Agency Feb 14, 2012

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G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,vs.HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and

RUFINO S. AQUINO,respondents.

L.M. Maggay & Associates for petitioner.

GRIÑO-AQUINO, J.:

This petition for review seeks reversal of the decision dated September 18, 1990 of theCourt of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch150, which dismissed the private respondents' complaint and awarded damages to the

petitioner, Rural Bank of Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed aspecial power of attorney in favor of Rufina S. Aquino authorizing him:

1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property covered by Transfer Certificate of TitleNo. S-79238 situated at Las Piñas, Rizal, the same being my paraphernal

property, and in that connection, to sign, or execute any deed of mortgageand sign other document requisite and necessary in securing said loanand to receive the proceeds thereof in cash or in check and to sign the

receipt therefor and thereafter endorse the check representing the proceeds of loan. (p. 10, Rollo.)

Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of Transfer Certificate of Title No. S-79238 (19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter,defendant Rural Bank) over the three parcels of land covered by TCT No. S-79238. Thedeed stated that the property was being given as security for the payment of "certainloans, advances, or other accommodations obtained by the mortgagor from the

mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo ).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an actionagainst Rufino Aquino and the Bank because Aquino allegedly left his residence at SanPascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. Shediscovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and thenlater, at San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were

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allegedly surprised to discover that the property was mortgaged to pay personal loansobtained by Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whoseaddress up to now is Manuyo, Las Piñas, M.M., per the title (TCT No. S-79238) and inthe deed vesting power of attorney to Aquino; that correspondence relative to the

mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Piñas, Metro Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as attorney infact, and in case of judicial foreclosure as receiver with corresponding power to sell and that although without any express authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venueof the foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag,temporarily restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either judicially or extrajudicially until further orders from the court"

(p.36, Rollo ).

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late,however, she asked him to pay the Bank but defendant Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000.

The Bank moved to dismiss the complaint and filed counter-claims for litigationexpenses, exemplary damages, and attorney's fees. It also filed a crossclaim against

Aquino for P350,000 with interest, other bank charges and damages if the mortgage bedeclared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardoand Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 inBranch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and theannulment case (Civil Case No. 6062) were consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No.6062, dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to damages the amount of which will be determined in appropriate proceedings.The court lifted the writ of preliminary injunction it previously issued.

On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure proceedings until after the decision in the annulment case (Civil CaseNo. 6062) shall have become final and executory.

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The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which onSeptember 18, 1990, reversed the trial court. The dispositive portion of the decisionreads:

UPON ALL THESE, the summary judgment entered by the lower court is

hereby REVERSED and in lieu thereof, judgment is hereby RENDERED,declaring the deed of real estate mortgage dated August 26, 1981,executed between Rufino S. Aquino with the marital consent of his wifeBibiana Aquino with the appellee Rural Bank of Bombon, Camarines Sur,unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo;ordering the reinstatement of the preliminary injunction issued at the onset of the case and at the same time, ordering said injunction made

permanent.

Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of Appeals erred:

1. in declaring that the Deed of Real Estate Mortgage was unauthorized,void, and unenforceable against the private respondent EderlindaGallardo; and

2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur), Inc.

Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by respondent Aquinois valid because he was expressly authorized by Gallardo to mortgage her property under the special power of attorney she made in his favor which was duly registered and annotated on Gallardo's title. Since the Special Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit, then it could be for the use and benefit of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to defendant Aquino. But defendant Aquino inexecuting the deed of Real Estate Mortgage in favor of the rural bank over the three parcels of land covered by Gallardo's title named himself as themortgagor without stating that his signature on the deed was for and inbehalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.

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At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S.

Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino,married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself, was merely descriptive of the person of defendant Aquino.

Defendant Aquino even signed it plainly as mortgagor with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of mortgagor."

xxx xxx xxx

The three (3) promissory notes respectively dated August 31, 1981,September 23, 1981 and October 26, 1981, were each signed by Rufino

Aquino on top of a line beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of a line under which is written "signatureof spouse," without any mention that execution thereof was for and in

behalf of the plaintiff as mortgagor. It results, borne out from what werewritten on the deed, that the amounts were the personal loans of defendant Aquino. As pointed out by the appellant, Aquino's wife has not been appointed co-agent of defendant Aquino and her signature on thedeed and on the promissory notes can only mean that the obligation was

personally incurred by them and for their own personal account.

The deed of mortgage stipulated that the amount obtained from the loansshall be used or applied only for "fishpond (bangus and sugpo

production)." As pointed out by the plaintiff, the defendant Rural Bank inits Answer had not categorically denied the allegation in the complaint that

defendant Aquino in the deed of mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special power of attorney could not be stretched to include the authority to obtain a loan insaid defendant Aquino's own benefit. (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of agency which this Court, applied in "Philippine Sugar EstatesDevelopment Co. vs. Poizat," 48 Phil. 536, 538:

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon itsface purport to be made, signed and sealed in the name of the principal,otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in thename of the principal. Neither is it ordinarily sufficient that in the mortgagethe agent describes himself as acting by virtue of a power of attorney, if infact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a

party to the instrument. However clearly the body of the mortgage may

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show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal.

In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his

name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo.The Court of Appeals further observed:

It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly stipulating that it was being executed "assecurity for the payment of certain loans, advances or other accommodation obtained by the Mortgagor from the Mortgagee in thetotal sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained. The

promissory notes were dated August 31, September 23 and October 26,1981 which were subsequent to the execution of the deed of mortgage.The appellant is correct in claiming that the defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no existing indebtedness with it at the time.

Under the facts the defendant Rural Bank appeared to have ignored therepresentative capacity of Aquino and dealt with him and his wife in their

personal capacities. Said appellee Rural Bank also did not conduct aninquiry on whether the subject loans were to benefit the interest of the

principal (plaintiff Gallardo) rather than that of the agent although the deed

of mortgage was explicit that the loan was for purpose of the bangus and sugpo production of defendant Aquino.

In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo" production,Gallardo in effect becomes a surety who is made primarily answerable for loans taken by Aquino in his personal capacity in the event Aquinodefaults in such payment. Under Art. 1878 of the Civil Code, to obligatethe principal as a guarantor or surety, a special power of attorney isrequired. No such special power of attorney for Gallardo to be a surety of

Aquino had been executed. (pp. 42-43, Rollo.)

Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardosince it was executed in accordance with Article 1883 which provides:

Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal.

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In such case the agent is the one directly bound in favor of the personwith whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal.

The above provision of the Civil Code relied upon by the petitioner Bank, is not

applicable to the case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted in his personal capacity. Involved herein are propertiestitled in the name of respondent Gallardo against which the Bank proposes to foreclosethe mortgage constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates Development Co.vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a real mortgage which she never executed either in person or by attorney in fact.It should be noted that this is a mortgage upon real property, the title towhich cannot be divested except by sale on execution or the formalities of

a will or deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property should be executed with all of theformalities required in a deed. For the same reason that the personal signature of Poizat, standing alone, would not convey the title of his wifein her own real property, such a signature would not bind her as amortgagor in real property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto. Costs against the petitioner.

SO ORDERED.

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G.R. No. L-17160 November 29, 1965

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,vs.PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR:

PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M.CRAME, defendants-appellees.

Jose A. Javier for plaintiff-appellant.Ibarra and Papa for defendants-appellees.

BENGZON, C.J.:

This is an action to recover from defendants, the sum of P33,009.71 with interest and attorney's fees of P8,000.00.

Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur (hereinafter referred to as Primateria Zurich) is a foreign juridical entity and, at the time of thetransactions involved herein, had its main office at Zurich, Switzerland. It was thenengaged in "Transactions in international trade with agricultural products, particularly inoils, fats and oil-seeds and related products."

The record shows that:

On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin,entered into an agreement with plaintiff Philippine Products Company, whereby thelatter undertook to buy copra in the Philippines for the account of Primateria Zurich,

during "a tentative experimental period of one month from date." The contract wasrenewed by mutual agreement of the parties to cover an extended period up toFebruary 24, 1952, later extended to 1953. During such period, plaintiff caused theshipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc. — referred to hereafter as PrimateriaPhilippines — acting by defendant Alexander G. Baylin and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955,was P33,009.71.

At the trial, before the Manila court of first instance, it was proven that the amount duefrom defendant Primateria Zurich, on account of the various shipments of copra, was

P31,009.71, because it had paid P2,000.00 of the original claim of plaintiff. There is nodispute about accounting.

And there is no question that Alexander G. Baylin and Primateria Philippines acted asthe duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive vice-president of Primateria Philippines, which

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also acted as agent of Primateria Zurich. It is likewise undisputed that Primateria Zurichhad no license to transact business in the Philippines.

For failure to file an answer within the reglementary period, defendant Primateria Zurichwas declared in default.

After trial, judgment was rendered by the lower court holding defendant PrimateriaZurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the dateof the filing of the complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M. Crame from any and all liability.

Plaintiff appealed from that portion of the judgment dismissing its complaint as regardsthe three defendants.

It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of

Sections 68 and 69 of the Corporation Law, and since it has transacted business in thePhilippines without the necessary license, as required by said provisions, its agentshere are personally liable for contracts made in its behalf.

Section 68 of the Corporation Law states: "No foreign corporation or corporationformed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained alicense for that purpose from the Securities and Exchange Commission .. ." And under Section 69, "any officer or agent of the corporation or any person transacting businessfor any foreign corporation not having the license prescribed shall be punished by imprisonment for etc. ... ."

The issues which have to be determined, therefore, are the following:

1. Whether defendant Primateria Zurich may be considered a foreign corporation withinthe meaning of Sections 68 and 69 of the Corporation Law;

2. Assuming said entity to be a foreign corporation, whether it may be considered ashaving transacted business in the Philippines within the meaning of said sections; and

3. If so, whether its agents may be held personally liable on contracts made in the nameof the entity with third persons in the Philippines.

The lower court ruled that the Primateria Zurich was not duly proven to be aforeign corporation; nor that a societe anonyme (" sociedad anomima") is a corporation;and that failing such proof, the societe cannot be deemed to fall within the prescriptionof Section 68 of the Corporation Law. We agree with the said court's conclusion. In fact,our corporation law recognized the difference between sociedades anonimas and corporations.

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At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three defendants.

But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897 of the New Civil Code which reads as follows:

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

But there is no proof that, as agents, they exceeded the limits of their authority. In fact,the principal — Primateria Zurich — who should be the one to raise the point, never raised it, denied its liability on the ground of excess of authority. At any rate, the articledoes not hold that in cases of excess of authority, both the agent and the principal are

liable to the other contracting party.

This view of the cause dispenses with the necessity of deciding the other two issues,namely: whether the agent of a foreign corporation doing business, but not licensed here is personally liable for contracts made by him in the name of suchcorporation.1 Although, the solution should not be difficult, since we already held that such foreign corporation may be sued here (General Corporation vs. Union Ins., 87 Phil. 509). And obviously, liability of the agent is necessarily premised on the inability tosue the principal or non-liability of such principal. In the absence of express legislation,of course.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment isaffirmed, with costs against appellant.

Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P.,and Zaldivar, JJ., concur.

Barrera, J., took no part.

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G.R. No. 16492 March 9, 1922

E. MACIAS & CO., importers and exporters, plaintiff-appellant,

vs.WARNER, BARNES & CO., in its capacity as agents of "The China Fire InsuranceCo.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendant-appellant.

Ramon Sotelo for plaintiff-appellant.Cohn, Fisher & DeWitt for defendant-appellant.

STATEMENT

The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a

corporation duly licensed to do business in the Philippine Islands, and is the residentagent of insurance companies "The China Fire Insurance Company, Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai," and "TheState Assurance Company, Limited, of Liverpool. The plaintiff is an importer of texturesand commercial articles for wholesale.

In the ordinary course of business, it applied for, and obtained, the following policiesagainst loss by fire:

Policy No. 4143, issued by The China Fire InsuranceCo., Ltd., for ....................................................................... P12,000

Policy No. 4382, issued by The China Fire InsuranceCo., Ltd., for .......................................................................... 15,000

Policy No. 326, issued by The Yang-Tsze Insurance Ass'n., Ltd., for ..................................................................... 10,000

Policy No. 796111, issued by The State AssuranceCo., Ltd., for ............................................................................ 8,000

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having paid to the

China Fire Insurance Company, Limited, P102 for insuring against or damage by firecertain merchandise the description of which follows, "the company agrees with theinsured that, if the property above described, or any party thereof, shall be destroyed or damaged by fire between September 16, 1918, and September 16, 1919," etc., "Thecompany will, out of its capital, stock and funds, pay or make good all such loss or damage, not exceeding" the amount of the policy. This policy was later duly assigned tothe plaintiff.

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Policy No. 4382, for P15,000, was issued by the same company to, and in the name of,plaintiff.

Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for P10,000, was issued to, and in the name of the plaintiff by The Yang-Tsze Insurance

Association, Limited, and recites that the premium of P125 was paid by the plaintiff tothe association, and that, in the event of loss by fire between certain dates, "the fundsand property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned and herebyinsured," not exceeding the amount of the policy.

Policy No. 796111, for P8,000, was issued by The States Assurance Company, Limited,to the plaintiff for a premium of P100, which was paid to the Assurance Companythrough the defendant, its authorized agent, and recites that "the company agrees withthe insured that in the event of loss by fire between certain dates, the company will, out

of its capital, stock and funds, pay the amount of such loss or damage," not exceedingthe amount of the policy, and it is attested by the defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.," authorized agents of the Assurance Company.

Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited,"by the cashier and accountant and manager of the defendant, as agents of The ChinaFire Insurance Company, Limited. The same is true as to policy no. 4382.

Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The Yang-Tsze Insurance Association, Limited, and that, in the event of loss, "the funds and

property of the said association shall be subject and liable to pay, reinstate, or makegood to the said assured, their heirs, executors, or administrators, such loss or damageas shall be occasioned by fire or lightning to the property" insured, not exceeding theamount of the policy, and it is attested by the defendant, through its cashier andaccountant and manager, as agents of the association "under the authority of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and onbehalf of the said Association, etc."

March 25, 1919, and while the policies were in force, a loss occurred in which theinsured property was more or less damaged by fire and the use of water resulting fromthe fire.

The plaintiff made a claim for damages under its policies, but could not agree as to theamount of loss sustained. It sold the insured property in its then damaged condition, andbrought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the amount of the policies and the amount realized from the saleof the property, and in the first cause of action, it prayed for judgment for P23,052.99,and in the second cause of action P9,857.15.

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The numbers and amounts of the policies and the names of the insurance companiesare set forth and alleged in the complaint.

The answer admits that the defendants is the resident agent of the insurancecompanies, the issuance of the policies, and that a fire occurred on March 25, 1919, in

the building in which the goods covered by the insurance policies were stored, and thatto extinguish the fire three packages of goods were damage by water not to exceedP500, and denies generally all other material allegations of the complaint.

As a further and separate defense, the defendant pleads certain provisions in thepolicies, among which was a written notice of loss, and all other insurance and certaindetailed information. It is then alleged —

That although frequently requested to do so, plaintiff failed and refused to deliver to defendant or to any other person authorized to receive it, any claim in writingspecifying the articles or items of property damaged or destroyed and of the

alleged amount of the loss or damage caused thereto.

That defendant was at all times ready and willing to pay, on behalf of theinsurance companies by whom said policies were issued, and to the extent for which each was proportionately liable, the actual damage to plaintiff's goodscovered by the risks insured against, upon compliance within the time limited,with the terms of the clause of the contracts of insurance above set forth.

Defendants prays judgment for costs.

Before the trial, counsel for the defendant objected to the introduction of any evidence in

the case, and moved "that judgment be entered for the defendant on the pleadings uponthe ground that it appears from the averment of the complaint that the plaintiff has hadno contractual relations with the defendant, and that the action has not been broughtagainst the real party in interest." The objection and motion was overruled andexception duly taken. After trial the court found that there was due the plaintiff from thethree insurance companies p18,493.29 with interest thereon at the rate of 6 per cent per annum, from the date of the commencement of the action, and costs, and rendered thefollowing judgment:

It is, therefore, ordered that judgment be entered against Warner, Barnes & Co.,Ltd., in its capacity as agent and representative in the Philippine Islands for The

China fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd.,and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias &Co., of the sum of P18,493.29, the amount of this judgment to be prorated byWarner, Barnes & Co., among the three insurance companies above-mentionedby it represented, in proportion to the interest insured by each of said threeinsurance companies, according to the policies issued by them in favor of theplaintiff, and sued upon in this action.

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The defendant then filed a motion to set aside the judgment and for a new trial, whichwas overruled and exception taken. From this judgment the defendant appealed,claiming that "the court erred in overruling defendant's motion for judgment on thepleadings; that the court erred in giving judgment for the plaintiff; that the court erred indenying defendants motion for a new trial," and specifying other assignments which are

not material to this opinion, Plaintiff also appealed.

JOHNS, J.:

The material facts are not in dispute it must be conceded that the policies in questionwere issued by the different insurance companies, through the defendant as their respective agent; that they were issued in consideration of a premium which was paidby the insured to the respective companies for the amount of the policies, as alleged;that the defendant was, and is now, the resident agent in Manila of the companies, and

was authorized to solicit and do business for them as such agent; that each company isa foreign corporation. The principal office and place business of the The China FireInsurance Company is at Hongkong; of The Yang-Tsze Insurance Association is atShanghai; and of The State Assurance Company is at Liverpool. As such foreigncorporations they were duly authorized and licensed to do insurance business in thePhilippine Islands, and, to that end and for that purpose, the defendant corporation,Warner, Barnes & Co., was the agent of each company.

All of the policies are in writing, and recite that the premium was paid by the insured tothe insurance company which issued the policy, and that, in the event of a loss, theinsurance company which issued it will pay to the insured the amount of the policy.

This is not a case of an undisclosed agent or an undisclosed principal. It is a case of adisclosed agent and a disclosed principal.

The policies on their face shows that the defendant was the agent of the respectivecompanies, and that it was acting as such agent in dealing with the plaintiff. That in theissuance and delivery of the policies, the defendant was doing business in the name of,acting for, and representing, the respective insurance companies. The different policiesexpressly recite that, in the event of a loss, the respective companies agree tocompensate the plaintiff for the amount of the loss. the defendant company did notinsure the property of the plaintiff, or in any manner agree to pay the plaintiff the amount

of any loss. There is no contract of any kind. either oral or written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, andare in writing, and the premiums were paid to the insurance companies, and are inwriting, and the premiums were paid to the insurance companies and the policies wereissued by, and in the name of, the insurance companies, and on the face of the policyitself, the plaintiff knew that the defendant was acting as agent for, and wasrepresenting, the respective insurance companies in the issuance and deliver of the

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policies. The defendant company did not contract or agree to do anything or to pay theplaintiff any money at any time or on any condition, either as agent or principal.

There is a very important distinction between the power and duties of a residentinsurance agent of a foreign company and that of an executor, administrator, or

receiver. An insurance agent as such is not responsible for, and does not have, anycontrol over the corpus or estate of the corporate property, as does an executor,administrator, or receiver. Subject only to the order of the court, such officers are legalcustodians and have actual possession of the corporate property. It is under their control and within their jurisdiction.

As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurancecompany has greater power and authority to act for, and bind, the company than does asoliciting agent of an insurance company. Yet, no attorney would contend that apersonal action would lie against local attorneys who represent a foreign corporation torecover on a contract made by the corporation. On the same principles by which plaintiff

seeks to recover from the defendant, an action could be maintained against the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank.

Every cause of action ex contractu must be founded upon a contract, oral or written,either express or implied.

Warner, Barnes & Co., as principal or agent, did not make any contract, either or written, with the plaintiff. The contracts were made between the respective insurancecompanies and the insured, and were made by the insurance companies, throughWarner, Barnes & Co., as their agent.

As in the case of a bank draft, it is not the cashier of the bank who makes the contractto pay the money evidenced by the draft, it is the bank, acting through its cashier, thatmakes the contract. So, in the instant case, it was the insurance companies, actingthrough Warner, Barnes & Co., as their agent, that made the written contracts wit theinsured.

The trial court attached much importance to the fact that in the further and separateanswer, an admission was made "that defendant was at all times ready and will not topay, on behalf of the insurance companies by whom each was proportionately liable,the actual damage" sustained by the plaintiff covered by the policies upon the terms andconditions therein stated.

When analyzed, that is nothing more than a statement that the companies were readyand willing to prorate the amount when the losses were legally ascertained. Again, thereis not claim or pretense that Warner, Barnes & Co. had any authority to act for, andrepresent the insurance companies in the pending action, or to appear for them or makeany admission which would bind them. As a local agent, it could not do that withoutexpress authority. That power could only exercised by an executive officer of thecompany, or a person who was duly authorized to act for, and represent, the company

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in legal proceedings, and there is no claim or pretense, either express or implied, thatthe defendant has any such authority.

Plaintiff's cause of action, if any, is direct against the insurance companies that issuedthe policies and agreed to pay the losses.

The only defendant in the instant case is "Warner, Barnes & Co., in its capacity asagents of:" the insurance companies. Warner, Barnes & Co. did not make any contractwith the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is not entitled to recover its losses from Warner, Barnes& Co., either as principal or agent. There is no breach of any contract with the plaintiff by Warners, Barnes & Co., either as agent or principal, for the simple reason thatWarner, Barnes & Co., as agent or principal, never made any contract, oral or written,with the plaintiff. This defense was promptly raised before the taking of the testimony,and again renewed on the motion to set aside the judgment.

Plaintiff's own evidence shows that any cause of action it may have is against theinsurance companies which issued the policies.

The complaint is dismissed, and the judgment of the lower court is reversed, and onewill be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costsin both this and the lower court. So ordered

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G.R. No. L-25301 October 26, 1968

GOLD STAR MINING CO., INC., petitioner,vs.MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA, AURORA JIMENA,

JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirsof the deceased VICTOR JIMENA, and JOSE HIDALGO, respondents.

Emiliano S. Samson and R. Balderrama-Samson for petitioner.Leandro Sevilla and Ramon C. Aquino for respondents.

REYES, J.B.L., J.:

From an affirmance in toto by the Court of Appeals1 of a decision of the Court of FirstInstance of Manila,2specifically the portion thereof condemning Gold Star Mining Co.,Inc. to pay Marta Lim Vda. de Jimena, et al., the sum of P30,691.92 solidarily with

Ananias Isaac Lincallo for violation of an injunction this appeal is taken.

It is of record that in 1937, Ananias Isaac Lincallo bound himself in writing to turn toVictor Jimena one-half (1/2) of the proceeds from all mining claims that he wouldpurchase with the money to be advanced by the latter. This agreement was later onmodified (in a 1939 notarial instrument duly registered with the Register of Deeds of Marinduque in his capacity as mining recorder) so as to include in the equal sharingarrangement not only the proceeds from several mining claims, which by that time hadalready been purchased by Lincallo with various sums totalling P5,800.00 supplied byJimena, but also the lands constituting the same, and so as to bind thereby their "heirs,assigns, or legal representatives." Apparently, the mining rights over part of the claims

were assigned by Lincallo to Gold Star Mining Co., Inc., sometime before World War Ilbecause in 1950 the corporation paid him P5,000 in consideration of, and as a quitclaimfor, pre-war royalties.

On several occasions thereafter, the mining claims in question were made subject-matter of contracts entered into by Lincallo in his own name and for his benefit alonewithout the slightest intimation of Jimena's interests over the same. Thus, on 19September 1951, Lincallo and one Alejandro Marquez, as separate owners of particular mining claims, entered into an agreement with Gold Star Mining Co., Inc., the assigneethereof, regarding allotment to Lincallo of 45% of the royalties due from the corporation.Four months later, Lincallo, Marquez and Congressman Panfilo Manguerra, again as

owners, leased certain mining claims to Jacob Cabarrus, who, in turn, transferred toMarinduque Iron Mines Agents, Inc., his rights under the lease contract. By virtue of stillanother contract executed by these lessors on 29 February 1952, 43% of the royaltiesdue from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo.

As early as August, 1939 and down to September, 1952, Jimena repeatedly apprisedGold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., of his interests over the mining claims so assigned and/or leased by Lincallo and, accordingly, demanded

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recognition and payment of his one-half share in all the royalties, allocated and paidand, thereafter, to be paid to the latter. Both corporations, however, ignored Jimena'sdemands.

Payment of the P5,800 advanced for the purchase of the mining claims, as well as the

one-half share in the royalties paid by the two corporations, were also repeatedlydemanded by Jimena from Lincallo. Acknowledging Jimena's contractual claim, Lincallooff and on promised to settle his obligations. And on 14 July 1952, Lincallo promised for the last time, to settle everything on or before the 30th day of the same month.

Lincallo, however, did not only fail to settle his accounts with Jimena but transferred on16 August 1952, a month after he promised to pay Jimena, 35 of his 45% share in theroyalties due from Gold Star Mining Co., Inc., to one Gregorio Tolentino, a salariedemployee, for an alleged consideration of P10,000.00.

On 2 September 1954, Jimena commenced a suit against Lincallo for recovery of his

advances and his one-half share in the royalties. Gold Star Mining Co., Inc., andMarinduque Iron Mines, Inc., together with Tolentino, were later joined as defendants.

On 17 September 1954, the trial court issued, upon petition of Jimena, a writ of preliminary injunction restraining Gold Star Mining Co., Inc., and Marinduque Iron Mines

Agents, Inc., from paying royalties during the pendency of the case to Lincallo, hisassigns or legal representatives. Despite the injunction, however, Gold Star Mining Co.,Inc., was found out to have paid P30, 691.92 to Lincallo and Tolentino. Said corporationclaimed later on (on appeal) that the injunction had been superseded and/or dissolvedon 25 May 1955 by the trial court's grant of Jimena's petition for a writ of preliminaryattachment "to supersede the writ of preliminary injunction previously issued." But as

the grant was conditioned upon filing of a bond to be approved by the trial court, no writof attachment was issued because the bond offered by Jimena was disapproved.3

Jimena and Tolentino died successively during the pendency of the case in the trialcourt and were, accordingly, substituted by their respective widows and children.

After a protracted trial, the lower court rendered a decision, the dispositive portion of which reads as follows:

IN VIEW WHEREOF, judgment is rendered:

1. Declaring the plaintiffs —

(a) as successors in interest of Victor Jimena to be entitled to 1/2 of the45% share of the royalties of defendant Lincallo under the latter's contractwith Gold Star, Exh. D or Exh. D-l, dated September 19, 1951;

(b) to 1/2 of the 43% shares of the rental of defendant Lincallo under hiscontract with Jesus (Jacob) Cabarrus assigned to Marinduque Iron Mines,

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and his contract with Alejandro Marquez, dated December 5, 1951, andFebruary 29, 1952, Exhs. J and J-1; .

(c) and condemning defendants Gold Star and Marinduque Iron Mines topay direct to plaintiffs said 1/2 shares of the royalties until said contracts

are terminated;

2. Condemning defendant Lincallo to pay unto plaintiffs, as successors in interestof Victor Jimena —

(a) the sum of P5,800 with legal interest from the date of the filing of thecomplaint;

(b) the sum of P40,167.52 which is the 1/2 share of the royalties paid byGold Star unto Lincallo as of the September 14, 1957;

(c) the sum of P3,235.64 which is the 1/2 share of Jimena on the rentalsamounting to P6,471.27 corresponding to Lincallo's share paid byMarinduque Iron Mines unto Lincallo from December, 1951 to August 25,1954; under Exhibit N;

(d) P1,000.00 as attorneys fees;

3. Declaring that the deed of sale, Exh. H, dated August 16, 1952, betweendefendant Lincallo and Gregorio Tolentino was effective and transferred only 1/2of the 45% (43%) share of Lincallo, and ordering Gold Star Mining Company tomake payment hereafter unto plaintiffs, pursuant to this decision on the royalties

due unto Lincallo, notwithstanding the cession unto Tolentino, so that of theroyalties due unto Lincallo 1/2 should always be paid by Gold Star unto plaintiffsnotwithstanding said session, Exh. H, unto Tolentino by Lincallo;

4. Judgment is also rendered condemning the estate of Gregorio Tolentino butnot the heirs personally, to pay unto plaintiffs the sum of P24,386.51 with legalinterest from the date of the filing of the complaint against Gregorio Tolentino.

5. Judgment is rendered condemning defendant Gold Star Mining Company to pay to plaintiffs solidarily with Lincallo and to be imputed to Lincallo's liability under this judgment unto Jimena, the sum of P30,691.92 ;

6. Judgment is rendered condemning defendant Marinduque Iron Mines to payunto plaintiffs the sum of P7,330.36;

7. The counterclaims of defendants are dismissed;

8. Costs against defendant Lincallo.

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SO ORDERED. (Emphasis supplied.)

From this judgment, all four defendants, namely, Lincallo, the widow and children of Tolentino, and the two corporations, appealed to the Court of Appeals. The appealinterposed by Marinduque Iron Mines Agents, Inc., was, however, withdrawn, while that

of Lincallo was dismissed for the failure to file brief. Pending outcome of the appeal, theroyalties due from Gold Star Mining Co., Inc., were required to be deposited with thetrial court, as per order of 17 June 1958 issued by the same court. In compliancetherewith, Gold Star Mining Co., Inc., made a judicial deposit in the amount of P30,691.92.

On 8 October 1965, the Court of Appeals handed down a decision sustaining in itsentirety that of the trial court. Gold Star Mining Co., Inc., moved for reconsideration of said decision insofar as its adjudged solidary liability with Lincallo to pay to the Jimenasthe sum of P30,691.92 "for flagrant violation of the injunction" was concerned. Themotion was denied. Hence, the present appeal.

Petitioner Gold Star Mining Co., Inc., argues that the Court of Appeals' decision findingthat respondents Jimenas have a cause of action against it, and condemning it to paythe sum of P30,691.92 for violation of an allegedly non-existent injunction, arereversible errors. Reasons: As to respondents Jimena's cause of action, the same doesnot allegedly appear in the complaint filed against petitioner corporation. And as to theP30,691.92 penalty for violation of the injunction, the same can not allegedly beimposed because (1) the sum of P30,691.92 was not prayed for, (2) the injunction inquestion had already been superseded and/or dissolved by the trial court's grant of Jimena's petition for writ of preliminary attachment; and (3) the corporation was never charged, heard, nor found guilty in accordance with, and pursuant to, the provisions, of

Rule 64 of the (Old) Rules of Court.

We are of the same opinion with the Court of Appeals that respondents Jimenas have acause of action against petitioner corporation and that the latter's joinder as one of thedefendants before the trial court is fitting and proper. Said the Court of Appeals, and weadopt the same:

There first assigned error is the Trial Court erred in not dismissing this instantaction as "there is no privity of contract between Gold Star and Jimena." Thiscontention is without merit.

The situation at bar is similar to the status of the first and second mortgagees of a duly registered real estate mortgage. While there exists no privity of contractbetween them, yet the common subject-matter supplies the juridical link.

Here the evidence overwhelmingly established that Jimena made prewar andpostwar demands upon Gold Star for the payment of his 1/2 share of theroyalties but all in vain so he (Jimena) was constrained to implead Gold Star because it refused to recognize his right.

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Jimena now seeks for accounting of the royalties paid by Gold Star to Lincallo,and for direct payment to himself of his share of the royalties. This relief cannotbe granted without joining the Gold Star specially in the face of the attitude it haddisplayed towards Jimena.

Borrowing the Spanish maxim cited by Jimena's counsel, "el deudor de mideudor es deudor mio," this legal maxim finds sanction in Article 1177, new CivilCode which provides that "creditors, after having pursued the property inpossession of the debtor to satisfy their claims, may exercise all the rights andbring all the actions of the latter (debtor) for the same purpose, save those whichare inherent in his person; they may also impugn the acts which the debtor mayhave done to defraud them (1111)."

From another standpoint, equally valid and acceptable, it can be said thatLincallo, in transferring the mining claims to Gold Star (without disclosing thatJimena was a co-owner although Gold Star had knowledge of the fact as shown

by the proofs heretofore mentioned) acted as Jimena's agent with respect toJimena's share of the claims.

Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883, New Civil Code, which provides that the principal may sue theperson with whom the agent dealt with in his (agent's) own name, when thetransaction "involves things belonging to the principal."

As counsel for Jimena has correctly contended, "the remedy of garnishmentsuggested by Gold Star is utterly inadequate for the enforcement of Jimena'sright against Lincallo because Jimena wanted an accounting and wanted to

receive directly his share of the royalties from Gold Star. That recourse is notopen to Jimena unless Gold Star is made a party in this action."

Coming now to the violation of the injunction, we observe that the facts speak for themselves. Considering that no writ of preliminary attachment was issued by the trialcourt, the condition for its issuance not having been met by Jimena, nothing can be saidto have superseded the writ of preliminary injunction in question. The preliminaryinjunction was, therefore, subsisting and evidently violated by petitioner corporationwhen it paid the sum of P30,691.92 to Lincallo and Tolentino.

Gold Star Mining Co., Inc., insists that it may not be penalized for breach of the

injunction, issued by the court of origin, without prior written charge for indirectcontempt, and due hearing, citing section 3 of Rule 64 of the old Rules of Court, nowRule 71 of the Revised Rules. We fail to see any merit in this contention, as it missesthe true nature and intent of the award of P30,691.92 to Jimena, payable by Gold Star and Lincallo's estate.

Said award is not so much a penalty against petitioner as a decree of restitution, inorder to make the violated injunction effective, as it should be, by placing the parties in

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the same condition as if the injunction had been fully obeyed. If Gold Star Mining Co.,Inc., had only heeded the injunction and had not paid to Lincallo the royalties of P30,691.92, such amount would now be available for the satisfaction of the claims of Jimena and his heirs against Lincallo. By sentencing Gold Star Mining Co., Inc., to pay,for the account of Lincallo, the sum aforesaid, the court merely endeavoured to prevent

its award from being rendered pro tanto nugatory and ineffective, and thus make itconformable to law and justice.

That the questioned award was not intended to be a penalty against appellant Gold Star Mining Co., Inc., is shown by the provision in the judgment that the P30,691.92 to bepaid by it to Jimena is "to be imputed to Lincallo's liability under this judgment ." Thecourt thus left the way open for Gold Star Mining Co., Inc., to recover later the wholeamount from Lincallo, whether by direct action against him or by deducting it from theroyalties that may fall due under his 1951 contract with appellant.

That the recovery of this particular amount was not specifically sought in the complaint

is of no moment, since the complaint prayed in general for "other equitable relief."

WHEREFORE, finding no reversible error in the decision appealed from, the same isaffirmed, with costs against petitioner-appellant, Gold Star Mining Co., Inc.

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur.Zaldivar, J., is on leave.

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NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THEPHILIPPINE 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 Courtof Appeals[1] in CA GR CV No. 41407, entitled “Nicholas Y. Cervantes vs. Philippine Air Lines Inc.”, affirming in toto the judgment of the trial court dismissing petitioner’scomplaint for damages.

On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued tothe herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-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 of the said plane ticket was in compliance with a Compromise Agreement entered intobetween the contending parties in two previous suits, docketed as Civil Case Nos. 3392and 3451 before the Regional Trial Court in Surigao City.[2]

On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his arrival in Los Angeles on the same day, he immediately booked hisLos Angeles-Manila return ticket with the PAL office, and it was confirmed for the April

2, 1990 flight.Upon learning that the same PAL plane would make a stop-over in San Francisco,

and considering that he would be there on April 2, 1990, petitioner made arrangementswith 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 of contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional

Trial Court of Surigao del Norte in Surigao City. But the said complaint was dismissedfor lack of merit.[3]

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

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

http://sc.judiciary.gov.ph/jurisprudence/1999/mar99/125138.htm#_edn1






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The issues raised for resolution are: (1) Whether or not the act of the PAL agents inconfirming 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 notthe 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 court [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 of theConditions 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 tocommencement of carriage. Carrier may refuse transportation if the applicable fare hasnot been paid.”[6]

The question on the validity of subject ticket can be resolved in light of the ruling inthe case of Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos wereissued 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 the petitioner on the ground that the said tickets had already expired. The non-extension of their

tickets prompted the Tolentinos to bring a complaint for breach of contract of carriageagainst the petitioner. In ruling against the award of damages, the Court held that the“ticket constitute the contract between the parties. It is axiomatic that when the termsare clear and leave no doubt as to the intention of the contracting parties, contracts areto 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 aware of the risk that his ticket could expire, as it did,before he returned to the Philippines.’ (pp. 320-321, Original Records)”[8]

“The question is: ‘Did these two (2) employees, in effect , extend the validity or lifetime of the ticket in question? The answer is in the negative. Both had no authority todo so. Appellant knew this from the very start when he called up the Legal Departmentof appellee in the Philippines before he left for the United States of America. He hadfirst hand knowledge that the ticket in question would expire on March 27,1990 and that












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to secure an extension, he would have to file a written request for extension at thePAL’s office in the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991,pp 20-23). Despite this knowledge, appellant persisted to use the ticket in question.”[9]

From the aforestated facts, it can be gleaned that the petitioner was fully aware thatthere was a need to send a letter to the legal counsel of PAL for the extension of the

period of validity of his ticket.

Since the PAL agents are not privy to the said Agreement and petitioner knew that awritten request to the legal counsel of PAL was necessary, he cannot use what the PALagents 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 the scopeof his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person (herein petitioner) knows that the agentwas acting beyond his power or authority, the principal cannot be held liable for the actsof the agent. If the said third person is aware of such limits of authority, he is to blame,

and is not entitled to recover damages from the agent, unless the latter undertook tosecure the principal’s ratification.[12]

Anent the second issue, petitioner’s stance that the defense of lack of authority onthe 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 actedupon by the trial court when Nicholas Cervantes was presented as a witness and the

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

The admission by Cervantes that he was told by PAL’s legal counsel that he had tosubmit 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 to extendthe validity of subject tickets and only PAL’s legal counsel was authorized to do so.

However, notwithstanding PAL’s failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was 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 issuesnot raised by the pleadings are tried with express or implied consent of the parties, asif they had been raised in the pleadings. Such amendment of the pleadings as may benecessary to cause them to conform to the evidence and to raise these issues may bemade upon motion of any party at any time, even after judgment; but failure to amenddoes not affect the result of the trial of these issues. xxx”









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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 thus presentedwhen the adverse party fails to object thereto.”[13]

Re: the third issue, an award of damages is improper because petitioner failed toshow 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 should beon the petitioner. What the employees of PAL did was one of simple negligence. Noinjury resulted on the part of petitioner because he had a back-up ticket should PAL

refuse to accommodate him with the use of subject ticket.Neither can the claim for exemplary damages be upheld. Such kind of damages is

imposed by way of example or correction for the public good, and the existence of badfaith is established. The wrongful act must be accompanied by bad faith, and an awardof damages would be allowed only if the guilty party acted in a wanton, fraudulent,reckless or malevolent manner.[15] Here, there is no showing that PAL acted in such amanner. 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.







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G.R. No. 114091 June 29, 1995

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,vs.HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

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. Bacaltos CoalMines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19

August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No.CEB-8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally liable to private respondent San

Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by the petitionersto enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization(Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which readas follows:

I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing atsecond street, Espina Village, Cebu City, province of Cebu, Philippines,do hereby authorize RENE R. SAVELLON, of legal age, Filipino andresiding at 376-R Osmeña Blvd., Cebu City, Province of Cebu,

Philippines, to use the coal operating contract of BACALTOS COALMINES of which I am the proprietor, for any legitimate purpose that it mayserve. Namely, but not by way of limitation, as follows:

(1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES;

(2) To engage in trading under the style of BACALTOSCOAL MINES/RENE SAVELLON;

(3) To collect all receivables due or in arrears from people or

companies having dealings under BACALTOS COALMINES/RENE SAVELLON;

(4) To extend to any person or company by substitution thesame extent of authority that is granted to Rene Savellon;

(5) In connection with the preceeding paragraphs to executeand sign documents, contracts, and other pertinent papers.

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Further, I hereby give and grant to RENE SAVELLON full authority to doand perform all and every lawful act requisite or necessary to carry intoeffect the foregoing stipulations as fully to all intents and purposes as Imight or would lawfully do if personally present, with full power of substitution and revocation.

The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOSCOAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON"and private respondent San Miguel Corporation (hereinafter SMC), represented byFrancisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue"Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/VPremship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips toDavao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable

to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellonissued a receipt under the heading of BACALTOS COAL MINES with the address at No376-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 Officer andthat the powers granted to him are only those clearly expressed in the Authorizationwhich do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have

issued the check in their favor. They setup counterclaims for moral and exemplarydamages 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 for damages on

account of breach of contract;

2. Whether or not the defendants acted in good faith in its representationsto the plaintiff;

3. Whether or not defendant Bacaltos was duly enriched on the paymentmade by the plaintiff for the use of the vessel;

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4. Whether or not defendant Bacaltos is estopped to deny theauthorization given to defendant Savellon;

Defendants —

1. Whether or not the plaintiff should have first investigated the ownershipof vessel M/V PREM [SHIP] II before entering into any contract withdefendant 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 in issuing thechecks in payment of the contract in the name of defendant Savellon andnot in the name of defendant Bacaltos Coal Mines;

4. Whether or not the plaintiff is liable on defendants'counterclaim. 9

After trial, the lower court rendered the assailed decision in favor of SMC and againstthe petitioners and Savellon as follows:

WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendantsRene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly andseverally, 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 date of written demand, which is June 14, 1989;

2. The amount of P20,000.00 by way of exemplary damages;

3. The amount of P20,000.00 as attorney's fees and P5,000.00 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 toshipping 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 prohibitedto engage in entering into a Trip Charter Party contract." It further reasoned out thateven assuming that the petitioners did not intend to authorize Savellon to enter into theTrip Charter Party, they are still liable because: (a) SMC appears to be an innocentparty which has no knowledge of the real intent of the parties to the Authorization andhas reason to rely on the written Authorization submitted by Savellon pursuant to

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Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, andthe petitioners denial that they caused the printing of such official receipt is "lame"because they submitted only a cash voucher and not their official receipt; (c) the "Noticeof Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos Coal

Mines" and the logo therein is the same as that appearing in their voucher; (d) thepetitioners were benefited by the payment because the real payee in the check isactually Bacaltos Coal Mines and since in the Authorization they authorized Savellon tocollect receivables due or in arrears, the check was then properly delivered to Savellon;and, (e) if indeed Savellon had not been authorized or if indeed he exceeded hisauthority or if the Trip Charter Party was personal to him and the petitioners havenothing to do with it, then Savellon should have "bother[ed] to answer" the complaintand the petitioners should have filed "a cross-claim" against him.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitionersasserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not

verifying the credentials of Savellon and the ownership of the vessel, (2) issuing thecheck 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 was authorizedto enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly andseverally liable with Savellon and Bacaltos Coal Mines. 11

As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trialcourt. It held that: (a) the credentials of Savellon is not an issue since the petitionersimpliedly admitted the agency while the ownership of the vessel was warranted on the

face of the Trip Charter Party; (b) SMC was not negligent when it issued the check inthe name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearlyprovides that collectibles of the petitioners can be coursed through Savellon as theagent; (c) the Authorization includes the power to enter into the Trip Charter Partybecause the "five prerogatives" enumerated in the former is prefaced by the phrase "butnot by way of limitation"; (d) the petitioners' statement that the check should have beenissued in the name of Bacaltos Coal Mines is another implicit admission that the TripCharter Party is part and parcel of the petitioners' business notwithstanding GermanBacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorizationitself, hence he should not now be permitted to disavow what he initially stated to betrue and to interpose the defense that Bacaltos Coal Mines has a distinct legalpersonality.

Their motion for a reconsideration of the above decision having been denied, thepetitioners filed the instant petition wherein they raise the following errors:

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I. THE RESPONDENT COURT ERRED IN HOLDING THATRENE SAVELLON WAS AUTHORIZED TO ENTER INTO ATRIP CHARTER PARTY CONTRACT WITH PRIVATERESPONDENT INSPITE OF ITS FINDING THAT SUCH

AUTHORITY CANNOT BE FOUND IN THE FOUR

CORNERS OF THE AUTHORIZATION;

II. THE RESPONDENT COURT ERRED IN NOT HOLDINGTHAT BY ISSUING THE CHECK IN THE NAME OF RENESAVELLON IN TRUST FOR BACALTOS COAL MINES,THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITSOWN DAMAGE; AND

III. THE RESPONDENT COURT ERRED IN HOLDINGPETITIONER GERMAN BACALTOS JOINTLY ANDSEVERALLY LIABLE WITH RENE SAVELLON AND CO-

PETITIONER BACALTOS COAL MINES IN SPITE OF THEFINDING OF THE COURT A QUO THAT PETITIONERBACALTOS COAL MINES AND PETITIONER BACALTOS

ARE TWO DISTINCT AND SEPARATE LEGALPERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced in thepetition, and the comment thereto and reply to the comment, the Court resolved to givedue course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon his peril

the authority of the agent. If he does not make such inquiry, he is chargeable withknowledge of the agent's authority, and his ignorance of that authority will not be anyexcuse. Persons dealing with an assumed agent, whether the assumed agency be ageneral 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 the authority,and in case either is controverted, the burden of proof is upon them to establishit. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows:

A third person dealing with a known agent may not act negligently withregard to the extent of the agent's authority or blindly trust the agent'sstatements in such respect. Rather, he must use reasonable diligence and

prudence to ascertain whether the agent is acting and dealing with himwithin the scope of his powers. The mere opinion of an agent as to theextent of his powers, or his mere assumption of authority withoutfoundation, will not bind the principal; and a third person dealing with aknown agent must bear the burden of determining for himself, by theexercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound

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to ascertain not only the fact of agency, but the nature and extent of theauthority. The principal, on the other hand, may act on the presumptionthat third persons dealing with his agent will not be negligent in failing toascertain the extent of his authority as well as the existence of his agency.

Or, as stated in Harry E . Keller Electric Co. vs. Rodriguez ,15

quoting Mechemon Agency :

The person dealing with the agent must also act with ordinary prudenceand reasonable diligence. Obviously, if he knows or has good reason tobelieve that the agent is exceeding his authority, he cannot claimprotection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which heseeks to exercise is of such an unusual or improbable character, as wouldsuffice to put an ordinarily prudent man upon his guard, the party dealing

with him 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 from the 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, for

any 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 coal operating contract for anylegitimate purpose it may serve. The enumerated "fiveprerogatives" — to employ the term used by the Court of Appeals — are nothingbut the specific prerogatives subsumed under or classified as part of or asexamples of the power to use the coal operating contract. The clause "but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or begermane to the power to use the coal operating contract. The conclusion then of

the Court of Appeals that the Authorization includes the power to enter into theTrip Chapter Party because the "five prerogatives" are prefaced by such clause,is seriously flawed. It fails to note that the broadest scope of Savellon's authorityis limited to the use of the coal operating contract and the clause cannotcontemplate any other power not included in the enumeration or which areunrelated either to the power to use the coal operating contract or to thosealready enumerated. In short, while the clause allows some room for flexibility, itcan comprehend only additional prerogatives falling within the primary power and

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within the same class as those enumerated. The trial court, however, wentfurther by hastily making a sweeping conclusion that "a company such as a coalmining company 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 owns and

operates vessels, and even if it owned any such vessels, that it was allowed tocharter or lease them. The trial court also failed to note that the Authorizationis not a general power of attorney . It is a special power of attorney for it refers toa clear mandate specifically authorizing the performance of a specific power andof express acts subsumed therein. 17 In short, both courts below unreasonablyexpanded the express terms of or otherwise gave unrestricted meaning to aclause which was precisely intended to prevent unwarranted and unlimitedexpansion of the powers entrusted to Savellon. The suggestion of the Court of

Appeals that there is obscurity in the Authorization which must be construedagainst German Bacaltos because he prepared the Authorization has no leg tostand on inasmuch as there is no obscurity or ambiguity in the instrument. If any

obscurity or ambiguity indeed existed, then there will be more reason to placeSMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril thenature and extent of Savellon's written agency. Unfortunately, it did not.

Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial courtare tenuous and farfetched, bringing to unreasonable limits the clear parameters of thepowers granted in the Authorization.

Furthermore, had SMC exercised due diligence and prudence, it should have known inno time that there is absolutely nothing on the face of the Authorization that confers

upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to 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 coal operatingcontract which it did not even require Savellon to produce. Its principal witness,Mr. Valdescona, expressly so admitted on cross-examination, thus:

Atty. Zosa (to witness — ON CROSS)

Q You said that in your office Mr. Rene Savellon presentedto you this authorization marked Exhibit "C" and Exhibit "1"for the defendant?

A Yes, sir.

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Q Did you read in the first part[y] of this authorization Mr.Valdescona that Mr. Rene Savellon was authorized as thecoal operating contract of Bacaltos Coal Mines?

A Yes, sir.

Q Did it not occur to you that you should have examinedfurther the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr. Savellon to enter into a trip charter party?

A Yes, sir. We discussed about the extent of hisauthorization and he referred us to the number 2 provision of this authorization which is to engage in trading under thestyle of Bacaltos Coal Mines/Rene Savellon, which wefollowed up to the check preparation because it is part of the

authority.

Q In other words, you examined this and you found out thatMr. Savellon is authorized to use the coal operating contractof Bacaltos Coal Mines?

A Yes, sir.

Q You doubted his authority but you found out in paragraph2 that he is authorized that's why you agreed and enteredinto that trip charter party?

A We did not doubt his authority but we were questioning asto the extent of his operating contract.

Q Did you not require Mr. Savellon to produce that coaloperating contract of Bacaltos Coal Mines?

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 used by

Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coaloperating contract.

A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of activeexploration, development, and production of coal resources 19in a specified contractarea. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:

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Sec. 9. Obligations of Operator in Coal Operating Contract . — Theoperator under a coal operating contract shall undertake, manage andexecute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain coal,

by detailed surface geologic mapping, core drilling, trenching, test pittingand other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof;

(b) Steps necessary to reach the coal deposit so that it can be mined,including but not limited to shaft sinking and tunneling; and

(c) The extraction and utilization of coal deposits.

The Government shall oversee the management of the 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 in thisDecree;

(d) Operate the area on behalf of the Government in accordance with

good coal mining practices using modern methods appropriate for thegeological conditions of the area to enable maximum economic productionof coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic programof operation;

(e) Furnish the Energy Development Board promptly with all information,data and reports which it may require;.

(f) Maintain detailed technical records and account of its expenditures;

(g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interferencewith the rights of the other petroleum, mineral and natural resourcesoperators; —

(h) Maintain all necessary equipment in good order and allow access tothese as well as to the exploration, development and production sites andoperations to inspectors authorized by the Energy Development Board;

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(i) Allow representatives authorized by the Energy Development Board fullaccess to their accounts, books and records for tax and other fiscalpurposes.

Section 11 thereof provides for the minimum terms and conditions of a coal operating

contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which aregermane, related, or incident to the power to use it. But it did not even require Savellonto produce the same.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Minesowned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power tolease or charter the vessel. In the instant case, SMC made no such attempt. It merely

satisfied itself with the claim of Savellon that the vessel it was leasing is owned byBacaltos Coal Mines and relied on the presentation of the Authorization as well as itstest on the sea worthiness of the vessel. Valdescona thus declared on directexamination as follows:

A In October, a certain Rene Savellon called our officeoffering us shipping services. So I told him to give us aformal proposal and also for him to come to our office so thatwe can go over his proposal and formally discuss his offer.

Q Did Mr. Rene Savellon go to your office?

A Few days later he came to our office and gave us hisproposal verbally offering a vessel for us to use 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 initially asked himfor us to check the vessel to see its sea worthiness, and we

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assigned our in-house surveyor to check the sea worthinessof the vessel 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 be our cargocarrier.

Q After that what did you do?

A After that we were discussing the condition of the contract.

Q Were you able to execute that contract?

A Yes, sir . 21

He further declared as follows:

Q When you entered into a trip charter contract did youcheck the ownership of M/V Premship?

A The representation made by Mr. Rene Savellon was thatBacaltos Coal Mines operates the vessel and on the strengthof the authorization he showed us we were made to believethat it was Bacaltos Coal Mines that owned it.

COURT: (to witness)

Q In other words, you just believed Rene Savellon?

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/V PremshipII?

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 in coalbusiness, SMC should have required the presentation of pertinent documentary proof of

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ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel whiledrydocked in Danao and thereafter conducted a sea worthiness test could not havefailed to ascertain the registered owner of the vessel. The petitioners themselvesdeclared in open court that they have not leased any vessel for they do not need it intheir 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 of the 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 heartof the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they arenot 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 the originalfor purposes of comparison at the next

hearing,

25

SMC failed to produce the latter. This "Notice of Readiness" is not, therefore,the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court.It is true that when SMC made a formal offer of its exhibits, the petitioners did not objectto the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidencerule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners'employee but of Premier Shipping Lines, the owner of the vessel in question. 26 Thepetitioners raised the issue of inadmissibility under the best evidence rule only belatedlyin this petition. But although Exhibit "A-1" remains admissible for not having been timelyobjected to, it has no probative value as to the ownership of the vessel.

There is likewise no proof that the petitioners received the consideration of the 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 October 1988 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 of RENE 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 manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that thetransaction was permitted in the Authorization, the check should still have been drawnin favor of the principal. SMC then made possible the wrong done. There is an equitablemaxim that between two innocent parties, the one who made it possible for the wrong tobe done should be the one to bear the resulting loss. 28 For this rule to apply, thecondition precedent is that both parties must be innocent. In the present case, however,SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In notdoing so, SMC dealt with Savellon at its own peril.

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Having thus found that SMC was the author of its own damage and that the petitionersare, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separatefrom 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-8187by 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.

SO ORDERED.

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.R. No. 85685 September 11, 1991

LAURO CRUZ, petitioner,

vs.THE HONORABLE COURT OF APPEALS and PURE FOODS CORP., respondents.

Alfonso G. Salvador for petitioner.

Hilario, Go & De la Cruz for private respondent.

DAVIDE, JR., J.:p

In C.A.-G.R. CV No. 07859 (entitled Pure Foods Corporation versus Lauro Cruz, doingbusiness under the name and style Mang Uro Store), a decision was promulgated on 9

August 1988 by respondent Court of Appeals 1affirming in toto the decision promulgatedon 28 February 1985 of the Regional Trial Court of Pasig (Branch 151) of the NationalCapital Judicial Region in Civil Case No. 49672 2 which, by reason of its unusual brevity,is fully reproduced as follows:

DECISION

This is an action for sum of money. From the record, the following factsare gathered: The plaintiff is a domestic corporation engaged in the

manufacture, processing and selling of various meat products while thedefendant is the owner/manager of Mang Uro Store in Dela Paz Street,Marikina, Metro Manila. Sometime in November 1977, the defendant wasgranted by the plaintiff a credit line on which the defendant, on severaloccasions, bought on credit several Purefoods products. The defendanthad an unpaid balance with the plaintiff in the amount of P57,897.63, fromwhich the former was credited the amount of P2,651.42 representing theamount of returned goods, thereby leaving the balance of P 55,246.21.Demands were made upon the defendant for him to settle his account withthe plaintiff. A demand letter dated January 17, 1983 was sent to and wasreceived by the defendant who failed to heed the same. The plaintiff, to

protect its interest, was constrained to hire the services of counsel.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff andagainst the defendant, ordering the latter to pay the former the following:

1. The sum of P 55,246.21, representing his outstanding unpaid accountplus interest of 12% percent per annum to be counted from the date of thefiling of this case on April 15, 1983 until fully paid; and

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2. The sum equivalent to 15% of the total amount due as and for attorney's fees and litigation expenses.

Costs against the defendant.

SO ORDERED.

His motion for reconsideration having been denied in the resolution of respondent Courton 27 October 1988, 3petitioner filed the instant appeal by certiorari under Rule 45 of theRules of Court urging Us to annul and set aside the aforesaid decision and resolutionbecause respondent Court committed the following errors — which are the very errorshe ascribed to the trial court: (a) in not holding that petitioner is not a signatory to thecredit application card attached as Annex "A" of private respondent's complaint asclearly evidenced by the fact that only the signatures of Me Cruz and Marilou Cruz , whoare not impleaded as party defendants, appear therein; (b) in not holding that hissignature does not appear in the invoices submitted by private respondent; (c) in not

holding that he did not receive the letters of demand; (d) in not finding and concludingthat private respondent failed to comply with the Order of the trial court to amend thecomplaint; and (e) in denying his motion for reconsideration.

The antecedent facts are not disputed.

On 15 April 1983, private respondent Pure Foods Corporation filed with the trial court acomplaint 4 for sum of money against petitioner alleging therein that sometime inNovember 1977, petitioner applied for a credit line with the plaintiff which wasconsequently approved by the latter subject to the conditions therein stated; pursuant tosaid approved credit arrangement, defendant (petitioner herein) made various

purchases from plaintiff until the early part of 1982, when he accumulated a total unpaidaccount of P57,897.63 as evidenced by short payment notices and invoices; againstthis obligation, defendant was credited with the amount of P2,651.42 representing thevalue of returned goods, thereby leaving a balance of P55,246.21, which remainedunpaid despite numerous demands made upon him.

The parties who signed the Credit Application card as applicants are Me Cruz , whosigned over the printed wordsname of signatory , and Marilou L. Cruz , who signed over the printed words Authorized Signature. The opening paragraph thereof reads:

I/We hereby apply for a charge account in the amount stated above, and

herewith are the information for your consideration as a basis for theextension of credit to us:

TRADE NAME: MANG URO STORE

Owner/Manager: Lauro Cruz

xxx xxx xxx

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Petitioner did not sign any of the invoices attached to the complaint.

For failure to file an answer within the reglementary period, and upon motion of privaterespondent, the trial court issued an Order on 29 September 1983 declaring thepetitioner in default and authorizing the private respondent to present its evidence ex

parte on 4 October 1983.5

On 19 October 1983, petitioner filed a motion to set aside the order of default 6 allegingtherein that he did not file an answer anymore because upon examination of the recordsof the case, he discovered that it was his son Rodolfo who received the summons andcopy of the complaint; he never entered into any transaction with private respondentand that although the store referred to is still licensed in his name, it has, since 1977,been owned and operated by his son Rodolfo Cruz for the reason that he "is getting oldalready and moreover, because of deteriorating physical condition;" and according tohis son Rodolfo, he had already settled the matter with the private respondent under anagreement whereby Rodolfo would make partial payments and the private respondent

would dismiss the case.

In its Order of 9 November 1983, 7 the trial court granted the aforesaid motion, requiredpetitioner to file his responsive pleading within five (5) days, and to present his evidenceon 6 January 1984.

Petitioner filed an Answer With Counterclaim on 28 March 1983. 8 He reiterates thereinhis allegations in the motion to lift the default order and further avers that his signaturedoes not even appear on the credit application card. On the counter-claim, he prays for

judgment awarding him moral damages in an amount to be proved at the trial, andattorney's fees in the amount of P15,000.00.

Pre-trial was set on 2 January 1984. It was reset by the trial court for 19 January 1984,and further reset for 21 February 1984 at 1:00 P.M. upon motion of private respondent.On the last mentioned date, however, petitioner arrived late and by then, the court hadalready issued an order declaring him in default for failure to appear at the pre-trial.Forthwith, he filed a motion for reconsideration which the trial court granted in its order of 22 February 1984. Pre-trial was reset to 27 March 1984. 9

Pre-trial was held as above scheduled and was concluded with the issuance of thefollowing order:

As prayed for, the plaintiff is given ten (10) days from today to fileamended complaint.

By agreement, the presentation of defendant's evidence is set for May 16,1984, at 8:30 a.m., without prejudice to the filing of a compromiseagreement. 10

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As stated by petitioner, 11 which is not denied by private respondent, the purpose of theamendment was to implead Me Cruz and Marilou Cruz as parties defendants since theyare the applicants in the credit application card.

Both parties did not appear on 16 May 1984. Thereupon, the trial court issued an order

declaring the case as submitted for decision on the basis of the evidence on record.12

As adverted to earlier, on 28 February 1985, the trial court rendered its decision againstpetitioner who, on 21 March 1985, filed a motion to reconsider 13 the decision, which thetrial court denied for lack of merit in its order of 16 May 1985. 14

Petitioner appealed from the decision to the then Intermediate Appellate Court, nowCourt of Appeals.

The appeal was docketed as C.A.-G.R. CV No. 07859.

In his Brief in said case, petitioner attributes to the trial court the errors15

which, asearlier mentioned, are the very same errors submitted before Us as having beencommitted by the respondent court.

According to the respondent Court, these errors bring into focus one crucial issue: theliability of petitioner for the amounts adjudged by the trial court in favor of privaterespondent. It held that petitioner is liable because in his motion to set aside the order of default, he admitted that the Mang Uro Store is still licensed under his name and thecredit application card indicates that he is the owner/manager thereof. Hence, even onthe assumption that there had been a transfer of ownership and management of thestore to Rodolfo Cruz, previous to the transactions made with appellee, petitioner

permitted the business to be carried on in his name as its ostensible owner. Privaterespondent should not be expected to be aware of such a transfer and whatever agreement or understanding appellant had with petitioner's son Rodolfo regarding thestore cannot bind or affect private respondent, for matters accomplished between twoparties ought not to operate to the prejudice of a third person.16 Accordingly, it also findsas superfluous the amendment of the complaint for the purpose of impleading RodolfoCruz, Marilou Cruz and Me Cruz; moreover, it contends that failure to amend thecomplaint is no cause for reversal because these persons were known to privaterespondent as petitioner's "progeny"; besides, the transfer of business, if indeed therewas such, is a matter of defense which need not be "negatived" in the complaint. Acomplaint should not, by the averments, anticipate a defense thereto.

In respect to the failure of private respondent to comply with the order of 27 March 1984directing it to amend the complaint, respondent Court held that the non-compliance was"muted by the subsequent order of 16 May 1984 which considered the case submittedfor decision." By such order, the trial court gave its assent to resolving the case on thebasis of the unamended complaint. Section 11 of Rule 3 (erroneously stated as Section3 of Rule 11) of the Rules of Court provides that parties may be dropped or added byorder of the court on motion of any party or on its own initiative at any stage of the

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action and on such terms as are just; in the instant case, it may be inferred that the trialcourt opted to resolve the case without the proposed change in parties defendants.

Finally, it ruled that both oral and documentary evidence presented at the hearing on 3October 1983 proved petitioner's unsatisfied obligation to the private respondent.

To bring this petition within Our authority, petitioner asserts, in effect, that at the bottomof the assigned errors is the issue of whether the respondent Court has madeconclusions of fact which are not substantiated by the evidence on record. Petitioner asserts that it did.

We have held in a long line of cases that findings of facts of the Court of Appeals areconclusive upon this Court.17 There are, however, recognized exceptions to thisrule, 18 as where the findings are totally devoid of support in the record, or are glaringlyerroneous as to constitute serious abuse of discretion, 19 or when the findings aregrounded entirely on speculation, surmise or conjecture. 20

Deliberating on this case, We hold that the findings and conclusions of both the trialcourt and the respondent Court are not supported by the evidence and that suchconclusions are glaringly erroneous. This petition is impressed with merit.

In its very brief decision, the trial court, without even laying the factual premises, made asweeping conclusion that it was the petitioner who applied for a credit line with privaterespondent and which the latter approved for him; on the basis of such approval, hesubsequently bought Purefoods products on credit from private respondent. Evidently,the trial court may have in mind the Credit Application Card 21 and the several invoicesfor the delivery of the goods. 22 But as correctly pointed out by the petitioner, and as the

documents themselves show, he did not sign any of them.

It is the respondent Court which endeavored to supply the arguments in support of theforegoing conclusion. According to the respondent court:

In his Motion to Set Aside Order of Default filed on October 19, 1983appellant 23 admitted that subject store is still licensed under his name ...

Also, the credit application card accomplished in behalf of the store clearlyindicates appellant as owner/manager thereof ... Hence, even on theassumption that there really had been a transfer of ownership andmanagement of the "Mang Uro Store" to Rodolfo Cruz previous to the

transactions made with appellee

24

the fact is that appellant permitted thecarrying of the business of Id store with him as ostensible owner. Appelleeshould not be expected to be aware of such transfer. Whatever privateagreement or understanding appellant made with his son Rodolforegarding the store cannot bind or affect appellee. Insofar as the latter isconcerned, the store is business property of appellant. The maxim resinter alios acta alteri nocere non debet is square. Matters accomplishedbetween two parties ought not to operate to the prejudice of a third person

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(Blanza vs. Arcangel, 21 SCRA 4; Perez vs. Mendoza, 65 SCRA 493;Tinitigan vs. Tinitigan 100 SCRA 636). 25

Unfortunately, however, this conclusion is bereft of substantial factual basis anddisregards fundamental principles concerning the primary duty of persons dealing with

parties who act for others, and of estoppel. Indisputably, the credit application card is aform prepared and supplied by private respondent. There is no evidence, much less anallegation by private respondent, that it was petitioner who filled up the entries in saidform. It is logical to presume then that the parties who signed it (Me Cruz and Marilou L.Cruz), or anyone of them, made or accomplished the entries. Needless to state, sinceon the face of the document, the "owner/manager" of the "Mang Uro Store", which iswritten on the column Trade Name, is Lauro Cruz , and not the parties signing the same,it was incumbent upon the private respondent to inquire into the relationship of thesignatories to the petitioner or to satisfy itself as to their authority to act for or representthe petitioner. Under the circumstances, it is apparent that petitioner had no directparticipation and that the two applicants could have acted without authority from him or

as his duly authorized representatives. In either case, for the protection of its interest,private respondent should have made the necessary inquiry verification as to theauthority of the applicants and to find out from them whether Lauro Cruz is boththe owner and manager or merely the owner or the manager, for that is what"owner/manager" in its form could signify.

A person dealing with an agent is put upon inquiry and must discover upon his peril theauthority of the agent. 26 It is for this reason that under Article No. 1902 of the CivilCode, a third person with whom the agent wishes to contract on behalf of the principalmay require the presentation of the power of attorney, or the instructions as regards theagency, and that private or secret orders and instructions of the principal do not

prejudice third persons who have relied upon the power of attorney or instructionsshown them.

In short, petitioner is not under estoppel, as against the claim of private respondent,which seems to be at the bottom of the respondent Court's rationalization.

In Kalalo vs. Luz , 27 We held that the essential elements of estoppel in respect to theparty claiming it are: (a) lack of knowledge and of the means of knowledge of the truthas the facts in question; (b) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (c) action or inaction based thereon of such character asto change the position or status of the party claiming the estoppel, to his injury,detriment, or prejudice.

The above disquisitions ineluctably show the absence of said elements in this case.

In the instant case, there is no showing at all that private respondent tried to ascertainthe ownership of Mang Uro Store and the extent of the authority of the applicants torepresent Lauro Cruz at any time before it approved the credit application card.

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There is as well no evidence, much less any claim by private respondent, that beforeMe Cruz and Marilou Cruz signed the credit application card, it had been dealing withpetitioner or the Mang Uro Store, or that for sometime prior thereto, petitioner ever represented to it as the owner of the store that he has authorized the above signatoriesto represent him in any transaction. Clearly, it was error for the respondent Court to

conclude that petitioner should be held liable to private respondent on account of thecredit application card on the theory that he permitted the carrying of the business of thestore. This theory further erroneously assumes that the business of the store before thefiling of the credit application card included the sale of products of private respondent.There is evidence on this appoint.

Moreover, it is apparent that the purpose of the request of private respondent to file anamended complaint within ten (10) days from 27 March 1984, the date when the pre-trial was held, which the trial court granted, 28 was precisely to implead the signatories tothe credit application card. This was precisely prompted by the insistence of petitioner that he is not liable for the claims in the complaint because he did not sign the credit

card application and the invoices. In short, he is erroneously impleaded as defendant.Since among the matters to be considered at pre-trial is the necessity or desirability of amendments to pleadings, 29 the request was seasonably and properly made.

Private respondent did not amend the complaint within the period aforesaid. So, whenthe case was caned for heating on 16 May 1984, pursuant to the Order of 27 March1984, and the parties did not appear, the trial court should have dismissed the case for failure on the part of private respondent to file the amended complaint. Such dismissalis authorized under Section 3 of Rule 17 of the Rules of Court. The respondent Court,however, brushed aside this point by holding that the non-compliance by privaterespondent "was muted by the subsequent order dated May 16, 1984 which submitted

the case for decision;" and that by said order "the trial court appears to have given itsassent to resolving the case on the basis of the unamended complaint," which isauthorized by Section 11 of Rule 3 of the Rules of Court. Although this justification isflimsy and begs the question, the foregoing resolution on the issue of petitioner's liabilityto the private respondent renders unnecessary further discussion on the remainingassigned errors.

WHEREFORE, the instant petition is GRANTED, and the decision of the respondentCourt of Appeals of 9 August 1988 and its resolution of 27 October 1988 in C.A.-G.R.CV No. 07859, as well as the decision of the trial court of 28 February 1985 in CivilCase No. 49672, are hereby REVERSED and SET ASIDE. With costs against privaterespondent.

SO ORDERED.

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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 fromthe 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 her attorney-in-fact Tan Buntiong, in favor of late Antero Soriano; likewise theassignment executed by the latter during his lifetime in favor of the defendantMauricio Cruz & Co., Inc., and the plaintiff is hereby ordered to pay the saidMauricio Cruz & Co., Inc., the balance of P30,966.40; the plaintiff is also ordered

to deposit said sum in a local bank within the period of ninety days from the timethis judgment shall become final, at the disposal of the aforesaid Mauricio Cruz &Co. Inc., and in case that the plaintiff shall not make such deposit in the manner indicated, said amount shall bear the legal interest of six percent per annum fromthe date when the plaintiff shall fail to make the deposit within the period hereinset 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 assignment of the credit, Exhibit 2-Cruz, instead of finding that said assignment made by TanBuntiong to Attorney Antero Soriano was null and void.

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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 the

defendant to widen a public street; the judgment entitled the plaintiff to recover P42,966.40, 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 on November 28,1924 (Exhibit B).

After the case was remanded to the court of origin, and the judgment renderedtherein had become final and executory, Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of Jose Ma .Arroyo's intestate estate, filed a claimin the same case for professional services rendered by him, which the court, acting withthe consent of the appellant widow, fixed at 15 per cent of the amount of the 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 courtordered 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 for theadministratrix of the deceased Jose Ma .Arroyo, and directed the municipality of Iloilo to

file an action of interpleading against the adverse claimants, the Philippine NationalBank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista and Jose Arroyo, as wasdone, 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 theauditor of the provincial treasurer of Iloilo and of the Executive Bureau, paid the late

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Antero Soriano the amount of P6,000 in part payment of the judgment mentionedabove, assigned to him by Tan Boon Tiong, acting as attorney-in-fact of the appellantherein, Tan Ong Sze Vda. de Tan Toco.

On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk

of the 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 for thelate Jose Ma. Arroyo, the said clerk of court delivered on the same date to said AttorneyJose Evangelista the said amount of P6,000. At the hearing of the instant case, thecodefendants of Attorney Jose Evangelista agreed not to discuss the payment made tothe latter by the clerk of the Court of First Instance of Iloilo of the amount of P6,000mentioned above in consideration of said lawyer's waiver of the remainder 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 judgmentfor P42,966.44 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 allegedassignee of the rights of the late Attorney Antero Soriano by virtue of the said judgmentin payment 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 assignmentmade by Tan Boon Tiong as attorney-in-fact of the appellant Tan Ong Sze Viuda deTan Toco, to Attorney Antero Soriano, of all the credits, rights and interests belonging to

said 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 Toco vs.The Municipal Council of Iloilo, adjudicating to said widow the amount of P42,966.40,plus the costs of court, against said municipal council of Iloilo, in consideration of theprofessional services rendered by said attorney to said widow of Tan 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 alreadybeen satisfied before the execution of said deed of assignment, but in order to facilitatethe 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 AnteroSoriano for professional services rendered to her and to her coheirs, amounting toP2,900, must be added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B TanToco, respectively, which exhibits the court below rejected as evidence, on the ground

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that they were considered as payments made for professional services rendered, not by Antero Soriano personally, by the firm of Soriano & 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 on said

receipts reading, "Befete Soriano & Arroyo," and the manner in which said attorneyreceipted for them, "Soriano & Arroyo, by A. Soriano."

Therefore, the appellant's contention that the amounts of P200 and P500evidence by said receipts should be considered as payments made to Attorney AnteroSoriano for professional services rendered by him personally to the interests of thewidow of Tan Toco, is untenable.

Besides, if at the time of the assignments to the late Antero Soriano hisprofessional services to the appellant widow of Tan Toco had already been paid for, noreason can be given why it was necessary to write him money in payment of

professional services on March 14, 1928 (Exhibit 5-G Tan Toco) and December 15, of the same year (Exhibit 5-H Tan Toco) after the deed of assignment, (Exhibit 2-Cruz)dated September 27, 1927, had been executed. In view of the fact that the amountsinvolved in the cases prosecuted by Attorney Antero Soriano as counsel for Tan Toco'swidow, some of which cases have been appealed to this court, run into the hundreds of thousands of pesos, and considering that said attorney had won several of those casesfor his clients, the sum of P10,000 to date paid to him for professional services is whollyinadequate, and shows, even if indirectly, that the assignments of the appellant's rightsand interests made to the late Antero Soriano and determined in the judgmentaforementioned, was made in consideration of the professional services rendered bythe latter to the aforesaid widow and her coheirs.

The defendant-appellant also contends that the deed of assignment Exhibit 2-Cruz was drawn up in contravention of the prohibition contained in article 1459, case 5,of the Civil Code, which reads as follows:

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

x x x x x x x x x

5. Justices, judges, members of the department of public prosecution,

clerks of superior and inferior courts, and other officers of such courts, theproperty and rights in litigation before the court within whose jurisdiction or territory they perform their respective duties .This prohibition shall include theacquisition of such property by assignment.

Actions between co-heirs concerning the hereditary property, assignmentsin payment of debts, or to secure the property of such persons, shall be excludedfrom this rule.

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The prohibition contained in this paragraph shall include lawyers andsolicitors with respect to any property or rights involved in any litigation in whichthey 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. Theonly 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 Boon Tiong,to Attorney Antero Soriano in payment of professional services rendered by the latter tothe appellant and her coheirs in connection with other cases, that particular case hadbeen decided, and the only thing left to do was to collect the judgment. There was norelation of attorney and client, then, between Antero Soriano and the appellant, in thecase where that judgment was rendered; and therefore the assignment 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, wasempowered by his principal to make as assignment of credits, rights and interests, inpayment of debts for professional services rendered by lawyers, in paragraph VI of thepower of attorney, Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ and contractfor the services of lawyers upon such conditions as he may deem convenient, to takecharge of any actions necessary or expedient for the interests of his principal, and todefend suits brought against her. This power necessarily implies the authority to pay for the professional services thus engaged. In the present case, the assignment made byTan Boon Tiong, as Attorney-in-fact for the appellant, in favor of Attorney Antero

Soriano for professional services rendered in other cases in the interests of theappellant and her coheirs, was that credit which she had against the municipality of Iloilo, and such assignment was equivalent to the payment of the amount of said creditto Antero Soriano for professional services.

With regard to the failure of the other attorney-in-fact of the appellant, TanMontano, authorized by Exhibit 1 — Tan Toco, to consent to the deed of assignment,the latter being also authorized to pay, in the name and behalf of the principal, all her debts and the liens and encumbrances her property, the very fact that different letters of attorney 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 Attorney 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's feesfor services rendered in the interests of said principal, and may satisfy them by an

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assignment of a judgment rendered in favor of said principal; (2) that when a personappoints two attorneys-in-fact independently, the consent of the one will not be requiredto validate the acts of the other unless that appears positively to have been theprincipal's attention; and (3) that the assignment of the amount of a judgment made by aperson to his attorney, who has not taken any part in the case wherein said judgment

was rendered, made in payment of professional services in other cases, does notcontravene the prohibition of article 1459, case 5, of the Civil Code.

By virtue whereof, and finding no error in the judgment appealed from, the sameis affirmed in its entirety, with costs against the appellant. So ordered.

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G.R. No. 150678 February 18, 2005

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners,

vs.COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELAA. FLOR, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review of the Decision1 of the Court of Appeals (CA) affirming intoto the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, in CivilCase No. 15664 which awarded to the respondents their 5% broker’s commission.

The facts are as follows:

Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned bythe Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, tolook for a buyer of a foreclosed asset of the bank, 3a 17-hectare mango plantation pricedat P2,200,000.00, located in Ibaan, Batangas.4

Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs.Pacita G. Borbon, a licensed real estate broker. The two met through a previoustransaction where Lee responded to an ad in a newspaper put up by Borbon for an 8-

hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that hepreferred a land with mango trees instead. Borbon promised to get back to him as soonas she would be able to find a property according to his specifications.

Borbon relayed to her business associates and friends that she had a ready buyer for amango orchard. Flor then advised her that her cousin-in-law owned a mango plantationwhich was up for sale. She told Flor to confer with Medrano and to give them a writtenauthority to negotiate the sale of the property.5 Thus, on September 3, 1986, Medranoissued the Letter of Authority, as follows:

Mrs. Pacita G. Borbon & Miss Josefina E. Antonio

Campos Rueda BuildingTindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig23 Mabini StreetQuezon City, M.M.

Dear Mesdames:

http://www.lawphil.net/judjuris/juri2005/feb2005/gr_150678_2005.html#fnt1










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This letter will serve as your authority* to negotiate with any prospective buyer for thesale of a certain real estate property more specifically a mango plantation which isdescribed more particularly therein below:

Location : Barrio Tulay-na-Patpat, Ibaan, Batangas

Lot Area : 17 hectares (more or less) per attached Appendix "A"

Improvements : 720 all fruit-bearing mango trees(carabao variety) and other trees

Price : P 2,200,000.00

For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay youa commission of 5% of the total purchase price to be agreed upon by the buyer and

seller.

Very truly yours,

(Sgd.)B.R. MedranoOwner

* Subject to price sale.6

The respondents arranged for an ocular inspection of the property together with Lee

which never materialized – the first time was due to inclement weather; the next time,no car was available for the tripping to Batangas.7 Lee then called up Borbon and toldher that he was on his way to Lipa City to inspect another property, and might as wellalso take a look at the property Borbon was offering. Since Lee was in a hurry, therespondents could no longer accompany him at the time. Thus, he asked for the exactaddress of the property and the directions on how to reach the lot in Ibaan from LipaCity. Thereupon, Lee was instructed to get in touch with Medrano’s daughter and alsoan officer of the bank, Mrs. Teresa Ganzon, regarding the property.81ªvvphi1.nét

Two days after the visit, respondent Josefina Antonio called Lee to inquire about theresult of his ocular inspection. Lee told her that the mango trees "looked sick" so he was

bringing an agriculturist to the property. Three weeks thereafter, Antonio called Leeagain to make a follow-up of the latter’s visit to Ibaan. Lee informed her that he alreadypurchased the property and had made a down payment of P1,000,000.00. Theremaining balance of P1,200,000.00 was to be paid upon the approval of theincorporation papers of the corporation he was organizing by the Securities andExchange Commission. According to Antonio, Lee asked her if they had alreadyreceived their commission. She answered "no," and Lee expressed surprise over this.9









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A Deed of Sale was eventually executed on November 6, 1986 between the bank,represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGBFarms, Inc., represented by Dominador Lee (as Vendee), for the purchase priceof P1,200,000.00.10 Since the sale of the property was consummated, the respondentsasked from the petitioners their commission, or 5% of the purchase price. The

petitioners refused to pay and offered a measly sum of P5,000.00 each.11

Hence, therespondents were constrained to file an action against herein petitioners.

The petitioners alleged that Medrano issued the letter of authority in favor of all therespondents, upon the representation of Flor that she had a prospective buyer. Flor wasthe only person known to Medrano, and he had never met Borbon and Antonio.Medrano had asked that the name of their prospective buyer be immediately registeredso as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officersof the bank had never met nor dealt with the respondents in connection with the sale of the property. Ganzon also asked Lee if he had an agent and the latter replied that hehad none. The petitioners also denied that the purchase price of the property

was P2,200,000.00 and alleged that the property only cost P1,200,000.00. Thepetitioners further contended that the letter of authority signed by Medrano was notbinding or enforceable against the bank because the latter had a personality separateand distinct from that of Medrano. Medrano, on the other hand, denied liability,considering that he was not the registered owner of the property, but the bank. Thepetitioners, likewise, filed a counterclaim as they were constrained to hire the servicesof counsel and suffered damages.12

After the case was submitted for decision, Medrano died, but no substitution of partywas made at this time.13

The trial court resolved the case based on the following common issues:

1. Whether or not the letter of authority is binding and enforceable against thedefendant Bank only or both defendants; and

2. Whether or not the plaintiffs are entitled to any commission for the sale of thesubject property.14

On September 21, 1994, the trial court rendered a Decision in favor of the respondents.The petitioners were ordered to pay, jointly and severally, the 5% broker’s commissionto herein respondents. The trial court found that the letter of authority was valid and

binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay therespondents a 5% commission for their efforts in looking for a purchaser of the property.He is, therefore, estopped from denying liability on the basis of the letter of authority heissued in favor of the respondents. The trial court further stated that the sale of theproperty could not have been possible without the representation and intervention of therespondents. As such, they are entitled to the broker’s commission of 5% of the selling











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price of P1,200,000.00 as evidenced by the deed of sale.15 The fallo of the decisionreads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of theplaintiffs and against the defendants, for the latter, jointly and severally:

1. To pay plaintiffs the sum of P60,000.00 representing their five percent (5%)commission of the purchase price of the property sold based on Exh. "D" or "9"plus legal interest from date of filing of the herein complaint until fully paid;

2. To pay plaintiffs the sum of P20,000.00 as and for attorney’s fees;

3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses;

4. To pay the costs of the proceedings.16

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of appeal.17

On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for Reconsideration18 praying that the late Bienvenido Medrano be substituted by his heirs.They further prayed that the trial court’s decision as far as Medrano was concerned beset aside and dismissed considering his demise. The trial court denied the motion for reconsideration.19 Hence, the heirs of Medrano also filed their notice of appeal.20

On appeal, the petitioners reiterated their stance that the letter of authority was notbinding and enforceable, as the same was signed by Medrano, who was not actually the

owner of the property. They refused to give the respondents any commission, since thelatter did not perform any act to consummate the sale. The petitioners pointed out thatthe respondents (1) did not verify the real owner of the property; (2) never saw theproperty in question; (3) never got in touch with the registered owner of the property;and (4) neither did they perform any act of assisting their buyer in having the propertyinspected and verified.21 The petitioners further raised the trial court’s error in notdismissing the case against Bienvenido Medrano considering his death.

On May 3, 2001, the CA promulgated the assailed decision affirming the finding of thetrial court that the letter of authority was valid and binding. Applying the principle of agency, the appellate court ruled that Bienvenido Medrano constituted the respondents

as his agents, granting them authority to represent and act on behalf of the former in thesale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in finding that the respondents were the procuring cause of the sale. Suffice it to statethat were it not for the respondents, Lee would not have known that there was a mangoorchard offered for sale.1awphi1.nét















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The CA further ruled that an action for a sum of money continues even after the deathof the defendant, and shall remain as a money claim against the estate of thedeceased.

Undaunted by the CA’s unfavorable decision, the petitioners filed the instant petition,

raising eight (8) assignments of errors, to wit:

I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATERESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THELETTER-AUTHORITY OF PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLYRECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS’OBLIGATION AND AUTHORITY CONTAINED IN MEDRANO’S LETTER-

AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ DEMAND, NOTWITHSTANDING THE NON-PERFORMANCEOF THEIR OBLIGATION THEREUNDER;

IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPONTHE PETITIONERS;

V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOFUPON THE DEFENDANTS-PETITIONERS;

VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION

WITH EVIDENCE AND INSTEAD RELIED ON INFERENCE;

VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITSCONCLUSION WITH EVIDENCE AND MERELY RELIED ON SPECULATION

AND SURMISE;

VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTEDBEFORE IT, AND CONSEQUENTLY FAILED TO CONSIDER REASONABLYTHE TWO (2) BASIC ARGUMENTS OF THE PETITIONERS.22

The petition is denied.

The records disclose that respondent Pacita Borbon is a licensed real estatebroker 23 and respondents Josefina Antonio and Estela A. Flor are her associates.24 Abroker is generally defined as one who is engaged, for others, on a commission,negotiating contracts relative to property with the custody of which he has no concern;the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purposes the agent of both parties. A broker is one whose occupation is to bring parties together, in matters of







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trade, commerce or navigation.25 For the respondents’ participation in finding a buyer for the petitioners’ property, the petitioners refuse to pay them commission, asserting thatthey are not the efficient procuring cause of the sale, and that the letter of authoritysigned by petitioner Medrano is not binding against the petitioners.

"Procuring cause" is meant to be the proximate cause.26

The term "procuring cause," indescribing a broker’s activity, refers to a cause originating a series of events which,without break in their continuity, result in accomplishment of prime objective of theemployment of the broker – producing a purchaser ready, willing and able to buy realestate on the owner’s terms.27 A broker will be regarded as the "procuring cause" of asale, so as to be entitled to commission, if his efforts are the foundation on which thenegotiations resulting in a sale are begun.28 The broker must be the efficient agent or the procuring cause of the sale. The means employed by him and his efforts must resultin the sale. He must find the purchaser, and the sale must proceed from his effortsacting as broker.29

Indeed, the evidence on record shows that the respondents were instrumental in thesale of the property to Lee. Without their intervention, no sale could have beenconsummated. They were the ones who set the sale of the subject land inmotion.30 Upon being informed by Flor that Medrano was selling his mango orchard,Borbon lost no time in informing Lee that they had found a property according to hisspecifications. An ocular inspection of the property together with Lee was immediatelyplanned; unfortunately, it never pushed through for reasons beyond the respondents’control. Since Lee was in a hurry to see the property, he asked the respondents theexact address and the directions on how to reach Ibaan, Batangas. The respondentsthereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural Bankand the person to talk to regarding the property. While the letter-authority issued in favor

of the respondents was non-exclusive, no evidence was adduced to show that therewere other persons, aside from the respondents, who informed Lee about the propertyfor sale. Ganzon testified that no advertisement was made announcing the sale of thelot, nor did she give any authority to other brokers/agents to sell the subjectproperty.31 The fact that it was Lee who personally called Borbon and asked for directions prove that it was only through the respondents that Lee learned about theproperty for sale.32Significantly, too, Ms. Teresa Ganzon testified that there were noother persons other than the respondents who inquired from her about the sale of theproperty to Lee.33 It can thus be readily inferred that the respondents were the only oneswho knew about the property for sale and were responsible in leading a buyer to itsconsummation. All these circumstances lead us to the inescapable conclusion that therespondents were the procuring cause of the sale. When there is a close, proximate andcausal connection between the broker’s efforts and the principal’s sale of his property,the broker is entitled to a commission.34

The petitioners insist that the respondents are not entitled to any commission since theydid not actually perform any acts of "negotiation" as required in the letter-authority. Theyrefuse to pay the commission since according to them, the respondents’ participation inthe transaction was not apparent, if not nil. The respondents did not even look at the





















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property themselves; did not introduce the buyer to the seller; did not hold anyconferences with the buyer, nor take part in concluding the sale. For the non-compliance of this obligation "to negotiate," the petitioners argue, the respondents arenot entitled to any commission.

We find the argument specious.l^vvphi1.net The letter of authority must be read as awhole and not in its truncated parts. Certainly, it was not the intention of Medrano toexpect the respondents to do just that (to negotiate) when he issued the letter of authority. The clear intention is to reward the respondents for procuring a buyer for theproperty. Before negotiating a sale, a broker must first and foremost bring in aprospective buyer. It has been held that a broker earns his pay merely by bringing thebuyer and the seller together, even if no sale is eventually made.35 The essential featureof a broker’s conventional employment is merely to procure a purchaser for a propertyready, able, and willing to buy at the price and on the terms mutually agreed upon bythe owner and the purchaser. And it is not a prerequisite to the right to compensationthat the broker conduct the negotiations between the parties after they have been

brought into contact with each other through his efforts.

36

The case of Macondray v.Sellner 37 is quite instructive:

The business of a real estate broker or agent, generally, is only to find a purchaser, andthe settled rule as stated by the courts is that, in the absence of an express contractbetween the broker and his principal, the implication generally is that the broker becomes entitled to the usual commissions whenever he brings to his principal a partywho is able and willing to take the property and enter into a valid contract upon theterms then named by the principal, although the particulars may be arranged and thematter negotiated and completed between the principal and the purchaser directly.

Notably, there are cases where the right of the brokers to recover commissions wereupheld where they actually took no part in the negotiations, never saw the customer,and even some in which they did nothing except advertise the property, as long as itcan be shown that they were the efficient cause of the sale.38

In the case at bar, the role of the respondents in the transaction is undisputed. Whether or not they participated in the negotiations of the sale is of no moment. Armed with anauthority to procure a purchaser and with a license to act as broker, we see no reasonwhy the respondents can not recover compensation for their efforts when, in fact, theyare the procuring cause of the sale.39

Anent the validity of the letter-authority signed by Medrano, we find no reversible error with the findings of the appellate and trial courts that the petitioners are liablethereunder. Such factual findings deserve this Court’s respect in the absence of anycogent reason to reverse the same. Medrano’s obligation to pay the respondentscommission for their labor and effort in finding a purchaser or a buyer for the describedparcel of land is unquestionable. In the absence of fraud, irregularity or illegality in itsexecution, such letter-authority serves as a contract, and is considered as the lawbetween the parties. As such, Medrano can not renege on the promise to pay












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commission on the flimsy excuse that he is not the registered owner of the property.The evidence shows that he comported himself to be the owner of the property. Histestimony is quite telling:

Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon,

Josefina Antonio, and Stella (sic ) F. Flor?

WITNESS

A I know only Stella (sic ) F. Flor. The rest, I do not know them. I have never metthem, up to now.

Q How about the co-defendant Ibaan Rural Bank?

A I know co-defendant Ibaan Rural Bank, having been the founder and at onetime or another, I have served several capacities from President to Chairman of

the Board.

Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat,Ibaan, Batangas, with an area of 17 hectares?

A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan RuralBank.

Q And what, if any, [did] the bank do to your property after you have mortgagedthe same to it?

A After many demands for payment or redemption of my mortgage, which I failedto do so, the Ibaan Rural Bank sold it.

Q After it was foreclosed?

A Yes, Sir.

Q Do you recall having made any transaction with plaintiff Stella (sic ) F. Flor regarding the property?

A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to

my office once and requested for a letter of authority which I issued [in]September 1986, I think, and I gave her the letter of authority.40

As to the liability of the bank, we quote with favor the disquisition of the respondentcourt, to wit:

Further, the appellants cannot use the flimsy excuse (only to evade liability) that "(w)hatMr. Medrano represented to the plaintiffs-appellees, without the knowledge or consent



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of the defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere nondebet ." (page 8 of the Appellant’s Brief; page 35 of the Rollo). While it may be true thattechnically the Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell theland under litigation or that the latter was no longer an officer of the said bank, still,these circumstances do not convince this Court fully well to absolve the bank. Note that,

as former President of the said bank, it is improbable that he (Bienvenido R. Medrano)was completely oblivious of the developments therein. By reason of his past associationwith the officers of the said bank (who are, in fact, his relatives), it is unbelievable thatBienvenido R. Medrano could simply have issued the said letter of authority without theknowledge of the said officers. Granting por aguendo that Bienvenido R. Medrano didnot act on behalf of the bank, however, We doubt that he had no financial and/or material interest in the said sale – a fact that could not possibly have eluded Our attention.41

From all the foregoing, there can be no other conclusion than the respondents areindeed the procuring cause of the sale. If not for the respondents, Lee would not have

known about the mango plantation being sold by the petitioners. The sale wasconsummated. The bank had profited from such transaction. It would certainly beiniquitous if the respondents would not be rewarded their commission pursuant to theletter of authority.

WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.



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SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OFAPPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.

ROMERO, J.: chanrobles virtual law library

On June 29, 1985, seven months after the issuance of petitioner Santos Areola'sPersonal Accident Insurance Policy No. PA-20015, respondent insurance companyunilaterally cancelled the same since company records revealed that petitioner-insuredfailed to pay his premiums.chanroblesvirtualawlibrary chanrobles virtual law library

On August 3, 1985, respondent insurance company offered to reinstate same policy ithad previously cancelled and even proposed to extend its lifetime to December 17,1985, upon a finding that the cancellation was erroneous and that the premiums were

paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondentinsurance company's branch manager.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

These, in brief, are the material facts that gave rise to the action for damages due tobreach of contract instituted by petitioner-insured beforeBranch 40 RTC, Dagupan City against respondent insurancecompany.chanroblesvirtualawlibrary chanrobles virtual law library

There are two issues for resolution in this case: chanrobles virtual law library

(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insuredto payment of damages? chanrobles virtual law library

(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy byrespondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? chanrobles virtuallaw library

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, throughthe Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter

referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1Under the terms of the statement of account issued by respondent insurance company,petitioner-insured was supposed to pay the total amount of P1,609.65 which includedthe premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40.2 At the lower left-hand corner of the statement of account, the following is legiblyprinted:

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This Statement of Account must not be considered a receipt. Official Receipt will beissued to you upon payment of this account.chanroblesvirtualawlibrary chanroblesvirtual law library

If payment is made to our representative, demand for a Provisional Receipt and if our

Official Receipts is (sic) not received by you within 7 days please notifyus.chanroblesvirtualawlibrary chanrobles virtual law library

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisionalreceipt No. 9300 to petitioner-insured for the amount of P1,609.65 3On the lower portionof the receipt the following is written in capital letters:

Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us. 4 chanrobles virtual

law library

On June 29, 1985, respondent insurance company, through its Baguio City manager,Teofilo M. Malapit, sent petitioner-insured EndorsementNo. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5The same endorsement also credited "areturn premium of P1,609.65 plus documentary stamps and premium tax" to theaccount of the insured.chanroblesvirtualawlibrary chanrobles virtual law library

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang,agent of respondent insurance company, and demanded the issuance of an official

receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake buthe would personally see to its rectification. However, petitioner-insured failed to receiveany official receipt from Prudential.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those containedin Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the currentcommercial rate of increase on the payment he had made under provisional receipt No.9300 be returned within five days. 6 Areola also warned that should his demands beunsatisfied, he would sue for damages.chanroblesvirtualawlibrary chanrobles virtual law

library

On July 17, 1985, he received a letter from production manager Malapit informing himthat the "partial payment" of P1,000.00 he had made on the policy had been "exhaustedpursuant to the provisions of the Short Period Rate Scale" printed at the back of thepolicy. Malapit warned Areola that should be fail to pay the balance, the company'sliability would cease to operate. 7 chanrobles virtual law library

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In reply to the petitioner-insured's letter of July 15, 1985, respondent insurancecompany, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola aletter dated July 25, 1985 stating that the company was verifying whether the paymenthad in fact been issued therefor. Ampil emphasized that the official receipt should havebeen issued seven days from the issuance of the provisional receipt but because no

official receipt had been issued in Areola's name, there was reason to believe that nopayment had been made. Apologizing for the inconvenience, Ampil expressed thecompany's concern by agreeing "to hold you cover (sic) under the terms of thereferenced policy until such time that this matter is cleared." 8 chanrobles virtual lawlibrary

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential onDecember 17, 1984. Hence, Ampil informed

Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for

the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to theproposal by signing on the space provided for in the letter. 9 chanrobles virtual lawlibrary

The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 10but unfortunately, Areola and his wife, Lydia, as early as August 6,1985 had filed a complaint for breach of contract with damages before the lower court.chanroblesvirtualawlibrary chanrobles virtual law library

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums

collected, for which reason no official receipt was issued to him. However, it arguedthat, by acknowledging the inconvenience caused on petitioner-insured and after takingsteps to rectify its omission by reinstating the cancelled policy prior to the filing of thecomplaint, respondent insurance company had complied with its obligation under thecontract. Hence, it concluded that petitioner-insured no longer has a cause of actionagainst it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of itsobligation.chanroblesvirtualawlibrary chanrobles virtual law library

The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured,ordering respondent insurance company to pay the former the following:

a) P1,703.65 as actual damages;

b) P200,000.00 as moral damages; and

c) P50,000.00 as exemplary damages;

2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and

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3. To pay the costs.

In its decision, the court below declared that respondent insurance company acted inbad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full

payment of premiums and other charges on the issued insurance policy. Cancellationfrom the date of the policy's inception, explained the lower court, meant that theprotection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at thetime, the insurance company would certainly have disclaimed any liability becausetechnically, the petitioner could not have been considered insured. Consequently, thetrial court held that there was breach of contract on the part of respondent insurancecompany, entitling petitioner-insured to an award of the damages prayedfor.chanroblesvirtualawlibrary chanrobles virtual law library

This ruling was challenged on appeal by respondent insurance company, denying bad

faith on its part in unilaterally cancelling subject insurancepolicy.chanroblesvirtualawlibrary chanrobles virtual law library

After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurancecompany in bad faith for the cancellation of petitioner-insured's policy. According to theCourt of Appeals, respondent insurance company was not motivated by negligence,malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurancepolicy was based on what the existing records showed, i.e., absence of an officialreceipt issued to petitioner-insured confirming payment of premiums. Bad faith, said theCourt of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior

purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not actprecipitately or willfully to inflict a wrong on petitioner-insured:(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured hadindeed paid the premium; (b) the letter of August 3, 1985 confirming that the premiumhad been paid on December 17, 1984; (c) the reinstatement of the policy with aproposal to extend its effective period to December 17, 1985; and (d) respondentinsurance company's apologies for the "inconvenience" caused upon petitioner-insured.The appellate court added that respondent insurance company even relieved Malapit,its Baguio City manager, of his job by forcing him toresign.chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on thesearguments:

I chanrobles virtual law library

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Respondent Court of Appeals is guilty of grave abuse of discretion and committed aserious and reversible error in not holding Respondent Prudential liable for thecancellation of the insurance contract which was admittedly caused by the fraudulentacts and bad faith of its own officers.

II chanrobles virtual law library

Respondent Court of Appeals committed serious and reversible error and abused itsdiscretion in ruling that the defenses of good faith and honest mistake can co-exist withthe admitted fraudulent acts and evident bad faith.

III chanrobles virtual law library

Respondent Court of Appeals committed a reversible error in not finding that evenwithout considering the fraudulent acts of its own officer in misappropriating thepremium payment, the act itself in cancelling the insurance policy was done with bad

faith and/or gross negligence and wanton attitude amounting to bad faith, becauseamong others, it wasMr. Malapit - the person who committed the fraud - who sent and signed the notice of cancellation.

IV chanrobles virtual law library

Respondent Court of Appeals has decided a question of substance contrary to law andapplicable decision of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants.

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating hispremium payments is the proximate cause of the cancellation of the insurance policy.Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's fullpayment of premiums, further reinforces the allegation of bad faith. Such fraudulent actcommitted by Malapit, argued petitioner-insured, is attributable to respondent insurancecompany, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separateand distinct from that of respondent-insurance company, contrary to the view held bythe Court of Appeals. It must, therefore, bear the consequences of the erroneous

cancellation of subject insurance policy caused by the non-remittance by its ownemployee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability, therebeing an obvious breach of contract. After all, reasoned out petitioner-insured, damagehad already been inflicted on him and no amount of rectification could remedy thesame.chanroblesvirtualawlibrary chanrobles virtual law library

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Respondent insurance company, on the other hand, argues that where reinstatement,the equitable relief sought by petitioner-insured was granted at an opportune moment,i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of actionon which to predicate his claim for damages. Reinstatement, it further explained,effectively restored petitioner-insured to all his rights under the policy. Hence, whatever

cause of action there might have been against it, no longer exists and the consequentaward of damages ordered by the lower court inunsustainable.chanroblesvirtualawlibrary chanrobles virtual law library

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriatingthe premiums paid by petitioner-insured is beyond doubt directly imputable torespondent insurance company. A corporation, such as respondent insurance company,acts solely thru its employees. The latters' acts are considered as its own for which itcan be held to account. 11The facts are clear as to the relationship between privaterespondent insurance company and Malapit. As admitted by private respondentinsurance company in its answer, 12Malapit was the manager of its Baguio branch. It is

beyond doubt that he represented its interest and acted in its behalf. His act of receivingthe premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads: chanrobles virtual law library

Art. 1910. The principal must comply with all the obligations which the agent may havecontracted within the scope of his authority.chanroblesvirtualawlibrary chanrobles virtuallaw library

As for any obligation wherein the agent has exceeded his power, the principal is notbound except when he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could resulttherefrom. The fact that private respondent insurance company was itself defraudeddue to the anomalies that took place in its Baguio branch office, such as the non-accrualof said premiums to its account, does not free the same from its obligation to petitioner

Areola. As held in Prudential Bank v. Court of Appeals 13citing the ruling in McIntosh v.Dakota Trust Co.: 14

A bank is liable for wrongful acts of its officers done in the interests of the bank or in thecourse of dealings of the officers in their representative capacity but not for acts outsidethe scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled toperpetrate in the apparent scope of their employment; nor will it be permitted to shirk itsresponsibility for such frauds, even though no benefit may accrue to the bank therefrom.

Accordingly, a banking corporation is liable to innocent third persons where therepresentation is made in the course of its business by an agent acting within the

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general scope of his authority even though, in the particular case, the agent is secretlyabusing his authority and attempting to perpetrate a fraud upon his principal or someother person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the

fraudulent acts committed by Malapit that gave occasion to the erroneous cancellationof subject insurance policy. Its earlier act of reinstating the insurance policy can notobliterate the injury inflicted on petitioner-insured. Respondent company should bereminded that a contract of insurance creates reciprocal obligations for both insurer andinsured. Reciprocal obligations are those which arise from the same cause and in whicheach party is both a debtor and a creditor of the other, such that the obligation of one isdependent upon the obligation of the other. 15 chanrobles virtual law library

Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement toenter into a contract of insurance under whose terms, respondent insurance company

promised to extend protection to petitioner-insured against the risk insured for aconsideration in the form of premiums to be paid by the latter. Under the law governingreciprocal obligations, particularly the second paragraph of Article 1191, 16the injuredparty, petitioner-insured in this case, is given a choice between fulfillment or rescissionof the obligation in case one of the obligors, such as respondent insurance company,fails to comply with what is incumbent upon him. However, said article entitles theinjured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company'sargument, namely, that reinstatement being equivalent to fulfillment of its obligation,divests petitioner-insured of a rightful claim for payment of damages. Such a claim findsno support in our laws on obligations and

contracts.chanroblesvirtualawlibrary chanrobles virtual law library

The nature of damages to be awarded, however, would be in the form of nominaldamages 17contrary to that granted by the court below. Although the erroneouscancellation of the insurance policy constituted a breach of contract, private respondentinsurance company, within a reasonable time took steps to rectify the wrong committedby reinstating the insurance policy of petitioner. Moreover, no actual or substantialdamage or injury was inflicted on petitioner Areola at the time the insurance policy wascancelled. Nominal damages are "recoverable where a legal right is technically violatedand must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18 chanrobles virtual lawlibrary

WHEREFORE, the petition for review on certiorari is hereby GRANTED and thedecision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED.The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered onJune 30, 1987 is hereby REINSTATED subject to the following modifications: (a) thatnominal damages amounting to P30,000.00 be awarded petitioner in lieu of the

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damages adjudicated by court a quo; and (b) that in the satisfaction of the damagesawarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final paymentthereof.chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

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G.R. No. 108957 June 14, 1993

PRUDENTIAL BANK, Petitioner , vs. THE COURT OF APPEALS, AURORACRUZ, Respondents.

CRUZ, J.:

We deal here with another controversy involving the integrity of abank.chanroblesvirtualawlibrary chanrobles virtual law library

The complaint in this case arose when private respondent Aurora F.Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills withthe Prudential Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986.The placement was for 63 days at 13.75% annual interest. For this purpose, the amountof P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 andapplied to the investment. The difference of P3,877.07 represented the pre-paid

interest.chanroblesvirtualawlibrary chanrobles virtual law library

The transaction was evidenced by a Confirmation of Sale 1delivered to Cruz two dayslater, together with a Debit Memo 2in the amount withdrawn and applied to the confirmedsale. These documents were issued by Susan Quimbo, the employee of the bank towhom Cruz was referred and who was apparently in charge of suchtransactions. 3 chanrobles virtual law library

Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew her investment. Quimbo, who again attended to her, prepared a CreditMemo 4 crediting the amount of P200,000.00 in Cruz's savings account passbook. She

also prepared a Debit Memo for the amount of P196,122.88 to cover the re-investmentof P200,000.00 minus the prepaid interest of P3,877.02. 5 chanrobles virtual law library

This time, Cruz was asked to sign a Withdrawal Slip 6for P196,122.98, representing theamount to be re-invested after deduction of the prepaid interest. Quimbo explained thiswas a new requirement of the bank. Several days later, Cruz received another Confirmation of Sale 7and a copy of the Debit Memo. 8 chanrobles virtual law library

On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After verification of her records, however, she was informed that theinvestment appeared to have been already withdrawn by her on August 25, 1986. There

was no copy on file of the Confirmation of Sale and the Debit Memo allegedly issued toher by Quimbo. Quimbo herself was not available for questioning as she had not beenreporting for the past week. Shocked by this information, Cruz became hysterical andburst into tears. The branch manager, Roman Santos, assured her that he would lookinto the matter. 9 chanrobles virtual law library

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment. She received no definite answer, not even to the letter she wrote the bank

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which was received by Santos himself. 10Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount of P200,000.00 plus interest. 11In a replydated November 20, 1986, the bank's Vice President Lauro J. Jocson said that thereappeared to be an anomalyand requested Cruz to defer court action as they hoped to settle the matter

amicably.12

Increasingly worried, Cruz sent another letter reiterating her demand.13

Thistime the reply of the bank was unequivocal and negative. She was told that her requesthad to be denied because she had already withdrawn the amount she wasclaiming. 14 chanrobles virtual law library

Cruz's reaction was to file a complaint for breach of contract against Prudential Bank inthe Regional Trial Court of Quezon City. She demanded the return of her money withinterest, plus damages and attorney's fees. In its answer, the bank denied liability,insisting that Cruz had withdrawn her investment. The bank also instituted a third-partycomplaint against Quimbo, who did not file an answer and was declared indefault. 15The bank, however, did not present any evidence against

her.chanroblesvirtualawlibrary chanrobles virtual law library

After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs anddisposed as follows:

ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-partyplaintiff to pay to the plaintiffs the following amounts: chanrobles virtual law library

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27,1986, until fully paid; chanrobles virtual law library

2. P30,000.00, as moral damages; chanrobles virtual law library

3. P20,000.00, as exemplary damages; and chanrobles virtual law library

4. P25,000.00, as reasonable attorney's fees.chanroblesvirtualawlibrary chanroblesvirtual law library

The counterclaim and the third-party complaint of the defendant/third-party plaintiff aredismissed.chanroblesvirtualawlibrarychanrobles virtual law library

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondentcourt.chanroblesvirtualawlibrary chanrobles virtual law library

The judgment of the Court of Appeals 16is now faulted in this petition, mainly on theground that the bank should not have been found liable for a quasi-delict when it wassued for breach of contract.chanroblesvirtualawlibrary chanrobles virtual law library

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The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing todelay enforcement of the liability clearly established againstit.chanroblesvirtualawlibrary chanrobles virtual law library

The basic issues are factual. The private respondent claims she has not yet collected

her investment of P200,000.00 and has submitted in proof of their contention theConfirmation of Sale and the Debit Memo issued to her by Quimbo on the official formsof the bank. The petitioner denies her claim and points to the Withdrawal Slip, which itsays Cruz has not denied having signed. It also contends that the Confirmation of Saleand the Debit Memo are fake and should not have been given credence by the lower courts.chanroblesvirtualawlibrary chanrobles virtual law library

The findings of the trial court on these issues have been affirmed by the respondentcourt and we see no reason to disturb them. The petitioner has not shown that theyhave been reached arbitrarily or in disregard of the evidence of record. On the contrary,we find substantial basis for the conclusion that the private respondents signed the

Withdrawal Slip only as part of the bank's new procedure of re-investment. She did notactually receive the amount indicated therein, which she was made to understand wasbeing re-invested in her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo later issued to her byQuimbo.chanroblesvirtualawlibrary chanrobles virtual law library

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98 from their savings account, if her only intention was to make such awithdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money

from the defendant/third-party plaintiff, they could have withdrawn an amount in roundfigures. Certainly, it is unbelievable that their withdrawal was in the irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz,she did not receive this money, but it was left by her with the defendant/third-partyplaintiff in order to buy Central Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at the instance of third-party defendant SusanQuimbo who told her that it was a new bank requirement for the roll-over of a maturedplacement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the amount

indicated in the withdrawal slip isexactly

the same amount Cruz was re-investing after deducting therefrom the pre-paid interest.chanroblesvirtualawlibrary chanrobles virtuallaw library

The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the Debit Memo which were made on its official, forms. These are admittedlynot available to the general public or even its depositors and are handled only by itspersonnel. Even assuming that they were not signed by its authorized officials, as it

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claims, there was no obligation on the part of Cruz to verify their authority because shehad the right to presume it. The documents had been issued in the office of the bankitself and by its own employees with whom she had previously dealt. Such dealings hadnot been questioned before, much leas invalidated. There was absolutely no reasonwhy she should not have accepted their authority to act on behalf of their

employer.chanroblesvirtualawlibrary chanrobles virtual law library

It is also worthy of note - and wonder - that although the bank impleaded Quimbo in athird-party complaint, it did not pursue its suit even when she failed to answer and wasdeclared in default. The bank did not introduce evidence against her although it couldhave done so under the rules. No less remarkably, it did not call on her to testify on itsbehalf, considering that under the circumstances claimed by it, she would have beenthe best witness to show that Cruz had actually withdrawn her P200,000.00 placement.Instead, the bank chose to rely on its other employees whose testimony was less directand categorical than the testimony Quimbo could havegiven.chanroblesvirtualawlibrary chanrobles virtual law library

We do not find that the Court of Appeals held the bank liable on a quasi-delict . Theargument of the petitioner on this issue is pallid, to say the least, consisting as it doesonly of the observation that the article cited by the respondent court on the agent'sliability falls under the heading in the Civil Code on quasi-delicts. On the other hand, therespondent court clearly declared that:

The defendant/third-party plaintiff being liable for the return of the P200,000.00placement of the plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof,which is contractual , is for all damages which may bereasonably attributed to the non-performance of the obligation, . . .

xxx xxx xxx chanrobles virtual law library

Because of the bad faith of the defendant/third-party plaintiff in its breach of itscontract with the plaintiffs, the latter are, therefore, entitled to an award of moraldamages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal todeliver to Cruz the amount she had deposited with it and which she had a right towithdraw upon its maturity. That investment was acknowledged by its own employees,who had the apparent authority to do so and so could legally bind it by its acts vis-a-

vis Cruz. Whatever might have happened to the investment - whether it was lost or stolen by whoever - was not the concern of the depositor. It was the concern of thebank.chanroblesvirtualawlibrary chanrobles virtual law library

As far as Cruz was concerned, she had the right to withdraw her P200,000.00placement when it matured pursuant to the terms of her investment as acknowledgedand reflected in the Confirmation of Sale. The failure of the bank to deliver the amount

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to her pursuant to the Confirmation of Sale constituted its breach of their contract, for which it should be held liable.chanroblesvirtualawlibrary chanrobles virtual law library

The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are clearly and absolutely against the

petitioner.chanroblesvirtualawlibrary chanrobles virtual law library

Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsumfacere videtur . "He who does a thing by an agent is considered as doing it himself." Thisrule is affirmed by the Civil Code thus:

Art. 1910. The principal must comply with all the obligations which the agent may havecontracted within the scope of his authority.chanroblesvirtualawlibrary chanrobles virtuallaw library

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily

liable with the agent if the former allowed the latter to act as though he had fullpowers.chanroblesvirtualawlibrary chanrobles virtual law library

Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to theprincipal's true representation and the contract is considered as entered into betweenthe principal and the third person. 18

A bank is liable for wrongful acts of its officers done in the interests of the bank or in thecourse of dealings of the officers in their representative capacity but not for acts outsidethe scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as

worthy of confidence will not be permitted to profit by the frauds they may thus beenabled to perpetrate in the apparent scope of their employment; nor will it be permittedto shirk its responsibility for such frauds, even though no benefit may accrue to the banktherefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable toinnocent third persons where the representation is made in the course of its business byan agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraudupon his principal or some other person, for his own ultimate benefit (McIntosh v.Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.)

Application of these principles in especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people intheir honesty and efficiency. Such faith will be eroded where banks do not exercise strictcare in the selection and supervision of its employees, resulting in prejudice to their depositors.chanroblesvirtualawlibrary chanrobles virtual law library

It would appear from the facts established in the case before us that the petitioner wasless than eager to present Quimbo at the trial or even to establish her liability although itmade the initial effort - which it did not pursue - to hold her answerable in the third-party

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complaint. What ever happened to her does not appear in the record. Her absence fromthe proceedings feeds the suspicion of her possible misdeed, which the bank seems tohave studiously ignored by its insistence that the missing money had been actuallywithdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, ineffect and by extension, the disappeared Quimbo who apparently has much to

explain.chanroblesvirtualawlibrary chanrobles virtual law library

We agree with the lower courts that the petitioner acted in bad faith in denying Cruz theobligation she was claiming against it. It was obvious that an irregularity had beencommitted by the bank's personnel, but instead of repairing the injury to Cruz byimmediately restoring her money to her, it sought to gloss over the anomaly in its ownoperations.chanroblesvirtualawlibrary chanrobles virtual law library

Cruz naturally suffered anxious moments and mental anguish over the loss of theinvestment. The amount of P200,000.00 is not small even by present standards. Byunjustly withholding it from her on the unproved defense that she had already withdrawn

it, the bank violated the trust she had reposed in it and thus subjected itself to further liability for moral and exemplary damages.chanroblesvirtualawlibrary chanrobles virtuallaw library

If a person dealing with a bank does not read the fine print in the contract, it is becausehe trusts the bank and relies on its integrity. The ordinary customer applying for a loanor even making a deposit (and so himself extending the loan to the bank) does notbother with the red tape requirements and the finicky conditions in the documents hesigns. His feeling is that he does not have to be wary of the bank because it will dealwith him fairly and there is no reason to suspect its motives. This is an attitude the bankmust justify.chanroblesvirtualawlibrary chanrobles virtual law library

While this is not to say that bank regulations are meaningless or have no binding effect,they should, however, not be used for covering up the fault of bank employees whenthey blunder or, worse, intentionally cheat him. The misdeeds of such employees mustbe readily acknowledged and rectified without delay. The bank must always act in goodfaith. The ordinary customer does not feel the need for a lawyer by his side every timehe deals with a bank because he is certain that it is not a predator or a potentialadversary. The bank should show that there is really no reason for any apprehensionbecause it truly deserves his faith in it.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, withcosts against the petitioner. It is so ordered.

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ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLASPARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONALBANK, respondents.

D E C I S I O N

FRANCISCO, J .:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwiseknown as Lot 8069 of the Cadastral Survey of Calinog, lloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a termof ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During theperiod of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970,

petitioner executed a Special Power of Attorney in favor of Parangan to secure anagricultural loan from private respondent Philippine National Bank (PNB) with theaforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorneywas executed by petitioner, by virtue of which, Parangan was able to secure four (4)additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2,1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit.[1] Theseencumbrances were duly annotated on the certificate of title. On April 16, 1973,petitioner signed a Deed of Pacto de Retro Sale[2] in favor of Parangan which wassuperseded by the Deed of Definite Sale [3] dated May 4, 1979 which petitioner signed

upon Parangan's representation that the same merely evidences the loans extended byhim unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complyingwith the request, Parangan asserted his rights over the property which allegedly hadbecome his by virtue of the aforementioned Deed of Definite Sale. Under saiddocument, petitioner conveyed the subject property and all the improvements thereonunto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand(P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title,

recovery of possession and damages against Parangan and PNB in the Regional TrialCourt of Iloilo City. After trial, the lower court rendered judgment, disposing as follows:

"WHEREFORE and in view of the foregoing, a decision is rendered as follows:

1. Ordering cancellation by the Register of Deeds of the Province of lloilo, of theunauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794;

http://sc.judiciary.gov.ph/jurisprudence/1997/jan1997/111924.htm#_edn1






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2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan infavor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;

3. Ordering defendant Nicolas Parangan to pay all the loans he secured fromdefendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNBto return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question,Lot 8069 of the Calinog Cadastre described in TCT No. T-561 of the Register of Deedsof lloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendantParangan which payment by plaintiff must be made within ninety (90) days from receiptof this decision; otherwise, sale of the land will be ordered by the court to satisfypayment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sumof P15,000.00 and to pay the costs of the suit.

SO ORDERED."[4]

Upon appeal to the Court of Appeals (CA), respondent court reversed the trialcourt's decision. Hence this petition contending that the CA committed the followingerrors:

"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONSSTATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO

EXIST BY PREPONDERANCE OF EVIDENCE:

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITHKNOWLEDGE AS TO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESSDELIA CABIAL DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZINGMORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT."

Two main issues confront us in this case, to wit: whether or not the Deed of DefiniteSale is in reality an equitable mortgage and whether or not petitioner's property is liableto PNB for the loans contracted by Parangan by virtue of the special power of attorney.The lower court and the CA arrived at different factual findings thus necessitating areview of the evidence on record.[5] After a thorough examination, we note some errors,both in fact and in law, committed by public respondent CA.






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The court a quo ruled that the Deed of Definite Sale is in reality an equitablemortgage as it was shown beyond doubt that the intention of the parties was one of aloan secured by petitioner's land.[6] We agree.

A contract is perfected by mere consent.[7] More particularly, a contract of sale isperfected at the moment there is a meeting of minds upon the thing which is the object

of the contract and upon the price.[8] This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and theconsideration thereof. If the words of the contract appear to be contrary to the evidentintention of the parties, the latter shall prevail over the former. [9] In the case at bench,the evidence is sufficient to warrant a finding that petitioner and Parangan merelyintended to consolidate the former's indebtedness to the latter in a single instrument andto secure the same with the subject property. Even when a document appears on itsface to be a sale, the owner of the property may prove that the contract is really a loanwith mortgage by raising as an issue the fact that the document does not express thetrue intent of the parties. In this case, parol evidence then becomes competent andadmissible to prove that the instrument was in truth and in fact given merely as a

security for the repayment of a loan. And upon proof of the truth of such allegations, thecourt will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract.[10]

Articles 1602 and 1604 of the Civil Code respectively provide:

"The contract shall be presumed to be an equitable mortgage in any of the followingcases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrumentextending the period of redemption or granting a new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of theparties is that the transaction shall secure the payment of a debt or the performance of

any other obligation."

"Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting tobe an absolute sale."

From a reading of the above-quoted provisions, for a presumption of an equitablemortgage to arise, we must first satisfy two requisites namely: that the parties enteredinto a contract denominated as a contract of sale and that their intention was to secure











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an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contractpurporting to be an absolute sale shall be presumed to be an equitable mortgage shouldany of the conditions in Art. 1602 be present. The existence of any of thecircumstances therein, not a concurrence nor an overwhelming number of suchcircumstances, suffices to give rise to the presumption that the contract is an equitable

mortgage.[11]

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed tobe an equitable mortgage in any other case where it may be fairly inferred that the realintention of the parties is that the transaction shall secure the payment of a debt or theperformance of any other obligation. That the case clearly falls under this category canbe inferred from the circumstances surrounding the transaction as herein set forth:

Petitioner had no knowledge that the contract[12] she signed is a deed of sale. Thecontents of the same were not read nor explained to her so that she may intelligiblyformulate in her mind the consequences of her conduct and the nature of the rights shewas ceding in favor of Parangan. Petitioner is illiterate and her condition constrained

her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, theperson enforcing the contract must show that the terms thereof have been fullyexplained to the former.[13] Settled is the rule that where a party to a contract is illiterateor cannot read or cannot understand the language in which the contract is written, theburden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him.[14] To our mind, thisburden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was

duly read and explained to petitioner worthy of credit. The assessment by the trial courtof the credibility of witnesses is entitled to great respect and weight for having had theopportunity of observing the conduct and demeanor of the witnesses while testifying.[15] The lower court may not have categorically declared Cabial's testimony as doubtfulbut this fact is readily apparent when it ruled on the basis of petitioner's evidence in totaldisregard of the positive testimony on Parangan's side. We have subjected the recordsto a thorough examination, and a reading of the transcript of stenographic notes wouldbear out that the court a quo is correct in its assessment. The CA committed areversible error when it relied on the testimony of Cabial in upholding the validity of theDeed of Definite Sale. For one, there are noted major contradictions between thetestimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of

Definite Sale. While the former testified that receipts were presented before JudgeLebaquin, who in turn made an accounting to determine the price of the land [16], thelatter categorically denied the allegation.[17] This contradiction casts doubt on thecredibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner's witness Celso Pamplona, testified that the contractwas not read nor explained to petitioner. We believe that this witness gave a moreaccurate account of the circumstances surrounding the transaction. He has no motive
















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to prevaricate or concoct a story as he witnessed the execution of the document at thebehest of Parangan himself who, at the outset, informed him that he will witness adocument consolidating petitioner's debts. He thus testified:

"Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog?

A: Yes, sir.

Q: Who invited you to go there?

A: Parangan.

Q: You mean Nicolas Parangan?

A: Yes, sir.

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to

Parangan.xxx xxx xxx

Q: Before Adoracion Lustan signed her name in this Exh. "4", was thisdocument read to her?

A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what she wassigning?

A: No, sir.

xxx xxx xxxQ: What did you have in mind when you were signing this document, Exh. "4"?

A: To show that Adoracion Lustan has debts with Nicolas Parangan."[18]

Furthermore, we note the absence of any question propounded to Judge Lebaquinto establish that the deed of sale was read and explained by him to petitioner. Whenasked if witness has any knowledge whether petitioner knows how to read or write, heanswered in the negative.[19] This latter admission impresses upon us that the contractwas not at all read or explained to petitioner for had he known that petitioner is illiterate,his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitablemortgage prevails. The contract of definite sale, where petitioner purportedly ceded allher rights to the subject lot in favor of Parangan, did not embody the true intention of theparties. The evidence speaks clearly of the nature of the agreement — it was oneexecuted to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property canbe enforced against petitioner, we rule in the affirmative.





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Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property.[20] So long as valid consent was given, the fact that theloans were solely for the benefit of Parangan would not invalidate the mortgage withrespect to petitioner's property. In consenting thereto, even granting that petitioner maynot be assuming personal liability for the debt, her property shall nevertheless secure

and respond for the performance of the principal obligation.[21]

It is admitted thatpetitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions byvirtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are acontinuing one and absent a valid revocation duly furnished to the mortgagee, the samecontinues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:

"Art. 1921. If the agency has been entrusted for the purpose of contracting withspecified persons, its revocation shall not prejudice the latter if they were not given

notice thereof."

The Special Power of Attorney executed by petitioner in favor of Parangan dulyauthorized the latter to represent and act on behalf of the former. Having done so,petitioner clothed Parangan with authority to deal with PNB on her behalf and in theabsence of any proof that the bank had knowledge that the last three loans were withoutthe express authority of petitioner, it cannot be prejudiced thereby. As far as thirdpersons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understandingbetween the principal and the agent.[22] The Special Power of Attorney particularly

provides that the same is good not only for the principal loan but also for subsequentcommercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and acopy of which is furnished to PNB.[23] Even when the agent has exceeded his authority,the principal is solidarily liable with the agent if the former allowed the latter to act asthough he had full powers (Article 1911, Civil Code).[24] The mortgage directly andimmediately subjects the property upon which it is imposed.[25] The property of thirdpersons which has been expressly mortgaged to guarantee an obligation to which thesaid persons are foreign, is directly and jointly liable for the fulfillment thereof; it istherefore subject to execution and sale for the purpose of paying the amount of the debtfor which it is liable.[26] However, petitioner has an unquestionable right to demandproportional indemnification from Parangan with respect to the sum paid to PNB fromthe proceeds of the sale of her property[27] in case the same is sold to satisfy the unpaiddebts.

WHEREFORE, premises considered, the judgment of the lower court is herebyREINSTATED with the following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLEMORTGAGE;

















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2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURNTHE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THELATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYSFROM RECEIPT OF THIS DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND

SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONERTHE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAYTHE COSTS OF THE SUIT.

SO ORDERED.

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G.R. No. L-13868

CONRADO AYLLON, plaintiff-appellant,

vs.

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, defendant-appellee.

Irureta Goyena and Recto and Jose Carlos for appellant.

Hartigan and Welch for appellee.

, J.:

The defendant, the Roman Catholic Archbishop of Manila, is the owner of a large tract

of land located in the provinces of Bulacan and Pampanga and known as the

Buenadicha Estate. On October 1, 1913, a contract was executed by which the plaintiff,

Conrado Ayllon, was placed in charge of this property in the character of agent or

administrator. The period of the contract was fixed at one year, expiring September 30,

1914. It was stipulated among other things that, in view of the unproductive and

undeveloped condition of the property, the plaintiff should be entitled to retain ninety per

centum of the net profits of the estate, any losses incurred in the management of the

property being borne exclusively by him.

Upon the expiration of the period of the contract above mentioned the plaintiff remained

in possession and continued, with the consent of the defendant, to manage the property

about as he had done before. At the end of the year 1916, the defendant resumedpossession; and the plaintiff brought this action to recover the sum of P11,000,

composed of two items to-wit (a) P3,000, alleged to have been expended by the plaintiff

in the case and improvement of the estate; and (b) P8,000, representing the supposed

reasonable value of the plaintiffs services as administrator of the estate from September

30, 1914, to December 31, 1916. The trial court dismissed the action, with costs against

the plaintiff, whereupon the latter appealed.

The theory of the plaintiff's case is that inasmuch as, after the termination of the period

fixed in the original contract, there was no contractual relation existing between the

parties, the plaintiff should be entitled to reimbursement of his expenditures and tocompensation for services rendered upon the basis of a reasonable allowance, or

quantum merit.

We concur with the trial court in the view that the action is not maintainable. It is

undoubtedly true that, in the absence of a prior contract, the defendant would have

been bound to compensate the plaintiff for services rendered at the defendant's special

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instance and request, and the defendant likewise would have been bound to reimburse

the plaintiff for any expenditures incurred by the plaintiff in the management of the

estate with the defendant's knowledge and consent. The obligation to compensate and

reimburse under such circumstances is imposed by law in contemplation of the implied

request or consent of the person bound and in view of the benefit conferred, the

contract arising in conception of law upon the facts involve and without any express

promise.

One of the fundamental conditions essential to the creation of such implied obligation is

that the expenditures or services for which compensation is sought should be incurred,

or rendered in response to a request, expressed or implied, on the part of the person

benefitted. The obligation can not arise where services are rendered or expenditures

paid out voluntarily, that is, without request made and without expectation of a reward.

Furthermore, it is elementary that the law will not create an obligation to compensate or

reimburse where there is a special contract to which the services or expenditures inquestion may be referred. In such case the measure of compensation must be sought in

the contract itself.

In the case before us the relation existing between the parties to this action and its

origin in a special contract, which defied the duties of the plaintiff and the obligations of

the defendant; and when both parties by tacit consent, after the expiration of the period

fixed in the contract, continued the relation substantially as it had existed under the

contract, the only reasonable assumption is that they intended for their respective

obligations to be measured by that contract. The law in such a situation will not imposed

an obligation on the part of the defendant to compensate or reimburse on a basisdifferent from that specially fixed in the contract by which their relation was originally

created QwxenD.

The situation here contemplated is exactly analogous to that created by tacit

reconduction, expressly recognized in the Civil Code (art. 1566); and the rule which in

such case fixes the rights of the parties according to the obligations created by the

original contract is equally applicable in relations of agency and service.

The trial court was not in error in dismissing the action. Judgment affirmed, with costs.

So ordered

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INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOSREYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO ARANETA,INC. and J. ARMANDO EDUQUE, respondents.

D E C I S I O N

HERMOSISIMA, JR., J .:

Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty")and Roman M. de los Reyes seek the reversal of the Decision[1] of the Intermediate

Appellate Court (now Court of Appeals)[2] which affirmed the trial court's dismissal [3] of petitioners' claim for unpaid agent's commission for brokering the sales transactioninvolving 9,800 shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'")between private respondent Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller and Stanford Microsystems, Inc. (hereafter, "Stanford") as buyer.

Petitioners come to us with a two-fold agenda: (1) to obtain from us a declarationthat the trial court and the respondent appellate court gravely erred when appreciatingthe facts of the case by disregarding Exhibits "L," a Letter dated October 28, 1976signed by Gregorio Araneta II, renewing petitioners' authority to act as sales agent for aperiod of thirty (30) days from same date, and Exhibit "M," a Letter dated November 16,1976 signed by petitioner de los Reyes, naming four (4) other prospective buyers,respectively; and (2) to obtain from us a categorical ruling that a broker is automaticallyentitled to the stipulated commission merely upon securing for, and introducing to, theseller the particular buyer who ultimately purchases from the former the object of thesale, regardless of the expiration of the broker's contract of agency and authority to sell.

Before we proceed to address petitioners' objectives, there is a need to unfold thefacts of the case. For that purpose, we quote hereunder the findings of fact of the Courtof Appeals with which petitioners agree, except as to the respondent appellate court'snon-inclusion of the aforementioned Exhibits "L" and "M":

"From the evidence, the following facts appear undisputed: On September 16, 1975,defendant corporation thru its co-defendant Assistant General Manager J. ArmandoEduque, granted to plaintiffs a 30-day authority to sell its x x x 9,800 shares of stock in

Architects' Bldg., Inc. as follows:

'September 16, 1975

TO WHOM IT MAY CONCERN:

This is to authorize Mr. R.M. de los Reyes, representing Inland Realty, to sell on a firstcome first served basis the total holdings of Gregorio Araneta, Inc. in Architects' [Bldg.],Inc. equivalent to 98% or 9,800 shares of stock at the price of P1,500.00 per share for aperiod of 30 days.

http://sc.judiciary.gov.ph/jurisprudence/1997/jun1997/76969.htm#_edn1






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(SGD.) J. ARMANDOEDUQUE

Asst. General Manager'

Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is a corporation

engaged [in], among others x x x the real estate business [and] brokerages, dulylicensed by the Bureau of Domestic Trade x x x. [Inland Realty] planned their salescampaign, sending proposal letters to prospective buyers. One such prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. x x x [that]counter-proposed to buy 9,800 shares offered at P1,000.00 per share or for a totalof P9,800,000.00, P4,900,000.00 payable in five years at 12% per annum interest untilfully paid.

Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendanta letter to register Stanford Microsystems, Inc. as one of its prospective buyers x xx. Defendant Araneta, Inc., thru its Assistant General Manager J. Armando Eduque,

replied that the price offered by Stanford was too low and suggested that plaintiffs see if the price and terms of payment can be improved upon by Stanford x x x. Other prospective buyers were submitted to defendants among whom were Atty. Maximo F.Belmonte and Mr. Joselito Hernandez. The authority to sell given to plaintiffs bydefendants was extended several times: the first being on October 2, 1975, for 30 daysfrom said date (Exh. 'J'), the second on October 28, 1975 for 30 days from said date(Exh. 'L') and on December 2, 1975 for 30 days from said date (Exh. 'K').

Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage division, who bycontract with Inland Realty would be entitled to 1/2 of the claim asserted herein, testifiedthat when his company was initially granted the authority to sell, he asked for an

exclusive authority and for a longer period but Armando Eduque would not give, butaccording to this witness, the life of the authority could always be extended for thepurpose of negotiation that would be continuing.

On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in] Architects' [Bldg.],Inc. to Stanford Microsystems, Inc. for P13,500,000.00 x x x.

On September 6, 1977, plaintiffs demanded formally [from] defendants, through a letter of demand, for payment of their 5% broker['s] commission at P13,500,000.00 or a totalamount of P675,000.00 x x x which was declined by [defendants] on the ground that theclaim has no factual or legal basis."[4]

Ascribing merit to private respondents' defense that, after their authority to sellexpired thirty (30) days from December 2, 1975, or on January 1, 1976, petitionersabandoned the sales transaction and were no longer privy to the consummation anddocumentation thereof, the trial court dismissed petitioners' complaint for collection of unpaid broker's commission.

Petitioners appealed, but the Court of Appeals was unswayed in the face of evidence of the expiration of petitioners' agency contract and authority to sell on



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January 1, 1976 and the consummation of the sale to Stanford on July 8, 1977 or morethan one (1) year and five (5) months after petitioners' agency contract and authority tosell expired. Respondent appellate court dismissed petitioners' appeal in this wise:

" x x x The resolution would seem to hinge on the question of whether plaintiff was

instrumental in the final consummation of the sale to Stanford which was the samename of the company submitted to defendants as a prospective buyer although their price was considered by defendant to be too low and defendants wrote to plaintiff if theprice may be improved upon by Stanford x x x. This was on October 13, 1975. After that, there was an extension for 30 days from October 28, 1975 of the authority (Exh.'L') and another on December 2, 1975 for another 30 days from the said date x x x. x xx There is nothing in the record or in the testimonial evidence that the authorityextended 30 days from the last date of extension was ever reserved nor extended, nor has there been any communication made to defendants that the plaintiff was actuallynegotiating with Stanford a better price than what was previously offered by it x x x.

In fact there was no longer any agency after the last extension. Certainly, the length of time which had transpired from the date of last extension of authority to the finalconsummation of the sale with Stanford of about one (1) year and five (5) monthswithout any communication at all from plaintiffs to defendants with respect to thesuggestion of defendants that Stanford's offer was too low and suggested if plaintiffsmay make it better. We have a case of proposal and counter-proposal which would notconstitute a definite closing of the transaction just because it was plaintiff who solelysuggested to defendants the name of Stanford as buyer x x x." [5]

Unable to accept the dismissal of its claim for unpaid broker's commission,petitioners filed the instant petition for review asking us (1) to pass upon the factual

issue of the alleged extension of their agency contract and authority to sell and (2) torule in favor of a broker's automatic entitlement to the stipulated commission merelyupon securing for, and introducing to, the seller, the particular buyer who ultimatelypurchases from the former the object of the sale, regardless of the expiration of thebroker's contract of agency and authority to sell.

We find for private respondents.

I

Petitioners take exception to the finding of the respondent Court of Appeals thattheir contract of agency and authority to sell expired thirty (30) days from its last renewalon December 2, 1975. They insist that, in the Letter dated October 28, 1976, Gregorio

Araneta III, in behalf of Araneta, Inc., renewed petitioner Inland Realty's authority to actas agent to sell the former's 9,800 shares in Architects' for another thirty (30) days fromsame date. This Letter dated October 28, 1976, petitioners claim, was marked asExhibit "L" during the trial proceedings before the trial court.

This claim is a blatant lie. In the first place, petitioners have conspicuously failed toattach a certified copy of this Letter dated October 28, 1976. They have, in fact, notattached even a machine copy thereof. All they gave this court is their word that said



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Letter dated October 28, 1976 does exist, and on that basis, they expect us toaccordingly rule in their favor.

Such naivety, this court will not tolerate. We will not treat lightly petitioners' attemptto mislead this court by claiming that the Letter dated October 28, 1976 was marked asExhibit "L" by the trial court, when the truth is that the trial court marked as Exhibit "L",

and the respondent Court of Appeals considered as Exhibit "L," private respondent Araneta, Inc.'s Letter dated October 28, 1975, not 1976. Needless to say, this blatantattempt to mislead this court, is contemptuous conduct that we sternly condemn.

II

The Letter dated November 16, 1976, claimed by petitioners to have been markedas Exhibit "M", has no probative value, considering that its very existence remainsunder a heavy cloud of doubt and that hypothetically assuming its existence, its allegedcontent, namely, a listing of four (4) other prospective buyers, does not at all prove thatthe agency contract and authority to sell in favor of petitioners was renewed or revivedafter it expired on January 1, 1976. As in the case of the Letter dated October 28, 1976,

petitioners have miserably failed to attach any copy of the Letter dated November 16,1976. A copy thereof would not help petitioners' failing cause, anyway, especiallyconsidering that said letter was signed by petitioner De los Reyes and would thereforetake on the nature of a self-serving document that has no evidentiary value insofar aspetitioners are concerned.

III

Finally, petitioners asseverate that, regardless of whether or not their agencycontract and authority to sell had expired, they are automatically entitled to their broker'scommission merely upon securing for and introducing to private respondent Araneta,Inc. the buyer in the person of Stanford which ultimately acquired ownership over

Araneta, Inc.'s 9,800 shares in Architects'.

Petitioners' asseverations are devoid of merit.

It is understandable, though, why petitioners have resorted to a campaign for anautomatic and blanket entitlement to brokerage commission upon doing nothing butsubmitting to private respondent Araneta, Inc., the name of Stanford as prospectivebuyer of the latter's shares in Architects'. Of course petitioners would advocate as suchbecause precisely petitioners did nothing but submit Stanford's name as prospectivebuyer. Petitioners did not succeed in outrightly selling said shares under thepredetermined terms and conditions set out by Araneta, Inc., e.g., that the price per share is P1,500.00. They admit that they could not dissuade Stanford from haggling for

the price of P1,000.00 per share with the balance of 50% of the total purchase pricepayable in five (5) years at 12% interest per annum. From September 16, 1975 toJanuary 1, 1976, when petitioners' authority to sell was subsisting, if at all, petitionershad nothing to show that they actively served their principal's interests, pursued to sellthe shares in accordance with their principal's terms and conditions, and performedsubstantial acts that proximately and causatively led to the consummation of the sale toStanford of Araneta, Inc.'s 9,800 shares in Architects'.

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The Court of Appeals cannot be faulted for emphasizing the lapse of more than one(1) year and five (5) months between the expiration of petitioners' authority to sell andthe consummation of the sale to Stanford, to be a significant index of petitioners' non-participation in the really critical events leading to the consummation of said sale, i.e.,the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the

finalization of the terms and conditions of the sale, the drafting of the deed of sale, theprocessing of pertinent documents, and the delivery of the shares of stock toStanford. Certainly, when the lapse of the period of more than one (1) year and five (5)months between the expiration of petitioners' authority to sell and the consummation of the sale, is viewed in the context of the utter lack of evidence of petitioners' involvementin the negotiations between Araneta, Inc. and Stanford during that period and in thesubsequent processing of the documents pertinent to said sale, it becomes undeniablethat the respondent Court of Appeals did not at all err in affirming the trial court'sdismissal of petitioners' claim for unpaid brokerage commission.

Petitioners were not the efficient procuring cause[6] in bringing about the sale inquestion on July 8, 1977 and are, therefore, not entitled to the stipulated broker's

commission of "5% on the total price."

WHEREFORE, the instant petition is HEREBY DISMISSED



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G.R. No. L-39822 January 31, 1978

ANTONIO E. PRATS, doing business under the name of Philippine Real EstateExchange, petitioner,vs.

HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONALBANK, respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R.No. 45974-R entitled"Antonio E. Prats, doing business under the name of PhilippineReal Estate Exchange, vs. Alfonso Doronila and the Philippine National Bank", thedispositive part of which reads:

In view of all the foregoing, it is our considered opinion and so hold thatthe decision of the lower court be, as it is hereby reversed, and thecomplaint, dismissed. On appellant's counterclaim, judgment is herebyrendered directing appellee to pay attorney's fees in the sum of P10,000 toappellant, no moral damages as therein claimed being awarded for lack of evidence to justify the same. The injunction issued by the lower court onthe P2,000,000.00 cash deposit of the appellant is hereby lifted. Nospecial pronouncement as to costs.

SO ORDERED. 1

On September 23, 1968 Antonio E. Prats, doing business under the name of "PhilippineReal Estate Exchange" instituted against Alfonso Doronila and Philippine National BankCivil Case No. Q-12412 in the Court of First Instance of Rizal at Quezon City to recover a sum of money and damages.

The complaint stated that defendant Alfonso Doronila was the registered owner of 300hectares of land situated in Montalban, Rizal, covered by Transfer Certificates of TitleNos. 77011, 77013, 216747 and 216750; that defendant Doronila had for sometimetried to sell his aforesaid 300 hectares of land and for that purpose had designatedseveral agents; that at one time, he had offered the same property to the Social Security

System but failed to consummate any sale; that his offer to sell to the Social SecuritySystem having failed, defendant Doronila on February 14, 1968 gave the plaintiff anexclusive option and authority in writing to negotiate the sale of his aforementionedproperty, which exclusive option and authority the plaintiff caused to be published in theManila Times on February 22, 1968; that it was the agreement between plaintiff anddefendant Doronila that the basic price shall be P3.00 per square meter, that plaintiff shall be entitled to a commission of 10% based on P2.10 per square meter or at anyprice finally agreed upon and if the property be sold over and above P3.00 per square

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meter, the excess shall be created and paid to the plaintiff in addition to his 10%commission based on P2.10 per square meter; that as a result of the grant of theexclusive option and authority to negotiate the sale of his 300 hectares of land situatedin Montalban, Rizal in favor of the plaintiff, the defendant Doronila, on February 20,1968, wrote a letter to the Social Security System withdrawing his previous offer to sell

the same land and requesting the return to him of all papers concerning his offeredproperty that the Social Security System, complying with said request of defendantDoronila, returned all the papers thereon and defendant Doronila, in turn gave them tothe plaintiff as his duly authorized real estate broker; that by virtue of the exclusivewritten option and authority granted him and relying upon the announced policy of thePresident of the Philippines to promote low housing program the plaintiff immediatelyworked to negotiate the sale of defendant Doronila's 300 hectares of land to the SocialSecurity System, making the necessary contacts and representations to bring theparties together, namely, the owner and the buyer, and bring about the ultimate sale of the land by defendant Doronila to the Social Security System; that on February 27,1968, after plaintiff had already contacted the Social Security System, its Deputy

Administrator, Reynaldo J. Gregorio, wrote a letter to defendant Doronila inviting thelatter to a conference regarding the property in question with Administrator Teodoro,Chairman Gaviola and said Reynaldo J. Gregorio on March 4, 1968 at 10:00 o'clock inthe morning, stating that the SSS would like to take up the offer of the lot; that havinggranted plaintiff the exclusive written option and authority to negotiate the sale of his300 hectares of land, defendant Doronila in a letter dated February 28, 1968 declinedthe invitation extended by the Social Security System to meet with its Administrator andChairman and requested them instead "to deal directly" with the plaintiff, that on March16, 1968, at the suggestion of defendant Doronila, the plaintiff wrote a letter to theSocial Security System to the effect that plaintiff would be glad to sit with the officials of the Social Security System to discuss the sale of the property of the defendant Doronila;

that on March 18, 1968, the Social Security System sent a telegram to defendantDoronila to submit certain documents regarding the property offered; that on May 6,1968, a written offer to sell the 300 hectares of land belonging to defendant Doronilawas formally made by the plaintiff to the Social Security System and accordingly, onMay 7, 1968, the Social Security System Administrator dispatched the followingtelegram to defendant Doronila: "SSS considering purchase your property for itshousing project Administrator Teodoro"; that a few days thereafter, the plaintiff accompanied the defendant Doronila to the China Banking Corporation to arrange thematter of clearing payment by chock and delivery of the titles over the property to theSociety Security System; that having been brought together by the plaintiff, thedefendant Doronila and the offices of the Society Security System, on May 29, 1968and on June 4, 1968, met at the office of the SSS Administrator wherein the price for the purchase of the defendant Doronila's 300 hectares of land was, among others,taken up; that on June 20, 1968, the Social Security Commission passed ResolutionNo. 636 making a counter-offer of P3.25 per square meter subject to an appraise report;that on June 27, 1968, Resolution No. 662 was adopted by the Social SecurityCommission authorizing the Toples & Harding (Far East) Inc. to conduct an appraisal of the property and to submit a report thereon; that pursuant thereto, the said companysubmitted its appraisal report specifying that the present value of the property is P3.34

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per square meter and that a housing program development would represent the highestand best use thereof, that on July 18, 1968, the Social Security Commission, at itsregular meeting, taking note of the favorable appraisal report of the Toples'& Harding(Far East) Inc., passed Resolution No. 738, approving the purchase of defendantDoronila's 300 hectares of land in Montalban, Rizal at a price of P3.25 per square meter

or for a total purchase price of Nine Million Seven Hundred Fifty Thousand Pesos(P9,750,000.00), appropriating the said amount for the purpose and authorizing theSSS Administrator to sign the necessary documents to implement the said resolution;that on July 30, 1968, defendant Doronila and the Social Security System executed thecorresponding deed of absolute sale over the 300 hectares of land in Montalban, Rizalcovered by Transfer Certificate of Title Nos. 77011, 77013, 216747 and 216750 under the terms of which the total price of P9,750,000.00 shall be payable as follows: (a) 60%of the agreed purchase price, or Five Million Eight Hundred Fifty Thousand Pesos(P5,860,000.00) immediately after signing the deed of sale. and (b) the balance of 40%of the agreed price, or Three Million Nine Hundred Thousand Pesos (P3,900,000.00)thirty days after the signing of the deed of absolute sale; that on August 21, 1968, after

payment of the purchase price, the deed absolute sale executed by defendant Doronilain favor of the Social Security System was presented for registration in the Office of theRegister of Deeds of Rizal, and Transfer Certificates of Title Nos. 926574, 226575,226576 and 226577 in the name of the Social Security System were issued; thatdefendant Doronila has received the full purchase price for his 300 hectares of land inthe total amount of P9,750,000.00, which amount he deposited in his bank Account No.0012-443 with the defendant Philippine National Bank; that on September 17, 1968, theplaintiff presented his statement to, and demanded of defendant Doronila the paymentof his processional fee as real estate broker as computed under the agreement of February 14, 1968 in the total amount of P1,380,000.00; that notwithstanding suchdemand, the defendant Doronila, in gross and evident bad faith after having availed of

the services of plaintiff as real estate broker, refused to pay the professional fees duehim; that as a result of defendant Doronila's gross and evident bad faith and unjustifiedrefusal to pay plaintiff the professional fees due him under the agreement, the latter hassuffered and continues to suffer mental anguish, serious anxiety, and social humiliationfor which defendant Doronila shall be held liable to pay moral damages; and, that byreason likewise of the aforesaid act of defendant Doronila, the plaintiff has beencompelled to file this action and to engage the services of counsel at a stipulatedprofessional fee of P250,000.00.

In his answer filed on November 18, 1968, the defendant Doronila alleged that when theplaintiff offered the answering defendant's property to the Social Security System onMay 6, 1968, said defendant had already offered his property to, and had a closedtransaction or contract of sale of, said property with the Social Security System; that theletter agreement had become null and void because defendant Doronila had notreceived any written offer from any prospective buyers of the plaintiff during the agreedperiod of 60 days until the last day of the authorization which was April 13, 1968counting from February 14, 1968; that it is not true that plaintiff brought together defendant Doronila and the officials of the Social Security System to take up thepurchase price of defendant Doronila's property for the simple reason that the plaintiff's

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offer was P6.00 per square meter and later on reduced to P4.50 per square meter because the SSS Chairman had already a closed transaction with the defendantDoronila at the price of P3.25 per square meter and that the offer of the plaintiff wasrefused by the officials of the Social Security System; and that defendant Doronila didnot answer the statement of collection of the plaintiff because the latter had not right to

demand the payment for services not rendered according to the agreement of theparties. The answering defendant interposed a counterclaim for damages and attorney'sfees.

On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted thefollowing stipulation of facts:

STIPULATION OF FACTS

COME NOW the plaintiff and defendant DORONILA, through their respective undersigned counsel, and to this Honorable Court by way of

abbreviating the proceeding i the case at bar, without prejudice topresentation of explanatory evidence, respectfully submit the followingSTIPULATION OF FACTS.

1.

The defendant Doronila was the registered owner of 300 hectares of land,situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos.77011, 77013, 216747 (formerly TCT No. 116631) and 216750 (formerlyTCT No. 77012).

2.

That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of the answer) addressed to the SSS Chairman, offered his saidproperty to the Social Security System (SSS) at P4.00 per square meter.

That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr.Ramon C. Gaviola, Jr., replied to defendant DORONILA, as follows:

This will acknowledge your letter of July 3rd, 1967 relative toyour offer for sale of your real estate property.

In this regard, may I please be informed as to how manyhectares, out of the total 300 hectares offered, are located inQuezon City and how many hectares are located inMontalban, Rizal. Likewise, as regards your offer of P4.00per square meter, would there be any possibility that thesame be reduced to P3.25 per square meter Finally andbefore I submit your proposal for process it is requested that

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the NAWASA certify to the effect that they have no objectionto having this parcel of land subdivided for residential housepurposes.

Thank you for your offer and may I hear from you at the

earliest possible time.

2-a

That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy,attached hereto marked as Annex "2-a" for DORONILA) to NAWASA, andthat in reply thereto, on July 25, 1967, the NAWASA wrote the followingletter (Xerox copy attached hereto to be marked as Annex "2-b" for DORONILA) to defendant DORONILA.

In connection with your proposed subdivision plan of your

properties adjacent to our Novaliches Watershed, this Officewould like to impose the following conditions:

1. Since your property is an immediate boundary of our Novaliches Watershed, a 20-meter road should beconstructed along our common boundary.

2. That no waste or drainage water from the subdivisionshould flow towards the watershed.

3. That the liquid from the septic tanks or similar waste water

should be treated before it is drained to the Alat River aboveour Alat Dam.

The above conditions are all safeguards to the drinkingwater of the people of Manila and Suburbs. It is thereforeexpected that we all cooperate to make our drinking water safer from any pollution.

3.

That on July 19, 1967, defendant DORONILA wrote another letter (marked

as Annex '3' on his Answer) addressed to the SSS Chairman, Mr. RamonGaviola Jr., stating, among others, the following:

In this connection, I have your counter-offer of P3.25 per square meter against my offer of P4.00 per square meter,although your counter-offer is lower comparing to the pricesof adjacent properties, I have to consider the difference asmy privilege and opportunity to contribute or support the

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Presidential policy to promote low cost housing in thiscountry particularly to the SSS members by accepting gladlyyour counter-offer of P3.25 per square meter with thecondition that it should be paid in cash and such paymentshall be made within a period of 30 days from the above

stated date (2nd paragraph of letter dated July 18, 1967, Annex "3" of the Answer).

3.a

That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr.,wrote the following (Xerox copy attached hereto and marked as Annex '2-c' for DORONILA: addressed to defendant DORONILA:

With reference to your letter, dated July 1967, please beinformed that the same is now with the Administrator for

study and comment. The Commission will act on receipt of information re such studies.

With the assurance that you will be periodically informed of developments, we remain.

3-b

That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso Doronila, property owner', wrote the following request (Xerox copyattached hereto and marked as Annex '2-d' for DORONILA) addressed to

Realtor Vicente L. Narciso for a certification regarding the actual prices of DORONILA's property, quoted as follows:

May I have the honor to request for your certification as amember of the Board of Realtor regarding the actual pricesof my real estate raw-land properties described as Lots 3-B-7, 26B, 6 and 4-C-3 all adjacent to each other, containing atotal area of 3,000,000 square meters, all registered in thename of Alfonso Doronila, covered by T.C.T. Nos. 116631,77013, 77011, and 77012, located at Montalban, Rizal, alladjacent to the Northern portion of the NAWASA properties

in Quezon City including those other surrounding adjacentproperties and even those properties located beforereaching my own properties coming from Manila.

This request is purposely made for my references in case Idecided to sell my said properties mentioned above.

3-c

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That on November 3, 1967, Realtor Vicente Narciso wrote the followingreply (Xerox copy attached hereto and marked as Annex 2 for DORONILA) to Mr. Pastor B. Sajorda:

As per your request dated October 30, 1967, regarding

prices of raw land, it is my finding that the fair market valueof raw land in the vicinity of the NAWASA properties atQuezon City and Montalban, Rizal. including the propertiesof Atty. Alfonso Doronila. more particularly known as lots 3-B-7, 26-B, and 4-C-3 containing approximately 3,000,000square meters is P3.00 to P3.50 per square meter.

Current prices before reaching Doronila's property rangefrom P6.00 to P7.00 per square meter.

4.

That on February 14, 1968, defendant DORONILA granted plaintiff anexclusive option and authority (Annex 'A' of the complaint), under thefollowing terms and conditions:

1. The price of the property is THREE (P3.00) PESOS per square meter.

2. A commission of TEN (10%) PERCENT will be paid to usbased on P2.10 per square meter, or at any price that youDORONILA finally agree upon, and all expenses shall be for

our account, including preparation of the corresponding deedof conveyance, documentary stamps and registration fee,whether the sale is causes directly or indirectly by us withinthe time of this option. If the property is sold over and aboveP3.00 per square meter, the excess amount shall becredited and paid to the herein workers. In addition to the10% commission based on P2.10 per square meter,provided the brokers shall pay the corresponding taxes tothe owner of the excess amount over P3.00 per squaremeter, unless paid by check which would then be deductibleas additional expenses.

3. This exclusive option and authority is good for a period of sixty (60) days from the date of your conformity; provided,however, that should negotiations have been started with abuyer, said period is automatically extended until saidnegotiations is terminated, but not more than fifteen (15)days;

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4. The written offers must be made by the prospectivebuyers, unless they prefer to have us take the offer for and intheir behalf some buyers do not want to be known in theearly stages of the negotiations:

5. If no written offer is made to you until the last day of thisauthorization, this option and authority shall expire andbecome null and void;

6. It is clearly understood that prospective buyers and allparties interested in this property shall be referred to us, andthat you will not even quote a price directly to any agent or buyer. You agree to refer all agents or brokers to usDURING the time this option is in force; and

7. There are some squatters occupying small portions of the

property, which fact will be reported to the prospectivebuyers, and said squatters will be removed at our expense.(Annex "A" of the complaint)

Very truly yours,

PHILIPPINE REALESTATEEXCHANCE

(Sgd) ANTONIO E.

PRATS

Gener almanager

CONFORME:

(Sgt.) ALFONSO DORONILA

Date: February 14, 1968

5.

That on February 19, 1968, plaintiff wrote the following letter to defendantDORONILA (Annex "4" of the Answer), quoted as follows:

February 19, 1968

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Don Alfonso Doronila

Plaza Ferguzon

Ermita, Manila

Dear Don Alfonso:

In view of the exclusive option extended to us for the sale of your propertyconsisting 300 hectares located at Montalban, Rizal, we earnestly requestthat you take immediate steps to withdraw any and all papers pertaining tothis property offered to the SOCIAL SECURITY SYSTEM

Very truly yours,

PHILIPPINE REAL

ESTATEEXCHANGE

(Sgd) ANTONIO E. PRATS

General Manager

AEP/acc

RECEIVED ORIGINAL

By: (Sgd.) ROGELIO DAPITAN

6.

That on February 20, 1968, pursuant to the letter dated February 19, 1968of plaintiff, defendant DORONILA wrote a letter (Annex 'B' of thecomplaint) to the SSS Administrator stating:

In as much as the SSS has not acted on my offer to sell a300 hectare lot located in Montalban, Rizal, for the last five

(5) months I respectfully requested for the return of all mypapers concerning this offered property.

7.

That on February 27, 1968, defendant DORONILA received the followingletter (Annex "C" of the complaint) from the SSS Deputy Administrator, Mr.Reynaldo J. Gregorio, to wit:

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May I take this opportunity of inviting you in behalf of Administrator Teodoro, to meet with him, Chairman Gaviola and myself on Friday,March 4, 10:00 A.M. lot offer.

Thanks and regards.

8.

That on February 28, 1968, defendant DORONILA wrote the followingletter (Annex "D" of the complaint) to the SSS Deputy Administrator:

Thank you for your invitation to meet Administrator Teodoro,Chairman Gaviola and your goodself, to take up my former offer to sell my property to the Social Security System.

Since the SSS had not acted on my offer dated July 19,

1967, more than seven (7) months ago, I have asked for thereturn of my papers, as per my letter of February 20, 1968,and which you have kindly returned to me.

As of February 20, 1968, I gave the Philippine Real EstateExchange an exclusive option and authority to negotiate thesale of this 300 hectare land, and I am no longer at liberty tonegotiate its sale personally; I shall therefore request youcommunicate directly with the Philippine Real EstateExchange, P. O. Box 84, Quezon City, and deal with themdirectly if you are still interested in my property.

With my kind personal regards, I am

9.

That on March 16, 1968, plaintiff, acting upon the letter of defendantDORONILA dated February 28, 1968 (Annex 'D' for plaintiff), wrote thefollowing letter to SSS Administrator:

Don Alfonso Doronila, owner of the 300 hectare land locatedat Montalban, Rizal, adjoining the Quezon City boundary,

has informed us that the Administrator of the SOCIALSECURITY' SYSTEM, through Mr. Reynaldo J. Gregorio,has invited him to meet with the Administrator and ChairmanGaviola to take up the former offer to sell his property to theSSS.

In his letter to the Administrator dated February 20, 1968(which has been received by the SSS on the same day), Mr.

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Doronila advised you that as of February 20,1968, he gavethe PHILIPPINE REAL ESTATE EXCHANGE (PHILREX)the exclusive option and authority to negotiate the sale of his300 hectare land in Montalban, and that he is no longer atliberty to negotiate its sale personally, and that, if you are still

interested in the property, the SSS should communicatedirectly with the PHILIPPINE REAL ESTATE EXCHANGE.

It is by virtue of this arrangement that Mr. Doronila nowrefers to us invitation and his reply to the SSS and hasrequested us to get in touch with you.

While, at present we have several prospective buyersinterested in this property, we shall, in compliance with therequest of Mr. Doronila, be happy to sit down with you andChairman Ramon Gaviola, Jr.

Please let us know when it will be convenient to hold theconference.

10.

That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive option and authority to expire May 18, 1968.(annex 'B' — Replyletter of Doronila to SSS Deputy Administrator dated May 8, 1968).

11.

That on May 6,1968, plaintiff made a formal written offer to the SocialSecurity System to sell the 300 hectares land of defendant DORONILA atthe price of P6.00 per square meter, Xerox copy of which bearing thestamp or receipt of Social Security System is attached hereof as Annex"D" — plaintiff.

12.

That on May 16, 1968 the defendant DORONILA received the followingtelegram (Annex 'E' of the complaint) form the SSS Administrative,

reading:

SSS CONSIDERING PURCHASE YOUR PROPERTY FORITS HOUSING PROJECT

13.

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That on May 18, 1968, after plaintiff exclusive option and authority hadbeen extended, plaintiff wrote the following letter (Annex "A"— Reply' of plaintiff's REPLY TO ANSWER) to defendant DORONILA, to wit:

CONFIDENTIAL

In our conference last Monday, May 13, 1968, you havebeen definitely advised by responsible parties that theSOCIAL SECURITY SYSTEM is acquiring your 300-hectareland at Montalban, Rizal, adjoining the Quezon CityBoundary — and that said property will be acquired inaccordance with the exclusive option and authority you gavethe PHILIPPINE REAL ESTATE EXCHANCE. You wereassured in that conference that the property will be acquireddefinitely, but, as it has been mentioned during theconference, it may take from 30 to 60 days to have all the

papers prepared and to effect the corresponding payment.The telegram from the SSS confirming these negotiationshas already been received by you, a copy of which youyourself have kindly furnished us.

Pursuant to paragraph 3 of the terms of the option that you have kindlyextended, we still have fifteen days more from today, May 18, 1968, withinwhich to finish the negotiations for the sale of your property to the SSS.For your convenience, we quote the pertinent portion of paragraph 3 of theoption:

... provided, however, that should negotiation have beenstarted with a buyer, said period is automatically extendeduntil said negotiation is terminated, but no more than fifteen(15) days.

Please be assured that we will do our very best to completethese negotiations for the sale of your property within thisfifteen-day period. In the meantime' we hope you will alsoobserve the provisions of paragraph 6 of the exclusive optionyou have extended to us.

14.

That on May 18, 1968, plaintiff wrote the following letter (Xerox copyattached and marked hereof as Annex 'H' for plaintiff) addresseddefendant DORONILA, to wit:

By virtue of the exclusive option and authority you havegranted the PHILIPPINE REAL ESTATE EXCHANGE to

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negotiate the sale of your 300-hectare land located atMontalban, Rizal, adjoining the Quezon City boundary,which properties are covered by Transfer Certificate of TitlesNos. 116631, 77011, 77012 and 77013, of the Registry of Deeds for the Province of Rizal, we hereby make a firm

offer, for and in behalf of our buyer, to purchase saidproperty at the price of FOUR PESOS AND FIFTYCENTAVOS (P4.50) per square meter, or the total amount of THIRTEEN MILLION FIVE HUNDRED THOUSAND(P13,500,000.00) PESOS, Philippine Currency, payable inCash and D.B.P. Progress Bonds, on a ratio to be decidedbetween you and our principal.

To expedite the negotiations, we suggest that we sit downsometime early next week with our principal to take up thefinal arrangement and other details in connection with the

purchase of the subject property.

To give you further assurance of the validity of this offer, werefer you to the CHINA BANKING CORPORATION (TrustDepartment) who has already been apprised of thesenegotiations, to which ]sank we strongly recommend that thistransaction be coursed through, for your own security andprotection.

15.

That on May 30, 1968, plaintiff wrote the following letter (Xerox copyattached hereto, and marked as Annex 'I' for plaintiff) to defendantDORONILA, quoted as follows:

This is to advise you that the SOCIAL SECURITY SYSTEMagreed to purchase your 300-hectare land located atMontalban, Rizal, which purchase can be conformed by theChairman of the SOCIAL SECURITY COMMISSION. Thedetails will have to be taken up between you and theChairman, and we suggest that you communicate with theChairman at your earliest convenience.

This negotiation was made by virtue of the exclusive optionand authority you have granted the PHILIPPINE REALESTATE EXCHANGE, which option is in full force and effect,and covers the transaction referred above.

16.

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That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7" for DORONILA), to the plaintiff, to wit:

I have to inform you officially, that I have not received anywritten offer from the SSS or others, to purchase my

Montalban property of which you were given an option andexclusive authority as appearing in your letter- contractdated February 14, 1968, during the 60 days of your exclusive authority which expired on April 14, 1968, nor during the extension which was properly a new exclusiveauthority of 30 days from April 18, which expired on May 18,1968, nor during the provided 15 days grace, in case thatyou have closed any transaction to terminate it during thatperiod, which also expired on June 3, 1968.

As stated in said letter, we have the following condition:

5. If no written offer is made to you until the last day of thisauthorization, this option and authority shall expire andbecomes null and void.

As I have informed you, that on April 16, 1968 or two daysafter your option expired I have signed an agreement to sellmy property to a group of buyers to whom I asked later thatthe effectivity of said agreement will be after your newauthority has expired will be on June 2, 1968, and they haveaccepted; As your option has expired, and they know that

there was no written offer made by the SSS for any price of my property, aside of their previous letter announcing methat they are ready to pay, I was notified on June 4, 1968 bytheir representative, calling my attention but our agreement;that is why I am writing you, that having expired your optionand exclusive authority to offer for sale my said property, Inotified only this afternoon said to comply our agreement.

Hoping for your consideration on the matter, as we have tobe guided by contracts that we have to comply, I herebyexpress to you my sincere sentiments.

17.

That on June 19, 1968, defendant DORONILA wrote the following letter (Annex "5" of the Answer) to the SSS Administrator, renewing his offer tosell his 300 hectare land to the SSS at P4.00 per square meter, to wit:

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This is to renew my offer to sell my properties located atMontalban, Rizal Identified as Lot Nos. 3-B-7, 26-8, 6, and 4-C-3 registered in my name in the office of the Registry of Deeds of Rizal under T.C.T. Nos. 116631, 77013, 77011 and216750, containing a total area of 300 hectares or 3,000,000

square meters.

You will recall that last year, I offered to the Social SecuritySystem the same properties at the price of Four (P4.00)pesos per square meter. After 3 ocular inspection of Chairman Gaviola one of said inspections accompanied byCommissioner Arroyo and after receiving the written apprisalreport of Manila realtor Vicente L. Narciso, the System thenmade a counter-offer of Three pesos and twenty-five (P3.25)per square meter which I accepted under the condition thatthe total amount be paid within a period of thirty (30) days

from the date of my acceptance (July 19, 1967). Myacceptance was motivated by the fact that within said periodof time I had hoped to purchase my sugarcane hacienda inIloilo with the proceeds I expected from the sale. No actionwas however taken by the System thereon.

Recently the same properties were offered by Antonio E.Prats of the Philippine Real Estate Exchange to thePresidential Assistant on Housing, at the price of six pesos(p6.00) per square meter, who referred it to the System, butagainst no action had been taken by the System.

Considering the lapse of time since our original offer duringwhich prices of real estate have increased considerably, onthe one hand and in cooperation with the System'simplementation of our government's policy to provide lowcost houses to its members, on the other hand, I amrenewing my offer to sell my properties to the system only atthe same price of P4.00 per square meter, or for a totalamount of twelve million pesos (P12,000,000.00), providedthe total amount is paid in cash within a period of fifteen (15)days from this date.

18.

That on June 20, 1968, the Social Security Commission passedResolution No. 636 by which the SSS formalized its counter-offer of P3.25per square meter. (See Annex 'F' of the complaint)

19.

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That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro,wrote the following reply letter (Annex '6' of the Answer) to defendantDORONILA, to wit:

This has reference to your letter dated June

19, 1966 renewing your offer to sell your property located at Montalban, Rizal containingan area of 300 hectares at P4.00 per squaremeter. Please be informed that the said letter was submitted for the consideration of theSocial Security Commission at its last meetingon June 20, 1968 and pursuant to itsResolution No. 636, current series, it decidedthat the System reiterate its counter-offer for P3.25 per square meter subject to a favorableappraisal report by a reputable appraisal entity

as regards particularly to price and housingproject feasibility. Should this counter-offer beacceptable to you, kindly so indicate by signinghereunder your conformity thereon.

Trusting that the foregoing sufficiently advises you on thematter, I remain

Verytrulyyours,

GILBERTOTEODORO

Administrator

CONFORME: With condition that the sale will be

consummated within Twenty (20) days from this date.

ALFONSODORONILA

Returned and received the original by

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June25/68

Admtr's

Office

20.

That on June 27, 1968, the Social Security Commission passedResolution No. 662 authorizing the Toples & Harding (Far East) to conductan appraisal of the property of defendant DORONILA and to submit areport thereon. (See Annex 'F' of the complaint)

21.

That on July 17, 1968, the Social Security Commission taking note of thereport of Toples & Harding (Far East), passed Resolution No. 736,approving the purchase of the 300 hectare land of defendant DORONILA,at the price of P3.25 per square meter, for a total purchase price of NINEMILLION SEVEN HUNDRED FIFTY THOUSAND PESOS(P9,750,000.00), and appropriating the said amount of money for thepurpose. (See Annex 'F' of the complaint).

22.

That on July 30, 1968, defendant DORONILA executed the deed of

absolute sale (Annex "C" of the complaint) over his 300-hectare land,situated in Montalban, Rizal, covered by TCT Nos. 77011, 77013, 216747(formerly TCT No. 116631) and 216750 (formerly TCT No. 77012), infavor of the Social Security System, for the total purchase price of NINEMILLION SEVEN HUNDRED FIFTY THOUSAND PESOS(P9,750,000.00), Philippine currency, which deed of sale was presentedfor registration in the Office of the Register of Deeds of Fiscal on August21, 1968.

23.

That defendant DORONILA had received the full purchase price of NINEMILLION SEVEN HUNDRED FIFTY THOUSAND PESOS(P9,750,000.00), Philippine Currency, in two installments.

24.

That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT, dated September 16, 1968 (Xerox copy of which is attached

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hereto and marked as Annex plaintiff' to defendant DORONILA for thepayment of his professional services as real estate broker in the amount of P1,380,000.00, as computed on the basis of the letter-agreement, Annex"A" of the complaint, which defendant failed to pay. Manila, for QuezonCity, January 18,1968.

Respectfullysubmitted:

CRISPIN D.BAIZAS &

ASSOCIATES

and

A.N.BOLINAO,JR.

By: (Sgd.)

Counsel for theplaintif

f

Suite305,ShurdutBldg.

Intramuros,Manila

(Sgd.) E. V. Obon

Atty.EUGENIOV.OBON

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Counsel for thedefendant

9WestPointStreet

Quezon City

ALFONSO

DORONILA

Counsel for thedefendant

428Plaza

deFerguson

Ermita,Manila2

The trial court rendered its decision dated December 12, 1969, the initiative part of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff, orderingdefendant Alfonso Doronila, under the first cause of action, to pay toplaintiff the sum of P1,380,000.00 with interest thereon at the rate of 6%per annum from September 23, 1968 until fully paid; and under the secondCause of Action, to pay plaintiff the sum of P200,000.00 as moraldamages; the sum of P100,000.00 as exemplary damages; the sum of

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P150,000.00 as attorney's fees, including the expenses of. litigation andcosts of this suit.

The writ of preliminary injunction issued in this case is hereby madepermanent; and the defendant Philippine National Bank is hereby ordered

to pay to the plaintiff the amount of P1,380,000.00 and interest on theP1,380,000.00 to be computed separately out of the P2,000,000.00 whichit presently holds under a fixed time deposit.

SO ORDERED.

December 12, 1969, Quezon City, Philippines.

(SGD.) LOURDES P. SAN DIEGO

J u d g

The defendant appealed to the Court of Appeals where the appeal was docketed asCA-G.R. No. 45974-R.

In a decision promulgated on September 19, 1974, the Court of Appeals reversed thederision of the trial court and dismissed the complaint because:

In any event, since it has been found that the authority of appellee expiredon June 2, 1968, rather than June 12, 1968 as the lower court opined, theinquiry would be whether up to that time, a written offer was made byappellee in behalf of the SSS. The stipulation is clear on this point. There

should be a written offer by the prospective buyer or by appellee for or intheir behalf, and that if no such written offer is made until the last day of the authorization, the option and authority shall expire and become nulland void. Note that the emphasis is placed on the need of a written offer tosave the authority from an automatic termination on the last day of theauthorization. We note such emphasis with special significance in receiveof the condition relative to automatic extension of not more than 15 days if negotiations have been started. The question then is when arenegotiations deemed started In the light of the provisions just cited, itshould be when a response is given by the prospective buyer showing fitsinterest to buy the property when an offer is made by the seller or broker

and make an offer of the price. Strictly, therefore, prior to May 29, 1968,there were no negotiations yet started within contemplation of the letter-agreement of brokerage (Exh. A). Nevertheless appellant extendedappellee's exclusive authority to on May 18, 1968 (par. 10, Stipulation of Facts; R.A. p. 89), which was automatically extended by 15 days under their agreement, to expire on June 2, 1968, if the period extended up toMay 18, 1968 a necessary authority. For, it may even be considered astaking the of the 15-days automatic extension, since appellee's pretension

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is that negotiations have been started within the original period of 60 days. Appellant in fixing the expiry date on June 2, 1968, has thus made aliberal concession in favor of appellee, when he chose not to the extensionup to May 18, 1968 as the automatic extension which ougth to have beenno more than 15 days, but which he stretched twice as long. 4

The petitioner assigned the following errors:

I

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDINGTHAT PETITIONER WAS NOT THE EFFICIENT PROCURING CAUSE INBRING ABOUT THE SALE OF PRIVATE RESPONDENT DORONILA'SLAND TO THE SSS.

II

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDINGTHAT THERE WAS FAILURE ON THE PART OF HEREIN PETITIONERTO COMPLY WITH THE TERMS AND CONDITIONS OF HISCONTRACT WITH PRIVATE RESPONDENT.

III

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDINGTHAT PETITIONER IS NOT ENTITLED TO HIS COMMISSION.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES TO PRIVATE RESPONDENT DORONILA INSTEADOF AFFIRMING THE AWARD OF MORAL AND EXEMPLARY DAMAGES

AS WELL As ATTORNEY FEES TO PETITIONER. 5

The Court in its Resolution of May 23, 1975 originally denied the petition for lack of merit but upon petitioner's motion for reconsideration and supplemental petition invokingequity, resolved in its Resolution of August 20, 1975 to give due course thereto.

From the stipulation of facts and the evidence of record, it is clear that the offer of defendant Doronila to sell the 300 hectares of land in question to the Social SecuritySystem was formally accepted by the System only on June 20, 1968 after the exclusiveauthority, Exhibit A, in favor of the plaintiff, petitioner herein, had expired. Therespondent court's factual findings that petitioner was not the efficient procuring causein bringing about the sale proceeding from the fact of expiration of his exclusiveauthority) which are admittedly final for purposes of the present petition, provide no

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basis law to grant relief to petitioner. The following pertinent excerpts from respondentcourt's extensive decision amply demonstrate this:

It is noted, however, that even in his brief, when he said —

According to the testimony of the plaintiff-appellee a fewdays before May 29, 1968, he arranged with Mr. GilbertoTeodoro, SSS Administrator, a meeting with the defendantManila. He talked with Mr. Teodoro over the telephone andfixed the date of the meeting with defendant-appellantDoronila for May 29, 1968, and that he was specificallyrequested by Mr. Teodoro not to be present at the meeting,as he, Teodoro, wanted to deal directly with the defendant-appellant alone. (Tsn., pp. 4446, March 1, 1969). Findingnothing wrong with such a request, as the sale could becaused directly or indirectly (Exh. 'A'), and believing that as a

broker all that he needed to do to be entitled to hiscommission was to bring about a meeting between the buyer and the seller as to ripen into a sale, plaintiff-appellee readilyacceded to the request.

appellee is not categorical that it was through his efforts that the meetingtook place on inlay 29, 1968. He refers to a telephone call he made "a fewdays before May 29, 1968," but in the conversation he had with Mr.Teodoro, the latter requested him not to be present in the meeting. Fromthese facts, it is manifest that the SSS officials never wanted to be in anyway guided by, or otherwise subject to, the mediation or intervention of,

appellee relative to the negotiation for the purchase of the property. It isthus more reasonable to conclude that if a meeting was held on May 29,1968, it was done independently, and not by virtue of, appellee's wish or efforts to hold such meeting. 6

xxx xxx xxx

... It is even doubtful if he tried to make any arrangement for meeting at all,because on May 18, 1968, he told appellant:

... we hereby make a firm offer, for and in behalf of our

buyer, to purchase said property at the price of Four Pesosand Fifty Centavos (P4.50) per square meter ....

As this offer is evidently made in behalf of buyer other than the SSS whichhad never offered the price of P4.50 per square meter, appellee could nothave at the same time arranged a meeting between the SSS officials andappellant with a view to consummating the sale in favor of the SSS whichhad made an offer of only PS.25 per sq. m. and thus lose the much bigger

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profit he would realize with a higher price of P4.50 per sq. meter. This 'firmoffer' of P4.50 per sq. m. made by appellee betrayed his lack of anyefficient intervention in the negotiations with the SSS for the purchase by itof appellant's property ... 7

xxx xxx xxx

... This becomes more evident when it is considered that on May 6, 1968he was making his first offer to sell the property at P6.00 per sq. m. to theSSS to which offer he received no answer. It is this cold indifference of theSSS to him that must have prompted him to look for other buyers,resulting in his making the firm offer of 714.50 per sq. m. on May 18, 1968,a fact which only goes to show that for being ignored by the SSS, he gaveup all effort to deal with the SSS. ... 8

xxx xxx xxx

... For him to claim that it was he who aroused the interest of the SSS inbuying appellant's property is to ignore the fact that as early as June,(July) 1967, the SSS had directly dealt with appellant to such an extentthat the price of P3.25 as offered by the SSS was accepted by appellant,the latter imposing only the condition that the price should be paid in cash,and within 30 days from the date of the acceptance. It can truly be saidthen that the interest of SSS to acquire the property had been sufficientlyaroused for there to be any need for appellee to stimulate it further.

Appellee should know this fact for according to him, the 10-day graceperiod was agreed upon to give the SSS a chance to pay the price of the

land at P3.25 per sq. m., as a "compromise" to appellant's insistence thatthe SSS be excluded from appellee's option or authority to sell the land. 9

... There should be a written offer by the prospective buyer or by appelleefor or in their behalf, and that if no such written offer is made until the lastday of the authorization, the option and authority shall expired andbecome null and void. ... Yet, no such written offer was made. ... 10

In equity , however, the Court notes that petitioner had Monthly taken steps to bring backtogether respondent Doronila and the SSS, among which may be mentioned thefollowing:

In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell theland in question to the Social Security System Direct negotiations were made byDoronila with the SSS. The SSS did not then accept the offer of Doronila. Thereafter,Doronila executed the exclusive authority in favor of petitioner Prats on February 14,1968.

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Prats communicated with the Office of the Presidential Housing Commission onFebruary 23, 1968 offering the Doronila property. Prats wrote a follow-up letter on Aprilis, 1968 which was answered by the Commission with the suggestion that the propertybe offered directly to the SSS. Prats wrote the SSS on March 16, 1968, invitingChairman Ramon Gaviola, Jr. to discuss the offer of the sale of the property in question

to the SSS. On May 6, 1968, Prats made a formal written offer to the Social SecuritySystem to self the 300 hectare land of Doronila at the price of P6.00 per square meter.Doronila received on May 17, 1968 from the SSS Administrator a telegram that the SSSwas considering the purchase of Doronilas property for its housing project. Prats and hiswitness Raagas testified that Prats had several dinner and lunch meetings with Doronilaand/or his nephew, Atty. Manuel D. Asencio, regarding the progress of the negotiationswith the SSS.

Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited severaltimes by Prats, sometimes to luncheons and sometimes to dinner. On a Sunday, June2, 1968, Prats and Raagas had luncheon in Sulu Hotel in Quezon City and they were

joined later by Chairman Gaviola of the SSS.

The Court has noted on the other hand that Doronila finally sold the property to theSocial Security System at P3.25 per square meter which was the very same pricecounter-offered by the Social Security System and accepted by him in July, 1967 whenhe alone was dealing exclusively with the said buyer long before Prats came into thepicture but that on the other hand Prats' efforts somehow were instrumental in bringingthem together again and finally consummating the transaction at the same price of P3.25 square meter, although such finalization was after the expiration of Prats'extended exclusive authority. Still such price was higher than that stipulated in theexclusive authority granted by Doronila to Prats.

Under the circumstances, the Court grants in equity the sum of One Hundred ThousandPesos (P100,000.00) by way of compensation for his efforts and assistance in thetransaction, which however was finalized and consummated after the expiration of hisexclusive authority and sets aside the P10,000.00 — attorneys' fees award adjudgedagainst him by respondent court.

WHEREFORE, the derision appealed from is hereby affirmed, with the modification thatprivate respondent Alfonso Doronila in equity is ordered to pay petitioner or his heirs theamount of One Hundred Thousand Pesos (P100,000.00) and that the portion of the saiddecision sell petitioner Prats to pay respondent Doronila attorneys' fees in the sum of P10,000.00 is set aside.

The lifting of the injunction issued by the lower court on the P2,000,000.00 cash depositof respondent Doronila as ordered by respondent court is hereby with the exception of the sum of One Hundred Thousand Pesos (P100,000.00) which is ordered segregatedtherefrom to satisfy the award herein given to petitioner, the lifting of said injunction, asherein ordered, is immediately executory upon promulgation hereof.

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No pronouncement as to costs.

Teehankee (Chairman), Makasiar, Muñoz Palma and Guerrero JJ., concur.

[G.R. No. 151319. November 22, 2004]

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L.

LINSANGAN, respondent.

D E C I S I O N

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law onagency.

This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802entitled “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 calledGarden 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 to

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reimbursement of the amounts he already paid. The contract was for P95,000.00.Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan agreed and gaveBaluyot P35,295.00 representing the amount to be reimbursed to the original buyer andto complete the down payment to MMPCI.[3]Baluyot issued handwritten and typewritten

receipts for these payments.[4]

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issuedContract No. 28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured himthat he would still be paying the old price of P95,000.00 with P19,838.00 credited as fulldown payment leaving a balance of about P75,000.00.[5]

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11(15), Block 83, Garden Estate I denominated as Contract No. 28660 and the OfficialReceipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No.28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract

price, as the same was not the amount previously agreed upon. To convince Atty.Linsangan, Baluyot executed a document[6] confirming that while the contract priceis P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and thedifference will be issued as discounted to conform to the previous price as previouslyagreed upon. --- P95,000.00

Prepared by:

(Signed)(MRS.) FLORENCIA C. BALUYOT

Agency Manager Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No.28660 states that the total price of P132,250.00 your undertaking is to pay only the totalsum of P95,000.00 under the old price. Further the total sum of P19,838.00 already

paid by you under O.R. # 118912 dated April 6, 1985 has been credited in the totalpurchase 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)FLORENCIA C. BALUYOT










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By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and acceptedOfficial Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve(12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29

April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660was cancelled for reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent property. He refused the new proposal andinsisted 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 the former.

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 of non-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 to use

its name except as to the extent expressly stated in the Agency Manager Agreement.[10] Moreover, MMPCI was not aware of the arrangements entered into by Atty.Linsangan and Baluyot, as it in fact received a down payment and monthly installmentsas indicated in the contract.[11] Official receipts showing the application of payment wereturned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receivethe same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan mayhave had must have been rectified by the Account Updating Arrangement signed by

Atty. Linsangan which states that he “expressly admits that Contract No. 28660 ‘onaccount of serious delinquency…is now due for cancellation under its terms andconditions.’’’[12]

The trial court held MMPCI and Baluyot jointly and severally liable.

[13]

It found thatBaluyot was an agent of MMPCI and that the latter was estopped from denying thisagency, having received and enchased the checks issued by Atty. Linsangan and givento it by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only thedown payment, it allowed her to continue to receive postdated checks from Atty.Linsangan, which it in turn consistently encashed.[14]

The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendantsto perform their undertakings thereof which covers burial lot No. A11 (15), Block 83,

Section Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. Allpayments made by plaintiff to defendants should be credited for his accounts. NODAMAGES, NO ATTORNEY’S FEES but with costs against the defendants.

The cross claim of defendant Manila Memorial Cemetery Incorporated as againstdefendant Baluyot is GRANTED up to the extent of the costs.

SO ORDERED.[15]




















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MMPCI appealed the trial court’s decision to the Court of Appeals.[16] It claimed that Atty. Linsangan is bound by the written contract with MMPCI, the terms of which wereclearly set forth therein and read, understood, and signed by the former.[17] It alsoalleged that Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the timehe entered into the contract, is presumed to know his contractual obligations and is fully

aware that he cannot belatedly and unilaterally change the terms of the contract withoutthe consent, much less the knowledge of the other contracting party, which wasMMPCI. And in this case, MMPCI did not agree to a change in the contract and in factimplemented the same pursuant to its clear terms. In view thereof, because of Atty.Linsangan’s delinquency, MMPCI validly cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyotas the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot’s acts.It added that it cannot be charged with making any misrepresentation, nor of havingallowed Baluyot to act as though she had full powers as the written contract expresslystated the terms and conditions which Atty. Linsangan accepted and understood. Incanceling the contract, MMPCI merely enforced the terms and conditions imposed

therein.[18]

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was theformer’s obligation, as a party knowingly dealing with an alleged agent, to determine thelimitations of such agent’s authority, particularly when such alleged agent’s actions werepatently questionable. According to MMPCI, Atty. Linsangan did not even bother toverify Baluyot’s authority or ask copies of official receipts for his payments. [19]

The Court of Appeals affirmed the decision of the trial court. It upheld the 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 it

allowed Baluyot to act and represent MMPCI even beyond her authority.[20] Theappellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its behalf and stead. While Baluyot’s authority “maynot have been expressly conferred upon her, the same may have been derivedimpliedly 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, innocent thirdpersons such as Atty. Linsangan should not be prejudiced where the principal failed toadopt the needed measures to prevent misrepresentation. Furthermore, if an agentmisrepresents 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 be disturbedby this Court on appeal.















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WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealeddecision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital JudicialRegion, Branch 57 of Makati, is hereby AFFIRMED in toto.

SO ORDERED.[23]

MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25]

In the instant Petition for Review , MMPCI claims that the Court of Appeals seriouslyerred in disregarding the plain terms of the written contract and Atty. Linsangan’s failureto abide by the terms thereof, which justified its cancellation. In addition, even assumingthat Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty.Linsangan knew or should have known about this considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing toconsider that the facts and the applicable law do not support a judgment against Baluyotonly “up to the extent of costs.” [26]

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 position,his profession as a lawyer is immaterial to the validity of the subject contract and thecase at bar.[28] According to him, MMPCI had practically admitted in its Petition thatBaluyot was its agent, and thus, the only issue left to be resolved is whether MMPCIallowed Baluyot to act as though she had full powers to be held solidarily liable with thelatter.[29]

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of theRules of Court is limited to reviewing only errors of law, not fact, unless the factualfindings complained of are devoid of support by the evidence on record or the assailed

judgment is based on misapprehension of facts.[30] In BPI Investment Corporation v.D.G. Carreon Commercial Corporation,[31] this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of 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 abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the

findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,went beyond the issues of the case and the same is contrary to the admissions of bothappellant and appellee; (7) when the findings are contrary to those of the trial court; (8)when the findings of fact are conclusions without citation of specific evidence on whichthey are based; (9) when the facts set forth in the petition as well as in the petitioners’main and reply briefs are not disputed by the respondents; and (10) the findings of factof the Court of Appeals are premised on the supposed absence of evidence andcontradicted by the evidence on record.[32]





















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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 of evidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or to dosomething in representation or on behalf of another, with the consent or authority of the

latter.[33]Thus, the elements of agency are (i) consent, express or implied, of the partiesto establish the relationship; (ii) the object is the execution of a juridical act in relation toa third person; (iii) the agent acts as a representative and not for himself; and (iv) theagent acts within the scope of his authority.[34]

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager Agreement; an agency manager such as Baluyot is considered anindependent contractor and not an agent.[35] However, in the same contract, Baluyot asagency manager was authorized to solicit and remit to MMPCI offers to purchaseinterment spaces belonging to and sold by the latter. [36] Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that she was

authorized to solicit solely for and in behalf of MMPCI. As properly found both by thetrial court and the Court of Appeals, Baluyot was an agent of MMPCI, havingrepresented the interest of the latter, and having been allowed by MMPCI to represent itin her dealings with its clients/prospective buyers.

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 purchase intermentspaces obtained on forms provided by MMPCI. The terms of the offer to purchase,therefore, are contained in such forms and, when signed by the buyer and anauthorized officer of MMPCI, becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validatedby MMPCI showed a total list price of P132,250.00. Likewise, it was clearly statedtherein that “Purchaser agrees that he has read or has had read to him this agreement,that he understands its terms and conditions, and that there are no covenants,conditions, warranties or representations other than those containedherein.”[37] By signing the Offer to Purchase, Atty. Linsangan signified that heunderstood its contents. That he and Baluyot had an agreement different from thatcontained in the Offer to Purchase is of no moment, and should not affect MMPCI, as itwas obviously made outside Baluyot’s authority. To repeat, Baluyot’s authority waslimited only to soliciting purchasers. She had no authority to alter the terms of thewritten contract provided by MMPCI. The document/letter “confirming” the agreement

that Atty. Linsangan would have to pay the old price was executed by Baluyot alone.Nowhere is there any indication that the same came from MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if theywould hold the principal liable, to ascertain not only the fact of agency but also thenature and extent of authority, and in case either is controverted, the burden of proof isupon them to establish it.[38] The basis for agency is representation and a person dealingwith an agent is put upon inquiry and must discover upon his peril the authority of the













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agent.[39] If he does not make such an inquiry, he is chargeable with knowledge of theagent’s authority and his ignorance of that authority will not be any excuse.[40]

As noted by one author, the ignorance of a person dealing with an agent as to thescope 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 lack of

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 other hand,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 of hisagency.[42]

In the instant case, it has not been established that Atty. Linsangan even botheredto inquire whether Baluyot was authorized to agree to terms contrary to those indicatedin the written contract, much less bind MMPCI by her commitment with respect to suchagreements. Even if Baluyot was Atty. Linsangan’s friend and known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or

extent of her authority.

[43]

Atty. Linsangan as a practicing lawyer for a relatively longperiod of time when he signed the contract should have been put on guard when their agreement was not reflected in the contract. More importantly, Atty. Linsangan shouldhave been alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCIto assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As properly pointed out by MMPCI, as a lawyer, agreater degree of caution should be expected of Atty. Linsangan especially in dealingsinvolving legal documents. He did not even bother to ask for official receipts of hispayments, nor inquire from MMPCI directly to ascertain the real status of the contract,blindly relying on the representations of Baluyot. A lawyer by profession, he knew what

he was doing when he signed the written contract, knew the meaning and value of every word or phrase used in the contract, and more importantly, knew the legal effectswhich said document produced. He is bound to accept responsibility for his negligence.

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 thename of MMPCI confirm and ratify the contract of agency. On the other hand, the Courtof Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation,and declared that in view of MMPCI’s acceptance of the benefits of Baluyot’smisrepresentation, it can no longer deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions of theCivil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of hisauthority, and the principal does not ratify the contract, it shall be void if the party withwhom the agent contracted is aware of the limits of the powers granted by the principal.In this case, however, the agent is liable if he undertook to secure the principal’sratification.











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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 full powers.

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 haveknowledge 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 doctrine isconfirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the

principal must have full knowledge at the time of ratification of all the material facts andcircumstances relating to the unauthorized act of the person who assumed to act asagent. Thus, if material facts were suppressed or unknown, there can be no validratification and this regardless of the purpose or lack thereof in concealing such factsand regardless of the parties between whom the question of ratification may arise.[45] Nevertheless, this principle does not apply if the principal’s ignorance of the materialfacts and circumstances was willful, or that the principal chooses to act in ignorance of the facts.[46] However, in the absence of circumstances putting a reasonably prudentman on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts.[47]

No ratification can be implied in the instant case. A perusal of Baluyot’s Answer [48] reveals that the real arrangement between her and

Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereasBaluyot was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00monthly installments as indicated in the contract. Thus, every time an installment fallsdue, payment was to be made through a check from Atty. Linsangan for P1,800.00 anda cash component of P1,455.00 from Baluyot.[49] However, it appears that while Atty.Linsangan issued the post-dated checks, Baluyot failed to come up with her part of thebargain. This was supported by Baluyot’s statements in her letter [50] to Mr. ClydeWilliams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint . In the letter, she admitted that she was remiss in her duties when she

consented to Atty. Linsangan’s proposal that he will pay the old price while thedifference will be shouldered by her. She likewise admitted that the contract sufferedarrearages because while Atty. Linsangan issued the agreed checks, she was unable togive her share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error she committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. Asfar as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer















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to Purchase signed by Atty. Linsangan and MMPCI’s authorized officer. The downpayment of P19,838.00 given by Atty. Linsangan was in accordance with the contract aswell. Payments of P3,235.00 for at least two installments were likewise in accord withthe contract, albeit made through a check and partly in cash. In view of Baluyot’s failureto give her share in the payment, MMPCI received only P1,800.00 checks, which were

clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearagesthat could have caused the earlier cancellation of the contract, if not for MMPCI’sapplication of some of the checks to his account. However, the checks alone were notsufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter’s checkpayments for being insufficient. It would not have applied to his account the P1,800.00checks. Moreover, the fact that Baluyot had to practically explain to MMPCI’s SalesManager the details of her “arrangement” with Atty. Linsangan and admit to havingmade an error in entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she claimed thatMMCPI was fully aware of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are(i) conduct of a party amounting to false representation or concealment of material factsor at least calculated to convey the impression that the facts are otherwise than, andinconsistent with, those which the party subsequently attempts to assert; (ii) intent, or atleast expectation, that this conduct shall be acted upon by, or at least influence, theother party; and (iii) knowledge, actual or constructive, of the real facts. [51]

While there is no more question as to the agency relationship between Baluyot andMMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsanganto believe that Baluyot had the authority to alter the standard contracts of the company.Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any

knowledge of Baluyot’s commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the representations of another must not have been misled through his own want of reasonable care andcircumspection.[52] Even assuming that Atty. Linsangan was misled by MMPCI’sactuations, he still cannot invoke the principle of estoppel, as he was clearly negligent inhis dealings with Baluyot, and could have easily determined, had he only been cautiousand prudent, whether said agent was clothed with the authority to change the terms of the principal’s written contract. Estoppel must be intentional and unequivocal, for whenmisapplied, it can easily become a most convenient and effective means of injustice.[53] In view of the lack of sufficient proof showing estoppel, we refuse to hold MMPCIliable 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 perusal of the records of the case fails to show any indication that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its







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interment spaces, nor to assume a portion of the purchase price of the interment spacessold at such lower price. No evidence was ever presented to this effect.

As the Court sees it, there are two obligations in the instant case. One is 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 Baluyot

and Atty. Linsangan for the former to shoulder the amount P1,455.00, or the differencebetween P95,000.00, the original price, and P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind theprincipal unless the latter ratifies the same. It also bears emphasis that when the thirdperson knows that the agent was acting beyond his power or authority, the principalcannot be held liable for the acts of the agent. If the said third person was aware of such limits of authority, he is to blame and is not entitled to recover damages from theagent, unless the latter undertook to secure the principal’s ratification. [54]

This Court finds that Contract No. 28660 was validly entered into both by MMPCIand Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented

to the terms and conditions thereof. When Atty. Linsangan incurred delinquencies inpayment, MMCPI merely enforced its rights under the said contract by canceling thesame.

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 as againstMMPCI. Neither can he hold Baluyot liable for damages under the same contract, sincethere is no evidence showing that Baluyot undertook to secure MMPCI’s ratification. Atbest, the “agreement” between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty.

Linsangan for P132,250.00 under Contract No. 28660, and had in fact received severalpayments in accordance with the same contract. If the contract was cancelled due toarrearages, Atty. Linsangan’s recourse should only be against Baluyot who personallyundertook to pay the difference between the true contract price of P132,250.00 and theoriginal proposed price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would be to conclude thatMMPCI undertook to pay itself the difference, a conclusion that is very illogical, if notantithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate actionto recover damages from Baluyot, not as an agent of MMPCI, but in view of the latter’sbreach of their separate agreement. To review, Baluyot obligated herself to

pay P1,455.00 in addition to Atty. Linsangan’s P1,800.00 to complete the monthlyinstallment payment under the contract, which, by her own admission, she was unableto do due to personal financial difficulties. It is undisputed that Atty. Linsangan issuedthe P1,800.00 as agreed upon, and were it not for Baluyot’s failure to provide thebalance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsanganhas a cause of action against Baluyot, which he can pursue in another case.



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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. 115838. July 18, 2002]

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE

CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCOARTIGO,respondents.

D E C I S I O N

CARPIO, J .:

The Case

Before us is a Petition for Review on Certiorar i[1] seeking to annul the Decision of

the Court of Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed intoto the decision[3] of the Regional Trial Court of Quezon City, Branch 80, in Civil CaseNo. Q-89-2631. The trial court disposed as follows:

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

a) P303,606.24 representing unpaid commission;

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b) P25,000.00 for and by way of moral damages;c) P45,000.00 for and by way of attorney’s fees;

d) To pay the cost of this suit.

Quezon City, Metro Manila, December 20, 1991.”

The Antecedent Facts

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

“x x x. Appellants[5] were co-owners of four (4) lots located at EDSA corner New Yorkand Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit

“A-1, p. 144, Records), appellee[6] was authorized by appellants to act as real estatebroker in the sale of these properties for the amount of P23,000,000.00, five percent(5%) of which will be given to the agent as commission. It was appellee who first foundTimes Transit Corporation, represented by its president Mr. Rondaris, as prospectivebuyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually,sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appelleereceived from appellants P48,893.76 as commission.

It was then that the rift between the contending parties soon emerged. Appelleeapparently felt short changed because according to him, his total commission shouldbe P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by

Times Transit Corporation to appellants for the two (2) lots, and that it was he whointroduced the buyer to appellants and unceasingly facilitated the negotiation whichultimately led to the consummation of the sale. Hence, he sued below to collect thebalance of P303,606.24 after having received P48,893.76 in advance.

On the other hand, appellants completely traverse appellee’s claims and essentiallyargue that appellee is selfishly asking for more than what he truly deserved ascommission to the prejudice of other agents who were more instrumental in theconsummation of the sale. Although appellants readily concede that it was appelleewho first introduced Times Transit Corp. to them, appellee was not designated by themas their exclusive real estate agent but that in fact there were more or less eighteen (18)

others whose collective efforts in the long run dwarfed those of appellee’s, consideringthat the first negotiation for the sale where appellee took active participation failed and itwas these other agents who successfully brokered in the second negotiation. Butdespite this and out of appellants’ “pure liberality, beneficence and magnanimity”,appellee nevertheless was given the largest cut in the commission (P48,893.76),although on the principle of quantum meruit he would have certainly been entitled toless. So appellee should not have been heard to complain of getting only a pittancewhen he actually got the lion’s share of the commission and worse, he should not have







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been allowed to get the entire commission. Furthermore, the purchase price for the twolots was only P3.6 million as appearing in the deed of sale and not P7.05 million asalleged by appellee. Thus, even assuming that appellee is entitled to the entirecommission, he would only be getting 5% of the P3.6 million, or P180,000.00.”

Ruling of the Court of Appeals

The Court of Appeals affirmed in toto the decision of the trial court.

First. The Court of Appeals found that Constante authorized Artigo to act as agentin the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and

Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation(“Times Transit” for brevity). Artigo facilitated the negotiations which eventually led tothe sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled

to the 5% commission on the purchase price as provided in the contract of agency.Second. The Court of Appeals ruled that Artigo’s complaint is not dismissible for

failure to implead as indispensable parties the other co-owners of the two lots. TheCourt of Appeals explained that it is not necessary to implead the other co-owners sincethe action is exclusively based on a contract of agency between Artigo and Constante.

Third. The Court of Appeals likewise declared that the trial court did not err inadmitting parol evidence to prove the true amount paid by Times Transit to the DeCastros for the two lots. The Court of Appeals ruled that evidence aliunde could bepresented to prove that the actual purchase price was P7.05 million and not P3.6 millionas appearing in the deed of sale. Evidence aliunde is admissible considering that

Artigo is not a party, but a mere witness in the deed of sale between the De Castros andTimes Transit. The Court of Appeals explained that, “the rule that oral evidence isinadmissible to vary the terms of written instruments is generally applied only in suitsbetween parties to the instrument and strangers to the contract are not bound by it.”Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court’s finding that the purchaseprice was P7.05 million and not P3.6 million.

Hence, the instant petition.

The Issues

According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURETO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;

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II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THEGROUND THAT ARTIGO’S CLAIM HAS BEEN EXTINGUISHED BY FULLPAYMENT, WAIVER, OR ABANDONMENT;

III. CONSIDERING INCOMPETENT EVIDENCE;

IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY’S

FEES;

VI. NOT AWARDING THE DE CASTRO’S MORAL AND EXEMPLARYDAMAGES, AND ATTORNEY’S FEES.

The Court’s Ruling

The petition is bereft of merit.

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

The De Castros argue that Artigo’s complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigoalways knew that the two lots were co-owned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castroscontend that failure to implead such indispensable parties is fatal to the complaint since

Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the

four co-owners.

The De Castros’ contentions are devoid of legal basis.

An indispensable party is one whose interest will be affected by the court’s action inthe litigation, and without whom no final determination of the case can be had.[7] The

joinder of indispensable parties is mandatory and courts cannot proceed without their presence.[8] Whenever it appears to the court in the course of a proceeding that anindispensable party has not been joined, it is the duty of the court to stop the trial andorder the inclusion of such party.[9]

However, the rule on mandatory joinder of indispensable parties is not applicable tothe instant case.

There is no dispute that Constante appointed Artigo in a handwritten note datedJanuary 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percentcommission. The authority was on a first come, first serve basis. The authority reads infull:

“24 Jan. 84







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To Whom It May Concern:

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

Asking price P23,000,000.00 with5% commission as agent’s fee.

C.C. de Castroowner & representingco-owners

This authority is on a first-comeFirst serve basis –CAC”

Constante signed the note as owner and as representative of the other co-

owners. Under this note, a contract of agency was clearly constituted betweenConstante and Artigo. Whether Constante appointed Artigo as agent, in Constante’sindividual or representative capacity, or both, the De Castros cannot seek the dismissalof the case for failure to implead the other co-owners as indispensable parties. The DeCastros admit that the other co-owners are solidarily liable under the contract of agency ,[10] citing Article 1915 of the Civil Code, which reads:

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

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

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

principals after the accomplishment of the agency.

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





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When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled to pay the entireobligation.[12] The agent may recover the whole compensation from any one of the co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the

solidary debtors. This article reads:

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

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

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

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

Second Issue: whether Artigo’s claim has been extinguished by full payment,waiver or abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo wasgiven “his proportionate share and no longer entitled to any balance.” According tothem, Artigo was just one of the agents involved in the sale and entitled to a

“proportionate share” in the commission. They assert that Artigo did absolutely nothingduring the second negotiation but to sign as a witness in the deed of sale. He did noteven prepare the documents for the transaction as an active real estate broker usuallydoes.

The De Castros’ arguments are flimsy.

A contract of agency which is not contrary to law, public order, public policy, moralsor good custom is a valid contract, and constitutes the law between the parties. [14] Thecontract of agency entered into by Constante with Artigo is the law between them andboth are bound to comply with its terms and conditions in good faith.

The mere fact that “other agents” intervened in the consummation of the sale and

were paid their respective commissions cannot vary the terms of the contract of agencygranting Artigo a 5 percent commission based on the selling price. These “other agents” turned out to be employees of Times Transit, the buyer Artigo introduced to theDe Castros. This prompted the trial court to observe:

“The alleged `second group’ of agents came into the picture only during the so-called`second negotiation’ and it is amusing to note that these (sic) second group, prominentamong whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of







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Times Transit, the buyer of the properties. And their efforts were limited to convincingConstante to ‘part away’ with the properties because the redemption period of theforeclosed properties is around the corner, so to speak. (tsn. June 6, 1991).

x x x

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

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

In any event, we find that the 5 percent real estate broker’s commission is reasonableand within the standard practice in the real estate industry for transactions of thisnature.

The De Castros also contend that Artigo’s inaction as well as failure to protestestops him from recovering more than what was actually paid him. The De Castros cite

Article 1235 of the Civil Code which reads:

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

The De Castros’ reliance on Article 1235 of the Civil Code is misplaced. Artigo’sacceptance of partial payment of his commission neither amounts to a waiver of thebalance nor puts him in estoppel. This is the import of Article 1235 which was explainedin this wise:

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

There is thus a clear distinction between acceptance and mere receipt. In this case,it is evident that Artigo merely received the partial payment without waiving thebalance. Thus, there is no estoppel to speak of.

The De Castros further argue that laches should apply because Artigo did not filehis complaint in court until May 29, 1989, or almost four years later. Hence, Artigo’sclaim for the balance of his commission is barred by laches.





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Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been doneearlier. It is negligence or omission to assert a right within a reasonable time, warrantinga presumption that the party entitled to assert it either has abandoned it or declined toassert it.[17]

Artigo disputes the claim that he neglected to assert his rights. He was appointed asagent on January 24, 1984. The two lots were finally sold in June 1985. As found bythe trial court, Artigo demanded in April and July of 1985 the payment of his commissionby Constante on the basis of the selling price of P7.05 million but there was noresponse from Constante.[18] After it became clear that his demands for payment havefallen on deaf ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be broughtwithin ten years from the time the right of action accrues. [19] The right of action accruesfrom the moment the breach of right or duty occurs. From this moment, the creditor caninstitute the action even as the ten-year prescriptive period begins to run. [20]

The De Castros admit that Artigo’s claim was filed within the ten-year prescriptiveperiod. The De Castros, however, still maintain that Artigo’s cause of action is barredby laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in courton May 29, 1989, well within the ten-year prescriptive period. This does not constitutean unreasonable delay in asserting one’s right. The Court has ruled, “a delay withinthe prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief.” [21] In explaining that laches applies only in the absence of astatutory prescriptive period, the Court has stated -

“Laches is recourse in equity. Equity, however, is applied only in the absence, never

in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abatea collection suit filed within the prescriptive period mandated by the Civil Code.” [22]

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

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

The De Castros want the Court to re-examine the probative value of the evidence

adduced in the trial court to determine whether the actual selling price of the two lotswas P7.05 million and not P3.6 million. The De Castros contend that it is erroneous tobase the 5 percent commission on a purchase price of P7.05 million as ordered by thetrial court and the appellate court. The De Castros insist that the purchase price is P3.6million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial.

The De Castros believe that the trial and appellate courts committed a mistake inconsidering incompetent evidence and disregarding the best evidence and parole













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evidence rules. They claim that the Court of Appeals erroneously affirmed subsilentio the trial court’s reliance on the various correspondences between Constanteand Times Transit which were mere photocopies that do not satisfy the best evidencerule. Further, these letters covered only the first negotiations between Constante andTimes Transit which failed; hence, these are immaterial in determining the final

purchase price.The De Castros further argue that if there was an undervaluation, Artigo who signed

as witness benefited therefrom, and being equally guilty, should be left where hepresently stands. They likewise claim that the Court of Appeals erred in relying onevidence which were not offered for the purpose considered by the trial court.Specifically, Exhibits “B”, “C”, “D” and “E” were not offered to prove that the purchaseprice was P7.05 Million. Finally, they argue that the courts a quo erred in givingcredence to the perjured testimony of Artigo. They want the entire testimony of Artigorejected as a falsehood because he was lying when he claimed at the outset that hewas a licensed real estate broker when he was not.

Whether the actual purchase price was P7.05 Million as found by the trial court andaffirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is aquestion of fact and not of law. Inevitably, this calls for an inquiry into the facts andevidence on record. This we can not do.

It is not the function of this Court to re-examine the evidence submitted by theparties, or analyze or weigh the evidence again.[23] This Court is not the proper venue toconsider a factual issue as it is not a trier of facts. In petitions for review on certiorari asa mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals[24] bears reiteration:

“At the outset, it is evident from the errors assigned that the petition is anchored on a

plea to review the factual conclusion reached by the respondent court. Such taskhowever is foreclosed by the rule that in petitions for certiorari as a mode of appeal, likethis one, only questions of law distinctly set forth may be raised. These questions havebeen defined as those that do not call for any examination of the probative value of theevidence presented by the parties. (Uniland Resources vs. Development Bank of thePhilippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil.531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked togo over the proof presented by the parties, and analyze, assess and weigh them toascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of

Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findingscomplained of are totally devoid of support in the record, or that they are so glaringlyerroneous as to constitute serious abuse of discretion, such findings must stand, for thiscourt is not expected or required to examine or contrast the oral and documentaryevidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391[1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).”





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

Fourth Issue: whether award of moral damages and attorney’s fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damagesand attorney’s fees. The De Castros, however, cite no concrete reason except to saythat they are the ones entitled to damages since the case was filed to harass and extortmoney from them.

Law and jurisprudence support the award of moral damages and attorney’s fees infavor of Artigo. The award of damages and attorney’s fees is left to the sound discretionof the court, and if such discretion is well exercised, as in this case, it will not bedisturbed on appeal.[25] Moral damages may be awarded when in a breach of contractthe defendant acted in bad faith, or in wanton disregard of his contractual obligation.[26]

On the other hand, attorney’s fees are awarded in instances where “the defendantacted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, justand demandable claim.”[27] There is no reason to disturb the trial court’s finding that “thedefendants’ lack of good faith and unkind treatment of the plaintiff in refusing to give hisdue commission deserve censure.” This warrants the award of P25,000.00 in moraldamages and P45,000.00 in attorney’s fees. The amounts are, in our view, fair andreasonable. Having found a buyer for the two lots, Artigo had already performed hispart of the bargain under the contract of agency. The De Castros should haveexercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker’s commission based on the actualpurchase price of the two lots.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of








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Agency Feb 14, 2012