CEIC traces its claim over the disputed shares to the attachment lien obtained bySBTC on 2 July 1985 against Antonio Garcia in Civil Case No. 10398. It avers thatwhen FCI, CEIC's predecessor-in-interest, paid SBTC the due obligations of Garcia tothe said bank pursuant to the Deed of Absolute Sale and Purchase of Shares ofStock, 41FCI, and later CEIC, was subrogated to the rights of SBTC, particularly to thelatter's aforementioned attachment lien over the disputed shares.CEIC argues that SBTC's attachment lien is superior as it was obtained on 2 July1985, ahead of the consortium's purported attachment on 19 July 1985. Moreimportantly, said CEIC lien was duly recorded in the stock and transfer books ofChemphil.CEIC's subrogation theory is unavailing.By definition, subrogation is "the transfer of all the rights of the creditor to a thirdperson, who substitutes him in all his rights. It may either be legal or conventional.Legal subrogation is that which takes place without agreement but by operation of law

because of certain acts; this is the subrogation referred to in article 1302.Conventional subrogation is that which takes place by agreement of the parties . . ." 42 CEIC's theory is premised on Art. 1302 (2) of the Civil Code which states:

Art. 1302. It is presumed that there is legal subrogation:(1) When a creditor pays another creditor who is preferred, evenwithout the debtor's knowledge;(2) When a third person, not interested in the obligation, pays withthe express or tacit approval of the debtor ;(3) When, even without the knowledge of the debtor, a personinterested in the fulfillment of the obligation pays, without prejudice

to the effects of confusion as to the latter's share. (Emphasis ours.)Despite, however, its multitudinous arguments, CEIC presents an erroneousinterpretation of the concept of subrogation. An analysis of the situations involvedwould reveal the clear inapplicability of Art. 1302 (2). Antonio Garcia sold the disputed shares to FCI for a consideration of P79,207,331.28.FCI, however, did not pay the entire amount to Garcia as it was obligated to deliverpart of the purchase price directly to SBTC pursuant to the following stipulation in theDeed of Sale:

Manner of Payment Payment of the Purchase Price shall be made in accordance withthe following order of preferenceprovided that in no instance shallthe total amount paid by the Buyer exceed the Purchase Price:a. Buyer shall pay directly to the Security Bank and Trust Co. theamount determined by the Supreme Court as due and owing infavor of the said bank by the Seller .The foregoing amount shall be paid within fifteen (15) days from thedate the decision of the Supreme Court in the case entitled"Antonio M. Garcia, et al. vs. Court of Appeals, et al." G.R. Nos.82282-83 becomes final and executory. 43 (Emphasis ours.)

Hence, when FCI issued the BA check to SBTC in the amount of P35,462,869.62 topay Garcia's indebtedness to the said bank, it was in effect paying with Garcia'smoney, no longer with its own, because said amount was part of the purchase pricewhich FCI owed Garcia in payment for the sale of the disputed shares by the latter tothe former. The money "paid" by FCI to SBTC, thus properly belonged to Garcia. It isas if Garcia himself paid his own debt to SBTC but through a third party — FCI.It is, therefore, of no consequence that what was used to pay SBTC was a corporatecheck of FCI. As we have earlier stated, said check no longer represented FCI funds

but Garcia's money, being as it was part of FCI's payment for the acquisition of thedisputed shares. The FCI check should not be taken at face value, the attendantcircumstances must also be considered.The aforequoted contractual stipulation in the Deed of Sale dated 15 July 1988between Antonio Garcia and FCI is nothing more but an arrangement for the sake ofconvenience. Payment was to be effected in the aforesaid manner so as to preventmoney from changing hands needlessly. Besides, the very purpose of Garcia inselling the disputed shares and his other properties was to "settle certain civil suitsfiled against him." 44 Since the money used to discharge Garcia's debt rightfully belonged to him, FCIcannot be considered a third party payor under Art. 1302 (2). It was but a conduit, oras aptly categorized by respondents, merely an agent as defined in Art. 1868 of theCivil Code:



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

FCI was merely fulfilling its obligation under the aforementioned Deed of Sale. Additionally, FCI is not a disinterested party as required by Art. 1302 (2) since thebenefits of the extinguishment of the obligation would redound to none other butitself. 45 Payment of the judgment debt to SBTC resulted in the discharge of theattachment lien on the disputed shares purchased by FCI. The latter would then havea free and "clean" title to said shares.In sum, CEIC, for its failure to fulfill the requirements of Art. 1302 (2), was not

subrogated to the rights of SBTC against Antonio Garcia and did not acquire SBTC'sattachment lien over the disputed shares which, in turn, had already been lifted ordischarged upon satisfaction by Garcia, through FCI, of his debt to the said bank. 46 The rule laid down in the case of Samahang Magsasaka, Inc . v . Chua Guan, 47 thatas between two attaching creditors the one whose claim was registered ahead on thebooks of the corporation enjoys priority, clearly has no application in the case atbench. As we have amply discussed, since CEIC was not subrogated to SBTC's rightas attaching creditor, which right in turn, had already terminated after Garcia paid hisdebt to SBTC, it cannot, therefore, be categorized as an attaching creditor in thepresent controversy. CEIC cannot resurrect and claim a right which no longer exists.The issue in the instant case, then, is priority between an attaching creditor (theconsortium) and a purchaser (FCI/CEIC) of the disputed shares of stockand not between two attaching creditors — the subject matter of the aforestatedSamahang Magsasaka case.CEIC, likewise, argues that the consortium's attachment lien over the disputedChemphil shares is null and void and not binding on third parties due to the latter'sfailure to register said lien in the stock and transfer books of Chemphil as mandatedby the rule laid down by the Samahang Magsasaka v . Chua Guan. 48 The attachment lien acquired by the consortium is valid and effective. Both theRevised Rules of Court and the Corporation Code do not require annotation in thecorporation's stock and transfer books for the attachment of shares of stock to bevalid and binding on the corporation and thi rd party.Section 74 of the Corporation Code which enumerates the instances whereregistration in the stock and t ransfer books of a corporation provides:

Sec. 74. Books to be kept; stock transfer agent. — xxx xxx xxx

Stock corporations must also keep a book to be known as the stock

and transfer book, in which must be kept a record ofall stocks inthe names of the stockholders alphabetically arranged; theinstallments paid and unpaid on all s tock for which subscription hasbeen made, and the date of payment of any settlement; astatement of every alienation, sale or transfer of stock made, thedate thereof, and by and to whom made; and such other entries asthe by-laws may prescribe. The stock and transfer book shall bekept in the principal office of the corporation or in the office of itsstock transfer agent and shall be open for inspection by anydirector or stockholder of the corporation at reasonable hours onbusiness days. (Emphasis ours.)

xxx xxx xxxSection 63 of the same Code states:

Sec. 63. Certificate of stock and transfer of shares. — The capitalstock of stock corporations shall be divided into shares for which

certificates signed by the president or vice-president, countersignedby the secretary or assistant secretary, and sealed with the seal ofthe corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may betransferred by delivery of the certificate or certificates indorsed bythe owner or his attorney-in-fact or other person legally authorizedto make the transfer . No transfer, however, shall be valid, except asbetween the parties, until the transfer is recorded in the books ofthe corporation so as to show the names of the parties to thetransaction, the date of the t ransfer, the number of the certificate or

certificates and the number of shares transferred .No shares of stock against which the corporation holds any unpaidclaim shall be transferable in the books of the corporation.(Emphasis ours.)

Are attachments of shares of stock included in the term "transfer" as provided in Sec.63 of the Corporation Code? We rule in the negative. As succinctly declared in thecase of Monserrat v . Ceron, 49 "chattel mortgage over shares of stock need not beregistered in the corporation's stock and transfer book inasmuch as chattel mortgageover shares of stock does not involve a "transfer of shares," and that only absolutetransfers of shares of stock are required to be recorded in the corporation's stock andtransfer book in order to have "force and effect as against third persons."

xxx xxx xxxThe word "transferencia" (transfer) is defined by the "Diccionario dela Academia de la Lengua Castellana" as "accion y efecto detransfeir" (the act and effect of transferring); and the verb"transferir", as "ceder or renunciar en otro el derecho o dominio quese tiene sobre una cosa, haciendole dueno de ella" (to assign orwaive the right in, or absolute ownership of, a thing in favor ofanother, making him the owner thereof).In the Law Dictionary of "Words and Phrases", third series, volume7, p. 5867, the word "transfer" is defined as follows:

"Transfer" means any act by which property ofone person is vested in another, and "transfer ofshares", as used in Uniform Stock Transfer Act(Comp. St. Supp. 690), implies any meanswhereby one may be divested of and anotheracquire ownership of stock. (Wallach vs. Stein

[N.J.], 136 A., 209, 210.)xxx xxx xxxIn the case of Noble vs. Ft . Smith Wholesale Grocery Co. (127Pac., 14, 17; 34 Okl., 662; 46 L.R.A. [N.S.], 455), cited in Wordsand Phrases, second series, vol. 4, p. 978, the following appears:

A "transfer" is the act by which the owner of athing delivers it to another with the intent ofpassing the rights which he has in it to the latter,and a chattel mortgage is not within the meaningof such term.

xxx xxx xxx. 50 Although the Monserrat case refers to a chattel mortgage over shares of stock, thesame may be applied to the attachment of the disputed shares of stock in the presentcontroversy since an attachment does not constitute an absolute conveyance of



property but is primarily used as a means "to seize the debtor's property in order tosecure the debt or claim of the creditor in the event that a judgment is rendered." 51 Known commentators on the Corporation Code expound, thus:

xxx xxx xxxShares of stock being personal property, may be the subject matterof pledge and chattel mortgage. Such collateral transfers arehowever not covered by the registration requirement of Section 63,since our Supreme Court has held that such provision applies onlyto absolute transfers thus, the registration in the corporate books ofpledges and chattel mortgages of shares cannot have any legal

effect.52

(Emphasis ours.) xxx xxx xxxThe requirement that the transfer shall be recorded in the books ofthe corporation to be valid as against third persons has referenceonly to absolute transfers or absolute conveyance of the ownershipor title to a share.Consequently, the entry or notation on the books of the corporationof pledges and chattel mortgages on shares is not necessary totheir validity (although it is advisable to do so) since they do notinvolve absolute alienation of ownership of stock (Monserrat vs.Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang Magsasaka,Inc., 62 Phil. 472 [1935].) To affect third persons, it is enough thatthe date and description of the shares pledged appear in a publicinstrument. (Art. 2096, Civil Code.) With respect to a chattelmortgage constituted on shares of stock, what is necessary is itsregistration in the Chattel Mortgage Registry. (Act No. 1508 and Art. 2140, Civil Code.) 53

CEIC's reliance on the Samahang Magsasaka case is misplaced. Nowhere in the saiddecision was it categorically stated that annotation of the attachment in the corporatebooks is mandatory for its validity and for the purpose of giving notice to thirdpersons.The only basis, then, for petitioner CEIC's claim is the Deed of Sale under which itpurchased the disputed shares. It is, however, a settled rule that a purchaser ofattached property acquires it subject to an attachment legally and validly leviedthereon. 54 Our corollary inquiry is whether or not the consortium has indeed a prior valid andexisting attachment lien over the disputed shares.

Jaime Gonzales' /Consortium's Claim Is the consortium's attachment lien over the disputed shares valid?CEIC vigorously argues that the consortium's writ of attachment over the disputedshares of Chemphil is null and void, insisting as it does, that the notice of garnishmentwas not validly served on the designated officers on 19 July 1985.To support its contention, CEIC presented the sheriff's notice of garnishment 55 dated19 July 1985 which showed on its face that said notice was received by one ThellyRuiz who was neither the president nor managing agent of Chemphil. It makes nodifference, CEIC further avers, that Thelly Ruiz was the secretary of the President ofChemphil, for under the above-quoted provision she is not among the officers soauthorized or designated to be served with the notice of garnishment.We cannot subscribe to such a narrow view of the rule on proper service of writs ofattachment. A secretary's major function is to assist his or her superior. He/she is in effect anextension of the latter. Obviously, as such, one of her duties is to receive letters and

notices for and in behalf of her superior, as in the case at bench. The notice ofgarnishment was addressed to and was actually received by Chemphil's presidentthrough his secretary who formally received it for him. Thus, in one case, 56 we ruledthat the secretary of the president may be considered an "agent" of the corporationand held that service of summons on him is binding on the corporation.Moreover, the service and receipt of the notice of garnishment on 19 July 1985 wasduly acknowledged and confirmed by the corporate secretary of Chemphil, RolandoNavarro and his successor Avelino Cruz through their respective certifications dated15 August 1989 57

and 21 August 1989. 58 We rule, therefore, that there was substantial compliance with Sec. 7(d), Rule 57 of

the Rules of Court.Did the compromise agreement between Antonio Garcia and the consortiumdischarge the latter's attachment lien over the disputed shares?CEIC argues that a writ of attachment is a mere auxiliary remedy which, upon thedismissal of the case, dies a natural death. Thus, when the consortium entered into acompromise agreement, 59

which resulted in the termination of their case, thedisputed shares were released from garnishment.We disagree. To subscribe to CEIC's contentions would be to totally disregard theconcept and purpose of a preliminary attachment.

A writ of preliminary attachment is a provisional remedy issuedupon order of the court where an action is pending to be leviedupon the property or properties of the defendant therein, the sameto be held thereafter by the Sheriff as security for the satisfaction ofwhatever judgment might be secured in said action by the attaching

creditor against the defendant . 60 (Emphasis ours.) Attachment is a juridical institution which has for its purpose tosecure the outcome of the t rial, that is, the satisfaction of the pecuniary obligation really contracted by a person or believed tohave been contracted by him, either by virtue of a civil obligationemanating from contract or from law, or by virtue of some crime ormisdemeanor that he might have committed, and the writ issued,granted it, is executed by attaching and safely keeping all themovable property of the defendant, or so much thereof may besufficient to satisfy the plaintiff's demands . . . 61

(Emphasis ours.)The chief purpose of the remedy of attachment is to secure acontingent lien on defendant's property until plaintiff can, byappropriate proceedings, obtain a judgment and have such

property applied to its satisfaction, or to make some provision forunsecured debts in cases where the means of satisfaction thereofare liable to be removed beyond the jurisdiction, or improperlydisposed of or concealed, or otherwise placed beyond the reach ofcreditors. 62 (Emphasis ours.)

We reiterate the rule laid down in BF Homes, Inc . v . CA 63 that an attachment liencontinues until the debt is paid, or sale is had under execution issued on the judgmentor until judgment is satisfied, or the attachment discharged or vacated in the samemanner provided by law. We expounded in said case that:

The appointment of a rehabilitation receiver who took control andcustody of BF has not necessarily secured the claims of Roa andMendoza. In the event that the receivership is terminated with suchclaims not having been satisfied, the creditors may also findthemselves without security therefor in the civil action because ofthe dissolution of the attachment. This should not be permitted.

H i i l bt i d th i f th it i d f ith th i f th it f id i th C t' i i t i l



Having previously obtained the issuance of the writ in good faith,they should not be deprived of its protection if the rehabilitation plandoes not succeed and the civil action is resumed.

xxx xxx xxx As we ruled in Government of the Philippine Islands v . Mercado:

Attachment is in the nature of a proceeding inrem. It is against the particular property. Theattaching creditor thereby acquires specific lienupon the attached property which ripens into a judgment against the res when the order of sale

is made. Such a proceeding is in effect a findingthat the property attached is an indebted thingand a virtual condemnation of it to pay theowner's debt. The law does not provide thelength of time an attachment lien shall continueafter the rendition of judgment, and it musttherefore necessarily continue until the debt ispaid, or sale is had under execution issued onthe judgment or until judgment is satisfied, or theattachment discharged or vacated in somemanner provided by law.It has been held that the lien obtained byattachment stands upon as high equitablegrounds as a mortgage lien:The lien or security obtained by an attachmenteven before judgment, is a fixed and positivesecurity, a specific lien, and, although whether itwill ever be made available to the creditordepends on contingencies, its existence is in noway contingent, conditioned or inchoate. It is avested interest, an actual and substantialsecurity, affording specific security for satisfactionof the debt put in suit, which constitutes a cloudon the legal title, and is as specific as i f createdby virtue of a voluntary act of the debtor andstands upon as high equitable grounds as amortgage. (Corpus Juris Secundum, 433, and

authorities therein cited.)xxx xxx xxxThe case at bench admits of a peculiar character in the sense that it involves acompromise agreement. Nonetheless, the rule established in the aforequoted casesstill applies, even more so since the terms of the agreement have to be complied within full by the parties thereto. The parties to the compromise agreement should not bedeprived of the protection provided by an attachment lien especially in an instancewhere one reneges on his obligations under the agreement, as in the case at bench,where Antonio Garcia failed to hold up his own end of the deal, so to speak.Moreover, a violation of the terms and conditions of a compromise agreement entitlesthe aggrieved party to a writ of execution.In Abenojar & Tana v . CA, et al ., 64

we held:The non-fulfillment of the terms and conditions of a compromiseagreement approved by the Court justifies execution thereof and

the issuance of the writ for said purpose is the Court's ministerialduty enforceable by mandamus.

Likewise we ruled in Canonizado v . Benitez : 65 A judicial compromise may be enforced by a writ of execution. If aparty fails or refuses to abide by the compromise, the other partymay enforce the compromise or regard it as rescinded and insistupon his original demand.

If we were to rule otherwise, we would in effect create a back door by which a debtorcan easily escape his creditors. Consequently, we would be faced with an anomaloussituation where a debtor, in order to buy time to dispose of his properties, would enter

into a compromise agreement he has no intention of honoring in the first place. Thepurpose of the provisional remedy of attachment would thus be lost. It would become,in analogy, a declawed and toothless tiger.From the foregoing, it is clear that the consortium and/or its assignee Jaime Gonzaleshave the better right over the disputed shares. When CEIC purchased the disputedshares from Antonio Garcia on 15 July 1988, it took the shares subject to the prior,valid and existing attachment lien in favor of and obtained by the consortium.

Forum Shopping in G.R . No. 113394 We uphold the decision of the Court of Appeals finding PCIB guilty of forum-shopping. 66 The Court of Appeals opined:

True it is, that petitioner PCIB was not a party to the appeal madeby the four other banks belonging to the consortium, but equallytrue is the rule that where the rights and liabilities of the partiesappealing are so interwoven and dependent on each other as to beinseparable, a reversal of the appealed decision as to those whoappealed, operates as a reversal to all and will inure to the benefitof those who did not join the appeal (Tropical Homes vs. Fortun,169 SCRA 80, p. 90, citing Alling vs. Wenzel, 133 111. 264-278; 4C.J. 1206). Such principal, premised upon communality of interestof the parties, is recognized in this jurisdiction (Director of Lands vs.Reyes, 69 SCRA 415). The four other banks which were part of theconsortium, filed their notice of appeal under date of March 16,1990, furnishing a copy thereof upon the lawyers of petitioner. Thepetition for certiorari in the present case was filed on April 10, 1990,long after the other members of the consortium had appealed fromthe assailed order of December 19, 1989.

We view with skepticism PCIB's contention that it did not join the consortium becauseit "honestly believed thatcertiorari was the more efficacious and speedy reliefavailable under the ci rcumstances." 67

Rule 65 of the Revised Rules of Court is notdifficult to understand. Certiorari is available only if there is no appeal or other plain,speedy and adequate remedy in the ordinary course of law. Hence, in instituting aseparate petition for certiorari , PCIB has deliberately resorted to forum-shopping.PCIB cannot hide behind the subterfuge that Supreme Court Circular 28-91 was notyet in force when it filed thecertiorari proceedings in the Court of Appeals. The ruleagainst forum-shopping has long been established. 68Supreme Court Circular 28-91merely formalized the prohibition and provided the appropriate penalties againsttransgressors.It alarms us to realize that we have to constantly repeat our warning against forum-shopping. We cannot over-emphasize its ill-effects, one of which is aptlydemonstrated in the case at bench where we are confronted with two divisions of the

C t f A l i i t di t d i i 69 i f f CEIC d th th



Court of Appeals issuing contradictory decisions 69 one in favor of CEIC and the otherin favor of the consortium/Jaime Gonzales.Forum-shopping or the act of a party against whom an adverse judgment has beenrendered in one forum, of seeking another (and possibly favorable) opinion in anotherforum (other than by appeal or the special civil action of certiorari ), or the institution oftwo (2) or more actions or proceedings grounded on the same cause on thesupposition that one or the other court would make a favorable disposition, 70 hasbeen characterized as an act of malpractice that is prohibited and condemned astrifling with the Courts and abusing their processes. It constitutes improper conductwhich tends to degrade the administration of justice. It has also been aptly described

as deplorable because it adds to the congestion of the already heavily burdeneddockets of thecourts. 71 WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438-39is hereby AFFIRMED and the appealed decision in G.R. No. 113394, insofar as itadjudged the CEIC the rightful owner of the disputed shares, is hereby REVERSED.Moreover, for wantonly resorting to forum-shopping, PCIB is hereby REPRIMANDEDand WARNED that a repetition of the same or similar acts in the future shall be dealtwith more severely.SO ORDERED.

[G R No 120465 September 9 1999] SCRA 706 [1968]) As s ch indispensable part their joinder in the action is



[G.R. No. 120465. September 9, 1999]WILLIAM UY and RODEL ROXAS, petit ioners , vs . COURT OF APPEALS, HON.

ROBERT BALAO and NATIONAL HOUSING AUTHORITY,respondents .D E C I S I O N

KAPUNAN, J .:Petitioners William Uy and Rodel Roxas are agents authorized to sell eight

parcels of land by the owners thereof. By virtue of such authority, petitioners offeredto sell the lands, located in Tuba, Tadiangan, Benguet to respondent NationalHousing Authority (NHA) to be utilized and developed as a housing project.

On February 14, 1989, the NHA Board passed Resolution No. 1632 approving

the acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867million, pursuant to which the parties executed a series of Deeds of Absolute Salecovering the subject lands. Of the eight parcels of land, however, only five were paidfor by the NHA because of the repor t[1] it received from the Land Geosciences Bureauof the Department of Environment and Natural Resources (DENR) that the remainingarea is located at an active landslide area and therefore, not suitable for developmentinto a housing project.

On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the saleover the three parcels of land. The NHA, through Resolution No. 2394, subsequentlyoffered the amount of P1.225 million to the landowners as daños perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) ofQuezon City a Complaint for Damages against NHA and its General Manager RobertBalao.

After trial, the RTC rendered a decision declaring the cancellation of the contract

to be justified. The trial court nevertheless awarded damages to plaintiffs in the sumof P1.255 million, the same amount initially offered by NHA to petitioners asdamages.

Upon appeal by petitioners, the Court of Appeals reversed the decision of thetrial court and entered a new one dismissing the complaint. It held that since therewas ―sufficient justifiable basis‖ in cancelling the sale, ―it saw no reason‖ for the awardof damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial court.xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be ―sellers‘agents‖ for several owners of the 8 lots subject matter of the case. Obviously, WilliamUy and Rodel Roxas in filing this case acted as attorneys-in-fact of the lot ownerswho are the real parties in interest but who were omitted to be pleaded as party-plaintiffs in the case. This omission is fatal. Where the action is brought by an

attorney-in-fact of a land owner in his name, (as in our present action) and not in thename of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that everyaction must be prosecuted in the name of the real parties-in-interest (Section 2, Rule3, Rules of Court).When plaintiffs Uy and Roxas sought payment of damages in their favor in view of thepartial rescission of Resolution No. 1632 and the Deed of Absolute Sale coveringTCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC records), itbecomes obviously indispensable that the lot owners be included, mentioned andnamed as party-plaintiffs, being the real party-in-interest. Uy and Roxas, asattorneys-in-fact or apoderados, cannot by themselves lawfully commence this action,more so, when the supposed special power of attorney, in their favor, was neverpresented as an evidence in this case. Besides, even if herein plaintiffs Uy and Roxaswere authorized by the lot owners to commence this action, the same must still befiled in the name of the pricipal, (Filipino Industrial Corporation vs. San Diego, 23

SCRA 706 [1968]). As such indispensable party, their joinder in the action ismandatory and the complaint may be dismissed if not so impleaded (NDC vs. CA,211 SCRA 422 [1992]).[2]

Their motion for reconsideration having been denied, petitioners seek relief fromthis Court contending that:I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THATRESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALEINVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA RESOLUTIONNO. 1632.II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS

TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA NONETHELESSERRED IN DENYING HEREIN PETITIONERS‘ CLAIM TO DAMAGES, CONTRARYTO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECTCOMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN ASINDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS.[3]

We first resolve the issue raised in the third assignment of error.Petitioners claim that they lodged the complaint not in behalf of their principles

but in their own name as agents directly damaged by the termination of thecontract. The damages prayed for were intended not for the benefit of their principalsbut to indemnify petitioners for the losses they themselves allegedly incurred as aresult of such termination. These damages consist mainly of ―unearned income‖ andadvances.[4] Petitioners, thus, attempt to distinguish the case at bar from thoseinvolving agents or apoderados instituting actions in their own name but in behalf of

their principals.[5] Petitioners in this case purportedly brought the action for damagesin their own name and in their own behalf .

We find this contention unmeritorious.Section 2, Rule 3 of the Rules of Court requires that every action must be

prosecuted and defended in the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the judgment or the partyentitled to the avails of the suit. ―Interest,‖ within the meaning of the rule, meansmaterial interest, an interest in the issue and to be affected by the decree, asdistinguished from mere interest in the question involved, or a mere incidentalinterest.[6] Cases construing the real party-in-interest provision can be more easilyunderstood if it is borne in mind that the true meaning of real party-in-interest may besummarized as follows: An action shall be prosecuted in the name of the party who,by the substantive law, has the right sought to be enforced.[7]

Do petitioners, under substantive law, possess the right they seek toenforce? We rule in the negative.The applicable substantive law in this case is Article 1311 of the Civil Code,

which states:Contracts take effect only between the parties, their assigns, and heirs, except incase where the rights and obligations arising from the contract are not transmissibleby their nature, or by stipulation, or by provision of law. x x x.If a contract should contain some stipulation in favor of a third person, he maydemand its fulfillment provided he communicated his acceptance to the obligor beforeits revocation. A mere incidental benefit or interest of a person is not sufficient. Thecontracting parties must have clearly and deliberately conferred a favor upon a thirdperson. (Underscoring supplied.)

Petitioners are not parties to the contract of sale between their principals andNHA. They are mere agents of the owners of the land subject of the sale. Asagents, they only render some service or do something in representation or on

behalf of their principals [8] The rendering of such service did not make them parties to That petitioners did not obtain their commissions or recoup their advances

http://sc.judiciary.gov.ph/jurisprudence/1999/sept99/120465.htm#_edn1


































behalf of their principals.[ ] The rendering of such service did not make them parties tothe contracts of sale executed in behalf of the latter. Since a contract may be violatedonly by the parties thereto as against each other, the real parties-in-interest, either asplaintiff or defendant, in an action upon that contract must, generally, either be partiesto said contract.[9]

Neither has there been any allegation, much less proof, that petitioners arethe heirs of their principals.

Are petitioners assignees to the rights under the contracts ofsale? In McMicking vs. Banco Español-Filipino,[10] we held that the rule requiringevery action to be prosecuted in the name of the real party-in-interest

x x x recognizes the assignments of rights of action and also recognizes that whenone has a right of action assigned to him he is then the real party in interest and maymaintain an action upon such claim or right. The purpose of [this rule] is to requirethe plaintiff to be the real party in interest, or, in other words, he must be the person towhom the proceeds of the action shall belong, and to prevent actions by persons whohave no interest in the result of the same. xxx

Thus, an agent, in his own behalf, may bring an action founded on a contractmade for his principal, as an assignee of such contract. We find the followingdeclaration in Section 372 (1) of the Restatement of the Law on Agency (Second):[11]

Section 372. Agent as Owner of Contract Right(1) Unless otherwise agreed, an agent who has or who acquires an interest in acontract which he makes on behalf of his principal can, although not a promisee,maintain such action thereon as might a transferee having a similar interest.The Comment on subsection (1) states:

a. Agent a transferee. One who has made a contract on behalf of another maybecome an assignee of the contract and bring suit against the other party to it, as anyother transferee. The customs of business or the course of conduct between theprincipal and the agent may indicate that an agent who ordinarily has merely asecurity interest is a t ransferee of the principals rights under the contract and as suchis permitted to bring suit. If the agent has settled with his principal with theunderstanding that he is to collect the claim against the obligor by way of reimbursinghimself for his advances and commissions, the agent is in the position of an assigneewho is the beneficial owner of the chose in action. He has an irrevocable power tosue in his principal‘s name. x x x. And, under the statutes which permit the real partyin interest to sue, he can maintain an action in his own name. This power to sue isnot affected by a settlement between the principal and the obligor if the latter hasnotice of the agent‘s interest. x x x. Even though the agent has not settled with his

principal, he may, by agreement with the principal, have a right to receive paymentand out of the proceeds to reimburse himself for advances and commissions beforeturning the balance over to the principal. In such a case, although there is no formalassignment, the agent is in the position of a transferee of the whole claim for security;he has an irrevocable power to sue in his principal‘s name and, under statutes whichpermit the real party in interest to sue, he can maintain an action in his own name.

Petitioners, however, have not shown that they are assignees of their principalsto the subject contracts. While they alleged that they made advances and that theysuffered loss of commissions, they have not established any agreement grantingthem ―the right to receive payment and out of the proceeds to reimburse [themselves]for advances and commissions before turning the balance over to the principal[s].‖

Finally, it does not appear that petitioners are beneficiaries of astipulation pour autru i under the second paragraph of Article 1311 of the CivilCode. Indeed, there is no stipulation in any of the Deeds of Absolute Sale ―clearlyand deliberately‖ conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advancesbecause of the non-performance of the contract did not entitle them to file the actionbelow against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency (Second) states:(2) An agent does not have such an interest in a contract as to entitle him to maintainan action at law upon it in his own name merely because he is entilted to a portion ofthe proceeds as compensation for making it or because he is liable for its breach.The following Comment on the above subsection is illuminating:The fact that an agent who makes a contract for his principal will gain or suffer loss bythe performance or nonperformance of the contract by the principal or by the other

party thereto does not entitle him to maintain an action on his own behalf against theother party for its breach. An agent entitled to receive a commission from hisprincipal upon the performance of a contract which he has made on his principal‘saccount does not, from this fact alone, have any claim against the other party forbreach of the contract, either in an action on the contract or otherwise. An agent whois not a promisee cannot maintain an action at law against a purchaser merelybecause he is entitled to have his compensation or advances paid out of thepurchase price before payment to the principal. x x x.

Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372(2) above, denied the claim of a real estate broker to recover his alleged commissionagainst the purchaser in an agreement to purchase property.

In Goduco vs. Court of Appeals,[13] this Court held that:x x x granting that appellant had the authority to sell the property, the same did notmake the buyer liable for the commission she claimed. At most, the owner of the

property and the one who promised to give her a commission should be the one liableto pay the same and to whom the claim should have been directed. xxx

As petitioners are not parties, heirs, assignees, or beneficiaries of astipulation pour autrui under the contracts of sale, they do not, under substantive law,possess the right they seek to enforce. Therefore, they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any decision rendered hereinwould be pointless since the same would not bind the real parties-in-interest.[14]

Nevertheless, to forestall further litigation on the substantive aspects of thiscase, we shall proceed to rule on the merits.[15]

Petitioners submit that respondent NHA had no legal basis to ―rescind‖ the saleof the subject three parcels of land. The existence of such legal basis,notwithstanding, petitioners argue that they are still entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescissionof the contract under Article 1191 of the Civil Code. The right of rescission or, moreaccurately, resolution, of a party to an obligation under Article 1191 is predicated on abreach of faith by the other party that violates the reciprocity between them.[16] Thepower to rescind, therefore, is given to the injured party.[17] Article 1191 states:The power to rescind obligations is implied in reciprocal ones, in case one of theobligors should not comply with what is incumbent upon him.The injured party may choose between the fulfillment and the rescission of theobligation, with the payment of damages in either case. He may also seek rescission,even after he has chosen fulfillment, if the latter should become impossible.

In this case, the NHA did not rescind the contract. Indeed, it did not have theright to do so for the other parties to the contract, the vendors, did not commit anybreach, much less a substantial breach,[18] of their obligation. Their obligation wasmerely to deliver the parcels of land to the NHA, an obligation that they fulfilled. TheNHA did not suffer any injury by the performance thereof.

The cancellation therefore was not a rescission under Article 1191 Rather the In Tadiangan Tuba the housing site is situated in an area of moderate















































The cancellation, therefore, was not a rescission under Article 1191. Rather, thecancellation was based on the negation of the cause arising from the realization thatthe lands, which were the object of the sale, were not suitable for housing.

Cause is the essential reason which moves the contracting parties to enter intoit.[19] In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contractingparties.[20] Cause, which is the essential reason for the contract, should bedistinguished from motive, which is the particular reason of a contracting party whichdoes not affect the other party.[21]

For example, in a contract of sale of a piece of land, such as in this case, the

cause of the vendor (petitioner‘s principals) in entering into the contract is to obtainthe price. For the vendee, NHA, it is the acquisition of the land.[22] The motive of theNHA, on the other hand, is to use said lands for housing. This is apparent from theportion of the Deeds of Absolute Sale[23] stating:WHEREAS, under the Executive Order No. 90 dated December 17, 1986, theVENDEE is mandated to focus and concentrate its efforts and resources in providinghousing assistance to the lowest thirty percent (30%) of urban income earners, thruslum upgrading and development of sites and services projects;WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter ofInstruction No. 630, prescribed slum improvement and upgrading, as well as thedevelopment of sites and services as the principal housing strategy for dealing withslum, squatter and other blighted communities;

x x xWHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated

purposes offers to buy and the VENDORS, in a gesture of their willing to cooperatewith the above policy and commitments, agree to sell the aforesaid property togetherwith all the existing improvements there or belonging to the VENDORS;NOW, THEREFORE, for and in consideration of the foregoing premises and theterms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer,cede and convey unto the VENDEE, i ts assigns, or successors-in-interest, a parcel ofland located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY SIXTHOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more orless x x x.

Ordinarily, a party‘s motives for entering into the contract do not affect thecontract. However, when the motive predetermines the cause, the motive may beregarded as the cause. In Liguez vs. Court of Appeals,[24] this Court, speakingthrough Justice J.B.L. Reyes, held:

xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) whilemaintaining the distinction and upholding the inoperativeness of the motives of theparties to determine the validity of the contract, expressly excepts from the rule thosecontracts that are conditioned upon the attainment of the motives of either party.The same view is held by the Supreme Court of Spain, in its decisions of February 4,1941, and December 4, 1946, holding that the motive may be regardedas causa when it predetermines the purpose of the contract.

In this case, it is clear, and petitioners do not dispute, that NHA would not haveentered into the contract were the lands not suitable for housing. In other words, thequality of the land was an implied condition for the NHA to enter into the contract. Onthe part of the NHA, therefore, the motive was the cause for its being a party to thesale.

Were the lands indeed unsuitable for the housing as NHA claimed?We deem the findings contained in the report of the Land Geosciences Bureau

dated 15 July 1991 sufficient basis for the cancellation of the sale, thus:

In Tadiangan, Tuba, the housing site is situated in an area of moderatetopography. There [are] more areas of less sloping ground apparently habitable. Thesite is underlain by x x x thick slide deposits (4-45m) consisting of huge conglomerateboulders (see Photo No. 2) mix[ed] with silty clay materials. These clay particleswhen saturated have some swelling characteristics which is dangerous for any civilstructures especially mass housing development.[25]

Petitioners content that the report was merely ―preliminary,‖ and not conclusive,as indicated in its title:MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology DivisionFROM: ARISTOTLE A. RILLONGeologist II

SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba,Benguet[26]

Thus, page 2 of the report states in part:x x x Actually there is a need to conduct further geottechnical [sic] studies in the NHAproperty. Standard Penetration Test (SPT) must be carried out to give an estimate ofthe degree of compaction (the relative density) of the slide deposit and also thebearing capacity of the soil materials. Another thing to consider is the vulnerability ofthe area to landslides and other mass movements due to thick soil cover. Preventivephysical mitigation methods such as surface and subsurface drainage and regradingof the slope must be done in the area.[27]

We read the quoted portion, however, to mean only that further tests arerequired to determine the ―degree of compaction,‖ ―the bearing capacity of the soilmaterials,‖ and ―vulnerability of the area to landslides,‖ since the tests alreadyconducted were inadequate to ascertain such geological attributes. It is only in thissense that the assessment was ―preliminary.‖

Accordingly, we hold that the NHA was justified in cancelling the contract. Therealization of the mistake as regards the quality of the land resulted in the negation ofthe motive/cause thus rendering the contract inexistent.[28] Article 1318 of the CivilCode states that: Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Underscoring supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries tothe contract of sale, they would not be entitled to any award of damages.WHEREFORE, the instant petition is hereby DENIED.SO ORDERED.

SYNOPSISPetitioners William Uy and Rodel Roxas are agents authorized to sell eight

parcels of land by the owners thereof. They offered to sell the said parcels of land torespondent National Housing Authority to be utilized and developed as a housingproject. The NHA Board approved the acquisition of said lands. However, only fiveparcels were paid for by the NHA because of the report it received from the LandGeosciences Bureau of the Department of Environment and National Resources(DENR) that the remaining area is located at an active landslide area and, therefore,not suitable for development into a housing project. Subsequently, the NHA cancelledthe sale over the three parcels of land but it offered the amount of P1.225 million to

the landowners as daños perjuicios On the other hand petitioners filed before the although not a promisee maintain such action thereon as might a transferee











































the landowners as daños perjuicios. On the other hand, petitioners filed before theRegional Trial Court (RTC) of Quezon City a Complaint for Damages against NHAand its General Manager Robert Balao. After trial, the RTC rendered a decisiondeclaring the cancellation of the contract to be justified. Nevertheless, it awardeddamages to plaintiffs in the sum of P1.255 million. On appeal, the Court of Appealreversed the decision of the trial court and entered a new one dismissing thecomplaint.

Hence, this petition.The Court ruled that since petitioners are not parties, heirs, assignees, or

beneficiaries of a stipulation pour autrui under the contracts of sale, they do not,

under substantive law, possess the right they seek to enforce. Therefore, they are notthe real parties-in-interest in this case.Moreover, in this case, it is clear, and petitioners do not dispute, that NHA would

not have entered into the contract were the lands not suitable for housing. In otherwords, the quality of the land was an implied condition for the NHA to enter into thecontract. On the part of the NHA, therefore, the motive was the cause for its being aparty to the sale. Accordingly, the Court held that the NHA was justified in cancelingthe contract. The realization of the mistake as regards the quality of the land resultedin the negation of the motive/cause, thus rendering the contract inexistent. Assumingthat petitioners are parties, assignees or beneficiaries to the contract of sale, theywould not be entitled to any award of damages.

Petition is DENIED.SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; REAL PARTY-IN-INTEREST;

ELUCIDATED. - Section 2, Rule 3 of the Rules of Court requires that everyaction must be prosecuted and defended in the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited orinjured by the judgment or the party entitled to the avails of the suit. ―Interest,‖within the meaning of the rule, means material interest, an interest in the issueand to be affected by the decree, as distinguished from mere interest in thequestion involved, or a mere incidental interest. Cases construing the real party-in-interest provision can be more easily understood if it is borne in mind that thetrue meaning of real party-in-interest may be summarized as follows: An actionshall be prosecuted in the name of the party who, by the substantive law, hasthe right sought to be enforced.

2. CIVIL LAW; SPECIAL CONTRACTS; AGENCY; AGENTS ARE NOT PARTIESTO CONTRACT OF SALE; CASE AT BAR. - Petitioners are not parties to the

contract of sale between their principals and NHA. They are mereagents of theowners of the land subject of the sale. As agents, they only render some serviceor do something in representation or on behalf of their principals. The renderingof such service did not make them parties to the contracts of sale executed inbehalf of the latter. Since a contract may be violated only by the parties theretoas against each other, the real parties-in-interest, either as plaintiff or defendant,in an action upon that contract must, generally, either be parties to said contract.

3. ID.; ID.; ID.; AGENT AS ASSIGNEE MAY BRING ACTION FOUNDED ONCONTRACT MADE FOR HIS PRINCIPAL. - Thus, an agent, in his own behalf,may bring an action founded on a contract made for his principal, as anassignee of such contract. We find the following declaration in Section 372 (1) ofthe Restatement of the Law on Agency (Second): Section 372. Agent as Ownerof Contract Right (1) Unless otherwise agreed, an agent who has or whoacquires an interest in a contract which he makes on behalf of his principal can,

although not a promisee, maintain such action thereon as might a transfereehaving a similar interest.

4. ID.; ID.; ID.; NOT APPLICABLE IN CASE AT BAR.-Petitioners, however, havenot shown that they are assignees of their principals to the subject contracts.While they alleged that they made advances and that they suffered loss ofcommissions, they have not established any agreement granting them ―the rightto receive payment and out of the proceeds to reimburse [themselves] foradvances and commissions before turning the balance over to the principal[s].‖

5. ID.; ID.; ID.; AGENTS ARE NOT BENEFICIARIES OF STIPULATIONPOUR

AUTRUI; CASE AT BAR. - Finally, it does not appear that petitioners

are beneficiaries of a stipulation pour autruiunder the second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deedsof Absolute Sale ―clearly and deliberately‖ conferring a favor to any third person.

6. ID.; ID.; ID.; GENERALLY, AN AGENT DOES NOT HAVE INTEREST INCONTRACT AS TO ENTITLE HIM TO MAINTAIN AN ACTION AT LAW.-Thatpetitioners did not obtain their commissions or recoup their advances becauseof the non-performance of the contract did not entitle them to file the actionbelow against respondent NHA. Section 372 (2) of the Restatement of the Lawon Agency (Second) states: (2) An agent does not have such an interest in acontract as to entitle him to maintain an action at law upon it in his own namemerely because he is entitled to a portion of the proceeds as compensation formaking it or because he is liable for its breach.

7. ID.; OBLIGATIONS AND CONTRACTS; RIGHT OF RESCISSION;PREDICATED ON BREACH OF FAITH BY OTHER PARTY THAT VIOLATES

RECIPROCITY BETWEEN THEM. - The right of rescission or, more accurately,resolution, of a party to an obligation under Article 1191 is predicated on abreach of faith by the other party that violates the reciprocity between them. Thepower to rescind, therefore, is given to the injured party. Article 1191 states: Thepower to rescind obligations is implied in reciprocal ones, in case one of theobligors should not comply with what is incumbent upon him. The injured partymay choose between the fulfillment and the rescission of the obligation, with thepayment of damages in either case. He may also seek rescission, even after hehas chosen fulfillment, if the latter should become impossible.

8. ID.; ID.; ID.; CASE AT BAR NOT EXERCISE OF RIGHT OF RECISSION.- In thiscase, the NHA did not rescind the contract. Indeed, it did not have the right to doso for the other parties to the contract, the vendors, did not commit any breach,much less a substantial breach, of their obligation. Their obligation was merely

to deliver the parcels of land to the NHA, an obligation that they fulfilled. TheNHA did not suffer any injury by the performance thereof. The cancellation,therefore, was not a rescission under Article 1191. Rather, the cancellation wasbased on the negation of the cause arising from the realization that the lands,which were the object of the sale, were not suitable for housing.

9. ID.; ID.; CONTRACTS; CAUSE; ELUCIDATED.- Cause is the essential reasonwhich moves the contracting parties to enter into it. In other words, the cause isthe immediate, direct and proximate reason which justifies the creation of anobligation through the will of the contracting parties. Cause, which is theessential reason for the contract, should be distinguished from motive, which isthe particular reason of a contracting party which does not affect the other party.

10. ID.; ID.; ID.; ID.; MOTIVE MAY BE REGARDED AS CAUSE WHEN ITPREDETERMINES PURPOSE OF CONTRACT. - Ordinarily, a party‘s motivesfor entering into the contract do not affect the contract. However, when themotive predetermines the cause, the motive may be regarded as the cause.

In Liguez vs Court of Appeals this Court speaking through Justice J B L



In Liguez vs. Court of Appeals, this Court, speaking through Justice J.B.L.Reyes, held: x x x It is well to note, however, that Manresa himself (Vol. 8, pp.641-642), while maintaining the distinction and upholding the inoperativeness ofthe motives of the parties to determine the validity of the contract, expresslyexcepts from the rule those contracts that are conditioned upon the attainmentof the motives of their party. The same view is held by the Supreme Court ofSpain, in its decisions of February 4, 1941, and December 4, 1946, holding thatthe motive may be regarded as causa when it predetermines the purpose of thecontract.

11. ID.; ID.; ID.; ID.; QUALITY OF LAND WAS AN IMPLIED CONDITION FOR NHA

TO ENTER INTO CONTRACT; CASE AT BAR. - In this case, it is clear, andpetitioners do not dispute, that NHA would not have entered into the contractwere the lands not suitable for housing. In other words, the quality of the landwas an implied condition for the NHA to enter into the contract. On the part ofthe NHA, therefore, the motive was the cause for its being a party to the sale.Were the lands indeed unsuitable for housing as NHA claimed? We deemed thefindings contained in the report of the Land Geosciences Bureau dated 15 July1991 sufficient basis for the cancellation of the sale.

12. ID.; ID.; ID.; NHA WAS JUSTIFIED IN CANCELLING CONTRACT; CASE ATBAR. - Accordingly, we hold that the NHA was justified in cancelling thecontract. The realization of the mistake as regards the equality of the landresulted in the negation of the motive/cause thus rendering the contractinexistent. Article 1318 of the Civil Code states that: Art. 1318. There is nocontract unless the following requisites concur: (1) Consent of the contracting

parties; (2) Object certain which is the subject matter of the contract;(3) Cause of the obligation which is established. Therefore, assuming thatpetitioners are parties, assignees or beneficiaries to the contract of sale, theywould not be entitled to any award of damages.

LAUREANO T. ANGELES, G.R. No. 150128



LAUREANO T. ANGELES, Petitioner,

- versus -

PHILIPPINE NATIONAL RAILWAYS (PNR) ANDRODOLFO FLORES,

[1] Respondents.

G.R. No. 150128

Present:

PUNO, J ., Chairperson, SANDOVAL-

GUTIERREZ,CORONA, AZCUNA, andGARCIA, JJ .

Promulgated:

August 31, 2006

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

D E C I S I O N

GARCIA, J .:

Under consideration is this petition for review under Rule 45 of the Rules ofCourt assailing and seeking to set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 54062, to wit:

1. Decision[2] dated June 4, 2001, affirming an earlierdecision of the Regional Trial Court (RTC) of QuezonCity, Branch 79, which dismissed the complaint for specificperformance and damages thereat commenced by thepetitioner against the herein respondents; and

2. Resolution[3] dated September 17,2001, denying the petitioner's motion for reconsideration.

The facts:

On May 5, 1980, the respondent Philippine National Railways (PNR) informed acertain Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted thelatter‘s offer to buy, on an ―AS IS, WHERE IS‖ basis, the PNR‘s scrap/unserviceablerails located in Del Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 permetric ton, respectively, for the total amount of P96,600.00. After paying the statedpurchase price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNR‘sActing

Purchasing Agent. Bearing date May 26, 1980, the letter reads:

Dear Atty. Dizon:

This is to inform you as President of San JuanicoEnterprises, that I have authorized the bearer, LIZETTE R.WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be mylawful representative in the withdrawal of the scrap/unserviceablerails awarded to me.

For this reason, I have given her the ORIGINAL COPY of

the AWARD, dated May 5, 1980 and O.R. No. 8706855 dated May20, 1980 which will indicate my waiver of rights, interests andparticipation in favor of LIZETTE R. WIJANCO.

Thank you for your cooperation.

Very truly yours,

(Sgd.) GaudencioRomualdez

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles,petitioner's now deceased wife. That very same day – May 26, 1980 – Lizette requested the PNR to transfer the location of withdrawal for the reason that

the scrap/unserviceable rails located in Del Carmen and Lubao, Pampangawere not ready for hauling. The PNR granted said request and allowed Lizette towithdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead.However, thePNR subsequently suspended the withdrawal in view of what itconsidered as documentary discrepancies coupled by reported pilferagesof over P500,000.00 worth of PNR scrap properties in Tarlac.

Consequently, the spouses Angeles demanded the refund of the amountof P96,000.00. The PNR, however, refused to pay, alleging that as per deliveryreceipt duly signed by Lizette, 54.658 metric tons of unserviceablerails had already been withdrawn which, at P2,100.00 per metric ton, wereworth P114,781.80, an amount that exceeds the claim for refund.

On August 10, 1988, the spouses Angeles filed suit against the PNR and itscorporate secretary, Rodolfo Flores, among others, for specificperformance and damages before theRegional Trial Court of Quezon City. In i t, they prayed that PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to pay them damages andattorney's fees.

Issues having been joined following the filing by PNR, et al ., of their answer, trialensued. Meanwhile, Lizette W. Angeles passed away and was substituted by herheirs, among whom is her husband, herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real parties-in-interest, rendered judgment dismissingtheir complaint for lack of cause of action. As held by the court, Lizette was merely a

representative of Romualdez in the withdrawal of scrap or unserviceable rails

http://sc.judiciary.gov.ph/jurisprudence/2006/august2006/G.R.%20No.%20150128.htm#_ftn1














representative of Romualdez in the withdrawal of scrap or unserviceable railsawarded to him and not an assignee to the latter's rights with respect to the award.

Aggrieved, the petitioner interposed an appeal with the CA, which, as stated atthe threshold hereof, in its decision of June 4, 2001, dismissed the appeal andaffirmed that of the trial court. The affirmatory decision was reiterated by the CA in itsresolution of September 17, 2001, denying the petitioner‘s motion forreconsideration.

Hence, the petitioner‘s present recourse on the submission that the CA erred inaffirming the trial court's holding that petitioner and his spouse, as plaintiffs a quo, had

no cause of action as they were not the real parties-in-interest in this case.We DENY the petition.

At the crux of the issue is the matter of how the aforequoted May 26, 1980 letterof Romualdez to Atty. Dizon of the PNR should be taken: was it meant todesignate, or has it the effect of designating, Lizette W. Angeles as a mere agent oras an assignee of his (Romualdez's) interest in the scrap rails awarded to SanJuanico Enterprises? The CA‘s conclusion, affirmatory of that of the trial court, is thatLizette was not an assignee, but merely an agent whose authority was limited to thewithdrawal of the scrap rails, hence, without personality to sue.

Where agency exists, the third party's (in this case, PNR's) liability on acontract is to the principal and not to the agent and the relationship of the third party

to the principal is the same as that in a contract in which there is no agent. Normally,the agent has neither rights nor liabilities as against the third party. Hecannot thus sue or be sued on the contract. Since a contract may be violated only bythe parties thereto as against each other, the real party-in-interest, either as plaintiffor defendant in an action upon that contract must, generally, be a contracting party.

The legal situation is, however, different where an agent is constituted as anassignee. In such a case, the agent may, in his own behalf, sue on acontract made for his principal, as an assignee of such contract. The rulerequiring every action to be prosecuted in the name of the real party-in-interest recognizes the assignment of rights of action and also recognizesthat when one has a right assigned to him, he is then the real party-in-interest andmay maintain an action upon such claim or right.[4]

Upon scrutiny of the subject Romualdez's letterto Atty. Cipriano Dizon dated May 26, 1980, it is at once apparent that Lizette was toact just as a ―representative‖ of Romualdez in the ―withdrawal of rails,‖ and not anassignee. For perspective, we reproduce the contents of said letter:

This is to inform you as President of San Juanico Enterprises,that I have authorized the bearer, LIZETTE R. WIJANCO x x x tobe my lawful representative in the withdrawal of thescrap/unserviceable rails awarded to me.

For this reason, I have given her the ORIGINAL COPY ofthe AWARD, dated May 5, 1980 and O.R. No. 8706855 dated May20, 1980 which will indicate my waiver of rights, interests and

participation in favor of LIZETTE R. WIJANCO. (Emphasis added)

If Lizette was without legal standing to sue and appear in this case, there ismore reason to hold that her petitioner husband, either as her conjugal partner or herheir, is also without such standing.

Petitioner makes much of the fact that the terms ―agent‖ or ―attorney -in-fact‖were not used in the Romualdez letter aforestated. It bears to stress,however, thatthe words ―principal‖ and ―agent,‖ are not the only terms used todesignate the parties in an agency relation. The agent may also be called an attorney,proxy, delegate or, as here, representative.

It cannot be over emphasized that Romualdez's use of the active verb―authorized,‖ instead of ―assigned,‖ indicated an intent on his part to keep andretain his interest in the subject matter. Stated a bi t differently, he intended tolimit Lizette‘s role in the scrap transaction to being the representative of his interesttherein.

Petitioner submits that the second paragraph of the Romualdez letter, stating - ―I have given [Lizette] the original copy of the award x x x which will indicate mywaiver of rights, interests and participation in favor of Lizette R. Wijanco‖ - clarifies that Lizette was intended to be an assignee, and not a mere agent.

We are not persuaded. As itwere, the petitioner conveniently omitted an important phrase preceding

the paragraph which would have put the whole matter in context. The phrase is ―Forthis reason,‖ and the antecedent thereof is his (Romualdez) havingappointed Lizette as his representative in the matter of the withdrawal of the scrapitems. In fine, the key phrase clearly conveys the idea that Lizette was given theoriginal copy of the contract award to enable her to withdraw the railsasRomualdez‘s authorized representative.

Article 1374 of the Civil Code provides that the various stipulations of a contractshall be read and interpreted together, attributing to the doubtful ones that sensewhich may result from all of them taken jointly. In fine, the real intention of the partiesis primarily to be determined from the language used and gathered from the wholeinstrument. When put into the context of the letter as a whole, itis abundantly clear that the rights which Romualdez waived or ceded in favor of

Lizette were those in furtherance of the agency relation that he had established forthe withdrawal of the rails.

At any rate, any doubt as to the intent of Romualdez generated by the way hisletter was couched could be clarified by the acts of the main playersthemselves.Article 1371 of the Civil Code provides that to judge the intention of thecontracting parties, their contemporaneous and subsequent acts shall be principallyconsidered. In other words, in case of doubt, resort may be made to the situation,surroundings, and relations of the parties.

The fact of agency was, as the trial court aptly observed,[5] confirmed insubsequent letters from the Angeles spouses in which they themselves refer toLizette as ―authorized representative‖ of San Juanico Enterprises. Mention may alsobe made that the withdrawal receipt which Lizette had signed indicated that she was

doing so in a representative capacity. One professing to act as agent for

another is estopped to deny his agency both as against his asserted principal and











pp y g y g p pthird persons interested in the transaction which he engaged in.

Whether or not an agency has been created is a question to be determined bythe fact that one represents and is acting for another. The appellate court, and beforeit, the trial court, had peremptorily determined that Lizette, with respect to thewithdrawal of the scrap in question, was acting for Romualdez. And with the view wetake of this case, there were substantial pieces of evidence adduced to support thisdetermination. The desired reversal urged by the petitioner cannot, accordingly,begranted. For, factual findings of the trial court, adopted and confirmed by the CA, are,

as a rule, final and conclusive and may not be disturbed on appeal .

[6]

So it must behere.

Petitioner maintains that the Romualdez letter in question was not in the form ofa special power of attorney, implying that the latter had not intended to merelyauthorize his wife, Lizette, to perform an act for him (Romualdez). The contention isspecious. In the absence of statute, no form or method of execution is required for avalid power of attorney; it may be in any form clearly showing on its face the agent‘sauthority.[7]

A power of attorney is only but an instrument in writing by which a person, asprincipal, appoints another as his agent and confers upon him the authority to performcertain specified acts on behalf of the principal. The written authorization itself is thepower of attorney, and this is clearly indicated by the fact that it has also been called

a ―letter of attorney.‖ Its primary purpose is not to define the authority of the agent asbetween himself and his principal but to evidence the authority of the agent to thirdparties with whom the agent deals.[8] The letter under consideration is sufficient toconstitute a power of attorney. Except as may be required by statute, a power ofattorney is valid although no notary public intervened in its execution.[9]

A power of attorney must be st rictly construed and pursued. The instrument willbe held to grant only those powers which are specified therein, and the agent mayneither go beyond nor deviate from the power of attorney.[10] Contextually,all that Lizette was authorized to do was to withdraw the unserviceable/scraprailings.Allowing her authority to sue therefor, especially in her own name, would beto read something not intended, let alone written in the Romualdez letter.

Finally, the petitioner's claim that Lizette paid the amount of P96,000.00to the PNR appears to be a mere afterthought; it ought to be dismissed outright underthe estoppel principle. In earlier proceedings, petitioner himself admitted in hiscomplaint that it was Romualdez who paid this amount.

WHEREFORE, the petition is DENIED and the assailed decision of the CAis AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. L-109937 March 21, 1994 ripe for summary judgment. Consequently, the trial court ordered the parties to submit






















,DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,vs.COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTIONINSURANCE POOL, respondents.Office of the Legal Counsel for petitioner.Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J. :

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Courtto reverse and set aside the decision of the Court of Appeals in CA-G.R CV No.26434 and its resolution denying reconsideration thereof.We affirm the decision of the Court of Appeals with modification.

IIn May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines(DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, wasadvised by DBP to obtain a mortgage redemption insurance (MRI) with the DBPMortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4,1987 and released on August 11, 1987. From the proceeds of the loan, DBPdeducted the amount of P1,476.00 as payment for the MRI premium. On August 15,1987, Dans accomplished and submitted the "MRI Application for Insurance" and the

"Health Statement for DBP MRI Pool."On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayedthis information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Poolnotified DBP that Dans was not eligible for MRI coverage, being over the acceptanceage limit of 60 years at the time of application.On October 21, 1987, DBP apprised Candida Dans of the disapproval of her latehusband's MRI application. The DBP offered to refund the premium of P1,476.00which the deceased had paid, but Candida Dans refused to accept the same,demanding payment of the face value of the MRI or an amount equivalent to the loan.She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the

DBP later offered.On February 10, 1989, respondent Estate, through Candida Dans as administratrix,filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and theinsurance pool for "Collection of Sum of Money with Damages." Respondent Estatealleged that Dans became insured by the DBP MRI Pool when DBP, with fullknowledge of Dans' age at the time of application, required him to apply for MRI, andlater collected the insurance premium thereon. Respondent Estate therefore prayed:(1) that the sum of P139,500.00, which it paid under protest for the loan, bereimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3)that damages be awarded.The DBP and the DBP MRI Pool separately filed their answers, with the formerasserting a cross-claim against the latter. At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibitssubmitted by respondent Estate. As a result of these admissions, the trial court

narrowed down the issues and, without opposition from the parties, found the case

p y j g q y ptheir respective position papers and documentary evidence, which may serve asbasis for the judgment.On March 10, 1990, the trial court rendered a decision in favor of respondent Estateand against DBP. The DBP MRI Pool, however, was absolved from liabil ity, after thetrial court found no privity of contract between it and the deceased. The trial courtdeclared DBP in estoppel for having led Dans into applying for MRI and actuallycollecting the premium and the service fee, despite knowledge of his age ineligibility.The dispositive portion of the decision read as follows:

WHEREFORE, in view of the foregoing consideration and in the

furtherance of justice and equity, the Court finds judgment for theplaintiff and against Defendant DBP, ordering the latter:1. To return and reimburse plaintiff the amount of P139,500.00 pluslegal rate of interest as amortization payment paid under protest;2. To consider the mortgage loan of P300,000.00 including allinterest accumulated or otherwise to have been settled, satisfied orset-off by virtue of the insurance coverage of the late Juan B. Dans;3. To pay plaintiff the amount of P10,000.00 as attorney's fees;4. To pay plaintiff in the amount of P10,000.00 as costs of litigationand other expenses, and other relief just and equitable.The Counterclaims of Defendants DBP and DBP MRI POOL arehereby dismissed. The Cross-claim of Defendant DBP is likewisedismissed (Rollo, p. 79)

The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992,

the appellate court affirmed in toto the decision of the trial court. The DBP's motion forreconsideration was denied in a resolution dated April 20, 1993.Hence, this recourse.

IIWhen Dans applied for MRI, he filled up and personally signed a "Health Statementfor DBP MRI Pool" (Exh. "5-Bank") with the following declaration:

I hereby declare and agree that all the statements and answerscontained herein are true, complete and correct to the best of myknowledge and belief and form part of my application for insurance.It is understood and agreed that no insurance coverage shall beeffected unless and until this application is approved and the fullpremium is paid during my continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when

the application shall be approved by the insurance pool; and (2) when the fullpremium is paid during the continued good health of the applicant. These twoconditions, being joined conjunctively, must concur.Undisputably, the power to approve MRI applications is lodged with the DBP MRIPool. The pool, however, did not approve the application of Dans. There is also noshowing that it accepted the sum of P1,476.00, which DBP credited to its accountwith full knowledge that it was payment for Dan's premium. There was, as a result, noperfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on acontract that does not exist.The liability of DBP is another matter.It was DBP, as a matter of policy and practice, that required Dans, the borrower, tosecure MRI coverage. Instead of allowing Dans to look for his own insurance carrieror some other form of insurance policy, DBP compelled him to apply with the DBPMRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP

already deducted from the proceeds thereof the MRI premium. Four days latter, DBP

made Dans fill up and sign his application for MRI, as well as his health statement. have been fully insured by the time he died, is highly speculative. Considering his



The DBP later submitted both the application form and health statement to the DBPMRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBPdeducted 10 percent of the premium collected by it from Dans.In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and thesecond as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for saidinsurance, thereby leading him and his family to believe that they had already fulfilledall the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be

approved. The maximum age for MRI acceptance is 60 years as clearly andspecifically provided in Article 1 of the Group Mortgage Redemption Insurance Policysigned in 1984 by all the insurance companies concerned (Exh. "1-Pool").Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such isnot personally liable to the party with whom he contracts, unless he expressly bindshimself or exceeds the limits of his authority without giving such party sufficient noticeof his powers."The DBP is not authorized to accept applications for MRI when its clients are morethan 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligiblefor MRI coverage because of his advanced age, DBP exceeded the scope of itsauthority when it accepted Dan's application for MRI by collecting the insurancepremium, and deducting its agent's commission and service fee.The liability of an agent who exceeds the scope of his authority depends uponwhether the third person is aware of the limits of the agent's powers. There is no

showing that Dans knew of the limitation on DBP's authority to solicit applications forMRI.If the third person dealing with an agent is unaware of the limits of the authorityconferred by the principal on the agent and he (third person) has been deceived bythe non-disclosure thereof by the agent, then the latter is liable for damages to him (VTolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p.422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent isliable when he acts without authority is founded upon the supposition that there hasbeen some wrong or omission on his part either in misrepresenting, or in affirming, orconcealing the authority under which he assumes to act (Francisco, V., Agency 307[1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure ofthe limits of the agency carries with it the implication that a deception was perpetratedon the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code

of the Philippines come into play. Article 19 provides:Every person must, in the exercise of his rights and in theperformance of his duties, act with justice give everyone his dueand observe honesty and good faith. Article 20 provides:Every person who, contrary to law, willfully or negligently causesdamage to another, shall indemnify the latter for the same. Article 21 provides: Any person, who willfully causes loss or injury to another in amanner that is contrary to morals, good customs or public policyshall compensate the latter for the damage.

The DBP's liability, however, cannot be for the entire value of the insurance policy. Toassume that were it not for DBP's concealment of the limits of i ts authority, Dans

would have secured an MRI from another insurance company, and therefore would

advanced age, there is no absolute certainty that Dans could obtain an insurancecoverage from another company. It must also be noted that Dans died almostimmediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan.One is entitled to an adequate compensation only for such pecuniary loss suffered byhim as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to berecoverable, must not only be capable of proof, but must be actually proved with areasonable degree of certainty (Refractories Corporation v. Intermediate AppellateCourt, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447

[1916]). Speculative damages are too remote to be included in an accurate estimateof damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).While Dans is not entitled to compensatory damages, he is entitled to moraldamages. No proof of pecuniary loss is required in the assessment of said kind ofdamages (Civil Code of Philippines, Art. 2216). The same may be recovered in actsreferred to in Article 2219 of the Civil Code.The assessment of moral damages is left to the discretion of the court according tothe circumstances of each case (Civil Code of the Philippines, Art. 2216). Consideringthat DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlementof its claim and that DBP's non-disclosure of the limits of its authority amounted to adeception to its client, an award of moral damages in the amount of P50,000.00would be reasonable.The award of attorney's fees is also just and equitable under the circumstances (CivilCode of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CVNo. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSErespondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest fromthe date of the filing of the complaint until fully paid; and (2) to PAY said Estate theamount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount ofTen Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner.SO ORDERED.G.R. No. 94566 July 3, 1992BA FINANCE CORPORATION, petitioner,vs.HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

MEDIALDEA, J .:

This is a petition for review on certiorari of the decision of the respondent appellatecourt which reversed the ruling of the trial court dismissing the case against petitioner.The antecedent facts are as follows:On December 17, 1980, Renato Gaytano, doing business under the name GebbsInternational, applied for and was granted a loan with respondent Traders Royal Bankin the amount of P60,000.00. As security for the payment of said loan, the Gaytanospouses executed a deed of suretyship whereby they agreed to pay jointly andseverally to respondent bank the amount of the loan including interests, penalty andother bank charges.In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong ascredit administrator of BA Finance Corporation for and in behalf of the latter,undertook to guarantee the loan of the Gaytano spouses. The letter reads:

This is in reference to the application of Gebbs International for atwenty-five (25) month term loan of 60,000.00 with your Bank.

In this connection, please be advised that we unconditionally 4. THE HONORABLE COURT OF APPEALS ERRED IN NOT



guarantee full payment in peso value the said accommodation (sic)upon non-payment by subject up to a maximum amount ofP60,000.00.Hoping this would meet your requirement and expedite the earlyprocessing of their application.Thank you.

The Gaytano spouses did not present evidence for their defense. Petitionercorporation, on the other hand, raised the defense of lack of authority of its creditadministrator to bind the corporation.On December 12, 1988, the trial court rendered a decision the dispositive portion ofwhich states:

IN VIEW OF THE FOREGOING, judgment is hereby rendered infavor of plaintiff and against defendants/Gaytano spouses, orderingthe latter to jointly and severally pay the plaintiff the following:1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND25/100 (P85,807.25), representing the total unpaid balance withaccumulated interests, penalties and bank charges as ofSeptember 22, 1987, plus interests, penalties and bank chargesthereafter until the whole obligation shall have been fully paid.2) Attorney's fees at the stipulated rate of ten (10%) percentcomputed from the total obligation; and3) The costs of suit.The dismissal of the case against defendant BA Finance

Corporation is hereby ordered without pronouncement as to cost.SO ORDERED. (p. 31, Rollo)

Not satisfied with the decision, respondent bank appealed with the Court of Appeals.On March 13, 1990, respondent appellate court rendered judgment modifying thedecision of the trial court as follows:

In view of the foregoing, the judgment is hereby rendered orderingthe defendants Gaytano spouses and alternative defendant BAFinance Corporation, jointly and severally, to pay the plaintiff theamount of P85,807.25 as of September 8, 1987, including interests,penalties and other back (sic) charges thereon, until the fullobligation shall have been fully paid. No pronouncement as tocosts.SO ORDERED. (p. 27 Rollo)

Hence this petition was filed with the petitioner assigning the following errorscommitted by respondent appellate court:1. THE HONORABLE COURT OF APPEALS GRAVELY ERREDIN RULING THAT PETITIONER IS JOINTLY AND SEVERALLYLIABLE WITH GAYTANO SPOUSES DESPITE ITS FINDINGSTHAT THE LETTER GUARANTY (EXH. "C") IS "INVALID AT ITSINCEPTION";2. THE HONORABLE COURT OF APPEALS GRAVELY ERREDIN RULING THAT THE PETITIONER WAS GUILTY OFESTOPPEL DESPITE THE FACT THAT IT NEVER KNEW OFSUCH ALLEGED LETTER-GUARANTY;3. THE HONORABLE COURT OF APPEALS GRAVELY ERREDIN NOT RULING THAT SUCH LETTER GUARANTY (EXHIBIT "C")BEING PATENTLY ULTRA VIRES, IS UNENFORCEABLE;

AWARDING RELIEF ON PETITIONER'S COUNTERCLAIM(p. 10, Rollo).

Since the issues are interrelated, it would be well to discuss them jointly.Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable;that said letter-guaranty was issued by an employee of petitioner corporation beyondthe scope of his authority since the petitioner itself is not even empowered by itsarticles of incorporation and by-laws to issue guaranties. Petitioner also submits that itis not guilty of estoppel to make it liable under the letter-guaranty because petitionerhad no knowledge or notice of such letter-guaranty; that the allegation of Philip Wong,credit administrator, that there was an audit was not supported by evidence of anyaudit report or record of such transaction in the office files.We find the petitioner's contentions meritorious. It is a settled rule that personsdealing with an assumed agent, whether the assumed agency be a general or specialone are bound at their peril, if they would hold the principal liable, to ascertain notonly the fact of agency but also the nature and extent of authority, and in case eitheris controverted, the burden of proof is upon them to establish it (Harry Keeler v.Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to satisfactorilyprove that the credit administrator with whom they transacted acted within theauthority given to him by his principal, petitioner corporation. The only evidencepresented by respondent bank was the testimony of Philip Wong, credit administrator,who testified that he had authority to issue guarantees as can be deduced from thewording of the memorandum given to him by petitioner corporation on his lendingauthority. The said memorandum which allegedly authorized Wong not only to

approve and grant loans but also to enter into contracts of guaranty in behalf of thecorporation, partly reads:

To: Philip H. Wong, SAMCredit AdministratorFrom: Hospicio B. Bayona, Jr., VP andHead of Credit AdministrationRe: Lending AuthorityI am pleased to delegate to you in your capacity as Credit Administrator the following lending limits:

a) P650,000.00 — Secured Loansb) P550,000.00 — Supported Loansc) P350,000.00 — Truck Loans/Contracts/Leasesd) P350,000.00 — Auto Loan Contracts/Leases

e) P350,000.00 — Appliance Loan Contractsf) P350,000.00 — Unsecured LoansTotal loans and/or credits [combination of (a) thru (f) extended toany one borrower including parents, affiliates and/or subsidiaries,should not exceed P750,000.00. In exercising the limitsaforementioned, both direct and contingent commitments to theborrower(s) should be considered. All loans must be within the Company's established lendingguideline and policies.

xxx xxx xxxLEVELS OF APPROVAL All transactions in excess of any branch's limit must berecommended to you through the Official Credit Report forapproval. If the transaction exceeds your limit, you must concur in

application before submitting it to the Vice President, Credit



Administration for approval or concurrence.. . . (pp. 62-63, Rollo) (Emphasis ours)

Although Wong was clearly authorized to approve loans even up to P350,000.00without any security requirement, which is far above the amount subject of theguaranty in the amount of P60,000.00, nothing in the said memorandum expresslyvests on the credit administrator power to issue guarantees. We cannot agree withrespondent's contention that the phrase "contingent commitment" set forth in thememorandum means guarantees. It has been held that a power of attorney orauthority of an agent should not be inferred from the use of vague or general words.Guaranty is not presumed, it must be expressed and cannot be extended beyond itsspecified limits (Director v. Sing Juco, 53 Phil. 205). In one case, where it appearsthat a wife gave her husband power of attorney to loan money, this Court ruled thatsuch fact did not authorize him to make her liable as a surety for the payment of thedebt of a third person (Bank of Philippine Islands v. Coster, 47 Phil. 594).The sole allegation of the credit administrator in the absence of any other proof thathe is authorized to bind petitioner in a contract of guaranty with third persons shouldnot be given weight. The representation of one who acts as agent cannot by itselfserve as proof of his authority to act as agent or of the extent of his authority as agent(Velasco v. La Urbana, 58 Phil. 681). Wong's testimony that he had entered intosimilar transactions of guaranty in the past for and in behalf of the petitioner, lackscredence due to his failure to show documents or records of the alleged pasttransactions. The actuation of Wong in claiming and testifying that he has theauthority is understandable. He would naturally take steps to save himself from

personal liability for damages to respondent bank considering that he had exceededhis authority. The rule is clear that an agent who exceeds his authority is personallyliable for damages (National Power Corporation v. National MerchandisingCorporation, Nos. L-33819 andL-33897, October 23, 1982, 117 SCRA 789). Anent the conclusion of respondent appellate court that petitioner is estopped fromalleging lack of authority due to its failure to cancel or disallow the guaranty, We findthat the said conclusion has no basis in fact. Respondent bank had not shown anyevidence aside from the testimony of the credit administrator that the disputedtransaction of guaranty was in fact entered into the official records or files of petitionercorporation, which will show notice or knowledge on the latter's part and itsconsequent ratification of the said transaction. In the absence of clear proof, it wouldbe unfair to hold petitioner corporation guilty of estoppel in allowing its credit

administrator to act as though the latter had power to guarantee. ACCORDINGLY, the petition is GRANTED and the assailed decision of therespondent appellate court dated March 13, 1990 is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint for sum of moneyagainst BA Finance Corporation.SO ORDERED.

G.R. No. 103737 December 15, 1994NORA S EUGENIO d ALFREDO Y EUGENIO titi

After trial on the merits, the court a quo rendered a decision on February 17, 1986,d i titi d f d t th i t j i tl d ll i t



NORA S. EUGENIO and ALFREDO Y. EUGENIO,petitioners,vs.HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THEPHILIPPINES, INC., respondents.Public Attorney's Office for petitioners.Romualdo M. Jubay for private respondent.

REGALADO, J. : Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engagedin the business of manufacturing, making bottling and sell ing soft drinks andbeverages to the general public. Petitioner Nora S. Eugenio was a dealer of the softdrink products of private respondent corporation. Although she had only one storelocated at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio hada regular charge account in both the Quezon City plant (under the name "AbigailMinimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") ofrespondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used tobe a route manager of private respondent in its Quezon City plant.On March 17, 1982, private respondent filed a complaint for a sum of money againstpetitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance of Quezon City, Branch 9 (now RegionalTrial Court, Quezon City, Branch 97). In its complaint, respondent corporation allegedthat on several occasions in 1979 and 1980, petitioners purchased and received oncredit various products from its Quezon City plant. As of December 31, 1980,

petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, onvarious occasions in 1980, petitioners also purchased and received on credit variousproducts from respondent's Muntinlupa plant and, as of December 31, 1989,petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, itwas claimed that petitioners had an unpaid obligation for the loaned "empties" fromthe same plant in the amount of P35,856.40 as of July 11, 1980. Altogether,petitioners had an outstanding account of P94,651.00 which, so the complaintalleged, they failed to pay despite oral and written demands. 1 In their defense, petitioners presented four trade provisional receipts (TPRs) allegedlyissued to and received by them f rom private respondent's Route Manager JovencioEstrada of its Malate Warehouse (Division 57), showing payments in the total sum ofP80,500.00 made by Abigail's Store. Petitioners contended that had the amounts inthe TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The

details of said receipts are as follows:TPR No. Date of Issue Amount500320 600 Fulls returned 5/6/80 P23,520.00500326 600 Fulls returned 5/10/80 23,520.00500344 600 Fulls returned 5/14/80 23,520.00500346 Cash 5/15/80 10,000.00 2 ————— Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner NoraS. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount ofP5,631.00, 3 which was included in the computation of their alleged debt, is afalsification. In sum, petitioners argue that if the aforementioned amounts werecredited in their favor, it would be respondent corporation which would be indebted tothem in the sum of P3,546.02 representing overpayment.

ordering petitioners, as defendants therein to jointly and severally pay privaterespondent the amount of P74,849.00, plus 12% interest per annum until the principalamount shall have been fully paid, as well as P20,000.00 as attorney's fees. 4 Onappeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision anullity for failure to comply with the requirement in Section 14, Art icle VIII of the 1987Constitution that decisions of courts should clearly and distinctly state the facts andthe law on which they are based. The Court of Appeals accordingly remanded therecords of the case to the trial court, directing it to render another decision inaccordance with the requirements of the Constitution. 5 In compliance with the directive of the Court of Appeals, the lower court rendered asecond decision on September 29, 1989. In this new decision, petitioners were thistime ordered to pay, jointly and severally, the reduced amount of P64,188.60, pluslegal interest of 6% per annum from the filing of the action until full payment of theamount adjudged. 6 On appeal therefrom, the Court of Appeals affirmed the judgmentof the trial court in a decision promulgated on September 27, 1991. 7 A motion for thereconsideration of said judgment of respondent court was subsequently denied in aresolution dated January 23, 1992. 8 We agree with petitioners and respondent court that the crux of the dispute in thecase at bar is whether or not the amounts in the aforementioned trade provisionalreceipts should be credited in favor of herein petitioner spouses.In a so-called encyclopedic sense, however, our course of action in this case and thedenouement of the controversy therein takes into account the jurisprudential rule thatin the present recourse we would normally have restricted ourselves to questions of

law and eschewed questions of fact were it not for our perception that the lowercourts manifestly overlooked certain relevant factual considerations resulting in amisapprehension thereof. Consequentially, that position shall necessarily affect ouranalysis of the rules on the burden of proof and the burden of evidence, andultimately, whether the proponent of the corresponding claim has preponderated orrested on an equipoise or fallen short of preponderance.First, the backdrop. It appears that on August 1, 1981, private respondent through thehead of its Legal Department, Atty. Antonio N. Rosario, sent an inter -officecorrespondence to petitioner Alfredo Eugenio inviting him for aninterview/interrogation on August 3, 1981 regarding alleged "non-payment of debts tothe company, inefficiency, and loss of trust and confidence." 9

The interview was resetto August 4, 1981 to enable said petitioner to bring along with him their unionpresident, Luis Isip. On said date, a statement of overdue accounts were prepared

showing that petitioners owed respondent corporation the following amounts:Muntinlupa PlantNora's StoreTrade Account P38,357.20 (as of 12/3/80) 10 Loaned Empties P35,856.40 (as of 7/11/81) 11 Quezon City Plant Abigail MinimartRegular Account P20,437.40 (as of 1980) 12 ————— Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitionersas to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00after a reevaluation of the value of the loaned empties.13

Likewise, the amount ofP5,631.00 under Invoice No. 85366, which was a spurious document, was deducted

from their liability in their trade account with the Muntinlupa plant. 14 Thereafter,E i d I i i d th ili ti h t fl ti th it

parties and subject matter, may be given in evidence against the adverse party whoh d th t it t i hi 25 P i t d t t h



Eugenio and Isip signed the reconciliation sheets reflecting these items:Muntinlupa PlantNora StoreTrade Account P32,726.20 15 Loaned Empties P21,686.00 16 Quezon City Plant Abigail MinimartTrade Account P20,437.20 17 —————— Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugeniorequested that he be allowed to reti re and the existing accounts be deducted from hisretirement pay, but that he later withdrew his retirement plan. Said petitioner disputedthat allegation and, in fact, he subsequently filed a complaint for illegal dismissal. Thefinding of labor arbiter, later affirmed by the Supreme Court, showed that thispetitioner was indeed illegally dismissed, and that he never filed an application forretirement. In fact, this Court made a finding that the retirement papers allegedly filedin the name of this petitioner were forged. 18 This makes two falsified documents to befoisted against petitioners.With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim ofpetitioners. According to Azurin, during the investigation on December 4, 1981,

Estrada allegedly denied that he issued and signed the aforesaid TPRs. 19

He alsopresented a supposed affidavit which Estrada allegedly executed during thatinvestigation to affirm his verbal statements therein. Surprisingly, however, saidsupposed affidavit is inexplicably dated February 5, 1982. 20 At this point, it should benoted that Estrada never testified thereafter in court and what he is supposed to havedone or said was merely related by Azurin.Now, on this point, respondent court disagreed with herein petitioners that thetestimony on the alleged denial of Jovencio Estrada regarding his signatures on thedisputed TPRs, as well as his affidavit dated February 5, 198221 wherein he affirmedhis denial, are hearsay evidence because Estrada was not presented as a witness totestify and be cross-examined thereon. Except for the terse statement of respondentcourt that since petitioner Alfredo Eugenio was supposedly present on December 4,1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation

categorically denying that he issued and signed the disputed TPRs is, therefore, nothearsay," 22 there was no further explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testifyonly to those facts which he knows of his personal knowledge; that is, which arederived from his own perception, except as otherwise provided in the Rules. 23 In thepresent case, Estrada failed to appear as a witness at the trial. It was only Azurin whotestified that during the investigation he conducted, Estrada supposedly deniedhaving signed the TPRs. It is elementary that under the measure on hearsayevidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada'sdenial. For that matter, it is not admissible in evidence, petitioners' counsel havingseasonably objected at the trial to such testimony of Azurin as hearsay. And, even ifnot objected to and thereby admissible, such hearsay evidence has no probativevalue whatsoever. 24 It is true that the testimony or deposition of a witness deceased or unable to testify,

given in a former case or proceeding, judicial or administrative, involving the same

had the opportunity to cross-examine him. 25 Private respondent cannot, however,

seek sanctuary in this exception to the hearsay evidence rule.Firstly, the supposed investigation conducted by Azurin was neither a judicial trial noran administrative hearing under statutory regulations and safeguards. It was merelyan inter-office interview conducted by a personnel officer through an adhoc arrangement. Secondly, a perusal of the alleged stenographic notes,assumingarguendo that these notes are admissible in evidence, would show that the"investigation" was more of a free-flowing question and answer type of discussionwherein Estrada was asked some questions, after which Eugenio was likewise askedother questions. Indeed, there was no opportunity for Eugenio to object, much less tocross-examine Estrada. Even in a formal prior trial itself, if the opportunity forcross-examination did not exist therein or i f the accused was not afforded opportunityto fully cross-examine the witness when the testimony was offered, evidence relatingto the testimony given therein is thereafter inadmissible in another proceeding, absentany conduct on the part of the accused amounting to a waiver of his right to cross-examine. 26 Thirdly, the stenographer was not even presented to authenticate the stenographicnotes submitted to the trial court. A copy of the stenographic report of the entiretestimony at the former trial must be supported by the oath of the stenographer that itis a correct transcript of his notes of the testimony of the witness as a sine quanon for its competency and admissibility in evidence. 27

The supposed stenographicnotes on which respondent corporation relies is unauthenticated and necessarilyinadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presentedas a witness because he had disappeared, no evidence whatsoever was offered toshow or even intimate that this was due to any machination or instigation ofpetitioners. There is no showing that his absence was procured, or that he waseloigned, through acts imputable to petitioners. In the case at bar, except for the self-serving statement that Estrada had disappeared, no plausible explanation was givenby respondent corporation. Estrada was an employee of private re spondent, hence itcan be assumed that it could easily trace or ascertain his whereabouts. It had theresources to do so, in contradistinction to petitioners who even had to seek the helpof the Public Attorney's Office to defend them here. Private respondent could nothave been unaware of the importance of Estrada's testimony and the consequentlegal necessity for presenting him in the trial court, through coercive process ifnecessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred asevidence by the hearsay evidence rule. 28 This is aside from the fact that, by theirnature, affidavits are generally not prepared by the affiants themselves but by anotherwho uses his own language in writing the affiant's statements, which may thus beeither omitted or misunderstood by the one writing them. 29 The dubiety of thataffidavit, as earlier explained, is further underscored by the fact that it was executedmore than two months after the investigation, presumably for curative purposes as itwere.Now, the authenticity of a handwriting may be proven, among other means, by itscomparison made by the witness or the court with writings admitted or treated asgenuine by the party against whom the evidence is offered or proved to be genuine tothe satisfaction of the judge. 30 The alleged affidavit of Estrada states". . . that thecomparison that was made as to the authenticity of the signature appearing in theTPRs and that of my signature showed that there was an apparent dissimilarity

between the two signatures, xerox copy of my 201 File is attached hereto as Annex

'F' of this affidavit. 31 However, a search of the Folder of Exhibits in this case does notreveal that private respondent ever submitted any document not even the

in favor of valid payment by petitioners, these would necessarily continue to stand intheir favor in this case



reveal that private respondent ever submitted any document, not even theaforementioned 201 File, containing a specimen of the signature of Estrada which theCourt can use as a basis for comparison. Neither was any document containing aspecimen of Estrada's signature presented by private respondent in the formal offer ofits exhibits. 32 Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of hisgenuine signature." 33 There is, however, no showing that he did, but assuming thatEstrada signed the stenographic notes, the Court would sti ll be unable to make thenecessary comparison because two signatures appear on the right margin of eachand every page of the stenographic notes, without any indication whatsoever as towhich of the signatures is Estrada's. The whole document was marked foridentification but the signatures were not. In fact, although formally offered, it wasmerely introduced by the private respondent "in order to show that Jovencio Estradahad been investigated and categorically denied having collected from Abigail Minimartand denying having signed the receipts claimed by Alfredo Eugenio to be hispayment," 34 and not for the purpose of presenting any alleged signature of Estradaon the document as a basis for comparison.This is a situation that irresistibly arouses judicial curiosity, if not suspicion.Respondent corporation was fully aware that its case rested, as it were, on the issueof whether the TPRs were authentic and which issue, in turn, turned on thegenuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing thenon-presentation of Estrada in court by the glib assertion that he could not be found,

and necessarily aware that his alleged denial of his signatures on said TPRs and hisaffidavit rendered the same vulnerable to the challenge that they are hearsay andinadmissible, respondent corporation did nothing more. In fact, Estrada'sdisappearance has not been explained up to the present.The next inquiry then would be as to what exactly is the nature of the TPRs insofar asthey are used in the day-to-day business transactions of the company. These tradeprovisional receipts are bound and given in booklets to the company salesrepresentatives, under proper acknowledgment by them and with a record of thedistribution thereof. After every transaction, when a collection is made the customer isgiven by the sales representative a copy of the trade provisional receipt, that is, thetriplicate copy or customer's copy, properly filled up to reflect the completedtransaction. All unused TPRs, as well as the collections made, are turned over by thesales representative to the appropriate company officer. 35

According to respondent court, "the questioned TPR's are merely 'provisional' andwere, as printed at the bottom of said receipts, to be officially confirmed by plaintiffwithin fifteen (15) days by delivering the original copy thereof stamped paid andsigned by its cashier to the customer. . . . Defendants-appellants (herein petitioners)failed to present the original copies of the TPRs in question, showing that they werenever confirmed by the plaintiff, nor did they demand from plaintiff the confirmedoriginal copies thereof." 36 We do not agree with the strained implication intended to be adverse to petitioners.The TPRs presented in evidence by petitioners are disputably presumed asevidentiary of payments made on account of petitioners. There are presumptions juristantum in law that private transactions have been fair and regular and that theordinary course of business has been followed. 37 The role of presumptions in the lawon evidence is to relieve the party enjoying the same of the evidential burden to provethe proposition that he contends for, and to shift the burden of evidence to the

adverse party. Private respondent having failed to rebut the aforestated presumptions

their favor in this case.Besides, even assuming arguendo that herein private respondent's cashier neverreceived the amounts reflected in the TPRs, still private respondent failed to provethat Estrada, who is its duly authorized agent with respect to petitioners, did notreceive those amounts from the latter. As correctly explained by petitioners, "in so faras the private respondent's customers are concerned, for as long as they pay theirobligations to the sales representative of the private respondent using the latter'sofficial receipt, said payment extinguishes their obligations." 38 Otherwise, it wouldunreasonably cast the burden of supervision over its employees from respondentcorporation to its customers.The substantive law is that payment shall be made to the person in whose favor theobligation has been constituted, or his successor-in-interest or any person authorizedto receive it. 39 As far as third persons are concerned, an act is deemed to have beenperformed within the scope of the agent's authority, if such is within the terms of thepower of attorney, as written, even if the agent has in fact exceeded the limits of hisauthority according to an understanding between the principal and his agent. 40

Infact, Atty. Rosario, private respondent's own witness, admitted that "it is theresponsibility of the collector to turn over the collection." 41 Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makesthe following observation:

. . . Having allegedly returned 600 Fulls to the plaintiff'srepresentative on May 6, 10, and 14, 1980, appellant-wife's AbigailStore must have received more than 1,800 cases of soft drinks

from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3")which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of softdrinks were delivered to Abigail Minimart by plaintiff's Quezon CityPlant (which supposedly issued the disputed TPRs) in May, 1980 orthe month before."42

We regret the inaccuracy in said theory of respondent court which was impelled by itssole and limited reliance on a mere statement of overdue amounts. Unlike astatement of account which truly reflects the day-to-day movement of an account, astatement of an overdue amount is only a summary of the account, simply reflectingthe balance due thereon. A statement of account, being more specific and detailed innature, allows one to readily see and verify if indeed deliveries were made during a

specific period of time, unlike a bare statement of overdue payments. Respondentcourt cannot make its aforequoted categorical deduction unless supportingdocuments accompanying the statement of overdue amounts were submitted toenable easy and accurate verification of the facts. A perusal of the statement of overdue accounts shows that, except for a referencenumber given for each entry, no further details were volunteered nor offered. It isentirely possible that the statement of overdue account merely reflects theoutstanding debt of a particular client, and not the specific particulars, such asdeliveries made, particularly since the entries therein were surprisingly enteredirrespective of their chronological order. Obviously, therefore, one can not use thestatement of overdue amounts as conclusive proof of deliveries done within aparticular time frame.Except for its speculation that petitioner Alfredo Y. Eugenio could have had easyaccess to blank forms of the TPRs because he was a former route manager no

evidence whatsoever was presented by private respondent in support of that theory.

We are accordingly intrigued by such an unkind assertion of respondent corporationsince Azurin himself admitted that their accounting department could not even inform



since Azurin himself admitted that their accounting department could not even informthem regarding the persons to whom the TPRs were issued. 43 In addition, it issignificant that respondent corporation did not take proper action if indeed somereceipts were actually lost, such as the publication of the fact of loss of the receipts,with the corresponding investigation into the matter.We, therefore, reject as attenuated the comment of the trial court that the TPRs,which Eugenio submitted after the reconciliation meeting, "smacks too much of anafterthought." 44 The reconciliation meeting was held on August 4, 1981. Threemonths later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the fourTPRs. He explained, and this was not disputed, that at the time the reconciliationmeeting was held, his daughter Nanette, who was helping his wife manage the store,had eloped and she had possession of the TPRs. 45 It was only in November, 1981when petitioners were able to talk to Nanette that they were able to find and retrievesaid TPRs. He added that during the reconciliation meeting, Atty. Rosario assuredhim that any receipt he may submit later will be credited in his favor, hence he signedthe reconciliation documents. Accordingly, when he presented the TPRs to privaterespondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amountstated in the reconciliation sheet was not final, as it was still subject to such receiptsas may thereafter be presented by petitioners.On the other hand, petitioners claimed that the signature of petitioner Nora S.Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious andshould accordingly be deducted from the disputed amount of P74,849.40. A scrutinyof the reconciliation sheet shows that said amount had already been deducted upon

the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , MuntinlupaPlant. 46 That amount is not disputed by respondent corporation and should no longerbe deducted from the total liability of petitioner in the sum of P74,849.40. Sincepetitioners had made a payment of P80,560.00, there was consequently anoverpayment of P5,710.60. All told, we are constrained to hold that respondent corporation has dismally failed tocomply with the pertinent rules for the admission of the evidence by which it sought toprove its contentions. Furthermore, there are questions left u nanswered and beggingfor cogent explanations why said respondent did not or could not comply with theevidentiary rules. Its default inevitably depletes the weight of its evidence whichcannot just be taken in vacuo, with the result that for lack of the requisite quantum ofevidence, it has not discharged the burden of preponderant proof necessary to prevailin this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No.26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED andSET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc.is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount ofP5,710.60 representing overpayment made to the former.SO ORDERED.

G.R. No. L-116650 May 23, 1995TOYOTA SHAW INC petitioner

subheading CONFORME. This document shows that the customer's name is "MR.LUNA SOSA" with home address at No 2316 Guijo Street United Parañaque II; that



TOYOTA SHAW, INC., petitioner,vs.COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J. : At the heart of the present controversy is the document marked Exhibit "A" 1 for theprivate respondent, which was signed by a sales representative of Toyota Shaw, Inc.named Popong Bernardo. The document reads as follows:

AGREEMENTS BETWEEN MR. SOSA& POPONG BERNARDO OF TOYOTASHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW,INC. (POPONG BERNARDO) a week after, upon arrival of Mr.Sosa from the Province (Marinduque) where the unit will be usedon the 19th of June.2. the downpayment of P100,000.00 will be paid by Mr. Sosa onJune 15, 1989.3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic ]and released by TOYOTA SHAW, INC. on the 17th of June at 10a.m.

Was this document, executed and signed by the petitioner's sales

representative, a perfected contract of sale, binding upon thepetitioner, breach of which would entitle the private respondent todamages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence,this petition for review oncertiorari .

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc.(hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows.Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. Itwas then a seller's market and Sosa had difficulty finding a dealer with an availableunit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was anavailable unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyotaoffice at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a

sales representative of Toyota.Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 togo to Marinduque, his home province, where he would celebrate his birthday on the19th of June. He added that if he does not arrive in his hometown with the new car,he would become a "laughing stock." Bernardo assured Sosa that a unit would beready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed theaforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw,Inc." It was also agreed upon by the parties that the balance of the purchase pricewould be paid by credit financing through B.A. Finance, and for this Gilbert, on behalfof his father, signed the documents of Toyota and B.A. Finance pertaining to theapplication for financing.The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver thedownpayment of P100,000.00. They met Bernardo who then accomplished a printed

Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the

LUNA SOSA with home address at No. 2316 Guijo Street, United Parañaque II; thatthe model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; thatpayment is by "installment," to be financed by "B.A.," 3

with the initial cash outlay ofP100,000.00 broken down as follows:

a) downpayment — P 53,148.00

b) insurance — P 13,970.00

c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00

service fee — P 500.00

accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces providedfor "Delivery Terms" were not filled-up. It also contains the following pertinentprovisions:

CONDITIONS OF SALES1. This sale is subject to availability of unit.2. Stated Price is subject to change without prior notice, Priceprevailing and in effect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the

vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter'soffice. According to Sosa, Bernardo informed them that the Lite Ace was beingreadied for delivery. After waiting for about an hour, Bernardo told them that the carcould not be delivered because "nasulot ang unit ng ibang malakas."Toyota contends, however, that the Lite Ace was not delivered to Sosa because ofthe disapproval by B.A. Finance of the credit financing application of Sosa. It furtheralleged that a particular unit had already been reserved and earmarked for Sosa butcould not be released due to the uncertainty of payment of the balance of thepurchase price. Toyota then gave Sosa the option to purchase the unit by paying thefull purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked thathis downpayment be refunded. Toyota did so on the very same day by issuing a FarEast Bank check for the full amount of P100,000.00, 4 the receipt of which was shown

by a check voucher of Toyota, 5 which Sosa signed with the reservation, "withoutprejudice to our future claims for damages."Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 andsigned by him, he demanded the refund, within five days from receipt, of thedownpayment of P100,000.00 plus interest from the time he paid it and the paymentof damages with a warning that in case of Toyota's failure to do so he would beconstrained to take legal action. 6

The second, dated 4 November 1989 and signedby M. O. Caballes, Sosa's counsel, demanded one million pesos representing interestand damages, again, with a warning that legal action would be taken if payment wasnot made within three days. 7 Toyota's counsel answered through a letter dated 27November 1989 8

refusing to accede to the demands of Sosa. But even before thisanswer was made and received by Sosa, the latter filed on 20 November 1989 withBranch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against

Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount ofP1 230 000 00 9 He alleges inter alia that:

lawyer's transportation fare per trip in attending tothe hearing of this case;



P1,230,000.00. He alleges, inter alia, that:9. As a result of defendant's failure and/or refusal to deliver thevehicle to plaintiff, plaintiff suffered embarrassment, humiliation,ridicule, mental anguish and sleepless nights because: (i) he andhis family were constrained to take the public transportation fromManila to Lucena City on their way to Marinduque; (ii) hisbalikbayan-guest canceled his scheduled first visit to Marinduque inorder to avoid the inconvenience of taking public transportation;and (iii) his relatives, friends, neighbors and other provincemates,continuously irked him about "his Brand-New Toyota Lite Ace — that never was." Under the circumstances, defendant should bemade liable to the plaintiff for moral damages in the amount of OneMillion Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between itand Sosa, that Bernardo had no authority to sign Exhibit "A" for and in i ts behalf, andthat Bernardo signed Exhibit "A" in his personal capacity. As special and affirmativedefenses, it alleged that: the VSP did not state date of delivery; Sosa had notcompleted the documents required by the financing company, and as a matter ofpolicy, the vehicle could not and would not be released prior to full compliance withfinancing requirements, submission of all documents, and execution of the salesagreement/invoice; the P100,000.00 was returned to and received by Sosa; thevenue was improperly laid; and Sosa did not have a sufficient cause of action againstit. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session,11

the trial courtrendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A,"

the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was avalid perfected contract of sale between Sosa and Toyota which bound Toyota todeliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in badfaith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A,"the trial court held that the extent of Bernardo's authority "was not made known toplaintiff," for as testified to by Quirante, "they do not volunteer any information as tothe company's sales policy and guidelines because they are internalmatters." 13

Moreover, "[f]rom the beginning of the transaction up to its consummationwhen the downpayment was made by the plaintiff, the defendants had made knownto the plaintiff the impression that Popong Bernardo is an authorized sales executiveas it permitted the latter to do acts within the scope of an apparent authority holdinghim out to the public as possessing power to do these acts." 14 Bernardo then "was anagent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15 The court further declared that "Luna Sosa proved his social standing in thecommunity and suffered besmirched reputation, wounded feelings and sleeplessnights for which he ought to be compensated." 16

Accordingly, it disposed as follows:WHEREFORE, viewed from the above findings, judgment is herebyrendered in favor of the plaintiff and against the defendant:

1. ordering the defendant to pay to the plaintiffthe sum of P75,000.00 for moral damages;2. ordering the defendant to pay the plaintiff thesum of P10,000.00 for exemplary damages;3. ordering the defendant to pay the sum ofP30,000.00 attorney's fees plus P2,000.00

the hearing of this case;4. ordering the defendant to pay the plaintiff thesum of P2,000.00 transportation fare per trip ofthe plaintiff in attending the hearing of this case;and5. ordering the defendant to pay the cost of suit.

SO ORDERED.Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals.The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29July 1994, 17 the Court of Appeals affirmed in toto the appealed decision.Toyota now comes before this Court via this petition and raises the core issue statedat the beginning of the ponenciaand also the following related issues: (a) whether ornot the standard VSP was the true and documented understanding of the partieswhich would have led to the ultimate contract of sale, (b) whether or not Sosa has anylegal and demandable right to the delivery of the vehicle despite the non-payment ofthe consideration and the non-approval of his credit application by B.A. Finance, (c)whether or not Toyota acted in good faith when it did not release the vehicle to Sosa,and (d) whether or not Toyota may be held liable for damages.We find merit in the petition.Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit"A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership of and to deliver adeterminate thing, and the other to pay therefor a price certain inmoney or its equivalent. A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected: Art. 1475. The contract of sale is perfected at the moment there is ameeting of minds upon the thing which is the object of the contractand upon the price.From that moment, the parties may reciprocally demandperformance, subject to the provisions of the law governing theform of contracts.

What is clear from Exhibit "A" is not what the trial court and the Court of Appealsappear to see. It is not a contract of sale. No obligation on the part of Toyota totransfer ownership of a determinate thing to Sosa and no correlative obligation on thepart of the latter to pay therefor a price certain appears therein. The provision on thedownpayment of P100,000.00 made no specific reference to a sale of a vehicle. If itwas intended for a contract of sale, it could only refer to a sale on installment basis,as the VSP executed the following day confirmed. But nothing was mentioned aboutthe full purchase price and the manner the installments were to be paid.This Court had already ruled that a definite agreement on the manner of payment ofthe price is an essential element in the formation of a binding and enforceablecontract of sale. 18

This is so because the agreement as to the manner of paymentgoes into the price such that a disagreement on the manner of payment is tantamountto a failure to agree on the price. Definiteness as to the price is an essential elementof a binding agreement to sell personal property. 19 Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota andSosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware

from its title, written in bold letters, viz .,

AGREEMENTS BETWEEN MR. SOSA &POPONG BERNARDO OF TOYOTA SHAW

already been waiting for an hour for the delivery of the vehicle in the afternoon of 17June 1989 However in paragraph 7 of his complaint Sosa solemnly states:



POPONG BERNARDO OF TOYOTA SHAW,INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter didnot misrepresent that he had the authority to sell any Toyota vehicle. He knew thatBernardo was only a sales representative of Toyota and hence a mere agent of thelatter. It was incumbent upon Sosa to act with ordinary prudence and reasonablediligence to know the extent of Bernardo's authority as anagent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with anagent is put upon inquiry and must discover upon his peril the authority of theagent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of thegeneration or negotiation stage of a contract of sale. There are three stages in thecontract of sale, namely:

(a) preparation, conception, or generation, which is the period ofnegotiation and bargaining, ending at the moment of agreement ofthe parties;(b) perfection or birth of the contract, which is the moment when theparties come to agree on the terms of the contract; and(c) consummation or death, which is the fulfillment or performanceof the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was theexecution of the VSP. It must be emphasized that thereunder, the downpayment ofthe purchase price was P53,148.00 while the balance to be paid on installment

should be financed by B.A. Finance Corporation. It is, of course, to be assumed thatB.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentionedB.A. Finance in the VSP.Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended byP.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except thoseregulated by the Central Bank of the Philippines, the Insurance Commission and theCooperatives Administration Office, which are primarily organized for the purpose ofextending credit facilities to consumers and to industrial, commercial, or agriculturalenterprises, either by discounting or factoring commercial papers or accountsreceivables, or by buying and selling contracts, leases, chattel mortgages, or otherevidence of indebtedness, or by leasing of motor vehicles, heavy equipment andindustrial machinery, business and office machines and equipment, appliances andother movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company,three parties are thus involved: the buyer who executes a note or notes for the unpaidbalance of the price of the thing purchased on installment, the seller who assigns thenotes or discounts them with a financing company, and the financing company whichis subrogated in the place of the seller, as the creditor of the installmentbuyer. 24

Since B.A. Finance did not approve Sosa's application, there was then nomeeting of minds on the sale on installment basis.We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa'sapplication for which reason it suggested to Sosa that he pay the full purchase price.When the latter refused, Toyota cancelled the VSP and returned to him hisP100,000.00. Sosa's version that the VSP was cancelled because, according toBernardo, the vehicle was delivered to another who was "mas malakas" does notinspire belief and was obviously a delayed afterthought. It is claimed that Bernardosaid, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had

June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:On June 17, 1989 at around 9:30 o'clock in the morning,defendant's sales representative, Mr. Popong Bernardo, calledplaintiff's house and informed the plaintiff's son that the vehicle willnot be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00p.m. of that day instead. Plaintiff and his son went to defendant'soffice on June 17 1989 at 2:00 p.m. in order to pick-up the vehiclebut the defendant for reasons known only to its representatives,refused and/or failed to release the vehicle to the plaintiff. Plaintiffdemanded for an explanation, but nothing was given; . . .(Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. Itfollows that the VSP created no demandable right in favor of Sosa for the delivery ofthe vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.The award then of moral and exemplary damages and attorney's fees and costs ofsuit is without legal basis. Besides, the only ground upon which Sosa claimed moraldamages is that since it was known to his friends, townmates, and relatives that hewas buying a Toyota Lite Ace which they expected to see on his birthday, he sufferedhumiliation, shame, and sleepless nights when the van was not delivered. The vanbecame the subject matter of talks during his celebration that he may not have paidfor it, and this created an impression against his business standing and reputation. Atthe bottom of this claim is nothing but misplaced pride and ego. He should not haveannounced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay

the full purchase price. It was he who brought embarrassment upon himself bybragging about a thing which he did not own yet.Since Sosa is not entitled to moral damages and there being no award for temperate,liquidated, or compensatory damages, he is likewise not entitled to exemplarydamages. Under Article 2229 of the Civil Code, exemplary or corrective damages areimposed by way of example or correction for the public good, in addition to moral,temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state inthe body of the decision, and not only in the dispositive portion thereof, the legalreason for the award of attorney's fees. 26

No such explicit determination thereon wasmade in the body of the decision of the trial court. No reason thus exists for such anaward.WHEREFORE, the instant petition is GRANTED. The challenged decision of theCourt of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of theRegional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaimtherein is likewise DISMISSED.No pronouncement as to costs.SO ORDERED.

G.R. No. 114091 June 29, 1995BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,

As payment of the aforesaid consideration, SMC issued a check (Exhibit"B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for



BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,vs.HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

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

I. GERMAN A. BACALTOS, of legal age, Filipino, widower, andresiding at second street, Espina Village, Cebu City, province ofCebu, Philippines, do hereby authorize RENE R. SAVELLON, oflegal age, Filipino and residing at 376-R Osmeña Blvd., Cebu City,Province of Cebu, Philippines, to use the coal operating contract ofBACALTOS COAL MINES of which I am the proprietor, for anylegitimate purpose that it may serve. Namely, but not by way of

limitation, as follows:(1) To acquire purchase orders for and in behalfof BACALTOS COAL MINES;(2) To engage in trading under the style ofBACALTOS COAL MINES/RENE SAVELLON;(3) To collect all receivables due or in arrearsfrom people or companies having dealings underBACALTOS COAL MINES/RENE SAVELLON;(4) To extend to any person or company bysubstitution the same extent of authority that isgranted to Rene Savellon;(5) In connection with the preceeding paragraphsto execute and sign documents, contracts, andother pertinent papers.

Further, I hereby give and grant to RENE SAVELLON full authorityto do and perform all and every lawful act requisite or necessary tocarry into effect the foregoing stipulations as fully to all intents andpurposes as I might or would lawfully do if personally present, withfull power of substitution and revocation.

The Trip Charter Party was executed on 19 October 1988 "by and betweenBACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSELSAVELLON" and private respondent San Miguel Corporation (hereinafter SMC),represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of thevessel M/V Premship II and that for P650,000.00 to be paid within seven days afterthe execution of the contract, it "lets, demises" the vessel to charterer SMC "for threeround trips to Davao."

B ) payable to RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES forwhich Savellon issued a receipt under the heading of BACALTOS COAL MINES withthe address at No 376-R Osmeña Blvd., Cebu City (Exhibit "B-1"). 6 The vessel was able to make only one trip. Its demands to comply with the contracthaving been unheeded, SMC filed against the petitioners and Rene Savellon thecomplaint in Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officerand that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC.They further claimed that if it is t rue that SMC entered into a contract with them, itshould have issued the check in their favor. They setup counterclaims for moral andexemplary damages and attorney's fees.Savellon did not file his Answer and was declared in default on 17 July 1990. 8 At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed tosubmit the following issues for resolution:

Plaintiff — 1. Whether or not defendants are jointly liable to plaintiff fordamages on account of breach of contract;2. Whether or not the defendants acted in good faith in itsrepresentations to the plaintiff;3. Whether or not defendant Bacaltos was duly enriched on thepayment made by the plaintiff for the use of the vessel;4. Whether or not defendant Bacaltos is estopped to deny the

authorization given to defendant Savellon;Defendants — 1. Whether or not the plaintiff should have first investigated theownership of vessel M/V PREM [SHIP] II before entering into anycontract with defendant Savellon;2. Whether or not defendant Savellon was authorized to enter into ashipping contract with the [plaintiff] corporation;3. Whether or not the plaintiff was correct and not mistaken inissuing the checks in payment of the contract in the name ofdefendant Savellon and not in the name of defendant Bacaltos CoalMines;4. Whether or not the plaintiff is l iable on defendants'counterclaim. 9

After trial, the lower court rendered the assailed decision in favor of SMC and againstthe petitioners and Savellon as follows:

WHEREFORE, by preponderance of evidence, the Court herebyrenders judgment in favor of plaintiff and against defendants,ordering defendants Rene Savellon, Bacaltos Coal Mines andGerman A. Bacaltos, jointly and severally, to pay to plaintiff:1. The amount of P433,000.00 by way of reimbursement of theconsideration paid by plaintiff, plus 12% interest to start from dateof written demand, which is June 14, 1989;2. The amount of P20,000.00 by way of exemplary damages;3. The amount of P20,000.00 as attorney's fees and P5,000.00 asLitigation expenses. Plus costs. 10

It ruled that the Authorization given by German Bacaltos to Savellon necessarilyincluded the power to enter into the Trip Charter Party. It did not give credence to the

petitioners' claim that the authorization refers only to coal or coal mining and not to

shipping because, according to it, "the business of coal mining may also involve theshipping of products" and "a company such as a coal mining company is not

AUTHORIZED TO ENTER INTO A TRIPCHARTER PARTY CONTRACT WITH PRIVATE



pp g p p y g p yprohibited to engage in entering into a Trip Charter Party contract." It further reasonedout that even assuming that the petitioners did not intend to authorize Savellon toenter into the Trip Charter Party, they are still liable because: (a) SMC appears to bean innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted bySavellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued anofficial receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the TripCharter Party, and the petitioners denial that they caused the printing of such officialreceipt is "lame" because they submitted only a cash voucher and not their officialreceipt; (c) the "Notice of Readiness" (Exhibit "A-1") is written on a paper with theletterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearingin their voucher; (d) the petitioners were benefited by the payment because the realpayee in the check is actually Bacaltos Coal Mines and since in the Authorization theyauthorized Savellon to collect receivables due or in arrears, the check was thenproperly delivered to Savellon; and, (e) i f indeed Savellon had not been authorized orif indeed he exceeded his authority or if the Trip Charter Party was personal to himand the petitioners have nothing to do with it, then Savellon should have "bother[ed]to answer" the complaint and the petitioners should have filed "a cross-claim" againsthim.In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitionersasserted that the trial court erred in: (a) not holding that SMC was negligent in (1) notverifying the credentials of Savellon and the ownership of the vessel, (2) issuing the

check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowingSavellon to encash the check, and, (3) making full payment of P650,000.00 after thevessel made only one trip and before it completed three trips as required in the TripCharter Party; (b) holding that under the authority given to him Savellon wasauthorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11 As stated at the beginning, the Court of Appeals affirmed in toto the judgment of thetrial court. It held that: (a) the credentials of Savellon is not an issue since thepetitioners impliedly admitted the agency while the ownership of the vessel waswarranted on the face of the Trip Charter Party; (b) SMC was not negligent when itissued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursedthrough Savellon as the agent; (c) the Authorization includes the power to enter intothe Trip Charter Party because the "five prerogatives" enumerated in the former isprefaced by the phrase "but not by way of limitation"; (d) the petitioners' statementthat the check should have been issued in the name of Bacaltos Coal Mines isanother implicit admission that the Trip Charter Party is part and parcel of thepetitioners' business notwithstanding German Bacaltos's contrary interpretation whenhe testified, and in any event, the construction of obscure words should not favor himsince he prepared the Authorization in favor of Savellon; and, (e) German Bacaltosadmitted in the Answer that he is the proprietor of Bacaltos Coal Mines and helikewise represented himself to be so in the Authorization itself, hence he should notnow be permitted to disavow what he initially stated to be true and to interpose thedefense that Bacaltos Coal Mines has a distinct legal personality.Their motion for a reconsideration of the above decision having been denied, thepetitioners filed the instant petition wherein they raise the following errors:

I. THE RESPONDENT COURT ERRED IN

HOLDING THAT RENE SAVELLON WAS

RESPONDENT INSPITE OF ITS FINDING THATSUCH AUTHORITY CANNOT BE FOUND INTHE FOUR CORNERS OF THE AUTHORIZATION;II. THE RESPONDENT COURT ERRED IN NOTHOLDING THAT BY ISSUING THE CHECK INTHE NAME OF RENE SAVELLON IN TRUSTFOR BACALTOS COAL MINES, THE PRIVATERESPONDENT WAS THE AUTHOR OF ITSOWN DAMAGE; ANDIII. THE RESPONDENT COURT ERRED INHOLDING PETITIONER GERMAN BACALTOSJOINTLY AND SEVERALLY LIABLE WITHRENE SAVELLON AND CO-PETITIONERBACALTOS COAL MINES IN SPITE OF THEFINDING OF THE COURT A QUO THATPETITIONER BACALTOS COAL MINES ANDPETITIONER BACALTOS ARE TWO DISTINCT AND SEPARATE LEGAL PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced inthe petition, and the comment thereto and reply to the comment, the Court resolved togive due course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon hisperil the authority of the agent. If he does not make such inquiry, he is chargeablewith knowledge of the agent's authority, and his ignorance of that authority will not beany excuse. Persons dealing with an assumed agent, whether the assumed agencybe a general or special one, are bound at their peril, if they would hold the principal, toascertain not only the fact of the agency but also the nature and extent of theauthority, and in case either is controverted, the burden of proof is upon them toestablish it. 13

American jurisprudence 14 summarizes the rule in dealing with an agent

as follows: A third person dealing with a known agent may not act negligentlywith regard to the extent of the agent's authority or blindly trust theagent's statements in such respect. Rather, he must usereasonable diligence and prudence to ascertain whether the agentis acting and dealing with him within the scope of his powers. Themere opinion of an agent as to the extent of his powers, or his mereassumption of authority without foundation, will not bind theprincipal; and a third person dealing with a known agent must bearthe burden of determining for himself, by the exercise of reasonablediligence and prudence, the existence or nonexistence of theagent's authority to act in the premises. In other words, whether theagency is general or special, the third person is bound to ascertainnot only the fact of agency, but the nature and extent of theauthority. The principal, on the other hand, may act on thepresumption that third persons dealing with his agent will not benegligent in failing to ascertain the extent of his authority as well asthe existence of his agency.

Or, as stated in Harry E . Keller Electric Co. vs. Rodriguez , 15 quoting

Mechem on Agency :

The person dealing with the agent must also act with ordinaryprudence and reasonable diligence. Obviously, if he knows or has

Bacaltos because he prepared the Authorization has no leg to stand oninasmuch as there is no obscurity or ambiguity in the instrument. If any



p g y,good reason to believe that the agent is exceeding his authority, hecannot claim protection. So if the suggestions of probablelimitations be of such a clear and reasonable quality, or if thecharacter assumed by the agent is of such a suspicious orunreasonable nature, or if the authority which he seeks to exerciseis of such an unusual or improbable character, as would suffice toput an ordinarily prudent man upon his guard, the party dealing withhim may not shut his eyes to the real estate of the case, but shouldeither refuse to deal with the agent at all, or should ascertain fromthe principal the true condition of affairs. [emphasis supplied].

In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of hispowers must be determined on the basis thereof. The language of the Authorization isclear. It pertinently states as follows:I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use thecoal operating contract of BACALTOS COAL MINES, of which I am the proprietor, forany legitimate purpose that it may serve. Namely, but not by way of limitation, asfollows . . . [emphasis supplied].

There is only one express power granted to Savellon, viz., to use the coaloperating contract for anylegitimate purpose it may serve. The enumerated"five prerogatives" — to employ the term used by the Court of Appeals — are nothing but the specific prerogatives subsumed under or classified as

part of or as examples of the power to use the coal operating contract. Theclause "but not by way of limitation" which precedes the enumeration couldonly refer to or contemplate other prerogatives which must exclusivelypertain or relate or be germane to the power to use the coal operatingcontract. The conclusion then of the Court of Appeals that the Authorizationincludes the power to enter into the Trip Chapter Party because the "fiveprerogatives" are prefaced by such clause, is seriously flawed. It fails to notethat the broadest scope of Savellon's authority is limited to the use of thecoal operating contract and the clause cannot contemplate any other powernot included in the enumeration or which are unrelated either to the power touse the coal operating contract or to those already enumerated. In short,while the clause allows some room for flexibility, it can comprehend onlyadditional prerogatives falling within the primary power and within the sameclass as those enumerated. The trial court, however, went further by hastilymaking a sweeping conclusion that "a company such as a coal miningcompany is not prohibited to engage in entering into a Trip Charter Partycontract." 16 But what the trial court failed to consider was that there is noevidence at all that Bacaltos Coal Mines as a coal mining company ownsand operates vessels, and even if it owned any such vessels, that it wasallowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney . It is aspecial power ofattorney for it refers to a clear mandate specifically authorizing theperformance of a specific power and of express acts subsumed therein. 17

Inshort, both courts below unreasonably expanded the express terms of orotherwise gave unrestricted meaning to a clause which was preciselyintended to prevent unwarranted and unlimited expansion of the powersentrusted to Savellon. The suggestion of the Court of Appeals that there is

obscurity in the Authorization which must be construed against German

y g y yobscurity or ambiguity indeed existed, then there will be more reason toplace SMC on guard and for it to exercise due diligence in seekingclarification or enlightenment thereon, for that was part of its duty to discoverupon its peril the nature and extent of Savellon's written agency.Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trialcourt are tenuous and farfetched, bringing to unreasonable limits the clearparameters of the powers granted in the Authorization.Furthermore, had SMC exercised due diligence and prudence, it should have knownin no time that there is absolutely nothing on the face of the Authorization that confersupon Savellon the authority to enter into any Trip Charter Party. Its conclusion to thecontrary is based solely on the second prerogative under the Authorization, to wit:

(2) To engage in trading under the style of BACALTOS COALMINES/RENE SAVELLON;

unmindful that such is but a part of the primary authority to use the coaloperating contract which it did not even require Savellon to produce. Itsprincipal witness, Mr. Valdescona, expressly so admitted on cross-examination, thus:

Atty. Zosa (to witness — ON CROSS)Q You said that in your office Mr. Rene Savellonpresented to you this authorization markedExhibit "C" and Exhibit "1" for the defendant?

A Yes, sir.Q Did you read in the first part[y] of thisauthorization Mr. Valdescona that Mr. ReneSavellon was authorized as the coal operatingcontract of Bacaltos Coal Mines? A Yes, sir.Q Did it not occur to you that you should haveexamined further the authorization of Mr. ReneSavellon, whether or not this coal operatingcontract allows Mr. Savellon to enter into a tripcharter party? A Yes, sir. We discussed about the extent of hisauthorization and he referred us to the number 2provision of this authorization which is to engagein trading under the style of Bacaltos CoalMines/Rene Savellon, which we followed up tothe check preparation because it is part of theauthority.Q In other words, you examined this and youfound out that Mr. Savellon is authorized to usethe coal operating contract of Bacaltos CoalMines? A Yes, sir.Q You doubted his authority but you found out inparagraph 2 that he is authorized that's why youagreed and entered into that trip charter party?

A We did not doubt his authority but we werequestioning as to the extent of his operating

production sites and operations to inspectors authorized by theEnergy Development Board;



contract.Q Did you not require Mr. Savellon to producethat coal operating contract of Bacaltos CoalMines? A No sir. We did not. 18

Since the principal subject of the Authorization is the coal operating contract, SMCshould have required its presentation to determine what it is and how it may be usedby Savellon. Such a determination is indispensable to an inquiry into the extent orscope of his authority. For this reason, we now deem it necessary to examine thenature of a coal operating contract. A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of1976), as amended by P.D. No. 1174. It is one of the authorized ways of activeexploration, development, and production of coal resources 19in a specified contractarea. 20

Section 9 of the decree prescribes the obligation of the contractor, thus:Sec. 9. Obligations of Operator in Coal Operating Contract . — Theoperator under a coal operating contract shall undertake, manageand execute the coal operations which shall include:(a) The examination and investigation of lands supposed to containcoal, by detailed surface geologic mapping, core drilling, trenching,test pitting and other appropriate means, for the purpose of probingthe presence of coal deposits and the extent thereof;(b) Steps necessary to reach the coal deposit so that it can be

mined, including but not limited to shaft sinking and tunneling; and(c) The extraction and utilization of coal deposits.The Government shall oversee the management of the operationcontemplated in a coal operating contract and in this connection,shall require the operator to:(a) Provide all the necessary service and technology;(b) Provide the requisite financing;(c) Perform the work obligations and program prescribed in the coaloperating contract which shall not be less than those prescribed inthis Decree;(d) Operate the area on behalf of the Government in accordancewith good coal mining practices using modern methods appropriatefor the geological conditions of the area to enable maximumeconomic production of coal, avoiding hazards to life, health andproperty, avoiding pollution of air, lands and waters, and pursuantto an efficient and economic program of operation;(e) Furnish the Energy Development Board promptly with allinformation, data and reports which it may require;.(f) Maintain detailed technical records and account of itsexpenditures;(g) Conform to regulations regarding, among others, safetydemarcation of agreement acreage and work areas, non-interferencewith the rights of the other petroleum, mineral and naturalresources operators; — (h) Maintain all necessary equipment in good order and allowaccess to these as well as to the exploration, development and

(i) Allow representatives authorized by the Energy DevelopmentBoard full access to their accounts, books and records for tax andother fiscal purposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operatingcontract.From the foregoing, it is obvious that a scrutiny of the coal operating contract ofBacaltos Coal Mines would have provided SMC knowledge of the activities which aregermane, related, or incident to the power to use it. But it did not even requireSavellon to produce the same.SMC's negligence was further compounded by its failure to verify if Bacaltos CoalMines owned a vessel. A party desiring to charter a vessel must satisfy itself that theother party is the owner of the vessel or is at least entitled to its possession withpower to lease or charter the vessel. In the instant case, SMC made no such attempt.It merely satisfied itself with the claim of Savellon that the vessel it was leasing isowned by Bacaltos Coal Mines and relied on the presentation of the Authorization aswell as its test on the sea worthiness of the vessel. Valdescona thus declared ondirect examination as follows:

A In October, a certain Rene Savellon called ouroffice offering us shipping services. So I told himto give us a formal proposal and also for him tocome to our office so that we can go over hisproposal and formally discuss his offer.

Q Did Mr. Rene Savellon go to your office? A Few days later he came to our office and gaveus his proposal verbally offering a vessel for us touse for our cargo.Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos.Q Did he present a document to you? A Yes, sir. He presented to us the authorization.Q When Mr. Rene Savellon presented to you theauthorization what did you do?. A On the strength of that authorization we initiallyasked him for us to check the vessel to see itssea worthiness, and we assigned our in-housesurveyor to check the sea worthiness of thevessel which was on dry dock that time in Danao.Q What was the result of your inspection? A We found out the vessel's sea worthiness to beour cargo carrier.Q After that what did you do? A After that we were discussing the condition ofthe contract.Q Were you able to execute that contract? A Yes, sir . 21

He further declared as follows:Q When you entered into a trip charter contractdid you check the ownership of M/V Premship? A The representation made by Mr. Rene Savellon

was that Bacaltos Coal Mines operates the

vessel and on the strength of the authorization heshowed us we were made to believe that it was

in favor of the principal. SMC then made possible the wrong done. There is anequitable maxim that between two innocent parties, the one who made it possible for

28



Bacaltos Coal Mines that owned it.COURT: (to witness)Q In other words, you just believed ReneSavellon? A Yes, sir.COURT: (to witness)Q You did not check with Bacaltos Coal Mines? A That is the representation he made.Q Did he show you document regarding this M/VPremship II? A No document shown. 22

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, andsince it is clear therefrom that it is not engaged in shipping but in coal mining or incoal business, SMC should have required the presentation of pertinent documentaryproof of ownership of the vessel to be chartered. Its in-house surveyor who saw thevessel while drydocked in Danao and thereafter conducted a sea worthiness testcould not have failed to ascertain the registered owner of the vessel. The petitionersthemselves declared in open court that they have not leased any vessel for they donot need it in their coal operations 23

thereby implying that they do not even own one.The Court of Appeals' asseveration that there was no need to verify the ownership ofthe vessel because such ownership is warranted on the face of the trip charter partybegs the question since Savellon's authority to enter into that contract is the very

heart of the controversy.We are not prepared to accept SMC's contention that the petitioners' claim that theyare not engaged in shipping and do not own any ship is belied by the fact that theymaintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24

This paper is only a photocopy and, despite its reservation to present theoriginal for purposes of comparison at the nexthearing, 25

SMC failed to produce the latter. This "Notice of Readiness" is not,therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of theRules of Court. It is true that when SMC made a formal offer of its exhibits, thepetitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness,"under the best evidence rule but on the ground that Savellon was not authorized toenter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig,is not the petitioners' employee but of Premier Shipping Lines, the owner of the vesselin question. 26

The petitioners raised the issue of inadmissibility under the bestevidence rule only belatedly in this petition. But although Exhibit "A-1" remainsadmissible for not having been timely objected to, it has no probative value as to theownership of the vessel.There is likewise no proof that the petitioners received the consideration of the TripCharter Party. The petitioners denied having received it. 27

The evidence for SMCestablished beyond doubt that it was Savellon who requested in writing on 19 October1988 that the check in payment therefor be drawn in favor of BACALTOS COALMINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor ofRENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") anddelivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree withthe petitioners that SMC committed negligence in drawing the check in the manneraforestated. It even disregarded the request of Savellon that it be drawn in favor ofBACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the

transaction was permitted in the Authorization, the check should still have been drawn

the wrong to be done should be the one to bear the resulting loss. 28 For this rule to

apply, the condition precedent is that both parties must be innocent. In the presentcase, however, SMC is guilty of not ascertaining the extent and limits of the authorityof Savellon. In not doing so, SMC dealt with Savellon at its own peril.Having thus found that SMC was the author of its own damage and that thepetitioners are, therefore, free from any liability, it has become unnecessary todiscuss the issue of whether Bacaltos Coal Mines is a corporation with a personalitydistinct and separate from German Bacaltos.WHEREFORE, the instant petition is GRANTED and the challenged decision of 30September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is herebyREVERSED and SET ASIDE and another judgment is hereby rendered MODIFYINGthe judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R.SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of thecase as against herein petitioners.

[G.R. No. 123560. March 27, 2000] SPOUSES YU ENG CHO and FRANCISCO TAO YU, petit ioners , vs . PAN

[and] Tokyo-San Francisco (Exhs. I & J) in the total amount ofP2,602.00.



AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC.,JULIETA CANILAO and CLAUDIA TAGUNICAR, respondents .

D E C I S I O N PUNO, J .: This petition for review seeks a reversal of the 31 August 1995 Decision[1] and 11January 1998 Resolution[2] of the Court of Appeals holding private respondentClaudia Tagunicar solely liable for moral and exemplary damages and attorney‘sfees, and deleting the trial court‘s award for actual damages. The facts as found by the trial court are as follows: Kycalrâ

"Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In connection with [this] business, he travelsfrom time to time to Malaysia, Taipei and Hongkong. On July 10,1976, plaintiffs bought plane tickets (Exhs. A & B) from defendantClaudia Tagunicar who represented herself to be an agent ofdefendant Tourist World Services, Inc. (TWSI). The destination[s]are Hongkong, Tokyo, San Francisco, U.S.A., for the amount ofP25,000.00 per computation of said defendant Claudia Tagunicar(Exhs. C & C-1). The purpose of this t rip is to go to Fairfield, NewJersey, U.S.A. to buy two (2) lines of infrared heating systemprocessing textured plastic article (Exh. K)."On said date, only the passage from Manila to Hongkong, then toTokyo, were confirmed. [PAA] Flight 002 from Tokyo to San

Francisco was on "RQ" status, meaning "on request". Perinstruction of defendant Claudia Tagunicar, plaintiffs returned aftera few days for the confirmation of the Tokyo-San Franciscosegment of the trip. After calling up Canilao of TWSI, defendantTagunicar told plaintiffs that their flight is now confirmed all the way.Thereafter, she attached the confirmation stickers on the planetickets (Exhs. A & B)."A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the Pan Am office to verify the status of the flight. According to said Adrian Yu, a personnel of defendant Pan Am toldhim over the phone that plaintiffs‘ booking[s] are confirmed. "On July 23, 1978, plaintiffs left for Hongkong and stayed there forfive (5) days. They left Hongkong for Tokyo on July 28, 1978. Upontheir arrival in Tokyo, they called up Pan-Am office forreconfirmation of their flight to San Francisco. Said office, however,informed them that their names are not in the manifest. Sinceplaintiffs were supposed to leave on the 29th of July, 1978, andcould not remain in Japan for more than 72 hours, they wereconstrained to agree to accept airline tickets for Taipei instead, peradvise of JAL officials. This is the only option left to them becauseNorthwest Airlines was then on strike, hence, there was no chancefor the plaintiffs to obtain airline seats to the United States within 72hours. Plaintiffs paid for these tickets."Upon reaching Taipei, there were no flight[s] available for plaintiffs,thus, they were forced to return back to Manila on August 3, 1978,instead of proceeding to the United States. [Japan] Air Lines (JAL)refunded the plaintiffs the difference of the price for Tokyo-Taipei

"In view of their failure to reach Fairfield, New Jersey, Radiant HeatEnterprises, Inc. cancelled Yu Eng Cho‘s option to buy the two linesof infra-red heating system (Exh. K). The agreement was for him toinspect the equipment and make final arrangement[s] with the saidcompany not later than August 7, 1978. From this businesstransaction, plaintiff Yu Eng Cho expected to realize a profit ofP300,000.00 to P400,000.00.""[A] scrutiny of defendants‘ respective evidence reveals thefollowing:"Plaintiffs, who were intending to go to the United States, werereferred to defendant Claudia Tagunicar, an independent travelsolicitor, for the purchase of their plane tickets. As such travelsolicitor, she helps in the processing of travel papers like passport,plane tickets, booking of passengers and some assistance at theairport. She is known to defendants Pan-Am, TWSI/Julieta Canilao,because she has been dealing with them in the past years.Defendant Tagunicar advised plaintiffs to take Pan-Am becauseNorthwest Airlines was then on strike and plaintiffs are passingHongkong, Tokyo, then San Francisco and Pan-Am has a flightfrom Tokyo to San Francisco. After verifying from defendant TWSI,thru Julieta Canilao, she informed plaintiffs that the fare would beP25,093.93 giving them a discount of P738.95 (Exhs. C, C-1).

Plaintiffs, however, gave her a check in the amount of P25,000.00only for the two round trip tickets. Out of this transaction, Tagunicarreceived a 7% commission and 1% commission for defendantTWSI.Defendant Claudia Tagunicar purchased the two round-trip Pan-Amtickets from defendant Julieta Canilao with the following schedules:Origin Destination Airline Date Time/TravelManila Hongkong CX900 7-23-78 1135/1325hrsHongkong Tokyo CS500 7-28-78 1615/2115hrsTokyo San Francisco PA002 7-29-78 1930/1640hrsThe use of another airline, like in this case it is Cathay Pacific out ofManila, is allowed, although the tickets issued are Pan-Am tickets,as long as it is in connection with a Pan-Am flight. When the two (2)tickets (Exhs. A & B) were issued to plaintiffs, the letter "RQ"appears below the printed word "status" for the flights from Tokyoto San Francisco which means "under request," (Exh. 3-A, 4-APan-Am). Before the date of the scheduled departure, defendantTagunicar received several calls from the plaintiffs inquiring aboutthe status of their bookings. Tagunicar in turn called upTWSI/Canilao to verify; and if Canilao would answer that thebookings are not yet confirmed, she would relate that to theplaintiffs. CalrkyÓ"Defendant Tagunicar claims that on July 13, 1978, a few daysbefore the scheduled flight, plaintiff Yu Eng Cho personally went toher office, pressing her about their flight. She called up defendantJulieta Canilao, and the latter told her "o sige Claudia, confirm na."She even noted this in her index card (Exh. L), that it was Julieta

who confirmed the booking (Exh. L-1). It was then that she

allegedly attached the confirmation stickers (Exhs. 2, 2-B TWSI) tothe tickets. These stickers came from TWSI.D f d t T i ll th t it l i th fi t k f

"PREMISES CONSIDERED, the decision of the Regional TrialCourt is hereby SET ASIDE and a new one entered declaring

ll t T i l l li bl f

http://sc.judiciary.gov.ph/jurisprudence/2000/mar2000/123560.html#_ftn1









Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she learned from Adrian Yu, son of plaintiffs, thatthe latter were not able to take the flight from Tokyo to SanFrancisco, U.S.A. After a few days, said Adrian Yu came over witha gentleman and a lady, who turned out to be a lawyer and hissecretary. Defendant Tagunicar claims that plaintiffs were askingfor her help so that they could file an action against Pan-Am.Because of plaintiffs‘ promise she will not be involved, she agreedto sign the affidavit (Exh. M) prepared by the lawyer. Mesmä

Defendants TWSI/Canilao denied having confirmed the Tokyo-SanFrancisco segment of plaintiffs‘ flight because flights then werereally tight because of the on-going strike at Northwest Airlines.Defendant Claudia Tagunicar is very much aware that [said]particular segment was not confirmed, because on the very day ofplaintiffs‘ departure, Tagunicar called up TWSI from the airport;defendant Canilao asked her why she attached stickers on thetickets when in fact that portion of the flight was not yet confirmed.Neither TWSI nor Pan-Am confirmed the flight and neverauthorized defendant Tagunicar to attach the confirmation stickers.In fact, the confirmation stickers used by defendant Tagunicar arestickers exclusively for use of Pan-Am only. Furthermore, if it is thetravel agency that confirms the booking, the IATA number of said

agency should appear on the validation or confirmation stickers.The IATA number that appears on the stickers attached to plaintiffs‘tickets (Exhs. A & B) is 2-82-0770 (Exhs. 1, 1-A TWSI), when infact TWSI‘s IATA number is 2 -83-0770 (Exhs. 5, 5-A TWSI)."[3]

A complaint for damages was filed by petitioners against private respondents Pan American World Airways, Inc.(Pan Am), Tourist World Services, Inc. (TWSI), JulietaCanilao (Canilao), and Claudia Tagunicar (Tagunicar) for expenses allegedly incurredsuch as costs of tickets and hotel accommodations when petitioners were compelledto stay in Hongkong and then in Tokyo by reason of the non-confirmation of theirbooking with Pan-Am. In a Decision dated November 14, 1991, the Regional TrialCourt of Manila, Branch 3, held the defendants jointly and severally liable, exceptdefendant Julieta Canilao, thus: ScslxÓ

"WHEREFORE, judgment is hereby rendered for the plaintiffs andordering defendants Pan American World Airways, Inc., TouristWorld Services, Inc. and Claudia Tagunicar, jointly and severally, topay plaintiffs the sum of P200,000.00 as actual damages, minusP2,602.00 already refunded to the plaintiffs; P200,000.00 as moraldamages; P100,000.00 as exemplary damages; an amountequivalent to 20% of the award for and as attorney‘s fees, plus thesum of P30,000.00 as litigation expenses.Defendants‘ counterclaims are hereby dismissed for lack of merit. SO ORDERED."

Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the appellate court rendered judgment modifying the amount ofdamages awarded, holding private respondent Tagunicar solely liable therefor, andabsolving respondents Pan Am and TWSI from any and all liability, thus: Slxsä c

appellant Tagunicar solely liable for:1) Moral damages in the amount of P50,000.00;2) Exemplary damages in the amount of P25,000.00; and3) Attorney‘s fees in the amount of P10,000.00 plus costs of suit. The award of actual damages is hereby DELETED.SO ORDERED."

In so ruling, respondent court found that Tagunicar is an independent travel solicitorand is not a duly authorized agent or representative of either Pan Am or TWSI. It heldthat their business transactions are not sufficient to consider Pan Am as the principal,

and Tagunicar and TWSI as its agent and sub-agent, respectively. It further held thatTagunicar was not authorized to confirm the bookings of, nor issue validation stickersto, herein petitioners and hence, Pan Am and TWSI cannot be held responsible forher actions. Finally, it deleted the award for actual damages for lack of proof.Hence this petition based on the following assignment of errors: slxä mis

1. the Court of Appeals, in reversing the decision of the trial court,misapplied the ruling in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127]; and2. the findings of the Court of Appeals that petitioners‘ ticketreservations in question were not confirmed and that there is noagency relationship among PAN-AM, TWSI and Tagunicar arecontrary to the judicial admissions of PAN-AM, TWSI andTagunicar and likewise contrary to the findings of fact of the trial

court.We affirm.I. The fi rst issue deserves scant consideration. Petitioners contend that contrary tothe ruling of the Court of Appeals, the decision of the trial court conforms to thestandards of an ideal decision set in Nicos Industrial Corporation, et. al. vs. Court of Appeals, et. al.,

[4] as "that which, with welcome economy of words, arrives at thefactual findings, reaches the legal conclusions, renders its ruling and, having done so,ends." It is averred that the trial court‘s decision contains a detailed statement of therelevant facts and evidence adduced by the parties which thereafter became thebases for the court‘s conclusions. A careful scrutiny of the decision rendered by the trial court will show that afternarrating the evidence of the parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit: Missdaa

"On the basis of the foregoing facts, the Court is constrained toconclude that defendant Pan-Am is the principal, and defendantsTWSI and Tagunicar, its authorized agent and sub-agent,respectively. Consequently, defendants Pan-Am, TWSI andClaudia Tagunicar should be held jointly and severally liable toplaintiffs for damages. Defendant Julieta Canilao, who acted in herofficial capacity as Office Manager of defendant TWSI should notbe held personally liable."[5]

The trial court‘s finding of facts is but a summary of the testimonies of the witnessesand the documentary evidence presented by the parties. It did not distinctly andclearly set forth, nor substantiate, the factual and legal bases for holding respondentsTWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo vs. CA, etal .

[6] where the trial court, after summarizing the conflicting asseverations of the

parties, disposed of the kernel issue in just two (2) paragraphs, we held: SdaÓ adsc

"It is understandable that courts, with their heavy dockets and timeconstraints, often find themselves with little to spare in the

ti f d i i t th t t t d i bl W h th

propounded to her by Atty. Acebedo.[13] They never told her that the affidavit would beused in a case to be filed against her .[14] They even assured her that she would not bei l d d d f d t if h d t t th ffid it [15] R d t T i































preparation of decisions to the extent most desirable. We have thuspointed out that judges might learn to synthesize and to simplifytheir pronouncements. Nevertheless, concisely written such as theymay be, decisions must still distinctly and clearly express, at leastin minimum essence, its factual and legal bases."

For failing to explain clearly and well the factual and legal bases of its award of moraldamages, we set it aside in said case. Once more, we stress that nothing less thanSection 14 of Article VIII of the Constitution requires that "no decision shall berendered by any court without expressing therein clearly and distinctly the facts and

the law on which it is based." This is demanded by the due process clause of theConstitution. In the case at bar, the decision of the trial court leaves much to bedesired both in form and substance. Even while said decision infringes theConstitution, we will not belabor this infirmity and rather examine the sufficiency of theevidence submitted by the petitioners. RtcÓ sppedII. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a dulyauthorized ticketing agent of Pan Am. Proceeding from this premise, they contendthat TWSI and Pan Am should be held liable as principals for the acts of Tagunicar.Petitioners stubbornly insist that the existence of the agency relationship has beenestablished by the judicial admissions allegedly made by respondents herein, to wit:(1) the admission made by Pan Am in its Answer that TWSI is its authorized ticketagent; (2) the affidavit executed by Tagunicar where she admitted that she is a dulyauthorized agent of TWSI; and (3) the admission made by Canilao that TWSI

received commissions from ticket sales made by Tagunicar. KorteäWe do not agree. By the contract of agency, a person binds himself to render someservice or to do something in representation or on behalf of another, with the consentor authority of the latter .[7] The elements of agency are: (1) consent, express orimplied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and notfor himself; (4) the agent acts within the scope of his authority.[8] It is a settled rule thatpersons dealing with an assumed agent are bound at their peril, i f they would hold theprincipal liable, to ascertain not only the fact of agency but also the nature and extentof authority, and in case either is controverted, the burden of proof is upon them toestablish it.[9] In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where shestated that she is an authorized agent of TWSI. This affidavit, however, has weakprobative value in light of respondent Tagunicar‘s testimony in court to the contrary.

Affidavits, being taken ex parte, are almost always incomplete and often inaccurate,sometimes from partial suggestion, or for want of suggestion and inquiries. Theirinfirmity as a species of evidence is a matter of judicial experience and are thusconsidered inferior to the testimony given in court.[10] Further, affidavits are notcomplete reproductions of what the declarant has in mind because they are generallyprepared by the administering officer and the affiant simply signs them after the samehave been read to her .[11] Respondent Tagunicar testified that her affidavit wasprepared and typewritten by the secretary of petitioners‘ lawyer, Atty. Acebedo, whoboth came with Adrian Yu, son of petitioners, when the latter went to see her at heroffice. This was confirmed by Adrian Yu who testified that Atty. Acebedo brought hisnotarial seal and notarized the affidavit of the same day.[12] The circumstances underwhich said affidavit was prepared put in doubt petitioners‘ claim that it was executedvoluntarily by respondent Tagunicar. It appears that the affidavit was prepared and

was based on the answers which respondent Tagunicar gave to the questions

included as defendant if she agreed to execute the affidavit.[15] Respondent Tagunicarwas prevailed upon by petitioners‘ son and their lawyer to sign the affidavit despiteher objection to the statement therein that she was an agent of TWSI. They assuredher that "it is immaterial"[16] and that "if we file a suit against you we cannot getanything from you."[17] This purported admission of respondent Tagunicar cannot beused by petitioners to prove their agency relationship. At any rate, even if suchaffidavit is to be given any probative value, the existence of the agency relationshipcannot be established on its sole basis. The declarations of the agent alone aregenerally insufficient to establish the fact or extent of his authority.[18] In addition, as

between the negative allegation of respondents Canilao and Tagunicar that neither isan agent nor principal of the other, and the affirmative allegation of petitioners that anagency relationship exists, it is the latter who have the burden of evidence to provetheir allegation,[19] failing in which, their claim must necessarily fail. SclawäWe stress that respondent Tagunicar categorically denied in open court that she is aduly authorized agent of TWSI, and declared that she is an independent travelagent.[20] We have consistently ruled that in case of conflict between statements in theaffidavit and testimonial declarations, the latter command greater weight.[21] As further proofs of agency, petitioners call our attention to TWSI‘s Exhibits "7", "7-A",and "8" which show that Tagunicar and TWSI received sales commissions from Pan Am. Exhibit "7"[22] is the Ticket Sales Report submitted by TWSI to Pan Am reflectingthe commissions received by TWSI as an agent of Pan Am. Exhibit "7-A"[23] is a listingof the routes taken by passengers who were audited to TWSI‘s sales report. Exhibit

"8"[24]

is a receipt issued by TWSI covering the payment made by Tagunicar for thetickets she bought from TWSI. These documents cannot justify the deduction thatTagunicar was paid a commission either by TWSI or Pan Am. On the contrary,Tagunicar testified that when she pays TWSI, she already deducts in advance hercommission and merely gives the net amount to TWSI.[25] From all sides of the legalprism, the transaction is simply a contract of sale wherein Tagunicar buys airlinetickets from TWSI and then sells it at a premium to her clients. ScÓ lexIII. Petitioners included respondent Pan Am in the complaint on the supposition thatsince TWSI is its duly authorized agent, and respondent Tagunicar is an agent ofTWSI, then Pan Am should also be held responsible for the acts of respondentTagunicar. Our disquisitions above show that this contention lacks factual and legalbases. Indeed, there is nothing in the records to show that respondent Tagunicar hasbeen employed by Pan Am as its agent, except the bare allegation of petitioners. Thereal motive of petitioners in suing Pan Am appears in its Amended Complaint that"[d]efendants TWSI, Canilao and Tagunicar may not be financially capable of payingplaintiffs the amounts herein sought to be recovered, and in such event, defendantPan Am, being their ultimate principal, is primarily and/or subsidiarily liable to pay saidamounts to plaintiffs."[26] This lends credence to respondent Tagunicar‘s testimonythat she was persuaded to execute an affidavit implicating respondents becausepetitioners knew they would not be able to get anything of value from her. In the past,we have warned that this Court will not tolerate an abuse of the judicial process bypassengers in order to pry on international airlines for damage awards, like "trophiesin a safari."[27] This meritless suit against Pan Am becomes more glaring with petitioners‘ inactionafter they were bumped off in Tokyo. If petitioners were of the honest belief that Pan Am was responsible for the misfortune which beset them, there is no evidence toshow that they lodged a protest with Pan Am‘s Tokyo office immediately after they

were refused passage for the flight to San Francisco, or even upon their arrival inManila. The testimony of petitioner Yu Eng Cho in this regard is of li ttle value, viz .:

"Atty Jalandoni: x x x

letter sent to respondent Pan Am. To say the least, the motive of petitioners in suingPan Am is suspect. xä lawWe hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners















































































"Atty. Jalandoni: x x xq Upon arrival at the Tokyo airport, what did you do if any inconnection with your schedule[d] trip?a I went to the Hotel, Holiday Inn and f rom there I immediatelycalled up Pan Am office in Tokyo to reconfirm my flight, but theytold me that our names were not listed in the manifest, so nextmorning, very early in the morning I went to the airport, Pan Amoffice in the airport to verify and they told me the same and wewere not allowed to leave.

q You were scheduled to be in Tokyo for how long Mr. Yu?a We have to leave the next day 29th.q In other words, what was your status as a passenger?a Transient passengers. We cannot stay there for more than 72hours.

x x x x x x x x xq As a consequence of the fact that you claimed that the Pan Amoffice in Tokyo told you that your names were not in the manifest,what did you do, if any?a I ask[ed] them if I can go anywhere in the States? They told me Ican go to LA via Japan Airlines and I accepted it.q Do you have the tickets with you that they issued for Los Angeles?

a It was taken by the Japanese Airlines instead they issue[d] me aticket to Taipei.x x x x x x x x x

q Were you able to take the trip to Los Angeles via Pan Am ticketsthat was issued to you in lieu of the tickets to San Francisco?a No, sir.q Why not?a The Japanese Airlines said that there were no more availableseats.q And as a consequence of that, what did you do, if any?a I am so much scared and worried, so the Japanese Airlinesadvised us to go to Taipei and I accepted it.

x x x x x x x x xq Why did you accept the Japan Airlines offer for you to go toTaipei?a Because there is no chance for us to go to the United Stateswithin 72 hours because during that time Northwest Airlines [was]on strike so the seats are very scarce. So they advised me betterleft (sic) before the 72 hours otherwise you will have trouble withthe Japanese immigration.q As a consequence of that you were force[d] to take the trip toTaipei?a Yes, sir."[28] (emphasis supplied)

It grinds against the grain of human experience that petitioners did not insist that theybe allowed to board, considering that it was then doubly difficult to get seats becauseof the ongoing Northwest Airlines strike. It is also perplexing that petitioners readilyaccepted whatever the Tokyo office had to offer as an alternative. Inexplicably too, no

demand letter was sent to respondents TWSI and Canilao.[29]

Nor was a demand

We hasten to add that it is not sufficient to prove that Pan Am did not allow petitionersto board to justify petitioners‘ claim for damages. Mere refusal to accede to thepassenger‘s wishes does not necessarily translate into damages in the absence ofbad faith.[30] The settled rule is that the law presumes good faith such that any personwho seeks to be awarded damages due to acts of another has the burden of provingthat the latter acted in bad faith or with ill motive.[31] In the case at bar, we find theevidence presented by petitioners insufficient to overcome the presumption of goodfaith. They have failed to show any wanton, malevolent or reckless misconductimputable to respondent Pan Am in its refusal to accommodate petitioners in its

Tokyo-San Francisco flight. Pan Am could not have acted in bad faith becausepetitioners did not have confirmed tickets and more importantly, they were not in thepassenger manifest. ScäIn not a few cases, this Court did not hesitable to hold an airline liable for damages forhaving acted in bad faith in refusing to accommodate a passenger who had aconfirmed ticket and whose name appeared in the passenger manifest. In Ortigas Jr.v. Lufthansa German Airlines Inc .

[32] we ruled that there was a valid and binding

contract between the airline and its passenger after finding that validating sticker onthe passenger‘s ticket had the letters "O.K." appearing in the ‗Res. Status‘ box whichmeans "space confirmed" and that the ticket is confirmed or validated. In Pan American World Airways Inc. v. IAC, et al .

[33] where a would-be-passenger had thenecessary ticket, baggage claim and clearance from immigration all clearly showingthat she was a confirmed passenger and included in the passenger manifest and yet

was denied accommodation in said flight, we awarded damages. In Armovit, et al. v.CA, et al.,

[34] we upheld the award of damages made against an ai rline for grossnegligence committed in the issuance of tickets with erroneous entries as to the timeof flight. In Alitalia Airways v. CA, et al .,[35] we held that when airline issues a ticket toa passenger confirmed on a particular flight, on a certain date, a contract of carriagearises, and the passenger has every right to expect that he would fly on that flight andon that date. If he does not, then the carrier opens itself to a suit for breach ofcontract of carriage. And finally, an award of damages was held proper in the caseof Zalamea, et al. v. CA, et al.,

[36] where a confirmed passenger included in the

manifest was denied accommodation in such flight.ScmisÓOn the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co.,Ltd.,

[37] was held not liable for damages where the passenger was not allowed to

board the plane because his ticket had not been confirmed. We ruled that "[t ]he stubthat the lady employee put on the petitioner‘s ticket showed among other coded

items, under the column "status" the letters "RQ" – which was understood to mean"Request." Clearly, this does not mean a confirmation but only a request. JAL TrafficSupervisor explained that it would have been different if what was written on the stubwere the letter "ok" in which case the petitioner would have been assured of a seat onsaid flight. But in this case, the petitioner was more of a wait-listed passenger than aregularly booked passenger." MisÓ scIn the case at bar, petitioners‘ ticket were on "RQ" status. They were not confirmedpassengers and their names were not listed in the passenger manifest. In otherwords, this is not a case where Pan Am bound itself to transport petitioners andthereafter reneged on its obligation. Hence, respondent airline cannot be held liablefor damages. MisÓ sppedIV. We hold that respondent Court of Appeals correctly ruled that the tickets werenever confirmed for good reasons: (1) The persistent calls made by respondent

Tagunicar to Canilao, and those made by petitioners at the Manila, Hongkong and

Tokyo offices of Pan Am, are eloquent indications that petitioners knew that theirtickets have not been confirmed. For, as correctly observed by Pan Am, why wouldone continually try to have one‘s t icket confirmed if it had already been confirmed? (2)











































one continually try to have one s t icket confirmed if it had already been confirmed? (2)The validation stickers which respondent Tagunicar attached to petitioners‘ ticketswere those intended for the exclusive use of airline companies. She had no authorityto use them. Hence, said validation stickers, wherein the word "OK" appears in thestatus box, are not valid and binding. (3) The names of petitioners do not appear inthe passenger manifest. (4) Respondent Tagunicar‘s "Exhibit 1"[38] shows that thestatus of the San Francisco-New York segment was "Ok", meaning it was confirmed,but that the status of the Tokyo-San Francisco segment was still "on request". (5)Respondent Canilao testified that on the day that petitioners were to depart for

Hongkong, respondent Tagunicar called her from the airport asking for confirmation ofthe Tokyo-San Francisco flight, and that when she told respondent Tagunicar that sheshould not have allowed petitioners to leave because their tickets have not beenconfirmed, respondent Tagunicar merely said "Bahala na."[39] This was nevercontroverted nor refuted by respondent Tagunicar. (6) To prove that it really did notconfirm the bookings of petitioners, respondent Canilao pointed out that the validationstickers which respondent Tagunicar attached to the tickets of petitioners had IATANo. 2-82-0770 stamped on it, whereas the IATA number of TWSI is 28-30770.[40] Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith inmisrepresenting to petitioners that their tickets have been confirmed. Her culpability,however, was properly mitigated. Petitioner Yu Eng Cho testified that he repeatedlytried to follow up on the confirmation of their tickets with Pan Am because he doubtedthe confirmation made by respondent Tagunicar .[41] This is clear proof that petitioners

knew that they might be bumped off at Tokyo when they decided to proceed with thetrip. Aware of this risk, petitioners exerted efforts to confirm their tickets in Manila,then in Hongkong, and finally in Tokyo. Resultantly, we find the modification as to theamount of damages awarded just and equitable under the circumstances. SppedâWHEREFORE, the decision appealed from is hereby AFFIRMED. Cost againstpetitioners. Joä sppedSO ORDERED.

[G.R. No. 148116. April 14, 2004]ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR.,petit ioners, vs . MARY

ANN GRACE FERNANDEZ HEIRS OF PAZ TICZON ELEOSIDA

the subject properties to them within fifteen days from receipt of the said letter;otherwise, they would have no option but to protect their interest through legal means.

Upon receipt of the above letter respondent Fernandez wrote the petitioners



















ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA,represented by GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B.TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETATICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINICTICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANEDOES, respondents .

D E C I S I O NCALLEJO, SR., J .:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals

in CA-G.R. CV No. 64940, which reversed and set aside the June 23, 1999Decision[2] of the Regional Trial Court of Pasig City, Branch 68, in Civil Case No.65629, as well as its Resolution dated April 30, 2001 denying the petitioners‘ motionfor reconsideration of the aforesaid decision.

The heirs of Domingo B. Ticzon[3] are the owners of a parcel of land locatedin San Pablo City, covered by Transfer Certificate of Title (TCT) No. T-36766 of theRegister of Deeds of San Pablo City.[4] On the other hand, the heirs of Paz TiczonEleosida, represented by Gregorio T. Eleosida, are the owners of a parcel of landlocated in San Pablo City, covered by TCT No. 36754, also of the Register of Deedsof San Pablo City.[5]

The Case for the Petitioners Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who

worked as brokers, offered to sell to the petitioners, Antonio K. Litonjua and Aurelio K.

Litonjua, Jr., the parcels of land covered by TCT Nos. 36754 and 36766. Thepetitioners were shown a locator plan and copies of the titles showing that the ownersof the properties were represented by Mary Mediatrix Fernandez and Gregorio T.Eleosida, respectively. The brokers told the petitioners that they were authorized byrespondent Fernandez to offer the property for sale. The petitioners, thereafter, madetwo ocular inspections of the property, in the course of which they saw some peoplegathering coconuts.

In the afternoon of November 27, 1995, the petitioners met with respondentFernandez and the two brokers at the petitioners‘ office in Mandaluyong City.[6] Thepetitioners and respondent Fernandez agreed that the petitioners would buy theproperty consisting of 36,742 square meters, for the price of P150 per square meter,or the total sum of P5,098,500. They also agreed that the owners would shoulder thecapital gains tax, transfer tax and the expenses for the documentation of thesale. The petitioners and respondent Fernandez also agreed to meet on December8, 1995 to finalize the sale. It was also agreed upon that on the said date, respondentFernandez would present a special power of attorney executed by the owners of theproperty, authorizing her to sell the property for and in their behalf, and to execute adeed of absolute sale thereon. The petitioners would also remit the purchase price tothe owners, through respondent Fernandez. However, only Agapito Fisico attendedthe meeting. He informed the petitioners that respondent Fernandez wasencountering some problems with the tenants and was trying to work out a settlementwith them.[7] After a few weeks of waiting, the petitioners wrote respondent FernandezonJanuary 5, 1995, demanding that their transaction be finalized by January 30,1996.[8]

When the petitioners received no response from respondent Fernandez, thepetitioners sent her another Letter [9] dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be executed in accordance with their verbal

agreement dated November 27, 1995. The petitioners also demanded the turnover of

Upon receipt of the above letter, respondent Fernandez wrote the petitionerson February 14, 1996[10] and clarified her stand on the matter in this wise:1) It is not true I agreed to shoulder registration fees and other miscellaneousexpenses, etc. I do not recall we ever discussed about them. Nonetheless, I madean assurance at that time that there was no l iens/encumbrances and tenants on myproperty (TCT – 36755).2) It is not true that we agreed to meet on December 8, 1995 in order to sign theDeed of Absolute Sale. The truth of the matter is that you were the one whoemphatically stated that you would prepare a Contract to Sell and requested us to

come back first week of December as you would be leaving the country then. In fact,what you were demanding from us was to apprise you of the status of the property,whether we would be able to ascertain that there are really no tenants. Ms. Alimarioand I left your office, but we did not assure you that we would be back on the firstweek of December.Unfortunately, some people suddenly appeared and claiming to be ―tenants‖ for theentire properties (including those belonging to my other relatives.) Another thing, theBarangay Captain now refuses to give a certification that our properties are nottenanted.Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that dueto the appearance of ―alleged tenants‖ who are demanding for a one-hectare share,my cousin and I have thereby changed our mind and that the sale will no longer pushthrough. I specifically instructed her to inform you thru your broker that we will not be

attending the meeting to be held sometime first week of December.In view thereof, I regret to formally inform you now that we are no longer selling theproperty until all problems are fully settled. We have not demanded and receivedfrom you any earnest money, thereby, no obligations exist. In the meantime, we hopethat in the future we will eventually be able to transact business since we still haveother properties in San Pablo City.[11]

Appended thereto was a copy of respondent Fernandez‘ letter to the petitionersdated January 16, 1996, in response to the latter‘s January 5, 1996 letter .[12]

On April 12, 1996, the petitioners filed the instant Complaint for specificperformance with damages[13] against respondent Fernandez and the registeredowners of the property. In their complaint, the petitioners alleged, inter alia, thefollowing:4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels ofland covered by Transfer Certificates of Title Nos. 36766 and 36754 measuring a totalof 36,742 square meters in Barrio Concepcion, San Pablo City. … After a briefnegotiation, defendants committed and specifically agreed to sell to plaintiffs 33,990square meters of the two (2) aforementioned parcels of land atP150.00 per squaremeter.5. The parties also unequivocally agreed to the following:(a) The transfer tax and all the other fees and expenses for the titling of thesubject property in plaintiffs‘ names would be for defendants‘ account. (b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for theaforementioned 33,990 square meters of land in plaintiffs‘ office on 8 December1995.6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of landwere free from all liens and encumbrances and that no squatters or tenants occupiedthem.

7. Plaintiffs, true to their word, and relying in good faith on the commitment ofdefendants, pursued the purchase of the subject parcels of lands. On 5 January1996 plaintiffs sent a letter of even date to defendants setting the date of sale and

sell was unenforceable for failure to comply with the statute of frauds. She alsomaintained that even assuming arguendo that she had, indeed, made a commitmentor promise to sell the property to the petitioners the same was not binding upon her

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1996, plaintiffs sent a letter of even date to defendants, … setting the date of sale andpayment on 30 January 1996.7.1 Defendants received the letter on 12 January 1996 but did not reply to it.8. On 1 February 1996, plaintiffs again sent a letter of even date to defendantsdemanding execution of the Deed of Sale.8.1 Defendants received the same on 6 February 1996. Again, there was noreply. Defendants thus reneged on their commitment a second time.9. On 14 February 1996, defendant Fernandez sent a written communication ofthe same date to plaintiffs enclosing therein a copy of her 16 January 1996 letter to

plaintiffs which plaintiffs never received before. Defendant Fernandez stated in her16 January 1996 letter that despite the meeting of minds among the parties over the33,990 square meters of land for P150.00 per square meter on 27 November 1995,defendants suddenly had a change of heart and no longer wished to sell thesame. Paragraph 6 thereof unquestionably shows defendants‘ previous agreementas above-mentioned and their unjustified breach of their obligations under i t. … 10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfectedcontract to sell. … 11. Plaintiffs intended to use the subject property for their subdivision project tosupport plaintiffs‘ quarry operations, processing of aggregate products andmanufacture of construction materials. Consequently, by reason of defendants‘ failureto honor their just obligations, plaintiffs suffered, and continue to suffer, actualdamages, consisting in unrealized profits and cost of money, in the amount of at

least P5 Million.12. Plaintiffs also suffered sleepless nights and mental anxiety on account ofdefendants‘ fraudulent actuations for which reason defendants are liable to plaintiffsfor moral damages in the amount of at leastP1.5 Million.13. By reason of defendants‘ above-described fraudulent actuations, plaintiffs,despite their willingness and ability to pay the agreed purchase price, have to datebeen unable to take delivery of the title to the subject property. Defendants acted in awanton, fraudulent and malevolent manner in violating the contract to sell. By way ofexample or correction for the public good, defendants are liable to plaintiff forexemplary damages in the amount of P500,000.00.14. Defendants‘ bad faith and refusal to honor their just obligations to plaintiffsconstrained the latter to litigate and to engage the services of undersigned counsel fora fee in the amount of at leastP250,000.00.[14]

The petitioners prayed that, after due hearing, judgment be rendered in theirfavor ordering the respondents to – (a) Secure at defendants‘ expense all clearances from the appropriate governmentagencies that will enable defendants to comply with their obligations under theContract to Sell;(b) Execute a Contract to Sell with terms agreed upon by the parties;(c) Solidarily pay the plaintiffs the following amounts:1. P5,000,000.00 in actual damages;2. P1,500,000.00 in moral damages;3. P500,000.00 in exemplary damages;4. P250,000.00 in attorney‘s fees.[15]

On July 5, 1996, respondent Fernandez filed her Answer to thecomplaint.[16] She claimed that while the petitioners offered to buy the property duringthe meeting of November 27, 1995, she did not accept the offer; thus, no verbal

contract to sell was ever perfected. She specifically alleged that the said contract to

or promise to sell the property to the petitioners, the same was not binding upon herin the absence of any consideration distinct and separate from the price. She, thus,prayed that judgment be rendered as follows:1. Dismissing the Complaint, with costs against the plaintiffs;

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moraldamages in the amount of not less than P2,000,000.00 andexemplary damages in the amount of not less thanP500,000.00and attorney‘s fees and reimbursement expenses of litigation in theamount of P300,000.00.[17]

On September 24, 1997, the trial court, upon motion of the petitioners, declaredthe other respondents in default for failure to file their responsive pleading within thereglementary period.[18] At the pre-trial conference held on March 2, 1998, the partiesagreed that the following issues were to be resolved by the trial court: (1) whether ornot there was a perfected contract to sell; (2) in the event that there was, indeed, aperfected contract to sell, whether or not the respondents breached the said contractto sell; and (3) the corollary issue of damages.[19]

Respondent Fernandez testified that she requested Lourdes Alimario to look fora buyer of the properties in San Pablo City ―on a best offer basis.‖ She was laterinformed by Alimario that the petitioners were interested to buy the properties. OnNovember 27, 1995, along with Alimario and another person, she met with thepetitioners in the latter‘s office and told them that she was at the conference merely tohear their offer, that she could not bind the owners of the properties as she had no

written authority to sell the same. The petitioners offered to buy the property at P150per square meter. After the meeting, respondent Fernandez requested Joy Marquezto secure a barangay clearance stating that the property was free of anytenants. She was surprised to learn that the clearance could not be secured. Shecontacted a cousin of hers, also one of the owners of the property, and informed himthat there was a prospective buyer of the property but that there were tenantsthereon. Her cousin told her that he was not selling his share of the property and thathe was not agreeable to the price of P150 per square meter. She no longer informedthe other owners of the petitioners‘ offer. Respondent Fernandez then asked Alimarioto apprise the petitioners of the foregoing developments, through their agent, AgapitoFisico. She was surprised to receive a letter from the petitioners dated January 5,1996. Nonetheless, she informed the petitioners that she had changed her mind inpursuing the negotiations in a Letter dated January 18, 1996. When she receivedpetitioners‘ February 1, 1996 Letter, she sent a Reply-Letter dated February 14, 1996.

After trial on the merits, the trial court rendered judgment in favor of thepetitioners on June 23, 1999,[20] the dispositive portion of which reads:WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favorof plaintiffs ANTONIO K. LITONJUA and AURELIO K. LITONJUA and againstdefendants MARY MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZONELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANEDOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T.BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES andJANE DOES, ordering defendants to:

1. execute a Contract of Sale and/or Absolute Deed of Salewith the terms agreed upon by the parties and to secureall clearances from the concerned government agencies

and removal of any tenants from the subject property at

their expense to enable defendants to comply with theirobligations under the perfected agreement to sell; and

2 pay to plaintiffs the sum of Two Hundred Thousand

respondents-owners, through respondent Fernandez, as sellers. The petitionerscontend that the perfection of the said contract is evidenced by the January 16,1996 Letter of respondent Fernandez [27]The pertinent portions of the said letter are


































2. pay to plaintiffs the sum of Two Hundred Thousand(P200,000.00) Pesos as and by way of attorney‘s fees.[21]

On appeal to the Court of Appeals, the respondents ascribed the followingerrors to the court a quo:

I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS APERFECTED CONTRACT OF SALE OF THE TWO LOTSON NOVEMBER 27, 1995.

II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBALCONTRACT OF SALE AS CLAIMED BY PLAINTIFFS-APPELLEES

ANTONIO LITONJUA AND AURELIO LITONJUA WASUNENFORCEABLE.

III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OFDEFENDANT-APPELLANT FERNANDEZ DATED JANUARY 16,1996 WAS A CONFIRMATION OF THE PERFECTED SALE ANDCONSTITUTED AS WRITTEN EVIDENCE THEREOF.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIALPOWER OF ATTORNEY WAS REQUIRED IN ORDER THATDEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATETHE SALE ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.

V. THE LOWER COURT ERRED IN AWARDING ATTORNEY‘S FEES INTHE DISPOSITIVE PORTION OF THE DECISION WITHOUT

STATING THE BASIS IN THE TEXT OF SAID DECISION.[22]

On February 28, 2001, the appellate court promulgated its decision reversingand setting aside the judgment of the trial court and dismissing the petitioners‘complaint, as well as the respondents‘ counterclaim.[23] The appellate court ruled thatthe petitioners failed to prove that a sale or a contract to sell over the propertybetween the petitioners and the private respondent had been perfected.

Hence, the instant petition for review on certiorari under Rule 45 of the RevisedRules of Court.

The petitioners submit the following issues for the Court‘s resolution: A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACTOF SALE BETWEEN THE PARTIES.B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THESTATUTE OF FRAUDS.C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT AREBENEFITED BY THE ASSAILED DECISION OF THE COURT OF APPEALS.[24]

The petition has no merit.The general rule is that the Court‘s jurisdiction under Rule 45 of the Rules of

Court is limited to the review of errors of law committed by the appellate court. As thefindings of fact of the appellate court are deemed continued, this Court is not duty-bound to analyze and calibrate all over again the evidence adduced by the parties inthe court a quo.[25] This rule, however, is not without exceptions, such as where thefactual findings of the Court of Appeals and the trial court are conflicting orcontradictory.[26] Indeed, in this case, the findings of the trial court and its conclusionbased on the said findings contradict those of the appellate court. However, uponcareful review of the records of this case, we find no justification to grant thepetition. We, thus, affirm the decision of the appellate court.

On the first and second assignment of errors, the petitioners assert that there

was a perfected contract of sale between the petitioners as buyers and the

1996 Letter of respondent Fernandez. The pertinent portions of the said letter areas follows:… [M]y cousin and I have thereby changed our mind and that the sale willno longer push through. I specifically instructed her to inform you thru your brokerthat we will not be attending the meeting to be held sometime first week of December.In view thereof, I regret to formally inform you now that we are no longer selling theproperty until all problems are fully settled. We have not demanded and receivedfrom you any earnest money, thereby, no obligations exist…

[28] The petitioners argue that the letter is a sufficient note or memorandum of the

perfected contract, thus, removing it from the coverage of the statute of frauds. Theletter specifically makes reference to a sale which respondent Fernandez agreed toinitially, but which the latter withdrew because of the emergence of some people whoclaimed to be tenants on both parcels of land. According to the petitioners, therespondents-owners, in their answer to the complaint, as well as respondentFernandez when she testified, admitted the authenticity and due execution of the saidletter. Besides, when the petitioner Antonio Litonjua testified on the contract of saleentered into between themselves and the respondents-owners, the latter did notobject thereto. Consequently, the respondents-owners thereby ratified the saidcontract of sale. The petitioners thus contend that the appellate court‘s declarationthat there was no perfected contract of sale between the petitioners and therespondents-owners is belied by the evidence, the pleadings of the parties, and thelaw.

The petitioners‘ contention is bereft of merit. In its decision, the appellate courtruled that the Letter of respondent Fernandez dated January 16, 1996 is hardly thenote or memorandum contemplated under Article 1403(2)(e) of the New Civil Code,which reads: Art. 1403. The following contracts are unenforceable, unless they are ratified:

… (2) Those that do not comply with the Statute of Frauds as set forth in thisnumber. In the following cases an agreement hereafter made shall be unenforceableby action, unless the same, or some note or memorandum thereof, be in writing, andsubscribed by the party charged, or by his agent; evidence, therefore, of theagreement cannot be received without the writing, or secondary evidence of itscontents:

… (e) An agreement for the leasing for a longer period than one year, or for the

sale of real property or of an interest therein.[29] The appellate court based its ruling on the following disquisitions:

In the case at bar, the letter dated January 16, 1996 of defendant-appellant canhardly be said to constitute the note or memorandum evidencing the agreement of theparties to enter into a contract of sale as it is very clear that defendant-appellant asseller did not accept the condition that she will be the one to pay the registration feesand miscellaneous expenses and therein also categorically denied she had alreadycommitted to execute the deed of sale as claimed by the plaintiffs-appellees. Theletter, in fact, stated the reasons beyond the control of the defendant-appellant, whythe sale could no longer push through – because of the problem with tenants. Thetrial court zeroed in on the statement of the defendant-appellant that she and hercousin changed their minds, thereby concluding that defendant-appellant hadunilaterally cancelled the sale or backed out of her previous commitment. However,

the tenor of the letter actually reveals a consistent denial that there was any such

commitment on the part of defendant-appellant to sell the subject lands to plaintiffs-appellees. When defendant-appellant used the words ―changed our mind,‖ she wasclearly referring to the decision to sell the property at all (not necessarily to plaintiffs -

evidence adduced by the petitioners to prove that respondent Fernandez wasauthorized by the respondents-owners is the testimony of petitioner Antonio Litonjuathat respondent Fernandez openly represented herself to be the representative of the




































clearly referring to the decision to sell the property at all (not necessarily to plaintiffsappellees) and not in selling the property to herein plaintiffs-appellees as defendant-appellant had not yet made the final decision to sell the property to said plaintiffs-appellees. This conclusion is buttressed by the last paragraph of the subject letterstating that ―we are no longer selling the property until all problems are fullysettled.‖ To read a definite previous agreement for the sale of the property in favor ofplaintiffs-appellees into the contents of this letter is to unduly restrict the freedom ofthe contracting parties to negotiate and prejudice the right of every property owner tosecure the best possible offer and terms in such sale transactions. We believe,

therefore, that the trial court committed a reversible error in finding that there was aperfected contract of sale or contract to sell under the foregoingcircumstances. Hence, the defendant-appellant may not be held liable in this actionfor specific performance with damages.[30]

In Rosencor Development Corporation vs. Court of Appeals,[31] the term ―statuteof frauds‖ is descriptive of statutes which require certain classes of contracts to be inwriting. The statute does not deprive the parties of the right to contract with respect tothe matters therein involved, but merely regulates the formalities of the contractnecessary to render it enforceable. The purpose of the statute is to prevent fraud andperjury in the enforcement of obligations, depending for their existence on theunassisted memory of witnesses, by requiring certain enumerated contracts andtransactions to be evidenced by a writing signed by the party to be charged. Thestatute is satisfied or, as it is often stated, a contract or bargain is taken within the

statute by making and executing a note or memorandum of the contract which issufficient to state the requirements of the statute.[32] The application of suchstatute presupposes the existence of a perfected contract . However, for a note ormemorandum to satisfy the statute, it must be complete in itself and cannot rest partlyin writing and partly in parol. The note or memorandum must contain the names ofthe parties, the terms and conditions of the contract and a description of the propertysufficient to render it capable of identification.[33] Such note or memorandum mustcontain the essential elements of the contract expressed with certainty that may beascertained from the note or memorandum itself, or some other writing to which itrefers or within which it is connected, without resorting to parol evidence.[34] To bebinding on the persons to be charged, such note or memorandum must be signed bythe said party or by his agent duly authorized in writing .[35]

In City of Cebu v. Heirs of Rubi ,[36] we held that the exchange of writtencorrespondence between the parties may constitute sufficient writing to evidence the

agreement for purposes of complying with the statute of frauds.In this case, we agree with the findings of the appellate court that there was no

perfected contract of sale between the respondents-owners, as sellers, and thepetitioners, as buyers.

There is no documentary evidence on record that the respondents-ownersspecifically authorized respondent Fernandez to sell their properties to another,including the petitioners. Article 1878 of the New Civil Code provides that a specialpower of attorney is necessary to enter into any contract by which the ownership ofan immovable is transmitted or acquired either gratuitously or for a valuableconsideration,[37] or to create or convey real rights over immovable property,[38] or forany other act of strict dominion.[39] Any sale of real property by one purporting to bethe agent of the registered owner without any authority therefor in writing from thesaid owner is null and void.[40] The declarations of the agent alone are generally

insufficient to establish the fact or extent of her authority .[41]

In this case, the only

that respondent Fernandez openly represented herself to be the representative of therespondents-owners,[42] and that she promised to present to the petitioners onDecember 8, 1996 a written authority to sell the properties.[43] However, thepetitioners‘ claim was belied by respondent Fernandez when she testified, thus:

Q Madam Witness, what else did you tell to the plaintiffs? A I told them that I was there representing myself as one of the owners

of the properties, and I was just there to listen to his proposalbecause that time, we were just looking for the best offer and I did nothave yet any written authorities from my brother and sisters and

relatives. I cannot agree on anything yet since it is just a preliminarymeeting, and so, I have to secure authorities and relate the matters tomy relatives, brother and sisters, sir.

Q And what else was taken up? A Mr. Antonio Litonjua told me that they will be leaving for another

country and he requested me to come back on the first week ofDecember and in the meantime, I should make an assurance thatthere are no tenants in our properties, sir .[44]

The petitioners cannot feign ignorance of respondent Fernandez‘ lack ofauthority to sell the properties for the respondents-owners. It must be stressed thatthe petitioners are noted businessmen who ought to be very familiar with theintricacies of business transactions, such as the sale of real property.

The settled rule is that persons dealing with an assumed agent are bound at

their peril, and if they would hold the principal liable, to ascertain not only the fact ofagency but also the nature and extent of authority, and in case either is controverted,the burden of proof is upon them to prove it.[45] In this case, respondent Fernandezspecifically denied that she was authorized by the respondents-owners to sell theproperties, both in her answer to the complaint and when she testified. The Letterdated January 16, 1996 relied upon by the petitioners was signed by respondentFernandez alone, without any authority from the respondents-owners. There is noevidence on record that the respondents-owners ratified all the actuations ofrespondent Fernandez in connection with her dealings with the petitioners. As such,said letter is not binding on the respondents as owners of the subject properties.

Contrary to the petitioners‘ contention, the letter of January 16, 1996 [46] is not anote or memorandum within the context of Article 1403(2) because it does not containthe following: (a) all the essential terms and conditions of the sale of the properties;(b) an accurate description of the property subject of the sale; and, (c) the names of

the respondents-owners of the properties. Furthermore, the letter made reference toonly one property, that covered by TCT No. T-36755.

We note that the petitioners themselves were uncertain as to the specific area ofthe properties they were seeking to buy. In their complaint, they alleged to haveagreed to buy from the respondents-owners 33,990 square meters of the totalacreage of the two lots consisting of 36,742 square meters. In their Letter torespondent Fernandez dated January 5, 1996, the petitioners stated that they agreedto buy the two lots, with a total area of 36,742 square meters .[47] However, in theirLetter dated February 1, 1996, the petitioners declared that they agreed to buy aportion of the properties consisting of 33,990 square meters.[48] When he testified,petitioner Antonio Litonjua declared that the petitioners agreed to buy from therespondents-owners 36,742 square meters at P150 per square meter or for the totalprice of P5,098,500.[49]

The failure of respondent Fernandez to object to parol evidence to prove (a) theessential terms and conditions of the contract asserted by the petitioners and, (b) herauthority to sell the properties for the respondents-registered owners did not and




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y p p p gshould not prejudice the respondents-owners who had been declared in default.[50]

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision ofthe appellate court is AFFIRMED IN TOTO. Costs against the petitioners.

SO ORDERED.

[G.R. No. 151319. November 22, 2004]MANILA MEMORIAL PARK CEMETERY, INC.,petit ioner, vs. PEDRO L.

LINSANGAN, respondent .

total purchase price thereby leaving a balance of P75,162.00 on a monthly installmentof P1,800.00 including interests (sic) charges for a period of five (5) years.

(Signed)







, p

D E C I S I O NTINGA, J. :

For resolution in this case is a classic and interesting texbook question in thelaw on agency.

This is a petition for review assailing the Decision[1] of the Court of Appeals

dated 22 June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV

No. 49802 entitled ―Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al .,‖finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with

Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.The facts of the case are as follows:Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot

called Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under Contract No. 25012 wasno longer interested in acquiring the lot and had opted to sell his rights subject toreimbursement of the amounts he already paid. The contract was for P95,000.00.Baluyot reassured Atty. Linsangan that once reimbursement is made to the formerbuyer, the contract would be transferred to him. Atty. Linsangan agreed and gaveBaluyot P35,295.00 representing the amount to be reimbursed to the original buyerand to complete the down payment to MMPCI.[3]Baluyot issued handwritten andtypewritten receipts for these payments.[4]

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be

issued Contract No. 28660, a new contract covering the subject lot in the name of thelatter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyotassured him that he would still be paying the old price of P95,000.00 with P19,838.00credited as full down payment leaving a balance of about P75,000.00.[5]

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract No. 28660 and theOfficial Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00.Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected tothe new contract price, as the same was not the amount previously agreed upon. Toconvince Atty. Linsangan, Baluyot executed a document[6] confirming that while thecontract price is P132,250.00, Atty. Linsangan would pay only the original priceof P95,000.00.

The document reads in part:The monthly installment will start April 6, 1985; the amount of P1,800.00 and the

difference will be issued as discounted to conform to the previous price as previouslyagreed upon. --- P95,000.00Prepared by:

(Signed)(MRS.) FLORENCIA C. BALUYOT

Agency ManagerHoly Cross Memorial Park

4/18/85Dear Atty. Linsangan:This will confirm our agreement that while the offer to purchase under Contract No.28660 states that the total price of P132,250.00 your undertaking is to pay only thetotal sum of P95,000.00 under the old price. Further the total sum of P19,838.00already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the

( g )FLORENCIA C.

BALUYOTBy virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted

Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve(12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor ofMMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No.

28660 was cancelled for reasons the latter could not explain, and presented to himanother proposal for the purchase of an equivalent property. He refused the newproposal and insisted that Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint

[7] for Breach of Contract and Damages against theformer.

Baluyot did not present any evidence. For its part, MMPCI alleged that ContractNo. 28660 was cancelled conformably with the terms of the contract[8] because ofnon-payment of arrearages.[9] MMPCI stated that Baluyot was not an agent but anindependent contractor, and as such was not authorized to represent MMPCI or touse its name except as to the extent expressly stated in the Agency Manager Agreement.[10] Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly

installments as indicated in the contract.

[11]

Official receipts showing the application ofpayment were turned over to Baluyot whom Atty. Linsangan had from the beginningallowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he ―expressly admits thatContract No. 28660 ‗on account of serious delinquency…is now due for cancellationunder its terms and conditions.‘‘‘[12]

The trial court held MMPCI and Baluyot jointly and severally liable.[13] It foundthat Baluyot was an agent of MMPCI and that the latter was estopped from denyingthis agency, having received and enchased the checks issued by Atty. Linsangan andgiven to it by Baluyot. While MMPCI insisted that Baluyot was authorized to receiveonly the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn consistently encashed.[14]

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favorof plaintiff declaring Contract No. 28660 as valid and subsisting and orderingdefendants to perform their undertakings thereof which covers burial lot No. A11 (15),Block 83, Section Garden I, Holy Cross Memorial Park located at Novaliches, QuezonCity. All payments made by plaintiff to defendants should be credited for hisaccounts. NO DAMAGES, NO ATTORNEY‘S FEES but with costs against thedefendants.The cross claim of defendant Manila Memorial Cemetery Incorporated as againstdefendant Baluyot is GRANTED up to the extent of the costs.SO ORDERED.[15]

MMPCI appealed the trial court‘s decision to the Court of Appeals.[16] It claimed

that Atty. Linsangan is bound by the written contract with MMPCI, the terms of whichwere clearly set forth therein and read, understood, and signed by the former .[17] It

also alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at

the time he entered into the contract, is presumed to know his contractual obligationsand is fully aware that he cannot belatedly and unilaterally change the terms of thecontract without the consent, much less the knowledge of the other contracting party,

Atty. Linsangan argues that he did not violate the terms and conditions of thecontract, and in fact faithfully performed his contractual obligations and complied withthem in good faith for at least two years.[27] He claims that contrary to MMPCI‘s










































































g g p ywhich was MMPCI. And in this case, MMPCI did not agree to a change in the contractand in fact implemented the same pursuant to its clear terms. In view thereof,because of Atty. Linsangan‘s delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable withBaluyot as the latter exceeded the terms of her agency, neither did MMPCI ratifyBaluyot‘s acts. It added that it cannot be charged with making any misrepresentation,nor of having allowed Baluyot to act as though she had full powers as the writtencontract expressly stated the terms and conditions which Atty. Linsangan accepted

and understood. In canceling the contract, MMPCI merely enforced the terms andconditions imposed therein.[18]

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it wasthe former‘s obligation, as a party knowingly dealing with an alleged agent, todetermine the limitations of such agent‘s authority, particularly when such allegedagent‘s actions were patently questionable. According to MMPCI, Atty. Linsangan didnot even bother to verify Baluyot‘s authority or ask copies of official receipts for hispayments.[19]

The Court of Appeals affirmed the decision of the trial court. It upheld the trialcourt‘s finding that Baluyot was an agent of MMPCI at the time the disputed contractwas entered into, having represented MMPCI‘s interest and acting on its behalf in thedealings with clients and customers. Hence, MMPCI is considered estopped when itallowed Baluyot to act and represent MMPCI even beyond her authority .[20] The

appellate court likewise found that the acts of Baluyot bound MMPCI when the latterallowed the former to act for and in its behalf and stead. While Baluyot‘s authority―may not have been expressly conferred upon her, the same may have been derived impliedly by habit or custom, which may have been an accepted practice in thecompany for a long period of time.‖

[21] Thus, the Court of Appeals noted, innocentthird persons such as Atty. Linsangan should not be prejudiced where the principalfailed to adopt the needed measures to prevent misrepresentation. Furthermore, if anagent misrepresents to a purchaser and the principal accepts the benefits of suchmisrepresentation, he cannot at the same time deny responsibility for suchmisrepresentation.[22] Finally, the Court of Appeals declared:There being absolutely nothing on the record that would show that the court aquo overlooked, disregarded, or misinterpreted facts of weight and significance, itsfactual findings and conclusions must be given great weight and should not bedisturbed by this Court on appeal.WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and theappealed decision in Civil Case No. 88-1253 of the Regional Trial Court, NationalCapital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto.SO ORDERED.[23]

MMPCI filed its Motion for Reconsideration,[24]

but the same was denied for lackof merit.[25]

In the instant Petition for Review , MMPCI claims that the Court of Appealsseriously erred in disregarding the plain terms of the written contract and Atty.Linsangan‘s failure to abide by the terms thereof, which justified its cancellation. Inaddition, even assuming that Baluyot was an agent of MMPCI, she clearly exceededher authority and Atty. Linsangan knew or should have known about this consideringhis status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts and the applicable law do not

support a judgment against Baluyot only ―up to the extent of costs.‖[26]

g y yposition, his profession as a lawyer is immaterial to the validity of the subject contractand the case at bar .[28] According to him, MMPCI had practically admitted inits Petition that Baluyot was its agent, and thus, the only issue left to be resolved iswhether MMPCI allowed Baluyot to act as though she had full powers to be heldsolidarily liable with the latter .[29]

We find for the petitioner MMPCI.The jurisdiction of the Supreme Court in a petition for review under Rule 45 of

the Rules of Court is l imited to reviewing only errors of law, not fact, unless the factual

findings complained of are devoid of support by the evidence on record or theassailed judgment is based on misapprehension of facts.[30] In BPI InvestmentCorporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled:There are instances when the findings of fact of the trial court and/or Court of Appealsmay be reviewed by the Supreme Court, such as (1) when the conclusion is a findinggrounded entirely on speculation, surmises and conjectures; (2) when the inferencemade is manifestly mistaken, absurd or impossible; (3) where there is a grave abuseof discretion; (4) when the judgment is based on a misapprehension of facts; (5) whenthe findings of fact are conflicting; (6) when the Court of Appeals, in making itsfindings, went beyond the issues of the case and the same is contrary to theadmissions of both appellant and appellee; (7) when the findings are contrary tothose of the trial court; (8) when the findings of fact are conclusions without citation ofspecific evidence on which they are based; (9) when the facts set forth in the petition

as well as in the petitioners‘ main and reply briefs are not disputed by therespondents; and (10) the findings of fact of the Court of Appeals are premised onthe supposed absence of evidence and contradicted by the evidence on record.[32]

In the case at bar, the Court of Appeals committed several errors in theapprehension of the facts of the case, as well as made conclusions devoid ofevidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or todo something in representation or on behalf of another, with the consent or authorityof the latter .[33] Thus, the elements of agency are (i) consent, express or implied, ofthe parties to establish the relationship; (ii ) the object is the execution of a juridical actin relation to a third person; (iii) the agent acts as a representative and not for himself;and (iv) the agent acts within the scope of his authority.[34]

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out thatunder its Agency Manager Agreement; an agency manager such as Baluyot is

considered an independent contractor and not an agent.[35] However, in the samecontract, Baluyot as agency manager was authorized to solicit and remit to MMPCIoffers to purchase interment spaces belonging to and sold by thelatter .[36] Notwithstanding the claim of MMPCI that Baluyot was an independentcontractor, the fact remains that she was authorized to solicit solely for and in behalfof MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyotwas an agent of MMPCI, having represented the interest of the latter, and havingbeen allowed by MMPCI to represent it in her dealings with its clients/prospectivebuyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot bebound by the contract procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchaseinterment spaces obtained on forms provided by MMPCI. The terms of the offer to

purchase, therefore, are contained in such forms and, when signed by the buyer andan authorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and

The trial and appellate courts found MMPCI liable based on ratification andestoppel. For the trial court, MMPCI‘s acts of accepting and encashing the checksissued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in the













































































validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearlystated therein that ―Purchaser agrees that he has read or has had read to him thisagreement, that he understands its terms and conditions, and that there are nocovenants, conditions, warranties or representations other than thosecontained herein.‖

[37] By signing the Offer to Purchase, Atty. Linsangan signified thathe understood its contents. That he and Baluyot had an agreement different fromthat contained in the Offer to Purchase is of no moment, and should not affectMMPCI, as it was obviously made outside Baluyot‘s authority. To repeat, Baluyot‘s

authority was limited only to soliciting purchasers. She had no authority to alter theterms of the written contract provided by MMPCI. The document/letter ―confirming‖the agreement that Atty. Linsangan would have to pay the old price was executed byBaluyot alone. Nowhere is there any indication that the same came from MMPCI orany of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, ifthey would hold the principal liable, to ascertain not only the fact of agency but alsothe nature and extent of authority, and in case either is controverted, the burden ofproof is upon them to establish it .[38] The basis for agency is representation and aperson dealing with an agent is put upon inquiry and must discover upon his peril theauthority of the agent.[39] If he does not make such an inquiry, he is chargeable withknowledge of the agent‘s authority and his ignorance of that authority will not be anyexcuse.[40]

As noted by one author, the ignorance of a person dealing with an agent as tothe scope of the latter‘s authority is no excuse to such person and the fault cannot bethrown upon the principal.[41] A person dealing with an agent assumes the risk of lackof authority in the agent. He cannot charge the principal by relying upon the agent‘sassumption of authority that proves to be unfounded. The principal, on the otherhand, may act on the presumption that third persons dealing with his agent will not benegligent in failing to ascertain the extent of his authority as well as the existence ofhis agency.[42]

In the instant case, it has not been established that Atty. Linsangan evenbothered to inquire whether Baluyot was authorized to agree to terms contrary tothose indicated in the written contract, much less bind MMPCI by her commitmentwith respect to such agreements. Even if Baluyot was Atty. Linsangan‘s friend andknown to be an agent of MMPCI, her declarations and actions alone are not sufficientto establish the fact or extent of her authority.[43] Atty. Linsangan as a practicing

lawyer for a relatively long period of time when he signed the contract should havebeen put on guard when their agreement was not reflected in the contract. Moreimportantly, Atty. Linsangan should have been alerted by the fact that Baluyot failedto effect the transfer of rights earlier promised, and was unable to make good herwritten commitment, nor convince MMPCI to assent thereto, as evidenced by severalattempts to induce him to enter into other contracts for a higher consideration. Asproperly pointed out by MMPCI, as a lawyer, a greater degree of caution should beexpected of Atty. Linsangan especially in dealings involving legal documents. He didnot even bother to ask for official receipts of his payments, nor inquire from MMPCIdirectly to ascertain the real status of the contract, blindly relying on therepresentations of Baluyot. A lawyer by profession, he knew what he was doingwhen he signed the written contract, knew the meaning and value of every word orphrase used in the contract, and more importantly, knew the legal effects which said

document produced. He is bound to accept responsibility for hi s negligence.

name of MMPCI confirm and ratify the contract of agency. On the other hand, theCourt of Appeals faulted MMPCI in failing to adopt measures to preventmisrepresentation, and declared that in view of MMPCI‘s acceptance of the benefitsof Baluyot‘s misrepr esentation, it can no longer deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions ofthe Civil Code: Art. 1898. If the agent contracts in the name of the principal, exceeding the scope ofhis authority, and the principal does not ratify the contract, it shall be void if the party

with whom the agent contracted is aware of the limits of the powers granted by theprincipal. In this case, however, the agent is liable if he undertook to secure theprincipal‘s ratification. Art. 1910. The principal must comply with all the obligations that the agent may havecontracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is notbound except when he ratifies it expressly or tacitly. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarilyliable with the agent if the former allowed the latter to act as though he had fullpowers.

Thus, the acts of an agent beyond the scope of his authority do not bind theprincipal, unless he ratifies them, expressly or impliedly. Only the principal can ratify;the agent cannot ratify his own unauthorized acts. Moreover, the principal must have

knowledge of the acts he is to ratify.

[44]

Ratification in agency is the adoption or confirmation by one person of an actperformed on his behalf by another without authority. The substance of the doctrineis confirmation after conduct, amounting to a substitute for a prior authority.Ordinarily, the principal must have full knowledge at the time of ratification of all thematerial facts and circumstances relating to the unauthorized act of the person whoassumed to act as agent. Thus, if material facts were suppressed or unknown, therecan be no valid ratification and this regardless of the purpose or lack thereof inconcealing such facts and regardless of the parties between whom the question ofratification may arise.[45] Nevertheless, this principle does not apply if the principal‘signorance of the material facts and circumstances was willful, or that the principalchooses to act in ignorance of the facts.[46] However, in the absence of circumstancesputting a reasonably prudent man on inquiry, ratification cannot be implied as againstthe principal who is ignorant of the facts.[47]

No ratification can be implied in the instant case. A perusal of Baluyot‘s Answer

[48] reveals that the real arrangement between herand Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meetthe P3,255.00 monthly installments as indicated in the contract. Thus, every time aninstallment falls due, payment was to be made through a check from Atty. Linsanganfor P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, itappears that while Atty. Linsangan issued the post-dated checks, Baluyot failed tocome up with her part of the bargain. This was supported by Baluyot‘s statements inher letter [50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after shereceived the copy of the Complaint . In the letter, she admitted that she was remiss inher duties when she consented to Atty. Linsangan‘s proposal that he will pay the oldprice while the difference will be shouldered by her. She likewise admitted that the

contract suffered arrearages because while Atty. Linsangan issued the agreed

checks, she was unable to give her share of P1,455.00 due to her own financialdifficulties. Baluyot even asked for compassion from MMPCI for the error shecommitted.

As the Court sees it , there are two obligations in the instant case. One is theContract No. 28660 between MMPCI and by Atty. Linsangan for the purchase of aninterment space in the former‘s cemetery. The other is the agreement between



























































Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is concerned, the contract price was P132,250.00, as stated in theOffer to Purchase signed by Atty. Linsangan and MMPCI‘s authorized officer. Thedown payment of P19,838.00 given by Atty. Linsangan was in accordance with thecontract as well. Payments of P3,235.00 for at least two installments were likewise inaccord with the contract, albeit made through a check and partly in cash. In view ofBaluyot‘s failure to give her share in the payment, MMPCI received only P1,800.00checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have

incurred arrearages that could have caused the earlier cancellation of the contract, ifnot for MMPCI‘s application of some of the checks to his account. However, thechecks alone were not sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter‘scheck payments for being insufficient. It would not have applied to his accountthe P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain toMMPCI‘s Sales Manager the details of her ―arrangement‖ with Atty. Linsangan andadmit to having made an error in entering such arrangement confirm that MMCPI hadno knowledge of the said agreement. It was only when Baluyot filed her Answer thatshe claimed that MMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppelare (i) conduct of a party amounting to false representation or concealment ofmaterial facts or at least calculated to convey the impression that the facts are

otherwise than, and inconsistent with, those which the party subsequently attempts toassert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, orat least influence, the other party; and (iii) knowledge, actual or constructive, of thereal facts.[51]

While there is no more question as to the agency relationship between Baluyotand MMPCI, there is no indication that MMPCI let the public, or specifically, Atty.Linsangan to believe that Baluyot had the authority to alter the standard contracts ofthe company. Neither is there any showing that prior to signing Contract No. 28660,MMPCI had any knowledge of Baluyot‘s commitment to Atty. Linsangan. One whoclaims the benefit of an estoppel on the ground that he has been misled by therepresentations of another must not have been misled through his own want ofreasonable care and circumspection.[52] Even assuming that Atty. Linsangan wasmisled by MMPCI‘s actuations, he still cannot invoke the principle of estoppel, as hewas clearly negligent in his dealings with Baluyot, and could have easily determined,

had he only been cautious and prudent, whether said agent was clothed with theauthority to change the terms of the principal‘s written contract. Estoppel must beintentional and unequivocal, for when misapplied, it can easily become a mostconvenient and effective means of injustice.[53] In view of the lack of sufficient proofshowing estoppel, we refuse to hold MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals‘ findings that ―theauthority of defendant Baluyot may not have been expressly conferred upon her;however, the same may have been derived impliedly by habit or custom which mayhave been an accepted practice in their company in a long period of time.‖ A perusalof the records of the case fails to show any indication that there was such a habit orcustom in MMPCI that allows its agents to enter into agreements for lower prices ofits interment spaces, nor to assume a portion of the purchase price of the intermentspaces sold at such lower price. No evidence was ever presented to this effect.

Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or thedifference between P95,000.00, the original price, and P132,250.00, the actualcontract price.

To repeat, the acts of the agent beyond the scope of his authority do not bindthe principal unless the latter ratifies the same. It also bears emphasis that when thethird person knows that the agent was acting beyond his power or authority, theprincipal cannot be held liable for the acts of the agent. If the said third person wasaware of such limits of authority, he is to blame and is not entitled to recover

damages from the agent, unless the latter undertook to secure the principal‘sratification.[54]

This Court finds that Contract No. 28660 was validly entered into both byMMPCI and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsanganassented to the terms and conditions thereof. When Atty. Linsangan incurreddelinquencies in payment, MMCPI merely enforced its rights under the said contractby canceling the same.

Being aware of the limits of Baluyot‘s authority, Atty. Linsangan cannot insist onwhat he claims to be the terms of Contract No. 28660. The agreement, insofar asthe P95,000.00 contract price is concerned, is void and cannot be enforced asagainst MMPCI. Neither can he hold Baluyot liable for damages under the samecontract, since there is no evidence showing that Baluyot undertook to secureMMPCI‘s ratification. At best, the ―agreement‖ between Baluyot and Atty. Linsangan

bound only the two of them. As far as MMPCI is concerned, it bound itself to sell itsinterment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, andhad in fact received several payments in accordance with the same contract. If thecontract was cancelled due to arrearages, Atty. Linsangan‘s recourse should only beagainst Baluyot who personally undertook to pay the difference between the truecontract price of P132,250.00 and the original proposed price of P95,000.00. Tosurmise that Baluyot was acting on behalf of MMPCI when she promised to shoulderthe said difference would be to conclude that MMPCI undertook to pay itself thedifference, a conclusion that is very illogical, if not antithetical to i ts business interests.

However, this does not preclude Atty. Linsangan from instituting a separateaction to recover damages from Baluyot, not as an agent of MMPCI, but in view of thelatter‘s breach of their separate agreement. To review, Baluyot obligated herself topay P1,455.00 in addition to Atty. Linsangan‘s P1,800.00 to complete the monthlyinstallment payment under the contract, which, by her own admission, she was

unable to do due to personal financial difficulties. It is undisputed that Atty. Linsanganissued the P1,800.00 as agreed upon, and were it not for Baluyot‘s failure to providethe balance, Contract No. 28660 would not have been cancelled. Thus, Atty.Linsangan has a cause of action against Baluyot, which he can pursue in anothercase.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R.CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the Regional TrialCourt, Makati City Branch 57, are hereby REVERSED and SET ASIDE.The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action.No pronouncement as to costs.

SO ORDERED.

G.R. No. L-49395 December 26, 1984GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitionervs.THE INTERMEDIATE APPELLATE COURT d E R SQUIBB & SONS

stipulations that the maximum discount you can give to your directand turnover accounts will not go beyond 10%.It is understood that Green Valley Poultry and Allied Products, Inc.

ill d f S ibb i f d li



















THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONSPHILIPPINE CORPORATION,respondents.

ABAD SANTOS, J .: This is a petition to review a decision of the defunct Court of Appeals which affirmedthe judgment of the trial court whereby:

... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb& Sons Philippine Corporation], ordering the defendant [Green

Valley Poultry & Allied Products, Inc.] to pay the sum of P48,374.74plus P96.00 with interest at 6% per annum from the filing of thisaction; plus attorney's fees in the amount of P5,000.00 and to paythe costs.

On November 3, 1969, Squibb and Green Valley entered into a letter agreement thetext of which reads as follows:

E.R. Squibb & Sons Philippine Corporation is pleased to appointGreen Valley Poultry & Allied Products, Inc. as a non-exclusivedistributor for Squibb Veterinary Products, as recommended by Dr.Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health DivisionSales Supervisor. As a distributor, Green Valley Poultry & Allied Products, Inc. wig beentitled to a discount as follows:

Feed Store Price (Catalogue)Less 10%Wholesale PriceLess 10%Distributor PriceThere are exceptions to the above price structure. At present, theseare:1. Afsillin Improved— 40 lbs. bag The distributor commission for this product size is 8% off P120.002. Narrow— Spectrum Injectible Antibiotics These products are subject to price fluctuations. Therefore, theyare invoiced at net price per vial.3. Deals and Special Offers are not subject to the above distributorprice structure. A 5% distributor commission is allowed when the

distributor furnishes copies for each sale of a complete deal orspecial offer to a feedstore, drugstore or other type of account.Deals and Special Offers purchased for resale at regular priceinvoiced at net deal or special offer price.Prices are subject to change without notice. Squibb will endeavor toadvise you promptly of any price changes. However, prices in effectat the tune orders are received by Squibb Order Department willapply in all instances.Green Valley Poultry & Allied Products, Inc. win distribute only forthe Central Luzon and Northern Luzon including Cagayan Valleyareas. We will not allow any transfer or stocks from Central Luzonand Northern Luzon including Cagayan Valley to other parts ofLuzon, Visayas or Mindanao which are covered by our other

appointed Distributors. In line with this, you will follow st rictly our

will accept turn-over orders from Squibb representatives for deliveryto customers in your area. If for credit or other valid reasons a turn -over order is not served, the Squibb representative will be notifiedwithin 48 hours and hold why the order will not be served.It is understood that Green Valley Poultry & Allied Products, Inc. willput up a bond of P20,000.00 from a mutually acceptable bondingcompany.Payment for Purchases of Squibb Products wil l be due 60 days

from date of invoice or the nearest business day thereto. Nopayment win be accepted in the form of post-dated checks.Payment by check must be on current dating.It is mutually agreed that this non-exclusive distribution agreementcan be terminated by either Green Valley Poultry & Allied Products,Inc. or Squibb Philippines on 30 days notice.I trust that the above terms and conditions will be met with yourapproval and that the distributor arrangement will be one of mutualsatisfaction.If you are agreeable, please sign the enclosed three (3) extracopies of this letter and return them to this Office at your earliestconvenience.Thank you for your interest and support of the products of E.R.

Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trialcourt as aforesaid gave judgment in favor of Squibb which was affirmed by the Courtof Appeals.In both the trial court and the Court of Appeals, the parties advanced their respectivetheories.Green Valley claimed that the contract with Squibb was a mere agency to sell; that itnever purchased goods from Squibb; that the goods received were on consignmentonly with the obligation to turn over the proceeds, less its commission, or to return thegoods ff not sold, and since it had sold the goods but had not been able to collectfrom the purchasers thereof, the action was premature.Upon the other hand, Squibb claimed that the contract was one of sale so that GreenValley was obligated to pay for the goods received upon the expiration of the 60-daycredit period.

Both courts below upheld the claim of Squibb that the agreement between the partieswas a sales contract.We do not have to categorize the contract. Whether viewed as an agency to sell or asa contract of sale, the liability of Green Valley is indubitable. Adopting Green Valley'stheory that the contract is an agency to sell, it is liable because it sold on creditwithout authority from its principal. The Civil Code has a provision exactly in point. Itreads:

Art. 1905. The commission agent cannot, without the express orimplied consent of the principal, sell on credit. Should he do so, theprincipal may demand from him payment in cash, but thecommission agent shall be entitled to any interest or benefit, whichmay result from such sale.

WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of

Appeals is affirmed with costs against the petitioner.

SO ORDERED.

