G.R. No.
L-15568 November 8, 1919 Section 222 of our Code of Civil Procedure is taken from the California Code, and a
W. G. PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.
Lawrence and Ross for petitioner.
Crossfield and O'Brien for defendants.
STREET, J.:
The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one
of the respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel
the respondents to permit the plaintiff, in person or by some authorized agent or attorney,
to inspect and examine the records of the business transacted by said company since
January 1, 1918. The petition is filed originally in this court under the authority of section
515 of the Code of Civil Procedure, which gives to this tribunal concurrent jurisdiction with
the Court of First Instance in cases, among others, where any corporation or person
unlawfully excludes the plaintiff from the use and enjoyment of some right to which he is
entitled. The respondents interposed a demurrer, and the controversy is now before us for
the determination of the questions thus presented.
The first point made has reference to a supposed defect of parties, and it is said that the
action can not be maintained jointly against the corporation and its secretary without the
addition of the allegation that the latter is the custodian of the business records of the
respondent company.
By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of
action in such a proceeding as this is given against the corporation; and the respondent
corporation in this case was the only absolutely necessary party. In the Ohio case of
Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the
corporation was named as defendant, while the complaint, in language almost identical with
that in the case at bar, alleged a demand upon and refusal by the corporation.
Nevertheless the propriety of naming the secretary of the corporation as a codefendant
cannot be questioned, since such official is customarily charged with the custody of all
documents, correspondence, and records of a corporation, and he is presumably the person
against whom the personal orders of the court would be made effective in case the relief
sought should be granted. Certainly there is nothing in the complaint to indicate that the
secretary is an improper person to be joined. The petitioner might have named the
president of the corporation as a respondent also; and this official might be brought in
later, even after judgment rendered, if necessary to the effectuation of the order of the
court.
decision of the California Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite
clear upon the point that both the corporation and its officers may be joined as defendants.
The real controversy which has brought these litigants into court is upon the question argued
in connection with the second ground of demurrer, namely, whether the right which the law
concedes to a stockholder to inspect the records can be exercised by a proper agent or
attorney of the stockholder as well as by the stockholder in person. There is no pretense that
the respondent corporation or any of its officials has refused to allow the petitioner himself
to examine anything relating to the affairs of the company, and the petition prays for a
peremptory order commanding the respondents to place the records of all business
transactions of the company, during a specified period, at the disposal of the plaintiff or his
duly authorized agent or attorney, it being evident that the petitioner desires to exercise
said right through an agent or attorney. In the argument in support of the demurrer it is
conceded by counsel for the respondents that there is a right of examination in the
stockholder granted under section 51 of the Corporation Law, but it is insisted that this right
must be exercised in person.
The pertinent provision of our law is found in the second paragraph of section 51 of Act No.
1459, which reads as follows: "The record of all business transactions of the corporation and
the minutes of any meeting shall be open to the inspection of any director, member or
stockholder of the corporation at reasonable hours."
This provision is to be read of course in connecting with the related provisions of sections 51
and 52, defining the duty of the corporation in respect to the keeping of its records.
Now it is our opinion, and we accordingly hold, that the right of inspection given to a
stockholder in the provision above quoted can be exercised either by himself or by any
proper representative or attorney in fact, and either with or without the attendance of the
stockholder. This is in conformity with the general rule that what a man may do in person he
may do through another; and we find nothing in the statute that would justify us in
qualifying the right in the manner suggested by the respondents.
This conclusion is supported by the undoubted weight of authority in the United States,
where it is generally held that the provisions of law conceding the right of inspection to
stockholders of corporations are to be liberally construed and that said right may be
exercised through any other properly authorized person. As was said in Foster vs. White
(86 Ala., 467), "The right may be regarded as personal, in the sense that only a stockholder
may enjoy it; but the inspection and examination may be made by another. Otherwise it
would be unavailing in many instances." An observation to the same effect is contained in
Martin vs. Bienville Oil Works Co. (28 La., 204), where it is said: "The possession of the right
in question would be futile if the possessor of it, through lack of knowledge necessary to
exercise it, were debarred the right of procuring in his behalf the services of one who could
exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108), the court said: "That stockholders
have the right to inspect the books of the corporation, taking minutes from the same, at all
reasonable times, and may be aided in this by experts and counsel, so as to make the
inspection valuable to them, is a principle too well settled to need discussion." Authorities on
this point could be accumulated in great abundance, but as they may be found cited in any
legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here
to refer to other cases announcing the same rule.

In order that the rule above stated may not be taken in too sweeping a sense, we deem it
advisable to say that there are some things which a corporation may undoubtedly keep
secret, notwithstanding the right of inspection given by law to the stockholder; as for
instance, where a corporation, engaged in the business of manufacture, has acquired a
formula or process, not generally known, which has proved of utility to it in the manufacture
of its products. It is not our intention to declare that the authorities of the corporation, and
more particularly the Board of Directors, might not adopt measures for the protection of
such process form publicity. There is, however, nothing in the petition which would indicate
that the petitioner in this case is seeking to discover anything which the corporation is
entitled to keep secret; and if anything of the sort is involved in the case it may be brought
out at a more advanced stage of the proceedings.lawphil.net

The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as
prayed, unless within 5 days from notification hereof the respondents answer to the merits.
So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Malcolm and Avanceña, JJ., concur.
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1of the
Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with modification, the decision2 of
the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted
therein defendant's counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an
air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the
former authorized the latter to act as its exclusive general sales agent within the Philippines
for the sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto
agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales
Agent within the Philippines, including any United States military installation therein
which are not serviced by an Air Carrier Representation Office (ACRO), for the
sale of air passenger transportation. The services to be performed by Orient Air
Services shall include:
(a) soliciting and promoting passenger traffic for the services of American
and, if necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to
be used exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in the
assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as
may be appointed by Orient Air Services with the prior written consent of
American) in the assigned territory including if required by American the
control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the
general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within
the United States, neither Orient Air Services nor its sub-agents will perform
services for any other air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent
schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock
or exchange orders, less commissions to which Orient Air Services is entitled
hereunder, not less frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall
be held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder
by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and
any connecting through air transportation, when made on American's ticket stock,
equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other
rate(s) as may be prescribed by the International Air Transport
Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of
the provisions of this Agreement or shall become bankrupt or make any assignment
for the benefit of or enter into any agreement or promise with its creditors or go
into liquidation, or suffer any of its goods to be taken in execution, or if it ceases
to be in business, this Agreement may, at the option of American, be terminated
forthwith and American may, without prejudice to any of its rights under this
Agreement, take possession of any ticket forms, exchange orders, traffic material
or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions
of the International Air Transport Association and the Air Traffic Conference of
America, and such rules or resolutions shall control in the event of any conflict with
the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of January
to March 1981 in the amount of US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith
the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later,
or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air in the
course of terminating the Agreement as well as the termination itself were untenable, Orient
Air claiming that American Air's precipitous conduct had occasioned prejudice to its business
interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the
trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
in favor of defendant and against plaintiff dismissing the complaint and holding
the termination made by the latter as affecting the GSA agreement illegal and
 improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing
from January 1, 1981 until such reinstatement or said amounts in its Philippine peso
equivalent legally prevailing at the time of payment plus legal interest to
commence from the filing of the counterclaim up to the time of payment. Further,
plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount
of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their material
points but with some modifications with respect to the monetary awards granted. The
dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977
to December 31, 1980, or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10,
1981 the date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also the
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion
and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's fees,
but granted insofar as the rate of exchange is concerned. The decision of January
27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual
payment.9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient
Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By
resolution10 of this Court dated 25 March 1987 both petitions were consolidated, hence, the
case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only on
sales of its services actually negotiated or transacted by Orient Air, otherwise referred to
as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or itssub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it is American Air's contention that Orient Air
can claim entitlement to the disputed overriding commission based only on ticketed sales. This
is supposed to be the clear meaning of the underscored portion of the above provision.
Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
commission covers the total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification of its submission, invokes
its designation as the exclusive General Sales Agent of American Air, with the corresponding
obligations arising from such agency, such as, the promotion and solicitation for the services
of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the meaning of its provisions. 12 The various
stipulations in the contract must be read together to give effect to all.13 After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the foregoing principles, entitles it to the
3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air passenger
transportation, and the solicitation of sales therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission of 3% of tariff fares and
charges for all sales of passenger transportation over American Air services. It is
immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would accrue
for sales of American Air services made not on its ticket stock but on the ticket stock of other
air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To
rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American
Air ticket stock would erase any distinction between the two (2) types of commissions and
would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every effort
exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.14 To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made and who did
not cause the ambiguity.15 We therefore agree with the respondent appellate court's
declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue. American
Air's perception that Orient Air was remiss or in default of its obligations under the
Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the Agreement was, therefore,
without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial
court's award of exemplary damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court.1âwphi1We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of another,
WITH THE CONSENT OR AUTHORITY OF THE LATTER .17 (emphasis supplied) In an agent-
principal relationship, the personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be effected with
the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution
of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986,
respectively. Costs against petitioner American Air.

SO ORDERED.

Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.
G.R. No. L-24332 January 31, 1978 twice; defendant Corporation's Answer contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, While the case was pending in the trial court, both Simon and his sister Gerundia died and
vs. they were substituted by the respective administrators of their estates.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents. After trial the court a quo rendered judgment with the following dispositive portion:

Seno, Mendoza & Associates for petitioner. A. On Plaintiffs Complaint —

Ramon Duterte for private respondent. (1) Declaring the deed of sale, Exh. "C", null and void
insofar as the one-half pro-indiviso share of Concepcion
Rallos in the property in question, — Lot 5983 of the
Cadastral Survey of Cebu — is concerned;
MUÑOZ PALMA, J.:
(2) Ordering the Register of Deeds of Cebu City to
cancel Transfer Certificate of Title No. 12989 covering
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Lot 5983 and to issue in lieu thereof another in the
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power names of FELIX GO CHAN & SONS REALTY
of attorney which the principal had executed in favor. The administrator of the estate of the CORPORATION and the Estate of Concepcion Rallos in
went to court to have the sale declared uneanforceable and to recover the disposed share. the proportion of one-half (1/2) share each pro-
The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold indiviso;
the validity of the sale and the complaint.
(3) Ordering Felix Go Chan & Sons Realty Corporation
Hence, this Petition for Review on certiorari. to deliver the possession of an undivided one-half (1/2)
share of Lot 5983 to the herein plaintiff;
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were
sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the (4) Sentencing the defendant Juan T. Borromeo,
Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the administrator of the Estate of Simeon Rallos, to pay to
Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in plaintiff in concept of reasonable attorney's fees the
favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. sum of P1,000.00; and
On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold
the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan &
Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the (5) Ordering both defendants to pay the costs jointly
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of and severally.
Title No. 12989 was issued in the named of the vendee.
B. On GO CHANTS Cross-Claim:
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of (1) Sentencing the co-defendant Juan T. Borromeo,
Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in administrator of the Estate of Simeon Rallos, to pay to
lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the defendant Felix Co Chan & Sons Realty Corporation
Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be the sum of P5,343.45, representing the price of one-
cancelled and another title be issued in the names of the corporation and the "Intestate half (1/2) share of lot 5983;
estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants were Felix (2) Ordering co-defendant Juan T. Borromeo,
Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but administrator of the Estate of Simeon Rallos, to pay in
subsequently, the latter was dropped from the complaint. The complaint was amended
 concept of reasonable attorney's fees to Felix Go Chan
& Sons Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina Rallos special
administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a
complaint against the regular administrator of the Estate of Gerundia
Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the
same subject-matter of the third-party complaint, at bar. (pp. 98-100,
Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals
from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query. is the sale of the
undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the
agent after the death of his principal? What is the law in this jurisdiction as to the effect of
the death of the principal on the authority of the agent to act for and in behalf of the
latter? Is the fact of knowledge of the death of the principal a material factor in
determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant
to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
name of another without being authorized by the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the name of another by one who has no authority
or the legal representation or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same
Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are
justified:
(1) Those entered into in the name of another person by one who hi -
been given no authority or legal representation or who has acted beyond
his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agents acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with
one cause — death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was
taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or
of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for
the law is found in the juridical basis of agency which is representation Them being an in.
integration of the personality of the principal integration that of the agent it is not possible
for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the principal
and the agent is severed ipso jure upon the death of either without necessity for the heirs of
the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the principal effects instantaneous
and absolute revocation of the authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a
power without an interest confer. red upon an agent is dissolved by the principal's death,
and any attempted execution of the power afterward is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case within
that exception? That is the determinative point in issue in this litigation. It is the contention of
respondent corporation which was sustained by respondent court that notwithstanding the
death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in
selling the former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-
mentioned.
ART. 1930. The agency shall remain in full force and effect even after the
death of the principal, if it has been constituted in the common interest of
the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death
of the principal or of any other cause which extinguishes the agency, is
valid and shall be fully effective with respect to third persons who may
have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in
favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the
death of his principal is valid and effective only under two conditions, viz: (1) that the agent
acted without knowledge of the death of the principal and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the third
person was not aware of the death of the principal at the time he contracted with said
agent. These two requisites must concur the absence of one will render the act of the agent
invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death
of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed
by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court
when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet
he proceeded with the sale of the lot in the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly
requires for its application lack of knowledge on the part of the agent of the death of his
principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes
v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new
Civil Code sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same effect is the case
of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera
the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs
presented no proof and there is no indication in the record, that the agent
Luy Kim Guan was aware of the death of his principal at the time he sold
the property. The death 6f the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done by
an agent having knowledge of the death of his principal is void even with respect to third
persons who may have contracted with him in good faith and without knowledge of the
death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiorithat any act of an agent after the
death of his principal is void ab initio unless the same fags under the exception provided for
in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith
relied on the power of attorney which was duly registered on the original certificate of title
recorded in the Register of Deeds of the province of Cebu, that no notice of the death was
aver annotated on said certificate of title by the heirs of the principal and accordingly they
must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which
We quote:
If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if the
agency is general iii nature, without reference to particular person with
whom the agent is to contract, it is sufficient that the principal exercise
due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom
represents' on should be made, it is the general opinion that all acts,
executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may
exercise his right against the agent, who, knowing of the revocation,
 continued to assume a personality which he no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of law such
as death of the principal which obtains in this case. On page six of this Opinion We stressed
that by reason of the very nature of the relationship between principal and agent, agency
is extinguished ipso jure upon the death of either principal or agent. Although a revocation
of a power of attorney to be effective must be communicated to the parties
concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as
a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. 19 With death, the
principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify
the principal thereof, and in the meantime adopt such measures as the circumstances may
demand in the interest of the latter. Hence, the fact that no notice of the death of the
principal was registered on the certificate of title of the property in the Office of the
Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former
sufficient protection, respondent court drew a "parallel" between the instant case and that
of an innocent purchaser for value of a land, stating that if a person purchases a registered
land from one who acquired it in bad faith — even to the extent of foregoing or falsifying
the deed of sale in his favor — the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630,
one Vallejo was a co-owner of lands with Agustin Nano. The latter had a
power of attorney supposedly executed by Vallejo Nano in his favor.
Vallejo delivered to Nano his land titles. The power was registered in the
Office of the Register of Deeds. When the lawyer-husband of Angela
Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the
case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of
the defendant- appellee must be overruled. Agustin
Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with
the acquiescence of Vallejo, a fraud could not have
been perpetuated. When Fernando de la Canters, a
member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including
the power of attorney of Vallajo in favor of Nano. If
this had not been so and if thereafter the proper
notation of the encumbrance could not have been
made, Angela Blondeau would not have sent
P12,000.00 to the defendant Vallejo.' An executed
transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the
transfer is authorized to deal with the land.
As between two innocent persons, one of whom must
suffer the consequence of a breach of trust, the one
who made it possible by his act of coincidence bear the
loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We
are confronted with one who admittedly was an agent of his sister and who sold the
property of the latter after her death with full knowledge of such death. The situation is
expressly covered by a provision of law on agency the terms of which are clear and
unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner
that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the
Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter a
new certificate or to make a memorandum of registration in accordance
with such instruments, and the new certificate or memorandum Shall be
binding upon the registered owner and upon all persons claiming under
him in favor of every purchaser for value and in good faith: Provided
however, That in all cases of registration provided by fraud, the owner
may pursue all his legal and equitable remedies against the parties to
such fraud without prejudice, however, to the right, of any innocent holder
for value of a certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is
an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein
payments made to an agent after the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was
premised on the statement that the parties were ignorant of the death of the principal. We
quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the
Parties are ignorant of the death is a good payment. in addition to the
case in Campbell before cited, the same judge Lord Ellenboruogh, has
decided in 5 Esp. 117, the general question that a payment after the
death of principal is not good. Thus, a payment of sailor's wages to a
person having a power of attorney to receive them, has been held void
when the principal was dead at the time of the payment. If, by this case,
it is meant merely to decide the general proposition that by operation of
law the death of the principal is a revocation of the powers of the
attorney, no objection can be taken to it. But if it intended to say that his
principle applies where there was 110 notice of death, or opportunity of
twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the
accident circumstance of the death of the principal, which he did not know,
and which by no possibility could he know? It would be unjust to the agent
and unjust to the debtor. In the civil law, the acts of the agent, done bona
fide in ignorance of the death of his principal are held valid and binding
upon the heirs of the latter. The same rule holds in the Scottish law, and I
cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80,
81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the Court said.—
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J.
said:
The opinion, therefore, of the learned Judge may be regarded more as
an extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all
power weight to this opinion, as the judgment of a of great respectability,
it stands alone among common law authorities and is opposed by an
array too formidable to permit us to following it. (15 Cal. 12,17, cited in
2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the
Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art 1930), and (2) that the act of the agent was executed without knowledge of the death
of the principal and the third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement that the agent acted without knowledge or notice of the death of
the principal In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly, the agent's act is
unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court,
and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court
of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against
respondent realty corporation at all instances.

There are several cases which seem to hold that although, as a general So Ordered.
principle, death revokes an agency and renders null every act of the
agent thereafter performed, yet that where a payment has been made in
ignorance of the death, such payment will be good. The leading case so
holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am.
76, where, in an elaborate opinion, this view ii broadly announced. It is
referred to, and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that
the estate of the deceased principal had received the benefit of the
money paid, and therefore the representative of the estate might well
have been held to be estopped from suing for it again. . . . These cases, in
so far, at least, as they announce the doctrine under discussion, are
exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite,
alone in announcing the principle in its broadest scope. (52, Misc. 353,
357, cited in 2 C.J. 549)
G.R. No. 145817 October 19, 2011
URBAN BANK, INC, Petitioner,
vs.
MAGDALENO M. PEÑA, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 145822
DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, and ERIC L. LEE, Petitioners,
vs.
MAGDALENO M. PEÑA, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 162562
MAGDALENO M. PEÑA, Petitioner,
vs.
URBAN BANK, INC., TEODORO BORLONGAN, DELFIN C. GONZALEZ, JR., BENJAMIN
L. DE LEON, P. SIERVO H. DIZON, ERIC L. LEE, BEN T. LIM, JR., CORAZON BEJASA, and
ARTURO MANUEL, JR.,Respondents.
DECISION
SERENO, J.:
These consolidated petitions began as a simple case for payment of services rendered and
for reimbursement of costs. The case spun a web of suits and counter-suits because of: (1)
the size of the award for agent’s fee rendered in favor of Atty. Magdaleno Peña (Peña) –
PhP24,000,000 – rendered by the trial court; (2) the controversial execution of the full
judgment award of PhP28,500,000 (agent’s fee plus reimbursement for costs and other
damages) pending appeal; and (3) the finding of solidary liability against Urban Bank, Inc.,
and several of its corporate officers and directors together with the concomitant levying and
sale in execution of the personal (even conjugal) properties of those officers and directors;
and (4) the fact that assets with declared conservative values of at least PhP181 Million
which, together with those with undeclared values could reach very much more than such
amount,1 were levied or sold on execution pending appeal to satisfy the PhP28.5 Million
award in favor of Atty. Peña. Incidentally, two supersedeas bonds worth PhP80 Million (2.8
times the amount of the judgment) were filed by Urban Bank and some of its officers and
directors to stay the execution pending appeal.
Had the four attendant circumstances not afflicted the original case, it would have been an
open-and-shut review where this Court, applying even just the minimum equitable principle
against unjust enrichment would have easily affirmed the grant of fair recompense to Atty.
Peña for services he rendered for Urban Bank if such had been ordered by the trial court.
That Atty. Peña should be paid something by Urban Bank is not in dispute – the Court of
Appeals (CA) and the Regional Trial Court (RTC) of Bago City, agreed on that. What they
disagreed on is the basis and the size of the award. The trial court claims that the basis is
an oral contract of agency and the award should be PhP28,5000,000; while, the appellate
court said that Atty. Peña can only be paid under the legal principle against unjust
enrichment, and the total award in his favor should only amount to PhP3,000,000.
In the eyes of the trial court, the controlling finding is that Atty. Peña should be believed
when he testified that in a telephone conversation, the president of Urban Bank, Teodoro
Borlongan, a respondent herein, agreed to pay him for his services 10% of the value of the
property then worth PhP240,000,000, or PhP24,000,000. Costs and other awards
additionally amount to PhP4,500,000, for a total award of PhP28,500,000 according to
the trial court. To the Court of Appeals, such an award has no basis, as in fact, no contract
of agency exists between Atty. Peña and Urban Bank. Hence, Atty. Peña should only be
recompensed according to the principle of unjust enrichment, and that he should be
awarded the amount of PhP3,000,000 only for his services and reimbursements of costs.
The disparity in the size of the award given by the trial court vis-à-vis that of the Court of
Appeals (PhP28,500,000 v. PhP3,000,000) must be placed in the context of the service that
Atty. Peña proved that he rendered for Urban Bank. As the records bear, Atty. Peña’s
services consisted of causing the departure of unauthorized sub-tenants in twenty-three
commercial establishments in an entertainment compound along Roxas Boulevard. It involved
the filing of ejectment suits against them, Peña’s personal defense in the counter-suits filed
against him, his settlement with them to the tune of PhP1,500,000, which he advanced from
his own funds, and his retention of security guards and expenditure for other costs
amounting to more or less PhP1,500,000. There is no claim by Atty. Peña of any service
beyond those. He claims damages from the threats to his life and safety from the angry
tenants, as well as a vexatious collection suit he had to face from a creditor-friend from
whom he borrowed PhP3,000,000 to finance the expenses for the services he rendered
Urban Bank.
At the time the award of PhP28,500,000 by the trial court came out in 1999, the net worth
of Urban Bank was PhP2,219,781,104.2 While the bank would be closed by the Bangko
Sentral ng Pilipinas (BSP) a year later for having unilaterally declared a bank holiday
contrary to banking rules, there was no reason to believe that at the time such award came
out it could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net
worth, and a miniscule 0.2% of its total assets of PhP11,933,383,630. 3 In fact, no
allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña
and yet, the trial court granted execution pending appeal.
Interestingly, Peña had included as co-defendants with Urban Bank in the RTC case, several
officers and board directors of Urban Bank. Not all board directors were sued, however.
With respect to those included in the complaint, other than against Teodoro Borlongan,
Corazon Bejasa, and Arturo Manuel, no evidence was ever offered as to their individual
actions that gave rise to Atty. Peña’s cause of action – the execution of the agency contract
and its breach – and yet, these officers and directors were made solidarily liable by the
trial court with Urban Bank for the alleged breach of the alleged corporate contract of
agency. Execution pending appeal was also granted against them for this solidary liability
resulting in the levy and sale in execution pending appeal of not only corporate properties
of Urban Bank but also personal properties of the individual bank officers and directors. It
would have been interesting to find out what drove Atty. Peña to sue the bank officers and
directors of Urban Bank and why he chose to sue only some, but not all of the board
directors of Urban Bank, but there is nothing on the record with which this analysis can be
pursued.
Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group
(G R. No. 145822) questioning the propriety of the grant of execution pending appeal,
and (b) the Petition of Atty. Peña (G. R. No. 162562) assailing the CA’s decision on the
substantive merits of the case with respect to his claims of compensation based on an
agency agreement.
Ordinarily, the final resolution by the Supreme Court of an appeal from a trial court
decision would have automatic, generally-understood consequences on an order issued by
the trial court for execution pending appeal. But this is no ordinary case, and the magnitude
of the disproportions in this case is too mind-boggling that this Court must exert extra effort
to correct whatever injustices have been occasioned in this case. Thus, our dispositions will
include detailed instructions for several judicial officials to implement.
At core, these petitions can be resolved if we answer the following questions:
1. What is the legal basis for an award in favor of Peña for the services he
rendered to Urban Bank? Should it be a contract of agency the fee for which was
orally agreed on as Peña claims? Should it be the application of the Civil Code
provisions on unjust enrichment? Or is it to be based on something else or a
combination of the legal findings of both the RTC and the CA? How much should
the award be?
2. Are the officers and directors of Urban Bank liable in their personal capacities
for the amount claimed by Peña?
3. What are the effects of our answers to questions (1) and (2), on the various
results of the execution pending appeal that happened here?
Factual Background of the Controversy
Urban Bank, Inc. (both petitioner and respondent in these two consolidated cases), 4 was a
domestic Philippine corporation, engaged in the business of banking. 5 The eight individual
respondents in G. R. No. 162562 were officers and members of Urban Bank’s board of
directors, who were sued in their official and personal capacities.6On the other hand,
Benjamin L. De Leon, Delfin C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon
Group), are the petitioners in G. R. No. 145822 and are three of the same bank officers
and directors, who had separately filed the instant Petition before the Court.
Petitioner-respondent Atty. Magdaleno M. Peña (Peña) 7 is a lawyer by profession and was
formerly a stockholder, director and corporate secretary of Isabel Sugar Company, Inc.
(ISCI).8
ISCI owned a parcel of land9 located in Pasay City (the Pasay property).10 In 1984, ISCI
leased the Pasay property for a period of 10 years. 11 Without its consent12 and in violation
of the lease contract,13 the lessee subleased the land to several tenants, who in turn put up
23 establishments, mostly beer houses and night clubs, inside the compound.14 In 1994, a
few months before the lease contract was to expire, ISCI informed the lessee 15 and his
tenants16 that the lease would no longer be renewed and that it intended to take over the
Pasay property17 for the purpose of selling it.18
Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank
executed a Contract to Sell, whereby the latter would pay ISCI the amount of
PhP241,612,000 in installments for the Pasay property. 19Both parties agreed that the final
installment of PhP25,000,000 would be released by the bank upon ISCI’s delivery of full
and actual possession of the land, free from any tenants.20 In the meantime, the amount of
the final installment would be held by the bank in escrow. The escrow provision in the
Contract to Sell, thus, reads:
"The SELLER (ISCI) agrees that from the proceeds of the purchase prices of the subject
Property (Pasay property), the BUYER (Urban Bank) shall withhold the amount of PHP
25,000,000.00 by way of escrow and shall release this amount to the SELLER only upon its
delivery to the BUYER of the full and actual possession and control of the Subject Property,
free from tenants, occupants, squatters or other structures or from any liens, encumbrances,
easements or any other obstruction or impediment to the free use and occupancy by the
buyer of the subject Property or its exercise of the rights to ownership over the subject
Property, within a period of sixty (60) days from the date of payment by the BUYER of the
purchase price of the subject Property net of the amounts authorized to be deducted or
withheld under Item II (a) of this Contract.21 (Emphasis supplied)
ISCI then instructed Peña, who was its director and corporate secretary, to take over
possession of the Pasay property22 against the tenants upon the expiration of the lease.
ISCI’s president, Mr. Enrique G. Montilla III (Montilla), faxed a letter to Peña, confirming the
latter’s engagement as the corporation’s agent to handle the eviction of the tenants from the
Pasay property, to wit:23
MEMORANDUM
TO: Atty. Magdaleno M. Pena
Director
FROM: Enrique G. Montilla III
President
DATE: 26 November 1994
You are hereby directed to recover and take possession of the property of the corporation
situated at Roxas Boulevard covered by TCT No. 5382 of the Register of Deeds for Pasay
City immediately upon the expiration of the contract of lease over the said property on 29
November 1994. For this purpose you are authorized to engage the services of security
guards to protect the property against intruders. You may also engage the services of a
lawyer in case there is a need to go to court to protect the said property of the corporation.
In addition you may take whatever steps or measures are necessary to ensure our continued
possession of the property.
(sgd.) ENRIQUE G. MONTILLA III
President24
On 29 November 1994, the day the lease contract was to expire, ISCI and Urban Bank
executed a Deed of Absolute Sale25 over the Pasay property for the amount agreed upon
in the Contract to Sell, but subject to the above escrow provision. 26 The title to the land was
eventually transferred to the name of Urban Bank on 05 December 1994. 27
On 30 November 1994, the lessee duly surrendered possession of the Pasay property to
ISCI,28 but the unauthorized sub-tenants refused to leave the area.29 Pursuant to his
authority from ISCI, Peña had the gates of the property closed to keep the sub-tenants
out.30 He also posted security guards at the property,31 services for which he advanced
payments.32 Despite the closure of the gates and the posting of the guards, the sub-tenants
would come back in the evening, force open the gates, and proceed to carry on with their
businesses.33 On three separate occasions, the sub-tenants tried to break down the gates of
the property, threw stones, and even threatened to return and inflict greater harm on those
guarding it.34
In the meantime, a certain Marilyn G. Ong, as representative of ISCI, faxed a letter to
Urban Bank – addressed to respondent Corazon Bejasa, who was then the bank’s Senior
Vice-President – requesting the issuance of a formal authority for Peña. 35 Two days
thereafter, Ms. Ong faxed another letter to the bank, this time addressed to its president,
respondent Teodoro Borlongan.36 She repeated therein the earlier request for authority for
Peña, since the tenants were questioning ISCI’s authority to take over the Pasay property. 37
In response to the letters of Ms. Ong, petitioner-respondent bank, through individual
respondents Bejasa and Arturo E. Manuel – Senior Vice-President and Vice-President,
respectively – advised Peña38 that the bank had noted the engagement of his services by
ISCI and stressed that ISCI remained as the lawyer’s principal. 39
To prevent the sub-tenants from further appropriating the Pasay property,40 petitioner-
respondent Peña, as director and representative of ISCI, filed a complaint for
injunction41 (the First Injunction Complaint) with the RTC-Pasay City.42 Acting on ISCI’s prayer
for preliminary relief, the trial court favorably issued a temporary restraining order
(TRO),43 which was duly implemented.44 At the time the First Injunction Complaint was filed,
a new title to the Pasay property had already been issued in the name of Urban Bank. 45
On 19 December 1994, when "information reached the judge that the Pasay property had
already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued
a break-open order for the property. According to Peña, it was the first time that he was
apprised of the sale of the land by ISCI and of the transfer of its title in favor of the
bank."46 It is not clear from the records how such information reached the judge or what the
break-open order was in response to.
On the same day that the TRO was recalled, petitioner-respondent Peña immediately
contacted ISCI’s president, Mr. Montilla, who in turn confirmed the sale of the Pasay
property to Urban Bank.47 Peña told Mr. Montilla that because of the break-open order of
the RTC-Pasay City, he (Peña) would be recalling the security guards he had posted to
secure the property. Mr. Montilla, however, asked him to suspend the planned withdrawal
of the posted guards, so that ISCI could get in touch with petitioner-respondent bank
regarding the matter.48
Later that same day, Peña received a telephone call from respondent Bejasa. After Peña
informed her of the situation, she allegedly told him that Urban Bank would be retaining his
services in guarding the Pasay property, and that he should continue his efforts in retaining
possession thereof. He insisted, however, on talking to the Bank’s president. Respondent
Bejasa gave him the contact details of respondent Borlongan, then president of Urban
Bank.49
The facts regarding the following phone conversation and correspondences are highly-
controverted. Immediately after talking to respondent Bejasa, Peña got in touch with Urban
Bank’s president, respondent Borlongan. Peña explained that the policemen in Pasay City
were sympathetic to the tenants and were threatening to force their way into the premises.
He expressed his concern that violence might erupt between the tenants, the city police, and
the security guards posted in the Pasay property. Respondent Borlongan supposedly
assured him that the bank was going to retain his services, and that the latter should not
give up possession of the subject land. Nevertheless, petitioner-respondent Peña demanded
a written letter of authority from the bank. Respondent Borlongan acceded and instructed
him to see respondent Bejasa for the letter.50
In the same telephone conversation, respondent Borlongan allegedly asked Peña to
maintain possession of the Pasay property and to represent Urban Bank in any legal action
that might be instituted relative to the property. Peña supposedly demanded 10% of the
market value of the property as compensation and attorney’s fees and reimbursement for
all the expenses incurred from the time he took over land until possession was turned over to
Urban Bank. Respondent Borlongan purportedly agreed on condition that possession would
be turned over to the bank, free of tenants, not later than four months; otherwise, Peña
would lose the 10% compensation and attorney’s fees. 51
Later that afternoon, Peña received the bank’s letter dated 19 December 1994, which was
signed by respondents Bejasa and Manuel, and is quoted below:
This is to confirm the engagement of your services as the authorized representative of
Urban Bank, specifically to hold and maintain possession of our abovecaptioned property
[Pasay property] and to protect the same from former tenants, occupants or any other
person who are threatening to return to the said property and/or interfere with your
possession of the said property for and in our behalf.
You are likewise authorized to represent Urban Bank in any court action that you may
institute to carry out the aforementioned duties, and to prevent any intruder, squatter or any
other person not otherwise authorized in writing by Urban [B]ank from entering or staying in
the premises.52 (Emphasis supplied)
On even date, ISCI sent Urban Bank a letter, which acknowledged ISCI’s engagement of
Peña and commitment to pay for any expenses that may be incurred in the course of his
services. ISCI’s letter reads:
This has reference to your property located along Roxas Boulevard, Pasay City [Pasay
property] which you purchased from Isabela Sugar Company under a Deed of Absolute
Sale executed on December 1, 1994.
In line with our warranties as the Seller of the said property and our undertaking to deliver
to you the full and actual possession and control of said property, free from tenants,
occupants or squatters and from any obstruction or impediment to the free use and
occupancy of the property by Urban Bank, we have engaged the services of Atty.
Magdaleno M. Peña to hold and maintain possession of the property and to prevent the
former tenants or occupants from entering or returning to the premises. In view of the
transfer of the ownership of the property to Urban Bank, it may be necessary for Urban
Bank to appoint Atty. Peña likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property and to represent Urban Bank
in any court action that may be instituted for the abovementioned purposes.
It is understood that any attorney’s fees, cost of litigation and any other charges or
expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned
duties shall be for the account of Isabela Sugar Company and any loss or damage that
may be incurred to third parties shall be answerable by Isabela Sugar
Company.53 (Emphasis supplied)
The following narration of subsequent proceedings is uncontroverted.
Peña then moved for the dismissal of ISCI’s First Injunction Complaint, filed on behalf of ISCI,
on the ground of lack of personality to continue the action, since the Pasay property, subject
of the suit, had already been transferred to Urban Bank. 54 The RTC-Pasay City dismissed
the complaint and recalled its earlier break-open order.55
Thereafter, petitioner-respondent Peña, now in representation of Urban Bank, filed a
separate complaint56 (the Second Injunction Complaint) with the RTC-Makati City, to enjoin
the tenants from entering the Pasay property.57Acting on Urban Bank’s preliminary prayer,
the RTC-Makati City issued a TRO.58
While the Second Injunction Complaint was pending, Peña made efforts to settle the issue of
possession of the Pasay property with the sub-tenants. During the negotiations, he was
exposed to several civil and criminal cases they filed in connection with the task he had
assumed for Urban Bank, and he received several threats against his life. 59 The sub-tenants
eventually agreed to stay off the property for a total consideration of
PhP1,500,000.60 Peña advanced the payment for the full and final settlement of their
claims against Urban Bank.61
Peña claims to have borrowed PhP3,000,000 from one of his friends in order to maintain
possession thereof on behalf of Urban Bank.62 According to him, although his creditor-friend
granted him several extensions, he failed to pay his loan when it became due, and it later
on became the subject of a separate collection suit for payment with interest and attorney’s
fees.63 This collection suit became the basis for Atty. Peña’s request for discretionary
execution pending appeal later on.
On 07 February 1995, within the four-month period allegedly agreed upon in the
telephone conversation, Peña formally informed Urban Bank that it could already take
possession of the Pasay property.64 There was however no mention of the compensation due
and owed to him for the services he had rendered.
On 31 March 1995, the bank subsequently took actual possession of the property and
installed its own guards at the premises.65
Peña thereafter made several attempts to contact respondents Borlongan and Bejasa by
telephone, but the bank officers would not take any of his calls. On 24 January 1996, or
nearly a year after he turned over possession of the Pasay property, Peña formally
demanded from Urban Bank the payment of the 10% compensation and attorney’s fees
allegedly promised to him during his telephone conversation with Borlongan for securing
and maintaining peaceful possession of the property.66
 Proceedings on the Complaint for Compensation
On 28 January 1996, when Urban Bank refused to pay for his services in connection with
the Pasay property, Peña filed a complaint 67 for recovery of agent’s compensation and
expenses, damages and attorney’s fees in RTC-Bago City in the province of Negros
Occidental.68 Interestingly, Peña sued only six out of the eleven members of the Board of
the Directors of Urban Bank.69 No reason was given why the six directors were selected and
the others excluded from Peña’s complaint. In fact, as pointed out, Atty. Peña mistakenly
impleaded as a defendant, Ben Y. Lim, Jr., who was never even a member of the Board of
Directors of Urban Bank; while, Ben T. Lim, Sr., father and namesake of Ben Y. Lim, Jr., who
had been a director of the bank, already passed away in 1997.70
In response to the complaint of Atty. Peña, Urban Bank and individual bank officers and
directors argued that it was ISCI, the original owners of the Pasay property, that had
engaged the services of Peña in securing the premises; and, consequently, they could not be
held liable for the expenses Peña had incurred.71
On 28 May 1999, the RTC-Bago City72 ruled in favor of Peña, after finding that an agency
relationship had indeed been created between him and Urban Bank. The eight directors
and bank officers were found to be solidarily liable with the bank for the payment of
agency’s fees. The trial court thus ordered Urban Bank and all eight defendant bank
directors and officers whom Peña sued to pay the total amount of PhP28,500,000
(excluding costs of suit):
WHEREFORE, premised from the foregoing, judgment is hereby rendered ordering
defendants to pay plaintiff jointly and severally the following amounts:
1. P24,000,000 as compensation for plaintiff’s services plus the legal rate of
interest from the time of demand until fully paid;
2. P3,000,000 as reimbursement of plaintiff’s expenses;
3. P1,000,000 as and for attorney’s fees;
4. P500,000 as exemplary damages;
5. Costs of suit.
SO ORDERED.73
Urban Bank and the individual defendant bank directors and officers filed a common Notice
of Appeal,74 which was given due course.75 In the appeal, they questioned the factual
finding that an agency relationship existed between the bank and Peña.76
Although they put up a single defense in the proceedings in the lower court, Urban Bank
and individual defendants contracted different counsel and filed separate Briefs on appeal
in the appellate court.
In its Brief,77 Urban Bank78 assigned as errors the trial court’s reliance on the purported oral
contract of agency and Peña’s claims for compensation during the controverted telephone
conversation with Borlongan, which were allegedly incredible.
Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (the De Leon
Group),79 the petitioners in the instant Petition docketed as G. R. No. 145822, argued that,
even on the assumption that there had been an agency contract with the bank, the trial court
committed reversible error in holding them – as bank directors – solidarily liable with the
corporation.80
On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim,
Jr., and P. Siervo H. Dizon (the Borlongan Group) 81 reiterated similar arguments as those of
the De Leon Group, adding that the claimed compensation of 10% of the purchase price of
the Pasay property was not reasonable.82
Peña refuted all of their arguments83 and prayed that the trial court’s Decision be
affirmed.84
Acting favorably on the appeal, the Court of Appeals 85 annulled the Decision of the RTC-
Bago City and ruled that no agency relationship had been created. Nevertheless, it ordered
Urban Bank to reimburse Peña for his expenses and to give him reasonable compensation
for his efforts in clearing the Pasay property of tenants in the amount of PhP3,000,000, but
absolved the bank directors and officers from solidary liability. The dispositive portion of
the CA decision reads as follows:
WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and
the October 19, 2000 [sic] Special Order of the RTC of Bago City, Branch 62, 86 are hereby
ANNULLED AND SET ASIDE. However, the plaintiff-appellee [Peña] in CA GR CV No.
65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as
reasonable compensation for his efforts in clearing Urban Bank’s property of unlawful
occupants. The award of exemplary damages, attorney’s fees and costs of suit are deleted,
the same not having been sufficiently proven. The petition for Indirect Contempt against all
the respondents is DISMISSED for utter lack of merit. 87 (Emphasis supplied)
Peña duly filed a Motion for Reconsideration of the unfavorable CA Decision. 88 The
appellate court, however, denied his motion.89 The CA Decision and Resolution were
appealed by Peña to this Court, through one of the three consolidated Rule 45 Petitions
before us (G. R. No. 162562).
Execution Pending Appeal
On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank and individual
bank officers,90 Peña moved for execution pending appeal91 of the Decision rendered by
the RTC-Bago City,92 which had awarded him a total of PhP28,500,000 in compensation
and damages.93
In supporting his prayer for discretionary execution, Peña cited the pending separate civil
action for collection filed against him by his creditor-friend, who was demanding payment
of a PhP3,000,000 loan.94 According to Peña, he had used the proceeds of the loan for
securing the bank’s Pasay property. No other reason for the prayer for execution pending
appeal was given by Peña other than this collection suit.95
In opposition to the motion, Urban Bank countered that the collection case was not a
sufficient reason for allowing execution pending appeal.96
On 29 October 1999, the RTC-Bago City, through Judge Henry J. Trocino,97 favorably
granted Peña’s motion and issued a Special Order authorizing execution pending
appeal.98 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of
court and ex officio sheriff, issued a Writ of Execution99 on the same day.100The Special
Order and Writ of Execution were directed at the properties owned by Urban Bank as well
as the properties of the eight individual bank directors and officers.
On 04 November 1999, affected by the trial court’s grant of execution pending appeal,
Urban Bank101 filed a Rule 65 Petition with the CA to enjoin the Special Order and Writ of
Execution issued by the trial court with a prayer for a TRO. 102
On 09 November 1999, the appellate court favorably granted the TRO and preliminarily
prohibited the implementation of the Special Order and Writ of Execution. 103
On 12 January 2000, the CA eventually granted Urban Bank’s Rule 65 Petition, and the
RTC’s Special Order and Writ of Execution, which permitted execution pending appeal,
were annulled. The appellate court ruled:104
WHEREFORE, the instant petition is GRANTED. The Special Order and writ of execution,
both dated October 29, 1999, are ANNULLED and SET ASIDE.
Respondents are directed to desist from further implementing the writ of execution and to
lift the garnishment and levy made pursuant thereto. 105
On 02 February 2000, Peña moved for the reconsideration of the CA’s Decision;106 while
petitioners filed their corresponding Comment/Opposition
thereto.107
During the pendency of Peña’s Motion for Reconsideration, Urban Bank declared a bank
holiday on 26 April 2000 and was placed under receivership of the Philippine Deposit
Insurance Corporation (PDIC).108
In its Amended Decision dated 18 August 2000, the CA109 favorably granted Peña’s Motion
for Reconsideration, and reversed its earlier Decision to allow execution pending
appeal.110 The appellate court found that the bank holiday declared by the BSP after the
promulgation of its earlier Decision, PDIC’s receivership of Urban Bank, and the imminent
insolvency thereof constituted changes in the bank’s conditions that would justify execution
pending appeal.111
On 29 August 2000, Urban Bank and its officers moved for the reconsideration of the
Amended Decision.112 The De Leon Group subsequently filed several Supplemental Motions
for Reconsideration.113 Thereafter, respondents Teodoro Borlongan and Corazon M. Bejasa
also filed their separate Supplemental Motion for Reconsideration, 114 as did petitioner Ben
T. Lim, Jr.115
On 19 October 2000, the Court of Appeals denied the motion for reconsideration for lack
of merit and the other subsequent Supplemental Motions for Reconsideration for being filed
out of time.116 The appellate court also ordered Peña to post an indemnity bond.117 The
Amended Decision and the Resolution were the subjects of several Rule 45 Petitions filed by
Urban Bank and individual petitioners (G. R. Nos. 145817, 145818 and 145822).
On the same day the CA denied its Motion for Reconsideration, the De Leon Group
immediately moved for the stay of execution pending appeal upon the filing of a
supersedeas bond.118
On 31 October 2000, the CA119 granted the stay of the execution upon the filing by the De
Leon Group of a PhP40,000,000 bond in favor of Peña.120 Peña moved for the
reconsideration of the stay order.121
1avvphil
In its Resolution dated 08 December 2000,122 the appellate court denied Peña’s Motion for
Reconsideration and a stay order over the execution pending appeal was issued in favor of
the De Leon Group, after they had filed their supersedeas bond.123 The stay of execution
pending appeal, however, excluded Urban Bank.124
On 08 December 2000, Peña posted his indemnity bond as required by the CA. 125
As mentioned earlier, Urban Bank, the De Leon Group, and the Borlongan Group filed
around December 2000 separate Rule 45 Petitions in this Court, to assail the unfavorable
CA Amended Decision and Resolution that affirmed the execution pending appeal. The
details of these Rule 45 Petitions will be discussed in detail later on.
 In the meantime, Export and Industry Bank (EIB) submitted its proposal for rehabilitation of Roberto Ignacio, and
Urban Bank to the BSP, and requested that the troubled bank be removed from Atty. Ramon Ereñeta.
receivership of the PDIC. On 12 July 2001, or almost a year after the Court of Appeals
amended its decision to allow execution pending appeal, the rehabilitation plan of Urban 85 Condominium Units The highest bid price 85,000,000 Intervenor Unimega
Bank was approved by the Monetary Board of the BSP.126 Thus, the Monetary Board in the Urban Bank obtained for the purchased the 10
subsequently lifted PDIC’s statutory receivership of the bank. 127 Plaza, Makati City138 condominium units was condominium units in
PhP1M at the time of the the auction sale for
On 14 September 2001, Urban Bank, trying to follow the lead of the De Leon Group, execution sale.139 P1M each or a total
made a similar request with the Court of Appeals for approval of its own supersedeas of P10 M.140
bond,128 for the same amount of PhP40,000,000, and prayed that the execution of the A 155 sqm. 12,400,000
RTC-Bago City’s Decision against it be stayed as well.129 condominium unit,
Makati City (CCT No.
Sometime in September and October 2001, Urban Bank began receiving notices of levy 57697) 141
and garnishment over its properties. After it received Notice of the impending public
A 12.5 sqm. Estimates are based on 500,000
execution sale of its shares in the Tagaytay Highlands International Golf Club, 130 Urban
condominium parking report of Urban Bank142
Bank reiterated its request for the approval of the supersedeas bond with the Court of
Appeals and the issuance of the corresponding stay order. 131 space (Parking Three,
Unit P-46) in Makati
City (CCT No.
The appellate court, however, merely noted Urban Bank’s motion on the ground that there
was no showing whether a petition to the Supreme Court had been filed or given due course 57698)143
or denied.132 A 64,677 sqm. land in Value based on estimate 35,572,350
Tagaytay City (TCT of Urban Bank145
After the denial by the Court of Appeals of Urban Bank’s motion for approval of its No. 20471)144
supersedeas bond, some of the levied properties of Urban Bank and the other bank officers
were sold on public auction. The table below lists the properties that appear on record to Borlongan’s club share Notice of Sale on
One Club Share in
have been levied and/or sold on execution pending appeal and the approximate value of was estimated to be Execution on Personal
Manila Polo Club (No. 1,000,000
some of these properties. They do not include properties covered by the Petition docketed valued at Property dated 25
3433)146
as G. R. No. 145818. P1,000,000.147 August 2000148
One Club Share in One club share was 500,000
Table of Levied, Garnished and/or Executed Properties Pending Appeal Subic Bay Yacht estimated to be valued
Club149 at P500,000.150
1avvphi1 One Club Share in As of 06 December 870,000
Owner/ Property Description Estimated Value or Price Total Amount Remarks
Teodoro Baguio Country 1999, one share was
Defendant at Public Auction Borlongan Club151 selling at P870,000.152
Three Club Shares One Club Share in As of 06 December 650,000
As of 06 December
Tagaytay Highlands MSCI153 1999, MSCI Club Shares
1999, one share was 4,800,000
International Golf "A" and "B" were selling
selling at P1.6 Million.134
Club133 at PhP650,000 and
PhP700,000
Urban Bank Three Club Shares in As of 06 December 2,000,000137 Atty. Peña was one respectively.154
Makati Sports, Club, 1999, MSCI Club Shares of the winning
Inc. (MSCI) [Covered "A" and "B" were selling bidders in the auction Real Property155 No estimate available on
by Stock Certificate at PhP650,000 and sale together with his record.
Nos. A-1893, A-2305 PhP700,000, creditor friend,
and B-762]135 respectively.136
 Gonzales’ club share Notice of Sale on One Club Share in Lee’s club share was 15,750,000
One Club Share in
was estimated to be Execution on Personal Manila Golf Club, estimated to be valued
Manila Polo Club (No. 4,000,000
valued at Property dated 25 Inc.177 at P15,750,000.178
3818)156
P4,000,000.157 August 2000158
One Club Share in Sta. Lee’s club share was 2,000,000
One Club Share in Gonzales’ club share 1,077,000 Elena Golf Club, Inc. estimated to be valued
Baguio Country was estimated to be (Class "A" Share) 179 at P2,000,000.180
Club.159 valued at
P1,077,000.160 Two Club Shares in Lee’s club shares were 1,000,000 Notice of Sale on
Tagaytay Highlands estimated to be valued Execution on Personal
Delfin C. One Club Share in Gonzales’ club share 2,000,000 Int’l Golf Club, Inc. 181 at P1,000,000.182 Property dated 25
Gonzales, Jr. Alabang Country Club was estimated to be August 2000183
(Member No. 550)161 valued at
P2,000,000.162 One Club Share in Lee’s club share was 500,000
Subic Yacht Club184 estimated to be valued
30,585 shares of stock P20.00 per share164 611,700 at P500,000.185
in D. C. Gonzales, Jr.,
Inc. 163 60,757 Shares of P20.00 per share 1,214,140
stock in EQL
40 Shares of stock in P50.00 per share166 2,000 Properties, Inc.186
D. C. Gonzales, Jr.,
Inc.165 40 Shares of stock in P50.00 per share 2,000
EQL Properties, Inc. 187
De Leon’s Share was
One Club Share in Notice of Sale on Cash garnished from 100,000
estimated at P4 M for
Manila Polo Club (with Execution on Personal BPI Account188
the share and P1.05 M 5,050,000
Associate Membership) Property dated 25
for the associate No records available
[No. 0597]167 August 2000169
membership.168 as to properties
One Club Share in De Leon’s share was 450,000 Ben T. Lim, Jr. levied, garnished or
Benjamin L. de executed pending
MSCI (Stock estimated at
Leon appeal.
Certificate No. A- P450,000.171
175)170 Corazon Bejasa Real Property189 No estimated value.
One Club Share in As of 06 December 870,000 Arturo Manuel, Jr., Real Property190 No estimated value.
Baguio Country Club 1999, one share was
(5523)172 selling at least TOTAL VALUE 181,919,190
P870,000.173
No records available The sum of PhP181,919,190 does not include many other properties and it is not difficult to
as to properties believe that the total value covered reached more than that.191 In summary, the estimated
P. Siervo G. Dizon levied, garnished or values and/or purchase prices at the auction sale of the properties of Urban Bank and its
executed pending officers amounted to no less than PhP181,919,190 already. This amounts to almost six times
appeal. the value of the award given by the trial court. Otherwise stated, Peña, as judgment
creditor, was overly secured by the levied and/or garnished properties for the amount of
Notice of Sale on PhP28,500,000, where the judgment award was still subject of reversal on appeal.
One Club Share in Lee’s’ club share was
Execution on Personal
Eric L. Lee Manila Polo Club estimated to be valued 4,000,000
Property dated 25
(2038)174 at P4,000,000.175 On 22 October 2001, Urban Bank, with respect to its pending Rule 45 Petition in this Court,
August 2000176
moved for the approval of its PhP40,000,000 supersedeas bond 192 and requested that the
Court stay the execution pending appeal.193Peña opposed the motion on the ground that it
had already been rendered moot and academic by the sale of the properties of the
bank.194
On 23 October 2002, or almost a year after some of the condominium units were sold in a
public auction, EIB, as the successor of Urban Bank, expressed to the sheriff of RTC-Bago
City an intent to redeem the said condominium units.195 Thus, EIB tendered three manager’s
checks in the total amount of PhP22,108,800196 to redeem the properties that were
previously under the name of Urban Bank.197 Although the trial court noted the bank’s
Manifestation,198 the sheriff returned the EIB’s manager’s checks. Thus, on 29 October 2002,
EIB, through a motion, was prompted to turn over the checks to the trial court itself. 199
When Urban Bank supposedly failed to redeem the condominium units according to the
sheriff,200 final Certificates of Sale were issued in favor of Unimega on 04 November
2002.201 Upon the latter’s motion, RTC-Bago City, in its Order dated 13 November 2002,
ordered the Register of Deeds of Makati to transfer the Condominium Certificates of Title to
the name of Unimega.202 It has not been shown, though, whether this Order was followed.
This Court, acting on Urban Bank’s earlier motion to approve its supersedeas bond, granted
the same in its Resolution dated 19 November 2001.203 Peña moved for reconsideration of
the approval,204 but his motion was subsequently denied by the Court.205
Proceedings in the Supreme Court (G. R. Nos. 145817, 145818 & 145822)
On 21 December 2000, Urban Bank,206 represented by its receiver, PDIC,207 filed a Rule
45 Petition with this Court (docketed as G. R. No. 145817) to assail the CA’s Amended
Decision and Resolution granting execution pending appeal. 208 In response, Peña moved for
the denial of the petition on the grounds of lack merit, violation of the rule against forum
shopping, and non-payment of docket fees, among others.209 In a separate
Comment,210 Peña also argued that the appellate court had committed no error when it
considered the bank’s "imminent insolvency" as a good reason for upholding the validity of
the execution pending appeal.
On the other hand, the Borlongan Group211 filed a separate Rule 45 Petition questioning
the same Decision and Resolution, docketed as G. R. No. 145818. 212 This Court initially
denied their petition on the ground that it failed to sufficiently show that the CA committed
reversible order.213 The Borlongan Group twice moved for the reconsideration of the denial
of their petition; but the Court nonetheless denied both motions for lack of merit. 214This
denial of the petition in G. R. No. 145818 became final and executory, with the issuance of
the Entry of Judgment.215
Meanwhile, another Rule 45 Petition (G. R. No. 145822) 216 was filed by the De Leon
Group, assailing the same Decisions of the appellate court. The Court also preliminarily
denied this petition on the ground that the De Leon Group failed to file the appeal within
the reglementary period and to pay certain fees.217
Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by the De Leon Group,
the Court nonetheless ordered that the case be consolidated with Urban Bank’s own Rule 45
Petition in G. R. No. 145817.218 The Court subsequently gave due course to both of these
petitions.219 In compliance with the Court’s Order,220 Urban Bank221 and the De Leon
Group222 filed their respective Memoranda.
As detailed earlier, the Court granted and approved Urban Bank’s supersedeas bond and
stayed the execution pending appeal.
Considering the favorable stay of execution pending appeal, EIB, as the new owner and
successor of Urban Bank, immediately wrote to tell223 the corporate secretary of MSCI not
to effect the cancellation or transfer of Urban Bank’s three MSCI stock certificates previously
sold in a public auction. 224 In reply, MSCI explained that since there was no injunction or
stay order, it had no other option but to comply with the trial court’s Order for the transfer.
Eventually, however, it could not effect the transfer of one of the shares to Peña because a
club share had already been previously registered in his name, and the club’s bylaws
prohibited a natural person from owning more than one share.225 Meanwhile, one of the
winning bidders in the public auction sale of the MSCI shares wrote to the latter to demand
that the club share previously owned by Urban Bank be transferred to him.226
On 04 February 2002, considering the conflicting claims of Urban Bank (through EIB) and
the winning bidders of the club shares, MSCI filed a Motion for Clarification of the Court’s
Resolution staying the execution pending appeal.227
In its Motion for Clarification dated 06 August 2002, Urban Bank likewise requested
clarification of whether the stay order suspended, as well, its right to redeem the properties
sold at a public auction.228 The copy of Urban Bank’s motion for clarification intended for
Peña was mistakenly sent to the wrong counsel.
In its Resolution dated 13 November 2002, the Court explained that its earlier stay order
prohibited the MSCI from transferring the shares, and that the one-year period for
redemption of the bank’s properties was likewise suspended:
WHEREFORE, the Court hereby RESOLVES to clarify that as a consequence of its approval
of the supersedeas bond, the running of the one-year period for petitioner Urban Bank to
redeem the properties sold at the public auctions held on October 4, 11 and 25, 2001 as
well as the consolidation of the titles in favor of the buyers, is SUSPENDED OR STAYED.
MSCI is also prohibited from transferring petitioner Urban Bank’s MSCI club shares to the
winning bidders in the execution sale held on October 11, 2001. 229 (Emphasis supplied)
On 09 December 2002, Peña moved that the Court’s Resolution be recalled, because he
was not given an opportunity to be heard on Urban Bank’s Motion for Clarification, which
was sent to a different counsel.230Interposing its objection, the bank argued that the error in
mistakenly sending the Motion for clarification to a different counsel was by sheer
inadvertence,231 but Peña was nonetheless aware of the motion, and that the
Court’s clarification did not create or diminish his rights in any case. 232
The Motion for Clarification filed by Urban Bank, the Court’s Resolution dated 13 November
2002 and Peña’s Omnibus Motion praying for the recall of the said Resolution became the
subject of an administrative case (Administrative Case No. 6332), which was treated as a
separate matter and later on de-consolidated with the instant Petitions.233 The Court had
even called for an executive session234 in which Peña, among others, appeared and was
questioned by the then members of the Court’s First Division, namely retired Chief Justice
Hilario Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna. Although the
Petitions had earlier been assigned to Justice Carpio, he has since taken no part in the
proceedings of this case and this resulted in the re-raffling of the Petitions. The transfer and
unloading of the case by the subsequently assigned Justices as well as Peña’s numerous
motions for inhibition and/or re-raffle has likewise cause considerable delay in the
disposition of the instant Petitions and the Administrative Case.
Unimega, which was the winning bidder of some of the publicly executed condominium units
of Urban Bank, moved to intervene in the case and to have the Court’s same Resolution
suspending the one-year period of redemption of the properties be
reconsidered.235 Unimega claimed that ownership of the bank’s titles to the 10 condominium
units had already been transferred to the former at the time the Court issued the Resolution;
and, thus, there was no more execution to be suspended or stayed. Only Urban
Bank236 opposed the motion237 of intervenor Unimega on the ground that the latter was not
a buyer in good faith, and that the purchase price was grossly disproportional to the fair
market value of the condominium units.238
The Court eventually granted the Motion to Intervene considering that the intervenor’s title to
the condominium units purchased at the public auction would be affected, favorably or
otherwise, by the judgment of the Court in this case. However, it held in abeyance the
resolution of intervenor’s Motion for Reconsideration, which might preempt the decision with
respect to the propriety of execution pending appeal.239 Thereafter, the bank adopted its
earlier Opposition to the intervention as its answer to Unimega’s petition-in-
intervention.240 Also in answer thereto, the De Leon Group adopted its earlier Manifestation
and Comment.241
Intervenor Unimega then requested that a writ of possession be issued in its favor covering
the 10 condominium units sold during the public auction.242 The Court required the parties to
file their comments on the request.243 The Lim244 and Borlongan Groups245 manifested
separately that they would not be affected by a resolution of the request of intervenor
Unimega, since the latter was not among the contending parties to the incident. Peña
similarly interposed no objection to the issuance of the writ of possession. 246 In contrast,
Urban Bank opposed the application of Unimega on the ground that the latter was not
entitled to possession of the levied properties, because the rules of extrajudicial foreclosure
were not applicable to execution sales under Rule 39, and that intervenor was also not a
buyer in good faith.247 In a similar vein, the De Leon Group opposed the application for a
writ of possession, and further argued that the Court had already suspended the running of
the one-year period of redemption in the execution sale.248 Accordingly, intervenor
Unimega countered that the right of redemption of the levied properties had already
expired without having been exercised by the judgment debtor.249
In summary, the Court shall resolve the substantial issues in the following: (a) the Petition of
Peña (G. R. No. 162562) assailing the CA’s decision on the substantive merits of the case
with respect to his claims of compensation based on an agency agreement; and (b) the
Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822)
questioning the propriety of the grant of execution pending appeal.
OUR RULING
I
Peña is entitled to payment for compensation for services rendered as agent of Urban
Bank, but on the basis of the principles of unjust enrichment and quantum meruit, and not on
the purported oral contract.
The Court finds that Peña should be paid for services rendered under the agency
relationship that existed between him and Urban Bank based on the civil law principle
against unjust enrichment, but the amount of payment he is entitled to should be made,
again, under the principle against unjust enrichment and on the basis of quantum meruit.
In a contract of agency, agents bind themselves to render some service or to do something
in representation or on behalf of the principal, with the consent or authority of the
latter.250 The basis of the civil law relationship of agency is representation, 251 the elements
of which include the following: (a) the relationship is established by the parties’ consent,
express or implied; (b) the object is the execution of a juridical act in relation to a third
person; (c) agents act as representatives and not for themselves; and (d) agents act within
the scope of their authority.252
Whether or not an agency has been created is determined by the fact that one is
representing and acting for another.253 The law makes no presumption of agency; proving
its existence, nature and extent is incumbent upon the person alleging it. 254
With respect to the status of Atty. Peña’s relationship with Urban Bank, the trial and the
appellate courts made conflicting findings that shall be reconciled by the Court. On one
end, the appellate court made a definitive ruling that no agency relationship existed at all
between Peña and the bank, despite the services performed by Peña with respect to the
Pasay property purchased by the bank. Although the Court of Appeals ruled against an
award of agent’s compensation, it still saw fit to award Peña with Ph3,000,000 for
expenses incurred for his efforts in clearing the Pasay property of tenants. 255 On the other
extreme, the trial court heavily relied on the sole telephone conversation between Peña and
Urban Bank’s President to establish that the principal-agent relationship created between
them included an agreement to pay Peña the huge amount of PhP24,000,000. In its
defense, Urban Bank insisted that Peña was never an agent of the bank, but an agent of
ISCI, since the latter, as seller of the Pasay property committed to transferring it free from
tenants. Meanwhile, Peña argues on the basis of his successful and peaceful ejectment of the
sub-tenants, who previously occupied the Pasay property.
Based on the evidence on records and the proceedings below, the Court concludes that
Urban Bank constituted Atty. Peña as its agent to secure possession of the Pasay property.
This conclusion, however, is not determinative of the basis of the amount of payment that
must be made to him by the bank. The context in which the agency was created lays the
basis for the amount of compensation Atty. Peña is entitled to.
The transactional history and context of the sale between ISCI and Urban Bank of the Pasay
property, and Atty. Peña’s participation in the transfer of possession thereof to Urban Bank
provide crucial linkages that establish the nature of the relationship between the lawyer
and the landowner-bank.
The evidence reveals that at the time that the Contract to Sell was executed on 15
November 1994, and even when the Deed of Absolute Sale was executed two weeks later
on 29 November 1994, as far as Urban Bank was concerned, Peña was nowhere in the
picture. All discussions and correspondences were between the President and Corporate
Secretary of Urban Bank, on one hand, and the President of ISCI, on the other. The title to
the Pasay property was transferred to Urban Bank on 5 December 1994. Interestingly,
Peña testifies that it was only on 19 December 1994 that he learned that the land had
already been sold by ISCI to Urban Bank, notwithstanding the fact that Peña was a director
of ISCI. Peña was not asked to render any service for Urban Bank, neither did he perform
any service for Urban Bank at that point.
ISCI undertook in the Contract to Sell, to physically deliver the property to Urban Bank,
within 60 days from 29 November 1994,256 under conditions of "full and actual possession
and control ..., free from tenants, occupants, squatters or other structures or from any liens,
encumbrances, easements or any other obstruction or impediment to the free use and
occupancy by the buyer of the subject Property or its exercise of the rights to ownership
over the subject Property...."257 To guarantee this undertaking, ISCI agreed to the escrow
provision where PhP25,000,000 (which is a little over 10% of the value of the Pasay
property) would be withheld by Urban Bank from the total contract price until there is full
compliance with this undertaking.
Apparently to ensure that ISCI is able to deliver the property physically clean to Urban
Bank, it was ISCI’s president, Enrique Montilla who directed on 26 November 1994 one of
its directors, Peña, to immediately recover and take possession of the property upon
expiration of the contract of lease on 29 November 1994. 258 Peña thus first came into the
picture as a director of ISCI who was constituted as its agent to recover the Pasay property
against the lessee as well as the sub-tenants who were occupying the property in violation
of the lease agreement.259 He was able to obtain possession of the property from the
lessee on the following day, but the unauthorized sub-tenants refused to vacate the
property.
It was only on 7 December 1994, that Urban Bank was informed of the services that Peña
was rendering for ISCI. The faxed letter from ISCI’s Marilyn Ong reads:
Atty. Magdaleno M. Peña, who has been assigned by Isabela Sugar Company, Inc., to
take charge of inspecting the tenants would like to request an authority similar to this from
the Bank, as new owners. Can you please issue something like this today as he needs this. 260
Two days later, on 9 December 1994, ISCI sent Urban Bank another letter that reads:
Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per
attached immediately – as the tenants are questioning the authority of the people there
who are helping us to take over possession of the property. (Emphasis supplied)261
It is clear from the above that ISCI was asking Urban Bank for help to comply with ISCI’s
own contractual obligation with the bank under the terms of the sale of the Pasay property.
Urban Bank could have ignored the request, since it was exclusively the obligation of ISCI,
as the seller, to deliver a clean property to Urban Bank without any help from the latter.
A full-bodied and confident interpretation of the contracts between ISCI and Urban Bank
should have led the latter to inform the unauthorized sub-tenants that under its obligation as
seller to Urban Bank, it was under duty and had continuing authority to recover clean
possession of the property, despite the transfer of title. Yet, what unauthorized sub-tenant,
especially in the kind of operations being conducted within the Pasay property, would care
to listen or even understand such argument?
Urban Bank thus chose to cooperate with ISCI without realizing the kind of trouble that it
would reap in the process. In an apparent attempt to allow the efforts of ISCI to secure the
property to succeed, it recognized Peña’s role in helping ISCI, but stopped short of granting
him authority to act on its behalf. In response to the two written requests of ISCI, Urban Bank
sent this letter to Peña on 15 December 1994:
This is to advise you that we have noted the engagement of your services by Isabela Sugar
Company to recover possession of the Roxas Boulevard property formerly covered by TCT
No. 5382, effective November 29, 1994. It is understood that your services have been
contracted by and your principal remains to be the Isabela Sugar Company, which as
seller of the property and under the terms of our Contract to Sell dated November 29,
1994, has committed to deliver the full and actual possession of the said property to the
buyer, Urban Bank, within the stipulated period. 262 (Emphasis supplied)
Up to this point, it is unmistakable that Urban Bank was staying clear from making any
contractual commitment to Peña and conveyed its sense that whatever responsibilities arose
in retaining Peña were to be shouldered by ISCI.
According to the RTC-Bago City, in the reversed Decision, Atty. Peña only knew of the sale
between ISCI and Urban Bank at the time the RTC-Pasay City recalled the TRO and issued
a break-open order:
"… when information reached the (Pasay City) judge that the Pasay property had already
been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a
break-open order for the property. According to Peña, it was the first time that he was
apprised of the sale of the land by ISCI and of the transfer of its title in favor of the
bank."263
There is something contradictory between some of the trial court’s factual findings and
Peña’s claim that it was only on 19 December 1994 that he first learned of the sale of the
property to Urban Bank. It is difficult to believe Peña on this point considering: (1) that he
was a board director of ISCI and a sale of this significant and valuable property of ISCI
requires the approval of the board of directors of ISCI; and (2) that ISCI twice requested
Urban Bank for authority to be issued in his favor (07 and 9 December 1994), 12 and 10
days before 19 December 1994, since it would be contrary to human experience for Peña
not to have been informed by an officer of ISCI beforehand that a request for authority for
him was being sent to Urban Bank.
The sequence of fast-moving developments, edged with a sense of panic, with respect to the
decision of the RTC-Pasay City to recall the temporary restraining order and issue a break-
open order on 19 December 1994 in the First Injunction Complaint, is highly enlightening to
this Court.
First, Peña allegedly called up the president of ISCI, Montilla, who, according to Peña,
confirmed to him that the Pasay property had indeed been sold to Urban Bank.
Second, Peña allegedly told Montilla that he (Peña) would be withdrawing his guards from
the property because of the break-open order from the RTC-Pasay City.
Third, Montilla requested Peña to suspend the withdrawal of the guards while ISCI gets in
touch with Urban Bank.
Fourth, apparently in view of Montilla’s efforts, Bejasa, an officer of Urban Bank called
Peña and according to the latter, told him that Urban Bank would continue retaining his
services and for him to please continue with his effort to secure the property.
Fifth, this statement of Bejasa was not enough for Peña and he insisted that he be enabled
to talk with no less than the President of Urban Bank, Borlongan. At this point, Bejasa gave
him the phone number of Borlongan.
Sixth, immediately after the conversation with Bejasa, Peña calls Borlongan and tells
Borlongan that violence might erupt in the property because the Pasay City policemen, who
were sympathetic to the tenants, were threatening to force their way through the property.
At this point, if indeed this conversation took place, which Borlongan contests, what would
have been the response of Borlongan? Any prudent president of a bank, which has just
purchased a PhP240,000,000 property plagued by unauthorized and unruly sub-tenants of
the previous owner, would have sought to continue the possession of ISCI, thru Peña, and he
would have agreed to the reasonable requests of Peña. Borlongan could also have said
that the problem of having the sub-tenants ejected is completely ISCI’s and ISCI should
resolve the matter on its own that without bothering the bank, with all its other problems. But
the specter of violence, especially as night was approaching in a newly-bought property of
Urban Bank, was not something that any publicly-listed bank would want publicized. To the
extent that the violence could be prevented by the president of Urban Bank, it is expected
that he would opt to have it prevented.
But could such response embrace the following legal consequences as Peña claims to have
arisen from the telephone conversation with Borlongan: (1) A contract of agency was
created between Peña and Urban Bank whereby Borlongan agreed to retain the services
of Peña directly; (2) This contract of agency was to be embodied in a written letter of
authority from Urban Bank; and (3) The agency fee of Peña was to be 10% of the market
value as "attorney’s fees and compensation" and reimbursement of all expenses of Peña
from the time he took over the land until possession is turned over to Urban Bank.
This Court concludes that the legal consequences described in statements (1) and (2) above
indeed took place and that the facts support them. However, the evidence does not support
Peña’s claim that Urban Bank agreed to "attorney’s fees and compensation" of 10% of the
market value of the property.
Urban Bank’s letter dated 19 December 1994 confirmed in no uncertain terms Peña’s
designation as its authorized representative to secure and maintain possession of the Pasay
property against the tenants. Under the terms of the letter, petitioner-respondent bank
confirmed his engagement (a) "to hold and maintain possession" of the Pasay property; (b)
"to protect the same from former tenants, occupants or any other person who are
threatening to return to the said property and/or interfere with your possession of the said
property for and in our behalf"; and (c) to represent the bank in any instituted court action
intended to prevent any intruder from entering or staying in the premises. 264
These three express directives of petitioner-respondent bank’s letter admits of no other
construction than that a specific and special authority was given to Peña to act on behalf of
the bank with respect to the latter’s claims of ownership over the property against the
tenants. Having stipulated on the due execution and genuineness of the letter during
pretrial,265 the bank is bound by the terms thereof and is subject to the necessary
consequences of Peña’s reliance thereon. No amount of denial can overcome the
presumption that we give this letter – that it means what it says.
In any case, the subsequent actions of Urban Bank resulted in the ratification of Peña’s
authority as an agent acting on its behalf with respect to the Pasay property. By
ratification, even an unauthorized act of an agent becomes an authorized act of the
principal.266
Both sides readily admit that it was Peña who was responsible for clearing the property of
the tenants and other occupants, and who turned over possession of the Pasay property to
petitioner-respondent bank.267 When the latter received full and actual possession of the
property from him, it did not protest or refute his authority as an agent to do so. Neither
did Urban Bank contest Peña’s occupation of the premises, or his installation of security
guards at the site, starting from the expiry of the lease until the property was turned over
to the bank, by which time it had already been vested with ownership thereof. Furthermore,
when Peña filed the Second Injunction Complaint in the RTC-Makati City under the name of
petitioner-respondent bank, the latter did not interpose any objection or move to dismiss the
complaint on the basis of his lack of authority to represent its interest as the owner of the
property. When he successfully negotiated with the tenants regarding their departure from
its Pasay property, still no protest was heard from it. After possession was turned over to
the bank, the tenants accepted PhP1,500,000 from Peña, in "full and final settlement" of
their claims against Urban Bank, and not against ISCI.268
In all these instances, petitioner-respondent bank did not repudiate the actions of Peña,
even if it was fully aware of his representations to third parties on its behalf as owner of
the Pasay property. Its tacit acquiescence to his dealings with respect to the Pasay property
and the tenants spoke of its intent to ratify his actions, as if these were its own. Even
assuming arguendo that it issued no written authority, and that the oral contract was not
substantially established, the bank duly ratified his acts as its agent by its acquiescence and
acceptance of the benefits, namely, the peaceful turnover of possession of the property free
from sub-tenants.
Even if, however, Peña was constituted as the agent of Urban Bank, it does not necessarily
preclude that a third party would be liable for the payment of the agency fee of Peña. Nor
does it preclude the legal fact that Peña while an agent of Urban Bank, was also an agent
of ISCI, and that his agency from the latter never terminated. This is because the authority
given to Peña by both ISCI and Urban Bank was common – to secure the clean possession of
the property so that it may be turned over to Urban Bank. This is an ordinary legal
phenomenon – that an agent would be an agent for the purpose of pursuing a shared goal
so that the common objective of a transferor and a new transferee would be met.
Indeed, the Civil Code expressly acknowledged instances when two or more principals have
granted a power of attorney to an agent for a common transaction. 269 The agency
relationship between an agent and two principals may even be considered extinguished if
the object or the purpose of the agency is accomplished.270 In this case, Peña’s services as
an agent of both ISCI and Urban Bank were engaged for one shared purpose or
transaction, which was to deliver the property free from unauthorized sub-tenants to the
new owner – a task that Peña was able to achieve and is entitled to receive payment for.
That the agency between ISCI and Peña continued, that ISCI is to shoulder the agency fee
and reimbursement for costs of Peña, and that Urban Bank never agreed to pay him a 10%
agency fee is established and supported by the following:
First, the initial agency relationship between ISCI and Peña persisted. No proof was ever
offered that the letter of 26 November 1994 of Mr. Montilla of ISCI to Peña, for the latter
"to immediately recover and take possession of the property upon expiration of the contract
of lease on 29 November 1994" was terminated. It is axiomatic that the appointment of a
new agent for the same business or transaction revokes the previous agency from the day
on which notice thereof was given to the former agent.271 If it is true that the agency
relationship was to be borne by Urban Bank alone, Peña should have demonstrated that his
previous agency relationship with ISCI is incompatible with his new relationship with Urban
Bank, and was thus terminated.
Second, instead, what is on the record is that ISCI confirmed the continuation of this agency
between Peña and itself and committed to pay for the services of Peña, in its letter to
Urban Bank dated 19 December 1994 which reads:
In line with our warranties as the Seller of the said property and our undertaking to deliver
to you the full and actual possession and control of said property, free from tenants,
occupants or squatters and from any obstruction or impediment to the free use and
occupancy of the property by Urban Bank, we have engaged the services of Atty.
Magdaleno M. Peña to hold and maintain possession of the property and to prevent the
former tenants or occupants from entering or returning to the premises. In view of the
transfer of the ownership of the property to Urban Bank, it may be necessary for Urban
Bank to appoint Atty. Peña likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property and to represent Urban Bank
in any court action that may be instituted for the abovementioned purposes.
It is understood that any attorney’s fees, cost of litigation and any other charges or
expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned
duties shall be for the account of Isabela Sugar Company and any loss or damage that
may be incurred to third parties shall be answerable by Isabela Sugar
Company.272 (Emphasis supplied)
Third, Peña has never shown any written confirmation of his 10% agency fee, whether in a
note, letter, memorandum or board resolution of Urban Bank. An agency fee amounting to
PhP24,000,000 is not a trifling amount, and corporations do not grant their presidents
unilateral authority to bind the corporation to such an amount, especially not a banking
corporation which is closely supervised by the BSP for being a business seriously imbued
with public interest. There is nothing on record except the self-serving testimony of Peña that
Borlongan agreed to pay him this amount in the controverted telephone conversation.
Fourth, while ordinarily, uncontradicted testimony will be accorded its full weight, we cannot
grant full probative value to the testimony of Peña for the following reasons: (a) Peña is not
a credible witness for testifying that he only learned of the sale of the property of 19
December 1994 when the acts of ISCI, of Urban Bank and his own up to that point all
indicated that he must have known about the sale to Urban Bank; and (b) it is incredible that
Urban Bank will agree to add another PhP24,000,000 to the cost of the property by
agreeing to the agency fee demanded by Peña. No prudent and reasonable person would
agree to expose his corporation to a new liability of PhP24,000,000 even if, in this case, a
refusal would lead to the Pasay City policemen and unauthorized sub-tenants entering the
guarded property and would possibly erupt in violence.
Peña’s account of an oral agreement with Urban Bank for the payment of PhP24,000,000 is
just too much for any court to believe. Whatever may be the agreement between Peña and
ISCI for compensation is not before this Court. This is not to say, however, that Urban Bank
has no liability to Peña. It has. Payment to him is required because the Civil Code demands
that no one should be unjustly enriched at the expense of another. This payment is to be
measured by the standards of quantum meruit.
Amount of Compensation
Agency is presumed to be for compensation. But because in this case we find no evidence
that Urban Bank agreed to pay Peña a specific amount or percentage of amount for his
services, we turn to the principle against unjust enrichment and on the basis of quantum
meruit.
Since there was no written agreement with respect to the compensation due and owed to
Atty. Peña under the letter dated 19 December 1994, the Court will resort to determining
the amount based on the well-established rules on quantum meruit.
Agency is presumed to be for compensation.273 Unless the contrary intent is shown, a person
who acts as an agent does so with the expectation of payment according to the agreement
and to the services rendered or results effected.274 We find that the agency of Peña
comprised of services ordinarily performed by a lawyer who is tasked with the job of
ensuring clean possession by the owner of a property. We thus measure what he is entitled
to for the legal services rendered.
A stipulation on a lawyer’s compensation in a written contract for professional services
ordinarily controls the amount of fees that the contracting lawyer may be allowed to collect,
unless the court finds the amount to be unconscionable. 275 In the absence of a written
contract for professional services, the attorney’s fees are fixed on the basis of quantum
meruit,276 i.e., the reasonable worth of the attorney’s services.277 When an agent performs
services for a principal at the latter’s request, the law will normally imply a promise on the
part of the principal to pay for the reasonable worth of those services. 278 The intent of a
principal to compensate the agent for services performed on behalf of the former will be
inferred from the principal’s request for the agents.279
In this instance, no extra-ordinary skills employing advanced legal training nor sophisticated
legal maneuvering were required to be employed in ejecting 23 sub-tenants who have no
lease contract with the property owner, and whose only authority to enter the premises was
unlawfully given by a former tenant whose own tenancy has clearly expired. The 23 sub-
tenants operated beer houses and nightclubs, ordinary retail establishments for which no
sophisticated structure prevented easy entry. After Peña succeeded in locking the gate of
the compound, the sub-tenants would open the padlock and resume their businesses at night.
Indeed, it appears that only security guards, chains and padlocks were needed to keep
them out. It was only the alleged connivance of Pasay City policemen that Peña’s ability to
retain the possession was rendered insecure. And how much did it take Peña to enter into a
settlement agreement with them and make all these problems go away? By Peña’s own
account, PhP1,500,000 only. That means that each tenant received an average of
PhP65,217.40 only. Surely, the legal services of Peña cannot be much more than what the
sub-tenants were willing to settle for in the first place. We therefore award him the
equivalent amount of PhP1,500,000 for the legal and other related services he rendered to
eject the illegally staying tenants of Urban Bank’s property.
The Court of Appeals correctly reversed the trial court and found it to have acted with
grave abuse of discretion in granting astounding monetary awards amounting to a total of
PhP28,500,000 without any basis.280 For the lower court to have latched on to the self-
serving claims of a telephone agreement as sufficient support for extending a multi-million
peso award is highly irregular. Absent any clear basis for the amount of the lawyer’s
compensation, the trial court should have instinctively resorted to quantum meruit, instead of
insisting on a figure with circumstantial and spurious justification.
We cannot also agree with the Decision penned by Judge Edgardo L. Catilo characterizing
Pena’s 10% fee as believable because it is nearly congruent to the PhP25 Million retention
money held in escrow for ISCI until a clean physical and legal turn-over of the property is
effected:
We now come to the reasonableness of the compensation prayed for by the plaintiff which
is 10% of the current market value which defendants claim to be preposterous and
glaringly excessive. Plaintiff [Peña] testified that defendant Borlongan agreed to such an
amount and this has not been denied by Ted Borlongan. The term "current market value of
the property" is hereby interpreted by the court to mean the current market value of the
property at the time the contract was entered into. To interpret it in accordance with the
submission of the plaintiff that it is the current market value of the property at the time
payment is made would be preposterous. The only evidence on record where the court can
determine the market value of the property at the time the contract of agency was entered
into between plaintiff and defendant is the consideration stated in the sales agreement
between Isabela Sugar Company, Inc. and Urban bank which is ₱241,612,000.00. Ten
percent of this amount is a reasonable compensation of the services rendered by the
plaintiff considering the "no cure, no pay" arrangement between the parties and the risks
which plaintiff had to undertake.281
In the first place, the Decision of Judge Catilo makes Peña’s demand of an agency fee of
PhP24 Million, an additional burden on Urban Bank. The Decision does not make the
retention money responsible for the same, or acquit Urban Bank of any liability to ISCI if it
pays the PhP24 Million directly to Pena instead of ISCI. In the second place, the amount of
money that is retained by transferees of property transactions while the transferor is
undertaking acts to ensure a clean and peaceful transfer to the transferee does not
normally approximate a one-to-one relationship to the services of ejecting unwanted
occupants. They may be inclusive of other costs, and not only legal costs, with enough
allowances for contingencies, and may take into consideration other liabilities as well. The
amount can even be entirely arbitrary, and may have been caused by the practice
followed by Urban Bank as advised by its officers and lawyers or by industry practice in
cases where an expensive property has some tenancy problems. In other words, Judge
Catilo’s statement is a non sequitur, is contrary to normal human experience, and sounds like
an argument being made to fit Peña’s demand for a shocking pay-out.
In any case, 10% of the purchase price of the Pasay property – a staggering
PhP24,161,200 – is an unconscionable amount, which we find reason to reduce. Neither will
the Court accede to the settlement offer of Peña to Urban Bank of at least PhP38,000,000
for alleged legal expenses incurred during the course of the proceedings, 282 an amount that
he has not substantiated at any time.
Lawyering is not a business; it is a profession in which duty to public service, not money, is
the primary consideration.283 The principle of quantum meruit applies if lawyers are
employed without a price agreed upon for their services, in which case they would be
entitled to receive what they merit for their services, or as much as they have earned.284 In
fixing a reasonable compensation for the services rendered by a lawyer on the basis of
quantum meruit, one may consider factors such as the time spent and extent of services
rendered; novelty and difficulty of the questions involved; importance of the subject matter;
skill demanded; probability of losing other employment as a result of acceptance of the
proffered case; customary charges for similar services; amount involved in the controversy
and the resulting benefits for the client; certainty of compensation; character of
employment; and professional standing of the lawyer.285
Hence, the Court affirms the appellate court’s award of PhP3,000,000 to Peña, for
expenses incurred corresponding to the performance of his services. An additional award of
PhP1,500,000 is granted to him for the services he performed as a lawyer in securing the
rights of Urban Bank as owner of the Pasay property.
II
The corporate officers and directors of Urban Bank are not solidarily or personally liable
with their properties for the corporate liability of Urban Bank to Atty. Peña.
The obligation to pay Peña’s compensation, however, falls solely on Urban Bank. Absent
any proof that individual petitioners as bank officers acted in bad faith or with gross
negligence or assented to a patently unlawful act, they cannot be held solidarily liable
together with the corporation for services performed by the latter’s agent to secure
possession of the Pasay property. Thus, the trial court had indeed committed grave abuse of
discretion when it issued a ruling against the eight individual defendant bank directors and
officers and its Decision should be absolutely reversed and set aside.
A corporation, as a juridical entity, may act only through its directors, officers and
employees.286 Obligations incurred as a result of the acts of the directors and officers as
corporate agents are not their personal liabilities but those of the corporation they
represent.287 To hold a director or an officer personally liable for corporate obligations,
two requisites must concur: (1) the complainant must allege in the complaint that the director
or officer assented to patently unlawful acts of the corporation, or that the officer was
guilty of gross negligence or bad faith; and (2) the complainant must clearly and
convincingly prove such unlawful acts, negligence or bad faith. 288 "To hold a director, a
trustee or an officer personally liable for the debts of the corporation and, thus, pierce the
veil of corporate fiction, bad faith or gross negligence by the director, trustee or officer in
directing the corporate affairs must be established clearly and convincingly." 289
Peña failed to allege and convincingly show that individual defendant bank directors and
officers assented to patently unlawful acts of the bank, or that they were guilty of gross
negligence or bad faith. Contrary to his claim, the Complaint 290 in the lower court never
alleged that individual defendants acquiesced to an unlawful act or were grossly negligent
or acted in bad faith.291 Neither is there any specific allegation of gross negligence or
action in bad faith that is attributable to the individual defendants in performance of their
official duties.
In any event, Peña did not adduce any proof that the eight individual defendants
performed unlawful acts or were grossly negligent or in bad faith. Aside from the general
allegation that they were corporate officers or members of the board of directors of Urban
Bank, no specific acts were alleged and proved to warrant a finding of solidary liability. At
most, petitioners Borlongan, Bejasa and Manuel were identified as those who had processed
the agency agreement with Peña through their telephone conversations with him and/or
written authorization letter.
Aside from Borlongan, Bejasa and Manuel, Atty. Peña in the complaint pointed to no specific
act or circumstance to justify the inclusion of Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P.
Siervo H. Dizon, Eric L. Lee, and Ben T. Lim, Jr., except for the fact that they were members
of the Board of Directors of Urban Bank at that time. That the five other members of the
Board of Directors were excluded from Peña’s complaint highlights the peculiarity of their
inclusion. What is more, the complaint mistakenly included Ben Y. Lim, Jr., who had not even
been a member of the Board of Directors of Urban Bank. In any case, his father and
namesake, Ben T. Lim, Sr., who had been a director of the bank at that time, had already
passed away in 1997.
In ruling for the solidary liability of the other bank directors, the decision of the trial court
hinged solely on the purported admission of Arturo Manuel, Jr., that the transactions with
Atty. Peña were approved by the Board of Directors:
In this case, plaintiff testified as to the personal participation of defendants Ted Borlongan
and Corazon Bejasa in the subject transaction. On the other hand, with respect to the other
defendants, it was the defendants themselves, through witness Arturo Manuel, Jr., who
admitted that all the transactions involved in this case were approved by the board of
directors. Thus, the court has sufficient basis to hold the directors jointly and severally liable
with defendant Urban Bank, Inc.292 (Emphasis supplied)
The Decision of the RTC-Bago City must be utterly rejected on this point because its
conclusion of any cause of action, much less actual legal liability on the part of Urban Bank’s
corporate officers and directors are shorn of any factual finding. That they assented to the
transactions of the bank with respect to Atty. Peña’s services without any showing that these
corporate actions were patently unlawful or that the officers were guilty of gross
negligence or bad faith is insufficient to hold them solidarily liable with Urban Bank. It
seems absurd that the trial court will hold the impleaded selected members of the Board of
Directors only, but not the others who also purportedly approved the transactions. Neither is
the reason behind the finding of "solidariness" with Urban Bank in such liability explained at
all. It is void for completely being devoid of facts and the law on which the finding of
liability is based.
The Court of Appeals correctly rejected the claim of personal liability against the individual
petitioners when it held as follows:
The plaintiff-appellee’s complaint before the court a quo does not point to any particular
act of either one or all of the defendants-appellants that will subject them to personal
liability. His complaint merely asserts that defendant Borlongan and Atty. Bejasa acted for
and in behalf of Urban Bank in securing his services in protecting the bank’s newly acquired
property. Hence, We cannot allow the same.293
Peña had argued that individual defendant bank directors and officers should be held
personally and solidarily liable with petitioner-respondent bank, since they failed to argue
for limited corporate liability.294 The trial court subscribed to his reasoning and held that the
failure to resort to the said defense constituted a waiver on the part of individual
defendants.295 The Court is not persuaded.
As the complainant on the trial court level, Peña carried the burden of proving that the eight
individual defendants performed specific acts that would make them personally liable for
the obligations of the corporation. This he failed to do. He cannot capitalize on their
alleged failure to offer a defense, when he had not discharged his responsibility of
establishing their personal liabilities in the first place. This Court cannot sustain the individual
liabilities of the bank officers when Peña, at the onset, has not persuasively demonstrated
their assent to patently unlawful acts of the bank, or that they were guilty of gross
negligence or bad faith, regardless of the weaknesses of the defenses raised. This is too
basic a requirement that this Court must demand sufficient proof before we can disregard
the separate legal personality of the corporation from its offices.
Hence, only Urban Bank, not individual defendants, is liable to pay Peña’s compensation for
services he rendered in securing possession of the Pasay property. Its liability in this case is,
however, without prejudice to its possible claim against ISCI for reimbursement under their
separate agreements.
III
Considering the absolute nullification of the trial court’s Decision, the proceedings arising
from the execution pending appeal based on the said Decision is likewise completely
vacated.
Since the trial court’s main Decision awarding PhP28,500,000 in favor of Peña has been
nullified above, the execution pending appeal attendant thereto, as a result, no longer has
any leg to stand on and is thus completely vacated.
To recall, prior to the filing of Urban Bank of its notice of appeal in the main case, 296 Peña
moved on 07 June 1999 for execution pending appeal297 of the Decision,298 which had
awarded him a total of PhP28,500,000 in compensation and damages. 299 In supporting his
prayer for discretionary execution, Peña cited no other reason than the pending separate
civil action for collection filed against him by a creditor, who was demanding payment of a
PhP3,000,000 loan.300 According to him, he had used the proceeds of the loan for securing
the bank’s Pasay property.301 In opposition to the motion, Urban Bank countered that the
collection case was not a sufficient reason for allowing execution pending appeal. 302
Favorably acting on Peña’s motion, the RTC-Bago City, through Judge Henry J.
Trocino,303 issued a Special Order authorizing execution pending appeal on the basis of
Peña’s indebtedness to his creditor-friend.304 In accordance with this Special Order, Atty.
Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, expeditiously issued a
Writ of Execution on the same day.305 The trial court’s Special Order and Writ of Execution
were the subjects of a Rule 65 Petition filed by Urban Bank with the CA.306
Both the Special Order and Writ of Execution are nullified for two reasons:
(1) Since the Decision of the RTC-Bago City is completely vacated, all its issuances
pursuant to the Decision, including the Special Order and the Writ of Execution are
likewise vacated; and
(2) The Special Order authorizing execution pending appeal based on the
collection suit filed against Atty. Peña had no basis under the Rules of Court, and
the same infirmity thus afflicts the Writ of Execution issued pursuant thereto.
Since the Decision of the RTC-Bago City is vacated, all orders and writs pursuant thereto are
likewise vacated.
Considering that the Special Order and Writ of Execution was a result of the trial court’s
earlier award of PhP28,500,000, the nullification or complete reversal of the said award
necessarily translates to the vacation as well of the processes arising therefrom, including all
the proceedings for the execution pending appeal.
Considering the unconscionable award given by the trial court and the unjustified imposition
of solidary liability against the eight bank officers, the Court is vacating the Decision of the
RTC-Bago City Decision. The trial court erroneously made solidarily liable Urban Bank’s
directors and officers without even any allegations, much less proof, of any acts of bad
faith, negligence or malice in the performance of their duties. In addition, the trial court
mistakenly anchored its astounding award of damages amounting PhP28,500,000 on the
basis of the mere account of Atty. Peña of a telephone conversation, without even
considering the surrounding circumstances and the sheer disproportion to the legal services
rendered to the bank.
A void judgment never acquires finality.307 In contemplation of law, that void decision is
deemed non-existent.308Quod nullum est, nullum producit effectum.309 Hence, the validity of
the execution pending appeal will ultimately hinge on the court’s findings with respect to the
decision in which the execution is based.
Although discretionary execution can proceed independently while the appeal on the merits
is pending, the outcome of the main case will greatly impact the execution pending appeal,
especially in instances where as in this case, there is a complete reversal of the trial court’s
decision. Thus, if the decision on the merits is completely nullified, then the concomitant
execution pending appeal is likewise without any effect. In fact, the Rules of Court expressly
provide for the possibility of reversal, complete or partial, of a final judgment which has
been executed on appeal.310Precisely, the execution pending appeal does not bar the
continuance of the appeal on the merits, for the Rules of Court explicitly provide for
restitution according to equity and justice in case the executed judgment is reversed on
appeal.311
Considering that the Decision of the RTC-Bago City has been completely vacated and
declared null and void, it produces no effect whatsoever. Thus, the Special Order and its
concomitant Writ of Execution pending appeal is likewise annulled and is also without
effect. Consequently, all levies, garnishment and sales executed pending appeal are
declared null and void, with the concomitant duty of restitution under the Rules of Court, as
will be discussed later on.
In any case, the trial court’s grant of execution pending appeal lacks sufficient basis under
the law and jurisprudence.
We rule that the pendency of a collection suit by a third party creditor which credit was
obtained by the winning judgment creditor in another case, is not a sufficiently good reason
to allow execution pending appeal as the Rules of Court provide. Execution pending appeal
is an extraordinary remedy allowed only when there are reasons to believe that the
judgment debtor will not be able to satisfy the judgment debt if the appeals process will
still have to be awaited. It requires proof of circumstances such as insolvency or attempts to
escape, abscond or evade a just debt.
In Florendo v. Paramount Insurance, Corp.,312 the Court explained that the execution
pending appeal is an exception to the general rule that execution issues as a matter of
right, when a judgment has become final and executory:
As such exception, the court’s discretion in allowing it must be strictly construed and firmly
grounded on the existence of good reasons. "Good reasons," it has been held, consist of
compelling circumstances that justify immediate execution lest the judgment becomes illusory.
The circumstances must be superior, outweighing the injury or damages that might result
should the losing party secure a reversal of the judgment. Lesser reasons would make of
execution pending appeal, instead of an instrument of solicitude and justice, a tool of
oppression and inequity. (Emphasis supplied)
Indeed, the presence or the absence of good reasons remains the yardstick in allowing the
remedy of execution pending appeal, which should consist of exceptional circumstances of
such urgency as to outweigh the injury or damage that the losing party may suffer, should
the appealed judgment be reversed later.313 Thus, the Court held that even the financial
distress of the prevailing company is not sufficient reason to call for execution pending
appeal:
In addressing this issue, the Court must stress that the execution of a judgment before its
finality must be founded upon good reasons. The yardstick remains the presence or the
absence of good reasons consisting of exceptional circumstances of such urgency as to
outweigh the injury or damage that the losing party may suffer, should the appealed
judgment be reversed later. Good reason imports a superior circumstance that will outweigh
injury or damage to the adverse party. In the case at bar, petitioner failed to show
"paramount and compelling reasons of urgency and justice." Petitioner cites as good reason
merely the fact that "it is a small-time building contractor that could ill-afford the protracted
delay in the reimbursement of the advances it made for the aforesaid increased costs of . . .
construction of the [respondent's] buildings."
Petitioner's allegedly precarious financial condition, however, is not by itself a
jurisprudentially compelling circumstance warranting immediate execution. The financial
distress of a juridical entity is not comparable to a case involving a natural person — such
as a very old and sickly one without any means of livelihood, an heir seeking an order for
support and monthly allowance for subsistence, or one who dies.
Indeed, the alleged financial distress of a corporation does not outweigh the long standing
general policy of enforcing only final and executory judgments. Certainly, a juridical entity
like petitioner corporation has, other than extraordinary execution, alternative remedies like
loans, advances, internal cash generation and the like to address its precarious financial
condition. (Emphasis supplied)
In Philippine Bank of Communications v. Court of Appeals,314 the Court denied execution
pending appeal to a juridical entity which allegedly was in financial distress and was facing
civil and criminal suits with respect to the collection of a sum of money. It ruled that the
financial distress of the prevailing party in a final judgment which was still pending appeal
may not be likened to the situation of a natural person who is ill, of advanced age or dying
as to justify execution pending appeal:
It is significant to stress that private respondent Falcon is a juridical entity and not a natural
person. Even assuming that it was indeed in financial distress and on the verge of facing civil
or even criminal suits, the immediate execution of a judgment in its favor pending appeal
cannot be justified as Falcon’s situation may not be likened to a case of a natural person
who may be ill or may be of advanced age. Even the danger of extinction of the
corporation will not per se justify a discretionary execution unless there are showings of
other good reasons, such as for instance, impending insolvency of the adverse party or the
appeal being patently dilatory. But even as to the latter reason, it was noted in Aquino vs.
Santiago (161 SCRA 570 [1988]), that it is not for the trial judge to determine the merit of
a decision he rendered as this is the role of the appellate court. Hence, it is not within
competence of the trial court, in resolving a motion for execution pending appeal, to rule
that the appeal is patently dilatory and rely on the same as its basis for finding good
reason to grant the motion. Only an appellate court can appreciate the dilatory intent of an
appeal as an additional good reason in upholding an order for execution pending appeal
which may have been issued by the trial court for other good reasons, or in cases where the
motion for execution pending appeal is filed with the appellate court in accordance with
Section 2, paragraph (a), Rule 39 of the 1997 Rules of Court.
What is worse, only one case was actually filed against Falcon and this is the complaint for
collection filed by Solidbank. The other cases are "impending", so it is said. Other than said
Solidbank case, Falcon’s survival as a body corporate cannot be threatened by anticipated
litigation. This notwithstanding, and even assuming that there was a serious threat to Falcon’s
continued corporate existence, we hold that it is not tantamount nor even similar to an
impending death of a natural person. The material existence of a juridical person is not on
the same plane as that of human life. The survival of a juridical personality is clearly
outweighed by the long standing general policy of enforcing only final and executory
judgments. (Emphasis supplied)
In this case, the trial court supported its discretionary grant of execution based on the
alleged collection suit filed against Peña by his creditor friend for PhP3,000,000:
It has been established that the plaintiff secured the loan for the purpose of using the
money to comply with the mandate of defendant bank to hold and maintain possession of
the parcel of land in Pasay City and to prevent intruders and former tenants from
occupying the said property. The purpose of the loan was very specific and the same was
made known to defendant bank through defendant Teodoro Borlongan. The loan was not
secured for some other purpose. Truth to tell, the plaintiff accomplished his mission in
clearing the property of tenants, intruders and squatters, long before the deadline given
him by the defendant bank. The plaintiff was assured by no less than the President of
defendant bank of the availability of funds for his compensation and reimbursement of his
expenses. Had he been paid by defendant bank soon after he had fulfilled his obligation,
he could have settled his loan obligation with his creditor.
Defendants were benefitted by the services rendered by the plaintiff. While plaintiff has
complied with the undertaking, the defendants, however, failed to perform their obligation
to the plaintiff.
The plaintiff stands to suffer greatly if the collection case against him is not addressed.
Firstly, as shown in Exhibit "C", plaintiff’s total obligation with Roberto Ignacio as of May
1999 is PhP24,192,000.00. This amount, if left unpaid, will continue to increase due to
interest charges being imposed by the creditor to the prejudice of plaintiff. Secondly, a
preliminary attachment has already been issued and this would restrict the plaintiff from
freely exercising his rights over his property during the pendency of the case.
In their opposition, defendants claim that plaintiff’s indebtedness is a ruse, however,
defendants failed to adduce evidence to support its claim.
The court finds that the pendency of the case for collection of money against plaintiff is a
good reason for immediate execution. 315
The mere fact that Atty. Peña was already subjected to a collection suit for payment of the
loan proceeds he used to perform his services for Urban Bank is not an acceptable reason
to order the execution pending appeal against the bank. Financial distress arising from a
lone collection suit and not due to the advanced age of the party is not an urgent or
compelling reason that would justify the immediate levy on the properties of Urban Bank
pending appeal. That Peña would made liable in the collection suit filed by his creditor-
friend would not reasonably result in rendering illusory the final judgment in the instant
action for agent’s compensation.
Peña’s purported difficulty in paying the loan proceeds used to perform his services does
not outweigh the injury or damages that might result should Urban Bank obtain a reversal of
the judgment, as it did in this case. Urban Bank even asserts that the collection suit filed
against Peña was a mere ruse to provide justification for the execution pending appeal, no
matter how flimsy.316 As quoted above, the trial court noted Atty. Peña’s total obligation to
his creditor-friend as of May 1999 was already the incredible amount of
PhP24,192,000.00, even when the Complaint dated 03 April 1999 itself, which spawned
the collection suit included only a prayer for payment of PhP3,500,000 with attorney’s fees
of PhP100,000.317 It seems absurd that Atty. Peña would agree to obtaining a loan from his
own friend, when the Promissory Notes provided for a penalty of 5% interest per month or
60% per annum for delay in the payment.318 It sounds more like a creative justification of
the immediate execution of the PhP28.5 Million judgment notwithstanding the appeal.
In fact, the Court of Appeals noted Atty. Peña’s admission of sufficient properties to answer
for any liability arising from the collection suit arising from his creditor-friend. In initially
denying the execution pending appeal, the appellate court held that:
On the other hand, private respondent’s claim that the only way he could pay his
indebtedness to Roberto Ignacio is through the money that he expects to receive from
petitioners in payment of his services is belied by his testimony at the hearing conducted by
the trial court on the motion for execution pending appeal wherein petitioners were able to
secure an admission from him that he has some assets which could be attached by Roberto
Ignacio and that he would probably have other assets left even after the attachment.319
Hence, to rule that a pending collection suit against Atty. Peña, which has not been shown to
result in his insolvency, would be to encourage judgment creditors to indirectly and
indiscriminately instigate collection suits or cite pending actions, related or not, as a "good
reason" to routinely avail of the remedy of discretionary execution. 320 As an exception to
the general rule on execution after final and executory judgment, the reasons offered by
Atty. Peña to justify execution pending appeal must be strictly construed.
Neither will the Court accept the trial court’s unfounded assumption that Urban Bank’s
appeal was merely dilatory, as in fact, the PhP28,500,000 award given by the trial court
was overturned by the appellate court and eventually by this Court.
Moreover, at the time the Special Order of Judge Henry Trociño of the RTC-Bago City
came out in 1999, Urban Bank had assets worth more than PhP11 Billion and had a net
worth of more than PhP2 Billion. There was no reason then to believe that Urban Bank could
not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and 1/5
of 1% of its total assets of PhP11,933,383,630. 321 Urban Bank was even given a Solvency,
Liquidity and Management Rating of 82.89 over 100 by no less than the BSP 322 and
reportedly had liquid assets amounting to PhP2,036,878. 323 In fact, no allegation of
impending insolvency or attempt to abscond was ever raised by Atty. Peña and yet, the
trial court granted execution pending appeal.
Since the original order granting execution pending appeal was completely void for
containing no justifiable reason, it follows that any affirmance of the same by the Court of
Appeals is likewise void.
The Decision of the Court of Appeals in the case docketed as CA-G.R. SP No. 55667,
finding a new reason for granting execution pending appeal, i.e., the receivership of Urban
Bank, is likewise erroneous, notwithstanding this Court’s ruling in Lee v. Trocino. 324 In
accordance with the subsequent Resolution of the Court in abovementioned case of Lee v.
Trocino,325 we directly resolve the issue of the insufficiency of the reasons that led to the
grant of execution pending appeal.
In cases where the two or more defendants are made subsidiarily or solidarily liable by the
final judgment of the trial court, discretionary execution can be allowed if all the
defendants have been found to be insolvent. Considering that only Urban Bank, and not the
other eight individual defendants, was later on considered by the Court of Appeals to have
been "in danger of insolvency," is not sufficient reason to allow execution pending appeal,
since the liability for the award to Peña was made (albeit, mistakenly) solidarily liable
together with the bank officers.
In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific Meat Company,
Inc.,326 both Columbus Food, Inc., (Columbus Food) and Pacific Meat Company, Inc., (Pacific
Meat) were found by the trial court therein to be solidarily liable to Flexo Manufacturing,
Inc., (Flexo Manufacturing) for the principal obligation of PhP2,957,270.00. The lower court
also granted execution pending appeal on the basis of the insolvency of Columbus Food,
even if Pacific Meat was not found to be insolvent. Affirming the reversal ordered by the
Court of Appeals, this Court ruled that since there was another party who was solidarily
liable to pay for the judgment debt, aside from the insolvent Columbus Food, there was no
good reason to allow the execution pending appeal:
Regarding the state of insolvency of Columbus, the case of Philippine National Bank v. Puno,
held:
"While this Court in several cases has held that insolvency of the judgment debtor or
imminent danger thereof is a good reason for discretionary execution, otherwise to await a
final and executory judgment may not only diminish but may nullify all chances for recovery
on execution from said judgment debtor, We are constrained to rule otherwise in this
particular case. In the aforecited cases, there was either only one defeated party or
judgment debtor who was, however, insolvent or there were several such parties but all
were insolvent, hence the aforesaid rationale for discretionary execution was present. In the
case at bar, it is undisputed that, assuming MMIC is insolvent, its co-defendant PNB is not. It
cannot, therefore, be plausibly assumed that the judgment might become illusory; if MMIC
cannot satisfy the judgment, PNB will answer for it. It will be observed that, under the
dispositive portion of the judgment hereinbefore quoted, the liability of PNB is either
subsidiary or solidary.
Thus, when there are two or more defendants and one is not insolvent, the insolvency of a
co-defendant is not a good reason to justify execution pending appeal if their liability
under the judgment is either subsidiary or solidary. In this case, Pacific was adjudged to be
solidarily liable with Columbus. Therefore, the latter is not the only party that may be
answerable to Flexo. Its insolvency does not amount to a good reason to grant execution
pending appeal. (Emphasis supplied)
Similarly, the trial court in this case found Urban Bank and all eight individual bank officers
solidarily liable to Atty. Peña for the payment of the PhP28,500,000 award. Hence, had
the judgment been upheld on appeal, Atty. Peña could have demanded payment from any
of the nine defendants. Thus, it was a mistake for the Court of Appeals to have affirmed
execution pending appeal based solely on the receivership of Urban Bank, when there
were eight other individual defendants, who were solidarily liable but were not shown to
have been insolvent. Since Urban Bank’s co-defendants were not found to have been
insolvent, there was no good reason for the Court of Appeals to immediately order
execution pending appeal, since Atty. Peña’s award could have been satisfied by the eight
other defendants, especially when the de Leon Group filed its supersedeas bond.
It seems incongruous for Atty. Peña to be accorded the benefit of erroneously impleading
several bank directors, who had no direct hand in the transaction, but at the same time,
concentrating solely on Urban Bank’s inability to pay to justify execution pending appeal,
regardless of the financial capacity of its other co-defendants. Worse, he capitalized on the
insolvency and/or receivership of Urban Bank to levy or garnish properties of the eight
other individual defendants, who were never shown to have been incapable of paying the
judgment debt in the first place. The disposition on the execution pending appeal may have
been different had Atty. Peña filed suit against Urban Bank alone minus the bank officers
and the same bank was found solely liable for the award and later on declared under
receivership.
In addition, a judgment creditor of a bank, which has been ordered by the BSP to be
subject of receivership, has to fall in line like every other creditor of the bank and file its
claim under the proper procedures for banks that have been taken over by the PDIC. Under
Section 30 of Republic Act No. 7653, otherwise known as the New Central Bank Act, which
prevailed at that time, once a bank is under receivership, the receiver shall immediately
gather and take charge of all the assets and liabilities of the bank and administer the same
for the benefit of its creditors and all of the bank’s assets shall be considered as under
custodial legis and exempt from any order of garnishment, levy, attachment or
execution.327 In the Minute Resolution of the Monetary Board of the BSP, Urban Bank was
not only prevented from doing business in the Philippines but its asset and affairs were
placed under receivership as provided for under the same law. 328 In fact, even Peña himself
assured the PDIC, as receiver of Urban Bank, that he would not schedule or undertake
execution sales of the bank’s assets for as long as the bank remains in receivership.329 Until
the approval of the rehabilitation or the initiation of the liquidation proceedings, all
creditors of the bank under receivership shall stand on equal footing with respect to
demanding satisfaction of their debts, and cannot be extended preferred status by an
execution pending appeal with respect to the bank’s assets:
… [t]o execute the judgment would unduly deplete the assets of respondent bank to the
obvious prejudice of other creditors. After the Monetary Board has declared that a bank is
insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets
for the equal benefit of all the depositors and creditors. After its insolvency, one creditor
cannot obtain an advantage or preference over another by an attachment, execution or
otherwise. Until there is an approved rehabilitation or the initiation of the liquidation
proceedings, creditors of the bank stand on equal footing with respect to demanding
satisfaction of their debts, and cannot be afforded special treatment by an execution
pending appeal with respect to the bank’s assets.330 (Emphasis supplied)
Moreover, assuming that the CA was correct in finding a reason to justify the execution
pending appeal because of the supervening event of Urban Bank’s closure, the assumption
by the EIB of the liabilities of Urban Bank meant that any execution pending appeal can be
granted only if EIB itself is shown to be unable to satisfy Peña’s judgment award of
PhP28,500,000. That is not at all the case. In just one particular sale on execution herein,
EIB offered to answer in cash for a substantial part of Peña’s claims, as evidenced by EIB’s
capacity and willingness to redeem the executed properties (condominium units sold to
intervenor Unimega) by tendering manager’s checks for more than PhP22 Million 331 which is
already 77.57% of Peña’s total award from the trial court. 332 The fact that EIB’s offer to
take over Urban Bank means it was able to satisfy the BSP’s concern that all legitimate
liabilities of Urban Bank be duly discharged.
As an exception to the general rule that only final judgments may be executed, 333 the grant
of execution pending appeal must perforce be based on "good reasons." These reasons
must consist of compelling or superior circumstances demanding urgency which will outweigh
the injury or damages suffered, should the losing party secure a reversal of the judgment or
final order.334 The circumstances that would reasonably justify superior urgency, demanding
interim execution of Peña’s claims for compensation and/or damages, have already been
settled by the financial capacity of the eight other co-defendants, the approval of the
supersedeas bonds, the subsequent takeover by EIB, and the successor bank’s stable
financial condition,335 which can answer for the judgment debt. Thus, Peña’s interest as a
judgment creditor is already well-protected.
While there is a general rule that a final and executory judgment in the main case will
render moot and academic a petition questioning the exercise of the trial court’s discretion
in allowing execution pending appeal, we find it necessary to rule categorically on this
question because of the magnitude of the aberrations that attended the execution pending
appeal in the Decision of the RTC-Bago City.
Irregularities in the Levy and Sale on Execution Pending Appeal
Assuming that the Special Order granting execution pending appeal were valid, issues have
been raised on alleged irregularities that mar the levy and sale on execution of the
properties of Urban Bank and its officers and directors. Many of the facts have not been
sufficiently litigated before the trial and appellate courts for us to fully rule on the issue,
nevertheless, from what is on record, the following are the observations of this Court:
First, contrary to the general rules on execution, no opportunity was given to Urban Bank or
the other co-defendants to pay the judgment debt in cash or certified check. 336 Before
proceeding on the levying and garnishing personal and real properties, demand must be
made by the sheriff against the judgment debtors, Urban Bank and the eight other
individual bank officers, for the immediate payment of the award subject of the execution
pending appeal. It has not been shown whether Urban Bank and its officers and directors
were afforded such an opportunity. Instead of garnishing personal properties of the bank,
the sheriff inexplicably proceeded to levy substantial real properties of the bank and its
officers at the onset.
Second, assuming that Urban Bank and its officers did not possess sufficient cash or funds to
pay for the judgment debt pending appeal, they should have been given the option to
choose which of their properties to be garnished and/or levied. In this case, Urban Bank
exercised its option by presenting to the sheriff various parcels of land, whose values
amount to more than PhP76,882,925 and were sufficient to satisfy the judgment
debt.337 Among those presented by the bank, only the property located in Tagaytay was
levied upon by the sheriff.338 No sufficient reason was raised why the bank’s chosen
properties were rejected or inadequate for purposes of securing the judgment debt
pending appeal. Worse, the Sheriff proceeded with garnishing and levying on as many
properties of Urban Bank and its officers, in disregard of their right to choose under the
rules.
Third, the public auction sales conducted in the execution pending appeal sold more
properties of Urban Bank and the directors than what was sufficient to satisfy the debt.
Indeed, the conservative value of the properties levied herein by the sheriff amounting to
more than PhP181,919,190, consisting of prime condominium units in the heart of the Makati
Business district, a lot in Tagaytay City, shares in exclusive clubs, and shares of stock, among
others, was more than sufficient to answer for the PhP28,500,000 judgment debt six times
over. Rather than stop when the properties sold had approximated the monetary award,
the execution sale pending appeal continued and unduly benefitted Atty. Peña, who, as
judgment creditor and, at times, the winning bidder, purchased most of the properties sold.
Fourth, it was supremely disconcerting how Urban Bank, through its successor EIB, was unduly
deprived of the opportunity to redeem the properties, even after presenting manager’s
checks339 equal to the purchase price of the condominium units sold at the execution sale. No
reason was offered by the trial court340 or the sheriff341 for rejecting the redemption price
tendered by EIB in order to recover the properties executed and sold in public auction
pending appeal.
Finally, the Court cannot turn a blind eye to the fact that there was already a sufficient
supersedeas bond given to answer for whatever monetary award will be given in the end.
To recall, the De Leon Group had already tendered a supersedeas bond of
PhP40,000,000 in the Court of Appeals to prevent execution pending appeal over their
properties. In fact, even Urban Bank tendered a separate supersedeas bond of equal
amount with this Court, for a total of PhP80,000,000 to secure any judgment to be
awarded to Atty. Peña. That execution sales over the properties of judgment debtors
proceeded despite the three-fold value of securities compared to the amount of the award
indicates bad faith, if not malice, with respect to the conduct of the execution pending
appeal.
Inasmuch as the RTC Decision has already been vacated and an independent finding has
been made by this Court of the complete nullity of the order granting execution pending
appeal, it follows that all acts pursuant to such order and its writ are also void. It does not
follow however, that the Court’s Decision in Co v. Sillador,342 is nullified, inasmuch as an
equally-important legal doctrine – the immutability of Supreme Court final decisions – is
also to be considered. In any case, the factual circumstances and the ruling on that case
were limited to the actions of Sheriff Allan Sillador with respect to properties levied under
the same Special Order and Writ of Execution, which were subject of third party claims
made by the spouses of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr. 343It
does not encompass other specific events and acts committed in the course of the execution
pending appeal that may warrant administrative or disciplinary actions. Having said that,
this Court leaves it to the parties to explore avenues for redress in such a situation.
The observation on the irregularities above-enumerated are made for the purpose of
correcting the injustice that has been committed herein, by allowing the Court to pursue the
question of who was responsible for such gross violation of the rules on execution, and for
the Court to find measures to improve the safeguards against abuse of court processes. It is
for this reason that the Office of the Court Administrator will be given a special task by the
Court on this matter. Judge Henry Trocino of RTC-Bago City, who issued the Special Order
and had supervisory authority over the proceedings of the execution pending appeal,
would have been included under such administrative investigation by the Office of the Court
Administrator, were it not for his retirement from the judicial service.
The Court’s Suspension Order of Execution Pending Appeal
Acting on Atty. Peña’s Omnibus Motion dated 09 December 2002 344 and Unimega’s Motion
for Reconsideration dated 10 December 2002 345 with respect to the Court’s Order dated
13 November 2002346 that clarified the earlier stay order against the execution pending
appeal,347 the Court hereby denies both motions. The Court is fully correct in suspending the
period for the running of the redemption period of the properties of Urban Bank and its
officers and directors that were levied and subject of execution sale to satisfy the judgment
debt in favor of Atty. Peña, the Court having conclusively determined that the supersedeas
bond filed was sufficient and considering the subsequent finding that the said execution
pending appeal lacks any sufficient ground for the grant thereof.
As to the theory of Atty. Peña that the actuations of Justice Carpio, the then ponente of this
case, in drafting the questioned Order should positively impact his motion for
reconsideration of the same, the Court finds this argument utterly devoid of merit.
In the first place, that questioned Order was not the decision of only a single member of the
Court, Justice Carpio, but of the entire division to which he belonged, then composed of
retired Chief Justice Hilario Davide, Justices Jose Vitug, Consuelo Ynares-Santiago and
Adolfo Azcuna. This Order was affirmed by the same Division as its duly-promulgated
order. In relation to this, the affirmation by the Division of this Order demonstrates that
there is no truth to Atty. Peña’s claim that Justice Carpio fabricated the Order.
In the second place, Atty. Peña’s claim of undue interest against Justice Carpio specifically
with respect to the latter having the instant case transferred to his new Division, is based on
ignorance of the system of assignment of cases in the Supreme Court. When a
reorganization of the Court takes place in the form of a change in the composition of
Divisions, due to the retirement or loss of a member, the Justices do not thereby lose their
case assignments but bring the latter with them to their new Divisions.348 The cases are then
transferred to the Justices’ new Divisions, by way of the corresponding request from each
justice. Each justice is in fact, required to make this request, otherwise the rollo of the cases
of which he is Member-in-Charge will be retained by a Division in which he is no longer a
member. Indeed, Atty. Peña’s imagination has gotten the better of him.
Thirdly, his insinuation (which he denies) that Justice Carpio may have been bribed because
the latter has a new Mercedes Benz349 is highly offensive and has no place where his points
should have been confined to legal reasons and arguments.
Incidentally, Atty. Peña has voiced the fear in the Letter of Complaint filed in the Court’s
Committee on Ethics and Ethical Standards,350 which he brought against the ponente of this
Decision, that she will suppress material information regarding the issuance of the Order
suspending the redemption period because of her close relationship to Justice Carpio.
Contrary to this fear, this Decision is frontally disposing of this claim by stating that there is
no basis to believe that the questioned Order was anything than the joint decision of the
five members of the then First Division, and that his arguments in his motion to reconsider
does not persuade this Court to vary in any form the questioned order. Moreover, our
disposition of this case renders moot his motion to reconsider the order.
It must be emphasized that the prolonged resolution of the procedural issue in the Petitions
in G. R. Nos. 145817 and 145822 on the execution pending appeal is due in no small part
to the delays arising from Peña’s peculiar penchant for filing successive motions for inhibition
and re-raffle.351 The Court cannot sanction Peña’s repeated requests for voluntary inhibition
of members of the Court based on the sole ground of his own self-serving allegations of
lack of faith and trust, and would like to reiterate, at this point, the policy of the Court not to
tolerate acts of litigants who, for just about any conceivable reason, seek to disqualify a
judge (or justice) for their own purpose, under a plea of bias, hostility, prejudice or
prejudgment.352 The Court cannot allow the unnecessary and successive requests for
inhibition, lest it opens the floodgates to forum-shopping where litigants look for a judge
more friendly and sympathetic to their cause than previous ones. 353
Restitution of the Bank’s Executed Properties
The Court is still confronted with the supervening acts related to the execution pending
appeal and the reversal of the award of damages, which affect the rights of the parties as
well as of the intervenors to the case, specifically, intervenor Unimega. In completely
resolving the differing claims and performing its educational function, the Court shall briefly
encapsulate and restate the operational rules governing execution pending appeal when
there has been a reversal of the trial court’s Decision on the award of damages in order to
guide the parties as well as the bench and bar in general. The necessity of making these
detailed instructions is prompted by the most natural question an ordinary person with a
sense of justice will ask after reading the facts: How can an obligation to pay for the
services of a lawyer so that 23 unwanted tenants leave a corporation's property lead to the
loss or the impairment of use of more than PhP181 Million worth of properties of that
corporation and of its officers and directors? Obviously, this Court must undertake corrective
actions swiftly.
The rule is that, where the executed judgment is reversed totally or partially, or annulled –
on appeal or otherwise – the trial court may, on motion, issue such orders of restitution or
reparation of damages as equity and justice may warrant under the circumstances. 354 The
Rules of Court precisely provides for restitution according to equity, in case the executed
judgment is reversed on appeal.355 "In an execution pending appeal, funds are advanced
by the losing party to the prevailing party with the implied obligation of the latter to repay
the former, in case the appellate court cancels or reduces the monetary award." 356
In disposing of the main case subject of these Petitions, the Court totally reversed the
staggering amount of damages given by the trial court, and limited on a quantum meruit
basis the agent’s compensation to PhP4,500,000 only. However, properties of Urban Bank
and individual petitioners have been garnished and levied upon in the amount of
supposedly more than PhP85,399,350.357
Applying the foregoing rules, petitioner-respondent bank is entitled to complete and full
restitution of its levied properties, subject to the payment of the PhP4,500,000. Meanwhile,
petitioners bank officers, all of whom have not been found individually or solidarily liable,
are entitled to full restitution of all their properties levied upon and garnished, since they
have been exonerated from corporate liability with respect to the bank’s agency
relationship with Peña.
Considering the monetary award to Peña and the levy on and execution of some of its
properties pending appeal, Urban Bank, now EIB, may satisfy the judgment in the main case
and at the same time fully recover all the properties executed owing to the complete
reversal of the trial court’s awarded damages. It must immediately and fully pay the
judgment debt before the entire lot of levied properties, subject of the execution pending
appeal, is restored to it.358
Due to the complete reversal of the trial court’s award for damages, which was the basis of
the Special Order and Writ of Execution allowing execution pending appeal, intervenor
Unimega and other bidders who participated in the public auction sales are liable to
completely restore to petitioner-respondent bank all of the properties sold and purchased
therein. Although execution pending appeal is sanctioned under the rules and jurisprudence,
when the executed decision is reversed, the premature execution is considered to have lost
its legal bases. The situation necessarily requires equitable restitution to the party
prejudiced thereby.359 As a matter of principle, courts are authorized at any time to order
the return of property erroneously ordered to be delivered to one party, if the order is
found to have been issued without jurisdiction.360
As a purchaser of properties under an execution sale, with an appeal on the main case still
pending, intervenor Unimega knew or was bound to know that its title to the properties,
purchased in the premature public auction sale, was contingent on the outcome of the
appeal and could possibly be reversed. Until the judgment on the main case on which the
execution pending appeal hinges is rendered final and executory in favor of the prevailing
judgment creditor, it is incumbent on the purchasers in the execution sale to preserve the
levied properties. They shall be personally liable for their failure to do so, especially if the
judgment is reversed, as in this case.361 In fact, if specific restitution becomes impracticable –
such as when the properties pass on to innocent third parties – the losing party in the
execution even becomes liable for the full value of the property at the time of its seizure,
with interest. The Court has ruled:
When a judgment is executed pending appeal and subsequently overturned in the
appellate court, the party who moved for immediate execution should, upon return of the
case to the lower court, be required to make specific restitution of such property of the
prevailing party as he or any person acting in his behalf may have acquired at the
execution sale. If specific restitution becomes impracticable, the losing party in the execution
becomes liable for the full value of the property at the time of its seizure, with interest.
While the trial court may have acted judiciously under the premises, its action resulted in
grave injustice to the private respondents. It cannot be gainsaid that it is incumbent upon the
plaintiffs in execution (Arandas) to return whatever they got by means of the judgment prior
to its reversal. And if perchance some of the properties might have passed on to innocent
third parties as happened in the case at bar, the Arandas are duty bound nonetheless to
return the corresponding value of said properties as mandated by the Rules. (Emphasis
supplied)362
In this case, the rights of intervenor Unimega to the 10 condominium units bought during the
public auction sale under the Special Order are rendered nugatory by the reversal of the
award of unconscionable damages by the trial court. It cannot claim to be an innocent third-
party purchaser of the levied condominium units, since the execution sale was precisely
made pending appeal. It cannot simply assume that whatever inaction or delay was
incurred in the process of the appeal of the main Decision would automatically render the
remedy dilatory in character.363Whatever rights were acquired by intervenor Unimega
from the execution sale under the trial court’s Special Orders are conditional on the final
outcome of the appeal in the main case. Unlike in auction sales arising from final and
executory judgments, both the judgment creditor and the third parties who participate in
auction sales pending appeal are deemed to knowingly assume and voluntarily accept the
risks of a possible reversal of the decision in the main case by the appellate court.
Therefore, intervenor Unimega is required to restore the condominium units to Urban Bank.
Although the intervenor has caused the annotation of the sale and levied on the titles to
those units, the titles have remained under the name of the bank, owing to the supersedeas
bond it had filed and the Court’s own orders that timely suspended the transfer of the titles
and further execution pending appeal.
The obligation to restore the properties to petitioner-respondent bank is, however, without
prejudice to the concurrent right of intervenor Unimega to the return of the PhP10,000,000
the latter paid for the condominium units, which Peña received as judgment creditor in
satisfaction of the trial court’s earlier Decision.364 Consequently, intervenor’s earlier request
for the issuance of a writ of possession365 over those units no longer has any leg to stand on.
Not being entitled to a writ of possession under the present circumstances, Unimega’s ex
parte petition is consequently denied.
Upon the reversal of the main Decision, the levied properties itself, subject of execution
pending appeal must be returned to the judgment debtor, if those properties are still in the
possession of the judgment creditor, plus compensation to the former for the deprivation and
the use thereof.366 The obligation to return the property itself is likewise imposed on a third-
party purchaser, like intervenor Unimega, in cases wherein it directly participated in the
public auction sale, and the title to the executed property has not yet been transferred. The
third-party purchaser shall, however, be entitled to reimbursement from the judgment
creditor, with interest.
Considering the foregoing points, the Court adopts with modification the rules of restitution
expounded by retired Justice Florenz D. Regalado in his seminal work on civil
procedure,367 which the appellate court itself cited earlier.368 In cases in which restitution of
the prematurely executed property is no longer possible, compensation shall be made in
favor of the judgment debtor in the following manner:
a. If the purchaser at the public auction is the judgment creditor, he must pay the
full value of the property at the time of its seizure, with interest.
b. If the purchaser at the public auction is a third party, and title to the property
has already been validly and timely transferred to the name of that party, the
judgment creditor must pay the amount realized from the sheriff’s sale of that
property, with interest.
c. If the judgment award is reduced on appeal, the judgment creditor must return
to the judgment debtor only the excess received over and above that to which the
former is entitled under the final judgment, with interest.
In summary, Urban Bank is entitled to complete restoration and return of the properties
levied on execution considering the absolute reversal of the award of damages, upon the
payment of the judgment debt herein amounting to PhP4,500,000, with interest as indicated
in the dispositive portion. With respect to individual petitioners, they are entitled to the
absolute restitution of their executed properties, except when restitution has become
impossible, in which case Peña shall be liable for the full value of the property at the time
of its seizure, with interest. Whether Urban Bank and the bank officers and directors are
entitled to any claim for damages against Peña and his indemnity bond is best ventilated
before the trial court, as prescribed under the procedural rules on execution pending
appeal.
WHEREFORE, the Court DENIES Atty. Magdaleno Peña’s Petition for Review dated 23 April
2004 (G. R. No. 162562) and AFFIRMS WITH MODIFICATION the Court of Appeals’
Decision dated 06 November 2003 having correctly found that the Regional Trial Court of
Bago City gravely abused its discretion in awarding unconscionable damages against
Urban Bank, Inc., and its officers. The Decision of the Regional Trial Court of Bago City
dated 28 May 1999 is hence VACATED.
Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Peña the amount of PhP3,000,000
as reimbursement for his expenses and an additional PhP1,500,000 as compensation for his
services, with interest at 6% per annum from 28 May 1999, without prejudice to the right of
Urban Bank to invoke payment of this sum under a right of set-off against the amount of
PhP25,000,000 that has been placed in escrow for the benefit of Isabela Sugar Company,
Inc. The Complaint against the eight other individual petitioners, namely Teodoro Borlongan
(+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon, Eric L. Lee, Ben Y. Lim,
Jr., Corazon Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED.
The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. R. No. 145817)
and Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are
hereby GRANTED under the following conditions:
a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P.
Siervo H. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr.,
 (respondent bank officers) shall be restored to full ownership and possession of all
properties executed pending appeal;
b. If the property levied or garnished has been sold on execution pending appeal
and Atty. Magdaleno Peña is the winning bidder or purchaser, he must fully
restore the property to Urban Bank or respondent bank officers, and if actual
restitution of the property is impossible, then he shall pay the full value of the
property at the time of its seizure, with interest;
c. If the property levied or garnished has been sold to a third party purchaser at
the public auction, and title to the property has not been validly and timely
transferred to the name of the third party, the ownership and possession of the
property shall be returned to Urban Bank or respondent bank officers, subject to
the third party’s right to claim restitution for the purchase price paid at the
execution sale against the judgment creditor;
owing under the circumstances shall be transferred to the Regional Trial Court in the
National Capital Region, Makati City, a court with venue to hear cases involving Urban
Bank/Export and Industry Bank whose headquarters is located in Makati City. The Executive
Judge of the Regional Trial Court of Makati City is ordered to include the execution of the
Decision and the proceedings for the restitution of the case in the next available raffle.
The Regional Trial Court of Makati City, to which the case shall be raffled, is hereby
designated as the court that will fully implement the restorative directives of this Decision
with respect to the execution of the final judgment, return of properties wrongfully
executed, or the payment of the value of properties that can no longer be restored, in
accordance with Section 5, Rule 39 of the Rules of Court. The parties are directed to
address the implementation of this part of the Decision to the sala to which the case will be
raffled.
No pronouncement as to costs.

d. If the purchaser at the public auction is a third party, and title to the property SO ORDERED.
has already been validly and timely transferred to the name of that party, Atty.
Peña must pay Urban Bank or respondent bank officers the amount realized from
the sheriff’s sale of that property, with interest from the time the property was
seized.

The Omnibus Motion dated 09 December 2002 filed by Atty. Peña and Motion for
Reconsideration dated 10 December 2002 filed by Unimega with respect to the Court’s
Order dated 13 November 2002 is hereby DENIED.

The Office of the Court Administrator is ordered to conduct an investigation into the possible
administrative liabilities of Atty. Josephine Mutia-Hagad, the then RTC-Bago City’s Clerk of
Court, and Allan D. Sillador, the then Deputy Sheriff of Bago City, for the irregularities
attending the execution pending appeal in this case, including all judicial officers or sheriffs
in the various places in which execution was implemented, and to submit a report thereon
within 120 days from receipt of this Decision.

The Office of the Court Administrator is also directed to make recommendations for the
prevention of abuses of judicial processes in relation to executions, especially those pending
appeal, whether thru administrative circulars from this Court or thru a revision of the Rules of
Court, within 30 days from submission of the report on administrative liabilities adverted to
above. Let a copy of the Court’s Decision in this case be sent to the Office of the Court
Administrator.

The Presiding Judge of RTC Bago City shall make a full report on all incidents related to the
execution in this case, including all returns on the writ of execution herein.

Because so much suspicious circumstances have attended the execution in this case by the
Regional Trial Court of Bago City, the proceedings with respect to any restitution due and
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming the
decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra
in the payment of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum
of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover
thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria,
who, at the time relevant to the case, was its Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January
29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no
pre-trial conference was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon
joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and
counsel were present. Despite due notice, defendant and counsel did not appear, although
a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendant’s counsel which instructed him to request for postponement. Plaintiff’s counsel
objected to the desired postponement and moved to have defendant declared as in
default. This was granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a
certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously
objected to any postponement on the ground that the note is but a mere scrap of paper
and moved that the defendant corporation be declared as in default for its failure to
appear in court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the
pre-trial conference has been repeatedly postponed on motion of the defendant
Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in
default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in
the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13,
1992. The exhibits were admitted in evidence in an order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’
It alleged therein that the failure of counsel to attend the pre-trial conference was ‘due to
an unavoidable circumstance’ and that counsel had sent his representative on that date to
inform the trial court of his inability to appear. The Motion was vehemently opposed by
plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others,
that it was neither verified nor supported by an affidavit of merit and that it further failed
to allege or specify the facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For
the first time counsel revealed to the trial court that the reason for his nonappearance at the
pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-
President purporting to explain its meritorious defense was attached to the said Motion. Just
the same, in an Order dated November 13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount advanced by plaintiff in the payment
of the claims of defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;
"3. The dismissal of the counter-claim of the defendant and the third-party
complaint;
"4. The defendant to pay the costs of suit." 4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial
court.6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for
reconsideration.7 On July 16, 1997, the Court of Appeals denied the motion. 8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as agent
for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts
he paid out of his personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. 10 The
basis for agency is representation.11 On the part of the principal, there must be an actual
intention to appoint12 or an intention naturally inferrable from his words or actions;13 and on
the part of the agent, there must be an intention to accept the appointment and act on
it,14 and in the absence of such intent, there is generally no agency. 15
A perusal of the Special Power of Attorney16 would show that petitioner (represented by
third-party defendant Austria) and respondent Guevarra intended to enter into a principal-
agent relationship. Despite the word "special" in the title of the document, the contents
reveal that what was constituted was actually a general agency. The terms of the
agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation duly
organized and existing under and by virtue of the laws of the Republic of the Philippines,
xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG
Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the following acts and
things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance
business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent,
to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance
and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer
for and receive and give effectual receipts and discharge for all money to which the
FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due,
owing payable or transferable to said Corporation by reason of or in connection
with the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all
legal proceedings against the said Corporation." 19 [Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general terms, it is
limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does not require a
special power.22 Thus, the acts enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney is
required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:
"(1) To make such payments as are not usually considered as acts of administration;
"x x x xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims is not included
among the acts enumerated in the Special Power of Attorney, neither is it of a character
similar to the acts enumerated therein. A special power of attorney is required before
respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of
Management Agreement23dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as agency manager for San Fernando,
Pampanga, as follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose of all motor car claims in
the amount of P5,000.00 with prior approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx x x x "24
In settling the claims mentioned above, respondent Guevarra’s authority is further limited by
the written standard authority to pay,25 which states that the payment shall come from
respondent Guevarra’s revolving fund or collection. The authority to pay is worded as
follows:
"This is to authorize you to withdraw from your revolving fund/collection the amount of
PESOS __________________ (P ) representing the payment on the _________________
claim of assured _______________ under Policy No. ______ in that accident of
___________ at ____________.
"It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer.1âwphi1 Respondent
Guevarra was authorized to pay the claim of the insured, but the payment shall come from
the revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states
that:
"The principal is not liable for the expenses incurred by the agent in the following cases:
"(1) If the agent acted in contravention of the principal’s instructions, unless the latter
should wish to avail himself of the benefits derived from the contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner’s liability as insurer
arose.1âwphi1 This obligation was extinguished when respondent Guevarra paid the claims
and obtained Release of Claim Loss and Subrogation Receipts from the insured who were
paid.
Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would result
in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could
best be proven by the Release of Claim Loss and Subrogation Receipts27 which were
attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in
the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would
be deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.
 The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court
of Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, 29 in
that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11
representing the total amount advanced by the latter in the payment of the claims of
petitioner’s clients.

No costs in this instance.

SO ORDERED.

Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

G.R. No. 179446 January 10, 2011
LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
assailing the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and
Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs Services,
Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the
amount of ₱1,896,789.62 representing the insurance indemnity which R&B Insurance
Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All
Risks. On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey"
from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes
from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn,
engaged the services of Loadmasters for the use of its delivery trucks to transport the
cargoes to Columbia’s warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of
copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6)
truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads
for Lawang Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks
en route to Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck,
loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the
copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of ₱1,903,335.39. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount of ₱1,896,789.62 as insurance
indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case
No. 02-103040. It sought reimbursement of the amount it had paid to Columbia for the loss
of the subject cargo. It claimed that it had been subrogated "to the right of the consignee to
recover from the party/parties who may be held legally liable for the loss." 2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages
for the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of
evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual
and compensatory damages, with interest from the date of complaint until fully
paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
principal amount recovered as and for attorney’s fees plus ₱1,500.00 per
appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation
expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages
and attorney’s fees against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter
owes to appellant R&B Insurance Corporation as insurance indemnity must likewise be the
amount it shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the
appellee Loadmasters is likewise held liable to appellant Glodel in the amount of
₱1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable
to appellant R&B Insurance Corporation.
Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court
presenting the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of
the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel? 6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it
cannot be considered an agent of Glodel because it never represented the latter in its
dealings with the consignee. At any rate, it further contends that Glodel has no recourse
against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2, Rule 9 of the
1997 Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim
because the latter was grossly negligent in the transportation of the subject cargo. With
respect to Loadmasters’ claim that it is already estopped from filing a cross-claim, Glodel
insists that it can still do so even for the first time on appeal because there is no rule that
provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of
Charter wherein the transporter (Loadmasters) is only hired for the specific job of delivering
the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that
of a good father of the family, not the extraordinary diligence required of common
carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
against Loadmasters because it was not prevented from presenting evidence to prove its
position even without amending its Answer. As to the relationship between Loadmasters and
Glodel, it contends that a contract of agency existed between the two corporations. 8
Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. 9 Doubtless, R&B Insurance is
subrogated to the rights of the insured to the extent of the amount it paid the consignee
under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrong-doer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or
tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for
the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of
the Civil Code, common carriers are persons, corporations, firms, or associations engaged in
the business of carrying or transporting passenger or goods, or both by land, water or air
for compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged
in the business of transporting goods by land, through its trucking service. It is a common
carrier as distinguished from a private carrier wherein the carriage is generally undertaken
by special agreement and it does not hold itself out to carry goods for the general
public.10 The distinction is significant in the sense that "the rights and obligations of the
parties to a contract of private carriage are governed principally by their stipulations, not
by the law on common carriers."11
In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters
solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article
1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing
under the laws of the Republic of the Philippines and is engaged in the business of customs
brokering." It cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc., 14 a customs broker is also
regarded as a common carrier, the transportation of goods being an integral part of its
business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of
their business and for reasons of public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the circumstances of such
case, as required by Article 1733 of the Civil Code. When the Court speaks of
extraordinary diligence, it is that extreme measure of care and caution which persons of
unusual prudence and circumspection observe for securing and preserving their own
property or rights.15 This exacting standard imposed on common carriers in a contract of
carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of
the common carrier once the goods have been lodged for shipment. 16 Thus, in case of loss of
the goods, the common carrier is presumed to have been at fault or to have acted
negligently.17 This presumption of fault or negligence, however, may be rebutted by proof
that the common carrier has observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides
that the exercise of extraordinary diligence lasts from the time the goods are
unconditionally placed in the possession of, and received by, the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or to
the person who has a right to receive them.18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly
and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194
of the New Civil Code, "the responsibility of two or more persons who are liable for a
quasi-delict is solidary."
Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of
Article 2176 of the Civil Code on quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service,
Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc. 19 where this Court held
that a tort may arise despite the absence of a contractual relationship, to wit:
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee
against Mindanao Terminal, from which the present case has arisen, states a cause of action.
The present action is based on quasi-delict, arising from the negligent and careless loading
and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is
not a party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Court’s consistent ruling that the
act that breaks the contract may be also a tort. In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract. In the present case, Phoenix
and McGee are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which Mindanao Terminal
handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of
negligence on the part of the defendant should be sufficient to establish a cause of action
arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own
acts or omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused
by its employees who acted within the scope of their assigned task of delivering the goods
safely to the warehouse.
Whenever an employee’s negligence causes damage or injury to another, there instantly
arises a presumption juris tantum that the employer failed to exercise diligentissimi patris
families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its
employees.20 To avoid liability for a quasi-delict committed by its employee, an employer
must overcome the presumption by presenting convincing proof that he exercised the care
and diligence of a good father of a family in the selection and supervision of his
employee.21 In this regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to
ensure that Loadmasters would fully comply with the undertaking to safely transport the
subject cargo to the designated destination. It should have been more prudent in entrusting
the goods to Loadmasters by taking precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable
with Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code
provides: "By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter." The elements of a contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a
settled rule that the basis for agency is representation, that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. On the part of the
principal, there must be an actual intention to appoint or an intention naturally inferable
from his words or actions, while on the part of the agent, there must be an intention to
accept the appointment and act on it.23 Such mutual intent is not obtaining in this case.
cross-claim, not set up shall be barred.25Thus, a cross-claim cannot be set up for the first time
on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’
is applied only in the absence of, and never against, statutory law or judicial rules of
procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been
at fault or negligent.

What then is the extent of the respective liabilities of Loadmasters and Glodel? Each WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the
wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are Court of Appeals is MODIFIED to read as follows:
several causes for the resulting damages, a party is not relieved from liability, even
partially. It is sufficient that the negligence of a party is an efficient cause without which the
damage would not have resulted. It is no defense to one of the concurrent tortfeasors that WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc.
the damage would not have resulted from his negligence alone, without the negligence or and respondent Glodel Brokerage Corporation jointly and severally liable to respondent
wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern Shipping R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire
v. Court of Appeals,24 & Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance
Corporation a] the amount of ₱1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of
X x x. Where several causes producing an injury are concurrent and each is an efficient ₱22,427.18 for litigation expenses.
cause without which the injury would not have happened, the injury may be attributed to all
or any of the causes and recovery may be had against any or all of the responsible persons
although under the circumstances of the case, it may appear that one of them was more The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against
culpable, and that the duty owed by them to the injured person was not the same. No petitioner Loadmasters Customs Services, Inc. is DENIED.
actor's negligence ceases to be a proximate cause merely because it does not exceed the
negligence of other actors. Each wrongdoer is responsible for the entire result and is liable SO ORDERED.
as though his acts were the sole cause of the injury.
JOSE CATRAL MENDOZA
There is no contribution between joint tortfeasors whose liability is solidary since both of Associate Justice
them are liable for the total damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the
direct and proximate cause of a single injury to a third person, it is impossible to determine
in what proportion each contributed to the injury and either of them is responsible for the
whole injury. Where their concurring negligence resulted in injury or damage to a third
party, they become joint tortfeasors and are solidarily liable for the resulting damage
under Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having
failed to file a cross-claim against the latter.1avvphi1

Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of
contract of service as the latter is primarily liable for the loss of the subject cargo. In this
case, however, it cannot succeed in seeking judicial sanction against Loadmasters because
the records disclose that it did not properly interpose a cross-claim against the latter.
Glodel did not even pray that Loadmasters be liable for any and all claims that it may be
adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution 2 of the CA
denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials
and pipe products. Its manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters. The properties, located in Mandaluyong City,
Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East
Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered
under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager
and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the eight
parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that
the properties could be offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and
that the terms of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’
offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On
October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that
Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations
prior to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua,
Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a
Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full
payment within 90 days after execution and preparation of all documents of sale, together
with the necessary governmental clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank &
Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he
had met with the buyer, which had given him the impression that "he is prepared to press
for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers
were concerned because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
his principal to inform Marquez that "the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional
Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the] new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now
the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC
in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha
T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of
their purchase of ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts;
the Board and stockholders of EC never approved any resolution to sell subject properties
nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack
Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed
the amended complaint.12The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of
cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of merit.13
The trial court declared that since the authority of the agents/realtors was not in writing, the
sale is void and not merely unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs
could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total cessation
of its operation.14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution
of the board of directors."15 They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy
and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporation’s assets, it
would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code,
he needed a special authority from EC’s board of directors to bind such corporation to the
sale of its properties. Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was
not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE
SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE
THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST,
WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE
SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS
POSSESSING POWER TO SELL THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for "US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they
had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors
of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez
was not an ordinary agent because his authority was of a special and limited character in
most respects. His only job as a broker was to look for a buyer and to bring together the
parties to the transaction. He was not authorized to sell the properties or to make a binding
contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code
does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent EC’s
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux,
who was the Managing Director for ESAC Asia, had the necessary authority to sell the
subject property or, at least, had been allowed by respondent EC to hold themselves out in
the public as having the power to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President
and General Manager of Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties
to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties
as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the
Security Bank and that an ESCROW agreement was drafted over the subject
properties;
6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL
IMPLEMENT ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the
fact that Petitioners’ offer was allegedly REJECTED by both Glanville and
Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners’ offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in
his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux
were knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain
that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent
EC and its Board of Directors to offer the properties for sale to the petitioners, or to any
other person or entity for that matter. They assert that the decision and resolution of the CA
are in accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June
1, 1997. Given the significance of their positions and their duties in respondent EC at the
time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock
of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial
formality. What is important, petitioners maintain, is that Marquez was able to communicate
the offer of respondent EC and the petitioners’ acceptance thereof. There was no time that
they acted without the knowledge of respondents. In fact, respondent EC never repudiated
the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In
the absence of express written terms creating the relationship of an agency, the existence
of an agency is a fact question.20 Whether an agency by estoppel was created or whether
a person acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.21 The findings of the trial court on such
issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and
appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the case. 22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the
evidence on record, whether testimonial and documentary. There are, however, recognized
exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion; and (10) when the findings of fact of the
Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.23
We have reviewed the records thoroughly and find that the petitioners failed to establish
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer
the properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is sought
of a contract made with an agent, the agency must be established by clear, certain and
specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:
SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter.25 It may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this
Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of a lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members,
and as such, may not be sold without express authority from the board of
directors.27 Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to the affairs of the corporation,
but not in the course of, or connected with, the performance of authorized duties of such
director, are not binding on the corporation.29
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.30 An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or impliedly
by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is null
and void. The declarations of the agent alone are generally insufficient to establish the fact
or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do something
in representation on behalf of another, with the consent or authority of the latter. 32 Consent
of both principal and agent is necessary to create an agency. The principal must intend that
the agent shall act for him; the agent must intend to accept the authority and act on it, and
the intention of the parties must find expression either in words or conduct between them. 33
An agency may be expressed or implied from the act of the principal, from his silence or
lack of action, or his failure to repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a specific form. 35 However, to
create or convey real rights over immovable property, a special power of attorney is
necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an
agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution
of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as
its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on
June 1, 1997, cannot be used as basis for petitioners’ claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss
component of the management of respondent ESAC.40 As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for
sale the property for P27,000,000.00 and the other terms of the sale subject to
negotiations. When petitioners offered to purchase the property for P20,000,000.00,
through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a
telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. However,
as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately
to the telex of Glanville because Delsaux had to wait for confirmation from respondent
ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it
clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and
not the entire management or Board of Directors of respondent ESAC. While it is true that
petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party
to the transaction between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams predated the action taken in reliance.49 Such proof is lacking in this case. In their
and Delsaux were members of its Board of Directors, the three acted for and in behalf of communications to the petitioners, Glanville and Delsaux positively and unequivocally
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution declared that they were acting for and in behalf of respondent ESAC.
evincing the grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality but is a Neither may respondent EC be deemed to have ratified the transactions between the
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a and the various communications inter se were never submitted to the Board of Directors of
majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, respondent EC for ratification.
will not justify their being treated as one corporation. 43
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
It bears stressing that in an agent-principal relationship, the personality of the principal is the petitioners.
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any SO ORDERED.
way, be compelled by law or by any court.44
ROMEO J. CALLEJO, SR.
The petitioners cannot feign ignorance of the absence of any regular and valid authority of Associate Justice
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale
and to sell the said properties to the petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the agents; statements as to the extent
of his powers; such person must not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the scope of his authority. 45 The settled
rule is that, persons dealing with an assumed agent are bound at their peril, and if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the burden of proof is upon them
to prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners
are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell. 47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established: (1) the principal manifested
a representation of the agent’s authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his position to his detriment. 48 An
agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations
G.R. No. 115838 July 18, 2002
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of
Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the
decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-
2631. The trial court disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro
jointly and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued
petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro
("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De
Castros.4 The Court of Appeals summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New
York and Denver Streets in Cubao, Quezon City. In a letter dated January 24,
1984 (Exhibit "A-1, p. 144, Records), appellee6 was authorized by appellants to
act as real estate broker in the sale of these properties for the amount
of P23,000,000.00, five percent (5%) of which will be given to the agent as
commission. It was appellee who first found Times Transit Corporation, represented
by its president Mr. Rondaris, as prospective buyer which desired to buy two (2)
lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the
sale of lots 14 and 15 was consummated. Appellee received from
appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee
apparently felt short changed because according to him, his total commission
should be P352,500.00 which is five percent (5%) of the agreed price
of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2)
lots, and that it was he who introduced the buyer to appellants and unceasingly
facilitated the negotiation which ultimately led to the consummation of the sale.
Hence, he sued below to collect the balance of P303,606.24 after having
received P48,893.76 in advance.1âwphi1.nêt
On the other hand, appellants completely traverse appellee's claims and
essentially argue that appellee is selfishly asking for more than what he truly
deserved as commission to the prejudice of other agents who were more
instrumental in the consummation of the sale. Although appellants readily concede
that it was appellee who first introduced Times Transit Corp. to them, appellee was
not designated by them as their exclusive real estate agent but that in fact there
were more or less eighteen (18) others whose collective efforts in the long run
dwarfed those of appellee's, considering that the first negotiation for the sale
where appellee took active participation failed and it was these other agents who
successfully brokered in the second negotiation. But despite this and out of
appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless
was given the largest cut in the commission (P48,893.76), although on the principle
of quantum meruit he would have certainly been entitled to less. So appellee
should not have been heard to complain of getting only a pittance when he
actually got the lion's share of the commission and worse, he should not have been
allowed to get the entire commission. Furthermore, the purchase price for the two
lots was only P3.6 million as appearing in the deed of sale and not P7.05 million
as alleged by appellee. Thus, even assuming that appellee is entitled to the entire
commission, he would only be getting 5% of the P3.6 million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the
sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by
Constante clearly established a contract of agency between Constante and Artigo. Thus,
Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for
brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots.
Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the
purchase price as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to
implead as indispensable parties the other co-owners of the two lots. The Court of Appeals
explained that it is not necessary to implead the other co-owners since the action is
exclusively based on a contract of agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting
parol evidence to prove the true amount paid by Times Transit to the De Castros for the two
lots. The Court of Appeals ruled that evidence aliunde could be presented to prove that the
actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of
sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness
in the deed of sale between the De Castros and Times Transit. The Court of Appeals
explained that, "the rule that oral evidence is inadmissible to vary the terms of written
instruments is generally applied only in suits between parties to the instrument and strangers
to the contract are not bound by it." Besides, Artigo was not suing under the deed of sale,
but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's
finding that the purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in -
I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT
ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR
ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES,
AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for failure to
implead all the co-owners of the two lots. The De Castros claim that Artigo always knew
that the two lots were co-owned by Constante and Corazon with their other siblings Jose
and Carmela whom Constante merely represented. The De Castros contend that failure to
implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the
four co-owners, would be paid with funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's action in the
litigation, and without whom no final determination of the case can be had. 7 The joinder of
indispensable parties is mandatory and courts cannot proceed without their
presence.8 Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and
order the inclusion of such party.9
However, the rule on mandatory joinder of indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January
24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission.
The authority was on a first come, first serve basis. The authority reads in full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in
connection with the sale of our property located at Edsa Corner New York &
Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis –CAC"
Constante signed the note as owner and as representative of the other co-owners. Under
this note, a contract of agency was clearly constituted between Constante and Artigo.
Whether Constante appointed Artigo as agent, in Constante's individual or representative
capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead
the other co-owners as indispensable parties. The De Castros admit that the other co-owners
are solidarily liable under the contract of agency,10 citing Article 1915 of the Civil Code,
which reads:
Art. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros'
theory that the other co-owners should be impleaded as indispensable parties. A noted
commentator explained Article 1915 thus –
"The rule in this article applies even when the appointments were made by the
principals in separate acts, provided that they are for the same transaction. The
solidarity arises from the common interest of the principals, and not from the
act of constituting the agency. By virtue of this solidarity, the agent can recover
from any principal the whole compensation and indemnity owing to him by
the others. The parties, however, may, by express agreement, negate this solidary
responsibility. The solidarity does not disappear by the mere partition effected by
the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the
agency, only the latter are solidarily liable, without prejudice to the effects
of negotiorum gestio with respect to the others. And if the power granted includes
various transactions some of which are common and others are not, only those
interested in each transaction shall be liable for it."11
When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.12 The agent may recover the whole compensation from any one of the co-
principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary
debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that –
"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed
by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed
against anyone of the solidary debtors or some or all of them simultaneously'."
(Emphasis supplied)
Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given
"his proportionate share and no longer entitled to any balance." According to them, Artigo
was just one of the agents involved in the sale and entitled to a "proportionate share" in the
commission. They assert that Artigo did absolutely nothing during the second negotiation but
to sign as a witness in the deed of sale. He did not even prepare the documents for the
transaction as an active real estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or
good custom is a valid contract, and constitutes the law between the parties. 14 The contract
of agency entered into by Constante with Artigo is the law between them and both are
bound to comply with its terms and conditions in good faith.
The mere fact that "other agents" intervened in the consummation of the sale and were paid
their respective commissions cannot vary the terms of the contract of agency granting Artigo
a 5 percent commission based on the selling price. These "other agents" turned out to be
employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted
the trial court to observe:
"The alleged `second group' of agents came into the picture only during the so-
called `second negotiation' and it is amusing to note that these (sic) second group,
prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be
employees of Times Transit, the buyer of the properties. And their efforts were
limited to convincing Constante to 'part away' with the properties because the
redemption period of the foreclosed properties is around the corner, so to speak.
(tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to open the floodgates of fraud and
deceit. A seller could always pretend rejection of the offer and wait for sometime
for others to renew it who are much willing to accept a commission far less than the
original broker. The immorality in the instant case easily presents itself if one has to
consider that the alleged `second group' are the employees of the buyer, Times Transit
and they have not bettered the offer secured by Mr. Artigo for P7 million.
 It is to be noted also that while Constante was too particular about the unrenewed
real estate broker's license of Mr. Artigo, he did not bother at all to inquire as to
the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-
40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable and
within the standard practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigo's inaction as well as failure to protest estops him
from recovering more than what was actually paid him. The De Castros cite Article 1235 of
the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness
and irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance
of partial payment of his commission neither amounts to a waiver of the balance nor puts
him in estoppel. This is the import of Article 1235 which was explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take as
satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not equivalent to the
required acceptance of performance as would extinguish the whole
obligation."16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial payment without waiving the balance. Thus,
there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim for
the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by exercising due diligence could or should have been done earlier. It is
negligence or omission to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined to assert it. 17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent
on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial
court, Artigo demanded in April and July of 1985 the payment of his commission by
Constante on the basis of the selling price of P7.05 million but there was no response from
Constante.18 After it became clear that his demands for payment have fallen on deaf ears,
Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten
years from the time the right of action accrues.19 The right of action accrues from the
moment the breach of right or duty occurs. From this moment, the creditor can institute the
action even as the ten-year prescriptive period begins to run.20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period.
The De Castros, however, still maintain that Artigo's cause of action is barred by laches.
Laches does not apply because only four years had lapsed from the time of the sale in June
1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989,
well within the ten-year prescriptive period. This does not constitute an unreasonable delay
in asserting one's right. The Court has ruled, "a delay within the prescriptive period is
sanctioned by law and is not considered to be a delay that would bar relief."21 In explaining
that laches applies only in the absence of a statutory prescriptive period, the Court has
stated -
"Laches is recourse in equity. Equity, however, is applied only in the absence, never in
contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules
on Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced
in the trial court to determine whether the actual selling price of the two lots was P7.05
million and not P3.6 million. The De Castros contend that it is erroneous to base the 5
percent commission on a purchase price of P7.05 million as ordered by the trial court and
the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly
stated in the deed of sale, the due execution and authenticity of which was admitted during
the trial.
The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and parole evidence
rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's
reliance on the various correspondences between Constante and Times Transit which were
mere photocopies that do not satisfy the best evidence rule. Further, these letters covered
only the first negotiations between Constante and Times Transit which failed; hence, these
are immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as
witness benefited therefrom, and being equally guilty, should be left where he presently
stands. They likewise claim that the Court of Appeals erred in relying on evidence which
were not offered for the purpose considered by the trial court. Specifically, Exhibits "B",
"C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million.
Finally, they argue that the courts a quo erred in giving credence to the perjured testimony
of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was
lying when he claimed at the outset that he was a licensed real estate broker when he was
not.
Whether the actual purchase price was P7.05 Million as found by the trial court and
affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a
question of fact and not of law. Inevitably, this calls for an inquiry into the facts and
evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or
analyze or weigh the evidence again.23 This Court is not the proper venue to consider a
factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of
appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in
the case of Cormero vs. Court of Appeals24 bears reiteration:
Law and jurisprudence support the award of moral damages and attorney's fees in favor of
Artigo. The award of damages and attorney's fees is left to the sound discretion of the
court, and if such discretion is well exercised, as in this case, it will not be disturbed on
appeal.25 Moral damages may be awarded when in a breach of contract the defendant
acted in bad faith, or in wanton disregard of his contractual obligation.26 On the other hand,
attorney's fees are awarded in instances where "the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim."27 There is no reason to disturb the trial court's finding that "the defendants' lack of
good faith and unkind treatment of the plaintiff in refusing to give his due commission
deserve censure." This warrants the award of P25,000.00 in moral damages
and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable.
Having found a buyer for the two lots, Artigo had already performed his part of the
bargain under the contract of agency. The De Castros should have exercised fairness and
good judgment in dealing with Artigo by fulfilling their own part of the bargain - paying
Artigo his 5 percent broker's commission based on the actual purchase price of the two lots.

"At the outset, it is evident from the errors assigned that the petition is anchored on WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals
a plea to review the factual conclusion reached by the respondent court. Such task dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO ORDERED.
however is foreclosed by the rule that in petitions for certiorari as a mode of
appeal, like this one, only questions of law distinctly set forth may be raised. These
questions have been defined as those that do not call for any examination of the
probative value of the evidence presented by the parties. (Uniland Resources vs.
Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs.
Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149
SCRA 67). And when this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if the trial court and the
appellate court were correct in according superior credit to this or that piece of
evidence and eventually, to the totality of the evidence of one party or the other,
the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA
349 [1991]). Thus, in the absence of any showing that the findings complained of
are totally devoid of support in the record, or that they are so glaringly erroneous
as to constitute serious abuse of discretion, such findings must stand, for this court is
not expected or required to examine or contrast the oral and documentary
evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391
[1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. The trial and appellate courts are in a
much better position to evaluate properly the evidence. Hence, we find no other recourse
but to affirm their finding on the actual purchase price.1âwphi1.nêt

Fourth Issue: whether award of moral damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damages and
attorney's fees. The De Castros, however, cite no concrete reason except to say that they
are the ones entitled to damages since the case was filed to harass and extort money from
them.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV
No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court
(RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which
denied petitioner’s Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil
Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in the
concept of a personal loan amounting to P405,430.00 representing the principal amount
and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner,
as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements
thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No.
382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in
Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was
mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure
petitioner’s loan in the sum of P337,050.00 with that entity; that as a condition for the
foregoing sale, respondent shall assume the undue balance of the mortgage and pay the
monthly amortization of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being occupied by a tenant paying
a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned
that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and
interest; that upon informing the petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that
petitioner collected rent over the property for the month of January 1997 and refused to
remit the proceeds to respondent; and that respondent suffered damages as a result and
was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that
she borrowed money from respondent, and averred that from June to September 1995, she
referred her friends to respondent whom she knew to be engaged in the business of lending
money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that
her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and
Elizabeth Tomelden, borrowed money from respondent and issued personal checks in
payment of the loan; that the checks bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the borrowers, she could no longer locate them;
that, because of this, respondent became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be filed against her; that she was forced to
issue eight checks amounting to P350,000 to answer for the bounced checks of the
borrowers she referred; that prior to the issuance of the checks she informed respondent
that they were not sufficiently funded but the latter nonetheless deposited the checks and
for which reason they were subsequently dishonored; that respondent then threatened to
initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor,
Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that
she did not appear before a notary public; that the Community Tax Certificate number on
the deed was not hers and for which respondent may be prosecuted for falsification and
perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid;
second; if valid, whether petitioner is obliged to sign and execute the necessary documents
to effect the transfer of her rights over the property to the respondent; and third, whether
petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint
for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by and
between plaintiff and defendant. Moreover, the property is not solely owned by defendant
as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A,
Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of
Teodorico Doles on the parcel of land described in this certificate of title by virtue of the
special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no
effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE
DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF
EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision
of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered
ordering defendant-appellee to execute all necessary documents to effect transfer of
subject property to plaintiff-appellant with the arrearages of the former’s loan with the
NHMFC, at the latter’s expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount
borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was
supported by a valid consideration, which is the sum of money petitioner owed respondent
amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends
of petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent; 7 that the money borrowed was deposited with
the bank account of the petitioner, while payments made for the loan were deposited by
the latter to respondent’s bank account; 8 that petitioner herself admitted in open court that
she was "re-lending" the money loaned from respondent to other individuals for profit; 9 and
that the documentary evidence shows that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce one’s claim
through competent authority under Article 133511 of the Civil Code;12 that with respect to
the arrearages of petitioner on her monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as the
claim for damages and attorney’s fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity
to sue petitioner; and that the CA failed to consider the fact that petitioner’s father, who co-
owned the subject property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL
TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM
THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made by
the lower courts, jurisprudence has recognized several exceptions, at least three of which
are present in the instant case, namely: when the judgment is based on a misapprehension
of facts; when the findings of facts of the courts a quo are conflicting; and when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore,
the Court finds it necessary to re-examine the evidence presented by the contending parties
during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed between
her and the respondent in their own names, which was predicated on that pre-existing debt,
is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form Atty. Diza:
of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This
Court has consistently held that a contract of sale is null and void and produces no effect q. What is that transaction?
whatsoever where the same is without cause or consideration. 17 The question that has to be
resolved for the moment is whether this debt can be considered as a valid cause or
consideration for the sale. witness:

To restate, the CA cited four instances in the record to support its holding that petitioner "re- a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
lends" the amount borrowed from respondent to her friends: first, the friends of petitioner
never presented themselves to respondent and that all transactions were made by and Atty. Diza:
between petitioner and respondent; 18 second; the money passed through the bank accounts
of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" q. Did the plaintiff personally see the transactions with your friends?
the money loaned to other individuals for profit; 20 and fourth, the documentary evidence
shows that the actual borrowers, the friends of petitioner, consider her as their creditor and witness:
not the respondent.21
a. No, sir.
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination:22
Atty. Diza:
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
witness:
a. Yes, sir.
a. Yes, sir.
Atty. Diza:
Atty. Diza:
q. You are intermediaries?
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin,
Maria Luisa Inocencio, Zenaida Romulo, they are your friends? witness:

witness: a. We are both intermediaries. As evidenced by the checks of the debtors they
were deposited to the name of Arsenio Pua because the money came from Arsenio
Pua.
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they
were just referred.
xxxx
Atty. Diza:
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
q. Did the plaintiff knew [sic] that you will lend the money to your friends
specifically the one you mentioned [a] while ago?
witness:
witness:
a. Yes, sir.
a. Yes, she knows the money will go to those persons. q. So the money came from Arsenio Pua?

Atty. Diza: witness:

q. You are re-lending the money? a. Yes, because I am only representing him, sir.

witness: Other portions of the testimony of respondent must likewise be considered: 24

a. Yes, sir. Atty. Villacorta:

Atty. Diza: q. So it is not actually your money but the money of Arsenio Pua?

q. What profit do you have, do you have commission? witness:

witness: a. Yes, sir.

a. Yes, sir. Court:

Atty. Diza: q. It is not your money?

q. How much? witness:

witness: a. Yes, Your Honor.

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my Atty. Villacorta:
friends none, sir.
q. Is it not a fact Ms. Witness that the defendant borrowed from you to
Based on the foregoing, the CA concluded that petitioner is the real borrower, accommodate somebody, are you aware of that?
while the respondent, the real lender.
witness:
But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:23 a. I am aware of that.

Atty. Villacorta: Atty. Villacorta:

q. Who is this Arsenio Pua? q. More or less she [accommodated] several friends of the defendant?

witness: witness:

a. Principal financier, sir. a. Yes, sir, I am aware of that.

Atty. Villacorta: xxxx

Atty. Villacorta: witness:

q. And these friends of the defendant borrowed money from you with the a. Yes, sir.
assurance of the defendant?
Atty. Villacorta:
witness:
q. And some of the checks that were issued by the friends of the defendant
a. They go direct to Jocelyn because I don’t know them. bounced, am I correct?

xxxx witness:

Atty. Villacorta: a. Yes, sir.

q. And is it not also a fact Madam witness that everytime that the defendant Atty. Villacorta:
borrowed money from you her friends who [are] in need of money issued check[s]
to you? There were checks issued to you? q. And because of that Arsenio Pua got mad with you?

witness: witness:

a. Yes, there were checks issued. a. Yes, sir.

Atty. Villacorta: Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua,
her disclosed principal. She is also estopped to deny that petitioner acted as agent for the
q. By the friends of the defendant, am I correct? alleged debtors, the friends whom she (petitioner) referred.

witness: This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a
a. Yes, sir. question which may be established in the same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of intention.26 Agency may even be
implied from the words and conduct of the parties and the circumstances of the particular
Atty. Villacorta: case.27Though the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as agent for
q. And because of your assistance, the friends of the defendant who are in need of another, she may be estopped to deny her agency both as against the asserted principal
money were able to obtain loan to [sic] Arsenio Pua through your assistance? and the third persons interested in the transaction in which he or she is engaged. 28

witness: In this case, petitioner knew that the financier of respondent is Pua; and respondent knew
that the borrowers are friends of petitioner.
a. Yes, sir.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the
Atty. Villacorta: actual borrowers, did not present themselves to [respondent]" as evidence that negates the
agency relationship—it is sufficient that petitioner disclosed to respondent that the former
q. So that occasion lasted for more than a year? was acting in behalf of her principals, her friends whom she referred to respondent. For an
agency to arise, it is not necessary that the principal personally encounter the third person
with whom the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the third person
with whom her agent transacts: precisely, the purpose of agency is to extend the personality
of the principal through the facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other
that they are representing someone else, and so both of them are estopped to deny the
same. It is evident from the record that petitioner merely refers actual borrowers and then
collects and disburses the amounts of the loan upon which she received a commission; and
that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If
their respective principals do not actually and personally know each other, such ignorance
does not affect their juridical standing as agents, especially since the very purpose of
agency is to extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the
parties designate the relationship is not controlling. If an act done by one person in behalf of
another is in its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called.30 The question is to be determined by the fact
that one represents and is acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood the exact nature of the relation or
not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner
was "re-lending", then the checks should have been drawn in her name and not directly paid
to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements
and payments for the loan were made through the bank accounts of petitioner and
respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be appointed, such
as the bank itself, to carry out the task, especially where there is no stipulation to the
contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan, then the
sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up
by another consideration that is separate and distinct from the debt: respondent averred in
her complaint and testified that the parties had agreed that as a condition for the
conveyance of the property the respondent shall assume the balance of the mortgage loan
which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration for a sale. 34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT,35 the Court must stress that the Transfer Certificate of Title
No. 38253236 on its face shows that the owner of the property which admittedly forms the
subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father,
Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in the
name of "Household Development Corporation." Although there is an entry to the effect that
the petitioner had been granted a special power of attorney "covering the shares of
Teodorico Doles on the parcel of land described in this certificate," 37 it cannot be inferred
from this bare notation, nor from any other evidence on the record, that the petitioner or her
father held any direct interest on the property in question so as to validly constitute a
mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale
at the consummation stage.39 What is worse, there is a notation that the TCT itself has been
"cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place, endowed with any ownership rights to
validly mortgage and convey the property. As the complainant who initiated the case,
respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon petitioner upon the execution of the
sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondent’s
allegation that the mortgage with the NHMFC was for 25 years which began September 3,
1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years
had not lapsed, the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
G.R. No. 151319 November 22, 2004 The document reads in part:

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, The monthly installment will start April 6, 1985; the amount of P1,800.00 and the
vs. difference will be issued as discounted to conform to the previous price as
PEDRO L. LINSANGAN, respondent. previously agreed upon. --- P95,000.00

Prepared by:
DECISION
(Signed)
TINGA, J.:
(MRS.) FLORENCIA C. BALUYOT
For resolution in this case is a classic and interesting texbook question in the law on agency. Agency Manager
Holy Cross Memorial Park
This is a petition for review assailing the Decision 1 of the Court of Appeals dated 22 June
2001, and its Resolution2dated 12 December 2001 in CA G.R. CV No. 49802 entitled 4/18/85
"Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial
Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to Dear Atty. Linsangan:
respondent Atty. Pedro L. Linsangan.
This will confirm our agreement that while the offer to purchase under Contract No.
The facts of the case are as follows: 28660 states that the total price of P132,250.00 your undertaking is to pay only
the total sum of P95,000.00 under the old price. Further the total sum of
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has
State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, been credited in the total purchase price thereby leaving a balance of
a former owner of a memorial lot under Contract No. 25012 was no longer interested in P75,162.00 on a monthly installment of P1,800.00 including interests (sic) charges
acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts he for a period of five (5) years.
already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that
once reimbursement is made to the former buyer, the contract would be transferred to him.
Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be (Signed)
reimbursed to the original buyer and to complete the down payment to MMPCI.3 Baluyot
issued handwritten and typewritten receipts for these payments. 4 FLORENCIA C. BALUYOT

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official
Contract No. 28660, a new contract covering the subject lot in the name of the latter
Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12)
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that
postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April
he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down
1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.
payment leaving a balance of about P75,000.00.5
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15),
cancelled for reasons the latter could not explain, and presented to him another proposal
Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No.
for the purchase of an equivalent property. He refused the new proposal and insisted that
118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a
Baluyot and MMPCI honor their undertaking.
listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same
was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed
a document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
pay only the original price of P95,000.00. Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660
was cancelled conformably with the terms of the contract 8 because of non-payment of
arrearages.9 MMPCI stated that Baluyot was not an agent but an independent contractor,
and as such was not authorized to represent MMPCI or to use its name except as to the
extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not
aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact
received a down payment and monthly installments as indicated in the contract.11 Official
receipts showing the application of payment were turned over to Baluyot whom Atty.
Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been rectified by the
Account Updating Arrangement signed by Atty. Linsangan which states that he "expressly
admits that Contract No. 28660 'on account of serious delinquency…is now due for
cancellation under its terms and conditions.''' 12
The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot
was an agent of MMPCI and that the latter was estopped from denying this agency, having
received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot.
While MMPCI insisted that Baluyot was authorized to receive only the down payment, it
allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn
consistently encashed.14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered in
favor of plaintiff declaring Contract No. 28660 as valid and subsisting and
ordering defendants to perform their undertakings thereof which covers burial lot
No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at
Novaliches, Quezon City. All payments made by plaintiff to defendants should be
credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but with costs
against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against
defendant Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were clearly set
forth therein and read, understood, and signed by the former.17 It also alleged that Atty.
Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the
contract, is presumed to know his contractual obligations and is fully aware that he cannot
belatedly and unilaterally change the terms of the contract without the consent, much less
the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI
did not agree to a change in the contract and in fact implemented the same pursuant to its
clear terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly
cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the
latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added
that it cannot be charged with making any misrepresentation, nor of having allowed Baluyot
to act as though she had full powers as the written contract expressly stated the terms and
conditions which Atty. Linsangan accepted and understood. In canceling the contract, MMPCI
merely enforced the terms and conditions imposed therein.18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's
obligation, as a party knowingly dealing with an alleged agent, to determine the limitations
of such agent's authority, particularly when such alleged agent's actions were patently
questionable. According to MMPCI, Atty. Linsangan did not even bother to verify Baluyot's
authority or ask copies of official receipts for his payments. 19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's
finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered
into, having represented MMPCI's interest and acting on its behalf in the dealings with
clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to act
and represent MMPCI even beyond her authority.20 The appellate court likewise found that
the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in its
behalf and stead. While Baluyot's authority "may not have been expressly conferred upon
her, the same may have been derived impliedly by habit or custom, which may have been
an accepted practice in the company for a long period of time." 21 Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced
where the principal failed to adopt the needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits
of such misrepresentation, he cannot at the same time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight and significance, its factual
findings and conclusions must be given great weight and should not be disturbed by this
Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the
appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National
Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide
by the terms thereof, which justified its cancellation. In addition, even assuming that Baluyot
was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or
should have known about this considering his status as a long-practicing lawyer. MMPCI
likewise claims that the Court of Appeals erred in failing to consider that the facts and the
applicable law do not support a judgment against Baluyot only "up to the extent of costs." 26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and
in fact faithfully performed his contractual obligations and complied with them in good faith
for at least two years.27 He claims that contrary to MMPCI's position, his profession as a
lawyer is immaterial to the validity of the subject contract and the case at bar. 28 According
to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and thus,
the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though she
had full powers to be held solidarily liable with the latter. 29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of
Court is limited to reviewing only errors of law, not fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed judgment is
based on misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation,31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of
Appeals may be reviewed by the Supreme Court, such as (1) when the conclusion is
a finding grounded entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings
are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners' main and reply briefs are not
disputed by the respondents; and (10) the findings of fact of the Court of Appeals
are premised on the supposed absence of evidence and contradicted by the
evidence on record.32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the
facts of the case, as well as made conclusions devoid of evidentiary support, hence we
review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. 33 Thus,
the elements of agency are (i) consent, express or implied, of the parties to establish the
relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii)
the agent acts as a representative and not for himself; and (iv) the agent acts within the
scope of his authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its
Agency Manager Agreement; an agency manager such as Baluyot is considered an
independent contractor and not an agent.35However, in the same contract, Baluyot as
agency manager was authorized to solicit and remit to MMPCI offers to purchase interment
spaces belonging to and sold by the latter.36 Notwithstanding the claim of MMPCI that
Baluyot was an independent contractor, the fact remains that she was authorized to solicit
solely for and in behalf of MMPCI. As properly found both by the trial court and the Court
of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter,
and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by
the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are
contained in such forms and, when signed by the buyer and an authorized officer of MMPCI,
becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by
MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that
"Purchaser agrees that he has read or has had read to him this agreement, that he
understands its terms and conditions, and that there are no covenants, conditions, warranties
or representations other than those contained herein." 37 By signing the Offer to Purchase,
Atty. Linsangan signified that he understood its contents. That he and Baluyot had an
agreement different from that contained in the Offer to Purchase is of no moment, and
should not affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat,
Baluyot's authority was limited only to soliciting purchasers. She had no authority to alter the
terms of the written contract provided by MMPCI. The document/letter "confirming" the
agreement that Atty. Linsangan would have to pay the old price was executed by Baluyot
alone. Nowhere is there any indication that the same came from MMPCI or any of its
officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it.38 The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. 39 If he does not
make such an inquiry, he is chargeable with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse.40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of
the latter's authority is no excuse to such person and the fault cannot be thrown upon the
principal.41 A person dealing with an agent assumes the risk of lack of authority in the
agent. He cannot charge the principal by relying upon the agent's assumption of authority
that proves to be unfounded. The principal, on the other hand, may act on the presumption
that third persons dealing with his agent will not be negligent in failing to ascertain the
extent of his authority as well as the existence of his agency. 42
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire
whether Baluyot was authorized to agree to terms contrary to those indicated in the written
contract, much less bind MMPCI by her commitment with respect to such agreements. Even if
Baluyot was Atty. Linsangan's friend and known to be an agent of MMPCI, her declarations
and actions alone are not sufficient to establish the fact or extent of her authority. 43 Atty.
Linsangan as a practicing lawyer for a relatively long period of time when he signed the
contract should have been put on guard when their agreement was not reflected in the
contract. More importantly, Atty. Linsangan should have been alerted by the fact that
Baluyot failed to effect the transfer of rights earlier promised, and was unable to make
good her written commitment, nor convince MMPCI to assent thereto, as evidenced by
several attempts to induce him to enter into other contracts for a higher consideration. As
properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be
expected of Atty. Linsangan especially in dealings involving legal documents. He did not
even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to
ascertain the real status of the contract, blindly relying on the representations of Baluyot. A
lawyer by profession, he knew what he was doing when he signed the written contract,
knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept
responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For
the trial court, MMPCI's acts of accepting and encashing the checks issued by Atty.
Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI
confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted
MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in view
of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no longer deny
responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil
Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits of the powers granted
by the principal. In this case, however, the agent is liable if he undertook to secure
the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless
he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot
ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts
he is to ratify.44
Ratification in agency is the adoption or confirmation by one person of an act performed on
his behalf by another without authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have
full knowledge at the time of ratification of all the material facts and circumstances relating
to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless of the parties between
whom the question of ratification may arise.45Nevertheless, this principle does not apply if
the principal's ignorance of the material facts and circumstances was willful, or that the
principal chooses to act in ignorance of the facts.46 However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot
was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly
installments as indicated in the contract. Thus, every time an installment falls due, payment
was to be made through a check from Atty. Linsangan for P1,800.00 and a cash component
of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan issued the
post-dated checks, Baluyot failed to come up with her part of the bargain. This was
supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager
of MMPCI, two days after she received the copy of the Complaint. In the letter, she
admitted that she was remiss in her duties when she consented to Atty. Linsangan's proposal
that he will pay the old price while the difference will be shouldered by her. She likewise
admitted that the contract suffered arrearages because while Atty. Linsangan issued the
agreed checks, she was unable to give her share of P1,455.00 due to her own financial
difficulties. Baluyot even asked for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as
MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to
Purchase signed by Atty. Linsangan and MMPCI's authorized officer. The down payment of
P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments
of P3,235.00 for at least two installments were likewise in accord with the contract, albeit
made through a check and partly in cash. In view of Baluyot's failure to give her share in the
payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment.
In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier
cancellation of the contract, if not for MMPCI's application of some of the checks to his
account. However, the checks alone were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments
for being insufficient. It would not have applied to his account the P1,800.00 checks.
Moreover, the fact that Baluyot had to practically explain to MMPCI's Sales Manager the
details of her "arrangement" with Atty. Linsangan and admit to having made an error in
entering such arrangement confirm that MMCPI had no knowledge of the said agreement. It
was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of
the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i)
conduct of a party amounting to false representation or concealment of material facts or at
least calculated to convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (ii) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the other party;
and (iii) knowledge, actual or constructive, of the real facts.51
While there is no more question as to the agency relationship between Baluyot and MMPCI,
there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe
that Baluyot had the authority to alter the standard contracts of the company. Neither is
there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of
Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the
ground that he has been misled by the representations of another must not have been
misled through his own want of reasonable care and circumspection. 52 Even assuming that
Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of
estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily
determined, had he only been cautious and prudent, whether said agent was clothed with
the authority to change the terms of the principal's written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily become a most convenient
and effective means of injustice.53 In view of the lack of sufficient proof showing estoppel,
we refuse to hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority
of defendant Baluyot may not have been expressly conferred upon her; however, the same
may have been derived impliedly by habit or custom which may have been an accepted
practice in their company in a long period of time." A perusal of the records of the case
fails to show any indication that there was such a habit or custom in MMPCI that allows its
agents to enter into agreements for lower prices of its interment spaces, nor to assume a
portion of the purchase price of the interment spaces sold at such lower price. No evidence
was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No.
28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in
the former's cemetery. The other is the agreement between Baluyot and Atty. Linsangan for
the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the
original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal
unless the latter ratifies the same. It also bears emphasis that when the third person knows
that the agent was acting beyond his power or authority, the principal cannot be held liable
for the acts of the agent. If the said third person was aware of such limits of authority, he is
to blame and is not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification.54
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms
and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI
merely enforced its rights under the said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he
claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00
contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can
he hold Baluyot liable for damages under the same contract, since there is no evidence
showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement"
between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00
under Contract No. 28660, and had in fact received several payments in accordance with
the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's
recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of
P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to
shoulder the said difference would be to conclude that MMPCI undertook to pay itself the
difference, a conclusion that is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to
recover damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach
of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in
addition to Atty. Linsangan's P1,800.00 to complete the monthly installment payment under
the contract, which, by her own admission, she was unable to do due to personal financial
difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and
were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have
been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can
pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated
22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as
well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City
Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253
is DISMISSED for lack of cause of action. No pronouncement as to costs. SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
G.R. No. 130148 December 15, 1997
JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-
G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos,
Bulacan which found private respondent Narciso Deganos liable to petitioners for actual
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability.
Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied
their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent
Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several occasions
during the period from April 27, 1987 to September 4, 1987, respondent Narciso
Deganos, the brother to Brigida D. Luz, received several pieces of gold and jewelry from
petitioner amounting to P382,816.00.1 These items and their prices were indicated in
seventeen receipts covering the same. Eleven of the receipts stated that they were received
for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they
were received for Brigida D. Luz.2
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and
return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He
neither paid the balance of the sales proceeds, nor did he return any unsold item to
petitioners. By January 1990, the total of his unpaid account to petitioners, including
interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a complaint in
the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared
as a witness for Deganos and ultimately, she and her husband, together with Deganos,
signed a compromise agreement with petitioners. In that compromise agreement, Deganos
obligated himself to pay petitioners, on installment basis, the balance of his account plus
interest thereon. However, he failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida, D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment. 4 Ernesto Luz was
impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with
estafa 5 in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal
Case No. 785-M-94. That criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of
Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay
for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners,
he claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He
further asserted that it was he alone who was involved in the transaction with the
petitioners; that he neither acted as agent for nor was he authorized to act as an agent by
Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items were
received by him for the latter. He further claimed that he never delivered any of the items
he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between
petitioners and Dangerous. She claimed that she never authorized Deganos to receive any
item of jewelry in her behalf and, for that matter, neither did she actually receive any of
the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount
and damages claimed. It held that while Brigida D. Luz did have transactions with
petitioners in the past, the items involved were already paid for and all that Brigida owed
petitioners was the sum of P21,483.00 representing interest on the principal account which
she had previously paid for.6
The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts
that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court
was "persuaded that Brigida D. Luz was behind Deganos," but because there was no
memorandum to this effect, the agreement between the parties was unenforceable under
the Statute of Frauds.8 Absent the required memorandum or any written document
connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to
act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest
thereon June 25, 1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00
representing the interest on her own personal loan. She and her co-defendant spouse were
absolved from any other or further liability.9
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court
Appeals which affirmed said judgment. 10 The motion for reconsideration filed by
petitioners was subsequently dismissed, 11 hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses are
liable to petitioners for the latter's claim for money and damages in the sum of
P725,463.98, plus interests and attorney's fees, despite the fact that the evidence does not
show that they signed any of the subject receipts or authorized Deganos to received the
items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a
quo that respondent spouses are not liable to them, as said conclusion of the trial court is
contradicted by the finding of fact of the appellate court that "(Deganos) acted as agent of
his sister (Brigida Luz)." 12 In support of this contention, petitioners quoted several letters sent
to them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and
requested for more time to fulfill the same. They likewise aver that Brigida testified in the
trial court that Deganos took some gold articles from petitioners and delivered the same to
her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and had
nothing to do with the money sought to be recovered in the instant case. Such concurrent
factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this
appellate review that the letters were in the nature of acknowledgments by Brigida that she
was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to
her, there is no showing whatsoever that her statement referred to the items which are the
subject matter of this case. It cannot, therefore, be validly said that she admitted her
liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with
apparent authority as her agent and held him out to the public as such, hence Brigida can
not be permitted to deny said authority to innocent third parties who dealt with Deganos
under such belief. 13 Petitioners further represent that the Court of Appeals recognized in its
decision that Deganos was an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos
in his obligation to petitioners. While the quoted statement in the findings of fact of the
assailed appellate decision mentioned that Deganos ostensibly acted as an agent of
Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that,
"(Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any
transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that
Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf
with regard to the transaction subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of another,
with the consent or authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less
with respect to the particular transactions involved. Petitioners' attempt to foist
liability on respondent spouses through the supposed agency relation with Deganos
is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not
once or twice but on at least six occasions as evidenced by six receipts, several pieces of
jewelry of substantial value without requiring a written authorization from his alleged
principal. A person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.16
The records show that neither an express nor an implied agency was proven to have existed
between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their
transactions with Deganos, cannot seek relief from the effects of their negligence by
conjuring a supposed agency relation between the two respondents where no evidence
supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision
of the court below, which it affirmed, is "null and void" as it contradicted its ruling in CA-
G.R. SP No. 39445 holding that there is "sufficient evidence/proof" against Brigida D. Luz
and Deganos for estafa in the pending criminal case. They further aver that said appellate
court erred in ruling against them in this civil action since the same would result in an
inevitable conflict of decisions should be trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and
Deganos had filed a demurrer to evidence and a motion for reconsideration in the
aforestated criminal case, both of which were denied by the trial court. They then filed a
petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and
motion for reconsideration but, as just stated, their petition therefor was dismissed. 17
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in
CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that there
is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence, as
already stated, petitioners theorize that the decision and resolution of the Court of Appeals
now being impugned in the case at bar would result in a possible conflict with the
prospective decision in the criminal case. Instead of promulgating the present decision and
resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse,
create two conflicting rulings. 18
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in
cases involving alleged fraudulent acts, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution and shall require only a preponderance
of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for
estafa was filed, and that although there was a move to consolidate both cases, the same
was denied by the trial court. Consequently, it was the duty of the two branches of the
Regional Trial Court concerned to independently proceed with the civil and criminal cases. It
will also be observed that a final judgment rendered in a civil action absolving the
defendant from civil liability is no bar to a criminal action. 19
It is clear, therefore, that this civil case may proceed independently of the criminal
case 20 especially because while both cases are based on the same facts, the quantum of
proof required for holding the parties liable therein differ. Thus, it is improvident of
petitioners to claim that the decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal case. Their fancied fear of
possible conflict between the disposition of this civil case and the coutcome of the pending
criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue
the denial resolution dated August 18, 1997, as the same was tainted with irregularities
and badges of fraud perpetrated by its court officers. 21 They charge that said appellate
court, through conspiracy and fraud on the part of its officers, gravely abused its discretion
in issuing that resolution denying their motion for reconsideration. They claim that said
resolution was drafted by the ponente, then signed and issued by the members of the
Eleventh Division of said court within one and a half days from the elevation thereof by the
division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the same
was made without waiting for the lapse of the ten-day period for respondents to file their
comment and for petitioners to file their reply. It was allegedly impossible for the Court of
Appeals to resolve the issue in just one and a half days, especially because its ponente, the
late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that,
additionally, "hundreds of more important cases were pending." 22
These lamentable allegation of irregularities in the Court of Appeals and in the conduct of
its officers strikes us as a desperate attempt of petitioners to induce this Court to give
credence to their arguments which, as already found by both the trial and intermediate
appellate courts, are devoid of factual and legal substance. The regrettably irresponsible
attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers
through ad hominem imputations could well be contumacious, but we are inclined to let that
pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial
court's decision. 23Petitioners moved for reconsideration and the Court of Appeals ordered
respondents to file a comment. Respondents filed the same on August 5, 1997 24 and
petitioners filed their reply to said comment on August 15, 1997. 25 The Eleventh Division of
said court issued the questioned resolution denying petitioner's motion for reconsideration on
August 18, 1997.26
It is ironic that while some litigants malign the judiciary for being supposedly slothful in
disposing of cases, petitioners are making a show of calling out for justice because the Court
of Appeals issued a resolution disposing of a case sooner than expected of it. They would
even deny the exercise of discretion by the appellate court to prioritize its action on cases in
line with the procedure it has adopted in disposing thereof and in declogging its dockets. It
is definitely not for the parties to determine and dictate when and how a tribunal should act
upon those cases since they are not even aware of the status of the dockets and the internal
rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of time
after the records of the case were elevated to the office of the ponente cannot, by itself, be
deemed irregular. There is no showing whatsoever that the resolution was issued without
considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners
does not exhibit any esoteric or ponderous argument which could not be analyzed within an
hour. It is a legal presumption, born of wisdom and experience, that official duty has been
regularly performed; 27that the proceedings of a judicial tribunal are regular and valid,
and that judicial acts and duties have been and will be duly and properly
performed. 28 The burden of proving irregularity in official conduct is on the part of
petitioners and they have utterly failed to do so. It is thus reprehensible for them to cast
aspersions on a court of law on the bases of conjectures or surmises, especially since one of
the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial court's holding that whatever contract of agency was
established between Brigida D. Luz and Narciso Deganos is unenforceable under the
Statute of Frauds as that aspect of this case allegedly is not covered thereby. 29 They
proceed on the premise that the Statute of Frauds applies only to executory contracts and
not to executed or to partially executed ones. From there, they move on to claim that the
contract involved in this case was an executed contract as the items had already been
delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of
the contract and removed the same from the coverage of the Statute of Frauds.
Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial
court nor the appellate court categorically stated that there was such a contractual relation
between these two respondents. The trial court merely said that if there was such an agency
existing between them, the same is unenforceable as the contract would fall under the
Statute of Frauds which requires the presentation of a note or memorandum thereof in order
to be enforceable in court. That was merely a preparatory statement of a principle of law.
What was finally proven as a matter of fact is that there was no such contract between
Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of
any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the
judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED
and the instant petition is DENIED, with double costs against petitioners.

SO ORDERED.

Puno, Mendoza and Martinez, JJ., concur.

G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals promulgated
on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-
appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants;
Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of
First Instance of Davao in Civil Case No. 3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action
for nullity, recovery of ownership and/or reconveyance with damages and attorney's fees
against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of
Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by
Original Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the respondent
herein. The deed of absolute sale in favor of the plaintiff was not registered because it was
not acknowledged before a notary public or any other authorized officer. At the time the
sale was executed, there was no authorized officer before whom the sale could be
acknowledged inasmuch as the civil government in Tagum, Davao was not as yet organized.
However, the defendant Marcos Mata delivered to Laureta the peaceful and lawful
possession of the premises of the land together with the pertinent papers thereof such as the
Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax
receipts and other papers related thereto. 3 Since June 10, 1945, the plaintiff Laureta had
been and is stin in continuous, adverse and notorious occupation of said land, without being
molested, disturbed or stopped by any of the defendants or their representatives. In fact,
Laureta had been paying realty taxes due thereon and had introduced improvements worth
not less than P20,000.00 at the time of the filing of the complaint. 4
On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold
by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of sale in
favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May 22, 1947,
Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the
Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of
Original Certificate of Title No. 3019, alleging as ground therefor the loss of said title in
the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5,
1947, the Court of First Instance of Davao issued an order directing the Register of Deeds
of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos
Mata and declaring the lost title as null and void. On December 9, 1947, the second sale
between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds.
On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin
Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with
counterclaim admitting the existence of a private absolute deed of sale of his only property
in favor of Claro L. Laureta but alleging that he signed the same as he was subjected to
duress, threat and intimidation for the plaintiff was the commanding officer of the 10th
division USFIP operating in the unoccupied areas of Northern Davao with its headquarters
at Project No. 7 (Km. 60, Davao Agusan Highways), in the Municipality of Tagum, Province
of Davao; that Laureta's words and requests were laws; that although the defendant Mata
did not like to sell his property or sign the document without even understanding the same,
he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of
harm or danger that will happen to him or to his family, if he refused he had no other
alternative but to sign the document. 6
The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the
Registry of Deeds regarding a document allegedly signed by him in favor of his co-
defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew
before hand that he had signed a deed of sale in favor of the plaintiff and that the
plaintiff was in possession of the certificate of title; that if ever his thumb mark appeared in
the document purportedly alienating the property to Fermin Caram, did his consent was
obtained through fraud and misrepresentation for the defendant Mata is illiterate and
ignorant and did not know what he was signing; and that he did not receive a consideration
for the said sale. 7
The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has
no knowledge or information about the previous encumbrances, transactions, and alienations
in favor of plaintiff until the filing of the complaints. 8
The trial court rendered a decision dated February 29, 1964, the dispositive portion of
which reads: 9
1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in
favor of Claro L. Laureta stands and prevails over the deed of sale,
Exhibit F, in favor of Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin
Caram, Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in
favor of Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the Secretary of
Agriculture and Natural Resources on the deed, Exhibit A, after Marcos
Mata shall have acknowledged the same before a notary public;
 5. Directing Claro L. Laureta to surrender to the Register of Deeds for the
City and Province of Davao the Owner's Duplicate of Original Certificate
of Title No. 3019 and the latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of Davao to
cancel Transfer Certificate of Title No. T-140 in the name of Fermin
Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of Davao to
issue a title in favor of Claro L. Laureta, Filipino, resident of Quezon City,
upon presentation of the deed executed by Marcos Mata in his favor,
Exhibit A, duly acknowledged by him and approved by the Secretary of
Agriculture and Natural Resources, and
8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi
Mata, the counterclaim of Caram, Jr., the answer in intervention,
counterclaim and cross-claim of the Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals. 10 The appeal was
docketed as CA-G.R. NO. 35721- R.
The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment
of the trial court.
In his brief, the petitioner assigns the following errors: 11
I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
IRESPE AND APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER
CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
THE EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL
EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT
TRIBUTABLE TO PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF
LAW IN HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA
OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE
TO PETITIONER AND EQUIVALENT IN LAW OF REGISTRATION OF SAID
SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT
AN ACTION FOR RECONVEYANCE ON THE GROUND OF FRAUD
PRESCRIBES WITHIN FOUR (4) YEARS.
The petitioner assails the finding of the trial court that the second sale of the property was
made through his representatives, Pedro Irespe and Atty. Abelardo Aportadera. He argues
that Pedro Irespe was acting merely as a broker or intermediary with the specific task and
duty to pay Marcos Mata the sum of P1,000.00 for the latter's property and to see to it
that the requisite deed of sale covering the purchase was properly executed by Marcos
Mata; that the Identity of the property to be bought and the price of the purchase had
already been agreed upon by the parties; and that the other alleged representative, Atty.
Aportadera, merely acted as a notary public in the execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that Mata, the
vendor, and Caram, the second vendee had never met. During the trial, Marcos Mata
testified that he knows Atty. Aportadera but did not know Caram. 12 Thus, the sale of the
property could have only been through Caram's representatives, Irespe and Aportadera.
The petitioner, in his answer, admitted that Atty. Aportadera acted as his notary public and
attorney-in-fact at the same time in the purchase of the property. 13
The petitioner contends that he cannot be considered to have acted in bad faith because
there is no direct proof showing that Irespe and Aportadera, his alleged agents, had
knowledge of the first sale to Laureta. This contention is also without merit.
The Court of Appeals, in affirming the decision of the trial court, said: 14
The trial court, in holding that appellant Caram. Jr. was not a purchaser in
good faith, at the time he bought the same property from appellant
Mata, on May 5, 1947, entirely discredited the testimony of Aportadera.
Thus it stated in its decision:
The testimony of Atty. Aportadera quoted elsewhere in this decision is
hollow. There is every reason to believe that Irespe and he had known of
the sale of the property in question to Laureta on the day Mata and
Irespe, accompanied by Leaning Mansaca, went to the office of Atty.
Aportadera for the sale of the same property to Caram, Jr., represented
by Irespe as attorney-in-fact. Ining Mansaca was with the two — Irespe
 and Mata — to engage the services 6f Atty. Aportadera in the annulment
of the sale of his land to Laureta. When Leaning Mansaca narrated to
Atty. Aportadera the circumstances under which his property had been
sold to Laureta, he must have included in the narration the sale of the land
of Mata, for the two properties had been sold on the same occassion and
under the same circumstances. Even as early as immediately after
liberation, Irespe, who was the witness in most of the cases filed by Atty.
Aportadera in his capacity as Provincial Fiscal of Davao against Laureta,
must have known of the purchases of lands made by Laureta when he was
regimental commander, one of which was the sale made by Mata. It was
not a mere coincidence that Irespe was made guardian ad litem of
Leaning Mansaca, at the suggestion of Atty. Aportadera and attorney-in-
fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-in-fact of
Caram, Jr. had knowledge of the prior existing transaction, Exhibit A,
between Mata and Laureta over the land, subject matter of this litigation,
when the deed, Exhibit F, was executed by Mata in favor of Caram, Jr.
And this knowledge has the effect of registration as to Caram, Jr. RA pp.
123-124)
We agree with His Honor's conclusion on this particular point, on two
grounds — the first, the same concerns matters affecting the credibility of
a witness of which the findings of the trial court command great weight,
and second, the same is borne out by the testimony of Atty. Aportadera
himself. (t.s.n., pp. 187-190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their
actions have not satisfied the requirement of good faith. Bad faith is not based solely on the
fact that a vendee had knowledge of the defect or lack of title of his vendor. In the case of
Leung Yee vs. F. L. Strong Machinery Co. and Williamson, this Court held: 15
One who purchases real estate with knowledge of a defect or lack of title
in his vendor can not claim that he has acquired title thereto in good faith,
as against the true owner of the land or of an interest therein, and the
same rule must be applied to one who has knowledge of facts which
should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to
have put them an inquiry. Both of them knew that Mata's certificate of title together with
other papers pertaining to the land was taken by soldiers under the command of Col. Claro
L. Laureta. 16 Added to this is the fact that at the time of the second sale Laureta was
already in possession of the land. Irespe and Aportadera should have investigated the
nature of Laureta's possession. If they failed to exercise the ordinary care expected of a
buyer of real estate they must suffer the consequences. The rule of caveat emptor requires
the purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendor's title takes all the risks and losses consequent to such failure. 17
The principle that a person dealing with the owner of the registered land is not bound to go
behind the certificate and inquire into transactions the existence of which is not there
intimated 18 should not apply in this case. It was of common knowledge that at the time the
soldiers of Laureta took the documents from Mata, the civil government of Tagum was not
yet established and that there were no officials to ratify contracts of sale and make them
registerable. Obviously, Aportadera and Irespe knew that even if Mata previously had sold
t he Disputed such sale could not have been registered.
There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased
the property of Mata in bad faith. Applying the principle of agency, Caram as principal,
should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recordered it in the Registry of
Property.
Should there be no inscription, the ownership shag pertain to the person
who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.
(1473)
Since Caram was a registrant in bad faith, the situation is as if there was no registration at
all. 19
The question to be determined now is, who was first in possession in good faith? A possessor
in good faith is one who is not aware that there exists in his title or mode of acquisition any
flaw which invalidates it. 20 Laureta was first in possession of the property. He is also a
possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of
Laureta was procured by force. 21 Such defect, however, was cured when, after the lapse of
four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an
action for annulment or to set up nullity of the contract as a defense in an action to enforce
the same.
Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit
"F", is a voidable contract. Being a voidable contract, the action for annulment of the same
on the ground of fraud must be brought within four (4) years from the discovery of the
fraud. In the case at bar, Laureta is deemed to have discovered that the land in question WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought
has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, to be reviewed is affirmed, without pronouncement as to costs.
Exhibit "F" was recorded and entered in the Original Certificate of Title by the Register of
Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, SO ORDERED.
when the present case was filed on June 29, 1959, plaintiff's cause of action had long
prescribed.
Makasiar Guerrero, De Castro* and Melencio-Herrera concur.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is
not correct. I n order that fraud can be a ground for the annulment of a contract, it must be
employed prior to or simultaneous to the, consent or creation of the contract. The fraud
or dolo causante must be that which determines or is the essential cause of the contract. Dolo
causante as a ground for the annulment of contract is specifically described in Article 1338
of the New Civil Code of the Philippines as "insidious words or machinations of one of the
contracting parties" which induced the other to enter into a contract, and "without them, he
would not have agreed to".

The second deed of sale in favor of Caram is not a voidable contract. No evidence
whatsoever was shown that through insidious words or machinations, the representatives of
Caram, Irespe and Aportadera had induced Mata to enter into the contract.

Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the
Philippines which provides that the action for annulment shall be brought within four (4)
years from the time of the discovery of fraud does not apply. Moreover, Laureta has been
in continuous possession of the land since he bought it in June 1945.

A more important reason why Laureta's action could not have prescribed is that the second
contract of sale, having been registered in bad faith, is null and void. Article 1410 of the
Civil Code of the Philippines provides that any action or defense for the declaration of the
inexistence of a contract does not prescribe.

In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978, the petitioner
insists that the action of Laureta against Caram has prescribed because the second contract
of sale is not void under Article 1409 23 of the Civil Code of the Philippines which
enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the
New Civil Code of the Philippines does not declare void a second sale of immovable
registered in bad faith.

The fact that the second contract is not considered void under Article 1409 and that Article
1544 does not declare void a deed of sale registered in bad faith does not mean that said
contract is not void. Article 1544 specifically provides who shall be the owner in case of a
double sale of an immovable property. To give full effect to this provision, the status of the
two contracts must be declared valid so that one vendee may contract must be declared
void to cut off all rights which may arise from said contract. Otherwise, Article 1544 win be
meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA,
RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME
JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-
R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial
Court's judgment dismissing the Complaint of private respondents for damages arising from
breach of contract of carriage, and awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the
GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly
authorized travel agent, nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought at the then prevailing exchange rate
of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with
other tickets for the same route. At this time, the GANAS were booked for the
Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets
were valid until 8 May 1971, the date written under the printed words "Non valuable
apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a
Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director and
Treasurer, for the extension of the validity of their tickets, which were due to expire on 8
May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau,
who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets
were returned to Ella who was informed that extension was not possible unless the fare
differentials resulting from the increase in fares triggered by an increase of the exchange
rate of the US dollar to the Philippine peso and the increased travel tax were first paid.
Ella then returned the tickets to Teresita and informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day
before the expiry date. In the morning of the very day of their scheduled departure on the
first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the
tickets. Ella gave the same negative answer and warned her that although the tickets could
be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for
the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita
replied that it will be up to the GANAS to make the arrangements. With that assurance, Ella
on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL.
sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker
indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2"
(as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the
center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16
May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact
AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May
1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect
to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the
tickets because of their expiration, and the GANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to return only after pre-payment in
Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on
separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest
of the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of
Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of
carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the
GANAS brought upon themselves the predicament they found themselves in and assumed
the consequential risks; that travel agent Ella's affixing of validating stickers on the tickets
without the knowledge and consent of AIR FRANCE, violated airline tariff rules and
regulations and was beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal,
Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial
Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is
hereby ordered to pay appellants moral damages in the total sum of
NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made
out a case for breach of contract of carriage entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association
(IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties
in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year. "The
passenger must undertake the final portion of his journey by departing from the last point
at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2. ) ... That
is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ...
A ticket can no longer be used for travel if its validity has expired before the passenger
completes his trip (parag. 3.5.1.) ... To complete the trip, the passenger must purchase a
new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of
contract when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets
expired on said date; nor when it required the GANAS to buy new tickets or have their
tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said that,
when upon sale of the new tickets, it imposed additional charges representing fare
differentials, it was motivated by self-interest or unjust enrichment considering that an
increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April,
1971. This procedure is well in accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the
date on which transportation commences from the point of origin. Any
ticket sold prior to a change of fare or charge (increase or decrease)
occurring between the date of commencement of the journey, is subject to
the above general rule and must be adjusted accordingly. A new ticket
must be issued and the difference is to be collected or refunded as the
case may be. No adjustment is necessary if the increase or decrease in
fare (or charge) occurs when the journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the
evidence bears out that Teresita, who handled travel arrangements for the GANAS, was
duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air
France, that the tickets in question could not be extended beyond the period of their
validity without paying the fare differentials and additional travel taxes brought about by
the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being
told this by Mr. Rillo?
A I told her, because that is the reason why they
accepted again the tickets when we returned the tickets
spin, that they could not be extended. They could be
extended by paying the additional fare, additional tax
and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals,
65 SCRA 237 (1975), holding that it would be unfair to charge respondents therein with
automatic knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all
legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the
rejection of the request for extension of the validity of the tickets was notice to the GANAS,
her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations
for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly
because of the imminent departure of the GANAS on the same day so that he could not get
in touch with Air France 6 was certainly in contravention of IATA rules although as he had
explained, he did so upon Teresita's assurance that for the onward flight from Osaka and
return, the GANAS would make other arrangements.
Q Referring you to page 33 of the transcript of the last
session, I had this question which reads as follows: 'But
did she say anything to you when you said that the
tickets were about to expire?' Your answer was: 'I am
the one who asked her. At that time I told her if the
tickets being used ... I was telling her what about their
bookings on the return. What about their travel on the
return? She told me it is up for the Ganas to make the
arrangement.' May I know from you what did you mean
by this testimony of yours?
A That was on the day when they were asking me on
May 7, 1971 when they were checking the tickets. I told
Mrs. Manucdoc that I was going to get the tickets. I
asked her what about the tickets onward from the
return from Tokyo, and her answer was it is up for the
Ganas to make the arrangement, because I told her
that they could leave on the seventh, but they could
take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka,
Tokyo and Manila.
The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular
actuations. It should be recalled that the GANAS left in Manila the day before the expiry
date of their tickets and that "other arrangements" were to be made with respect to the
remaining segments. Besides, the validating stickers that Ella affixed on his own merely
reflect the status of reservations on the specified flight and could not legally serve to extend
the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the predicament they
were in for having insisted on using tickets that were due to expire in an effort, perhaps, to
beat the deadline and in the thought that by commencing the trip the day before the expiry
date, they could complete the trip even thereafter. It should be recalled that AIR FRANCE
was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously.
Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights
when they dishonored the tickets on the remaining segments of the trip and when AIR
FRANCE demanded payment of the adjusted fare rates and travel taxes for the
Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the
Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.

Q What arrangement?

A The arrangement for the airline because the tickets

would expire on May 7, and they insisted on leaving. I
asked Mrs. Manucdoc what about the return onward
portion because they would be travelling to Osaka,
and her answer was, it is up to for the Ganas to make
the arrangement.

Q Exactly what were the words of Mrs. Manucdoc when

you told her that? If you can remember, what were her
exact words?

A Her words only, it is up for the Ganas to make the

arrangement.

Q This was in Tagalog or in English?

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

G.R. No. 139436 January 25, 2006
ENRICO B. VILLANUEVA and EVER PAWNSHOP, Petitioners,
vs.
SPS. ALEJO SALVADOR and VIRGINIA SALVADOR, Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari under Rule 45 of
the Rules of Court is the July 16, 1999 decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 49965, which affirmed in toto an earlier decision2 of the Regional Trial Court (RTC) at
Pasig in Civil Case No. 62334.
The pertinent facts:
On December 20, 1991, herein respondents, the spouses Alejo Salvador and Virginia
Salvador (Salvadors, collectively), secured a loan of P7,650.00 from petitioner Ever
Pawnshop owned and managed by co-petitioner Enrico B. Villanueva (Villanueva). On
January 23, 1992, the Salvadors took out a second loan of P5,400.00 pledging, just like in
the first loan transaction, jewelry items. Pawnshop Ticket No. 29919, covering the first loan,
indicated April 10, 1992 as the last day to redeem the jewelries pawned, whereas the
redemption period for the items given as security for the second loan under Pawnshop
Ticket No. 30792 fell on May 22, 1992.
The separate redemption periods came and went, but the Salvadors failed to redeem the
pawned pieces of jewelry. Nonetheless, on June 1, 1992, their son paid Ever
Pawnshop P7,000.00, the amount to be applied against the first loan of P7,650.00. On
account of this development, Pawnshop Ticket No. 29919 was cancelled and replaced by
Pawnshop Ticket No. 34932. Vis-à-vis the second loan, Ever Pawnshop agreed to the
extension of the maturity date to June 30, 1992, provided the Salvadors pay 20% of their
second loan obligation on or before June 4, 1992, failing which the securing items shall be
auctioned as scheduled. Unlike in the first loan, however, a new pawn ticket was not issued
for the second loan.
In the meantime, Ever Pawnshop issued a notice announcing the public auction sale on June
4, 1992 of all January 1 to 31, 1992 unredeemed pledges. The notice appeared in the
Classified Ads Section of the Manila Bulletin on June 4, 1992, the very day of the auction
itself.
On July 1, 1992, the Salvadors repaired to the pawnshop in a bid to renew the second
loan by tendering the aforesaid 20% of the amount due thereon, only to be informed that
the pledged jewelry had already been auctioned as scheduled on June 4, 1992. As found
by the CA, however, pieces of the pawned jewelry items were still in the shop, 3 indicating
that Ever Pawnshop either bought some of the unredeemed pledges or did not sell them.
A month after, Mrs. Salvador attempted to redeem the jewelry items pledged for the first
loan, as renewed, but all she got in response were unclear information as to their
whereabouts.
On August 7, 1992, Mr. Salvador tendered payment of the amount due on both loans, with
a demand for the return of the jewelry thus pledged. Ever Pawnshop, however, refused to
accept the tender.
Such was the state of things when, on August 11, 1992, at the RTC-Pasig City, the Salvadors
filed a complaint for damages against Villanueva and Ever Pawnshop arising from the sale
without notice of the two (2) sets of jewelry pledged as security for both loans. The
complaint, docketed as Civil Case No. 62334, was eventually raffled to Branch 164 of the
court.
Barely two days after Villanueva et al., received summons, their counsel informed the
Salvadors of his clients’ willingness to accept payment heretofore tendered for the
redemption of the jewelry pledged to secure the first loan. The Salvadors, however, turned
down this belated offer.
Answering, Villanueva and Ever Pawnshop, as defendants a quo, averred, inter alia, that by
letters dated March 23, 1992 and May 5, 1992, Ever Pawnshop reminded the Salvadors
of the maturity dates and redemption period of their loans. Also alleged in the answer with
counterclaim for damages was the publication in the June 4, 1992 issue of the Manila
Bulletin of the notice of public auction of all unredeemed pledges from January 1 to 31,
1992.
Eventually, in a decision4 dated January 25, 1995, the trial court, on its finding that the set
of jewelry covered by the renewed first and second loans were sold without the necessary
notice, rendered judgment for the Salvadors, to wit:
WHEREFORE, the Court hereby renders judgment in favor of the plaintiffs [Salvadors] and
against the defendants [Villanueva and Ever Pawnshop]. Defendants are hereby ordered to
pay to the plaintiffs:
1. The sum of P20,000.00 by way of moral damages;
2. The sum of P5,400.00 as the value of the jewelry sold under the second loan;
3. The sum of P5,000.00 as and for attorney’s fees; and
4. The costs of suit.
Defendants are also ordered to restore to the possession of the [Salvadors] the jewelry that
they pawned under the first loan, covered by pawn ticket nos. 29919 and 34932, upon
payment by the plaintiffs of the redemption price due last 10 August 1992.
The counterclaim of the defendants is dismissed.
SO ORDERED. (Words in bracket added.)
Therefrom, petitioners went on appeal to the CA whereat their recourse was docketed
as CA-G.R. CV No. 49965.
As stated at the threshold hereof, the CA, in its decision of July 16, 1999, affirmed in
toto that of the trial court, the affirmance being predicated on the following main
justifications:
As the trial court correctly pointed out, the May 5, 1992 "List of Notified Clients" (Exhs. 6,
6-A, 6-B ) . . . including the names of the [respondents] and Ticket Nos. 29919 and 30792 is
not proof that notices were actually sent to [respondents]. While the list contains 132 names,
only 98 [postage] stamps were purchased, hence, it cannot be determined who among the
132 people were sent notices.
And as surmised by the trial court, the set of jewelry pledged to secure the first loan must
have been auctioned, as scheduled on May 7, 1992, but that by mistake the pledge was
renewed (on June 1, 1992), that is why it was only after the [petitioners] received the
summons in late August 1992 when probably they recovered the pledged jewelry that they
expressed willingness to accept the [respondents’] tender of payment for the redemption of
said pledge jewelry securing the first (renewed) loan.
Admittedly, the [respondents] did not pay their loans on maturity. But [petitioners] breached
their contractual and legal obligation to inform the [respondents] of the public auction of the
jewelry securing it.
Furthermore, [petitioners] failed to comply with the requirements . . . that the notice must be
published during the week preceding the sale in two daily newspapers of general
circulation in the city or municipality. The paid notice of public auction to be held on June 4,
1992 by Ever Pawnshop was published only on even date, and only in one newspaper, the
Manila Bulletin. And particularly with respect to the second loan, why was the jewelry
pledged to secure it included in the June 4, 1992 auction when plaintiffs had up to that
date to pay 20% of the amount due thereunder as a condition to its renewal?
xxx xxx xxx
Anent the questioned award of moral damages: Even assuming that [respondents’] failure to
pay their obligation on maturity amounts to contributory negligence, that does not abate the
award of moral damages in their favor given the [petitioners’] failure to comply with the
contractual and statutory requirements before the pledged jewelry was auctioned which
failure amounts to misconduct contemplated in Article 2220 of the New Civil Code – basis
of the award thereof (Laguna Tayabas Bus Company v. Cornista 11 SCRA 181- 182
(Words in bracket added)
Hence, this petition on the following issues:
1. Whether the items of jewelry under the first loan were actually sold by the
petitioners;
2. Whether valid notice of the sale of the pledged jewelry was effected;
3. Whether the award of P20,000.00 as moral damages and P5,000.00 as
attorneys fees are proper; and
4. Whether the trial and appellate courts erred in ordering both the petitioners to
pay damages.
Under the first issue, petitioners fault the CA in holding that the jewelry pledged under the
first loan was sold by them.
Doubtless, the first issue raised by petitioners relates to the correctness of the factual finding
of the CA – confirmatory of that of the trial court – on the disposition of the set of jewelry
covered by Pawnshop Ticket No. 34932. Such issue is beyond the province of the Court to
review since it is not its function to analyze or weigh all over again the evidence or premises
supportive of such factual determination.5 The Court has consistently held that the findings of
the CA must be accorded great weight and shall not be disturbed on appeal, save for the
most compelling and cogent reasons,6 like when manifest error has been committed.7
As nothing in the record indicates any of such exceptions, the factual conclusion of the CA
that petitioners indeed sold the jewelry items given to secure the first loan must be affirmed.
Indeed, petitioner pawnshop expressed willingness to accept tender of payment and to
return the pawned jewelry only after being served with summons. Apparently, Ever
Pawnshop had found a way to recover said jewelry by that time. If, as aptly observed by
the CA, the jewelry had never been sold, as petitioners so allege, but had been in their
possession all along, they could have provided a plausible explanation for the initial refusal
to accept tender of payment and to return the jewelry. Petitioners’ belated overture to
accept payment after spurning the initial offer to pay can only be due to the fact that,
when respondents offered to pay the first time around, they (petitioners) no longer had
possession of the jewelry items in question, having previously disposed of them.
Moving on to the second issue, petitioners argue that the respondents were effectively put
on notice of the sale of the pledged jewelries, the maturity date and expiry date of
redemption period of the two loans being indicated on the face of each of the covering
pawnshop tickets. Pressing the point, petitioners invite attention to the caveat printed on the
dorsal side of the tickets stating that the pledged items shall be auctioned off in the event
they are not redeemed before the expiry date of the redemption period.
We are not persuaded by petitioners’ faulty argument.
Section 13 of Presidential Decree (P.D.) 114, otherwise known as the Pawnshop Regulation
Act, and even the terms and conditions of the pledge itself, accord the pawner a 90-day
grace period from the date of maturity of the loan obligation within which to redeem the
pawn. But even before the lapse of the 90-day period, the same Decree requires the
pawnbroker to notify the defaulting debtor of the proposed auction sale. Section 14
thereof provides:
Section 14. Disposition of pawn on default of pawner.—In the event the pawner fails to
redeem the pawn within ninety days from the date of maturity of the obligation . . ., the
pawnbroker may sell . . . any article taken or received by him in pawn: Provided, however,
that the pawner shall be duly notified of such sale on or before the termination of the
ninety-day period, the notice particularly stating the date, hour and place of the sale.
However, over and above the foregoing prescription is the mandatory requirement for the
publication of such notice once in at least two daily newspapers during the week preceding
the date of the auction sale.8
The CA cannot really be faulted for making short shrift of petitioners’ posture respecting
their alleged compliance with the notice requirement in question. As it were, petitioner Ever
Pawnshop, as determined by the CA, only caused publication of the auction in one
newspaper, i.e., the Manila Bulletin, and on the very day of the scheduled auction sale itself,
instead of a week preceding the sale as prescribed by Section 15 of P.D. 114. Verily, a
notice of an auction sale made on the very scheduled auction day itself defeats the purpose
of the notice, which is to inform a pawner beforehand that a sale is to occur so that he may
have that last chance to redeem his pawned items.
This brings us to the issue of the award of moral damages which petitioners correctly tag as
erroneous, and, therefore, should be deleted.
While proof of pecuniary loss is unnecessary to justify an award of moral damages, the
amount of indemnity being left to the sound discretion of the court, it is, nevertheless,
essential that the claimant satisfactorily proves the existence of the factual basis of the
damages9 and its causal connection to defendant’s wrongful act or omission. This is so
because moral damages, albeit incapable of pecuniary estimation, are designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.10 There is thus merit on petitioners’ assertion that proof of moral suffering must
precede a moral damage award.11
The conditions required in awarding moral damages are: (1) there must be an injury,
whether physical, mental or psychological, clearly sustained by the claimant; (2) there must
be a culpable act or omission factually established; (3) the wrongful act or omission of the
defendant must be the proximate cause of the injury sustained by the claimant; and (4) the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.12
While there need not be a showing that the defendant acted in a wanton or malevolent
manner, as this is a requirement for an award of exemplary damages,13 there must still be
proof of fraudulent action or bad faith for a claim for moral damages to succeed. 14 Then,
too, moral damages are generally not recoverable in culpa contractual except when bad
faith supervenes and is proven.15
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty
through some motive or interest or ill-will that partakes of the nature of the fraud.16 And to
the person claiming moral damages rests the onus of proving by convincing evidence the
existence of bad faith, for good faith is presumed.17
As aptly pointed out by petitioners, the trial court concluded that the respondents’ "cause of
action arose merely from the negligence of the herein [petitioners]."18 It may be that gross
negligence may sometimes amount to bad faith.19 But what is before us is a matter of simple
negligence only, it being the trial court’s categorical finding that the case came about owing
to petitioners’ mistake in renewing the loan when the sale of the article to secure the loan
had already been effected. Wrote the trial court:
"What must have happened next was that the jewelry under the first loan was sold, as
scheduled, on 7 May 1992. Due to an oversight, the defendants mistakenly renewed the first
loan on 1 June 1992, issuing pawn ticket number 34932 in the process."20 [Emphasis
supplied]
The CA’s reliance on Article 2220 of the Civil Code in affirming the award of moral
damages is misplaced. Said article provides:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages
if the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Clear it is from the above that before moral damages may be assessed thereunder, the
defendant’s act must be vitiated by bad faith or that there is willful intent to injure. Simply
put, moral damages cannot arise from simple negligence.
The award of attorney’s fees should, likewise, be struck down, both the CA and trial court
having failed to explain respondents’ entitlement thereto. As a matter of sound practice, an
award of attorney’s fee has always been regarded as the exception rather than the rule.
Counsel’s fees are, to be sure, not awarded every time a party prevails in a suit because of
the policy that no premium should be placed on the right to litigate. Attorney’s fees, as part
of damages, are assessed only in the instances specified in Article 2208 of the Civil
Code.21 And it is necessary for the trial court to make express findings of fact and law that
would bring the case within the exception. In short, the factual, legal or equitable
justification for the award must be set forth in the text of the decision. 22 The matter of
attorney’s fees cannot be touched only in the fallo of the decision, else the award should be
thrown out for being speculative and conjectural.23

Certainly not lost on the Court is the fact that petitioners, after being served with summons,
made an attempt to obviate litigation by offering to accept tender of payment and return
the jewelry. This offer, however belated, could have saved much expense on the part of
both parties, as well as the precious time of the court itself. The respondents chose to turn
down this offer and pursue judicial recourse. With this in mind, it hardly seems fair to award
them attorneys fees at petitioners’ expense.

The final issue relating to the question of whether or not both respondents are liable for
damages has, for all intent and purposes, been rendered moot and academic by the
disposition just made. We need not dwell on it any further. Besides, this particular issue has
only made its debut in the present recourse. And it is a well-entrenched rule that issues not
raised below cannot be resolved on review in higher courts. 24 A question that was never
raised in the court below cannot be allowed to be raised for the first time on appeal
without offending basic rules of fair play, justice and due process. 25

WHEREFORE, with the MODIFICATION that the awards of moral damages and attorneys
fees are deleted, the decision under review is hereby AFFIRMED.

No pronouncement as to cost.

SO ORDERED.
G.R. No. L-18058 January 16, 1923
FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
Serafin P. Hilado and A. P. Seva for appellant.
Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of
one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey to
her four parcels of land described in the complaint, or in default thereof to pay her the sum
of P800,000 in damages for wrongfully causing said land to be registered in his own name.
Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio Severino, has
filed a complaint in intervention claiming in the same relief as the original plaintiff, except in
so far as she prays that the conveyance be made, or damages paid, to the estate instead
of to the plaintiff Fabiola Severino. The defendant answered both complaints with a
general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the
acknowledged natural child of the said Melecio Severino and ordering the defendant to
convey 428 hectares of the land in question to the intervenor as administratrix of the estate
of the said Melecio Severino, to deliver to her the proceeds in his possession of a certain
mortgage placed thereon by him and to pay the costs. From this judgment only the
defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos. 827,
828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros, which measure,
respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and 79
centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28
centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some
428 hectares of the land were recorded in the Mortgage Law Register in his name in the
year 1901 by virtue of possessory information proceedings instituted on the 9th day of
May of that year by his brother Agapito Severino in his behalf; that during the lifetime of
Melecio Severino the land was worked by the defendant, Guillermo Severino, his brother,
as administrator for and on behalf of the said Melecio Severino; that after Melecio's death,
the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel
survey was made of the lands in the municipality of Silay, including the land here in
question, and cadastral proceedings were instituted for the registration of the lands titles
within the surveyed area; that in the cadastral proceedings the land here in question was
described as four separate lots numbered as above stated; that Roque Hofileña, as lawyer
for Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the
lots mentioned as the property of his client; that no opposition was presented in the
proceedings to the claims of Guillermo Severino and the court therefore decreed the title in
his favor, in pursuance of which decree certificates of title were issued to him in the month of
March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff
Fabiola Severino was a minor; that Guillermo Severino did not appear personally in the
proceedings and did not there testify; that the only testimony in support of his claims was
that of his attorney Hofileña, who swore that he knew the land and that he also knew that
Guillermo Severino inherited the land from his father and that he, by himself, and through
his predecessors in interest, had possessed the land for thirty years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in
order to establish the fact that said plaintiff was the legally acknowledged natural
child of the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was
the legally acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish
the absence of fraud on his part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the
lands in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the
name of Melecio Severino had an extent of either 434 or 428 hectares at the time
of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500
per hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment
without first giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by
defendant to the administratrix.
 9. The trial court erred in failing or refusing to make any finding as to the
defendant's contention that the petition for attachment was utterly devoid of any
reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that the trial
court erred in making a declaration in the present case as to the recognition of Fabiola
Severino as the natural child of Melecio Severino. We have held in the case of Briz vs. Briz
and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who
would be prejudiced by a declaration that another person is entitled to recognition as the
natural child of such decedent, are necessary and indispensable parties to any action in
which a judgment declaring the right to recognition is sought." In the present action only the
widow, the alleged natural child, and one of the brothers of the deceased are parties; the
other potential heirs have not been included. But, inasmuch as the judgment appealed from
is in favor of the intervenor and not of the plaintiff, except to the extent of holding that the
latter is a recognized natural child of the deceased, this question is, from the view we take
of the case, of no importance in its final disposition. We may say, however, in this
connection, that the point urged in appellant's brief that it does not appear affirmatively
from the evidence that, at the time of the conception of Fabiola, her mother was a single
woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code and
subsection 1 of section 334 of the Code of Civil Procedure which create the presumption
that a child born out of wedlock is natural rather than illegitimate. The question of the status
of the plaintiff Fabiola Severino and her right to share in the inheritance may, upon notice
to all the interested parties, be determined in the probate proceedings for the settlement of
the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land belonging
to Melecio Severino had an area of 428 hectares. The appellant contends that the court
should have found that there were only 324 hectares inasmuch as one hundred hectares of
the original area were given to Melecio's brother Donato during the lifetime of the father
Ramon Severino. As it appears that Ramon Severino died in 1896 and that the possessory
information proceedings, upon which the finding of the trial court as to the area of the land
is principally based, were not instituted until the year 1901, we are not disposed to disturb
the conclusions of the trial court on this point. Moreover, in the year 1913, the defendant
Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the
area of the land owned by Melecio Severino and of which he (Guillermo) was the
administrator, embraced an area of 424 hectares. The fact that Melecio Severino, in
declaring the land for taxation in 1906, stated that the area was only 324 hectares and 60
ares while entitled to some weight is not conclusive and is not sufficient to overcome the
positive statement of the defendant and the recitals in the record of the possessory
information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the
dispositive part of the decision of the trial court, the only relief given is an order requiring
the appellant to convey to the administratrix the land in question, together with such parts
of the proceeds of the mortgage thereon as remain in his hands. We may say further that
the court's estimate of the value of the land does not appear unreasonable and that, upon
the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial court
of a preliminary attachment in the case and the refusal of the court to dissolve the same.
We find no merit whatever in these assignments and a detailed discussion of them is
unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case, are inter-
related and may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part in
causing the land in question to be registered in his name; that the trial court therefore erred
in rejecting his offer of evidence to the effect that the land was owned in common by all the
heirs of Ramon Severino and did not belong to Melecio Severino exclusively; that such
evidence, if admitted, would have shown that he did not act with fraudulent intent in taking
title to the land; that the trial court erred in holding him estopped from denying Melecio's
title; that more than a year having elapsed since the entry of the final decree adjudicating
the land to the defendant, said decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the administratrix is, for all practical purposes,
equivalent to the reopening of the decree of registration; that under section 38 of the Land
Registration Act the defendant has an indefeasible title to the land; and that the question of
ownership of the land being thus judicially settled, the question as to the previous relations
between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed that
this is not an action under section 38 of the Land Registration Act to reopen or set aside a
decree; it is an action in personam against an agent to compel him to return, or retransfer, to
the heirs or the estate of its principal, the property committed to his custody as such agent,
to execute the necessary documents of conveyance to effect such retransfer or, in default
thereof, to pay damages.
That the defendant came into the possession of the property here in question as the agent
of the deceased Melecio Severino in the administration of the property, cannot be
successfully disputed. His testimony in the case of Montelibano vs. Severino (civil case No.
902 of the Court of First Instance of Occidental Negros and which forms a part of the
evidence in the present case) is, in fact, conclusive in this respect. He there stated under oath
that from the year 1902 up to the time the testimony was given, in the year 1913, he had
been continuously in charge and occupation of the land as the encargado or administrator of
Melecio Severino; that he had always known the land as the property of Melecio Severino;
and that the possession of the latter had been peaceful, continuous, and exclusive. In his
answer filed in the same case, the same defendant, through his attorney, disclaimed all
personal interest in the land and averred that it was wholly the property of his brother
Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining
his decree was of the same character as that held during the lifetime of his brother, except
in so far as shortly before the trial of the cadastral case the defendant had secured from
his brothers and sisters a relinguishment in his favor of such rights as they might have in the
land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old
rule that in regard to property forming the subject-matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the principal. His position is analogous
to that of a trustee and he cannot consistently, with the principles of good faith, be allowed
to create in himself an interest in opposition to that of his principal or cestui que trust. Upon
this ground, and substantially in harmony with the principles of the Civil Law (see sentence of
the supreme court of Spain of May 1, 1900), the English Chancellors held that in general
whatever a trustee does for the advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex
parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The
same principle has been consistently adhered to in so many American cases and is so well
established that exhaustive citations of authorities are superfluous and we shall therefore
limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The
principle is well stated in the case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary
relations respecting property or persons, is utterly disabled from acquiring for his
own benefit the property committed to his custody for management. This rule is
entirely independent of the fact whether any fraud has intervened. No fraud in
fact need be shown, and no excuse will be heard from the trustee. It is to avoid the
necessity of any such inquiry that the rule takes so general a form. The rule stands
on the moral obligation to refrain from placing one's self in positions which
ordinarily excite conflicts between self-interest and integrity. It seeks to remove the
temptation that might arise out of such a relation to serve one's self-interest at the
expense of one's integrity and duty to another, by making it impossible to profit
by yielding to temptation. It applies universally to all who come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking
through Chief Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land
for himself and obtained a patent for it in his own name. According to the clearest
and best established principles of equity, the agent who so acts becomes a trustee
for his principal. He cannot hold the land under an entry for himself otherwise than
as trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after
examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title
to land by any artifice or concealment, or by making use of facilities intended for
the benefit of another, a court of equity will impress upon the land so held by him
a trust in favor of the party who is justly entitled to them, and will order the trust
executed by decreeing their conveyance to the party in whose favor the trust was
created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31;
Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs.Codrington, 3 Johns. Ch.,
229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns.,
276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho
Jan Ling (19 Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants
raised a fund by voluntary subscription with which they purchased a valuable tract
of land and erected a large building to be used as a sort of club house for the
mutual benefit of the subscribers to the fund. The subscribers organized themselves
into an irregular association, which had no regular articles of association, and was
not incorporated or registered in the commercial registry or elsewhere. The
association not having any existence as a legal entity, it was agreed to have the
title to the property placed in the name of one of the members, the defendant,
Cho Jan Ling, who on his part accepted the trust, and agreed to hold the property
as the agent of the members of the association. After the club building was
completed with the funds of the members of the association, Cho Jan Ling collected
some P25,000 in rents for which he failed and refused to account, and upon
proceedings being instituted to compel him to do so, he set up title in himself to the
club property as well as to the rents accruing therefrom, falsely alleging that he
had bought the real estate and constructed the building with his own funds, and
denying the claims of the members of the association that it was their funds which
had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club house
and the land on which it stood from the defendant, Cho Jan Ling, in whose name it was
registered, to the members of the association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not
questioned; it is admitted that the members of the association voluntarily obtained
the inscription in the name of Cho Jan Ling, and that they had no right to have that
inscription cancelled; they do not seek such cancellation, and on the contrary they
allege and prove that the duly registered legal title to the property is in Cho Jan
Ling, but they maintain, and we think that they rightly maintain, that he holds it
under an obligation, both express and implied, to deal with it exclusively for the
benefit of the members of the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho,
took title to the land in his own name, while acting as agent for the municipality. The court
said:
There have been a number of cases before this court in which a title to real
property was acquired by a person in his own name, while acting under a
 fiduciary capacity, and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of the property for himself.
This court has invariably held such evidence competent as between the fiduciary
and the cestui que trust.
xxx xxx xxx
What judgment ought to be entered in this case? The court below simply absolved
the defendant from the complaint. The defendant municipality does not ask for a
cancellation of the deed. On the contrary, the deed is relied upon the supplement
the oral evidence showing that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil.,
202, the proper procedure in such a case, so long as the rights of innocent third
persons have not intervened, is to compel a conveyance to the rightful owner. This
ought and can be done under the issues raised and the proof presented in the case
at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from denying
his principal's title to the property, but he is also disable from acquiring interests therein
adverse to those of his principal during the term of the agency. But the defendant argues
that his title has become res adjudicata through the decree of registration and cannot now
be disturbed.
This contention may, at first sight, appear to possess some force, but on closer examination it
proves untenable. The decree of registration determined the legal title to the land as the
date of the decree; as to that there is no question. That, under section 38 of the Land
Registration Act, this decree became conclusive after one year from the date of the entry is
not disputed and no one attempts to disturb the decree or the proceedings upon which it is
based; the plaintiff in intervention merely contends that in equity the legal title so acquired
inured to the benefit of the estate of Melecio Severino, the defendant's principal and cestui
que trust and asks that this superior equitable right be made effective by compelling the
defendant, as the holder of the legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was the
undoubted duty of the defendant to restore the property committed to his custody to his
principal, or to the latter's estate, and that the principal had a right of action in personam to
enforce the performance of this duty and to compel the defendant to execute the necessary
conveyance to that effect. The only question remaining for consideration is, therefore,
whether the decree of registration extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity
exercise general jurisdiction in matters of fraud and error with reference to Torrens
registered lands, and giving attention to the special provisions of the Torrens acts, will issue
such orders and direction to all the parties to the proceedings as may seem just and proper
under the circumstances. They may order parties to make deeds of conveyance and if the
order is disobeyed, they may cause proper conveyances to be made by a Master in
Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian
Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction
as to set aside final decrees after the expiration of the statutory period of limitation for the
reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But, considering that equity
follows the law and that our statutes expressly prohibit the reopening of a decree after one
year from the date of its entry, this practice would probably be out of question here,
especially so as the ends of justice may be attained by other equally effective, and less
objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention to cut
off, through the issuance of a decree of registration, equitable rights or remedies such as
those here in question. On the contrary, section 70 of the Act provides:
Registered lands and ownership therein, shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in
this Act shall in any way be construed to relieve registered land or the owners
thereof from any rights incident to the relation of husband and wife, or from
liability to attachment on mesne process or levy on execution, or from liability to
any lien of any description established by law on land and the buildings thereon,
or the interest of the owner in such land or buildings, or to change the laws of
descent, or the rights of partition between coparceners, joint tenants and other
cotenants, or the right to take the same by eminent domain, or to relieve such land
from liability to be appropriated in any lawful manner for the payment of debts,
or to change or affect in any other way any other rights or liabilities created by
law and applicable to unregistered land, except as otherwise expressly provided
in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the Insular
Treasurer, as the Custodian of the Assurance Fund is a party, contains the following proviso:
Provided, however, That nothing in this Act shall be construed to deprive the
plaintiff of any action which he may have against any person for such loss or
damage or deprivation of land or of any estate or interest therein without joining
the Treasurer of the Philippine Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly admit of doubt.
Such was also the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and
Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to take advantage
of his possession of a certificate of title to deprive the defendant of land included in that
certificate and sold to him by the former owner before the land was registered. The court
decided adversely to plaintiff and in so doing said:
 As between them no question as to the indefeasibility of a Torrens title could arise.
Such an action could have been maintained at any time while the property
remained in the hands of the purchaser. The peculiar force of a Torrens title would
have been brought into play only when the purchaser had sold to an innocent third
person for value the lands described in his conveyance. . . . Generally speaking, as
between the vendor and the purchaser the same rights and remedies exist with
reference to land registered under Act No. 496, as exist in relation to land not so
registered.
In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., 620), it was held that,
while a purchaser of land under a pacto de retro cannot institute a real action for the
recovery thereof where the vendor under said sale has caused such lands to be registered
in his name without said vendee's consent, yet he may have his personal action based on the
contract of sale to compel the execution of an unconditional deed for the said lands when
the period for repurchase has passed.
834, and the 237 hectares segregated from the western part of lot No. 874 and shall
deliver to the register of deeds his duplicate certificates of title for all of the four lots in
order that said certificates may be cancelled and new certificates issued. The cost of the
subdivision and the fees of the register of deeds will be paid by the plaintiff in intervention.
It is so ordered
With these additional directions the judgment appealed from is affirmed, with the costs
against the appellant. The right of the plaintiff Fabiola Severino to establish in the probate
proceedings of the estate of Melecio Severino her status as his recognized natural child is
reserved.
Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ.,
concur.

Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of
their regularity or validity, and in order to maintain an action such as the present the proof
as to the fiduciary relation of the parties and of the breach of trust must be clear and
convincing. Such proof is, as we have seen, not lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary in thus established,
there is no reason, neither practical nor legal, why he should not be compelled to make such
reparation as may lie within his power for the injury caused by his wrong, and as long as
the land stands registered in the name of the party who is guilty of the breach of trust and
no rights of innocent third parties are adversely affected, there can be no reason why such
reparation should not, in the proper case, take the form of a conveyance or transfer of the
title to the cestui que trust. No reasons of public policy demand that a person guilty of fraud
or breach of trust be permitted to use his certificate of title as a shield against the
consequences of his own wrong.

The judgment of the trial court is in accordance with the facts and the law. In order to
prevent unnecessary delay and further litigation it may, however, be well to attach some
additional directions to its dipositive clauses. It will be observed that lots Nos. 827, 828,
and 834 of a total area of approximately 191 hectares, lie wholly within the area to be
conveyed to the plaintiff in intervention and these lots may, therefore, be so conveyed
without subdivision. The remaining 237 hectares to be conveyed lie within the western part
of lot No. 874 and before a conveyance of this portion can be effected a subdivision of
that lot must be made and a technical description of the portion to be conveyed, as well as
of the remaining portion of the lot, must be prepared. The subdivision shall be made by an
authorized surveyor and in accordance with the provisions of Circular No. 31 of the General
Land Registration Office, and the subdivision and technical descriptions shall be submitted to
the Chief of that office for his approval. Within thirty days after being notified of the
approval of said subdivision and technical descriptions, the defendant Guillermo Severino
shall execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827, 828,
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1of the
Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with modification, the decision2 of
the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted
therein defendant's counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an
air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the
former authorized the latter to act as its exclusive general sales agent within the Philippines
for the sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto
agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales
Agent within the Philippines, including any United States military installation therein
which are not serviced by an Air Carrier Representation Office (ACRO), for the
sale of air passenger transportation. The services to be performed by Orient Air
Services shall include:
(a) soliciting and promoting passenger traffic for the services of American
and, if necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to
be used exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in the
assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as
may be appointed by Orient Air Services with the prior written consent of
American) in the assigned territory including if required by American the
control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the
general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within
the United States, neither Orient Air Services nor its sub-agents will perform
services for any other air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent
schedules between the points involved.
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock
or exchange orders, less commissions to which Orient Air Services is entitled
hereunder, not less frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall
be held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder
by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and
any connecting through air transportation, when made on American's ticket stock,
equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other
rate(s) as may be prescribed by the International Air Transport
Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
10. Default
If Orient Air Services shall at any time default in observing or performing any of
the provisions of this Agreement or shall become bankrupt or make any assignment
for the benefit of or enter into any agreement or promise with its creditors or go
into liquidation, or suffer any of its goods to be taken in execution, or if it ceases
to be in business, this Agreement may, at the option of American, be terminated
forthwith and American may, without prejudice to any of its rights under this
Agreement, take possession of any ticket forms, exchange orders, traffic material
or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions
of the International Air Transport Association and the Air Traffic Conference of
America, and such rules or resolutions shall control in the event of any conflict with
the provisions hereof.
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable.
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of January
to March 1981 in the amount of US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith
the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later,
or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air in the
course of terminating the Agreement as well as the termination itself were untenable, Orient
Air claiming that American Air's precipitous conduct had occasioned prejudice to its business
interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the
trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
in favor of defendant and against plaintiff dismissing the complaint and holding
the termination made by the latter as affecting the GSA agreement illegal and
improper and order the plaintiff to reinstate defendant as its general sales agent
for passenger tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing
from January 1, 1981 until such reinstatement or said amounts in its Philippine peso
equivalent legally prevailing at the time of payment plus legal interest to
commence from the filing of the counterclaim up to the time of payment. Further,
plaintiff is directed to pay defendant the amount of One Million Five Hundred
 Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount
of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their material
points but with some modifications with respect to the monetary awards granted. The
dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977
to December 31, 1980, or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10,
1981 the date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also the
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion
and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's fees,
but granted insofar as the rate of exchange is concerned. The decision of January
27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual
payment.9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient
Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By
resolution10 of this Court dated 25 March 1987 both petitions were consolidated, hence, the
case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only on
sales of its services actually negotiated or transacted by Orient Air, otherwise referred to
as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or itssub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it is American Air's contention that Orient Air
can claim entitlement to the disputed overriding commission based only on ticketed sales. This
is supposed to be the clear meaning of the underscored portion of the above provision.
Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
commission covers the total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification of its submission, invokes
its designation as the exclusive General Sales Agent of American Air, with the corresponding
obligations arising from such agency, such as, the promotion and solicitation for the services
of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the meaning of its provisions. 12 The various
stipulations in the contract must be read together to give effect to all. 13 After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the foregoing principles, entitles it to the
3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air passenger
transportation, and the solicitation of sales therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission of 3% of tariff fares and
charges for all sales of passenger transportation over American Air services. It is
immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would accrue
for sales of American Air services made not on its ticket stock but on the ticket stock of other
air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To
rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American
Air ticket stock would erase any distinction between the two (2) types of commissions and
would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with every effort
exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.14 To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made and who did
not cause the ambiguity.15 We therefore agree with the respondent appellate court's
declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it.16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue. American
Air's perception that Orient Air was remiss or in default of its obligations under the
Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the Agreement was, therefore,
without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial
court's award of exemplary damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court.1âwphi1We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of another,
WITH THE CONSENT OR AUTHORITY OF THE LATTER .17 (emphasis supplied) In an agent-
principal relationship, the personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be effected with
the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution
of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986,
respectively. Costs against petitioner American Air.
SO ORDERED.
G.R. No. 167622 June 29, 2010
GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS,Respondents.
RESOLUTION
BRION, J.:
This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent
The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of
November 7, 2008. In the assailed decision, we found that an employer-employee
relationship existed between Manulife and petitioner Gregorio Tongko and ordered
Manulife to pay Tongko backwages and separation pay for illegal dismissal.
The following facts have been stated in our Decision of November 7, 2008, now under
reconsideration, but are repeated, simply for purposes of clarity.
The contractual relationship between Tongko and Manulife had two basic phases. The first
or initial phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement)
that provided:
It is understood and agreed that the Agent is an independent contractor and nothing
contained herein shall be construed or interpreted as creating an employer-employee
relationship between the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and
other products offered by the Company, and collect, in exchange for provisional receipts
issued by the Agent, money due to or become due to the Company in respect of
applications or policies obtained by or through the Agent or from policyholders allotted by
the Company to the Agent for servicing, subject to subsequent confirmation of receipt of
payment by the Company as evidenced by an Official Receipt issued by the Company
directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days
from the time of the discovery of the breach. No waiver, extinguishment, abandonment,
withdrawal or cancellation of the right to terminate this Agreement by the Company shall
be construed for any previous failure to exercise its right under any provision of this
Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause,
by giving to the other party fifteen (15) days notice in writing. 2
Tongko additionally agreed (1) to comply with all regulations and requirements of
Manulife, and (2) to maintain a standard of knowledge and competency in the sale of
Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the new
business, required by his Production Club membership.3
The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s
Sales Agency Organization. In 1990, he became a Branch Manager. Six years later (or in
1996), Tongko became a Regional Sales Manager.4
Tongko’s gross earnings consisted of commissions, persistency income, and management
overrides. Since the beginning, Tongko consistently declared himself self-employed in his
income tax returns. Thus, under oath, he declared his gross business income and deducted his
business expenses to arrive at his taxable business income. Manulife withheld the
corresponding 10% tax on Tongko’s earnings.5
In 2001, Manulife instituted manpower development programs at the regional sales
management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated
November 6, 2001 on concerns that were brought up during the October 18, 2001 Metro
North Sales Managers Meeting. De Dios wrote:
The first step to transforming Manulife into a big league player has been very clear – to
increase the number of agents to at least 1,000 strong for a start. This may seem
diametrically opposed to the way Manulife was run when you first joined the organization.
Since then, however, substantial changes have taken place in the organization, as these
have been influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for
a Senior Managers’ meeting earlier last month when Kevin O’Connor, SVP-Agency, took to
the floor to determine from our senior agency leaders what more could be done to bolster
manpower development. At earlier meetings, Kevin had presented information where
evidently, your Region was the lowest performer (on a per Manager basis) in terms of
recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end
which were perceived to be uncalled for, it became clear that a one-on-one meeting with
you was necessary to ensure that you and management, were on the same plane. As
gleaned from some of your previous comments in prior meetings (both in group and one-on-
one), it was not clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly.
In those subsequent meetings you reiterated certain views, the validity of which we
challenged and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North
Managers may be a bit confused as to the directions the company was taking. For this
reason, I sought a meeting with everyone in your management team, including you, to clear
the air, so to speak.
This note is intended to confirm the items that were discussed at the said Metro North
Region’s Sales Managers meeting held at the 7/F Conference room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to
the position of agents."
This is an often repeated issue you have raised with me and with Kevin. For this reason, I
placed the issue on the table before the rest of your Region’s Sales Managers to verify its
validity. As you must have noted, no Sales Manager came forward on their own to confirm
your statement and it took you to name Malou Samson as a source of the same, an
allegation that Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe
what I had thought all along, that these allegations were simply meant to muddle the issues
surrounding the inability of your Region to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process,
they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that you
made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered
the information to Kevin when you said that you probably will make more money in the
Year 2001 compared to Year 2000. Obviously, your above statement about making "less
money" did not refer to you but the way you argued this point had us almost believing that
you were spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this
group towards the new direction that we have been discussing these past few weeks, i.e.,
Manulife’s goal to become a major agency-led distribution company in the Philippines.
While as you claim, you have not stopped anyone from recruiting, I have never heard you
proactively push for greater agency recruiting. You have not been proactive all these years
when it comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year
and so, we are making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of the
routine tasks which can be easily delegated. This assistant should be so chosen as to
complement your skills and help you in the areas where you feel "may not be your cup of
tea."
You have stated, if not implied, that your work as Regional Manager may be too taxing for
you and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the
North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central
Unit and the rest of the Sales Managers in Metro North. I will hold you solely responsible for
meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is
entirely dependent upon you. But you have to understand that meeting corporate objectives
by everyone is primary and will not be compromised. We are meeting tough challenges
next year, and I would want everybody on board. Any resistance or holding back by
anyone will be dealt with accordingly.6
Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating
Tongko’s services:
It would appear, however, that despite the series of meetings and communications, both
one-on-one meetings between yourself and SVP Kevin O’Connor, some of them with me, as
well as group meetings with your Sales Managers, all these efforts have failed in helping
you align your directions with Management’s avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your
Agents Contract as we are now issuing this notice of termination of your Agency Agreement
with us effective fifteen days from the date of this letter.7
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations
Commission (NLRC) Arbitration Branch. He essentially alleged – despite the clear terms of
the letter terminating his Agency Agreement – that he was Manulife’s employee before he
was illegally dismissed.8
Thus, the threshold issue is the existence of an employment relationship. A finding that none
exists renders the question of illegal dismissal moot; a finding that an employment
relationship exists, on the other hand, necessarily leads to the need to determine the validity
of the termination of the relationship.
A. Tongko’s Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding
₱50,000.00, regardless of production levels attained and exclusive of commissions and
bonuses. He also claimed that as Regional Sales Manager, he was given a travel and
entertainment allowance of ₱36,000.00 per year in addition to his overriding commissions;
he was tasked with numerous administrative functions and supervisory authority over
Manulife’s employees, aside from merely selling policies and recruiting agents for Manulife;
and he recommended and recruited insurance agents subject to vetting and approval by
Manulife. He further alleges that he was assigned a definite place in the Manulife offices
when he was not in the field – at the 3rd Floor, Manulife Center, 108 Tordesillas corner
Gallardo Sts., Salcedo Village, Makati City – for which he never paid any rental. Manulife
provided the office equipment he used, including tables, chairs, computers and printers (and
even office stationery), and paid for the electricity, water and telephone bills. As Regional
Sales Manager, Tongko additionally asserts that he was required to follow at least three
codes of conduct.9
B. Manulife’s Case – Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko
was paid commissions of varying amounts, computed based on the premium paid in full and
actually received by Manulife on policies obtained through an agent. As sales manager,
Tongko was paid overriding sales commission derived from sales made by agents under his
unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10%
tax from all commissions Tongko received; Tongko even declared himself to be self-
employed and consistently paid taxes as such—i.e., he availed of tax deductions such as
ordinary and necessary trade, business and professional expenses to which a business is
entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was
not its employee as characterized in the four-fold test and our ruling in Carungcong v.
National Labor Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed between the
parties. However, the NLRC reversed the labor arbiter’s decision on appeal; it found the
existence of an employer-employee relationship and concluded that Tongko had been
illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the
appellate court found that the NLRC gravely abused its discretion in its ruling and reverted
to the labor arbiter’s decision that no employer-employee relationship existed between
Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found that an
employment relationship existed between Tongko and Manulife. We concluded that Tongko
is Manulife’s employee for the following reasons:
1. Our ruling in the first Insular11 case did not foreclose the possibility of an
insurance agent becoming an employee of an insurance company; if evidence
exists showing that the company promulgated rules or regulations that effectively
controlled or restricted an insurance agent’s choice of methods or the methods
themselves in selling insurance, an employer-employee relationship would be
present. The determination of the existence of an employer-employee relationship
is thus on a case-to-case basis depending on the evidence on record.
2. Manulife had the power of control over Tongko, sufficient to characterize him as
an employee, as shown by the following indicators:
2.1 Tongko undertook to comply with Manulife’s rules, regulations and
other requirements, i.e., the different codes of conduct such as the Agent
Code of Conduct, the Manulife Financial Code of Conduct, and the
Financial Code of Conduct Agreement;
2.2 The various affidavits of Manulife’s insurance agents and managers,
who occupied similar positions as Tongko, showed that they performed
administrative duties that established employment with Manulife; 12 and
2.3 Tongko was tasked to recruit some agents in addition to his other
administrative functions. De Dios’ letter harped on the direction Manulife
 intended to take, viz., greater agency recruitment as the primary means
to sell more policies; Tongko’s alleged failure to follow this directive led
to the termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for reconsideration on the
following GROUNDS:
1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a)
confining the review only to the issue of "control" and utterly disregarding all the
other issues that had been joined in this case; (b) mischaracterizing the divergence
of conclusions between the CA and the NLRC decisions as confined only to that on
"control"; (c) grossly failing to consider the findings and conclusions of the CA on
the majority of the material evidence, especially [Tongko’s] declaration in his
income tax returns that he was a "business person" or "self-employed"; and (d)
allowing [Tongko] to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in contract law and
agency, distorts not only the legal relationships of agencies to sell but also
distributorship and franchising, and ignores the constitutional and policy context of
contract law vis-à-vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA on the three
elements of the four-fold test other than the "control" test, reverses well-settled
doctrines of law on employer-employee relationships, and grossly misapplies the
"control test," by selecting, without basis, a few items of evidence to the exclusion
of more material evidence to support its conclusion that there is "control."
4. The November 7[, 2008] Decision is judicial legislation, beyond the scope
authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to
this Court under Article VIII, Section 1 of the Constitution and contravenes through
judicial legislation, the constitutional prohibition against impairment of contracts
under Article III, Section 10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision made unsustainable
and reversible errors, which should be corrected, in concluding that Respondent
Manulife and Petitioner had an employer-employee relationship, that Respondent
Manulife illegally dismissed Petitioner, and for consequently ordering Respondent
Manulife to pay Petitioner backwages, separation pay, nominal damages and
attorney’s fees.13
THE COURT’S RULING
A. The Insurance and the Civil Codes;
the Parties’ Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious that the
factual antecedents were set in the insurance industry so that the Insurance Code primarily
governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and
Brokers" and specifically defines the agents and brokers relationship with the insurance
company and how they are governed by the Code and regulated by the Insurance
Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as
agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets
of laws – namely, the Insurance Code, the Labor Code and the Civil Code – have to be
considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly
reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted
to govern their relationship for purposes of selling the insurance the company offers. To
forget these other laws is to take a myopic view of the present case and to add to the
uncertainties that now exist in considering the legal relationship between the insurance
company and its "agents."
The main issue of whether an agency or an employment relationship exists depends on the
incidents of the relationship. The Labor Code concept of "control" has to be compared and
distinguished with the "control" that must necessarily exist in a principal-agent relationship.
The principal cannot but also have his or her say in directing the course of the principal-
agent relationship, especially in cases where the company-representative relationship in the
insurance industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the country, in terms
particularly of who can be in the insurance business, who can act for and in behalf of an
insurer, and how these parties shall conduct themselves in the insurance business. Section 186
of the Insurance Code provides that "No person, partnership, or association of persons shall
transact any insurance business in the Philippines except as agent of a person or corporation
authorized to do the business of insurance in the Philippines." Sections 299 and 300 of the
Insurance Code on Insurance Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in obtaining
insurance, unless such person shall have first procured from the Commissioner a license to act
as an insurance agent of such company or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner x x x The Commissioner shall satisfy himself as to the competence and
trustworthiness of the applicant and shall have the right to refuse to issue or renew and to
suspend or revoke any such license in his discretion.1avvphi1.net
Section 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a policy
or contract of insurance to or from such company or offers or assumes to act in the
negotiating of such insurance shall be an insurance agent within the intent of this section and
shall thereby become liable to all the duties, requirements, liabilities and penalties to which
an insurance agent is subject.
The application for an insurance agent’s license requires a written examination, and the
applicant must be of good moral character and must not have been convicted of a crime
involving moral turpitude.14 The insurance agent who collects premiums from an insured
person for remittance to the insurance company does so in a fiduciary capacity, and an
insurance company which delivers an insurance policy or contract to an authorized agent is
deemed to have authorized the agent to receive payment on the company’s
behalf.15 Section 361 further prohibits the offer, negotiation, or collection of any amount
other than that specified in the policy and this covers any rebate from the premium or any
special favor or advantage in the dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and
must also act within the parameters of the authority granted under the license and under the
contract with the principal. Other than the need for a license, the agent is limited in the way
he offers and negotiates for the sale of the company’s insurance products, in his collection
activities, and in the delivery of the insurance contract or policy. Rules regarding the desired
results (e.g., the required volume to continue to qualify as a company agent, rules to check
on the parameters on the authority given to the agent, and rules to ensure that industry,
legal and ethical rules are followed) are built-in elements of control specific to an insurance
agency and should not and cannot be read as elements of control that attend an
employment relationship governed by the Labor Code.
On the other hand, the Civil Code defines an agent as a "person [who] binds himself to
render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter."16 While this is a very broad definition that on its face
may even encompass an employment relationship, the distinctions between agency and
employment are sufficiently established by law and jurisprudence.
Generally, the determinative element is the control exercised over the one rendering
service. The employer controls the employee both in the results and in the means and
manner of achieving this result. The principal in an agency relationship, on the other hand,
also has the prerogative to exercise control over the agent in undertaking the assigned task
based on the parameters outlined in the pertinent laws.
Under the general law on agency as applied to insurance, an agency must be express in
light of the need for a license and for the designation by the insurance company. In the
present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s
insurance agent.17 This agreement is supplemented by the company’s agency practices and
usages, duly accepted by the agent in carrying out the agency.18 By authority of the
Insurance Code, an insurance agency is for compensation,19 a matter the Civil Code Rules on
Agency presumes in the absence of proof to the contrary.20 Other than the compensation,
the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary
for the execution of the agency.21 By implication at least under Article 1994 of the Civil
Code, the principal can appoint two or more agents to carry out the same assigned
tasks,22 based necessarily on the specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution of the
agency, the agent shall act in accordance with the instructions of the principal." 23 This
provision is pertinent for purposes of the necessary control that the principal exercises over
the agent in undertaking the assigned task, and is an area where the instructions can intrude
into the labor law concept of control so that minute consideration of the facts is necessary. A
related article is Article 1891 of the Civil Code which binds the agent to render an account
of his transactions to the principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to
establish that the company rules and regulations that an agent has to comply with are
indicative of an employer-employee relationship.24 The Dissenting Opinions of Justice
Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance
Co. v. National Labor Relations Commission (second Insular case) 25 to support the view that
Tongko is Manulife’s employee. On the other hand, Manulife cites the Carungcong case and
AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission (AFPMBAI
case)26 to support its allegation that Tongko was not its employee.
A caveat has been given above with respect to the use of the rulings in the cited cases
because none of them is on all fours with the present case; the uniqueness of the factual
situation of the present case prevents it from being directly and readily cast in the mold of
the cited cases. These cited cases are themselves different from one another; this difference
underscores the need to read and quote them in the context of their own factual situations.
The present case at first glance appears aligned with the facts in the Carungcong, the
Grepalife, and the second Insular Life cases. A critical difference, however, exists as these
cited cases dealt with the proper legal characterization of a subsequent management
contract that superseded the original agency contract between the insurance company and
its agent. Carungcong dealt with a subsequent Agreement making Carungcong a New
Business Manager that clearly superseded the Agreement designating Carungcong as an
agent empowered to solicit applications for insurance. The Grepalife case, on the other
hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers
to positions higher than their original position as insurance agents. Thus, after analyzing the
duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we
concluded that the company practically dictated the manner by which the Ruiz brothers
were to carry out their jobs. Finally, the second Insular Life case dealt with the implications
of de los Reyes’ appointment as acting unit manager which, like the subsequent contracts in
the Carungcong and the Grepalife cases, was clearly defined under a subsequent contract.
In all these cited cases, a determination of the presence of the Labor Code element of
control was made on the basis of the stipulations of the subsequent contracts.
In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the
only contract or document extant and submitted as evidence in the present case is the
Agreement – a pure agency agreement in the Civil Code context similar to the original
contract in the first Insular Life case and the contract in the AFPMBAI case. And while Tongko
was later on designated unit manager in 1983, Branch Manager in 1990, and Regional
Sales Manager in 1996, no formal contract regarding these undertakings appears in the
records of the case. Any such contract or agreement, had there been any, could have at the
very least provided the bases for properly ascertaining the juridical relationship established
between the parties.
These critical differences, particularly between the present case and the Grepalife and the
second Insular Life cases, should therefore immediately drive us to be more prudent and
cautious in applying the rulings in these cases.
C. Analysis of the Evidence
c.1. The Agreement
The primary evidence in the present case is the July 1, 1977 Agreement that governed and
defined the parties’ relations until the Agreement’s termination in 2001. This Agreement
stood for more than two decades and, based on the records of the case, was never
modified or novated. It assumes primacy because it directly dealt with the nature of the
parties’ relationship up to the very end; moreover, both parties never disputed its
authenticity or the accuracy of its terms.
By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not
as an employee. To be sure, the Agreement’s legal characterization of the nature of the
relationship cannot be conclusive and binding on the courts; as the dissent clearly stated, the
characterization of the juridical relationship the Agreement embodied is a matter of law
that is for the courts to determine. At the same time, though, the characterization the parties
gave to their relationship in the Agreement cannot simply be brushed aside because it
embodies their intent at the time they entered the Agreement, and they were governed by
this understanding throughout their relationship. At the very least, the provision on the
absence of employer-employee relationship between the parties can be an aid in
considering the Agreement and its implementation, and in appreciating the other evidence
on record.
The parties’ legal characterization of their intent, although not conclusive, is critical in this
case because this intent is not illegal or outside the contemplation of law, particularly of the
Insurance and the Civil Codes. From this perspective, the provisions of the Insurance Code
cannot be disregarded as this Code (as heretofore already noted) expressly envisions a
principal-agent relationship between the insurance company and the insurance agent in the
sale of insurance to the public.1awph!1 For this reason, we can take judicial notice that as a
matter of Insurance Code-based business practice, an agency relationship prevails in the
insurance industry for the purpose of selling insurance. The Agreement, by its express terms,
is in accordance with the Insurance Code model when it provided for a principal-agent
relationship, and thus cannot lightly be set aside nor simply be considered as an agreement
that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the
system of compensation the Agreement provides, which likewise is in accordance with the
production-based sales commissions the Insurance Code provides.
Significantly, evidence shows that Tongko’s role as an insurance agent never changed during
his relationship with Manulife. If changes occurred at all, the changes did not appear to be
in the nature of their core relationship. Tongko essentially remained an agent, but moved up
in this role through Manulife’s recognition that he could use other agents approved by
Manulife, but operating under his guidance and in whose commissions he had a share. For
want of a better term, Tongko perhaps could be labeled as a "lead agent" who guided
under his wing other Manulife agents similarly tasked with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under their own
agency agreements. Thus, if Tongko’s compensation scheme changed at all during his
relationship with Manulife, the change was solely for purposes of crediting him with his share
in the commissions the agents under his wing generated. As an agent who was recruiting and
guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of
expenses he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to
Article 1912 of the Civil Code. Thus, Tongko received greater reimbursements for his
expenses and was even allowed to use Manulife facilities in his interactions with the agents,
all of whom were, in the strict sense, Manulife agents approved and certified as such by
Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent is the
inevitable conclusion that results from the reading of the Agreement (the only agreement on
record in this case) and his continuing role thereunder as sales agent, from the perspective
of the Insurance and the Civil Codes and in light of what Tongko himself attested to as his
role as Regional Sales Manager. To be sure, this interpretation could have been
contradicted if other agreements had been submitted as evidence of the relationship
between Manulife and Tongko on the latter’s expanded undertakings. In the absence of any
such evidence, however, this reading – based on the available evidence and the applicable
insurance and civil law provisions – must stand, subject only to objective and evidentiary
Labor Code tests on the existence of an employer-employee relationship.
In applying such Labor Code tests, however, the enforcement of the Agreement during the
course of the parties’ relationship should be noted. From 1977 until the termination of the
Agreement, Tongko’s occupation was to sell Manulife’s insurance policies and products. Both
parties acquiesced with the terms and conditions of the Agreement. Tongko, for his part,
accepted all the benefits flowing from the Agreement, particularly the generous
commissions.
Evidence indicates that Tongko consistently clung to the view that he was an independent
agent selling Manulife insurance products since he invariably declared himself a business or
self-employed person in his income tax returns. This consistency with, and action made
pursuant to the Agreement were pieces of evidence that were never mentioned nor
considered in our Decision of November 7, 2008. Had they been considered, they could,
at the very least, serve as Tongko’s admissions against his interest. Strictly speaking,
Tongko’s tax returns cannot but be legally significant because he certified under oath the
amount he earned as gross business income, claimed business deductions, leading to his net
taxable income. This should be evidence of the first order that cannot be brushed aside by
a mere denial. Even on a layman’s view that is devoid of legal considerations, the extent of
his annual income alone renders his claimed employment status doubtful. 27
Hand in hand with the concept of admission against interest in considering the tax returns,
the concept of estoppel – a legal and equitable concept28 – necessarily must come into
play. Tongko’s previous admissions in several years of tax returns as an independent agent,
as against his belated claim that he was all along an employee, are too diametrically
opposed to be simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion
states that Tongko was forced to declare himself a business or self-employed person by
Manulife’s persistent refusal to recognize him as its employee. 29 Regrettably, the dissent
has shown no basis for this conclusion, an understandable omission since no evidence
in fact exists on this point in the records of the case. In fact, what the evidence shows is
Tongko’s full conformity with, and action as, an independent agent until his relationship with
Manulife took a bad turn.
Another interesting point the dissent raised with respect to the Agreement is its conclusion
that the Agreement negated any employment relationship between Tongko and Manulife so
that the commissions he earned as a sales agent should not be considered in the
determination of the backwages and separation pay that should be given to him. This part
of the dissent is correct although it went on to twist this conclusion by asserting that Tongko
had dual roles in his relationship with Manulife; he was an agent, not an employee, in so far
as he sold insurance for Manulife, but was an employee in his capacity as a manager. Thus,
the dissent concluded that Tongko’s backwages should only be with respect to his role as
Manulife’s manager.
The conclusion with respect to Tongko’s employment as a manager is, of course,
unacceptable for the legal, factual and practical reasons discussed in this Resolution. In
brief, the factual reason is grounded on the lack of evidentiary support of the conclusion
that Manulife exercised control over Tongko in the sense understood in the Labor Code.
The legal reason, partly based on the lack of factual basis, is the erroneous legal conclusion
that Manulife controlled Tongko and was thus its employee. The practical reason, on the
other hand, is the havoc that the dissent’s unwarranted conclusion would cause the insurance
industry that, by the law’s own design, operated along the lines of principal-agent
relationship in the sale of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing
that Manulife ever exercised means-and-manner control, even to a limited extent, over
Tongko during his ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit
manager. Inexplicably, Tongko never bothered to present any evidence at all on what this
designation meant. This also holds true for Tongko’s appointment as branch manager in
1990, and as Regional Sales Manager in 1996. The best evidence of control – the
agreement or directive relating to Tongko’s duties and responsibilities – was never
introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife
had practically left Tongko alone not only in doing the business of selling insurance, but also
in guiding the agents under his wing. As discussed below, the alleged directives covered by
de Dios’ letter, heretofore quoted in full, were policy directions and targeted results that the
company wanted Tongko and the other sales groups to realign with in their own selling
activities. This is the reality that the parties’ presented evidence consistently tells us.
What, to Tongko, serve as evidence of labor law control are the codes of conduct that
Manulife imposes on its agents in the sale of insurance. The mere presentation of codes or of
rules and regulations, however, is not per se indicative of labor law control as the law and
jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both the insurance
company and its agents in the performance of their respective obligations under the Code,
particularly on licenses and their renewals, on the representations to be made to potential
customers, the collection of premiums, on the delivery of insurance policies, on the matter of
compensation, and on measures to ensure ethical business practice in the industry.
The general law on agency, on the other hand, expressly allows the principal an element of
control over the agent in a manner consistent with an agency relationship. In this sense, these
control measures cannot be read as indicative of labor law control. Foremost among these
are the directives that the principal may impose on the agent to achieve the assigned tasks,
to the extent that they do not involve the means and manner of undertaking these tasks. The
law likewise obligates the agent to render an account; in this sense, the principal may
impose on the agent specific instructions on how an account shall be made, particularly on
the matter of expenses and reimbursements. To these extents, control can be imposed
through rules and regulations without intruding into the labor law concept of control for
purposes of employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso
facto make the insurance agent an employee. Neither do guidelines somehow restrictive of
the insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case
tells us, should not merely relate to the mutually desirable result intended by the
contractual relationship; they must have the nature of dictating the means or methods to
be employed in attaining the result, or of fixing the methodology and of binding or
restricting the party hired to the use of these means. In fact, results-wise, the principal can
impose production quotas and can determine how many agents, with specific territories,
ought to be employed to achieve the company’s objectives. These are management policy
decisions that the labor law element of control cannot reach. Our ruling in these respects in
the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown
more fully below, Manulife’s codes of conduct,30 all of which do not intrude into the
insurance agents’ means and manner of conducting their sales and only control them as to
the desired results and Insurance Code norms, cannot be used as basis for a finding that the
labor law concept of control existed between Manulife and Tongko.
performance of his end of the relationship with Manulife. We could not deny though that
Tongko remained, first and foremost, an insurance agent, and that his additional role as
Branch Manager did not lessen his main and dominant role as insurance agent; this role
continued to dominate the relations between Tongko and Manulife even after Tongko
assumed his leadership role among agents. This conclusion cannot be denied because it
proceeds from the undisputed fact that Tongko and Manulife never altered their July 1,
1977 Agreement, a distinction the present case has with the contractual changes made in
the second Insular Life case. Tongko’s results-based commissions, too, attest to the primacy
he gave to his role as insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great qualitative
difference that exists between:

The dissent considers the imposition of administrative and managerial functions on Tongko as  the Manulife managers’ role is to coordinate activities of the agents under the
indicative of labor law control; thus, Tongko as manager, but not as insurance agent, managers’ Unit in the agents’ daily, weekly, and monthly selling activities, making
became Manulife’s employee. It drew this conclusion from what the other Manulife sure that their respective sales targets are met.
managers disclosed in their affidavits (i.e., their enumerated administrative and managerial
functions) and after comparing these statements with the managers in Grepalife. The dissent  the District Manager’s duty in Grepalife is to properly account, record, and
compared the control exercised by Manulife over its managers in the present case with the document the company's funds, spot-check and audit the work of the zone
control the managers in the Grepalife case exercised over their employees by presenting supervisors, conserve the company's business in the district through "reinstatements,"
the following matrix:31 follow up the submission of weekly remittance reports of the debit agents and zone
supervisors, preserve company property in good condition, train understudies for
the position of district managers, and maintain his quota of sales (the failure of
Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors which is a ground for termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales
- to render or recommend prospective agents to be - train understudies for the position of district manageractivities of the debit agents under him, conserve company property through
licensed, trained and contracted to sell Manulife "reinstatements," undertake and discharge the functions of absentee debit agents,
products and who will be part of my Unit spot-check the records of debit agents, and insure proper documentation of sales and
- to coordinate activities of the agents under [the collections by the debit agents.
- properly account, record and document the company’s
managers’] Unit in [the agents’] daily, weekly and funds, spot-check and audit the work of the zone
monthly selling activities, making sure that their Theseof
supervisors, x x x follow up the submission jobweekly
contents are worlds apart in terms of "control." In Grepalife, the details of how to
respective sales targets are met; remittance reports of the debit agentsdoand thezone
job are specified and pre-determined; in the present case, the operative words are
supervisors the "sales target," the methodology being left undefined except to the extent of being
- to conduct periodic training sessions for [the] "coordinative." To be sure, a "coordinative" standard for a manager cannot be indicative of
agents to further enhance their sales skill; and control;
- direct and supervise the sales activities thedebit
of the standard only essentially describes what a Branch Manager is – the person in
agents under him, x x x undertake and thedischarge
lead whothe orchestrates activities within the group. To "coordinate," and thereby to lead
functions of absentee debit agents, and to orchestrate,
spot-check the is not so much a matter of control by Manulife; it is simply a statement of
- to assist [the] agents with their sales activities by a branch
way of joint fieldwork, consultations and one-on-one record of debit agents, and insure proper documentation role in relation with his agents from the point of view of Manulife
manager’s
whose
of sales and collections of debit agents. business Tongko’s sales group carries.
evaluation and analysis of particular accounts
A disturbing note, with respect to the presented affidavits and Tongko’s alleged
Aside from these affidavits however, no other evidence exists regarding the effects of administrative functions, is the selective citation of the portions supportive of an employment
Tongko’s additional roles in Manulife’s sales operations on the contractual relationship relationship and the consequent omission of portions leading to the contrary conclusion. For
between them. example, the following portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of November 7,
To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other 2008, while the other portions suggesting labor law control were highlighted. Specifically,
sales agents constituted a substantive alteration of Manulife’s authority over Tongko and the the following portions of the affidavits were not brought out: 32
 1.a. I have no fixed wages or salary since my services are compensated by way
of commissions based on the computed premiums paid in full on the policies
obtained thereat;
1.b. I have no fixed working hours and employ my own method in soliticing
insurance at a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my business
of selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10)
percent creditable withholding tax. I also remit monthly for professionals.
These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employer-employee
relationship existed between Manulife and Tongko.
Even de Dios’ letter is not determinative of control as it indicates the least amount of
intrusion into Tongko’s exercise of his role as manager in guiding the sales agents. Strictly
viewed, de Dios’ directives are merely operational guidelines on how Tongko could align his
operations with Manulife’s re-directed goal of being a "big league player." The method is
to expand coverage through the use of more agents. This requirement for the recruitment of
more agents is not a means-and-method control as it relates, more than anything else, and is
directly relevant, to Manulife’s objective of expanded business operations through the use
of a bigger sales force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not supervising regular full-time employees
of Manulife engaged in the running of the insurance business; Tongko was effectively
guiding his corps of sales agents, who are bound to Manulife through the same Agreement
that he had with Manulife, all the while sharing in these agents’ commissions through his
overrides. This is the lead agent concept mentioned above for want of a more appropriate
term, since the title of Branch Manager used by the parties is really a misnomer given that
what is involved is not a specific regular branch of the company but a corps of non-
employed agents, defined in terms of covered territory, through which the company sells
insurance. Still another point to consider is that Tongko was not even setting policies in the
way a regular company manager does; company aims and objectives were simply relayed
to him with suggestions on how these objectives can be reached through the expansion of a
non-employee sales force.
Interestingly, a large part of de Dios’ letter focused on income, which Manulife
demonstrated, in Tongko’s case, to be unaffected by the new goal and direction the
company had set. Income in insurance agency, of course, is dependent on results, not on the
means and manner of selling – a matter for Tongko and his agents to determine and an
area into which Manulife had not waded. Undeniably, de Dios’ letter contained a directive
to secure a competent assistant at Tongko’s own expense. While couched in terms of a
directive, it cannot strictly be understood as an intrusion into Tongko’s method of operating
and supervising the group of agents within his delineated territory. More than anything else,
the "directive" was a signal to Tongko that his results were unsatisfactory, and was a
suggestion on how Tongko’s perceived weakness in delivering results could be remedied. It
was a solution, with an eye on results, for a consistently underperforming group; its obvious
intent was to save Tongko from the result that he then failed to grasp – that he could lose
even his own status as an agent, as he in fact eventually did.
The present case must be distinguished from the second Insular Life case that showed the
hallmarks of an employer-employee relationship in the management system established.
These were: exclusivity of service, control of assignments and removal of agents under the
private respondent’s unit, and furnishing of company facilities and materials as well as
capital described as Unit Development Fund. All these are obviously absent in the present
case. If there is a commonality in these cases, it is in the collection of premiums which is a
basic authority that can be delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongko’s case was the grant of an
expanded sales agency role that recognized him as leader amongst agents in an area that
Manulife defined. Whether this consequently resulted in the establishment of an
employment relationship can be answered by concrete evidence that corresponds to the
following questions:
 as lead agent, what were Tongko’s specific functions and the terms of his
additional engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart
from the commissions he received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract;
and
 to what extent does Manulife control the means and methods of Tongko’s role as
lead agent?
The answers to these questions may, to some extent, be deduced from the evidence at hand,
as partly discussed above. But strictly speaking, the questions cannot definitively and
concretely be answered through the evidence on record. The concrete evidence required to
settle these questions is simply not there, since only the Agreement and the anecdotal
affidavits have been marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the
factors determinative of the existence of employer-employee relationship, the Court cannot
conclusively find that the relationship exists in the present case, even if such relationship only
refers to Tongko’s additional functions. While a rough deduction can be made, the answer
will not be fully supported by the substantial evidence needed.
Under this legal situation, the only conclusion that can be made is that the absence of
evidence showing Manulife’s control over Tongko’s contractual duties points to the absence
of any employer-employee relationship between Tongko and Manulife. In the context of the
established evidence, Tongko remained an agent all along; although his subsequent duties
made him a lead agent with leadership role, he was nevertheless only an agent whose
basic contract yields no evidence of means-and-manner control.
This conclusion renders unnecessary any further discussion of the question of whether an
agent may simultaneously assume conflicting dual personalities. But to set the record
straight, the concept of a single person having the dual role of agent and employee while
doing the same task is a novel one in our jurisprudence, which must be viewed with caution
especially when it is devoid of any jurisprudential support or precedent. The quoted
portions in Justice Carpio-Morales’ dissent,33 borrowed from both the Grepalife and the
second Insular Life cases, to support the duality approach of the Decision of November 7,
2008, are regrettably far removed from their context – i.e., the cases’ factual situations, the
issues they decided and the totality of the rulings in these cases – and cannot yield the
conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as
zone supervisor and district manager made them employees of Grepalife. Indeed, because
of the presence of the element of control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they were
simultaneously considered agents as well as employees of Grepalife; the Court’s ruling never
implied that this situation existed insofar as the Ruiz brothers were concerned. The Court’s
statement – the Insurance Code may govern the licensing requirements and other particular
duties of insurance agents, but it does not bar the application of the Labor Code with
regard to labor standards and labor relations – simply means that when an insurance
company has exercised control over its agents so as to make them their employees, the
relationship between the parties, which was otherwise one for agency governed by the Civil
Code and the Insurance Code, will now be governed by the Labor Code. The reason for this
is simple – the contract of agency has been transformed into an employer-employee
relationship.
The second Insular Life case, on the other hand, involved the issue of whether the labor
bodies have jurisdiction over an illegal termination dispute involving parties who had two
contracts – first, an original contract (agency contract), which was undoubtedly one for
agency, and another subsequent contract that in turn designated the agent acting unit
manager (a management contract). Both the Insular Life and the labor arbiter were one in
the position that both were agency contracts. The Court disagreed with this conclusion and
held that insofar as the management contract is concerned, the labor arbiter has jurisdiction.
It is in this light that we remanded the case to the labor arbiter for further proceedings. We
never said in this case though that the insurance agent had effectively assumed dual
personalities for the simple reason that the agency contract has been effectively
superseded by the management contract. The management contract provided that if the
appointment was terminated for any reason other than for cause, the acting unit manager
would be reverted to agent status and assigned to any unit.
The dissent pointed out, as an argument to support its employment relationship conclusion,
that any doubt in the existence of an employer-employee relationship should be resolved in
favor of the existence of the relationship.34This observation, apparently drawn from Article
4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt exists in the
"implementation and application" of the Labor Code and its implementing rules; it does not
apply where no doubt exists as in a situation where the claimant clearly failed to
substantiate his claim of employment relationship by the quantum of evidence the Labor
Code requires.
On the dissent’s last point regarding the lack of jurisprudential value of our November 7,
2008 Decision, suffice it to state that, as discussed above, the Decision was not supported
by the evidence adduced and was not in accordance with controlling jurisprudence. It
should, therefore, be reconsidered and abandoned, but not in the manner the dissent
suggests as the dissenting opinions are as factually and as legally erroneous as the Decision
under reconsideration.
In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines
of de Dios’ letter, as a ground for termination of Tongko’s agency, is a matter that the labor
tribunals cannot rule upon in the absence of an employer-employee relationship. Jurisdiction
over the matter belongs to the courts applying the laws of insurance, agency and contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November
7, 2008, GRANTManulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s
petition. No costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice
G.R. No. L-8169 January 29, 1957
THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,
vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and THE
COURT OF APPEALS (First Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals which
reversed that of the Court of First Instance of Manila and sentenced ". . . the defendants-
appellees to pay, jointly and severally, the plaintiffs-appellants the sum of P1,651.38, with
legal interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the
costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee, the Shell
Company of the Philippine Islands, Ltd. accept the statement of facts made by the
trial court in its decision and appearing on pages 23 to 37 of the Record on
Appeal, we quote hereunder such statement:
This is an action for recovery of sum of money, based on alleged negligence of the
defendants.
It is a fact that a Plymounth car owned by Salvador R. Sison was brought, on
September 3, 1947 to the Shell Gasoline and Service Station, located at the
corner of Marques de Comillas and Isaac Peral Streets, Manila, for washing,
greasing and spraying. The operator of the station, having agreed to do service
upon payment of P8.00, the car was placed on a hydraulic lifter under the
direction of the personnel of the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car
over the lifter. Then by the aid of the two grease men they raised up my
car up to six feet high, and then washing was done. After washing, the
next step was greasing. Before greasing was finished, there is a part
near the shelf of the right fender, right front fender, of my car to be
greased, but the the grease men cannot reached that part, so the next
thing to be done was to loosen the lifter just a few feet lower. Then upon
releasing the valve to make the car lower, a little bit lower . . .
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air is
too strong for my ear I faced backward. I faced toward Isaac Peral
Street, and covered my ear. After the escaped of the air has been
finished, the air coming out from the valve, I turned to face the car and I
saw the car swaying at that time, and just for a few second the car fell.,
(t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the adjustor of the
firemen's Insurance Company and the Commercial Casualty Insurance Company, as the car
was insured with these insurance companies. After having been inspected by one Mr.
Baylon, representative of the Manila Adjustor Company, the damaged car was taken to the
shops of the Philippine Motors, Incorporated, for repair upon order of the Firemen's
Insurance Company and the Commercial Casualty Company, with the consent of Salvador R.
Sison. The car was restored to running condition after repairs amounting to P1,651.38, and
was delivered to Salvador R. Sison, who, in turn made assignments of his rights to recover
damages in favor of the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
On the other hand, the fall of the car from the hydraulic lifter has been explained
by Alfonso M. Adriano, a greaseman in the Shell Gasoline and Service Station, as
follows:
Q. Were you able to lift the car on the hydraulic lifter on the occasion,
September 3, 1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
 A. I greased it.
Q. On that occasion, have you been able to finish greasing and washing
the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.
Q. Were you able to reach the portion which you were not able to reach
while it was lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was swinging
and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his counter-statement of facts
which is hereunder also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to the plaintiff
Salvador Sison was brought by his son, Perlito Sison, to the gasoline and service
station at the corner of Marques de Comillas and Isaac Peral Streets, City of
Manila, Philippines, owned by the defendant The Shell Company of the Philippine
Islands, Limited, but operated by the defendant Porfirio de la Fuente, for the
purpose of having said car washed and greased for a consideration of P8.00
(t.s.n., pp. 19-20.) Said car was insured against loss or damage by Firemen's
Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance
Company jointly for the sum of P10,000 (Exhibits "A', "B", and "D").
The job of washing and greasing was undertaken by defendant Porfirio de la
Fuente through his two employees, Alfonso M. Adriano, as greaseman and one
surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To perform the job
the car was carefully and centrally placed on the platform of the lifter in the
gasoline and service station aforementioned before raising up said platform to a
height of about 5 feet and then the servicing job was started. After more than one
hour of washing and greasing, the job was about to be completed except for an
ungreased portion underneath the vehicle which could not be reached by the
greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and while
doing so, the car for unknown reason accidentally fell and suffered damage to the
value of P1, 651.38 (t.s.n., pp. 65-67).
The insurance companies after paying the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador Sison in accordance with the terms
of the insurance contract, have filed this action together with said Salvador Sison
for the recovery of the total amount of the damage from the defendants on the
ground of negligence (Record on Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the operation of the
lifter in his separate answer and contended further that the accidental fall of the
car was caused by unforseen event (Record on Appeal, pp. 17-19).
The owner of the car forthwith notified the insurers who ordered their adjustor, the Manila
Adjustor Company, to investigate the incident and after such investigation the damaged car,
upon order of the insures and with the consent of the owner, was brought to the shop of the
Philippine Motors, Inc. The car was restored to running condition after thereon which
amounted to P1,651.38 and returned to the owner who assigned his right to collect the
aforesaid amount to the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
On 6 December 1947 the insures and the owner of the car brought an action in the Court of
First Instance of Manila against the Shell Company of the Philippines, Ltd. and Porfirio de la
Fuente to recover from them, jointly and severally, the sum of P1,651.38, interest thereon at
the legal rate from the filing of the complaint until fully paid, the costs. After trial the Court
dismissed the complaint. The plaintiffs appealed. The Court of Appeals reversed the
judgment and sentenced the defendant to pay the amount sought to be recovered, legal
interest and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was brought to the
station for servicing Profirio de la Fuente, the operator of the gasoline and service station,
was an agent of the Shell Company of the Philippines, Ltd., the Court of Appeals found that
—
. . . De la Fuente owned his position to the Shell Company which could remove him
terminate his services at any time from the said Company, and he undertook to sell
the Shell Company's products exculusively at the said Station. For this purpose, De
 la Fuente was placed in possession of the gasoline and service station under
consideration, and was provided with all the equipments needed to operate it, by
the said Company, such as the tools and articles listed on Exhibit 2 which the
hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the
date in question (Exhibit 1 and 2). These equipments were delivered to De la
Fuente on a so-called loan basis. The Shell Company took charge of its care and
maintenance and rendered to the public or its customers at that station for the
proper functioning of the equipment. Witness Antonio Tiongson, who was sales
superintendent of the Shell Company, and witness Augusto Sawyer, foreman of the
same Company, supervised the operators and conducted periodic inspection of the
Company's gasoline and service station, the service station in question inclusive.
Explaining his duties and responsibilities and the reason for the loan, Tiongson said:
"mainly of the supervision of sales or (of) our dealers and rountinary inspection of
the equipment loaned by the Company" (t.s.n., 107); "we merely inquire about how
the equipments are, whether they have complaints, and whether if said equipments
are in proper order . . .", (t.s.n., 110); station equipments are "loaned for the
exclusive use of the dealer on condition that all supplies to be sold by said dealer
should be exclusively Shell, so as a concession we loan equipments for their use . .
.," "for the proper functioning of the equipments, we answer and see to it that the
equipments are in good running order usable condition . . .," "with respect to the
public." (t.s.n., 111-112). De la Fuente, as operator, was given special prices by
the Company for the gasoline products sold therein. Exhibit 1 — Shell, which was a
receipt by Antonio Tiongson and signed by the De la Fuente, acknowledging the
delivery of equipments of the gasoline and service station in question was
subsequently replaced by Exhibit 2 — Shell, an official from of the inventory of
the equipment which De la Fuente signed above the words: "Agent's signature" And
the service station in question had been marked "SHELL", and all advertisements
therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the equipments
needed to operate the station was owned by the Defendant Company which took
charge of their proper care and maintenance, despite the fact that they were
loaned to him; that the Defendant company did not leave the fixing of price for
gasoline to De la Fuente; on the other hand, the Defendant company had complete
control thereof; and that Tiongson, the sales representative of the Defendant
Company, had supervision over De la Fuente in the operation of the station, and in
the sale of Defendant Company's products therein. . . .
Taking into consideration the fact that the operator owed his position to the company and
the latter could remove him or terminate his services at will; that the service station
belonged to the company and bore its tradename and the operator sold only the products
of the company; that the equipment used by the operator belonged to the company and
were just loaned to the operator and the company took charge of their repair and
maintenance; that an employee of the company supervised the operator and conducted
periodic inspection of the company's gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not by the operator; and that
the receipt signed by the operator indicated that he was a mere agent, the finding of the
Court of Appeals that the operator was an agent of the company and not an independent
contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely upon the
name or title given it by the contracting parties, should there be a controversy as to what
they really had intended to enter into, but the way the contracting parties do or perform
their respective obligation stipulated or agreed upon may be shown and inquired into, and
should such performance conflict with the name or title given the contract by the parties, the
former must prevail over the latter.
It was admitted by the operator of the gasoline and service station that "the car was
carefully and centrally placed on the platform of the lifter . . ." and the Court of Appeals
found that —
. . . the fall of Appellant Sison's car from the hydraulic lift and the damage caused
therefor, were the result of the jerking and swaying of the lift when the valve was
released, and that the jerking was due to some accident and unforeseen
shortcoming of the mechanism itself, which caused its faulty or defective operation
or functioning,
. . . the servicing job on Appellant Sison's automobile was accepted by De la
Fuente in the normal and ordinary conduct of his business as operator of his co-
appellee's service station, and that the jerking and swaying of the hydraulic lift
which caused the fall of the subject car were due to its defective condition,
resulting in its faulty operation. . . .
As the act of the agent or his employees acting within the scope of his authority is the act of
the principal, the breach of the undertaking by the agent is one for which the principal is
answerable. Moreover, the company undertook to "answer and see to it that the equipments
are in good running order and usable condition;" and the Court of Appeals found that the
Company's mechanic failed to make a thorough check up of the hydraulic lifter and the
check up made by its mechanic was "merely routine" by raising "the lifter once or twice and
after observing that the operator was satisfactory, he (the mechanic) left the place." The
latter was negligent and the company must answer for the negligent act of its mechanic
which was the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., Endencia and Felix, JJ., concur.
G.R. No. 152613 & No. 152628 June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board,
provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL
SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL
PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO
DACUDAO, PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA,
THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO,
EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO,
ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20 June 23, 2006
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO., INC., the
mines adjudication board, provincial mining regulatory board (PMRB-DAVAO),
MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-
BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and joel brillantes management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152870-71 June 23, 2006
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS
(Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR
HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369,
establishing the Agusan-Davao-Surigao Forest Reserve consisting of approximately
1,927,400 hectares.1
The disputed area, a rich tract of mineral land, is inside the forest reserve located at
Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759
hectares.2 This mineral land is encompassed by Mt. Diwata, which is situated in the
municipalities of Monkayo and Cateel. It later became known as the "Diwalwal Gold Rush
Area." It has since the early 1980’s been stormed by conflicts brought about by the
numerous mining claimants scrambling for gold that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered
traces of gold in Mount Diwata, filed a Declaration of Location (DOL) for six mining claims
in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the
Balite Communal Portal Mining Cooperative (Balite).3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for mining
locations over mineral land covering certain parts of the Diwalwal gold rush area were
filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining
claims for areas adjacent to the area covered by the DOL of Banad and his group. After
realizing that the area encompassed by its mining claims is a forest reserve within the
coverage of Proclamation No. 369 issued by Governor General Davis, MMC abandoned
the same and instead applied for a prospecting permit with the Bureau of Forest
Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759
hectares traversing the municipalities of Monkayo and Cateel, an area within the forest
reserve under Proclamation No. 369. The permit embraced the areas claimed by Apex and
the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the
BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-scale miners
in the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a
Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining Permit
Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged that the
areas covered by its EP 133 and the mining claims of Apex were within an established and
existing forest reservation (Agusan-Davao-Surigao Forest Reserve) under Proclamation No.
369 and that pursuant to Presidential Decree No. 463,4 acquisition of mining rights within a
forest reserve is through the application for a permit to prospect with the BFD and not
through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMC’s petition alleging that its
mining claims are not within any established or proclaimed forest reserve, and as such, the
acquisition of mining rights thereto must be undertaken via registration of DOL with the
BMG and not through the filing of application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMC’s petition on the ground that the area covered
by the Apex mining claims and MMC’s permit to explore was not a forest reservation. It
further declared null and void MMC’s EP 133 and sustained the validity of Apex mining
claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural
Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of
BMG and declared MMC’s EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied.
Apex then filed an appeal before the Office of the President. On 27 July 1989, the Office
of the President, through Assistant Executive Secretary for Legal Affairs, Cancio C.
Garcia,5 dismissed Apex’s appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No.
92605 entitled, "Apex Mining Co., Inc. v. Garcia." 6 On 16 July 1991, this Court rendered a
Decision against Apex holding that the disputed area is a forest reserve; hence, the proper
procedure in acquiring mining rights therein is by initially applying for a permit to prospect
with the BFD and not through a registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department
Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered
by the Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale
mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale miners,
several mining entities filed applications for Mineral Production Sharing Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed an
MPSA application which was denied by the BMG on the grounds that the area applied for
is within the area covered by MMC EP 133 and that the MISSMA was not qualified to
apply for an MPSA under DAO No. 82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for
Cancellation of EP 133 and for the admission of their MPSA Application. The Petition was
docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative (DUMC) and
Balite intervened and likewise sought the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area
that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares
under EP 133, which was also denied by reason of the pendency of RED Mines Case No. 8-
8-94. On 1 September 1995, SEM filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEM’s MPSA application and the
Deed of Assignment over EP 133 executed in its favor by MMC. SEM’s application was
designated MPSA Application No. 128 (MPSAA 128). After publication of SEM’s
application, the following filed before the BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) – JB Management Mining Corporation;
b) MAC Case No. 005(XI) – Davao United Miners Cooperative;
c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner’s Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner’s Association,
Inc. (MISSMA);
e) MAC Case No. 008(XI) – Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) – Antonio Dacudao;
h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) – Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) – Romeo Altamera, et al.8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the
following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case
No. 8-8-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the
Petition for Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex
Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and subsisting. It also
declared that the BMG Director, under Section 99 of the Consolidated Mines Administrative
Order implementing Presidential Decree No. 463, was authorized to issue exploration
permits and to renew the same without limit.
With respect to the adverse claims on SEM’s MPSAA No. 128, the PA ruled that adverse
claimants’ petitions were not filed in accordance with the existing rules and regulations
governing adverse claims because the adverse claimants failed to submit the sketch plan
containing the technical description of their respective claims, which was a mandatory
requirement for an adverse claim that would allow the PA to determine if indeed there is an
overlapping of the area occupied by them and the area applied for by SEM. It added that
the adverse claimants were not claim owners but mere occupants conducting illegal mining
activities at the contested area since only MMC or its assignee SEM had valid mining claims
over the area as enunciated in Apex Mining Co., Inc. v. Garcia. 11 Also, it maintained that the
adverse claimants were not qualified as small-scale miners under DENR Department
Administrative Order No. 34 (DAO No. 34),12 or the Implementing Rules and Regulation of
Republic Act No. 7076 (otherwise known as the "People’s Small-Scale Mining Act of 1991"),
as they were not duly licensed by the DENR to engage in the extraction or removal of
minerals from the ground, and that they were large-scale miners. The decretal portion of
the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133 is
hereby reiterated and all the adverse claims against MPSAA No. 128 are DISMISSED.13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication
Board (MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the
dismissal by the PA of the adverse claims filed against MMC and SEM over a mere
technicality of failure to submit a sketch plan. It argued that the rules of procedure are not
meant to defeat substantial justice as the former are merely secondary in importance to the
latter. Dealing with the question on EP 133’s validity, the MAB opined that said issue was
not crucial and was irrelevant in adjudicating the appealed case because EP 133 has long
expired due to its non-renewal and that the holder of the same, MMC, was no longer a
claimant of the Agusan-Davao-Surigao Forest Reserve having relinquished its right to SEM.
After it brushed aside the issue of the validity of EP 133 for being irrelevant, the MAB
proceeded to treat SEM’s MPSA application over the disputed area as an entirely new and
distinct application. It approved the MPSA application, excluding the area segregated by
DAO No. 66, which declared 729 hectares within the Diwalwal area as non-forest lands
open for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators dated 13
June 1997 is hereby VACATED and a new one entered in the records of the case as follows:
1. SEM’s MPSA application is hereby given due course subject to the full and strict
compliance of the provisions of the Mining Act and its Implementing Rules and
Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively
mined by the small-scale miners on or before August 1, 1987 as determined by the
Provincial Mining Regulatory Board (PMRB), is hereby excluded from the area
applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed until
such time that all necessary procedures, licenses, permits, and other requisites as
provided for by RA 7076, the Mining Act and its Implementing Rules and
Regulations and all other pertinent laws, rules and regulations are complied with,
and the appropriate environmental protection measures and safeguards have
been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all small-
scale miners to continue to negotiate in good faith and arrive at an agreement
beneficial to all. In the event of SEM’s strict and full compliance with all the
requirements of the Mining Act and its Implementing Rules and Regulations, and the
concurrence of the small-scale miners actually occupying and actively mining the
area, SEM may apply for the inclusion of portions of the areas segregated under
paragraph 2 hereof, to its MPSA application. In this light, subject to the preceding
paragraph, the contract between JB [JB Management Mining Corporation] and
SEM is hereby recognized.14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM,
aggrieved by the exclusion of 729 hectares from its MPSA application, likewise appealed.
Apex filed a Motion for Leave to Admit Petition for Intervention predicated on its right to
stake its claim over the Diwalwal gold rush which was granted by the Court. These cases,
however, were remanded to the Court of Appeals for proper disposition pursuant to Rule
43 of the 1997 Rules of Civil Procedure. The Court of Appeals consolidated the remanded
cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the
decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue
of its assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100%
subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that since SEM is
an agent of MMC, the assignment of EP 133 did not violate the condition therein prohibiting
its transfer except to MMC’s duly designated agent. Thus, despite the non-renewal of EP
133 on 6 July 1994, the Court of Appeals deemed it relevant to declare EP 133 as valid
since MMC’s mining rights were validly transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMC’s right to explore under EP 133 is a property
right which the 1987 Constitution protects and which cannot be divested without the holder’s
consent. It stressed that MMC’s failure to proceed with the extraction and utilization of
minerals did not diminish its vested right to explore because its failure was not attributable
to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7,
and 8 of Presidential Decree No. 463, the Court of Appeals concluded that the issuance of
DAO No. 66 was done by the DENR Secretary beyond his power for it is the President who
has the sole power to withdraw from the forest reserve established under Proclamation No.
369 as non-forest land for mining purposes. Accordingly, the segregation of 729 hectares
of mining areas from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when
he awarded the 729 hectares segregated from the coverage area of EP 133 to other
corporations who were not qualified as small-scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that their failure
to submit the sketch plan to the PA, which is a jurisdictional requirement, was fatal to their
appeal. It likewise stated the Villaflor and company’s mining claims, which were based on
their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was null and void. The
dispositive portion of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining
Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for lack of
merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto and
the assailed MAB Decision is hereby SET ASIDE and declared as NULL and VOID.16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court filed
by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November 2002. This proclamation excluded an area of
8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as
mineral reservation and as environmentally critical area. Subsequently, DENR Administrative
Order No. 2002-18 was issued declaring an emergency situation in the Diwalwal gold rush
area and ordering the stoppage of all mining operations therein. Thereafter, Executive
Order No. 217 dated 17 June 2003 was issued by the President creating the National Task
Force Diwalwal which is tasked to address the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING’S [SEM] E.P. 133 IS NULL
AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE TERMS AND
CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE IT’S
CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER CLAIMANTS
PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT "PRIORITY IN TIME
IS PRIORITY IN RIGHT."17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE (JUNE 23,
1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON JUNE 14, 1994
HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE
CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT THE REQUIRED
SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT SUBMITTED ON TIME WAS A
VALID DISMISSAL OF BALITE’S ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF
BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF THE
4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE BUREAU
OF MINES AND GEOSCIENCES WAS ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
 II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE
ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217 CAN
OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE DIWALWAL
GOLD RUSH AREA.19
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR Secretary
has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and
Balite’s claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals’ ruling upholding the
validity of MMC’s EP 133 and its subsequent transfer to SEM asserting that MMC failed to
comply with the terms and conditions in its exploration permit, thus, MMC and its successor-
in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex pointed out that MMC
violated four conditions in its permit. First, MMC failed to comply with the mandatory work
program, to complete exploration work, and to declare a mining feasibility. Second, it
reneged on its duty to submit an Environmental Compliance Certificate. Third, it failed to
comply with the reportorial requirements. Fourth, it violated the terms of EP 133 when it
assigned said permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under
DAO No. 8220 which caused its exploration permit to lapse because DAO No. 82 mandates
holders of exploration permits to file a Letter of Intent and a MPSA application not later
than 17 July 1991. It said that because EP 133 expired prior to its assignment to SEM,
SEM’s MPSA application should have been evaluated on its own merit.
As regards the Court of Appeals recognition of SEM’s vested right over the disputed area,
Apex bewails the same to be lacking in statutory bases. According to Apex, Presidential
Decree No. 463 and Republic Act No. 7942 impose upon the claimant the obligation of
actually undertaking exploration work within the reserved lands in order to acquire priority
right over the area. MMC, Apex claims, failed to conduct the necessary exploration work,
thus, MMC and its successor-in-interest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is
an expired and void permit which cannot be made the basis of SEM’s MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of
the transfer of EP 133 because the transfer directly violates the express condition of the
exploration permit stating that "it shall be for the exclusive use and benefit of the permittee
or his duly authorized agents." It added that while MMC is the permittee, SEM cannot be
considered as MMC’s duly designated agent as there is no proof on record authorizing SEM
to represent MMC in its business dealings or undertakings, and neither did SEM pursue its
interest in the permit as an agent of MMC. According to the MAB, the assignment by MMC
of EP 133 in favor of SEM did not make the latter the duly authorized agent of MMC since
the concept of an agent under EP 133 is not equivalent to the concept of assignee. It finds
fault in the assignment of EP 133 which lacked the approval of the DENR Secretary in
contravention of Section 25 of Republic Act No. 7942 21 requiring his approval for a valid
assignment or transfer of exploration permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the
MAB relate to factual and evidentiary matters which this Court cannot inquire into in an
appeal by certiorari.
The established rule is that in the exercise of the Supreme Court’s power of review, the
Court not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the Court of Appeals are conclusive and binding on the Court. 22 This
rule, however, admits of exceptions as recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on misapprehension of facts; (5)
when the findings of facts are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioner’s main and
reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different
conclusion.23
Also, in the case of Manila Electric Company v. Benamira,24 the Court in a Petition for
Review on Certiorari, deemed it proper to look deeper into the factual circumstances of the
case since the Court of Appeal’s findings are at odds to those of the National Labor
Relations Commission (NLRC). Just like in the foregoing case, it is this Court’s considered view
that a re-evaluation of the attendant facts surrounding the present case is appropriate
considering that the findings of the MAB are in conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP
133 pursuant to a Deed of Assignment dated 16 February 1994. 25
EP 133 is subject to the following terms and conditions 26 :
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting
of all expenditures incurred therein subject to periodic inspection and verification
at reasonable intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the
end of each calendar quarter a report under oath of a full and complete
statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines and
upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its
provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been incurred,
or as to other damages that might have been suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the permittee or his
duly authorized agents and shall be used for mineral exploration purposes only
and for no other purpose.
Under Section 9027 of Presidential Decree No. 463, the applicable statute during the
issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with carrying
out the said law. Also, under Commonwealth Act No. 136, also known as "An Act Creating
The Bureau of Mines," which was approved on 7 November 1936, the Director of Mines has
the direct charge of the administration of the mineral lands and minerals, and of the survey,
classification, lease or any other form of concession or disposition thereof under the Mining
Act.28 This power of administration includes the power to prescribe terms and conditions in
granting exploration permits to qualified entities. Thus, in the grant of EP 133 in favor of
the MMC, the Director of the BMG acted within his power in laying down the terms and
conditions attendant thereto.
Condition number 6 categorically states that the permit shall be for the exclusive use and
benefit of MMC or its duly authorized agents. While it may be true that SEM, the assignee
of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any evidence
showing that the former is the duly authorized agent of the latter. For a contract of agency
to exist, it is essential that the principal consents that the other party, the agent, shall act on
its behalf, and the agent consents so as to act.29 In the case of Yu Eng Cho v. Pan American
World Airways, Inc.,30this Court had the occasion to set forth the elements of agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or
proven by evidence. The burden of proving that agency is extant in a certain case rests in
the party who sets forth such allegation. This is based on the principle that he who alleges a
fact has the burden of proving it.31 It must likewise be emphasized that the evidence to
prove this fact must be clear, positive and convincing.32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of
agency actually exists between them so as to allow SEM to use and benefit from EP 133 as
the agent of MMC. SEM did not claim nor submit proof that it is the designated agent of
MMC to represent the latter in its business dealings or undertakings. SEM cannot, therefore,
be considered as an agent of MMC which can use EP 133 and benefit from it. Since SEM is
not an authorized agent of MMC, it goes without saying that the assignment or transfer of
the permit in favor of SEM is null and void as it directly contravenes the terms and conditions
of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not
on his own behalf but on behalf of his principal.33 While in assignment, there is total transfer
or relinquishment of right by the assignor to the assignee. 34 The assignee takes the place of
the assignor and is no longer bound to the latter. The deed of assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in the
area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as
Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan, Agusan
del Sur respectively.35
Bearing in mind the just articulated distinctions and the language of the Deed of Assignment,
it is readily obvious that the assignment by MMC of EP 133 in favor of SEM did not make
the latter the former’s agent. Such assignment involved actual transfer of all rights and
obligations MMC have under the permit in favor of SEM, thus, making SEM the permittee. It
is not a mere grant of authority to SEM, as an agent of MMC, to use the permit. It is a total
abdication of MMC’s rights over the permit. Hence, the assignment in question did not make
SEM the authorized agent of MMC to make use and benefit from EP 133.
The condition stipulating that the permit is for the exclusive use of the permittee or its duly
authorized agent is not without any reason. Exploration permits are strictly granted to
entities or individuals possessing the resources and capability to undertake mining
operations. Without such a condition, non-qualified entities or individuals could circumvent
the strict requirements under the law by the simple expediency acquiring the permit from
the original permittee.
We cannot lend recognition to the Court of Appeals’ theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.36 It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related.37 Resultantly, absent any clear proof to the
contrary, SEM is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to
legitimize the prohibited transfer or assignment of EP 133. It stresses that SEM is just a
business conduit of MMC, hence, the distinct legal personalities of the two entities should not
be recognized. True, the corporate mask may be removed when the corporation is just an
alter ego or a mere conduit of a person or of another corporation. 38 For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against a third
person.39 However, this Court has made a caveat in the application of the doctrine of
piercing the corporate veil. Courts should be mindful of the milieu where it is to be applied.
Only in cases where the corporate fiction was misused to such an extent that injustice, fraud
or crime was committed against another, in disregard of its rights may the veil be pierced
and removed. Thus, a subsidiary corporation may be made to answer for the liabilities
and/or illegalities done by the parent corporation if the former was organized for the
purpose of evading obligations that the latter may have entered into. In other words, this
doctrine is in place in order to expose and hold liable a corporation which commits illegal
acts and use the corporate fiction to avoid liability from the said acts. The doctrine of
piercing the corporate veil cannot therefore be used as a vehicle to commit prohibited acts
because these acts are the ones which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of the
permit in favor of SEM is utilized to circumvent the condition of non-transferability of the
exploration permit. To allow SEM to avail itself of this doctrine and to approve the validity
of the assignment is tantamount to sanctioning illegal act which is what the doctrine precisely
seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the case,
will, indeed, demonstrate the infraction committed by MMC in its assignment of EP 133 to
SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral
Resources Development Decree, which governed the old system of exploration,
development, and utilization of mineral resources through "license, concession or lease"
prescribed:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest therein shall
not be transferred, assigned, or subleased without the prior approval of the Secretary:
Provided, That such transfer, assignment or sublease may be made only to a qualified
person possessing the resources and capability to continue the mining operations of the
lessee and that the assignor has complied with all the obligations of the lease: Provided,
further, That such transfer or assignment shall be duly registered with the office of the
mining recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the Philippine
Mining Act of 1995, which is the new law governing the exploration, development and
utilization of the natural resources, which provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned to
a qualified person subject to the approval of the Secretary upon the recommendation of the
Director.
The records are bereft of any indication that the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree No. 463, which is the governing law when the
assignment was executed, explicitly requires that the transfer or assignment of mining rights,
including the right to explore a mining area, must be with the prior approval of the
Secretary of DENR. Quite conspicuously, SEM did not dispute the allegation that the Deed
of Assignment was made without the prior approval of the Secretary of DENR. Absent the
prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore, without
legal effect for violating the mandatory provision of Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEM’s cause. While it is true that the
case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which between Apex and
MMC validly acquired mining rights over the disputed area, such rights, though, had been
extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133 was
extended for 12 months or until 6 July 1994.41 MMC never renewed its permit prior and
after its expiration. Thus, EP 133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area. SEM, on the other hand, has not acquired any right to the said area because the
transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have not acquired any
vested right over the 4,941.6759 hectares which used to be covered by EP 133.
 II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the DENR
Secretary since the power to withdraw lands from forest reserves and to declare the same
as an area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest
reserves as non-forest reserves is vested with the DENR Secretary. Proclamation No. 369
partly states:
From this reserve shall be considered automatically excluded all areas which had already
been certified and which in the future may be proclaimed as classified and certified lands
and approved by the Secretary of Agriculture and Natural Resources. 42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining
Act" which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such
reservation is made, are found to be more valuable for their mineral contents than for the
purpose for which the reservation was made, may be withdrawn from such reservations by
the President with the concurrence of the National Assembly, and thereupon such lands shall
revert to the public domain and be subject to disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President, with
the concurrence of the National Assembly, the power to withdraw forest reserves found to
be more valuable for their mineral contents than for the purpose for which the reservation
was made and convert the same into non-forest reserves. A similar provision can also be
found in Presidential Decree No. 463 dated 17 May 1974, with the modifications that (1)
the declaration by the President no longer requires the concurrence of the National
Assembly and (2) the DENR Secretary merely exercises the power to recommend to the
President which forest reservations are to be withdrawn from the coverage thereof. Section
8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within reservations,
which have been established for purposes other than mining, are found to be more valuable
for their mineral contents, they may, upon recommendation of the Secretary be withdrawn
from such reservation by the President and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66,
this Court is constrained to rule that said administrative order was issued not in accordance
with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas covered by
the Agusan-Davao-Surigao Forest Reserve as non-forest land open to small-scale mining
operations, is null and void as, verily, the DENR Secretary has no power to convert forest
reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that
of MMC or that of SEM because it was the first one to occupy and take possession of the
area and the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the
contested area, particularly in the 729 hectares small-scale mining area, has entitled it to
file its MPSA. Balite claims that its MPSA application should have been given preference
over that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the disputed
area has become moot and academic by the supervening events. By virtue of Proclamation
No. 297 dated 25 November 2002, the disputed area was declared a mineral reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land
situated in the then provinces of Davao, Agusan and Surigao, with an area of
approximately 1,927,400 hectares, were withdrawn from settlement and disposition,
excluding, however, those portions which had been certified and/or shall be classified and
certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No.
369, in the Municipality of Monkayo, Compostela Valley Province, and unregulated small to
medium-scale mining operations have, since 1983, been undertaken therein, causing in the
process serious environmental, health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the environment
and to resolve the health and peace and order problems spawned by the unregulated
mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining operations
in the area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted public
hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and communities
to air their views regarding the establishment of a mineral reservation in the place in
question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may,
upon the recommendation of the Director of Mines and Geosciences, through the Secretary
of Environment and Natural Resources, and when the national interest so requires, establish
mineral reservations where mining operations shall be undertaken by the Department
directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between
socio-economic growth and environmental protection, the President may, pursuant to
Presidential Decree No. 1586, as amended, proclaim and declare certain areas in the
country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, upon
recommendation of the Secretary of the Department of Environment and Natural Resources
(DENR), and by virtue of the powers vested in me by law, do hereby exclude certain parcel
of land located in Monkayo, Compostela Valley, and proclaim the same as mineral
reservation and as environmentally critical area, with metes and bound as defined by the
following geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining
operations in the area may be undertaken either by the DENR directly, subject to payment
of just compensation that may be due to legitimate and existing claimants, or thru a
qualified contractor, subject to existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the establishment
of an environmental and social fund, to implement the intent and provisions of this
Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the
exploration, development and utilization of the natural resources of the country.43 With this
policy, the State may pursue full control and supervision of the exploration, development
and utilization of the country’s natural mineral resources. The options open to the State are
through direct undertaking or by entering into co-production, joint venture, or production-
sharing agreements, or by entering into agreement with foreign-owned corporations for
large-scale exploration, development and utilization.44 Thus, Article XII, Section 2, of the
1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization
of natural resources shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years,
and under such terms and conditions as may be provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare
of the country. x x x (Underscoring supplied.)
Recognizing the importance of the country’s natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No.
7942 empowers the President, when the national interest so requires, to establish mineral
reservations where mining operations shall be undertaken directly by the State or through a
contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued
DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the
Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the
above subsequent developments particularly with the issuance of Proclamation 297 and
DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the full
control of the State through the executive branch. Pursuant to Section 5 of Republic Act No.
7942, the State can either directly undertake the exploration, development and utilization
of the area or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as when there is
a need to preserve strategic raw materials for industries critical to national development, or
certain minerals for scientific, cultural or ecological value, the President may establish
mineral reservations upon the recommendation of the Director through the Secretary. Mining
operations in existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to undertake
directly the mining operations of the Diwalwal Gold Rush Area. As already ruled, the State
may not be precluded from considering a direct takeover of the mines, if it is the only
plausible remedy in sight to the gnawing complexities generated by the gold rush. The
State need be guided only by the demands of public interest in settling on this option, as
well as its material and logistic feasibility.45 The State can also opt to award mining
operations in the mineral reservation to private entities including petitioners Apex and
Balite, if it wishes. The exercise of this prerogative lies with the Executive Department over
which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are
PARTIALLY GRANTED, thus:
 1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals, dated
13 March 2002, and hereby declare that EP 133 of MMC has EXPIRED on 7 July
1994 and that its subsequent transfer to SEM on 16 February 1994 is VOID.

2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring
DAO No. 66 illegal for having been issued in excess of the DENR Secretary’s
authority.

Consequently, the State, should it so desire, may now award mining operations in the
disputed area to any qualified entity it may determine. No costs.

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

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo
broker acted only as a middleman with the task of merely bringing together the vendor and and Villamor, JJ., concur.
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
G.R. No. 75198 October 18, 1988
SCHMID & OBERLY, INC., petitioner,
vs.
RJL MARTINEZ FISHING CORPORATION, respondent.
Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.
CORTES, J.:
Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering
Schmid & Oberly Inc. (hereafter to be referred to simply as "SCHMID") to refund the
purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to
simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to
simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus
consequential damages, and attorneys fees.
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28, Record on
Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is
engaged in deep-sea fishing, and in the course of its business, needed
electrical generators for the operation of its business; that the defendant
sells electrical generators with the brand of "Nagata", a Japanese
product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of
Japan, that the defendant Schmid & Oberly Inc. advertised the 12
Nagata generators for sale; that the plaintiff purchased 12 brand new
Nagata generators, as advertised by herein defendant; that through an
irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff
12 electric generators, and the latter paid the amount of the purchase
price; that the 12 generators were found to be factory defective; that the
plaintiff informed the defendant herein that it shall return the 12
generators as in fact three of the 12 were actually returned to the
defendant; that the plaintiff sued the defendant on the warranty; asking
for rescission of the contract; that the defendant be ordered to accept the
generators and be ordered to pay back the purchase money; and that
the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA
Decision, pp. 34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering
petitioner to refund to private respondent the purchase price for the twelve (12) generators
and to accept delivery of the same and to pay s and attorney's fees, with a slight
modification as to the amount to be refunded. In its resolution of the motion for
reconsideration, the Court of Appeals further modified the trial courts decision as to the
award of consequential damages.
Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions
to review the latter's decisions under Rule 45 of the Revised Rules of Court, the scope of the
Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R.
No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482,
April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the
petitioner's position that the appealed judgment is premised on a misapprehension of
facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz
v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29,
1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts, whether or not the
Court of Appeals indeed misapprehended the facts could not be determined without a
thorough review of the records.
Thus, after a careful scrutiny of the records, the Court has found the appellate court's
narration of facts incomplete. It failed to include certain material facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed
electric generators for some of its boats and SCHMIID sold electric generators of different
brands, negotiations between them for the acquisition thereof took place. The parties had
two separate transactions over "Nagata"-brand generators.
The first transaction was the sale of three (3) generators. In this transaction, it is not disputed
that SCHMID was the vendor of the generators. The company supplied the generators from
its stockroom; it was also SCHMID which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12)
"Nagata"-brand generators. 'These are the facts surrounding this particular transaction:
As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation
dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the
following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800
rpm, unity power factor, rectifier type and radio suppressor,, 5KVA
(5KW) $546.75 @
It was stipulated that payment would be made by confirming an irrevocable letter of credit
in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on
the dorsal side of the Quotation is the following:
Buyer will, upon request, promptly open irrevocable Letter of Credit in favor
of seller, in the amount stated on the face of this memorandum, specifying
shipment from any Foreign port to Manila or any safe Philippine port,
permitting partial shipments and providing that in the event the shippers
are unable to ship within the specified period due to strikes, lack of
shipping space or other circumstances beyond their reasonable control,
Buyer agrees to extend the said Letter of Credit for later shipment. The
Letter of Credit shall otherwise be subject to the conditions stated in this
memorandum of contract. [Emphasis supplied.]
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor
of NAGATA CO. Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO.
an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL
MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own
invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to
RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting
of twelve sets was—bought by order and for account risk of Messrs. RJL Martinez Fishing
Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale
of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]
All fifteen (15) generators subject of the two transactions burned out after continuous use.
RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the
matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical
representatives who made an ocular inspection and conducted tests on some of the burned
out generators, which by then had been delivered to the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation
and in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt
amperes). However, it turned out that the actual capacity was only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale with generators of a
different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians
advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These
three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL
MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO.,
however, wrote SCHMID suggesting that the latter check the generators, request for spare
parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim
including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it
was not agreeable to these terms [Exhibit "10".]
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded
that it be refunded the cost of the generators and paid damages. SCHMID in its reply
maintained that it was not the seller of the twelve (12) generators and thus refused to
refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought
suit against SCHMID on the theory that the latter was the vendor of the twelve (12)
generators and, as such vendor, was liable under its warranty against hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that
SCHMID was the vendor in the second transaction and was liable under its warranty.
Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the
instant recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:
(i) Schmid was merely the indentor in the sale [of the twelve (12)
generators] between Nagata Co., the exporter and RJL Martinez, the
importer;
(ii) as mere indentor, Schmid is not liable for the seller's implied warranty
against hidden defects, Schmid not having personally assumed any such
warranty.
(iii) in any event, conformably with Article 1563 of the Civil Code, there
was no implied warranty against hidden defects in the sale of these
twelve (12) generators because these were sold under their trade name
"Nagata"; and
(iv) Schmid, accordingly, is not liable for the reimbursement claimed by
RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33
operational losses a day nor for exemplary damages, attorney's fees
and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting this Court is whether the second
transaction between the parties was a sale or an indent transaction. SCHMID maintains that
it was the latter; RJL MARTINEZ claims that it was a sale.
At the outset, it must be understood that a contract is what the law defines it to be,
considering its essential elements, and not what it is caged by the contracting parties
[Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:
 ART. 458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
It has been said that the essence of the contract of sale is transfer of title or agreement to
transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino,
G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE
117,118-19.] "If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an
agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.]
On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the
Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments
Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in
this manner:
... A foreign firm which does business through the middlemen acting in their
own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants shall be the ones
deemed to be doing business in the Philippines [Part I, Rule I, Section 1,
par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial brokers and
commission merchants. To get an Idea of what an indentor is, a look at the definition of
those in his class may prove helpful.
A broker is generally defined as one who is engaged, for others, on a
commission, negotiating contracts relative to property with the custody of
which he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of both parties. (1 9
Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.)
A broker is one whose occupation it is to bring parties together to
bargain, or to bargain for them, in matters of trade, commerce or
navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.)
Judge Storey, in his work on Agency, defines a broker as an agent
employed to make bargains and contracts between other persons, in
matters of trade, commerce or navigation, for compensation commonly
called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd.
v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the purchase or sale for another
of personal property which, for this purpose, is placed in his possession
and at his disposal. He maintains a relation not only with his principal and
the purchasers or vendors, but also with the property which is subject
matter of the transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398,
401 (1939).]
Thus, the chief feature of a commercial broker and a commercial merchant is that in
effecting a sale, they are merely intermediaries or middle-men, and act in a certain sense
as the agent of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when sent from a
foreign country." [Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear
that there are three parties to an indent transaction, namely, the buyer, the indentor, and
the supplier who is usually a non-resident manufacturer residing in the country where the
goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific
Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may
therefore be best described as one who, for compensation, acts as a middleman in bringing
about a purchase and sale of goods between a foreign supplier and a local purchaser.
Coming now to the case at bar, the admissions of the parties and the facts appearing on
record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was
merely an indentor, in the second transaction.
In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent
order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter previously
sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased
through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit
"D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the
generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped
the generators directly to the former. The only participation of SCHMID was to act as an
intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an
order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the
company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]
The above transaction is significantly different from the first transaction wherein SCHMID
delivered the goods from its own stock (which it had itself imported from NAGATA CO.),
issued its own invoice, and collected payment directly from the purchaser.
These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve
generators on the following grounds:
First, it is contended that the Quotation and the General Conditions of Sale on the dorsal
side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID,
was the real seller in the case of the twelve (12) generators in that:
(i) the signing of the quotation, which was under SCHMID's letter-head,
perfected the contract of sale (impliedly, as between the signatories
thereto—i.e., RJL MARTINEZ and SCHMID);
 (ii) the qualification that the letter of credit shall be in favor of NAGATA
CO. constituted simply the manner of payment requested by SCHMID
(implying that SCHMID, as seller, merely chose to waive direct payment,
stipulating delivery of payment instead to NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it was informed of the defect in the
generators were indicative of its awareness that it was the vendor and acknowledgment of
its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ
complained to SCHMID that the generators were defective, SCHMID immediately asked RJL
MARTINEZ to send the defective generators to its shop to determine what was wrong.
SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the
Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing
equipment. After the generators were found to have factory defects, SCHMID facilitated
the shipment of three (3) generators to Japan and, after their repair, back to the Philippines
[Memorandum for the Respondent, p. 8.]
Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding
the repair of the generators indicated that the latter was "within the purview of a seller."
[Ibid.]
Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a
foreign corporation not licensed to do business in the Philippines, then the officers and
employees of the former may be penalized for violation of the old Corporation Law which
provided:
Sec. 69 ... Any officer or agent of the corporation or any person
transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six months
nor more than two years or by a fine 'of not less than two hundred pesos
nor more than one thousand pesos or both such imprisonment and fine, in
the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the circumstances surrounding the second transaction as
distinguished from those surrounding the first transaction, as noted above.
Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's
complaint prove that the former was the seller of the generators. As aptly stated by
counsel, no indentor will just fold its hands when a client complains about the goods it has
bought upon the indentor's mediation. In its desire to promote the product of the seller and
to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business
would have to act considerably. towards his clients.
Note that in contrast to its act of replacing the three (3) generators subject of the first
transaction, SCHMID did not replace any of the twelve (12) generators, but merely
rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the
defective generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of
the nine (9) other defective generators, with the former supplying the replacement parts
free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot
support the conclusion that SCHMID is vendor of the generators of the second transaction or
was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no application to
SCHMID and its officers and employees relative to the transactions in the instant case. What
the law seeks to prevent, through said provision, is the circumvention by foreign corporations
of licensing requirements through the device of employing local representatives. An indentor,
acting in his own name, is not, however, covered by the above-quoted provision. In fact, the
provision of the Rules and Regulations implementing the Omnibus Investments Code quoted
above, which was copied from the Rules implementing Republic Act No. 5455, recognizes
the distinct role of an indentor, such that when a foreign corporation does business through
such indentor, the foreign corporation is not deemed doing business in the Philippines.
In view of the above considerations, this Court rules that SCHMID was merely acting as an
indentor in the purchase and sale of the twelve (12) generators subject of the second
transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty
for hidden defects under the Civil Code [Art. 1561, et seq.]
2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from
voluntarily warranting that twelve (12) generators subject of the second transaction are free
from any hidden defects. In other words, SCHMID may be held answerable for some other
contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to
some extent an agent of both the vendor and the vendee. As such agent, therefore, he may
expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil
Code.)
The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly
bound itself to warrant that the twelve (12) generators are free of any hidden defects.
Again, we consider the facts.
The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL
MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself
to answer for the defects of the things sold. There being no allegation nor any proof that
the Quotation does not express the true intent and agreement of the contracting parties,
extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]
The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the
Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the
twelve (12) generators against defects.
Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas
failed to disclose the nature or terms and conditions of the warranty allegedly given by SC
Was it a warranty that the generators would be fit for the fishing business of the buyer?
Was it a warranty that the generators to be delivered would meet the specifications
indicated in the Quotation? Considering the different kinds of warranties that may be
contracted, unless the nature or terms and conditions of the warranty are known, it would
not be possible to determine whether there has been a breach thereof.
Moreover, a closer examination of the statements allegedly made by the representative of
SCHMID reveals that they merely constituted an expression of opinion which cannot by any
means be construed as a warranty [See Art. 1546, Civil Code.]
We quote from Balagtas' testimony:
Atty. CATRAL:
Q Did you not say at the start of your cross
examination, Mr. Balagtas, that the only participation
you had in the acquisition of those twelve (12) units [of]
generators was your having issued a purchase order to
your own company for the purchase of the units?
ATTY. AQUINO:
Misleading, your Honor.
Atty. CATRAL:
I am asking the witness.
COURT:
He has the right to ask that question because he is on
cross. Moreover, if I remember, he mentioned something
like that. Witness may answer.
A Yes, sir. Before I submitted that, we negotiated with
Schmid and Oberly the beat generators they can
recommend because we are looking for generators. The
representative of Schmid and Oberly said that Nagata is
very good. That is why I recommended that to the
management. [t.s.n., October 14, 1977, pp. 23-25.]
At any rate, when asked where SCHMID's warranty was contained, Balagtas testified
initially that it was in the receipts covering the sale. (At this point, it may be stated that the
invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere is it stated therein that
SCHMID warranted the generators against defects.) When confronted with a copy of the
invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant
was that the date of the commencement of the period of SCHMID's warranty would be
based on the date of the invoice. On further examination, he again changed his mind and
asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 19-22.] But
then again, as stated earlier, the witness failed to disclose the nature or terms and
conditions of the warranty allegedly given by SCHMID.
On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the
company does not warrant goods bought on indent and that the company warrants only the
goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ
itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily
replaced the three generators from its own stock. In the face of these conflicting testimonies,
this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on
the twelve (12) generators subject of the second transaction. Even assuming that a warranty
was given, there is no way to determine whether there has been a breach thereof,
considering that its nature or terms and conditions have not been shown.
3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.
WHEREFORE, finding the Court of Appeals to have committed a reversible error, the
petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are
REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No
costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano, J., took no part.
G.R. No. 143978 December 3, 2002
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA, petitioners,
vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision1 of the Court of Appeals2 in
CA-G.R. CV No. 46539, which reversed and set aside the decision 3 of the Regional Trial
Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and Norma S.
Gullas, were the registered owners of a parcel of land in the Municipality of Minglanilla,
Province of Cebu, measuring 104,114 sq. m., with Transfer Certificate of Title No.
31465.4 On June 29, 1992, they executed a special power of attorney5 authorizing
petitioners Manuel B. Tan, a licensed real estate broker,6 and his associates Gregg M.
Tecson and Alexander Saldaña, to negotiate for the sale of the land at Five Hundred Fifty
Pesos (P550.00) per square meter, at a commission of 3% of the gross price. The power of
attorney was non-exclusive and effective for one month from June 29, 1992. 7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma, construction manager
of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer Ledesma.
Thereafter, the two men accompanied Sisters Michaela Kim and Azucena Gaviola,
representing the Sisters of Mary, to see private respondent Eduardo Gullas in his office at
the University of Visayas. The Sisters, who had already seen and inspected the land, found
the same suitable for their purpose and expressed their desire to buy it.8 However, they
requested that the selling price be reduced to Five Hundred Thirty Pesos (P530.00) per
square meter instead of Five Hundred Fifty Pesos (P550.00) per square meter. Private
respondent Eduardo Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent Eduardo Gullas
was the owner of the property. On July 3, 1992, private respondents agreed to sell the
property to the Sisters of Mary, and subsequently executed a special power of attorney9 in
favor of Eufemia Cañete, giving her the special authority to sell, transfer and convey the
land at a fixed price of Two Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of sale in favor of the
Sisters of Mary for the price of Twenty Million Eight Hundred Twenty Two Thousand Eight
Hundred Pesos (P20,822.800.00), or at the rate of Two Hundred Pesos (P200.00) per
square meter.10 The buyers subsequently paid the corresponding taxes.11Thereafter, the
Register of Deeds of Cebu Province issued TCT No. 75981 in the name of the Sisters of
Mary of Banneaux, Inc.12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private respondent
Eduardo Gullas to claim their commission, but the latter told them that he and his wife have
already agreed to sell the property to the Sisters of Mary. Private respondents refused to
pay the broker’s fee and alleged that another group of agents was responsible for the sale
of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint 13 against the defendants for recovery of
their broker’s fee in the sum of One Million Six Hundred Fifty Five Thousand Four Hundred
Twelve and 60/100 Pesos (P1,655,412.60), as well as moral and exemplary damages and
attorney’s fees. They alleged that they were the efficient procuring cause in bringing about
the sale of the property to the Sisters of Mary, but that their efforts in consummating the
sale were frustrated by the private respondents who, in evident bad faith, malice and in
order to evade payment of broker’s fee, dealt directly with the buyer whom petitioners
introduced to them. They further pointed out that the deed of sale was undervalued
obviously to evade payment of the correct amount of capital gains tax, documentary
stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners’ claim, they were
not the efficient procuring cause in bringing about the consummation of the sale because
another broker, Roberto Pacana, introduced the property to the Sisters of Mary ahead of
the petitioners.14 Private respondents maintained that when petitioners introduced the
buyers to private respondent Eduardo Gullas, the former were already decided in buying
the property through Pacana, who had been paid his commission. Private respondent
Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but only to ask
for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,15 petitioners alleged that although the Sisters of
Mary knew that the subject land was for sale through various agents, it was petitioners who
introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the dispositive portion
of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby rendered for the
plaintiffs and against the defendants. By virtue hereof, defendants Eduardo and Norma
Gullas are hereby ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg
Tecson and Alexander Saldaña;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED
EIGHTY FOUR PESOS (P624,684.00) as broker’s fee with legal interest at the rate
of 6% per annum from the date of filing of the complaint; and
 2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees and costs
of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals. Private respondents argued that the lower
court committed errors of fact and law in holding that it was petitioners’ efforts which
brought about the sale of the property and disregarding the previous negotiations between
private respondent Norma Gullas and the Sisters of Mary and Pacana. They further
alleged that the lower court had no basis for awarding broker’s fee, attorney’s fees and
the costs of litigation to petitioners.17
Petitioners, for their part, assailed the lower court’s basis of the award of broker’s fee given
to them. They contended that their 3% commission for the sale of the property should be
based on the price of P55,180.420.00, or at P530.00 per square meter as agreed upon
and not on the alleged actual selling price of P20,822,800.00 or at P200.00 per square
meter, since the actual purchase price was undervalued for taxation purposes. They also
claimed that the lower court erred in not awarding moral and exemplary damages in spite
of its finding of bad faith; and that the amount of P50,000.00 as attorney’s fees awarded
to them is insufficient. Finally, petitioners argued that the legal interest imposed on their
claim should have been pegged at 12% per annum instead of the 6% fixed by the court. 18
The Court of Appeals reversed and set aside the lower court’s decision and rendered
another judgment dismissing the complaint.19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE PETITIONERS ARE
NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE PETITIONERS
OF MORAL AND EXEMPLARY DAMAGES, ATTORNEYS’ FEES AND INTEREST IN THE
FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker, and
petitioners Gregg M. Tecson and Alexander Saldaña are his associates. In Schmid and
Oberly v. RJL Martinez Fishing Corporation,20 we defined a "broker" as "one who is
engaged, for others, on a commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other parties, never acting in his
own name but in the name of those who employed him. x x x a broker is one whose
occupation is to bring the parties together, in matters of trade, commerce or navigation."
(Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized by private
respondents to negotiate for the sale of their land within a period of one month reckoned
from June 29, 1992. The authority given to petitioners was non-exclusive, which meant that
private respondents were not precluded from granting the same authority to other agents
with respect to the sale of the same property. In fact, private respondent authorized
another agent in the person of Mr. Bobby Pacana to sell the same property. There was
nothing illegal or amiss in this arrangement, per se, considering the non-exclusivity of
petitioners’ authority to sell. The problem arose when it eventually turned out that these
agents were entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents that
Pacana was the one entitled to the stipulated 3% commission is untenable, considering that
it was the petitioners who were responsible for the introduction of the representatives of the
Sisters of Mary to private respondent Eduardo Gullas. Private respondents, however,
maintain that they were not aware that their respective agents were negotiating to sell said
property to the same buyer.
Private respondents failed to prove their contention that Pacana began negotiations with
private respondent Norma Gullas way ahead of petitioners. They failed to present
witnesses to substantiate this claim. It is curious that Mrs. Gullas herself was not presented in
court to testify about her dealings with Pacana. Neither was Atty. Nachura who was
supposedly the one actively negotiating on behalf of the Sisters of Mary, ever presented in
court.
Private respondents’ contention that Pacana was the one responsible for the sale of the land
is also unsubstantiated. There was nothing on record which established the existence of a
previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary. The only piece of
evidence that the private respondents were able to present is an undated and unnotarized
Special Power of Attorney in favor of Pacana. While the lack of a date and an oath do not
necessarily render said Special Power of Attorney invalid, it should be borne in mind that
the contract involves a considerable amount of money. Hence, it is inconsistent with sound
business practice that the authority to sell is contained in an undated and unnotarized
Special Power of Attorney. Petitioners, on the other hand, were given the written authority
to sell by the private respondents.
The trial court’s evaluation of the witnesses is accorded great respect and finality in the
absence of any indication that it overlooked certain facts or circumstances of weight and
influence, which if reconsidered, would alter the result of the case. 21

Indeed, it is readily apparent that private respondents are trying to evade payment of the
commission which rightfully belong to petitioners as brokers with respect to the sale. There
was no dispute as to the role that petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to participate in its consummation only
because they were prevented from doing so by the acts of the private respondents. In the
case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft
(BMW)22 we ruled that, "An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made." (Underscoring ours). Clearly, therefore,
petitioners, as brokers, should be entitled to the commission whether or not the sale of the
property subject matter of the contract was concluded through their efforts.

Having ruled that petitioners are entitled to the brokers’ commission, we should now resolve
how much commission are petitioners entitled to?

Following the stipulation in the Special Power of Attorney, petitioners are entitled to 3%
commission for the sale of the land in question. Petitioners maintain that their commission
should be based on the price at which the land was offered for sale, i.e., P530.00 per
square meter. However, the actual purchase price for which the land was sold was only
P200.00 per square meter. Therefore, equity considerations dictate that petitioners’
commission must be based on this price. To rule otherwise would constitute unjust enrichment
on the part of petitioners as brokers.

In the matter of attorney’s fees and expenses of litigation, we affirm the amount of
P50,000.00 awarded by the trial court to the petitioners.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29, 2000
decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering private
respondents Eduardo Gullas and Norma S. Gullas to pay jointly and severally petitioners
Manuel B. Tan, Gregg Tecson and Alexander Saldaña the sum of Six Hundred Twenty-Four
Thousand and Six Hundred Eighty-Four Pesos (P624,684.00) as broker’s fee with legal
interest at the rate of 6% per annum from the filing of the complaint; and the sum of Fifty
Thousand Pesos (P50,000.00) as attorney’s fees and costs of litigation, is REINSTATED.

SO ORDERED.
G.R. No. 150678 February 18, 2005
BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners,
vs.
COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A.
FLOR, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the Decision1 of the Court of Appeals (CA) affirming in
toto the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case
No. 15664 which awarded to the respondents their 5% broker’s commission.
The facts are as follows:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the
Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a
buyer of a foreclosed asset of the bank,3 a 17-hectare mango plantation priced at
₱2,200,000.00, located in Ibaan, Batangas.4
Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita
G. Borbon, a licensed real estate broker. The two met through a previous transaction where
Lee responded to an ad in a newspaper put up by Borbon for an 8-hectare property in
Lubo, Batangas, planted with atis trees. Lee expressed that he preferred a land with mango
trees instead. Borbon promised to get back to him as soon as she would be able to find a
property according to his specifications.
Borbon relayed to her business associates and friends that she had a ready buyer for a
mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation
which was up for sale. She told Flor to confer with Medrano and to give them a written
authority to negotiate the sale of the property.5 Thus, on September 3, 1986, Medrano
issued the Letter of Authority, as follows:
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio
Campos Rueda Building
Tindalo, Makati, M.M.
Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig
23 Mabini Street
Quezon City, M.M.
Dear Mesdames:
This letter will serve as your authority* to negotiate with any prospective buyer for the sale
of a certain real estate property more specifically a mango plantation which is described
more particularly therein below:
Location : Barrio Tulay-na-Patpat, Ibaan, Batangas
Lot Area : 17 hectares (more or less) per
attached Appendix "A"
Improvements : 720 all fruit-bearing mango trees
(carabao variety) and other trees
Price : P 2,200,000.00
For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay you a
commission of 5% of the total purchase price to be agreed upon by the buyer and seller.
Very truly yours,
(Sgd.)
B.R. Medrano
Owner
* Subject to price sale.6
The respondents arranged for an ocular inspection of the property together with Lee which
never materialized – the first time was due to inclement weather; the next time, no car was
available for the tripping to Batangas.7 Lee then called up Borbon and told her that he was
on his way to Lipa City to inspect another property, and might as well also take a look at
the property Borbon was offering. Since Lee was in a hurry, the respondents could no longer
accompany him at the time. Thus, he asked for the exact address of the property and the
directions on how to reach the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to
get in touch with Medrano’s daughter and also an officer of the bank, Mrs. Teresa Ganzon,
regarding the property.8 1ªvvphi1.nét
Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result
of his ocular inspection. Lee told her that the mango trees "looked sick" so he was bringing
an agriculturist to the property. Three weeks thereafter, Antonio called Lee again to make a
follow-up of the latter’s visit to Ibaan. Lee informed her that he already purchased the
property and had made a down payment of ₱1,000,000.00. The remaining balance of
₱1,200,000.00 was to be paid upon the approval of the incorporation papers of the
corporation he was organizing by the Securities and Exchange Commission. According to
Antonio, Lee asked her if they had already received their commission. She answered "no,"
and Lee expressed surprise over this.9
A Deed of Sale was eventually executed on November 6, 1986 between the bank,
represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB
Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price of
₱1,200,000.00.10 Since the sale of the property was consummated, the respondents asked
from the petitioners their commission, or 5% of the purchase price. The petitioners refused to
pay and offered a measly sum of ₱5,000.00 each.11 Hence, the respondents were
constrained to file an action against herein petitioners.
The petitioners alleged that Medrano issued the letter of authority in favor of all the
respondents, upon the representation of Flor that she had a prospective buyer. Flor was the
only person known to Medrano, and he had never met Borbon and Antonio. Medrano had
asked that the name of their prospective buyer be immediately registered so as to avoid
confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had
never met nor dealt with the respondents in connection with the sale of the property.
Ganzon also asked Lee if he had an agent and the latter replied that he had none. The
petitioners also denied that the purchase price of the property was ₱2,200,000.00 and
alleged that the property only cost ₱1,200,000.00. The petitioners further contended that
the letter of authority signed by Medrano was not binding or enforceable against the bank
because the latter had a personality separate and distinct from that of Medrano. Medrano,
on the other hand, denied liability, considering that he was not the registered owner of the
property, but the bank. The petitioners, likewise, filed a counterclaim as they were
constrained to hire the services of counsel and suffered damages. 12
After the case was submitted for decision, Medrano died, but no substitution of party was
made at this time.13
The trial court resolved the case based on the following common issues:
1. Whether or not the letter of authority is binding and enforceable against the
defendant Bank only or both defendants; and
2. Whether or not the plaintiffs are entitled to any commission for the sale of the
subject property.14
On September 21, 1994, the trial court rendered a Decision in favor of the respondents.
The petitioners were ordered to pay, jointly and severally, the 5% broker’s commission to
herein respondents. The trial court found that the letter of authority was valid and binding
as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in
behalf of the bank, and as owner of the property, promising to pay the respondents a 5%
commission for their efforts in looking for a purchaser of the property. He is, therefore,
estopped from denying liability on the basis of the letter of authority he issued in favor of
the respondents. The trial court further stated that the sale of the property could not have
been possible without the representation and intervention of the respondents. As such, they
are entitled to the broker’s commission of 5% of the selling price of ₱1,200,000.00 as
evidenced by the deed of sale.15 The fallo of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, for the latter, jointly and severally:
1. To pay plaintiffs the sum of ₱60,000.00 representing their five percent (5%)
commission of the purchase price of the property sold based on Exh. "D" or "9"
plus legal interest from date of filing of the herein complaint until fully paid;
2. To pay plaintiffs the sum of ₱20,000.00 as and for attorney’s fees;
3. To pay the plaintiffs the sum of ₱10,000.00 as litigation expenses;
4. To pay the costs of the proceedings.16
Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of
appeal.17
On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for
Reconsideration18 praying that the late Bienvenido Medrano be substituted by his heirs.
They further prayed that the trial court’s decision as far as Medrano was concerned be set
aside and dismissed considering his demise. The trial court denied the motion for
reconsideration.19 Hence, the heirs of Medrano also filed their notice of appeal. 20
On appeal, the petitioners reiterated their stance that the letter of authority was not
binding and enforceable, as the same was signed by Medrano, who was not actually the
owner of the property. They refused to give the respondents any commission, since the latter
did not perform any act to consummate the sale. The petitioners pointed out that the
respondents (1) did not verify the real owner of the property; (2) never saw the property in
question; (3) never got in touch with the registered owner of the property; and (4) neither
did they perform any act of assisting their buyer in having the property inspected and
verified.21 The petitioners further raised the trial court’s error in not dismissing the case
against Bienvenido Medrano considering his death.
On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the
trial court that the letter of authority was valid and binding. Applying the principle of
agency, the appellate court ruled that Bienvenido Medrano constituted the respondents as
his agents, granting them authority to represent and act on behalf of the former in the sale
of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in
finding that the respondents were the procuring cause of the sale. Suffice it to state that
were it not for the respondents, Lee would not have known that there was a mango orchard
offered for sale.1awphi1.nét
The CA further ruled that an action for a sum of money continues even after the death of the
defendant, and shall remain as a money claim against the estate of the deceased.
Undaunted by the CA’s unfavorable decision, the petitioners filed the instant petition, raising
eight (8) assignments of errors, to wit:
I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE RESPONDENTS
TO BE THE PROCURING CAUSE OF THE SALE;
II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-
AUTHORITY OF PETITIONER MR. MEDRANO;
III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY
RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS’ OBLIGATION AND
AUTHORITY CONTAINED IN MEDRANO’S LETTER-AUTHORITY AND YET
ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ DEMAND,
NOTWITHSTANDING THE NON-PERFORMANCE OF THEIR OBLIGATION
THEREUNDER;
IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON THE
PETITIONERS;
V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF UPON
THE DEFENDANTS-PETITIONERS;
VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH
EVIDENCE AND INSTEAD RELIED ON INFERENCE;
VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH
EVIDENCE AND MERELY RELIED ON SPECULATION AND SURMISE;
VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED BEFORE IT,
AND CONSEQUENTLY FAILED TO CONSIDER REASONABLY THE TWO (2) BASIC
ARGUMENTS OF THE PETITIONERS.22
The petition is denied.
The records disclose that respondent Pacita Borbon is a licensed real estate broker23 and
respondents Josefina Antonio and Estela A. Flor are her associates. 24 A broker is generally
defined as one who is engaged, for others, on a commission, negotiating contracts relative
to property with the custody of which he has no concern; the negotiator between other
parties, never acting in his own name but in the name of those who employed him; he is
strictly a middleman and for some purposes the agent of both parties. A broker is one
whose occupation is to bring parties together, in matters of trade, commerce or
navigation.25 For the respondents’ participation in finding a buyer for the petitioners’
property, the petitioners refuse to pay them commission, asserting that they are not the
efficient procuring cause of the sale, and that the letter of authority signed by petitioner
Medrano is not binding against the petitioners.
"Procuring cause" is meant to be the proximate cause.26 The term "procuring cause," in
describing a broker’s activity, refers to a cause originating a series of events which, without
break in their continuity, result in accomplishment of prime objective of the employment of
the broker – producing a purchaser ready, willing and able to buy real estate on the
owner’s terms.27 A broker will be regarded as the "procuring cause" of a sale, so as to be
entitled to commission, if his efforts are the foundation on which the negotiations resulting in
a sale are begun.28 The broker must be the efficient agent or the procuring cause of the
sale. The means employed by him and his efforts must result in the sale. He must find the
purchaser, and the sale must proceed from his efforts acting as broker. 29
Indeed, the evidence on record shows that the respondents were instrumental in the sale of
the property to Lee. Without their intervention, no sale could have been consummated. They
were the ones who set the sale of the subject land in motion.30 Upon being informed by Flor
that Medrano was selling his mango orchard, Borbon lost no time in informing Lee that they
had found a property according to his specifications. An ocular inspection of the property
together with Lee was immediately planned; unfortunately, it never pushed through for
reasons beyond the respondents’ control. Since Lee was in a hurry to see the property, he
asked the respondents the exact address and the directions on how to reach Ibaan,
Batangas. The respondents thereupon instructed him to look for Teresa Ganzon, an officer
of the Ibaan Rural Bank and the person to talk to regarding the property. While the letter-
authority issued in favor of the respondents was non-exclusive, no evidence was adduced to
show that there were other persons, aside from the respondents, who informed Lee about
the property for sale. Ganzon testified that no advertisement was made announcing the
sale of the lot, nor did she give any authority to other brokers/agents to sell the subject
property.31 The fact that it was Lee who personally called Borbon and asked for directions
prove that it was only through the respondents that Lee learned about the property for
sale.32 Significantly, too, Ms. Teresa Ganzon testified that there were no other persons other
than the respondents who inquired from her about the sale of the property to Lee. 33 It can
thus be readily inferred that the respondents were the only ones who knew about the
property for sale and were responsible in leading a buyer to its consummation. All these
circumstances lead us to the inescapable conclusion that the respondents were the procuring
cause of the sale. When there is a close, proximate and causal connection between the
broker’s efforts and the principal’s sale of his property, the broker is entitled to a
commission.34
The petitioners insist that the respondents are not entitled to any commission since they did
not actually perform any acts of "negotiation" as required in the letter-authority. They
refuse to pay the commission since according to them, the respondents’ participation in the
transaction was not apparent, if not nil. The respondents did not even look at the property
themselves; did not introduce the buyer to the seller; did not hold any conferences with the
buyer, nor take part in concluding the sale. For the non-compliance of this obligation "to
negotiate," the petitioners argue, the respondents are not entitled to any commission.
We find the argument specious.l^vvphi1.net The letter of authority must be read as a whole
and not in its truncated parts. Certainly, it was not the intention of Medrano to expect the
respondents to do just that (to negotiate) when he issued the letter of authority. The clear
intention is to reward the respondents for procuring a buyer for the property. Before
negotiating a sale, a broker must first and foremost bring in a prospective buyer. It has
been held that a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.35 The essential feature of a broker’s
conventional employment is merely to procure a purchaser for a property ready, able, and
willing to buy at the price and on the terms mutually agreed upon by the owner and the
purchaser. And it is not a prerequisite to the right to compensation that the broker conduct
the negotiations between the parties after they have been brought into contact with each
other through his efforts.36 The case of Macondray v. Sellner37 is quite instructive:
The business of a real estate broker or agent, generally, is only to find a purchaser, and the
settled rule as stated by the courts is that, in the absence of an express contract between
the broker and his principal, the implication generally is that the broker becomes entitled to
the usual commissions whenever he brings to his principal a party who is able and willing to
take the property and enter into a valid contract upon the terms then named by the
principal, although the particulars may be arranged and the matter negotiated and
completed between the principal and the purchaser directly.
Notably, there are cases where the right of the brokers to recover commissions were upheld
where they actually took no part in the negotiations, never saw the customer, and even some
in which they did nothing except advertise the property, as long as it can be shown that
they were the efficient cause of the sale.38
In the case at bar, the role of the respondents in the transaction is undisputed. Whether or
not they participated in the negotiations of the sale is of no moment. Armed with an
authority to procure a purchaser and with a license to act as broker, we see no reason why
the respondents can not recover compensation for their efforts when, in fact, they are the
procuring cause of the sale.39
Anent the validity of the letter-authority signed by Medrano, we find no reversible error
with the findings of the appellate and trial courts that the petitioners are liable thereunder.
Such factual findings deserve this Court’s respect in the absence of any cogent reason to
reverse the same. Medrano’s obligation to pay the respondents commission for their labor
and effort in finding a purchaser or a buyer for the described parcel of land is
unquestionable. In the absence of fraud, irregularity or illegality in its execution, such letter-
authority serves as a contract, and is considered as the law between the parties. As such,
Medrano can not renege on the promise to pay commission on the flimsy excuse that he is
not the registered owner of the property. The evidence shows that he comported himself to
be the owner of the property. His testimony is quite telling:
Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon,
Josefina Antonio, and Stella (sic) F. Flor?
WITNESS
A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met
them, up to now.
Q How about the co-defendant Ibaan Rural Bank?
A I know co-defendant Ibaan Rural Bank, having been the founder and at one time
or another, I have served several capacities from President to Chairman of the
Board.
Q Are you familiar with a certain parcel of land located at Barrio Tulay na
Patpat, Ibaan, Batangas, with an area of 17 hectares?
A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural
Bank.
Q And what, if any, [did] the bank do to your property after you have mortgaged
the same to it?
A After many demands for payment or redemption of my mortgage, which I failed
to do so, the Ibaan Rural Bank sold it.
Q After it was foreclosed?
A Yes, Sir.
Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor
regarding the property?
A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my
office once and requested for a letter of authority which I issued [in] September
1986, I think, and I gave her the letter of authority.40
As to the liability of the bank, we quote with favor the disquisition of the respondent court,
to wit:
Further, the appellants cannot use the flimsy excuse (only to evade liability) that "(w)hat Mr.
Medrano represented to the plaintiffs-appellees, without the knowledge or consent of the
defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet." (page 8
of the Appellant’s Brief; page 35 of the Rollo). While it may be true that technically the
Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation
or that the latter was no longer an officer of the said bank, still, these circumstances do not
convince this Court fully well to absolve the bank. Note that, as former President of the said
bank, it is improbable that he (Bienvenido R. Medrano) was completely oblivious of the
developments therein. By reason of his past association with the officers of the said bank
(who are, in fact, his relatives), it is unbelievable that Bienvenido R. Medrano could simply
have issued the said letter of authority without the knowledge of the said officers.
Granting por aguendo that Bienvenido R. Medrano did not act on behalf of the bank,
however, We doubt that he had no financial and/or material interest in the said sale – a
fact that could not possibly have eluded Our attention. 41

From all the foregoing, there can be no other conclusion than the respondents are indeed
the procuring cause of the sale. If not for the respondents, Lee would not have known about
the mango plantation being sold by the petitioners. The sale was consummated. The bank
had profited from such transaction. It would certainly be iniquitous if the respondents would
not be rewarded their commission pursuant to the letter of authority.

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

SO ORDERED.

Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.

Austria-Martinez, J., no part.
G.R. No. L-20871 April 30, 1971
KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special
Atty. Balbino Gatdula, Jr. for respondent.
FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals,
holding it liable as a commercial broker under Section 194 (t) of the National Internal
Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently
persuasive. An obstacle, well-nigh insuperable stands in the way. The decision under review
conforms to and is in accordance with the controlling doctrine announced in the recent case
of Commissioner of Internal Revenue v. Constantino.1 The decisive test, as therein set forth, is
the retention of the ownership of the goods delivered to the possession of the dealer, like
herein petitioner, for resale to customers, the price and terms remaining subject to the
control of the firm consigning such goods. The facts, as found by respondent Court, to which
we defer, unmistakably indicate that such a situation does exist. The juridical consequences
must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue
Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax,
surcharge, and compromise penalty for the period from July 1, 1949 to December 31,
1953. There was a request on the part of petitioner for the cancellation of such assessment,
which request was turned down. As a result, it filed a petition for review with the Court of
Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that
petitioner should be taxed in such amount as a commercial broker. In the decision now under
review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner
taxable except as to the compromise penalty of P500.00, the amount due from it being
fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International,
the former being referred to as the Distributor and the latter specifically designated as the
Company. The contract was to apply to transactions between the former and petitioner, as
Distributor, from July 1, 1948 to continue in force until terminated by either party giving to
the other sixty days' notice.2 The shipments would cover products "for consumption in Cebu,
Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao",
petitioner, as Distributor, being precluded from disposing such products elsewhere than in
the above places unless written consent would first be obtained from the
Company.3 Petitioner, as Distributor, is required to exert every effort to have the shipment
of the products in the maximum quantity and to promote in every way the sale thereof. 4 The
prices, discounts, terms of payment, terms of delivery and other conditions of sale were
subject to change in the discretion of the Company.5
Then came this crucial stipulation: "The Company shall from time to time consign to the
Distributor and the Distributor will receive, accept and/or hold upon consignment the
products specified under the terms of this agreement in such quantities as in the judgment of
the Company may be necessary for the successful solicitation and maintenance of business in
the territory, and the Distributor agrees that responsibility for the final sole of all goods
delivered shall rest with him. All goods on consignment shall remain the property of the
Company until sold by the Distributor to the purchaser or purchasers, but all sales made by
the Distributor shall be in his name, in which the sale price of all goods sold less the discount
given to the Distributor by the Company in accordance with the provision of paragraph 13
of this agreement, whether or not such sale price shall have been collected by the Distributor
from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor
to the Company. It is further agreed that this agreement does not constitute Distributor the
agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is
not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, in behalf of or in the name of the Company, or to bind the Company in
any manner or thing whatsoever."6
All specifications for the goods ordered were subject to acceptance by the Company with
petitioner, as Distributor, required to accept such goods shipped as well as to clear the
same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover,
orders are to be filled in whole or in part from the stocks carried by the Company's
neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were
to be invoiced at prices to be agreed upon, with the customs duties being paid by
petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists,
discounts and general terms and conditions of local resale were to be subject to the
approval of the Company and to change from time to time in its discretion. 9 The dealer, as
Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise
made under such agreement. 10 On a date to be determined by the Company, the
petitioner, as Distributor, was required to report to it data showing in detail all sales during
the month immediately preceding, specifying therein the quantities, sizes and types together
with such information as may be required for accounting purposes, with the Company
rendering an invoice on sales as described to be dated as of the date of inventory and
sales report. As Distributor, petitioner had to make payment on such invoice or invoices on
due date with the Company being privileged at its option to terminate and cancel the
agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its
own expense, was to keep the consigned stock fully insured against loss or damage by fire
or as a result of fire, the policy of such insurance to be payable to it in the event of loss.
Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety
at all times; and upon request of the Company at any time, it was to render inventory of the
existing stock which could be subject to change. 12 There was furthermore this equally tell-
tale covenant: "Upon the termination or any cancellation of this agreement all goods held on
consignment shall be held by the Distributor for the account of the Company, without
expense to the Company, until such time as provision can be made by the Company for
disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus
created is one of vendor and vendee or of broker and principal. Not that there would have
been the slightest doubt were it not for the categorical denial in the contract that petitioner
was not constituted as "the agent or legal representative of the Company for any purpose
whatsoever." It would be, however, to impart to such an express disclaimer a meaning it
should not possess to ignore what is manifestly the role assigned to petitioner considering
the instrument as a whole. That would be to lose sight altogether of what has been agreed
upon. The Court of Tax Appeals was not misled in the language of the decision now on
appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S.
Rubber International is borne out by the facts that petitioner can dispose of the products of
the Company only to certain persons or entities and within stipulated limits, unless excepted
by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or
holds upon consignment the products, which remain properties of the latter company (Par.
8); that every effort shall be made by petitioner to promote in every way the sale of the
products (Par. 3); that sales made by petitioner are subject to approval by the company
(Par. 12); that on dates determined by the rubber company, petitioner shall render a
detailed report showing sales during the month (Par. 14); that the rubber company shall
invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber
company agrees to keep the consigned goods fully insured under insurance policies
payable to it in case of loss (Par. 15); that upon request of the rubber company at any
time, petitioner shall render an inventory of the existing stock which may be checked by an
authorized representative of the former (Par. 15); and that upon termination or cancellation
of the Agreement, all goods held on consignment shall be held by petitioner for the account
of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent
merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole,
together with the actual conduct of the parties in respect thereto, we have arrived at the
conclusion that the relationship between them is one of brokerage or agency." 15 We find
ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its
counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all
persons, other than importers, manufacturers, producers, or bona fide employees, who, for
compensation or profit, sell or bring about sales or purchases of merchandise for other
persons or bring proposed buyers and sellers together, or negotiate freights or other
business for owners of vessels or other means of transportation, or for the shippers, or
consignors or consignees of freight carried by vessels or other means of transportation. The
term includes commission merchants." 16 The controlling decision as to the test to be followed
as to who falls within the above definition of a commercial broker is that of Commissioner of
Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the
opinion: "Since the company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and terms of which were subject
to the company's control, the relationship between the company and the dealer is one of
agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view
follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an
agency to sell has led to the establishment of rules by the application of which this difficulty
may be solved. The decisions say the transfer of title or agreement to transfer it for a price
paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the proceeds of a resale, the
transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not
as his property, but as the property of the principal, who remains the owner and has the
right to control sales, fix the price, and terms, demand and receive the proceeds less the
agent's commission upon sales made.' " 20 The opinion relied on the work of Mechem on
Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises
on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or
appreciate the necessity or presence of these mutual requirements and obligations on any
theory other than that of a contract of agency. Salisbury was to furnish the mill and put the
timber owned by him into a marketable condition in the form of lumber; Brooks was to
furnish the funds necessary for that purpose, sell the manufactured product, and account
therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed
by the parties in lieu of interest on the money advanced and for services as agent. These
requirements and stipulations are in tent with any other conception of the contract. If it
constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They
were placed there for some purpose, doubtless as the result of definite antecedent
negotiations therefore, consummated by the final written expression of the
agreement." 21 Hence the Constantino opinion could categorically affirm that the mere
disclaimer in a contract that an entity like petitioner is not "the agent or legal representative
for any purpose whatsoever" does not suffice to yield the conclusion that it is an
independent merchant if the control over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals decision now under review pays fealty to
such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax
Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct
pursued in the implementation of the contract by both the United States Rubber International
and petitioner, as was contended in the second assignment of error. Petitioner ought to have
been aware that there was no need for such an inquiry. The terms of the contract, as noted,
speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to
serious doubt as to what was contemplated by the parties. A reading thereof discloses that
the relationship arising therefrom was not one of seller and purchaser. If it were thus
intended, then it would not have included covenants which in their totality would negate the
concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so
worded as to lead to no other conclusion than that the control by the United States Rubber
International over the goods in question is, in the language of the Constantino opinion,
"pervasive". The insistence on a relationship opposed to that apparent from the language
employed might even yield the impression that such a mode of construction was resorted to
in order that the applicability of a taxing statute might be rendered nugatory. Certainly,
such a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals
which has developed an expertise in view of its function being limited solely to the
interpretation of revenue laws, this Court is not prepared to substitute its own judgment
unless a grave abuse of discretion is manifest. It would be to frustrate the objective for
which administrative tribunals are created if the judiciary, absent such a showing, is to
ignore their appraisal on a matter that forms the staple of their specialized competence.
While it is to be admitted that counsel for petitioner did scrutinize with care the decision
under review with a view to exposing what was considered its flaws, it cannot be said that
there was such a failure to apply what the law commands as to call for its reversal. Instead,
what cannot be denied is that the Court of Tax Appeals reached a result to which the Court
in the recent Constantino decision gave the imprimatur of its approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With
costs against petitioner.

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