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JIMMY ANG, petitioner, vs. ELEANOR R. LUCERO, THE HONORABLE SECRETARY of JUSTICE, and THE CITY PROSECUTOR of MAKATI CITY, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This petition for review[1] assails the 29 October 1999 Decision[2] and 25 April 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 44778.  The Court of Appeals dismissed the petition for certiorari filed by petitioner Jimmy Ang and affirmed the Resolutions issued by former Secretary of Justice Teofisto T. Guingona, Jr.

The Antecedents

The present controversy stemmed from a criminal complaint for estafa through falsification of public documents filed by respondent Eleanor Lucero (“Lucero”) against petitioner Jimmy Ang (“Ang”) before the City Prosecution Office of Makati (“CPO Makati”).

As summarized by then Secretary of Justice Teofisto T. Guingona, Jr. (“Secretary of Justice”) and quoted by the Court of Appeals in the assailed decision, the antecedent facts are as follows:

The record shows that complainant [Lucero], an American citizen, is a businesswoman and a native of Pangasinan.  On August 8, 1989, she entered into a memorandum of agreement with E. Ganzon, Inc. for the purchase of Condominium Unit 1512, Makati Cinema Square Tower located along Pasong Tamo, Makati for P2,417,655.00.  As she is a resident of Guam, she appointed by virtue of a Special Power of Attorney,[3] Graciano P. Catenza, Jr. as her attorney-in-fact on November 20, 1990 to manage and administer all her businesses and properties in the Philippines, including the condominium unit.  Catenza, however, delegated his authority to the respondent.

Complainant claims that respondent [Ang] took advantage of the trust and confidence she reposed in him when he falsified two documents, namely: letter of authorization[4] dated July 6, 1992 by making it appear that she is authorizing E. Ganzon, Inc., the condominium developer and owner to register her condominium unit under his name; and Deed of Assignment[5] dated June 22, 1992 wherein respondent made it appear that she is transferring to him the ownership of the condominium unit.  She further claims that the falsification was made possible when the respondent typed the authority to transfer in a blank sheet of paper containing her signature which he previously requested for the purpose of securing permit from a

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government agency in connection with her bus service business prior to her departure for Guam.  Moreover, she avers that her signature in the deed of assignment was forged by respondent.  She adds that she was not in the Philippines when the document was allegedly signed by her on June 22, 1992 and notarized before Atty. Rene B. Betita on July 1, 1992.

Through the use of the aforementioned fictitious documents, her title was cancelled and in lieu thereof, condominium Certificate of Title No. 23578 was issued in the name of respondent by the Registry of Deeds of Makati City which title he used as a collateral to secure a loan in the amount of P2,000,000.00 from the Rizal Commercial Banking Corporation (RCBC).  When she learned of the fraudulent transfer, she executed an affidavit of adverse claim and annotated it on the title on March 21, 1994.  The day after the thirty-day effectivity period of the adverse claim lapsed, respondent, to add insult to injury, immediately secured an additional loan in the amount of P700,000.00 with the same bank (RCBC) using the same property as collateral even after the transport business he was managing for the complainant had ceased operation already.  Respondent failed to act on complainant’s demands for accounting and for the reconveyance to her of Condominium Unit No. 1512.

In his defense, respondent claims that the questioned documents were prepared with the prior knowledge of complainant and his authority was relayed by her through the telephone.  The transfer of ownership and issuance of a new condominium title in his name were necessary since RCBC did not want to transact business with her because of her lack of track record and her citizenship.  He avers that he had to do this since complainant failed to send money needed to support her business projects and to pay her outstanding obligations.  As a proof of her knowledge, complainant gave him P500,000.00 on October 5, 1993 to pay the RCBC loan.  To disprove the allegation that she never appeared before a notary public, he claims that complainant executed two (2) more documents and had them notarized after she left for Guam which she never questioned.

xxx[6] (Emphasis supplied)

The CPO Makati referred the notarized Deed of Assignment dated 22 June 1992 and Authorization Letter dated 6 July 1992, both allegedly executed by Lucero in favor of Ang, to the National Bureau of Investigation (“NBI”) for verification of signature.

On 16 January 1995, the NBI submitted its report to the CPO Makati.  The NBI found the signature on the Deed of Assignment and Lucero’s sample signatures to have been written by “one and the same person.” However, the NBI found the signature on the Authorization Letter a “traced forgery.”

After the preliminary investigation, Prosecutor Edgardo C. Bautista (“Prosecutor Bautista”) of the CPO Makati issued a Resolution dated 17 April 1995 finding probable cause against Ang.  Prosecutor Bautista recommended the filing of two (2) informations, (1) for estafa under Article 315, paragraph 1 (c) of the Revised Penal Code [7] and (2) for estafathrough falsification of public document.

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Ang moved for a reinvestigation.  Prosecutor Wilfredo Ong of the CPO Makati reconsidered Prosecutor Bautista’s resolution of 17 April 1995 and dismissed the complaint for insufficiency of evidence.

Lucero filed a motion for reconsideration which the CPO Makati denied on 11 October 1995.

Lucero appealed the dismissal of the complaint to the Department of Justice. The Secretary of Justice issued Letter-Resolution No. 106 Series of 1997 dated 18 February 1997 (“First Resolution”) disposing as follows:

WHEREFORE, your resolution is accordingly reversed.  You are hereby directed to file the appropriate information for estafa through falsification of public document against respondent and to report the action taken within ten (10) days from receipt hereof.[8]

Ang filed a motion for reconsideration which the Secretary of Justice denied in his Letter-Resolution dated 10 June 1997.

Ang filed with the Court of Appeals a petition for certiorari with prayer for the issuance of a writ of preliminary injunction and temporary restraining order.

On 16 October 1997, the Court of Appeals issued a Resolution granting Ang’s prayer for the issuance of a temporary restraining order.  The Court of Appeals enjoined the CPO Makati from filing the information for estafa as the Secretary of Justice directed in his First Resolution, pending the proceedings before the Court of Appeals.

Thereafter, the CPO Makati filed a Manifestation stating that it already filed an information for estafa against Ang in Criminal Case No. 97-697 as early as 14 May 1997.  Consequently, the Court of Appeals issued a Resolution dated 18 December 1997 enjoining the Secretary of Justice and the CPO Makati from proceeding with Criminal Case No. 97-697 pending before the Regional Trial Court of Makati, Branch 64.

On 29 October 1999, the Court of Appeals rendered a Decision dismissing the petition for certiorari and affirming the resolutions of the Secretary of Justice. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack of merit, and the challenged Resolution No. 106 Series [of] 1997, dated February 18, 1997, and the Letter-Resolution dated June 10, 1997 of the public respondent Secretary of the Department of Justice are hereby AFFIRMED.  The Resolution of this Court dated December 18, 1997 enjoining the respondents from proceedings (sic) with Criminal Case No. 97-697 pending before the Regional Trial Court of Makati City, Branch 64, is hereby RECONSIDERED and SET ASIDE.  The said trial court is ordered to continue with the proceedings with dispatch.

SO ORDERED.[9]

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G.R. No. L-3407PHILIPPINE NATIONAL BANK, plaintiff-appellee,vs.BERNARDO BAGAMASPAD and BIENVENIDO M. FERRER, defendants-appellants.</B.

Jose G. Flores, for appellants.Nemesio P. Labunao for appellee.

Montemayor, J.:

On May 25, 1948, the plaintiff Philippine National Bank, a banking corporation organized and operating under the laws of the Philippines, with main office in the City of Manila and agencies in different provinces like the province of Cotabato, initiated this suit in the Court of First Instance of Cotabato for the purpose of collecting from the defendants Bernardo Bagamaspad and Bienvenido M. Ferrer who, in the years 1946 and 1947, were its Agent and Assistant Agent, respectively, in its Cotabato Agency, the sum of P704,903.18, said to have been disbursed and released by them as special crop loans, without authority and in a careless manner to manifestly insolvent, unqualified or fictitious borrowers, all contrary to the rules and regulations of the plaintiff Bank. In the course of the trial, upon petition of plaintiff's counsel, the amount of the claim was reduced to P699,803.57, due to payments made by some of the borrowers. On March 31, 1949, the trial court rendered judgment in favor of the plaintiff, ordering both defendants to pay jointly and severally to it the sum of P699,803.57, representing the uncollected balance of the special crop loans improperly released by said defendants, with legal interest thereon from the date of the filing of the complaint, plus costs. The two defendants appealed from that decision. The appeal was first taken to the Court of Appeals but in view of the amount involved it was certified to this Tribunal by the said Court of Appeals.

The uncontroverted facts in the present case may be briefly stated as follows. Because of the Pacific War and by reason of the destruction and loss of animals of labor, farm implements, and damage to or abandonment of farm lands, after liberation there was acute shortage of foodstuff. President Roxas in order to foment and encourage food production, instructed the plaintiff Philippine National Bank to extend special facilities to farmers in the form of crop loans in order to enable them to rehabilitate their farms. In pursuance of said instructions and to cooperate with the Administration, the plaintiff

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Bank passed the corresponding resolution (Exhibit B) authorizing the granting of ten-month special crop loans to bona fide food producers, land-owners or their tenants, under certain conditions. Delfin Buencamino, one of the Vice-President of the Bank and head of the Branches and Agencies Department of said institution, was entrusted with the supervision of the granting of these loans. Juan Tueres, one of the Assistant Managers of said Department drafted the corresponding rules and regulations regarding the granting of said specials crops loans. After approval by Buencamino, these rules and regulations were embodied in a circular letter (Exhibit C), a copy of which was personally delivered to defendant Ferrer. These rules and regulations were later amplified by another circular letter (Exhibit D). Besides circularizing its branches and agencies with these rules and regulations, on June 14, 1946, the Bank held in Manila a conference in of all its manager and Agents. Defendant Ferrer, Assistant Agent of the Cotabato Agency attended the conference in representation of said Agency. He arrived late but Tueres explained to him what had been discussed during the conference, emphasizing to him the necessity of exercising diligence and care in the granting of the crop loans to see to it that they are granted only to bona fide planters, land-owners or tenants, as well as repeating to him the advice of Vicente Carmona, President of the bank, that the Managers and Agents of the Bank should not allow themselves to be fooled.

The Cotabato Agency under the management of the two defendants began granting these special crop loans in July, 1946, and by March of the following year, 1947, said Agency had granted to over 5,000 borrowers, loans in the total amount of a little over eight and half million pesos.

The theory on which the Bank's claim and complaint are based is that the two defendants Bagamaspad and Ferrer acting as Agent and Assistant Agent of the Cotabato Agency, in granting new crop loans after November 13, 1946, violated the instructions of the Bank, and that furthermore, in granting said crop loans, they acted negligently and did not exercise the care and precaution required of them in order to prevent the release of crop loans to persons who were neither qualified borrowers nor entitled to the assistance being rendered by the Government and the Bank, all contrary to the rules and regulations issued by the Bank.

Because of the form heavy disbursements made by the Cotabato Agency in the form of crop loans and because of exhaustion of its funds, said agency sent a telegram, Exhibit 11, dated November 11, 1946, requesting authority from the central office to secure cash from the Zamboanga Agency. Replying to this telegram, Delfin Buencamino sent a letter, Exhibit E, dated November 13, 1946, addressed to the Cotabato Agency stating among other things that the purposes of these funds (to be obtained from the Zamboanga Agency was to meet the release of the second installment crop loans being

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granted which according to the telegram aggregated P60,000 daily. The letter reminded the Agency's that the Central office had not yet received the Agency's monthly reports on special crop loans granted, as required by the regulations, and it emphasized the necessity of performing inspection of the field to verify whether the amount released as first installment was actually used for the purpose for which it was granted, before releasing the second installment. In relation with the said letter, Exhibit F, dated November 18, 1946, to the central office making reference to said Exhibit E, reiterating the Agency's heavy disbursements on second installments for crop loans and stating that Ferrer had been instructed to proceed to Zamboanga to secure the needed cash, and that Ferrer was able to secure P300,000 from the Zamboanga Agency. Then making reference to and quoting a portion of the letter of Buencamino, Exhibit E, Bagamaspad in his letter said:

In connection with the following portion:

"In this connection, we would like to state that the purpose of these funds is to meet the release of the second installment of crop loans being granted by that agency, which, according to your said telegram, will run to P600,000 daily."

of your above mentioned letter, may we know if could still entertain new applicants on Special Crop Loans? We are constrained to request for this matter because there are now on file no less than 1,000 new applicants which we could not entertain because of your above quoted statement. Yesterday they held a demonstration and copy of the picture is hereto attached. In addition, there are about 5,000 settlers in Koronadal Valley who, according to your indorsement of Oct. 31, 1946 to the Technical Assistant to the President of the Philippines, could be given crop loans. If we could not therefore disburse from the funds taken from Zamboanga Agency against first installment of applicants on crop loans, we shall appreciate if you could give us definite course of action towards the clarifications of our stand to the public 8a4QjztQe.

We are again sending Asst. Agent B.M. Ferrer to Zamboanga to despatch this letter without delay and wait there for whatever instruction that you may give with reference to our desire to secure more cash from our Zamboanga Agency, say P1,000,000 and whether we shall continue granting special crop loans or not.

With reference to the cash that we desire to secure more, we could tell you with assurance that the same shall arrive their safely under guard on a chartered plane which will cost not more than P300 only.

From this letter of Bagamaspad of which his co-defendant and Ferrer must have been aware, because he himself prepared it upon order of Bagamaspad(pp. 340-344, t.s.n.),

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particularly the portion above-quoted, it will be seen that without waiting for authority to secure funds from the Zamboanga Agency, Ferrer obtained P300,000 from said Agency, and that Bagamaspad again had sent Ferrer to Zamboanga to await instruction from the central office regarding their desire and intention to secure in additional P1,000,000 for the Cotabato Agency. As matter of fact, however, once in Zamboanga, and without waiting for instructions, Ferrer again secured P500,000 from the Zamboanga Agency. It was while Ferrer already carrying the P500,000 was about to board the plane that was to taken him to Cotabato, that he received the answer from the central office, Exhibit G, authorizing him to obtain only P3,0000,000 from the Zamboanga Agency, with the statement that as soon as the said amount was exhausted, the Cotabato Agency may again request for replenishment. This letter of the Central Office again emphasized the necessity of strict compliance with the rules and regulations regarding the required field inspection before releasing the second installment. The said letter, Exhibit G, ended with the following:

Concerning the new special crop loan applications numbering about 1,000, we would like to be informed whether the farms of the said applicants have already been actually planted, considering that at this period planting season in low-land palay region is now over. As the purpose for which special crop loans are being granted by the Bank is to provide the farmers with funds to meet the expenses of their farms and if said farms have already been planted, we believe that the farmers may not need said credit facilities unless it has been found out by actual investigation and verification that said loans are needed by them.

Please, therefore, let us hear from you regarding this matter. (Emphasis ours)

In answer to this letter, Exhibit G, defendants sent a telegram, Exhibit H, dated November 25, 1946 to the central office in Manila, stating that for Cotabato, the planting season for second crops of December. In answer to Exhibit H, the central office sent a telegram, Exhibit I, dated November 28, 1946, expressly instructing the Cotabato Agency to discontinue granting new crop loans. The defendants claim that this telegram, Exhibit I, was received by them by mail on December 7, 1946.

In their brief the appellant contend that the trial court erred in finding and holding that extending new special crop loans after November 26, 1946, amounting to P726,680, as they as Agent and Assistant Agent, respectively, of the of the Cotabato Agency, did so at their own risk and in violation of the instructions received from the Manila office; also that the court erred in holding that they (appellants) acted with extreme laxity, negligence and carelessness in granting said new special crops loans. On the first assigned error appellants maintain that outside of the telegram, Exhibit I, which they claim to have received only on December 7, 1946, there was no instruction by the

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central office stopping the granting of new special crop loans.

It may be that there was no such express instruction couched in so many words directly ordering the defendants to stop granting new special crop loans, but that said idea of the central office could be gathered from its letter, Exhibit E, and that it was understood and clearly, by the defendants, is evident. If defendants did not so understand it, namely, that they were no longer authorized to grant new special crop loans, how else may we interpret the contents of the letter of Bagamaspad, Exhibit F, particularly that portion wherein after quoting a portion of the central office letter Exhibit E, he asks if they (defendants) could still entertain new applications for special crop loans? At least, they then doubted their to grant new special crop loans and until that doubt was cleared up and determined by new instructions from their superiors, it was their bounden duty to stop granting new loans. Appellant Ferrer himself, in response to question asked by the trial court during the hearing, said that in case of doubt as to whether or not to disburse funds of the bank, he should consult and await instructions. Appellants asked for instructions as to whether or not they should grant new special crop loans. This request for instructions is contained clearly in Bagamaspad's letter, Exhibit F, where in one paragraph he ask: "May we know if we could still entertain new applications on special crop loans?" And, in another paragraph he says? "We are again sending Asst. Agent B.M. Ferrer to Zamboanga . . . and wait there for further instructions that you may give . . . and whether we shall continue granting special crops loans or not." The trouble is that without waiting for said requested instructions, appellants proceeded to grant new special crop loans from November 26, 1946, to January 4, 1947.

Appellants not only granted new special crop loans after they were given to understand by the central office that they should no longer grant said loans and before appellants received instructions as to what they should do in that regard, but they also violated the express instructions of the Bank to the effect that funds received from the Zamboanga Agency should be utilized only to pay second installments on special crop loans. Of course, defendants contend that the total of P800,000 secured from the Zamboanga Agency were all used in paying second installments, but the contrary is amply established by Exhibit T, a statement prepared by Felicisimo Lopez, Chief Examiner of the Bank showing that out of the P500,000 secured from the Zamboanga Agency on or about November 18, 1946, the amount of P232,931.58 was paid on account of new special crop loans or first installments. The plaintiff-appellee Bank in its brief explains in details this use of part of the Zamboanga funds in paying first installments on new crop loans.

As to the alleged error committed by the trial court in finding and holding that the appellants were extremely lax, negligent and careless in granting new special crop loans, we quote with approval a portion of the well considered decision of the trial

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Judge, Hon. Arsenio Solidum, on this point:

From the evidence of record, one cannot help but be amazed at the extreme laxity, negligence and carelessness on the part of the defendants in the granting of the special crop loans. It seems that all precautions to protect the interest of the Philippine National Bank as the principal of the defendants were thrown overboard. From all appearances, the door of the Cotabato Agency was left wide open by the defendants as an invitation for all persons to come in secure from them special crop loans regardless of whether or not under the rules prescribed therefor they were rightfully entitled thereto. . . . (p. 165, Record on Appeal)

x x x x x x x x x

What really happened was that in those days of crop loan boom, the borrowers made a holiday of the funds of the Cotabato Agency of the Philippine National Bank with indulgence and tolerance of the defendants as the managing officials of the Agency. And the saddest part of it all was that the money did not go to the farmers who needed it most but to unscrupulous persons, who, taking undue advantage of the laxity and looseness of the defendants in doling out these loans, secured special crop loan funds without the least idea of investing them in food production campaign for which they were primarily intended. Part of the booty went to the pockets of those who acted as intermediaries in the procurement of the loans under the very noses of the defendants fully knowing that such practice was prohibited by the rules and regulations of the Philippine National Bank governing the operation of the provincial agencies (Exhibits "W", "T-1", to "T-11", "U-1" to "U-2") . . . (pp. 176-177, Record on Appeal)

The lower court as may be seen, severely critcized and condemned the acts of laxity, negligence and carelessness of the appellants. But the severity of this criticism and condemnation would appear to be amply warranted by the evidence. Out of the numerous acts of laxity, negligence and carelessness established by the record, a few cases may be cited. Exhibit C and D which contain instructions and rules and regulations governing the granting of special crop loans, provide that before a crop is granted the Agent or Sub-Agent of the Bank must be satisfied that the applicant is either landowner well known to be possessing the particular property on which the crop is to be produced, the particular property on which the crop ids to be produced, or if the applicant be tenant he must be recommended by the landowner concerned or in the absence of said landowner must be properly identified that he is the bona fide tenant actually tilling the land from which the crop to mortgage would be harvested.

The evidence shows that in violation of these instructions and regulations, the defendants released large loans aggregating P348,768.22 to about 103 borrowers who

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were neither landowners or tenants but only public land sales applicants that is to say, persons who have merely filed applications to buy public lands. It is a well known fact that when a person desires to apply for the purchase of public lands usually containing trees, under brush, cogon or other wild vegetation, and never previously cultivated, he merely goes over the land, takes it out and then files his application, tries to determine the location of the land, its identity, proceeds to classify it to see if it is open to sale and if so, perhaps makes rough survey of it to establish its exact location and fix boundaries with respect to the entire area of the public domain. The application naturally carries no implication of occupancy, possession, much less cultivation and dominion. And yet, in spite of all this, the applicants who were neither landowners or tenants.

The record further shows that Mr. Villamarzo, District Land Officer for Cotabato with whom these sale applications had been filed, came to know that he had been issuing to the applicants, which were nothing but acknowledgements of the filing of the applications, had been used by said applicants to secure special crop loans, and so he went to see the appellants as early as the middle of August of 1946 and advised them that those certificates were issued merely to show that applications had been filed with him but that it did not mean that said applications had already been investigated, much less that the lands covered by them had been surveyed. Then about the end of the same month Villamarzo accompanied by Almonte, a Division Land Inspector of the Bureau of Lands, again went to the defendants and repeated the advice and warning. Despite all these, as already stated, appellants granted new special crop loans to 103 of these public land sales applicants, knowing as they must have known that the borrowers were neither landowners nor tenants. Furthermore, it should be remembered that these special crop loans according to regulations were payable in ten (10) months, and were to be secured by chattel mortgages on the crops to be produced. A virgin land, especially if covered with trees or underbrush, needs to be cleared and placed in condition for cultivation before crops may produced. That work of clearing would take some time. A public land sale applicant, even assuming that he immediately began to clear the land applied for even before favorable action on his application is taken, is hardly in a position to meet the requirements of the regulations governing the granting of special crop loans, namely, to mortgage the crop he is going to produce, and pay the loan within ten months.

Appellants in their over-enthusiasm and seemingly inordinate desire to grant as many loans as possible and in amounts disproportionate to the needs of the borrowers, admitted and passed upon more loan applications than they could properly handle. From July, 1946 to March, 1947 the total amount of about eight and half (81/2) million pesos was released in the form of special crop loans to about 5,105 borrowers and this, in a relatively sparsely populated province like Cotabato. As a consequence of this big volume of business the bookkeeper of the Agency could not keep up with the posting of

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the daily transactions in his books and ledgers and he was several months behind. There were so many applications acted upon and accepted that they could not all be carefully examined and many of them do not even bear the initials or signatures of the appellants as required by regulations. Some of the chattel mortgages given to secure the payments of the loans, contrary to regulations, do not show the number of cavans of palay to be produced on the land and to be mortgaged in favor of the Bank.

Contrary to the Bank's rules and regulations regarding the granting of special crops loans, the defendants allowed intermediaries to intervene in the granting of special crop loans. Many lawyers, business agents and other persons intervened in the granting of the loans. We may have an idea of the of the part played by these intermediaries by referring to a portion of the report, Exhibit V, prepared by Mr. Lagdameo, one of the Assistant Managers of the Agencies and Branches Department of the plaintiff Bank, sent to Cotabato to investigate the crop loan anomalies in the Cotabato Agency, which portion we quote below:

On top of this, were the heavy expenses incurred by the borrowers to secure crop loans. The rush was so unprecendented that applicants had to stay had to stay for weeks in hotels in Cotabato to lobby for the approval of their applications. They even went to the extent of engaging intermediaries who in the words of some borrowers were the best ones to fix things with the agency for the approval and immediate release of the loan. These intermediaries are government employees and business agents and particularly practicing attorneys who charged fees up to 5 per cent of the total loans approved. Instances have been shown that the Agency itself collected the attorney's fees and delivered them to the parties concerned. In other cases, the intermediaries themselves were the ones who received the proceeds of the loans and distributed them to the borrowers. It has also been found that loan papers including the preparation of promissory notes, debit tickets, etc., were prepared by said intermediaries and submitted to the Agency already executed. . . . a7x8YKl5Zz.

There is evidence to the effect that sometimes the fees of these intermediaries were collected by the Agency itself and were later turned over to appellant Ferrer, perhaps to be later given by him to said intermediaries.

One of the provisions of the rules and regulations concerning the granting of loans is to the effect that loans to be released by a Provincial Agency like that of the appellant's should be approved by loan Board to be composed of the Agent, like defendant Bagamaspad; the Assistant Agent, like defendant Ferrer or the Inspector if there is no Assistant Agent; and the Municipal Treasurer where the borrower resides. The evidence, however, shows that many of the special crop loans released by the appellants have not been approved by this Board and others have not even been

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approved by anyone of them.

It will be remembered that in the letter of Vice President Buencamino, Exhibit G, dated November 19, 1946, speaking of the new special crop loan applications numbering about 1,000 mentioned by appellant Bagamaspad in his letter, Exhibit F, the plaintiff Bank wanted to know whether on that date, November 19th, the farmers in Cotabato had already planted their farms in which case there was no need for obtaining crop loans to meet the expenses of planting. Answering this query, the Cotabato Agency under the appellants, sent a telegram (Exhibit H) dated November 25, 1946, to the plaintiff Bank saying that the planting season for Cotabato for second crops ends in December. This was evidently intended to justify the granting of special crop loans even at the end of the year. The evidence however, belies the correctness of this statement and information. Mr. Aniceto Padilla, Assistant Provincial Agricultural Supervisor, a graduate of the College of Agriculture of the University of the Philippines, told the court that his office, which is the Provincial Agricultural Station in Cotabato, has determined the proper period for planting crops raised in that province and that for upland palay, the planting season is during the months of March, April up to May; that for lowland palay is June and July; and that second crops may be planted in September even as late as October. From this, one may conclude that it is not true as the appellants informed the bank that the planting season for palay (second crop) in Cotabato ends in December. Whether this incorrect information was given deliberately or thru negligence and carelessness, we deem it unnecessary to determine.

To give a further idea of the confusion, lack of care and method with which the Cotabato Agency was managed by the appellants, the record shows that in January, 1947, Mr. Simeon Intal, Traveling Auditor of the Philippine National Bank, was sent to Cotabato with instructions to make an audit of the accounts of the Cotabato Agency and to see for himself the reported irregularities being committed in said Agency with respect to the granting of special crop loans. According to Mr. Intal he found the Cotabato Agency like a market place full of people. He saw crop loan papers like promissory notes, loan applications and chattel mortgages scattered all over the Agency, some on the desks of employees, on open shelves or on top of filing cabinets, and others on the floor. He found that transactions which had taken place five months before were not yet posted in the books of the Agency. In February, 1947, Mr. Amado Lagdameo, then one of the Assistant Managers of the Branches and Agencies Department of the Bank, was also sent to Cotabato and there he found the same condition found and reported by Intal. In order to make thorough investigation of the anomalies reportedly obtaining in the Cotabato Agency, Felicisimo Lopez, a certified public accountant and Chief Examiner of the plaintiff Bank, was sent to Cotabato in June, 1947. He checked up the findings of Intal about the deplorable condition of the books and records of the Agency and he agreed with said findings. Lopez and Intal and assisted by Benjamin de Guzman,

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Branch Auditor of the Bank at the Davao Branch, Mr. Macuja (who later succeeded Benjamin de Guzman), Mr. Juan B. Sanchez, now Branch Auditor in Legaspi, Mr. Antonio Cruz of the Head Office, Mr. Danao from Oriental Misamis, Mr. Fernandez from Zamboanga and Mr. Romena of the Davao Branch, went to work on the books and records of the books and records of the Cotabato Agency and it took them almost four months to straighten out the special crop loan accounts and bring the books up-to-date, after which, they found that as of June 10, 1947, the Cotabato Agency had released special crop loans in the aggregate sum of P8,688,864.

To us who have always had the impression and the idea that the business of a Bank is conducted in an orderly, methodical and businesslike manner, that its papers, especially those relating to loans with their corresponding securities, are properly filed, well-kept and in a safe place, its books kept up-to-date, and that its funds are not given out in loans without careful and scrupulous scrutiny of the responsibility and solvency of the borrowers and the sufficiency of the security given by them, the conditions obtaining in the Cotabato Agency due to the apparent indifference, carelessness or negligence of the appellants, is indeed shocking. And it is because of these shortcomings of the appellants their disregard of the elementary rules and practice of banking and their violation of instructions of their superiors, that these anomalies resulting in financial losses to the Bank were made possible.

The trial court based the civil liability of the appellants herein on the provisions of Arts. 1718 and 1719 of the Civil Code, defining and enumerating the duties and obligations of an agent and his liability for failure to comply with such duties, and Art. 259 of the Code of Commerce which provides that an agent must observe the provisions of law and regulations with respect to business transactions entrusted to him otherwise he shall be responsible for the consequences resulting from their breach or omissions; and also Art. 1902 of the Civil Code which provides for the liability of one for his tortious act, that is to say, any act or omission which causes damage to another by his fault or negligence. Appellants while agreeing with the meaning and scope of the legal provisions cited, nevertheless insist that those provisions are not applicable to them inasmuch as they are not guilty of any violation of instructions or regulations of the plaintiff Bank; and that neither are they guilty of negligence of carelessness as found by the trial court. A careful study and consideration of the record, however, convinces us and we agree with the trial court that the defendants-appellants have not only violated instructions of the plaintiff Bank, including things which said Bank wanted done or not done, all of which were fully understood by them, but they (appellants) also violated standing regulations regarding the granting of loans; and, what is more, thru their carelessness, laxity and negligence, they allowed loans to be granted to persons who were not entitled to receive loans.

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It is the contention of the appellants that the act of plaintiff Bank in filling suits against the borrowers to whom appellants were said to have granted loans without authority, which suits resulted in the payment of part of said loans resulting in the reduction of the original claim of the plaintiff Bank from P704,903.18 to P699,803.57, should be interpreted and considered as a ratification of the acts of the appellants. What is more, it is more, it is contended that it would be iniquitous for the plaintiff to go against the defendants for whatever amounts may have been loaned by the latter and at the same time go against the individual borrowers for collection of the respective sums borrowed by them. That would be enriching the plaintiff at the expense of the defendants." We cannot subscribe to this theory. As pointed out by Counsel for appellee, ordinarily, a principal who collects either judicially or extrajudicially a loan made by an agent without authority, thereby ratifies the said act of the agent. In the present case, however, in filing suits against some of the borrowers to collect at least part of the unauthorized loans, there was no intention on the part of the plaintiff Bank to ratify the acts of appellants. Neither did the plaintiff receive any substantial benefit by its act of filing these suits if we consider the fact that the collections so far made, form a small or insignificant portion of the entire principal and interest. And, we fail to see any iniquity in this act of the plaintiff in suing some of the borrowers to collect what it could at the same time holding the appellants liable for the balance, because the plaintiff Bank is not trying to enrich itself at the expense of the defendants but is merely trying to diminish as much as possible the loss to itself and automatically decrease the financial liability of appellants. Considering the large amount for which appellants are found liable, it is a matter of serious doubt if they are in a position to pay it. Moreover, whatever amount is collected by the plaintiff Bank from borrowers, serves to diminish the financial liability of the appellants, in the same way that the original claim of P704,903.18, at the very instance of plaintiff was reduced to P699,803.57. In other words, the act of the plaintiff Bank in the matter, far from being iniquitous, is really beneficial to the appellants.

Appellants further contend that the present action is rather premature for the reason that there is no showing that the borrowers to whom they allegedly gave loans without authority, are manifestly insolvent or unqualified, and that the loans granted to them are uncollectible and have been written off the books of the Bank as "bad debts". We find this contention untenable. It is not necessary for the plaintiff Bank to first go against the individual borrowers, exhaust all remedies against them and then hold the defendants liable only for the balance which cannot be collected. The case of Corsicana National Bank vs. Johnson, 64 L. ed. 141, cited by the trial court and by the plaintiff bank is in point. The issue in that case whether or not a bank could proceed against one of its officials for losses which it had sustained in consequence of the unauthorized loans released by said official, or whether it should first pursue its remedies against the borrowers or await the liquidation of their estates. The Supreme Court of the United States in said case held that the cause of action of the Bank accrued and the injury to it

15

was complete on the very day that the amounts of the unauthorized loans were released by the erring official. We quote a part of that decision:

Assuming the Fleming and Templeton notes were found to represent an excessive loan, knowingly participated in or assented to by defendant as a director of the Bank, in our opinion the cause of action against him accrued on or about June 10, 1907, when the Bank, through his act, parted with the money loaned, receiving in return only negotiable paper that it could not lawfully accept because the transaction was prohibited by section 5200, Rev. Stat. (Comp. Stat. section 9761, 6 Fed. Stat. Anno. 2d ed., p. 761). The damage as well as the injury was complete at that time, and the Bank was not obliged to await the maturity of the notes, because immediately it became the duty of the officers or directors who knowingly participated in making the excessive loan to undo the wrong done by taking the notes off the hands of the Bank and restoring to it the money that had been loaned. Of course, whatever of value the Bank recovered from the borrowers on account of the loan would go in diminution of the damages; but the responsible officials would have no right to require the Bank to pursue its remedies against the borrowers or await the liquidation of their estates. The liability imposed by the statute upon the director is a direct liability, not contingent or collateral MdQEqVMWp.

In view of all the foregoing, and finding no reversible error in the decision appealed from, the same is hereby affirmed with costs against the appellants. So ordered.

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

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Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.

Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

 

CRUZ, J.:p

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of thewarrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on July 16, 1979.

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On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on the deposit slips allowing Metrobank to charge back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or unauthorized.

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(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held liable for its failure to collect on the warrants.

2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling — more than one and a half million pesos (and this was 1979). There was no

19

reason why it should not have waited until the treasury warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance — and notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed Golden Savings to withdraw — not once, not twice, but thrice — from the uncleared treasury warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this explanation is unbelievably naive.

And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have come into possession of this bank, the right is reserved to charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code clearly provides that —

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Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists (although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer corporation, has not been established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and convincing evidence. This was not done in the present case.

A no less important consideration is the circumstance that the treasury warrants in question are not negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:

Sec. 1. — Form of negotiable instruments. — An instrument to be negotiable must conform to the following requirements:

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(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. — An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with —

(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General 11 where the Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the negotiable instrument law. For one thing, the document bearing on its face the words "payable from the appropriation for food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement

22

was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

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

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

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

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

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

SO ORDERED.

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G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs.GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

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Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

 

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.

The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money,

25

which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand

26

Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

27

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

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent — condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his principal of all his transactions and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of

28

any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's lien. 7 The duty of a commission agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which

29

gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he may be held as a trustee and may be compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand

30

Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of

31

Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

G.R. No. 103737 December 15, 1994

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners, vs.HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents.

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Public Attorney's Office for petitioners.

Romualdo M. Jubay for private respondent.

 

REGALADO, J.:

Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant.

On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners purchased and received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various occasions in 1980, petitioners also purchased and received on credit various products from respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint alleged, they failed to pay despite oral and written demands. 1

In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to Pepsi-Cola. The details of said receipts are as follows:

TPR No. Date of Issue Amount

500320 600 Fulls returned 5/6/80 P23,520.00500326 600 Fulls returned 5/10/80 23,520.00500344 600 Fulls returned 5/14/80 23,520.00500346 Cash 5/15/80 10,000.00 2

33

—————Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00, 3 which was included in the computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned amounts were credited in their favor, it would be respondent corporation which would be indebted to them in the sum of P3,546.02 representing overpayment.

After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners, as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus 12% interestper annum until the principal amount shall have been fully paid, as well as P20,000.00 as attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on which they are based. The Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render another decision in accordance with the requirements of the Constitution. 5

In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until full payment of the amount adjudged. 6 On appeal therefrom, the Court of Appeals affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion for the reconsideration of said judgment of respondent court was subsequently denied in a resolution dated January 23, 1992. 8

We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of the controversy therein takes into account the jurisprudential rule that in the present recourse we would normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance.

First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal Department, Atty. Antonio N. Rosario, sent an inter-office

34

correspondence to petitioner Alfredo Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to the company, inefficiency, and loss of trust and confidence." 9 The interview was reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip. On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent corporation the following amounts:

Muntinlupa PlantNora's StoreTrade Account P38,357.20 (as of 12/3/80) 10

Loaned Empties P35,856.40 (as of 7/11/81) 11

Quezon City PlantAbigail MinimartRegular Account P20,437.40 (as of 1980) 12

—————Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of the loaned empties.13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a spurious document, was deducted from their liability in their trade account with the Muntinlupa plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

Muntinlupa PlantNora StoreTrade Account P32,726.20 15

Loaned Empties P21,686.00 16

Quezon City PlantAbigail MinimartTrade Account P20,437.20 17

——————Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be allowed to retire and the existing accounts be deducted from his retirement pay, but that he later withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed in the name of this petitioner were forged. 18 This makes two falsified documents to be foisted against petitioners.

35

With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified thereafter in court and what he is supposed to have done or said was merely related by Azurin.

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his affidavit dated February 5, 198221 wherein he affirmed his denial, are hearsay evidence because Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically denying that he issued and signed the disputed TPRs is, therefore, not hearsay," 22 there was no further explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no probative value whatsoever. 24

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former case or proceeding, judicial or administrative, involving the same parties and subject matter, may be given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic notes, assumingarguendo that these notes are admissible in evidence, would show that the "investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no opportunity for Eugenio to object, much less to cross-examine Estrada. Even in a

36

formal prior trial itself, if the opportunity forcross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-examine the witness when the testimony was offered, evidence relating to the testimony given therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting to a waiver of his right to cross-examine. 26

Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed stenographic notes on which respondent corporation relies is unauthenticated and necessarily inadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness because he had disappeared, no evidence whatsoever was offered to show or even intimate that this was due to any machination or instigation of petitioners. There is no showing that his absence was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for the self-serving statement that Estrada had disappeared, no plausible explanation was given by respondent corporation. Estrada was an employee of private respondent, hence it can be assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent could not have been unaware of the importance of Estrada's testimony and the consequent legal necessity for presenting him in the trial court, through coercive process if necessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not prepared by the affiants themselves but by another who uses his own language in writing the affiant's statements, which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two months after the investigation, presumably for curative purposes as it were.

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by the witness or the court with writings admitted or treated as genuine by the party against whom the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada which the Court can use as a

37

basis for comparison. Neither was any document containing a specimen of Estrada's signature presented by private respondent in the formal offer of its exhibits. 32

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said investigation to sign three times to provide specimens of his genuine signature." 33 There is, however, no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be unable to make the necessary comparison because two signatures appear on the right margin of each and every page of the stenographic notes, without any indication whatsoever as to which of the signatures is Estrada's. The whole document was marked for identification but the signatures were not. In fact, although formally offered, it was merely introduced by the private respondent "in order to show that Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and not for the purpose of presenting any alleged signature of Estrada on the document as a basis for comparison.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible, respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained up to the present.

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in the day-to-day business transactions of the company. These trade provisional receipts are bound and given in booklets to the company sales representatives, under proper acknowledgment by them and with a record of the distribution thereof. After every transaction, when a collection is made the customer is given by the sales representative a copy of the trade provisional receipt, that is, the triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the collections made, are turned over by the sales representative to the appropriate company officer. 35

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed original copies thereof." 36

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented in evidence by petitioners are disputably presumed as evidentiary of payments made on account of petitioners. There are presumptions juris tantum in law

38

that private transactions have been fair and regular and that the ordinary course of business has been followed. 37 The role of presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden to prove the proposition that he contends for, and to shift the burden of evidence to the adverse party. Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners, these would necessarily continue to stand in their favor in this case.

Besides, even assuming arguendo that herein private respondent's cashier never received the amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their obligations to the sales representative of the private respondent using the latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would unreasonably cast the burden of supervision over its employees from respondent corporation to its customers.

The substantive law is that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person authorized to receive it. 39 As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and his agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility of the collector to turn over the collection." 41

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800 cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-husband and his representative Luis Isip signed on August 3, 1981 does now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the month before." 42

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the day-to-day movement of an account, a statement of an overdue amount is only a summary of the account, simply reflecting the balance due thereon. A statement of account, being more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific period of time, unlike a bare statement of overdue payments. Respondent court cannot make its

39

aforequoted categorical deduction unless supporting documents accompanying the statement of overdue amounts were submitted to enable easy and accurate verification of the facts.

A perusal of the statement of overdue accounts shows that, except for a reference number given for each entry, no further details were volunteered nor offered. It is entirely possible that the statement of overdue account merely reflects the outstanding debt of a particular client, and not the specific particulars, such as deliveries made, particularly since the entries therein were surprisingly entered irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue amounts as conclusive proof of deliveries done within a particular time frame.

Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of the TPRs because he was a former route manager no evidence whatsoever was presented by private respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of respondent corporation since Azurin himself admitted that their accounting department could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is significant that respondent corporation did not take proper action if indeed some receipts were actually lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the matter.

We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y. Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners were able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented by petitioners.

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola , Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a payment of P80,560.00, there was consequently an overpayment of P5,710.60.

40

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the pertinent rules for the admission of the evidence by which it sought to prove its contentions. Furthermore, there are questions left unanswered and begging for cogent explanations why said respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former.

SO ORDERED.