LAW ON BUSINESS ORGANIZATIONS Cases 2 1
G.R. No. L-20567 July 30, 1965
PHILIPPINE NATIONAL BANK, petitioner,
vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF
APPEALS (Second Division), respondents.
REYES, J.B.L., J.:
The Philippine National Bank petitions for the review and reversal of
the decision rendered by the Court of Appeals (Second Division), in
its case CA-G.R. No. 24232-R, dismissing the Bank's complaint
against respondent Manila Surety & Fidelity Co., Inc., and modifying
the judgment of the Court of First Instance of Manila in its Civil Case
No. 11263.
The material facts of the case, as found by the appellate Court, are
as follows:
The Philippine National Bank had opened a letter of credit and
advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000
tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00
were released and delivered to Adams & Taguba Corporation
(known as ATACO) under a trust receipt guaranteed by Manila
Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the
asphalt, ATACO constituted the Bank its assignee and attorney-in-
fact to receive and collect from the Bureau of Public Works the
amount aforesaid out of funds payable to the assignor under
Purchase Order No. 71947. This assignment (Exhibit "A") stipulated
that:
The conditions of this assignment are as follows:
1. The same shall remain irrevocable until the said credit
accomodation is fully liquidated.
2. The PHILIPPINE NATIONAL BANK is hereby appointed as our
Attorney-in-Fact for us and in our name, place and stead, to collect
and to receive the payments to be made by virtue of the aforesaid
Purchase Order, with full power and authority to execute and deliver
on our behalf, receipt for all payments made to it; to endorse for
deposit or encashment checks, money order and treasury warrants
which said Bank may receive, and to apply said payments to the
settlement of said credit accommodation.
This power of attorney shall also remain irrevocable until our total
indebtedness to the said Bank have been fully liquidated. (Exhibit E)
ATACO delivered to the Bureau of Public Works, and the latter
accepted, asphalt to the total value of P431,466.52. Of this amount
the Bank regularly collected, from April 21, 1948 to November 18,
1948, P106,382.01. Thereafter, for unexplained reasons, the Bank
ceased to collect, until in 1952 its investigators found that more
moneys were payable to ATACO from the Public Works office,
because the latter had allowed mother creditor to collect funds due
to ATACO under the same purchase order to a total of P311,230.41.
Its demands on the principal debtor and the Surety having been
refused, the Bank sued both in the Court of First Instance of Manila
to recover the balance of P158,563.18 as of February 15, 1950, plus
interests and costs.
On October 4, 1958, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendants, Adams & Taguba Corporation and Manila
Surety & Fidelity Co., Inc., to pay plaintiff, Philippines National Bank,
the sum of P174,462.34 as of February 24, 1956, minus the amount
of P8,000 which defendant, Manila Surety Co., Inc. paid from March,
1956 to October, 1956 with interest at the rate of 5% per annum
from February 25, 1956, until fully paid provided that the total
amount that should be paid by defendant Manila Surety Co., Inc., on
account of this case shall not exceed P75,000.00, and to pay the
costs;
2. Orderinq cross-defendant, Adams & Taguba Corporation, and
third-party defendant, Pedro A. Taguba, jointly and severally, to pay
cross and third-party plaintiff, Manila Surety & Fidelity Co., Inc.,
whatever amount the latter has paid or shall pay under this
judgment;
3. Dismissing the complaint insofar as the claim for 17% special tax is
concerned; and
4. Dismissing the counterclaim of defendants Adams & Taguba
Corporation and Manila Surety & Fidelity Co., Inc.
From said decision, only the defendant Surety Company has duly
perfected its appeal. The Central Bank of the Philippines did not
appeal, while defendant ATACO failed to perfect its appeal.
The Bank recoursed to the Court of Appeals, which rendered an
adverse decision and modified the judgment of the court of origin as
to the surety's liability. Its motions for reconsideration having
proved unavailing, the Bank appealed to this Court.
The Court of Appeals found the Bank to have been negligent in
having stopped collecting from the Bureau of Public Works the
moneys falling due in favor of the principal debtor, ATACO, from and
after November 18, 1948, before the debt was fully collected,
thereby allowing such funds to be taken and exhausted by other
creditors to the prejudice of the surety, and held that the Bank's
negligence resulted in exoneration of respondent Manila Surety &
Fidelity Company.
This holding is now assailed by the Bank. It contends the power of
attorney obtained from ATACO was merely in additional security in
its favor, and that it was the duty of the surety, and not that of the
creditor, owed see to it that the obligor fulfills his obligation, and
that the creditor owed the surety no duty of active diligence to
collect any, sum from the principal debtor, citing Judge Advocate
General vs. Court of Appeals, G.R. No. L-10671, October 23, 1958.
This argument of appellant Bank misses the point. The Court of
Appeals did not hold the Bank answerable for negligence in failing to
collect from the principal debtor but for its neglect in collecting the
sums due to the debtor from the Bureau of Public Works, contrary
to its duty as holder of an exclusive and irrevocable power of
attorney to make such collections, since an agent is required to act
with the care of a good father of a family (Civ. Code, Art. 1887) and
becomes liable for the damages which the principal may suffer
through his non-performance (Civ. Code, Art. 1884). Certainly, the
Bank could not expect that the Bank would diligently perform its

duty under its power of attorney, but because they could not have
collected from the Bureau even if they had attempted to do so. It
must not be forgotten that the Bank's power to collect was expressly
made irrevocable, so that the Bureau of Public Works could very well
refuse to make payments to the principal debtor itself, and
a fortiori reject any demands by the surety.
Even if the assignment with power of attorney from the principal
debtor were considered as mere additional security still, by allowing
the assigned funds to be exhausted without notifying the surety, the
Bank deprived the former of any possibility of recoursing against
that security. The Bank thereby exonerated the surety, pursuant to
Article 2080 of the Civil Code:
ART. 2080. — The guarantors, even though they be solidary, are
released from their obligation whenever by come act of the creditor
they cannot be subrogated to the rights, mortgages and preferences
of the latter. (Emphasis supplied.)
The appellant points out to its letter of demand, Exhibit "K",
addressed to the Bureau of Public Works, on May 5, 1949, and its
letter to ATACO, Exhibit "G", informing the debtor that as of its date,
October 31, 1949, its outstanding balance was P156,374.83. Said
Exhibit "G" has no bearing on the issue whether the Bank has
exercised due diligence in collecting from the Bureau of Public
Works, since the letter was addressed to ATACO, and the funds were
to come from elsewhere. As to the letter of demand on the Public
Works office, it does not appear that any reply thereto was made;
nor that the demand was pressed, nor that the debtor or the surety
were ever apprised that payment was not being made. The fact
remains that because of the Bank's inactivity the other creditors
were enabled to collect P173,870.31, when the balance due to
appellant Bank was only P158,563.18. The finding of negligence
made by the Court of Appeals is thus not only conclusive on us but
fully supported by the evidence.
Even if the Court of Appeals erred on the second reason it advanced
in support of the decision now under appeal, because the rules on
application of payments, giving preference to secured obligations
are only operative in cases where there are several distinct debts,
and not where there is only one that is partially secured, the error is
of no importance, since the principal reason based on the Bank's
negligence furnishes adequate support to the decision of the Court
of Appeals that the surety was thereby released.
WHEREFORE, the appealed decision is affirmed, with costs against
appellant Philippine National Bank.
SARGASSO CONSTRUCTION & DEVELOPMENT
CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC ERECTORS, INC.
(JOINT VENTURE), Petitioner,
- versus -
PHILIPPINE PORTS AUTHORITY, Respondent. G.R. NO. 170530
Promulgated: July 5, 2010
X ------------------------------------------------------------------------------ X
LAW ON BUSINESS ORGANIZATIONS Cases 2 2
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 which seeks
to annul and set aside the August 22, 2005 Decision[1] of the Court of
Appeals (CA)in CA-G.R. CV No. 63180 and its November 14, 2005
Resolution[2] denying petitioners motion for the reconsideration
thereof. The questioned CA decision reversed the June 8, 1998
Decision[3] of the Regional Trial Court of Manila, Branch 14, in Civil
Case No. 97-83916, which granted petitioners action for specific
performance.
The factual and procedural antecedents have been succinctly recited
in the subject Court of Appeals decision in this wise:[4]
Plaintiff Sargasso Construction and Development Corporation, Pick
and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was
awarded the construction of Pier 2 and the rock causeway (R.C. Pier
2) for the port of San Fernando, La Union, after a public bidding
conducted by the defendant PPA. Implementation of the project
commenced on August 14, 1990. The port construction was in
pursuance of the development of the Northwest Luzon Growth
Quadrangle. Adjacent to Pier 2 is an area of P4,280 square meters
intended for the reclamation project as part of the overall port
development plan.
In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive
Director of the consortium, plaintiff offered to undertake the
reclamation between the Timber Pier and Pier 2 of the Port of San
Fernando, La Union, as an extra work to its existing construction of
R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03.
Defendant replied thru its Assistant General Manager Teofilo H.
Landicho who sent the following letter dated December 18, 1992:
This is to acknowledge receipt of your letter dated 01 October
1992 offering to undertake the reclamation between the Timber Pier
and Pier 2, at the Port of San Fernando, La Union as an extra work to
your existing contract.
Your proposal to undertake the project at a total cost of THIRTY SIX
MILLION TWO HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED
FIFTY SEVEN AND 03/100 PESOS (P36,294,857.03) is not acceptable
to PPA. If you can reduce your offer to THIRTY MILLION SEVEN
HUNDRED NINETY FOUR THOUSAND TWO HUNDRED THIRTY AND
89/100 (P30,794,230.89) we may consider favorably award of the
project in your favor, subject to the approval of higher authority.
Please signify your agreement to the reduced amount
of P30,794,230.89 by signing in the space provided below. (emphasis
in the original)
On August 26, 1993, a Notice of Award signed by PPA General
Manager Rogelio Dayan was sent to plaintiff for the phase I
Reclamation Contract in the amount of P30,794,230.89 and
instructing it to enter into and execute the contract agreement with
this Office and to furnish the documents representing performance
security and credit line. Defendant likewise stated [and] made it a
condition that fendering of Pier No. 2 Port of San Fernando, and
the Port of Tabaco is completed before the approval of the contract
for the reclamation project. Installation of the rubber dock fenders
in the said ports was accomplished in the year 1994. PPA
Management further set a condition [that] the acceptance by the

contractor that mobilization/demobilization cost shall not be
included in the contract and that escalation shall be reckoned upon
approval of the Supplemental Agreement. The award of the
negotiated contract as additional or supplemental project in favor of
plaintiff was intended to save on the mobilization/demobilization
costs and some items as provided for in the original contract. Hence,
then General Manager Carlos L. Agustin presented for consideration
by the PPA Board of Directors the contract proposal for the
reclamation project.
At its meeting held on September 9, 1994, the Board decided not to
approve the contract proposal, as reflected in the following excerpt
of the minutes taken during said board meeting:
After due deliberation, the Board advised Management to bid the
project since there is no strong legal basis for Management to
award the supplemental contract through negotiation. The Board
noted that the Pier 2 Project was basically for the construction of a
pier while the supplemental agreement refers to reclamation. Thus
there is no basis to compare the terms and conditions of the
reclamation project with the original contract (Pier 2 Project) of
Sargasso.[5]
It appears that PPA did not formally advise the plaintiff of the Boards
action on their contract proposal. As plaintiff learned that the Board
was not inclined to favor its Supplemental Agreement, Mr. Go wrote
General Manager Agustin requesting that the same be presented
again to the Board meeting for approval. However, no reply was
received by plaintiff from the defendant.
On June 30, 1997, plaintiff filed a complaint for specific performance
and damages before the Regional Trial Court of Manila alleging that
defendant PPAs unjustified refusal to comply with its undertaking,
unnecessarily leading to the delay in the implementation of the
award under the August 26, 1993 Notice of Award, has put on hold
plaintiffs men and resources earmarked for the project, aside from
effectively tying its hands in undertaking other projects for fear that
plaintiffs incapacity to undertake work might be spread thinly and it
might not be able to function efficiently if the PPA project and other
projects should require simultaneous attention. Plaintiff averred
that it sought reconsideration of the August 9, 1996 letter of PPA
informing it that it did not qualify to bid for the proposed extension
of RC Pier No. 2, Port of San Fernando, La Union for not having IAC
Registration and Classification and not complying with equipment
requirement. In its letter dated September 19, 1996, plaintiff
pointed out that the disqualification was clearly unjust and totally
without basis considering that individual contractors of the joint
venture have undertaken separately bigger projects, and have been
such individual contractors for almost 16 years. It thus prayed that
judgment be rendered by the court directing the defendant (a) to
comply with its undertaking under the Notice of Award dated August
26, 1993; and (b) to pay plaintiff actual damages (P1,000,000.00),
exemplary damages (P1,000,000.00), attorneys fees (P300,000.00)
and expenses of litigation and costs (P50,000.00).
Defendant PPA thru the Office of the Government Corporate
Counsel (OGCC) filed its Answer with Compulsory Counterclaim
contending that the alleged Notice of Award has already been
properly revoked when the Supplemental Agreement which should
have implemented the award was denied approval by defendants
Board of Directors. As to plaintiffs pre-disqualification from
participating in the bidding for the extension of R.C. Pier No. 2
LAW ON BUSINESS ORGANIZATIONS Cases 2 3
Project at the Port of San Fernando, La Union, the same is based on
factual determination by the defendant that plaintiff lacked IAC
Registration and Classification and equipment for the said project as
communicated in the August 9, 1996 letter. Defendant disclaimed
any liability for whatever damages suffered by the plaintiff when it
jumped the gun by committing its alleged resources for the
reclamation project despite the fact that no Notice to Proceed was
issued to plaintiff by the defendant. The cause of action insofar as
the Extension of R.C. Pier No. 2 of the Port of San Fernando, La
Union, is barred by the statute of limitation since plaintiff filed its
request for reconsideration way beyond the seven (7) day-period
allowed under IB 6-5 of the Implementing Rules and Regulations of
P.D. 1594. Defendant clarified that the proposed Reclamation
Project and Extension of R.C. Pier No. 2 San Fernando, La Union, are
separate projects of PPA. The Board of Directors denied approval of
the Supplemental Agreement on September 9, 1994 for lack of legal
basis to award the supplemental contract through negotiation which
was properly communicated to the plaintiff as shown by its letter
dated September 19, 1994 seeking reconsideration thereof. As
advised by the Board, PPA Management began to make
preparations for the public bidding for the proposed reclamation
project. In the meantime, defendant decided to pursue the
extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that
the complaint be dismissed]. (Emphasis supplied)
After trial, the lower court rendered a decision in favor of the
plaintiff, the dispositive portion of which reads:
WHEREFORE, and in view of the foregoing considerations, judgment
is hereby rendered ordering the defendant to execute a contract in
favor of the plaintiff for the reclamation of the area between the
Timber Pier and Pier 2 located at San Fernando, La Union for the
price of P30,794,230.89 and to pay the costs.
The counterclaim is dismissed for lack of merit.
SO ORDERED.[6]
In addressing affirmatively the basic issue of whether there was a
perfected contract between the parties for the reclamation project,
the trial court ruled that the higher authority x x adverted to does
not necessarily mean the Board of Directors (Board). Under IRR, P.D.
1594 (1)B10.6, approval of award and contracts is vested on the
head of the infrastructure department or its duly authorized
representative. Under Sec. 9 (iii) of P.D. 857 which has amended P.D.
505 that created the PPA, one of the particular powers and duties of
the General Manager and Assistant General Manager is to sign
contracts.[7] It went on to say that in the case of the PPA, the power
to enter into contracts is not only vested on the Board of Directors,
but also to the manager citing Section 9 (III) of P.D. No. 857.[8]
The trial court added that the tenor of the Notice of Award implied
that respondents general manager had been empowered by its
Board of Directors to bind respondent by contract. It noted that
whereas the letter-reply contained the phrase approval of the higher
authority, the conspicuous absence of the same in the Notice of
Award supported the finding that the general manager had been
vested with authority to enter into the contract for and in behalf of
respondent. To the trial court, the disapproval by the PPA Board of
the supplementary contract for the reclamation on a ground other
than the general managers lack of authority was an explicit
 LAW ON BUSINESS ORGANIZATIONS Cases 2 4

recognition that the latter was so authorized to enter into the Petitioner contends that the existence of Notice of Award of
purported contract. Contract and Contractors Conforme thereto, resulting from its
negotiation with respondent, proves that a contract has already
Respondent moved for a reconsideration of the RTC decision but it been perfected, and that the other documents enumerated under
was denied for lack of merit. Respondent then filed its Notice of the amended Rules and Regulations[13] implementing P.D.
Appeal. Subsequently, petitioner moved to dismiss the appeal on 1594[14] are mere physical representations of the parties meeting of
the ground that respondent failed to perfect its appeal seasonably. the minds; that the Approval of Award by Approving Authority is
On June 27, 2000, the Court of Appeals issued a only a supporting document, and not an evidence of perfection of
Resolution[9] dismissing respondents appeal for having been filed out contract, and which merely facilitates the approval of the
time. Respondents motion for reconsideration of said resolution was contract;[15] that PPA is bound by the acts of its general manager in
also denied.[10] issuing the Notice of Award under the doctrine of apparent
authority; and that the doctrine of estoppel, being an equitable
Undaunted, respondent elevated its problem to this Court via a
doctrine, cannot be invoked to perpetuate an injustice against
petition for review on certiorari under Rule 45 assailing the denial of
petitioner.
its appeal. On July 30, 2004, the Court rendered an en
banc decision[11] granting respondents petition on a liberal At the outset, it must be stated that there are two (2) separate and
interpretation of the rules of procedure, and ordering the CA to distinct, though related, projects involving the parties herein, viz: (i)
conduct further proceedings. the construction of Pier 2 and the rock causeway for the port of San
Fernando, La Union, and (ii) the reclamation of the area between the
On August 22, 2005, the CA rendered the assailed decision reversing
Timber Pier and Pier 2 of the same port. Petitioners action for
the trial courts decision and dismissing petitioners complaint for
specific performance and damages merely relates to the latter.
specific performance and damages. Thus, the dispositive portion
thereof reads: Every contract has the following essential elements: (i) consent, (ii)
object certain and (iii) cause. Consent has been defined as the
WHEREFORE, premises considered, the present appeal is hereby
concurrence of the wills of the contracting parties with respect to
GRANTED. The appealed Decision dated June 8, 1998 of the trial
the object and cause which shall constitute the contract.[16] In
court in Civil Case No. 97-83916 is hereby REVERSED and SET ASIDE.
general, contracts undergo three distinct stages, to wit: negotiation,
A new judgment is hereby entered DISMISSING the complaint for
perfection or birth, and consummation. Negotiation[17] begins from
specific performance and damages filed by Plaintiff Sargasso
the time the prospective contracting parties manifest their interest
Construction and Development Corporation/Pick & Shovel,
in the contract and ends at the moment of their
Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine
agreement. Perfection or birth of the contract takes place when the
Ports Authority for lack of merit.
parties agree upon the essential elements of the contract, i.e.,
consent, object and price. Consummation occurs when the parties
In setting aside the trial courts decision, the CA ruled that the law
fulfill or perform the terms agreed upon in the contract, culminating
itself should serve as the basis of the general managers authority to
in the extinguishment thereof. The birth or the perfection of the
bind respondent corporation and, thus, the trial court erred in
contract, which is the crux of the present controversy, refers to that
merely relying on the wordings of the Notice of Award and the
moment in the life of a contract when there is finally a concurrence
Minutes of the Board meeting in determining the limits of his
of the wills of the contracting parties with respect to the object and
authority; that the power of the general manager to sign contracts is
the cause of the contract.[18]
different from the Boards power to make or enter (into) contracts;
and that, in the execution of contracts, the general manager only
A government or public contract has been defined as a contract
exercised a delegated power, in reference to which, evidence was
entered into by state officers acting on behalf of the state, and in
wanting that the PPA Board delegated to its general manager the
which the entire people of the state are directly interested. It relates
authority to enter into a supplementary contract for the reclamation
wholly to matter of public concern, and affects private rights only so
project.
far as the statute confers such rights when its provisions are carried
out by the officer to whom it is confided to perform.[19]
The CA also found the disapproval of the contract on a ground other
than the general managers lack of authority rather inconsequential
A government contract is essentially similar to a private contract
because Executive Order 380[12] expressly authorized the governing
contemplated under the Civil Code. The legal requisites of consent
boards of government-owned or controlled corporations to enter
of the contracting parties, an object certain which is the subject
into negotiated infrastructure contracts involving not more than fifty
matter, and cause or consideration of the obligation must likewise
million (P50 million). The CA further noted that the Notice of Award
concur. Otherwise, there is no government contract to speak of.[20]
was only one of those documents that comprised the entire contract
and, therefore, did not in itself evidence the perfection of a contract. As correctly found by the CA, the issue on the reclamation of the
area between Timber Pier and Pier 2 of the Port of San
Hence, this petition.
Fernando involves a government infrastructure project, and it is
beyond dispute that the applicable laws, rules and regulations on
The issue to be resolved in this case is whether or not a contract has
government contracts or projects apply.
been perfected between the parties which, in turn, depends on
whether or not the general manager of PPA is vested with authority
On the matter of entering into negotiated contracts by government-
to enter into a contract for and on behalf of PPA.
owned and controlled corporations, the provisions of existing laws
are crystal clear in requiring the governing boards approval thereof.
The petition fails.

The Court holds that the CA correctly applied the pertinent laws, to
wit:
Executive Order No. 380 provides for revised levels of authority on
approval of government contracts. Section 1 thereof authorizes
GOCCs:
1. To enter into infrastructure contracts awarded through public
bidding regardless of the amount involved;
2. To enter into negotiated infrastructure contracts involving not
more than one hundred million pesos (P100 million) in the case of
the Department of Transportation and Communications and the
Department of Public Works and Highways, and not more than fifty
million pesos (P50 million) in the case of the other Departments
and governments corporations; Provided, That contracts exceeding
the said amounts shall only be entered into upon prior authority
from the Office of the President; and Provided, Further, That said
contracts shall only be awarded in strict compliance with Section 5
of Executive Order No. 164, S. of 1987.
xxx
The rule on negotiated contracts, as amended on August 12,
2000 (IB 10.6.2) now reads
1. Negotiated contract may be entered into only where any of the
following conditions exists and the implementing
office/agency/corporation is not capable of undertaking the contract
by administration:
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life
and/or property or to restore vital public services, infrastructure and
utilities such as
b. Failure to award the contract after competitive public bidding
for valid cause or causes
c. Where the subject project is adjacent or contiguous to an on-
going project and it could be economically prosecuted by the same
contractor provided that subject contract has similar or related
scope of works and it is within the contracting capacity of the
contractor, in which case, direct negotiation may be undertaken
with the said contractor
xxx
In cases a and b above, bidding may be undertaken through sealed
canvass of at least three (3) qualified contractors Authority to
negotiate contract for projects under these exceptional cases shall
be subject to prior approval by heads of agencies within their limits
of approving authority.[21] (emphasis in the original)
Furthermore, the Revised Administrative Code[22] lays down the
same requirement, thus:
Sec. 51. Who May Execute Contracts. Contracts in behalf of the
Republic of the Philippines shall be executed by the President unless
authority therefore is expressly vested by law or by him in any other
public officer.
Contracts in behalf of the political subdivisions and corporate
agencies or instrumentalities shall be approved by their respective
LAW ON BUSINESS ORGANIZATIONS Cases 2 5
governing boards or councils and executed by their respective
executive heads.
Petitioner neither disputes nor admits the application of the
foregoing statutory provisions but insists, nonetheless, that the
Notice of Award itself already embodies a perfected contract having
passed the negotiation stage[23] despite the clear absence thereon of
a condition requiring the prior approval of respondents higher
authority.
Petitioners argument is untenable. Contracts to which the
government is a party are generally subject to the same laws and
regulations which govern the validity and sufficiency of contracts
between private individuals.[24] A government contract, however, is
perfected[25] only upon approval by a competent authority, where
such approval is required.[26]
The contracting officer functions as agent of the Philippine
government for the purpose of making the contract. There arises
then, in that regard, a principal-agent relationship between the
Government, on one hand, and the contracting official, on the other.
The latter though, in contemplation of law, possesses only actual
agency authority. This is to say that his contracting power exists,
where it exists at all, only because and by virtue of a law, or by
authority of law, creating and conferring it. And it is well settled
that he may make only such contracts as he is so authorized to
make. Flowing from these basic guiding principles is another stating
that the government is bound only to the extent of the power it has
actually given its officers-agents. It goes without saying then that,
conformably to a fundamental principle in agency, the acts of such
agents in entering into agreements or contracts beyond the scope of
their actual authority do not bind or obligate the Government. The
moment this happens, the principal-agent relationship between the
Government and the contracting officer ceases to exist.[27] (emphasis
supplied)
It was stressed that the contracting official who gives his consent as
to the subject matter and the consideration ought to be empowered
legally to bind the Government and that his actuations in a particular
contractual undertaking on behalf of the government come within
the ambit of his authority. On top of that, the approval of the
contract by a higher authority is usually required by law or
administrative regulation as a requisite for its perfection.[28]
Under Article 1881 of the Civil Code, the agent must act within the
scope of his authority to bind his principal. So long as the agent has
authority, express or implied, the principal is bound by the acts of
the agent on his behalf, whether or not the third person dealing with
the agent believes that the agent has actual authority.[29] Thus, all
signatories in a contract should be clothed with authority to bind the
parties they represent.
P.D. 857 likewise states that one of the corporate powers of
respondents Board of Directors is to reclaim any part of the lands
vested in the Authority. It also exercise[s] all the powers of a
corporation under the Corporation Law. On the other hand, the law
merely vests the general manager the general power to sign
contracts and to perform such other duties as the Board may
assign Therefore, unless respondents Board validly authorizes its
general manager, the latter cannot bind respondent PPA to a
contract.

The Court completely agrees with the CA that the petitioner failed to
present competent evidence to prove that the respondents general
manager possessed such actual authority delegated either by the
Board of Directors, or by statutory provision. The authority of
government officials to represent the government in any contract
must proceed from an express provision of law or valid delegation of
authority.[30] Without such actual authority being possessed by PPAs
general manager, there could be no real consent, much less a
perfected contract, to speak of.
It is of no moment if the phrase approval of higher authority appears
nowhere in the Notice of Award. It neither justifies petitioners
presumption that the required approval had already been granted
nor supports its conclusion that no other condition (than the
completion of fendering of Pier 2 as stated in the Notice of Award)
ought to be complied with to create a perfected
contract.[31] Applicable laws form part of, and are read into, the
contract without need for any express reference thereto;[32] more
so, to a purported government contract, which is imbued with public
interest.
Adopting the trial courts ratiocination, petitioner further argues that
had it been true that respondents general manager was without
authority to bind respondent by contract, then the former should
have disapproved the supplemental contract on that
ground.[33] Petitioner also interprets the Boards silence on the
matter as an explicit recognition of the latters authority to enter into
a negotiated contract involving the reclamation project. This
posture, however, does not conform with the basic provisions of the
law to which we always go back. Section 4 of P.D.
1594[34] provides:[35]
Section 4. Bidding. Construction projects shall generally be
undertaken by contract after competitive public bidding. Projects
may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or
where there is a conclusive evidence that greater economy and
efficiency would be achieved through this arrangement, and in
accordance with provision of laws and acts on the matter, subject to
the approval of the Ministry of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be, if the project cost is less than P1 Million,
and of the President of the Philippines, upon the recommendation
of the Minister, if the project cost is P1 Million or more.
Precisely, the Board of Directors of the respondent did not see fit to
approve the contract by negotiation after finding that the Pier 2
Project was basically for the construction of a pier while the
supplemental agreement refers to reclamation. Thus, there is no
basis to compare the terms and conditions of the reclamation
project with the original contract (Pier 2 Project) of Sargasso. So
even granting arguendo that the Boards action or inaction is an
explicit recognition of the authority of the general manager, the
purported contract cannot possibly be the basis of an action for
specific performance because the negotiated contract itself basically
contravenes stringent legal requirements aimed at protecting the
interest of the public. The bottom line here is that the facts do not
conform to what the law requires.
No wonder petitioner conveniently omitted any attempt at
presenting its case within the statutory exceptions, and insisted that
LAW ON BUSINESS ORGANIZATIONS Cases 2 6
respondents disapproval of the supplemental agreement was a
mere afterthought perhaps realizing the infirmity of its excuse
(referring to petitioners belated pre-disqualification in the
construction project). But the Court, at the very outset, has
previously clarified that the two projects involved herein are distinct
from each other. Hence, petitioners disqualification in the
construction project due to its lack of certain requirements has no
significant bearing in this case.
Lastly, petitioners invocation of the doctrine of apparent
authority[36] is misplaced. This doctrine, in the realm of government
contracts, has been restated to mean that the government is NOT
bound by unauthorized acts of its agents, even though within the
apparent scope of their authority.[37] Under the law on agency,
however, apparent authority is defined as the power to affect the
legal relations of another person by transactions with third persons
arising from the others manifestations to such third person [38] such
that the liability of the principal for the acts and contracts of his
agent extends to those which are within the apparent scope of the
authority conferred on him, although no actual authority to do such
acts or to make such contracts has been conferred.[39]
Apparent authority, or what is sometimes referred to as the holding
out theory, or doctrine of ostensible agency, imposes liability, not as
the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the
authority exists.[40] The existence of apparent authority may be
ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers. It
requires presentation of evidence of similar act(s) executed either in
its favor or in favor of other parties.[41]
Easily discernible from the foregoing is that apparent authority is
determined only by the acts of the principal and not by the acts of
the agent. The principal is, therefore, not responsible where the
agents own conduct and statements have created the apparent
authority.[42]
In this case, not a single act of respondent, acting through its Board
of Directors, was cited as having clothed its general manager with
apparent authority to execute the contract with it.
With the foregoing disquisition, the Court finds it unnecessary to
discuss the other arguments posed by petitioner.
WHEREFORE, the petition is DENIED.
SO ORDERED.
[G.R. No. 125138. March 2, 1999]
NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND
THE PHILIPPINE AIR LINES, INC., respondent.
DECISION

PURISIMA, J.:
This Petition for Review on certiorari assails the 25 July 1995
decision of the Court of Appeals[1] in CA GR CV No. 41407, entitled
Nicholas Y. Cervantes vs. Philippine Air Lines Inc., affirming in
toto the judgment of the trial court dismissing petitioners complaint
for damages.
On March 27, 1989, the private respondent, Philippines Air Lines,
Inc. (PAL), issued to the herein petitioner, Nicholas
Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-
Los Angeles-Honolulu-Manila, which ticket expressly provided an
expiry of date of one year from issuance, i.e., until March 27,
1990. The issuance of the said plane ticket was in compliance with a
Compromise Agreement entered into between the contending
parties in two previous suits, docketed as Civil Case Nos. 3392 and
3451 before the Regional Trial Court in Surigao City.[2]
On March 23, 1990, four days before the expiry date of subject
ticket, the petitioner used it. Upon his arrival in Los Angeles on the
same day, he immediately booked his Los Angeles-Manila return
ticket with the PAL office, and it was confirmed for the April 2, 1990
flight.
Upon learning that the same PAL plane would make a stop-over in
San Francisco, and considering that he would be there on April 2,
1990, petitioner made arrangements with PAL for him to board the
flight in San Francisco instead of boarding in Los Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter
in San Francisco, he was not allowed to board. The PAL personnel
concerned marked the following notation on his ticket: TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY.
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for
breach of contract of carriage docketed as Civil Case No. 3807
before Branch 32 of the Regional Trial Court of Surigao del Norte in
Surigao City. But the said complaint was dismissed for lack of
merit.[3]
On September 20, 1993, petitioner interposed an appeal to the
Court of Appeals, which came out with a Decision, on July 25, 1995,
upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for
Review under consideration.
The issues raised for resolution are: (1) Whether or not the act of
the PAL agents in confirming subject ticket extended the period of
validity of petitioners ticket; (2) Whether or not the defense of lack
of authority was correctly ruled upon; and (3) Whether or not the
denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings
below. As a rule, conclusions and findings of fact arrived at by the
trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons.[4]
The facts of the case as found by the lower court[5] are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant)
provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is
LAW ON BUSINESS ORGANIZATIONS Cases 2 7
also stipulated in paragraph 8 of the Conditions of Contract (Exhibit
1, page 2) as follows:
"8. This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carriers tariffs,
conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of
carriage. Carrier may refuse transportation if the applicable fare has
not been paid.[6]
The question on the validity of subject ticket can be resolved in light
of the ruling in the case of Lufthansa vs. Court of Appeals[7]. In the
said case, the Tolentinos were issued first class tickets on April 3,
1982, which will be valid until April 10,1983. On June 10, 1982, they
changed their accommodations to economy class but the
replacement tickets still contained the same restriction. On May 7,
1983, Tolentino requested that subject tickets be extended, which
request was refused by the petitioner on the ground that the said
tickets had already expired.The non-extension of their tickets
prompted the Tolentinos to bring a complaint for breach of contract
of carriage against the petitioner. In ruling against the award of
damages, the Court held that the ticket constitute the contract
between the parties. It is axiomatic that when the terms are clear
and leave no doubt as to the intention of the contracting parties,
contracts are to be interpreted according to their literal meaning.
In his effort to evade this inevitable conclusion, petitioner theorized
that the confirmation by the PALs agents in Los Angeles and San
Francisco changed the compromise agreement between the parties.
As aptly ruled by the appellate court:
xxx on March 23, 1990, he was aware of the risk that his ticket could
expire, as it did, before he returned to the Philippines. (pp. 320-321,
Original Records)[8]
The question is: Did these two (2) employees, in effect , extend the
validity or lifetime of the ticket in question? The answer is in the
negative. Both had no authority to do so. Appellant knew this from
the very start when he called up the Legal Department of appellee in
the Philippines before he left for the United States of America. He
had first hand knowledge that the ticket in question would expire on
March 27,1990 and that to secure an extension, he would have to
file a written request for extension at the PALs office in the
Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991,
pp 20-23). Despite this knowledge, appellant persisted to use the
ticket in question.[9]
From the aforestated facts, it can be gleaned that the petitioner was
fully aware that there was a need to send a letter to the legal
counsel of PAL for the extension of the period of validity of his
ticket.
Since the PAL agents are not privy to the said Agreement and
petitioner knew that a written request to the legal counsel of PAL
was necessary, he cannot use what the PAL agents did to his
advantage. The said agents, according to the Court of
Appeals,[10] acted without authority when they confirmed the flights
of the petitioner.
Under Article 1898[11] of the New Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal, unless
the latter ratifies the same expressly or impliedly.Furthermore,

when the third person (herein petitioner) knows that the 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 is aware of
such limits of authority, he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook to secure the
principals ratification.[12]
Anent the second issue, petitioners stance that the defense of lack
of authority on the part of the PAL employees was deemed waived
under Rule 9, Section 2 of the Revised Rules of Court, is
unsustainable. Thereunder, failure of a party to put up defenses in
their answer or in a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL
employees was neither raised in the answer nor in the motion to
dismiss. But records show that the question of whether there was
authority on the part of the PAL employees was acted upon by the
trial court when Nicholas Cervantes was presented as a witness and
the depositions of the PAL employees, Georgina M. Reyes and Ruth
Villanueva, were presented.
The admission by Cervantes that he was told by PALs legal counsel
that he had to submit a letter requesting for an extension of the
validity of subject tickets was tantamount to knowledge on his part
that the PAL employees had no authority to extend the validity of
subject tickets and only PALs legal counsel was authorized to do so.
However, notwithstanding PALs failure to raise the defense of lack
of authority of the said PAL agents in its answer or in a motion to
dismiss, the omission was cured since the said issue was litigated
upon, as shown by the testimony of the petitioner in the course of
trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure
provides:
Sec. 5. Amendment to conform or authorize presentation of
evidence. - When issues not raised by the pleadings are tried with
express or implied consent of the parties, as if they had been raised
in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at any time,
even after judgment; but failure to amend does not affect the result
of the trial of these issues. xxx
Thus, when evidence is presented by one party, with the express or
implied consent of the adverse party, as to issues not alleged in the
pleadings, judgment may be rendered validly as regards the said
issue, which shall be treated as if they have been raised in the
pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.[13]
Re: the third issue, an award of damages is improper because
petitioner failed to show that PAL acted in bad faith in refusing to
allow him to board its plane in San Francisco.
In awarding moral damages for breach of contract of carriage, the
breach must be wanton and deliberately injurious or the one
responsible acted fraudulently or with malice or bad
faith.[14]Petitioner knew there was a strong possibility that he could
not use the subject ticket, so much so that he bought a back-up
ticket to ensure his departure. Should there be a finding of bad faith,
we are of the opinion that it should be on the petitioner. What the
employees of PAL did was one of simple negligence. No injury
LAW ON BUSINESS ORGANIZATIONS Cases 2 8
resulted on the part of petitioner because he had a back-up ticket
should PAL refuse to accommodate him with the use of subject
ticket.
Neither can the claim for exemplary damages be upheld. Such kind
of damages is imposed by way of example or correction for the
public good, and the existence of bad faith is established. The
wrongful act must be accompanied by bad faith, and an award of
damages would be allowed only if the guilty party acted in a wanton,
fraudulent, reckless or malevolent manner.[15] Here, there is no
showing that PAL acted in such a manner. An award for attorneys
fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of
Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement
as to costs.
SO ORDERED.
G.R. No. L-39037 October 30, 1933
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
PAZ AGUDELO Y GONZAGA, ET AL., defendants.
PAZ AGUDELO Y GONZAGA, appellant.
Hilado and Hilado and Norberto Romualdez for appellant.
Roman J. Lacson for appellee.
VILLA-REAL, J.:
The defendant Paz Agudelo y Gonzaga appeals to this court from the
judgment rendered by the Court of First Instance of Occidental
Negros, the dispositive part of which reads as follows:
Wherefore, judgment is rendered herein absolving the defendant
Mauro A. Garrucho from the complaint and ordering the defendant
Paz Agudelo y Gonzaga to pay to the plaintiff the sum of P31,091.55,
Philippine currency, together with the interest on the balance of
P20,774.73 at 8 per cent per annum of P4.55 daily from July 16,
1929, until fully paid, plus the sum of P1,500 as attorney's fees, and
the costs of this suit.
It is hereby ordered that in case the above sums adjudged in favor of
the defendant by virtue of this judgment are not paid to the
Philippine National Bank or deposited in the office of the clerk of this
court, for delivery to the plaintiff, within three months from the date
of this decision, the provincial sheriff of Occidental Negros shall set
at public auction the mortgaged properties described in annex E of
the second amended complaint, and apply the proceeds thereof to
the payment of the sums in question.
It is further ordered that in case the proceeds of the mortgaged
properties are not sufficient to cover the amount of this judgment, a
writ of execution be issued against any other property belonging to
the defendant Paz Agudelo y Gonzaga, not otherwise exempt from
execution, to cover the balance resulting therefrom.

In support of her appeal, the appellant assigns six alleged errors as
committed by the trial court, which we shall discuss in the course of
this decision.
The following pertinent facts, which have been proven without
dispute during the trial, are necessary for the decision of the
questions raised in the present appeal, to wit:
On November 9, 1920, the defendant-appellant Paz Agudelo y
Gonzaga executed in favor of her nephew, Mauro A. Garrucho, the
document Exhibit K conferring upon him a special power of attorney
sufficiently broad in scope to enable him to sell, alienate and
mortgage in the manner and form he might deem convenient, all
her real estate situated in the municipalities of Murcia and Bacolod,
Occidental Negros, consisting in lots Nos. 61 and 207 of the cadastral
survey of Bacolod, Occidental Negros, together with the
improvement thereon.
On December 22, 1920, Amparo A. Garrucho executed the
document Exhibit H whereby she conferred upon her brother Mauro
A Garrucho a special power of attorney sufficiently broad in scope to
enable him to sell, alienate, mortgage or otherwise encumber, in the
manner and form he might deem convenient, all her real estate
situated in the municipalities of Murcia and Bago, Occidental
Negros.
Nothing in the aforesaid powers of attorney expressly authorized
Mauro A. Garrucho to contract any loan nor to constitute a
mortgage on the properties belonging to the respective principals,
to secure his obligations.
On December 23, 1920, Mauro A. Garrucho executed in the favor of
the plaintiff entity, the Philippine National bank, the document
Exhibit G, whereby he constituted a mortgage on lot No. 878 of the
cadastral survey of Murcia, Occidental Negros, with all the
improvements thereon, described in transfer certificate of title No.
2415 issued in the name of Amparo A. Garrucho, to secure the
payment of credits, loans, commercial overdrafts, etc., not
exceeding P6,000, together with interest thereon, which he might
obtain from the aforesaid plaintiff entity, issuing the corresponding
promissory note to that effect.
During certain months of the year 1921 and 1922, Mauro A.
Garrucho maintained a personal current account with the plaintiff
bank in the form of a commercial credit withdrawable through
checks (Exhibits S, 1 and T).
On August 24, 1931, the said Mauro A. Garrucho executed in favor
of the plaintiff entity, the Philippine National Bank, the document
Exhibit J whereby he constituted a mortgage on lots Nos. 61 and 207
of the cadastral survey of Bacolod together with the buildings and
improvements thereon, described in original certificates of title Nos.
2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, to secure the payment of credits, loans and commercial
overdrafts which the said bank might furnish him to the amount of
P16,00, payable on August 24, 1922, executing the corresponding
promissory note to that effect.
The mortgage deeds Exhibit G and J as well as the corresponding
promissory notes for P6,000 and P16,000, respectively, were
executed in Mauro A. Garrucho's own name and signed by him in his
personal capacity, authorizing the mortgage creditor, the Philippine
LAW ON BUSINESS ORGANIZATIONS Cases 2 9
National Bank, to take possession of the mortgaged properties, by
means of force if necessary, in case he failed to comply with any of
the conditions stipulated therein.
On January 4, 1922, the manager of the Iloilo branch of the
Philippine National Bank notified Mauro A. Garrucho that his
promissory note for P6,000 of 10 days within which to make
payment thereof (Exhibit O).1awphil.net
On May 9, 1922, the said manager notified Mauro A. Garrucho that
his commercial credit was closed from that date (Exhibit S).
Inasmuch as Mauro A. Garrucho had overdrawn his credit with the
plaintiff-appellee, the said manager thereof, in a letter dated June
27, 1922 (Exhibit T), requested him to liquidate his account
amounting to P15,148.15, at the same time notifying him that his
promissory note for P16,000 giving as security for the commercial
overdraft in question, had fallen due some time since.
On July 15, 1922, Mauro A. Garrucho, executed in favor of the
plaintiff entity the deed Exhibit C whereby he constituted a
mortgage on lots Nos. 61 and 207 of the cadastral survey of Bacolod,
together with the improvements thereon, described in transfer
certificates of title Nos. 2216 and 1148, respectively, issued in the
name of Paz Agudelo y Gonzaga, and on lot No. 878 of the cadastral
survey of Murcia, described in transfer certificate of title No. 2415,
issued in the name of Amparo A. Garrucho.
In connection of the credits, loans, and commercial overdrafts
amounting to P21,000 which had been granted him, Mauro A.
Garrucho, on the said date July 15, 1922, executed the promissory
note, Exhibit B, for P21,000 as a novation of the former promissory
notes for P6,000 and P16,000, respectively.
In view of the aforesaid consolidated mortgage, Exhibit C, the
Philippine National Bank, on the said date of July 15, 1922, cancelled
the mortgages constituted on lots Nos. 61, 207 and 878 described in
Torrens titles Nos. 2216, 1148 and 2415, respectively.
On November 25, 1925, Amparo A. Garrucho sold lot No. 878
described in certificate of title No. 2415, to Paz Agudelo y Gonzaga
(Exhibit M).
On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga
signed the affidavit, Exhibit N, which reads as follows:
Know all men by these presents: That I, Paz Agudelo y Gonzaga,
single, of age, and resident of the City of Manila, P. I., by these
present do hereby agree and consent to the transfer in my favor of
lot No. 878 of the Cadastre of Murcia, Occidental Negros, P. I., by
Miss Amparo A. Garrucho, as evidenced by the public instrument
dated November 25, 1925, executed before the notary public Mr.
Genaro B. Benedicto, and do hereby further agree to the amount of
the lien thereon stated in the mortgage deed executed by Miss
Amparo A. Garrucho in favor of the Philippine National Bank.
In testimony whereof, I hereunto affix my signature in the City of
Manila, P.I., this 15th of January, 1926.
(Sgd.) PAZ AGUDELO Y GONZAGA.
Pursuant to the sale made by Amparo A. Garrucho in favor of Paz
Agudelo y Gonzaga, of lot No. 878 of the cadastral survey of Murcia,

described in certificate of title No. 2145 issued in the name of said
Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer
certificate of title No. 5369 was issued in the name of Paz Agudelo y
Gonzaga.
Without discussing and passing upon whether or not the powers of
attorney issued in favor of Mauro A. Garrucho by his sister, Amparo
A. Garrucho, and by his aunt, Paz Agudelo y Gonzaga, respectively,
to mortgage their respective real estate, authorized him to obtain
loans secured by mortgage in the properties in question, we shall
consider the question of whether or not Paz Agudelo y Gonzaga is
liable for the payment of the loans obtained by Mauro A. Garrucho
from the Philippine National Bank for the security of which he
constituted a mortgage on the aforesaid real estate belonging to the
defendant-appellant Paz Agudelo y Gonzaga.
Article 1709 of the Civil Code provides the following:
ART. 1709. By the contract of agency, one person binds himself to
render some service, or to do something for the account or at the
request of another.
And article 1717 of the same Code provides as follows:
ART. 1717. When an agent acts in his own name, the principal shall
have no right of action against the persons with whom the agent has
contracted, or such persons against the principal.
In such case, the agent is directly liable to the person with whom he
has contracted, as if the transaction were his own. Cases involving
things belonging to the principal are excepted.
The provisions of this article shall be understood to be without
prejudice to actions between principal and agent.
Aside from the phrases "attorney in fact of his sister, Amparo A.
Garrucho, as evidenced by the power of attorney attached hereto"
and "attorney in fact of Paz Agudelo y Gonzaga" written after the
name of Mauro A. Garrucho in the mortgage deeds, Exhibits G. and
J, respectively, there is nothing in the said mortgage deeds to show
that Mauro A. Garrucho is attorney in fact of Amparo A. Garrucho
and of Paz Agudelo y Gonzaga, and that he obtained the loans
mentioned in the aforesaid mortgage deeds and constituted said
mortgages as security for the payment of said loans, for the account
and at the request of said Amparo A. Garrucho and Paz Agudelo y
Gonzaga. The above-quoted phrases which simply described his
legal personality, did not mean that Mauro A. Garrucho obtained the
said loans and constituted the mortgages in question for the
account, and at the request, of his principals. From the titles as well
as from the signatures therein, Mauro A. Garrucho, appears to have
acted in his personal capacity. In the aforesaid mortgage deeds,
Mauro A. Garrucho, in his capacity as mortgage debtor, appointed
the mortgage creditor Philippine National Bank as his attorney in
fact so that it might take actual and full possession of the mortgaged
properties by means of force in case of violation of any of the
conditions stipulated in the respective mortgage contracts. If Mauro
A. Garrucho acted in his capacity as mere attorney in fact of Amparo
A. Garrucho and of Paz Agudelo y Gonzaga, he could not delegate his
power, in view of the legal principle of "delegata potestas delegare
non potest" (a delegated power cannot be delegated), inasmuch as
there is nothing in the records to show that he has been expressly
authorized to do so.
LAW ON BUSINESS ORGANIZATIONS Cases 2 10
He executed the promissory notes evidencing the aforesaid loans,
under his own signature, without authority from his principal and,
therefore, were not binding upon the latter (2 Corpus Juris, pp. 630-
637, par. 280). Neither is there anything to show that he executed
the promissory notes in question for the account, and at the
request, of his respective principals (8 Corpus Juris, pp. 157-158).
Furthermore, it is noted that the mortgage deeds, Exhibits C and J,
were cancelled by the documents, Exhibits I and L, on July 15, 1922,
and in their stead the mortgage deed, Exhibit C, was executed, in
which there is absolutely no mention of Mauro A. Garrucho being
attorney in fact of anybody, and which shows that he obtained such
credit fro himself in his personal capacity and secured the payment
thereof by mortgage constituted by him in his personal capacity,
although on properties belonging to his principal Paz Agudelo y
Gonzaga.
Furthermore, the promissory notes executed by Mauro A. Garrucho
in favor of the Philippine National Bank, evidencing loans of P6,000
and P16,000 have been novated by the promissory notes for
P21,000 (Exhibit B) executed by Mauro A. Garrucho, not only
without express authority from his principal Paz Agudelo y Gonzaga
but also under his own signature.
In the case of National Bank vs. Palma Gil (55 Phil., 639), this court
laid down the following doctrine:
A promissory note and two mortgages executed by the agent for
and on behalf of his principal, in accordance with a power of
attorney executed by the principal in favor of the agent, are valid,
and as provided by article 1727 of contracted by the agent; but a
mortgage on real property of the principal not made and signed in
the name of the principal is not valid as to the principal.
It has been intimated, and the trial judge so stated. that it was the
intention of the parties that Mauro A. Garrucho would execute the
promissory note, Exhibit B, and the mortgage deed, Exhibit C, in his
capacity as attorney in facts of Paz Agudelo y Gonzaga, and that
although the terms of the aforesaid documents appear to be
contrary to the intention of the parties, such intention should prevail
in accordance with article 1281 of the Civil Code.
Commenting on article 1281 of the Civil Code, Manresa, in his
Commentaries to the Civil Code, says the following:
IV. Intention of the contracting parties; its appreciation. — In order
that the intention may prevail, it is necessary that the question of
interpretation be raised, either because the words used appear to
be contrary thereto, or by the existence of overt acts opposed to
such words, in which the intention of the contracting parties is made
manifest. Furthermore, in order that it may prevail against the terms
of the contract, it must be clear or, in other words, besides the fact
that such intention should be proven by admissible evidence, the
latter must be of such charter as to carry in the mind of the judge an
unequivocal conviction. This requisite as to the kind of evidence is
laid down in the decision relative to the Mortgage Law of September
30, 1891, declaring that article 1281 of the Civil Code gives
preference to intention only when it is clear. When the aforesaid
circumstances is not present in a document, the only thing left for
the register of deeds to do is to suspend the registration thereof,
leaving the solution of the problem to the free will of the parties or
to the decision of the courts.

However, the evident intention which prevails against the defective
wording thereof is not that of one of the parties, but the general
intent, which, being so, is to a certain extent equivalent to mutual
consent, inasmuch as it was the result desired and intended by the
contracting parties. (8 Manresa, 3d edition, pp. 726 and 727.)
Furthermore, the records do not show that the loan obtained by
Mauro A. Garrucho, evidenced by the promissory note, Exhibit B,
was for his principal Paz Agudelo y Gonzaga. The special power of
attorney, Exhibit K, does not authorize Mauro A. Garrucho to
constitute a mortgage on the real estate of his principal to secure his
personal obligations. Therefore, in doing so by virtue of the
document, Exhibit C, he exceeded the scope if his authority and his
principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714,
Civil Code.)
It is further claimed that inasmuch as the properties mortgaged by
Mauro A. Garrucho belong to Paz Agudelo y Gonzaga, the latter is
responsible for the acts of the former although he acted in his own
name, in accordance with the exception contained in article 1717 of
the Civil Code. It would be an exception with the properties of his
own name in connection with the properties of his principal, does so
within the scope of his authority. It is noted that Mauro A. Garrucho
was not authorized to execute promissory notes even in the name of
his principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on
her real properties to secure such promissory notes. The plaintiff
Philippine National Bank should know this inasmuch as it is in duty
bound to ascertain the extent of the agent's authority before dealing
with him. Therefore, Mauro A. Garrucho and not Paz Agudelo y
Gonzaga is personally liable for the amount of the promissory note
Exhibit B. (2 Corpus Juris, pp. 563-564.)
However, Paz Agudelo y Gonzaga in an affidavit dated January 15,
1926 (Exhibit AA), and in a letter dated January 16, 1926 (Exhibit Z),
gave her consent to the lien on lot No. 878 of the cadastre of
Murcia, Occidental Negros, described in Torrens title No. 5369, the
ownership of which was transferred to her by her niece Amparo A.
Garrucho. This acknowledgment, however, does not extend to lots
Nos. 207 and 61 of the cadastral survey of Bacolod, described in
transfer certificates of title Nos. 1148 and 2216, respectively,
inasmuch as, although it is true that a mortgage is indivisible as to
the contracting parties and as top their successors in interest (article
1860, Civil Code), it is not so with respect to a third person who did
not take part in the constitution thereof either personally or through
an agent, inasmuch as he can make the acknowledgment thereof in
the form and to the extent he may deem convenient, on the ground
that he is not in duty bound to acknowledge the said mortgage.
Therefore, the only liability of the defendant-appellant Paz Agudelo
y Gonzaga is that which arises from the aforesaid acknowledgment,
but only with respect to the lien and not to the principal obligation
secured by the mortgage acknowledged by her to have been
constituted on said lot No. 878 of the cadastral survey of Murcia,
Occidental Negros. Such liability is not direct but a subsidiary one.
Having reach this contention, it is unnecessary to pass upon the
other questions of law raised by the defendant- appellant in her
brief and upon the law cited therein.
In view of the foregoing consideration, we are of the opinion and so
hold that when an agent negotiates a loan in his personal capacity
and executes a promissory note under his own signature, without
express authority from his principal, giving as security therefor real
LAW ON BUSINESS ORGANIZATIONS Cases 2 11
estate belonging to the letter, also in his own name and not in the
name and representation of the said principal, the obligation do
constructed by him is personal and does not bind his aforesaid
principal.
Wherefore, it is hereby held that the liability constructed by the
aforesaid defendant-appellant Paz Agudelo y Gonzaga is merely
subsidiary to that of Mauro A. Garrucho, limited lot No. 878 of the
cadastral survey of Murcia, Occidental Negros, described in Torrens
title No. 2415. However, inasmuch as the principal obligator, Mauro
A. Garrucho, has been absolved from the complaint and the plaintiff-
appellee has not appealed from the judgment absolving him, the law
does not afford any remedy whereby Paz Agudelo y Gonzaga may be
required to comply with the said subsidiary obligation in view of the
legal maxim that the accessory follows the principal. Wherefore, the
defendant herein should also be absolved from the complaint which
is hereby dismissed, with the costs against the appellee. So ordered.
G.R. No. L-8988 March 30, 1916
HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee,
vs.
MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as
administrator of the estate of Benito Legarda, deceased, and
BENITO VALDES, defendants and appellants. (See U.S. Supreme
Court decision in this same case., p. 985, post.)
Hausserman, Cohn & Fisher (and subsequently) Gilbert, Cohn &
Fisher, and Escaler & Salas and Ledesma, Lim & Irurreta Goyena for
appellants Legarda and Valdes.
No appearance for the other appellants.
Beaumont & Tenney and Aitken & DeSelms for appellee.
ARAULLO, J.:
Negotiations having been had, prior to December 4, 1911, between
W. Borck and Benito Valdes, relative to the purchase, at first, of a
part of the Nagtajan Hacienda, situated in the district of Sampaloc of
this city of Manila and belonging to Benito Legarda, and later on, of
the entire hacienda, said Benito Valdes, on the date above-
mentioned, addressed to said Borck the following letter (Exhibit E):
MANILA, December 4, 1911.
Mr. W. BORCK,
Real Estate Agent,
Manila, P.I.
SIR: In compliance with your request I herewith give you an option
for three months to buy the property of Mr. Benito Legarda known
as the Nagtahan Hacienda, situated in the district of Sampaloc,
Manila, and consisting of about, 1,993,000 sq. meters of land, for
the price of its assessed government valuation.
B. VALDES.
Subsequent to the said date, W. Borck addressed to Benito Valdes
several letters relative to the purchase and sale of the hacienda, and
as he did not obtain what he expected or believe he was entitled to
 LAW ON BUSINESS ORGANIZATIONS Cases 2 12

obtain from Valdes, he filed the complaint that originated these ambiguous, unintelligible and vague. This demurrer was overruled
proceedings, which was amended on the 10th of the following on April 11, 1912.
month, April, by bringing his action not only against Benito Valdes
but also against Benito Legarda, referred to in the letter above The defendant Benito Legarda also interposed a demurrer to the
quoted. amended complaint on the grounds that the facts therein set forth
did not constitute a right of action against him. This demurrer was
In said amended complaint it is alleged that the defendant Benito likewise overruled on June 26, 1912.
Legarda was the owners of fee simple of the Nagtajan Hacienda, and
that Benito Valdes was his attorney in fact and had acted as such on On the 22nd of the same month of June, the court, ruling on a
the occasions reffered to in the complaint by virtue of a power of petition made in voluntary insolvency proceedings brought on May
attorney duly executed under notarial seal and presented in the 10, 1912, by the plaintiff W. Borck, and in view of the agreement
office of the register of deeds, a copy of which, marked as Exhibit A, entered into in said proceedings by all of the latter's creditors,
was attached to the complaint; that on or above December 4, 1911, ordered that the plaintiff Borck be substituted in the instant
the defendant Benito Valdez gave to the plaintiff the document proceedings by Hartford Beaumont, as the trustee appointed
written and signed by him, Valdes, quoted at the beginning of this therein and representative of the said plaintiff's creditors, the
decision, to wit, the letter afore-mentioned, which document is assignee of his rights, in said proceedings.
inserted in the amendment to the complaint; that on January 19,
The defendant Benito Valdes, answering the complaint as amended,
1912, while the offer or option mentioned in said document still
denied each and all of the allegations thereof from paragraph 4,
stood, the plaintiff in writing accepted the terms of said offer and
except those which the admitted in the special defense, in which he
requested of Valdes to be allowed to inspect the property, titles and
alleged: (1) That the option given by him to the plaintiff was an
other documents pertaining to the property, and offered to pay to
option without consideration and subject to the approval of the
the defendant, immediately and in cash as soon as a reasonable
defendant Legarda; (2) that, as the defendant Legarda has not
examination could be made of said property titles and other
approved said option, it had no value whatever, according to the
documents, the price stipulated in the contract for
understanding and agreement between himself and the plaintiff; (3)
said hacienda which is also described in the complaint, as well as its
that the option offered by him to the plaintiff had not been
value and the revenue annually obtainable therefrom; that, in spite
accepted by the latter within a reasonable period of time nor during
of the frequent demands made by the plaintiff, the defendants ha
the time it was in force, in accordance with the conditions agreed
persistently refused to deliver to him the property titles and other
upon between the parties; (4) that he sighed the letter of December
documents relative to said property and to execute any instrument
4, in which he tendered to the plaintiff the option which has given
of conveyance thereof in his favor; that the plaintiff, on account of
rise to this suit, through deceit employed by the plaintiff with
said refusal on the part of the defendant Valdes, based on
respect to its contents, for the plaintiff had stated to him that it was
instructions from the defendant Legarda, had suffered damages in
written in accordance with what had been agreed upon by both
the amount of P760,000, and, by the tardiness, failure and refusal of
parties, without which statement he would not have signed it; (5)
the defend to comply with his obligation, the plaintiff had incurred
that the plaintiff, on the prior to January 19, 1912, was insolvent,
great expense and suffered great losses, whereby he was prejudiced
and had neither proven his solvency nor offered to pay the price in
in the mount of P80,000; that the plaintiff was and had been, on all
cash, as he had agreed to do; and (6) that he, Valdes, was merely a
occasions, willing to comply with the obligation imposed upon him
general attorney in fact of the defendant Benito Legarda and had no
to pay to the defendants the full stipulated price. The plaintiff
interest whatever in the subject-matter of the suit, nor in the
concluded by praying: (1) That the defendant Valdes be ordered to
litigation, and in all his acts had carried out the instructions of the
execute the necessary formal document as proof of the contract or
said Legarda. He finally prayed that the complaint be dismissed with
obligation before referred to, and to incorporate the same in a
costs against the plaintiff.
public instrument, and that the defendant Legarda be ordered to
convey in absolute sale to the plaintiff, either directly or through the
The defendant Benito Legarda, answering the complaint, denied
defendant Valdes, by a property deed, the said Nagtajan Hacienda,
each and all of the allegations thereof, from paragraph 3, except
described in the complaint; (2) that both defendants and each of
such as he expressly admitted and were contained in the special
them be ordered and required to render an account to the plaintiff
defense inserted in said answer, in which he alleged: (1) That his
of such rents and profits as they may have collected from the said
codefendant Benito Valdes, though his attorney-in-fact, had
property from the 19th of January, 1912, until the date of the
instructions not to give any option on the hacienda in question
execution of the judgment that may be rendered in these
without Legarda's previous knowledge and consent; (2) that on and
proceedings, together with legal interest on the amounts thereof;
before December 4, 1911, the plaintiff had knowledge of the scope
(3) that, in case it can shown that specific performance of the
and limitations of the powers conferred upon the defendant Valdes;
contract is impossible, that the defendant be ordered to pay the
(3) that the latter gave the option, alleged by the plaintiff, without
plaintiff damages in the sum of P760,000; and finally, that the
his (Legarda's) knowledge or consent, thus violating the instructions
plaintiff have recovered the interests and the costs in these
he had given to the said Valdes; (4) that he had disapproved and
proceedings.
rejected the option in question as soon as he had learned of it; (5)
that he had been informed, and therefore alleged as true, that the
While this complaint was not yet amended, the defendant Valdes
option said to have been executed in behalf of the plaintiff had been
filed a demurer, on the grounds that there was a misjoinder of
obtained by the latter by a false and malicious interruption of the
parties on account of the erroneous inclusion therein of the
letter of December 4, 1911, and that the plaintiff, availing himself of
defendant Valdes, that the complaint did not set forth fact that
such interpretation, induced the defendant Valdes to sign the said
constituted a cause of action against said defendant, and that it was
option; (6) that the option said to have been tendered to the

plaintiff had not been legally accepted; and (7) that on the
subsequently to January 19, 1912, the date on which, according to
the plaintiff, a tender of payment of the price of the
Nagtajan Hacienda, in accordance with its assessed value, was made
to his codefendant Valdes, as well as to the date of the answer, the
plaintiff was insolvent.
After the hearing, in which the respective parties presented their
evidence, the Court of First Instance of this city of Manila, on
February 12, 1912, rendered judgment in which he found; (1) That
the instrument Exhibit E that is, the letter of December 4, 1911,
quoted at the beginning of this decision), as supported by Exhibit A
(the power of attorney, a copy of which accompanied the complaint)
and as confirmed by Exhibit G (the letter of January 19, 1912,
addressed by the plaintiff Borck to the defendant Valdes, presented
in evidence at the trial and of which mention will be made
elsewhere herein), constituted a contract by which the principal
defendant undertook to convey to the plaintiff the property therein
described; (2) that the plaintiff made a sufficient tender of
performance, of his part, of the contract, in accordance with section
347 of the Code of Civil Procedure; (3) that the defendants had
failed to execute such conveyance in accordance with said contract,
and that the plaintiff was entitled to the specific performance
thereof, and to the net income, if any, obtained from the land since
January 19, 1912, but that he had not shown sufficient loss which
entitle him to additional damage unless it subsequently should
appear that a conveyance could not be made. The court accordingly
decreed: (1) That upon the payment by the plaintiff to the principal
defendant, Benito Legarda, or to the clerk of the court, of the sum of
P307,000, the said defendant, or his codefendant and attorney-in-
fact, should execute and deliver to the plaintiff good and sufficient
conveyance, free of all incumbrance, of the property described in
Exhibits B and C, attached to the plaintiffs complaint, so far as the
same was included within the terms of Exhibit G; (2) that upon the
said defendants' failure to execute such conveyance within a
reasonable time after such payment, the clear of the court should
execute one, and the same together with the decree, should
constitute a true conveyance; (3) that if for any sufficient reason
such conveyance could not then be made, the plaintiff should have
and recover from the defendant Legarda, as alternative damages,
the sum of P73,000, with interest thereon at 6 per cent per annum
from March 13, 1912; and (4) that the defendants should render an
accounting, within thirty days, of the income and profits derived
from said property since January 19, 1912, and pay the costs of the
proceedings.
The parties having being notified of this judgment, the defendant
Benito Legarda and Benito Valdes excepted thereto and at the same
time prayed that it be se aside and that they be granted a new trial
on the grounds that the judgment was not sufficiently supported by
the evidence and was contrary to law, and that the findings of fact
therein contained were manifestly and openly contrary to the
weight of the evidence. Their prayer having been denied by a ruling
to which they also excepted, they have brought these proceedings
on appeal to the Supreme Court by the proper bill of exceptions, and
have specified in their respective briefs several errors which they
allege the lower court committed. Some of these errors consist in
that the trial judge overruled the demurrer filed to the complaint;
others, in that he admitted certain evidence and excluded others,
this being the alleged cause of the erroneous consideration of the
instrument Exhibit E and of the rights and obligations derived from
LAW ON BUSINESS ORGANIZATIONS Cases 2 13
it, both with respect to the plaintiff and the two defendants' and still
others refer to the various statements in the judgment resulting
from those findings and on which the conclusions arrived at, have
been founded.
The defendant Benito Legarda also alleged, among the said errors,
as especially affecting his rights, that the court held that Benito
Valdes was his agent, empowered to execute contracts in his
(Legarda's) name in respect to real property; that the court admitted
in evidence the document Exhibit A, introduced by the plaintiff, to
wit, the copy of the power of attorney attached to the complaint,
which never was offered as such; and that he based one of his
findings thereon.
The defendant Benito Valdes specified, also particularly with
reference to himself, other errors consisting in the court having held
that he voluntarily executed the option in question, instead of
holding that it was obtained through fraud; and likewise in holding
that the document Exhibit E was a contract of option and not an
offer to sell, and in not holding that said option was an offer subject
to the approval of the defendant Legarda.
Inasmuch as it does not appear from the bill of exceptions that the
defendants recorded the exceptions to the overruling of the
demurrer respectively filed to the complaint by both defendants, the
assignment of error relative to the said ruling cannot be taken into
consideration by this Supreme Court.
The plaintiff's action is based on the failure of the defendant Valdes,
as the agent or attorney in fact of the other defendant Benito
Legarda, to perform the obligation contracted by the Benito Valdes
to sell to the plaintiff the property belonging to the said Legarda,
mentioned in the letter of December 4, 1911 (Exhibit E), within the
period and for the price specified therein; and the object or purpose
of these proceedings is to require fulfillment of the said obligation
and to secure the payment of a proper indemnity for damages to
the plaintiff because of its not having been duly and timely complied
with.
Inasmuch as it was set forth in the document Exhibit E that the
property known as the Nagtajan Hacienda, (an option to buy which
was given by the defendant Valdes to the plaintiff Borck) belonged
to Benito Legarda; as negotiations had been undertaken prior to the
execution of the said document, between the plaintiff Borck and the
defendant Valdes with respect to the maters set forth in that
document, by virtue of which Borck knew that Valdes was Legarda's
agent or attorney-in-fact, although it appears in said instrument that
the agent Valdes acted in his own name; and, further, as the plaintiff
in the complaint made the necessary allegations to explain the
relations that existed between the principal Legarda and the agent
Valdez with regard to the said document Exhibit E and the failure
alleged by the plaintiff, to fulfill the stipulations therein contained;
therefore, the facts alleged in the complaint did constitute a right of
action against either or both defendants, and the lower court did
not err in so holding, for, though the person who contracts with an
agent has no action against the principal, pursuant to article 1717 of
the Civil Code, when the agent acts in his own name, as in such a
case the agent would be directly liable to the person with whom he
contracted as if it were a personal matter of the agent's yet this does
not occur when the acts performed by the agent involved the
principal's own things, and in the document Exhibit E, which was
inserted in the complaint when the latter was amended, it appears

that the defendant Valdes, who signed the said document, stated
that the property, the option to buy which he gave to the plaintiff,
Borck, belonged to Legarda. And as it is unquestionable that,
pursuant to the above-cited provision of law, the action was
properly brought against Benito Legarda as Valdes' principal, it is
also unquestionable that Valdes was properly included in the
complaint as one of the defendant, for said article 1717, in providing
that in cases like the one here in question the person who
contracted with the agent has an action against the principal, does
not say that such person does not have, and cannot bring an action
against the agent also, and the silence of the statute on this point
should not be construed in that sense, when the rights and
obligations, — the matter brought into discussion by means of the
action prosecuted, — cannot be legally and juridically determined
without hearing both the principal and the agent.
Section 114 of the Code of Civil Procedure in force, treating of the
parties who should be included in an action as defendants, includes
any person who has or claims an interest in the controversy or the
subject-mater thereof adverse to the plaintiff, or who is a necessary
party to a complete determination or settlement of the questions
involved therein; and there can be no doubt whatever, and the
record itself shows, that the agent Benito Valdes was and in a
necessary party in these proceedings for the complete and proper
determination of the matter involved.
As one of the allegations of the complaint was that the defendant
Benito Valdes was the attorney in fact of Benito Legarda, the owner
of the Nagtajan Hacienda, the option to buy which was granted by
the said defendant Valdes to the plaintiff Borck, in the letter of
December 4, 1911, Exhibit E, there was attached to the complaint a
copy of the power of attorney marked Exhibit A, by virtue of which,
as therein also set forth, the defendant Benito Valdes, the attorney-
in-fact of Benito Legarda, in giving to the plaintiff the option to buy
the said hacienda, had acted according to the aforesaid document
Exhibit F, which was likewise inserted in the amended complaint as a
part thereof.
Inasmuch as the relation which, according to the plaintiff, existed
between Benito Legarda and Benito Valdes as to the obligation
contracted by means of Exhibit E, and the fulfillment thereof was
established by means of the said allegations, supported, as it
appeared, by the power of attorney Exhibit A, and by the letter or
document Exhibit E (which were made by the plaintiff a part of the
complaint), the joining of the copy of the power of attorney to the
complaint cannot be considered to have been done merely for the
purpose of attesting the personality of either of the defendants, but
to show the legal status of each of them in the obligation referred
to, in view of the terms of the document Exhibit E, the authority
under which the defendant Valdes acted in executing this document,
as well as the fact of hi having been granted such authority by the
defendant Legarda, by means of said power of attorney. So that as
said two documents, to wit, Exhibit A or the power of attorney
executed by Legarda in favor of Valdes, authorizing him to perform
various acts, among them, that of selling, exchanging, ceding,
admitting in payment or by way of compensation or in any other
manner acquiring or conveying all kinds of real property for such
prices and on such conditions he might deem proper, and the
document Exhibit E, or the letter setting forth the option given to
the plaintiff Valdes to buy the said Nagtajan Hacienda belonging to
Legarda, cannot be considered separately, in view of the allegations
LAW ON BUSINESS ORGANIZATIONS Cases 2 14
of the complaint and the action brought thereon against the two
defendants; and as said two documents, each of complement of the
other, constituted the basis of the action brought in the complaint,
and as their genuineness and due execution were not denied under
oath by either of the two defendants, as they might have done,
pursuant to section 103 of the Code of Civil Procedure, the plaintiff
was not obliged to present at the trial, as proof, the aforementioned
power of attorney to prove its existence and the fact of Valdes being
his attorney in fact, vested with the powers specified in this
instrument, notwithstanding the general denial made by the
defendant Legarda in his answer of the allegations contained in the
complaint from its third paragraph on, in which paragraph that
averment is made, supported by the copy of the said power of
attorney attached to the complaint.
On the contrary, as the said document Exhibit A constitutes prima
facie proof of the fact that Benito Valdes is the attorney-in-fact of
Benito Legarda, and that he is vested with the powers specified
therein, on account of Legarda's not having denied under oath the
genuiness and due execution of the said document, it was therefore
incumbent upon Legarda himself to prove that he had not executed
the said power of attorney in Valdes' favor and that he had not
conferred upon him, by virtue thereof, the powers therein
mentioned. (Merchant vs. International Banking Corporation, 6 Phil.,
314; Papa vs. Martinez, 12 Phil., 613; Chinese Chamber of
Commerce vs. Pua Te Ching, 14 Phil., 222; Banco Espanol-
Filipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125
Cal., 198; McCormick Harvesting Machine Co., vs. Doucette, 61
Minn., 40.)
The lower court, therefore, did not err in holding that Benito Valdes
was the agent of Benito Legarda, vested with powers to execute
contracts for the sale of real estate in the latter's name; nor in
considering as proof the power of attorney, the plaintiff's Exhibit A,
and making it the basis of one of the conclusions of the judgment,
notwithstand that it was not offered as such proof by the plaintiff.
Consequently, the court likewise did not err in admitting the
evidence introduced by the plaintiff himself to show the existence of
the contractual obligation on the part of the defendant Legarda, as
principal of the other defendant, Valdes, and which was contended
by the plaintiff to be one of the grounds of the action brought in this
complaint against the two defendants.
It is unquestionable that, by means of the document Exhibit E, to
wit, the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda belonging to Benito
Legarda, during the period of three months and for its assessed
valuation, a grant which necessarily implied the offer or obligation
on the part of the defendant Valdes to sell to Borck the
said hacienda during the period and for the price mentioned, and as
the grant made by Valdes to Borck in the said letter was made as a
result of the requests of Borck himself, as stated in the letter, and of
the negotiations previously entered into between the latter and
Valdes with respect to the purchase of the hacienda, as shown in the
letter of the 2d of the same month of December, that is, the letter
which two days before was addressed by Borck to Valdes, Exhibit C,
the terms of the said document Exhibit E appear to be of the nature
of an option contract between Valdes and Borck, inasmuch as, by
means of said document, the former finally accepted the
propositions of the latter with respect to the granting of that right to

Borck. There was, therefore a meeting of minds on the part of the
one and the other, with regard to the stipulations made in the said
document. But it is not shown that there was any cause or
consideration for that agreement, and this omission is a bar which
precludes our holding that the stipulations contained in Exhibit E is a
contract of option, for, pursuant to article 121 of the Civil Code,
there can be no contract without the requisite, among others, of the
cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a
contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from, or selling to,
B certain securities or properties within a limited time at a specified
price. (Story vs.Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the
case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17)
the following quotation has been taken:
An agreement in writing to give a person the `option' to purchase
lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for the receive lands if he
elects. The owner parts with his right to sell his lands, except to the
second party, for a limited period. The second party receives this
right, or, rather, from his point of view, he receives the right to elect
to buy.
But the two definitions above cited refer to the contract of option,
or, what amounts to the same thing, to the case where there was
cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was
no such cause or consideration.
The lower court in the judgment appealed from said:
There is some discussion in the briefs as to whether this instrument
constitutes a mere offer to sell or an actual contract of option. In
terms it purports to be the latter and in fact recites the acceptance
of a "request" or offer, by the plaintiff. But viewing the instrument
as in itself no more than an offer, it was at least a continuing one,
"for three months," and as it is not claimed to have been withdrawn
during that period, nor afterward, the plaintiff could at any time
enter into an actual contract, if it were not such already, by mere
acceptance.
So the, the lower court did not insist that, by the said document
Exhibit E, a real contract of option was executed. He stated that it
was at least a continuing offer for three months — an offer which it
was neither alleged nor proven to have been withdrawn during that
period — and held that but the plaintiff's mere acceptance at any
time during the course of said period, the terms of the said
document became a contract, if such it were not already.
LAW ON BUSINESS ORGANIZATIONS Cases 2 15
There is therefor no foundation for the third assignment of error
made by the defendant Valdes, to wit, that the lower court erred in
holding that the document Exhibit E was a contract of option and
not an offer to sell.
A certainly this document Exhibit E contains an offer or promise on
the part of the defendant Valdes, who signed it, to sell
the hacienda in question to the plaintiff Borck, at its assessed
valuation, to whom was granted three months within which to make
use of his right to purchase the property. In order that such an offer,
or proposal, or promise on the part of Valdes, to sell the
said hacienda might be converted into a binding contract for him
and for Borck, it was necessary that the latter should have accepted
the offer, by making use of the right thereby granted him, within the
period stipulated, and paying the price agreed upon in that
document.
Referring particularly to the sale of real estate, there is in fact
practically no difference between a contract of option to purchase
land and an offer or promise to sell it. In both cases the purchaser
has the right to decide whether he will buy the land, and that right
becomes a contract when it is exercised, or, what amounts to the
same thing, when use is made of the option, or when the offer or
promise to sell the property is accepted in conformity with the
terms and conditions specified in such option, offer, or promise.
An option for the purchase of a real estate is merely a right of
election to purchase which when exercised, by comes a contract.
(Hopwood vs. McCausland, 120 Iowa, 218.)
So that in the case at bar it is immaterial whether the contents of
the document be considered as an option granted by the defendant
Valdes to the plaintiff to purchase the Nagtajan Hacienda, or as an
offer or promise on the part of the former to sell the estate to the
latter within the period and for the price specified in Exhibit E.
In the defendants' answer no concrete allegation was made that
either of them had withdrawn said offer to sell, but the defendant
Valdes introduced evidence to prove that the withdrawal of the
offer was made before the plaintiff had accepted it, that is, before
January 17, 1912, and for this purpose presented a letter from the
defendant Legarda (p. 103, part 1 of the record), dated November
13, 1911, and addressed from Paris to Mauro Prieto, also one of
Legarda's attorneys in fact. In this letter Legarda stated to Prieto,
among other things, that, with reference to the steps taken by Borck
for the purchase of the Nagtajan Hacienda, the addressee might say
to Borck that the writer was not very anxious to sell the property
except for a price greater than P400,000 in cash. The defendant
Valdes testified that the contents of this letter were communicated
by him to Borck, though he did not state positively on what date.
Valdes also presented the witnesses Alejandro Roces and Jose E.
Alemany. The first testified that sometime during the second half of
January, on an occasion when he was in Dr. Valdes' office, he heard
the latter and Borck speaking, and that Borck said something to Dr.
Valdes about P300,000, and that it would be difficult to find a
purchaser for cash; and that he also heard them talk about
P400,000. The second witness, Dr. Jose E. Alemany, also testified
that about the 12th or 15th of January, at a time when he was in Dr.
Valdes' office, he heard a conversation between Valdes and Borck in
which the former said to the latter that what Borck wanted was
impossible, and that the latter replied to Valdes that it was very

dear, that he did not want it, that he did not have the money. On
this occasion, this witness also heard them talking about P400,000.
As the record does not show positively that the defendant Valdes,
on the occasion above referred to, told the plaintiff Borck that he
(Valdes) withdrew the offer of sale contained in the document
Exhibit E, for here merely communicated to Borck the contents of
the said letter from Legarda to Prieto, as the date when he did this
does not appear; and as the statements made by the witnesses with
regard to the conversation they heard between Valdes and Borck
are vague and as it cannot be deduced therefrom that such
statements referred expressly to the fact that Valdes withdrew the
offer on that occasion, it must be concluded that there is no proof
on this point. But, though it had been proven that the withdrawal of
the offer was made in the month of December, 1911, or before
January 17, 1912, as stated by Valdes' counsel in his brief, such a fact
could not be a bar to, or annul the acceptance by the plaintiff Borck,
of said offer on any date prior to the expiration of the three months
fixed in the document Exhibit E, to wit, March 4, 1912, because the
offer or promise to sell therein contained was not made without
period or limitation whatever (in which case Valdes might have
withdrawn it and the latter have accepted it at nay time until it was
withdrawn) but for three months, that is, for a specific period of
time; and, as the plaintiff Borck had a right to accept the offer during
that period, it was Valdes' corresponding duty not to withdraw the
offer during the same period. Therefore the withdrawal of the offer
claimed to have been made by this defendant was null and void.
Consequently, the lower court did not err in holding that the offer
and not been withdrawn during the three months mentioned and
that it could be converted into a real contract by the plaintiff Borck's
mere acceptance within the same period.
One of the allegations made by the plaintiff in the complaint, as we
have seen, is that on January 19, 1912, while the said offer was still
open, the plaintiff accepted it in writing, in conformity with its
terms, and requested permission of the defendant Valdes to inspect
the property titles and other documents pertaining to the estate,
and offered to pay the defendant Valdes as soon as a reasonable
examination could be made of the said property titles and other
documents, immediately and in cash the price stipulated and agreed
upon in the contract for the said stipulated and agreed upon in the
contract for the said hacienda. To prove this allegation, the plaintiff
presented the document Exhibit G, which reads as follows:
MANILA, January 19, 1912.
DR. BENITO VALDES,
195 San Sebastian,
City.
SIR: I hereby advise you that I am ready to purchase
the Hacienda Nagtahan, situated in the district of Sampaloc and
Nagtahan, Manila, and in the Province of Rizal, consisting of about
1,993,000, square meters of land, property of Mr. Benito Legarda,
for the sum of three hundred and seven thousand (307,000) pesos
Ph. c. the price quoted in the option given my by you.
Full payment will be made on or before the third day of March 1912,
provided all documents in connection with the Hacienda Nagtahan,
as Torrens title deed, contracts of leases and other matters be
LAW ON BUSINESS ORGANIZATIONS Cases 2 16
immediately placed at my disposal for inspection and if such papers
have been found in good order.
Very truly yours,
W. BORCK.
In the preceding letter that plaintiff in fact did state that he accepted
the offer made to him or the option given to him by the defendant
Valdes in the document or letter of December 4, 1911, Exhibit E, for,
even though it was not stated therein what option it was that was
mentioned in the said letter it is unquestionable that it could refer
to no other than to the option or offer mentioned in the said Exhibit
E, as no other was then pending between the plaintiff and this
defendant.
But aside from the fact that the complete payment of the P307,000
mentioned in the said letter was made to depend on the condition
that all the documents relative to the Nagtahan Hacienda, such as
the Torrens title, etc., be immediately placed at the plaintiff's
disposal for his inspection, and be found satisfactory, the said tender
of payment was offered to be made on or before March 3, 1912.
A simple statement of the last part of the letter is enough to
convince that the plaintiff did not offer to pay, immediately and in
cash to the defendant Valdes as he alleged in his complaint, the
price stipulated and agreed upon between themselves in the said
document Exhibit E. Of court, it is undeniable that the plaintiff Borck
had a right to examine the title deed and all the documents relative
to the Nagtajan Hacienda, before the sale of the property should be
consummated by means of the execution of the proper deed of
conveyance in his favor by the defendant Valdes as the attorney-in-
fact of the other defendant Legarda, and, consequently, the plaintiff
Borck was also entitled to refrain from making payment as long as
he should not find the documents relative to the said property
complete and satisfactory, an indispensable condition in order that
the said deed of conveyance might be executed in his favor. But at
the very moment this instrument was executed and signed by the
vendor, the payment of the stipulated price should have been made
in order that it might be an immediate cash payment. Pursuant to
the language of that part of the document or letter Exhibit G to
which we now refer in respect to the payment, it cannot be
understood that the plaintiff tendered payment to the defendant
immediately and in cash, for the simple reason that if the
documents had been placed by the defendant at the plaintiff's
disposal for his inspection, for example, on January 20th, the day
following the date of the letter Exhibit G, and the plaintiff had
examined and found them satisfactory, and the defendant Valdes
had executed in the plaintiff's favor the proper deed of conveyance
or sale of the hacienda on the 25th of the same month of January,
according to the exact terms of the letter of acceptance of the offer,
Exhibit G, dated January 19, 1912, the plaintiff, that is, the purchaser
Borck, could have made full payment to the defendant Valdes, of the
P307,000, the price of the property, on the 3d of March, 1912, or on
any date on which the deed of conveyance was issued, from the
25th of January up to the said 3d day of March, for nothing else can
be understood by, and no other meaning and scope can attach to,
the words "full payment will be made on or before the third day of
March 1912." In short, by the way the part of said document Exhibit
G relative to the offer of payment in the example above given is
drawn, the purchaser Borck might pay the stipulated price of the

property, or have the period from the 25th of January to the 3d of
March within which to pay it, and meanwhile the ownership of the
estate would already have been conveyed, by means of the proper
deed, to the purchaser Borck, and he could not have been obliged to
pay the said price until the very day of March 3, 1912, by reason of
the contents of the said letter, Exhibit G.
In connection with the allegation we have just been discussing, to
wit, that the plaintiff Borck made a tender of payment to the
defendant Valdes "immediately and in cash" of the price of
the hacienda fixed in the instrument Exhibit G, the plaintiff also
presented as proof, in relation to the allegation as to the
presentation of the letter of January 19, 1912, Exhibit G, another
letter written by himself, and also addressed to the defendant
Valdes, under date of the 23rd of the same month of January This
document is marked Exhibit J and is of the following tenor:
January 23, 1912.
DR. BENITO VALDES,
195 Calle San Sebastian,
City.
SIR. I have the pleasure to inform you that I can improve the
conditions of payment for the Hacienda Nagtahan in so far as to
agree to pay the whole amount of purchase price, three hundred
and seven thousand (307,000) pesos, Ph., c., ten days after the
Torrens title deeds and all papers in connection with
the hacienda have been placed at my disposal for inspection and
these documents and papers have been found in good order.
Respectfully yours,
As may be seen by the language in which the preceding letter is
couched, the plaintiff virtually recognized, just as he had done in the
letter of January 19th, that is, the one written four days before,
Exhibit G, that the tender of payment to the defendant Valdes, of
the price of the hacienda, could not be understood to have been a
tender of "immediate and cash" payment, as alleged in the
complaint, but that payment might be made on any date prior to
March 3, or on this same date, even though he may have found
satisfactory all the documents that the defendant might have placed
at his disposal to be examined, and consequently, although the
proper deed of conveyance of the property should have been
executed in his favor. Nothing else is meant by the statement made
by the plaintiff Borck to the defendant Valdes in the letter of January
23, Exhibit J, that he had the pleasure to inform him that he could
improve the conditions of payment for the Hacienda Nagtajan in so
far as to agree to pay the whole amount of purchase price,
P307,000, ten days after the Torrens title deeds and all papers in
connection with the hacienda should have been placed at his
disposal for inspection and should have been found satisfactory, for
the payment which Borck offered to make to Valdes, of the price of
the property, in said letter Exhibit J, was not indeed to be effected
on the third of March or prior thereto, but within the limited period
of ten days after the documents-relative to the property should
have been delivered to the plaintiff for his inspection and been
found satisfactory. And were they any doubt that the meaning or
the sense; of said offer was not as just above stated, it would be
removed by a mere perusal of the statement made therein by the
plaintiff telling the defendant Valdes that he, the former, had the
LAW ON BUSINESS ORGANIZATIONS Cases 2 17
pleasure to inform he latter that he, Borck, could improve the
conditions of payment for the hacienda, to wit, those mentioned in
the letter written' four days before, that is, on January 19th, Exhibit
G, in the manner aforementioned by paying the whole amount of
the purchase price ten days after the documents should have been
delivered to the plaintiff and he should have found them
satisfactory.
But, the letter of January 23, Exhibit J, is drawn up_in such a way
that it also does not contain any tender of "immediate and cash"
payment by the plaintiff Borck to the defendant Valdes.
Indeed, as said letter makes the total payment of the price of the
property depend on the delivery by the defendant Valdes to the
plaintiff Borck of all the documents relative to the hacienda, and of
the further condition that, the latter should find such documents in
good order and satisfactory, and as a period of ten days was fixed
for the said payment, counting from the date of the delivery of the
documents, and on the condition that Borck should find them
satisfactory, the date of payment cannot be-understood to have
been fixed for any certain day after those ten days, or for the
eleventh day, for the simple reason that, for example, if the
documents were delivered to Borck on February 1 for his inspection,
and after the lapse of ten days thereafter he had not finished
examining them and had kept them in his possession for this
purpose for ten days longer, that is, until February 20, and then had
found them satisfactory, the result would be that the payment
would have had to be made, not ten days, but twenty days, after the
delivery of the said documents, and this would have been
authorized by the ambiguous terms in which the tender of payment
are couched.
But supposing that as appears to be the case, it had been the
purpose of the plaintiff Borck, in fixing those ten days in the letter
Exhibit J, for the payment, that there should be an interval of said
ten days between the delivery and inspection of the said titles and
the determination of whether they were satisfactory or not, it might
also have happened that on the third day after the delivery of the
titles, these might have been found by the purchaser to be
satisfactory, and that the vendor might immediately have executed
the proper deed of conveyance of the property in the purchaser's
favor. In that event, according to the terms of said letter Exhibit J,
the purchaser Borck would not be obliged to make payment to the
vendor Valdes until seven days after the execution of the deed of
conveyance and the transfer of the property to the former that is,
not until the expiration of the period of ten days counting from the
date of the delivery of the documents to‚the purchaser; and it is
evident that such a payment would not be in cash, pursuant to the
provisions of article 1462, in connection with article 1500, of the
Civil Code.
Furthermore: The plaintiff Borck also presented another letter in
connection with his aforementioned allegation made in the
complaint, and related to the other two previous letters, Exhibit G
and J, to prove what he had intended to accomplish by means of the
latter, to wit, that the tender of payment made by him to the
defendant was made in accordance with the said allegation,
"immediately and in cash."
This letter (Exhibit K) bears the date of February 28,t1912, and reads
as follows:

MANILA, P.I., February 28, 1912.
DR. BENITO VALDES,
Attorney-in-fact for Benito Legarda
Manila.
DEAR SIR: To prevent any misunderstanding, I wish to advise you
that the purchase price of the Hacienda Nagtahan is ready to be paid
over to you, and I request you to notify me whenever it is
convenient for you to place at my disposal for inspection the title
deed and papers in connection with said estate.
Very respectfully,
W. BORCK.
As may also be seen by the very terms employed by the-plaintiff in
this letter, he virtually admits, clearly acknowledges, that in the two
previous letters, Exhibits G and J, he had made the tender of
payment of the price for the Nagtajan Hacienda in such a manner
that it could not be understood to have been in accordance with the
agreement entered into between himself and Valdes, that is, that
the payment should be in cash.
The letter Exhibit K in fact begins with these words:
"To prevent any misunderstanding." and then says: I wish to advise
you that the purchase price for the Hacienda Nagtahan is ready to
be paid over to you, and request you to notify me whenever it is
convenient for you to place at my disposal for inspection the title
deed and papers in connection with said estate.
The first words of the letter of course indicate that the plaintiff
Borck himself, in writing them, feared, at least the was not sure,
that, in accepting, in the letter of January 19th, Exhibit G, the offer
of the sale of the hacienda to him by Valdes, and in making therein
the tender of payment band in renewing this tender in the letter,
Exhibit J, of the 23 of the same month, he, the plaintiff, had not
conformed to the terms of the offer of sale or of the option to buy,
given to him by Valdes by means of the document Exhibit E, for in
the said last letter, Exhibit K, he takes it for granted that there was
or might be some misunderstanding between himself and the
defendant Valdes with)respect to the tender made by him of the
price of the estate. According to the admission of the plaintiff Borck
in his complaint, this price was to be paid "at one and in cash." In
the said letter Exhibit K, to avoid that misunderstanding, the plaintiff
Borck stated to the defendant Valdes that the purchase price for
the hacienda was ready to be paid over to hi, and requested to be
notified by Valdes when it would be convenient for him to place at
the plaintiff's disposal for inspection the title deed and papers in
connection with said estate.
The notification contained in this letter written by Borck to Valdes,
that the purchase price of the estate was ready to be paid over to
the latter, and the mention made in this same letter, immediately
after the notification, of the inspection which the plaintiff wished to
make of the titles which he desired should be delivered to him for
this purpose, show that this last letter, Exhibit K, relates to the one
that preceded it, dated January 23, Exhibit J, or, what amounts to
the same thing, is a result of it, for it is virtually said therein that the
price of P307,000 (which according to his previous letter, he had
LAW ON BUSINESS ORGANIZATIONS Cases 2 18
agreed to pay for the hacienda, ten days after the delivery to him of
the documents relative to the estate and their having been found by
him to be satisfactory) was already held in readiness by the plaintiff
for delivery to the defendant, but this delivery of the price was
subordinated to the delivery requested by the plaintiff to those titles
and other documents,‚and to the plaintiff's finding such documents
satisfactory, and the delivery of the price was also subordinate to
the period of the ten days, mentioned in the said letter Exhibit J. The
letter Exhibit K can have no meaning„whatever in that part thereof
where reference is made to»the offer of payment of the price of
the hacienda, or to the payment itself, except in connection with the
previous Exhibit J, inasmuch as the letter Exhibit K does not state
when Borck was to deliver to Valdes the price which, according to
this same letter, the plaintiff already had in readiness for that
purpose. So that neither in the letter Exhibit K is any specific offer of
payment made by the plaintiff Borck to the defendant Valdes, of the
price stipulated in the document Exhibit E to be paid "at open and in
cash," notwithstanding its being said therein that the plaintiff had
the money ready to be turned over to the defendant.
Upon the plaintiff Borck's testifying at the trial as witness, said
documents Exhibits E, G., J, and K, and also others marked from A to
M, including the four just referred to, were presented in evidence.
Among these documents is found Exhibit F, which reads as follows:
MANILA, January 17, 1912.
DR. BENITO VALDES,
194 San Sebastian,
City.
SIR: In reference to our negotiations regarding the Hacienda
Nagtahan at Manila, property of Mr. Benito Legarda, consisting of
about 1,993,000 sq. meters of land, I offer to purchase said property
for the sum of three hundred and seven thousand (307,000) pesos P.
c., cash, net to you, payable the first day of May 1912 or before and
with delivery of a Torrens title free of all encumbrances as taxes and
other debts.
Respectfully,
YOURS,
On said documents being presented in evidence at the trial, the
defendants objected to their admission; the court reserved his
decision thereon and in the judgment appealed from made no
mention as to the contents of said document‚Exhibit F, and in ruling
on the defendants' motion for a new trial, in which motion they
signed as one of the error of the said judgment the fact that no
notice whatever had been taken therein of the said Exhibit F, which
defendants claimed to be one of the their most important proofs,
the court stated as a reason for the omission that this Exhibit F was
unsigned, unidentified and was not attested by anyone, besides the
fact that no conclusion, either in favor‚of or against the plaintiff,
could be based on its because, although the said letter, that is,
Exhibit F, might have been actually delivered, no right whatever
could be predicated thereon, nor any liability, and it was, therefore,
inadmissible.
The record shows that when Exhibit F and Exhibits G, J, K, L, and M,
were shown to the defendant Valdes by the plaintiff's counsel

Beaumont, for their identification and in order that Valdes might
state to the court whether he had received the originals and, if so,
where they were, defendant merely said in reply that he had
received three originals from Borck and two originals from
Beaumont (p. 14 of the transcription of the stenographic notes), and
exhibited the originals of Exhibits C, M. L., K, and G, but not that
of‚Exhibit F. The plaintiff Borck having been presented as a witness,
after he had been asked the first four questions by Attorney
Hartford Beaumont, the latter made the following statement: "I
would like to interrupt the witness at this moment in order to
present all the Exhibits A to M, which were identified by the
previous witness." Counsel for the defendant Legarda objected to
the admission of the said documents on the ground that they were
incompetent, immaterial and irrelevant. The same objection was
also made by counsel for the defendant Valdes in behalf of his client,
and the court said that he would reserve his decision (pp. 24 and 25
of the record).
During the examination of plaintiff Borck, in which Attorney
Beaumont plied him with questions in regard to the aforementioned
documents, beginning with Exhibit A and showed him the
documents themselves, on coming to Exhibit F, after having given
attention to other exhibits among which was Exhibit O, which we
shall mention later on, the plaintiff answered the questions put to
him with respect to Exhibit F in the following manner as found in the
transcription of the stenographic notes in English(p. 61 on the
record):
Q. Now I will show you Exhibit F, and call you attention to the
fact that it has the same date, January 17, as Exhibit O, and ask you
to state the circumstances under which Exhibit O was signed —
A. This is may acceptance of the option of Dr. Valdes.
Q. How does it happen that it has the same date as Exhibit O? —
A. Because I don't believe in hanging back with my business. I
conclude it as soon as possible. As soon as I got the offer, I made my
acceptance to Dr. Valdes.
The document Exhibit F, as has been seen, is unsigned but the
document Exhibit J, to wit, the aforementioned letter of January 23,
1912, is in the same condition. It is true that although the document
Exhibit J is unsigned because it is a copy of the letter addressed on
that same date to Valdes by Borck, Valdes kept the original in his
possession and he did not present the original of Exhibit Fibut only
the other letters before mentioned, although he stated with
reference to the letter he had received from Borck, that as he was
not a business man and was not acquainted with that kind of
business, he sometimes read the letters and, after taking notes of
their contents, transmitted their substance to Mr. Legarda, and at
other times sent to him the letters themselves, from which
testimony of Valdes it is concluded that he was not in the habit of
keeping the originals he received from Borck. However, as has
already been seen, notwithstanding that Exhibit F was not identified
by Valdes, the plaintiff Borck, However, as has already been seen,
notwithstanding that Exhibit F was not identified by Valdes, the
plaintiff Borck, referring to the said document on its being shown to
him by his attorney, who called his attention to the fact that it has
the same date, January 17, as Exhibit O, and asked him to state the
circumstances under which Exhibit O was signed, said that Exhibit F
was his acceptance of Dr. Valdes' option; and in answering the next
LAW ON BUSINESS ORGANIZATIONS Cases 2 19
question, explained the reason why Exhibit F bore the same date as
Exhibit O, saying that "he did not believe in hanging‹back with his
business;" that he "concluded it as soon as possible;" and that "as
soon as he got the offer, he made his acceptance to Dr. Valdes."
Exhibit O is as follows:
MANILA, January 17, 1912.
W. BORCK, Esq.,
Manila.
DEAR SIR: Referring to our recent conversation regarding_the
proposed purchase by clients of ours of the property known as the
Hacienda Nagtajan, I beg to advise you that our clients, after
investigation of the physical conditions of the property, are
prepared to make an offer for the purchase of the same at the price
named by you, to wit, P380,000, cash, provided that there is good
titled to the property, that it contains substantially and area
represented, namely, 1,993,000 square meters, and that the existing
leases upon certain portions of the said property are found to be in
proper form. It is the desire of our clients to have an opportunity to
investigate the legality of_the title and leases at the earliest
practicable moment, and they have authorized us to say that if the
conditions are satisfactory with regard to these matters, they are
prepared to make you a firm offer of the amount above named, and
to make a deposit of a reasonable amount as an evidence of good
faith.
Very truly yours,
BRUCE LAWRENCE, ROSS, AND BLOCK,
"JAMES ROSS."
Connecting the contents of this document Exhibit O with those of
the previous Exhibit F, and taking into account the testimony given
by Borck, as above quoted, in answering the questions put to him by
his own attorney, relative to the said exhibits, it is clearly
understood that on Borck's receiving the letter of January 17m 1912,
from the law firm of Bruce, Lawrence, Ross and Block, and signed by
James Ross, Exhibit O, in which these gentlemen stated that they
were prepared to make an offer for the purchase of the Hacienda
Nagtajan at the price of P380,000 cash, he wrote on the same date,
January 17, to Dr. Valdes the letter, a copy of which is Exhibit F, in
which, referring to the negotiations between them regarding the
said Nagtajan Hacienda, he offered to purchase this property for
P307,000, cash and net, payable on or before the first day of May,
1912, delivery to be made to him to a Torrens title free of all
encumbrance, such as taxes and other debts. For this reason the
plaintiff Borck stated in his testimony that the said letter Exhibit F
was his acceptance of Dr. Valdes option, for, not believing in hanging
back with his business and desiring to conclude it as soon as
possible, as soon as he received the officer, contained in the letter
Exhibit O, from the said law firm, he transmitted or made known his
acceptance to Dr. Valdes.
We do not think there could be a better identification of the letter
Exhibit F than that made by it sown writer, the plaintiff Borck, for he
admitted in his testimony that he wrote this letter, and although the
defendant Valdes did not present the original of the said letter
Exhibit F, perhaps because it was one of those which he did not keep

in his possession, there can be no doubt whatever that the original
of the said Exhibit F was transmitted to Valdes by the plaintiff Borck,
of the latter explicitly said so in stating that letter was his
acceptance of Dr. Valdes' option, the plaintiff explaining why he had
written said letter, on referring to the relation between said Exhibit
F and the Exhibit C, on account of the same date both letters bore,
on making further explanations in the matter, hand saying: "As soon
as I got the offer, I made my acceptance to Dr. Valdes."
Furthermore, if there were still any doubt whatever about this, it
would disappear after a consideration of the following quotation
taken from the plaintiff's written brief file before the lower court
rendered judgment, in which mention is made of the said brief and
of the questions discussed therein said brief is found on pages 190
to 206 of the record and is signed, by the plaintiff's attorneys, Aitken
and Beaumont.
On page 195 thereof, appears the following:
3. THE ACCEPTANCE.
On the 17th of January, 1912, Mr. Borck received a written offer
(Exhibit O) for the property from Mr. James Ross of this city for the
price of P380,000 and thereupon on the same day wrote Dr. Valdes
the letter which appears as Exhibit T (pp. 56, 169 of the record). No
question arises as to the validity of this acceptance for reasons
which will presently appear. . . .
As may be seen, in the paragraph of that brief signed by the
plaintiff's attorney there is a restatement of what the plaintiff had
said in his testimony, to with, that as soon as he received, on
January 17, 1912, a written offer Exhibit O, from Mr. James Ross of
this city for the property in question and for the price of P380,000,
he wrote on the same day the letter of Dr. Valdes that appears as
Exhibit T (pp. 56, 169, of the record). In this same brief the
statement was also made that no question had arisen as to the
validity of this acceptance, for the reasons which would presently
appear.
It is to be noted that Exhibit T, mentioned in the preceding
paragraph transcribed from the brief, is the same Exhibit F, which
was erroneously marked with the letter T in the said paragraph, as
shown by the fact that in this paragraph Exhibit T is referred to as
being found on page 56 of the record, which page containes Exhibit
F, and on page 169 of the record, which contains a copy of the same
Exhibit F,_the date of this latter exhibit, January 17, being also that
of the Exhibit O, mentioned in the said brief.
The trial court therefore erred in not admitting in evidence‚said
document Exhibit F and, consequently, in not taking it into
consideration in the judgment appealed from. This rejection cannot
be warranted by the fact that the defendants themselves opposed
its admission, for the latter also opposed the admission of all the
documents presented by the plaintiff, on the understanding that, as
they were not bound by the documents Exhibits A and E, the one as
principal and the other as agent, such documents were immaterial,
incompetent and irrelevant, nevertheless the trial court admitted
some of those documents and considered them for the purpose of
drawing his conclusions in the judgment rendered.
It is hardly necessary now to show that said letter of January 17,
1912 (Exhibit F) was Borck's acceptance of the option or offer of sale
made to him by the defendant Valdes in his letter of December 4,
LAW ON BUSINESS ORGANIZATIONS Cases 2 20
1911 (Exhibit E), for the plaintiff Borck himself admitted in his
testimony at the trial that the letter Exhibit F was his acceptance of
said option.
In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the
negotiations between himself and Valdes regarding the Nagtajan
Hacienda belonging to Benito Legarda, offers to purchase said
property for the sum of P307,000, cash and net, payable the first day
of May 1912, or before, the plaintiff to be furnished with a Torrens
title free of all encumbrances, such as taxes and other debts. The
offer of sale or option of purchase contained in the document
Exhibit E, was for the period of three months, from December 4,
1911, for the assessed valuation of the property, understood to be
P307,000, though subsequently at the trial it was fixed by
agreement of the parties at P306,954 and payment was to be made
in cash, for, even though this was not stated in the document, that
failure itself so to state created the understanding that the price was
to be paid in cash when delivery of the property was made, in
accordance with the provisions of article 1462, in connection with
article 1500, of the Civil Code. The plaintiff Borck recognized this in
his complaint, in making the allegation we considered at the
beginning of this decision, to with, that he accepted in writing the
said offer in conformity with its terms and offered to pay to the said
Valdes, "immediately and in cash" the price stipulated; and he also
so testified at«the trial, saying, in reference to the conditions of the
payment of the purchase price, that "the conditions were not
discussed, because the payment was to be made in cash on
exhibition of the documents." Now then, in the document Exhibit F,
that is, the letter of January 17, 1912, it is stated that payment of
the net amount would be made in cash on_the first day of May,
1912, or before. So that it may be said with all the more reason that
in relation to the other offers of payment contained in the
documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff
Borck, in accepting the offer of sale, did not make an offer to pay the
price "immediately and in cash," as stated in his allegation set forth
in the complaint, for, by virtue of the said documents, he reserved
to himself the right to make the payment on the first day of May,
1912, or on any date prior thereto, as might suit him, that i, two
months after the termination of the option or of the offer, which
would be, on or before March 4, 1912, although the deed of
conveyance of the property in his favor should have been executed
by the defendant Valdes on any date within the period of the option,
that is, within the three months which ended on the said 4th day of
March, 1912, whereby the plaintiff virtually gave himself five
months from the date of the offer of sale or option of purchase, to
effect the said payment. This is evidently not an offer to pay
"immediately and in cash," nor is it a payment in cash, as the law
provides, nor such a payment as the plaintiff Borck himself
understood it to be, when he stated in his testimony that the
payment was to be made in cash upon exhibition of the documents.
Duly considering the documents Exhibits F, G, J, and‚k, that is, the
statements made by the plaintiff Borck in the letter of January 17, 19
and 23, 1912, and February 28th of the same year, addressed by him
to the defendant Valdes, in accepting the option that the latter had
granted him for the purchase of the Nagtajan Hacienda, or the offer
of sale of the said hacienda defendant made to the plaintiff, with
respect to the payment of the price therof, it is seen that in the said
documents the plaintiff Borck offered to pay to the defendant
Valdes the said price, first within the period of five months from
December 4, 1911, afterwards within the terms of three months

from the same date of December 4, and, finally, within a period
which could as well be ten days as twenty or thirty of more days
from the time Valdes should put at the plaintiff's disposal to be
inspected, the titles and other documents relative to the
said hacienda, and the plaintiff should find them satisfactory and the
proper deed of conveyance should, in consequence thereof, be
executed in his favor by Valdes; and this evidently is an offer of
payment in installments, and not an "immediate and cash" payment.
The lower court in the judgment appealed from says that as the
document Exhibit E, dated December 4, 1911, gave the plaintiff a
three months' option for the purchase of the property, a period
which expired, therefore, on March 4, 1912, this necessarily allowed
the plaintiff them for the payment until this last date, and as in the
letter Exhibit G, of the date of January 19, 1912, the plaintiff said
that he would pay before the expiration of the said period, in no
manner could this have modified the option, rather, on the contrary,
it coincided with it, the court adding, moreover, that a payment
made on or before the 4th of March would have been a payment in
cash, if this was required by Exhibit E.
It is true that the period granted by the defendant Valdes to the
plaintiff for purchasing the property, was three months from
December 4, 1912, but not because this period expired on March 4,
1912, that is, the last day of the said three months, may it be
understood that the defendant granted to the plaintiff the period for
payment until the very last day, March 4, 1912, for the simple
reason that, the period for the purchase being three months, that
is,‚the time during which the plaintiff Borck could make use of the
power or the right granted by him by Valdes to arrange for the
purchase of, and to purchase in fact, the said property, if Borck
purchased it on any date prior to March 4, 1912 (on January 19,
1912, for example) the result would be that the proper deed of sale
being consequently executed in his favor on the said date of January
19, and the time that payment would be made not having been fixed
in the said document Exhibit E, such payment would‚have to be
made at the time of the delivery of the thing sold, pursuant to article
1500 of the Civil Code; but as, in accordance with article 1462 of the
same code, the execution of the deed of sale is equivalent to the
delivery of the thing which is the object of the contract, the payment
would not be in cash if it were not made on the same 19th day of
January, 1912, and were postponed until some other later day, or
until March 4, 1912. In short, it is impossible to confound the period
of the option granted to the plaintiff Borck for the purchase of the
Nagtajan Hacienda, with the period for the payment of it price, had
he purchased it. The plaintiff Borck had three months, from
December 4, 1911, within which to make the purchase; to make the
payment he did not have a single day after the date on which the
proper deed of sale would have been executed in his favor; he was
to pay the price at the very moment the said deed was executed,
because, by this means, the property would have been delivered to
his, although there still might have been lacking one or two months
of the three months' period of the said option. This is the payment
in cash to which the law refers in the sale of real estate in cases
where the time for making payment has not been fixed, and the
plaintiff himself, Borck, so understood when he stated in his
testimony, as we have before said, that, as the conditions for the
payment had not–been discussed, payment was to be made in cash
on exhibition of the documents, or, what amounts to the same
thing, on the execution of the proper deed of sale of the property in
his favor. It is therefore evident was not fixed therein, the document
LAW ON BUSINESS ORGANIZATIONS Cases 2 21
Exhibit E, dated December 4, 1911, required the payment to be
made in cash, and the lower court erred in holding that the plaintiff
Borck's letter, Exhibit G, of the date of January 19, 1912, in stating
that the payment would be made on or before March 4, 1912, in no
manner modified the option or offer of sale contained in the
document Exhibit E, but that on the contrary it coincided therewith;
also in holding that a payment made on or before March 4, 1912,
would have been a cash payment.
The letter of December 4, 1911, Exhibit E, contained, as aforesaid,
an offer of sale or a proposal of sale on the partof the defendant
Valdes to the plaintiff Borck, of the Nagtajan Hacienda, for the
assessed valuation of the same, effective during the period of three
months counting from the said date. Such proposal or offer was an
expression of the will only of the defendant Valdes, manifested to
the plaintiff Borck. In order that such a proposal might have the
force of a contract, it was necessary that the plaintiff Borck's will
should have been expressed in harmony with all the terms of the
said proposal.
Consent is shown by the concurrence of the offer and the
acceptance of the thing and the cause which are to constitute the
contract. (Art. 1262, Civil Code.)
There is no contract unless, among other requisites, there is consent
of the contracting parties. (Art. 1261, par. 1, of the same code.)
Contracts are perfected by mere consent, and from that time they
are binding, not only with regard to the fulfillment of what has been
expressly stipulated, but also with regard to all the consequences
which, according to their character, are in accordance with good
faith, use, and law. (Art. 1258, Civil Code.)
Promises are binding in just so far as they are accepted in the
explicit terms in which they are made; it not being lawful to alter,
against the will of the promisor, the conditions imposed by him
(Decision of the supreme court of Spain, of November 25, 1858); for
only thus may the indispensable consent of the parties exist for the
perfection of the contract. (Decision of the same court, of
September 26, 1871.)
An option is an unaccepted offer. It states the terms and conditions
on which the owner is willing to sell or lease his land, if the holder
elects to accept them within…the time limited. If the holder does so
elect, he must give notice to the other party, and the accepted offer
thereupon becomes a valid and binding contract. If an acceptance is
not made within the time fixed, the owner is no longer bound by his
offer, and the option is at an end. (words and Phrases, vol. 6, p.
5000, citing McMillan vs. Philadelphia Co., 28 Atl., 220; 159 Pa., 142.)
An offer of a bargain by one person to another, imposes no
obligation upon the former, unless it be accepted by the latter,
according to the terms in which the offer was made. Any
qualification or, or departure from, those terms, invalidates the
offer, unless the same be agreed to by the person who made it.
(Eliason et al. vs.Henshaw, 4 Wheaton, 225.)
In order that an acceptance of proposition may be operative it must
be unequivocal, unconditional, and without variance of any sort
between it and the proposal, . . . . An absolute acceptance of a
proposal, coupled with any qualification or condition, will not be
regarded as a complete contract, because there at no time exists the

requisite mutual assent to the same thing in the same senses.
(Bruner et al. vs. Wheaton, 46 Mo., 363.)
As already seen while we were considering the documents Exhibits
F, G, J, and K, the plaintiff Borck accepted the offer of sale made to
hi, or the option of purchase given him in document Exhibit E by the
defendant Valdes, of the Nagtajan Hacienda, for the assessed
valuation of the same, but his acceptance was not in accordance
with the condition with regard to the payment of the price of the
property, under which the offer or the option was made for, while
this payment was to be paid in cash, as the plaintiff Borck himself
admitted and the defendant Valdes positively stated in his
testimony, and also a provided by law, for the reason that the time
was not fixed in said offer or option when the payment should be
made in the aforesaid four documents Exhibits F, G, J, and K, the
plaintiff Borck made the offer to pay the said price, in the first of
them, within the period of five months from December 14, 1911; in
the second, within the period of three months from the same date,
and, finally, in the other two documents, within an indefinite period
which could as well be ten days as twenty or thirty or more,
counting from the date when the muniments of title relative to the
said hacienda should have been placed at his disposal to be
inspected and he should have found them satisfactory and, in
consequence thereof, the deed of conveyance should have been
executed in his favor by the defendant Valdes.
So that there was no concurrence of the offer and the acceptance as
to one of the conditions related to the cause of the contract, to wit,
the form in which the payment should be made. The expression of
Borck's will was not in accordance with all the terms of Valdes'
proposal, or, what amounts to the same thing, the latter's promise
was not accepted by the former in the specific terms, in which it was
made, and finally, the acceptance of the said proposal on Borck's
part was not unequivocal and without variance of any sort between
it and the proposal, because, in view of the terms in which the
payment was offered by Borck in his said letters of January 17, 19
and 23, Exhibits F, G, J, and K, there was variance from the moment
in which according to said terms, in the first two letters, the
payment of the price should be made on or before the 1st of May
and on or before the 3d of March, 1912, respectively, that is, within
a period limited in those letters, and the offer of payment was
equivocal inasmuch as, by the last two letters, it was made to
depend on certain acts as a basis for fixing the period in which the
said payment should have to be made; finally, there was no mutual
conformity between the person who made the proposal or offer,
Valdes, and the person who accepted it, Borck, in the same sense
with respect to the form of payment, and Borck deviated from the
terms of the proposition with regard to the form of payment and the
record does not show that Valdes assented to such variance.
It is, therefore, evident that, in accordance with the provision of law
and the principles laid down in the decisions above cited, the
proposal or offer of sale made by the defendant Valdes to the
plaintiff Borck, or the option of purchase granted by the former to
the latter, with respect to the Nagtajan Hacienda, in the document
Exhibit E, was not converted into a perfect and binding contract for
the, and that as Valdes did not assent to the modification introduced
by Borck in the offer of sale made by this defendant in regard to one
of its terms, to with, the form of payment, the said offer became null
and void, and, consequently, Borck has no right to demand of the
defendant Valdes and of the latter's principal, the other defendant,
LAW ON BUSINESS ORGANIZATIONS Cases 2 22
Legarda, or of the administrators of the estate left by Legarda at his
death which occurred during the course of these proceedings, and
whose names appear at the beginning of this decision, the
fulfillment of that offer, nor, therefore, any indemnity whatever for
such nonfulfillment.
The lower court erred, than, in finding otherwise in the three
conclusions of law contained in the judgment appealed from which
were mentioned at the beginning of this decision and on which, in
short, the pronouncement made in that judgment was founded.
As the power of attorney conferred by Benito Legarda upon Benito
Valdes was explicit and positive, according to the document Exhibit
A, a copy of which was attached to the complaint, to sell and convey
all kinds of real estate at such prices and on such conditions as
Valdes might deem proper, and also as the terms of the option
granted by Valdes to Borck, or of the offer of sale made by the
former to the latter in the document Exhibit E, of the Nagtajan
Hacienda belonging to Benito Legarda, are clear; and, furthermore,
as the plaintiff made the said documents an integral part of the
complaint as the grounds thereof, the testimony introduced by the
defendant Valdes to prove that said offer of sale made by him to
Borck was subject to the approval of his, Valdes', principal was
improper (sections 103 and 285, Code Civ. Proc.) and the lower
court did not err in not taking that testimony into consideration in
his judgment. Likewise the evidence presented by the defendant
Valdes in an endeavor to prove that said offer of sale was obtained
from him by the plaintiff Borck by means of fraud and deceit, was
improper. Consequently the trial court did not err by making no
finding in the judgment on those two points.
In conclusion, as the offer of sale of the Nagtajan Hacienda, made by
Valdes to Borck, or the option of purchase thereof granted by the
former to the latter by the letter of December 4, 1911, Exhibit E, did
not constitute a perfect contract and, consequently, was not binding
upon the defendants Valdes and Legarda or the plaintiff Borck, by
reason of the lack of the mutual assent of the parties concerned
therein, which is wholly in accordance with the terms of the said
offer, there can be no obligation demandable in law by virtue of the
stipulations contained in said document, and the action prosecuted
by the plaintiff for that purpose in these proceedings in improper.
For the foregoing reasons the judgment appealed from is reversed
and we absolve the defendants from the complaint. The costs of the
first instance shall be imposed upon the plaintiff. No special finding
is made with respect to those of this second instance. So ordered.
G.R. Nos. L-25836-37 January 31, 1981
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals
from the order of the Court of First Instance of Manila, Branch XIII,
in Civil Case No. 42066 denying his motion to set aside the order
declaring him in default, 1 and from the order of said court in the

same case denying his motion to set aside the judgment rendered
after he was declared in default. 2 These two appeals of the
defendant were docketed as CA-G.R. NO. 27734-R and CA-G.R. NO.
27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by
the Court of Appeals to file one consolidated record on appeal of CA-
G.R. NO. 27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals,
First Division, certified the consolidated appeal to the Supreme
Court on the ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted
against Jose M. Aruego Civil Case No. 42066 for the recovery of the
total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to
3/8% for every thirty (30) days or fraction thereof plus attorney's
fees equivalent to 10% of the total amount due and costs. 6 The
complaint filed by the Philippine Bank of Commerce contains
twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different
dates covering the period from August 28, 1950 to March 14,
1951. 7 The sum sought to be recovered represents the cost of the
printing of "World Current Events," a periodical published by the
defendant. To facilitate the payment of the printing the defendant
obtained a credit accommodation from the plaintiff. Thus, for every
printing of the "World Current Events," the printer, Encal Press and
Photo Engraving, collected the cost of printing by drawing a draft
against the plaintiff, said draft being sent later to the defendant for
acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said
bank wherein said defendant undertook to hold in trust for plaintiff
the periodicals and to sell the same with the promise to turn over to
the plaintiff the proceeds of the sale of said publication to answer
for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the
summons on December 2, 1959. 9 On December 14, 1959 defendant
filed an urgent motion for extension of time to plead, and set the
hearing on December 16, 1959. 10At the hearing, the court denied
defendant's motion for extension. Whereupon, the defendant filed a
motion to dismiss the complaint on December 17, 1959 on the
ground that the complaint states no cause of action because:
a) When the various bills of exchange were presented to the
defendant as drawee for acceptance, the amounts thereof had
already been paid by the plaintiff to the drawer (Encal Press and
Photo Engraving), without knowledge or consent of the defendant
drawee.
b) In the case of a bill of exchange, like those involved in the case at
bar, the defendant drawee is an accommodating party only for the
drawer (Encal Press and Photo-Engraving) and win be liable in the
event that the accommodating party (drawer) fails to pay its
obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959,
copy of which was received by the defendant on December 24,
1959. 12
LAW ON BUSINESS ORGANIZATIONS Cases 2 23
On January 13, 1960, the plaintiff filed a motion for
reconsideration. 13 On March 7, 1960, acting upon the motion for
reconsideration filed by the plaintiff, the trial court set aside its
order dismissing the complaint and set the case for hearing on
March 15, 1960 at 8:00 in the morning. 14 A copy of the order setting
aside the order of dismissal was received by the defendant on
March 11, 1960 at 5:00 o'clock in the afternoon according to the
affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to
postpone the trial of the case on the ground that there having been
no answer as yet, the issues had not yet been joined. 15 On the same
date, the defendant filed his answer to the complaint interposing
the following defenses: That he signed the document upon which
the plaintiff sues in his capacity as President of the Philippine
Education Foundation; that his liability is only secondary; and that
he believed that he was signing only as an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare
the defendant in default on the ground that the defendant should
have filed his answer on March 11, 1960. He contends that by filing
his answer on March 12, 1960, defendant was one day late. 17 On
March 19, 1960 the trial court declared the defendant in
default. 18 The defendant learned of the order declaring him in
default on March 21, 1960. On March 22, 1960 the defendant filed a
motion to set aside the order of default alleging that although the
order of the court dated March 7, 1960 was received on March 11,
1960 at 5:00 in the afternoon, it could not have been reasonably
expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially
because the order of the court dated March 7, 1960 was brought to
the attention of counsel only in the early hours of March 12, 1960.
The defendant also alleged that he has a good and substantial
defense. Attached to the motion are the affidavits of deputy sheriff
Mamerto de la Cruz that he served the order of the court dated
March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon
and the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's motion
on March 25, 1960. 20 On May 6, 1960, the trial court rendered
judgment sentencing the defendant to pay to the plaintiff the sum
of P35,444.35 representing the total amount of his obligation to the
said plaintiff under the twenty-two (22) causes of action alleged in
the complaint as of November 15, 1957 and the sum of P10,000.00
as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the
order dated March 25, 1961 denying his motion to set aside the
order declaring him in default, an appeal bond in the amount of
P60.00, and his record on appeal. The plaintiff filed his opposition to
the approval of defendant's record on appeal on May 13, 1960. The
following day, May 14, 1960, the lower court dismissed defendant's
appeal from the order dated March 25, 1960 denying his motion to
set aside the order of default. 22 On May 19, 1960, the defendant
filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order dismissing
appeal. 24 On May 21, 1960, the trial court reconsidered its previous
order dismissing the appeal and approved the defendant's record on
appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the
defendant that the record on appeal filed ed by the defendant was
forwarded to the Clerk of Court of Appeals. 26

On June 1, 1960 Aruego filed a motion to set aside the judgment
rendered after he was declared in default reiterating the same
ground previously advanced by him in his motion for relief from the
order of default. 27 Upon opposition of the plaintiff filed on June 3,
1960, 28 the trial court denied the defendant's motion to set aside
the judgment by default in an order of June 11, 1960. 29 On June 20,
1960, the defendant filed his notice of appeal from the order of the
court denying his motion to set aside the judgment by default, his
appeal bond, and his record on appeal. The defendant's record on
appeal was approved by the trial court on June 25, 1960. 30 Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal
from the order of the lower court denying his motion to set aside
the order of default docketed as CA-G.R. NO. 27734-R; (2) Appeal
from the order denying his motion to set aside the judgment by
default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS
IN DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO
DECLARE DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE
WAS ALREADY ON FILE AN ANSWER BY HIM WITHOUT FIRST
DISPOSING OF SAID ANSWER IN AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR
RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT
AGAINST DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment
taken against him through his mistake, inadvertence, surprise or
excusable neglect, he must show to the court that he has a
meritorious defense. 32 In other words, in order to set aside the
order of default, the defendant must not only show that his failure
to answer was due to fraud, accident, mistake or excusable
negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint
together with the summons on December 2, 1960; that on
December 17, 1960, the last day for filing his answer, Aruego filed a
motion to dismiss; that on December 22, 1960 the lower court
dismissed the complaint; that on January 23, 1960, the plaintiff filed
a motion for reconsideration and on March 7, 1960, acting upon the
motion for reconsideration, the trial court issued an order setting
aside the order of dismissal; that a copy of the order was received by
the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that on the
following day, March 12, 1960, the defendant filed his answer to the
complaint.
The failure then of the defendant to file his answer on the last day
for pleading is excusable. The order setting aside the dismissal of the
complaint was received at 5:00 o'clock in the afternoon. It was
therefore impossible for him to have filed his answer on that same
day because the courts then held office only up to 5:00 o'clock in the
LAW ON BUSINESS ORGANIZATIONS Cases 2 24
afternoon. Moreover, the defendant immediately filed his answer
on the following day.
However, while the defendant successfully proved that his failure to
answer was due to excusable negligence, he has failed to show that
he has a meritorious defense. The defendant does not have a good
and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the
plaintiff's complaint in a representative capacity, as the then
President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal,"
printed by Encal Press and Photo-Engraving, drawer of the said bills
of exchange in favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal
obligor, but as accommodation or additional party obligor, to add to
the security of said plaintiff bank. The reason for this statement is
that unlike real bills of exchange, where payment of the face value is
advanced to the drawer only upon acceptance of the same by the
drawee, in the case in question, payment for the supposed bills of
exchange were made before acceptance; so that in effect, although
these documents are labelled bills of exchange, legally they are not
bills of exchange but mere instruments evidencing indebtedness of
the drawee who received the face value thereof, with the defendant
as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed
bills of exchange as an agent of the Philippine Education Foundation
Company where he is president. Section 20 of the Negotiable
Instruments Law provides that "Where the instrument contains or a
person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere addition
of words describing him as an agent or as filing a representative
character, without disclosing his principal, does not exempt him
from personal liability."
An inspection of the drafts accepted by the defendant shows that
nowhere has he disclosed that he was signing as a representative of
the Philippine Education Foundation Company. 34 He merely signed
as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For
failure to disclose his principal, Aruego is personally liable for the
drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after
a showing that the drawer is incapable of paying. This contention is
also without merit.
An accommodation party is one who has signed the instrument as
maker, drawer, indorser, without receiving value therefor and for
the purpose of lending his name to some other person. Such person
is liable on the instrument to a holder for value, notwithstanding
such holder, at the time of the taking of the instrument knew him to
be only an accommodation party.35 In lending his name to the
accommodated party, the accommodation party is in effect a surety
for the latter. He lends his name to enable the accommodated party
to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other

parties thereto because he wants to accommodate another. In the
instant case, the defendant signed as a drawee/acceptor. Under the
Negotiable Instrument Law, a drawee is primarily liable. Thus, if the
defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally
liable for the drafts.
The defendant also contends that the drafts signed by him were not
really bills of exchange but mere pieces of evidence of indebtedness
because payments were made before acceptance. This is also
without merit. Under the Negotiable Instruments Law, a bill of
exchange is an unconditional order in writting addressed by one
person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to
bearer. 36 As long as a commercial paper conforms with the
definition of a bill of exchange, that paper is considered a bill of
exchange. The nature of acceptance is important only in the
determination of the kind of liabilities of the parties involved, but
not in the determination of whether a commercial paper is a bill of
exchange or not.
It is evident then that the defendant's appeal can not prosper. To
grant the defendant's prayer will result in a new trial which will
serve no purpose and will just waste the time of the courts as well as
of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the
Court of First Instance of Manila denying the petition for relief from
the judgment rendered in said case is hereby affirmed, without
pronouncement as to costs.
SO ORDERED.
G.R. No. 75640 April 5, 1990
NATIONAL FOOD AUTHORITY, (NFA), petitioner,
vs.
INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING
CORPORATION, respondents.
PARAS, J.:
This is a petition for review on certiorari made by National Food
Authority (NFA for brevity) then known as the National Grains
Authority or NGA from the decision 1 of the Intermediate Appellate
Court affirming the decision 2 of the trial court, the decretal portion
of which reads:
WHEREFORE, defendants Gil Medalla and National Food Authority
are ordered to pay jointly and severally the plaintiff:
a. the sum of P25,974.90, with interest at the legal rate from
October 17, 1979 until the same is fully paid; and,
b. the sum of P10,000.00 as and for attorney's fees.
Costs against both defendants.
SO ORDERED. (p. 22, Rollo)
LAW ON BUSINESS ORGANIZATIONS Cases 2 25
Hereunder are the undisputed facts as established by the then
Intermediate Appellate Court (now Court of Appeals), viz:
On September 6, 1979 Gil Medalla, as commission agent of the
plaintiff Superior Shipping Corporation, entered into a contract for
hire of ship known as "MV Sea Runner" with defendant National
Grains Authority. Under the said contract Medalla obligated to
transport on the "MV Sea Runner" 8,550 sacks of rice belonging to
defendant National Grains Authority from the port of San Jose,
Occidental Mindoro, to Malabon, Metro Manila.
Upon completion of the delivery of rice at its destination, plaintiff on
October 17, 1979, wrote a letter requesting defendant NGA that it
be allowed to collect the amount stated in its statement of account
(Exhibit "D"). The statement of account included not only a claim for
freightage but also claims for demurrage and stevedoring charges
amounting to P93,538.70.
On November 5, 1979, plaintiff wrote again defendant NGA, this
time specifically requesting that the payment for freightage and
other charges be made to it and not to defendant Medalla because
plaintiff was the owner of the vessel "MV Sea Runner" (Exhibit "E").
In reply, defendant NGA on November 16, 1979 informed plaintiff
that it could not grant its request because the contract to transport
the rice was entered into by defendant NGA and defendant Medalla
who did not disclose that he was acting as a mere agent of plaintiff
(Exhibit "F"). Thereupon on November 19, 1979, defendant NGA
paid defendant Medalla the sum of P25,974.90, for freight services
in connection with the shipment of 8,550 sacks of rice (Exhibit "A").
On December 4, 1979, plaintiff wrote defendant Medalla demanding
that he turn over to plaintiff the amount of P27,000.00 paid to him
by defendant NFA. Defendant Medalla, however, "ignored the
demand."
Plaintiff was therefore constrained to file the instant complaint.
Defendant-appellant National Food Authority admitted that it
entered into a contract with Gil Medalla whereby plaintiffs vessel
"MV Sea Runner" transported 8,550 sacks of rice of said defendant
from San Jose, Mindoro to Manila.
For services rendered, the National Food Authority paid Gil Medalla
P27,000.00 for freightage.
Judgment was rendered in favor of the plaintiff. Defendant National
Food Authority appealed to this court on the sole issue as to
whether it is jointly and severally liable with defendant Gil Medalla
for freightage. (pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court,
hence, this appeal by way of certiorari, petitioner NFA submitting a
lone issue to wit: whether or not the instant case falls within the
exception of the general rule provided for in Art. 1883 of the Civil
Code of the Philippines.
It is contended by petitioner NFA that it is not liable under the
exception to the rule (Art. 1883) since it had no knowledge of the
fact of agency between respondent Superior Shipping and Medalla
at the time when the contract was entered into between them (NFA
and Medalla). Petitioner submits that "(A)n undisclosed principal
cannot maintain an action upon a contract made by his agent unless

such principal was disclosed in such contract. One who deals with an
agent acquires no right against the undisclosed principal."
Petitioner NFA's contention holds no water. It is an undisputed fact
that Gil Medalla was a commission agent of respondent Superior
Shipping Corporation which owned the vessel "MV Sea Runner" that
transported the sacks of rice belonging to petitioner NFA. The
context of the law is clear. Art. 1883, which is the applicable law in
the case at bar provides:
Art. 1883. If an agent acts in his own name, the principal has no right
of action against the persons with whom the agent has contracted;
neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
The provision of this article shall be understood to be without
prejudice to the actions between the principal and agent.
Consequently, when things belonging to the principal (in this case,
Superior Shipping Corporation) are dealt with, the agent is bound to
the principal although he does not assume the character of such
agent and appears acting in his own name. In other words, the
agent's apparent representation yields to the principal's true
representation and that, in reality and in effect, the contract must
be considered as entered into between the principal and the third
person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the
principal can be obliged to perform his duties under the contract,
then it can also demand the enforcement of its rights arising from
the contract.
WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED
and the appealed decision is hereby AFFIRMED.
SO ORDERED.
G.R. No. 95703 August 3, 1992
RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,
vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL
MANZO and RUFINO S. AQUINO, respondents.
GRIÑO-AQUINO, J.:
This petition for review seeks reversal of the decision dated
September 18, 1990 of the Court of Appeals, reversing the decision
of the Regional Trial Court of Makati, Branch 150, which dismissed
the private respondents' complaint and awarded damages to the
petitioner, Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel
Manzo, executed a special power of attorney in favor of Rufina S.
Aquino authorizing him:
1. To secure a loan from any bank or lending institution for any
amount or otherwise mortgage the property covered by Transfer
Certificate of Title No. S-79238 situated at Las Piñas, Rizal, the same
LAW ON BUSINESS ORGANIZATIONS Cases 2 26
being my paraphernal property, and in that connection, to sign, or
execute any deed of mortgage and sign other document requisite
and necessary in securing said loan and to receive the proceeds
thereof in cash or in check and to sign the receipt therefor and
thereafter endorse the check representing the proceeds of loan. (p.
10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of
attorney and her owner's copy of Transfer Certificate of Title No. S-
79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed
by Rufino S. Aquino in favor of the Rural Bank of Bombon
(Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the
three parcels of land covered by TCT No. S-79238. The deed stated
that the property was being given as security for the payment of
"certain loans, advances, or other accommodations obtained by the
mortgagor from the mortgagee in the total sum of Three Hundred
Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of
fourteen (14%) per annum . . ." (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel
Manzo filed an action against Rufino Aquino and the Bank because
Aquino allegedly left his residence at San Pascual, Hagonoy, Bulacan,
and transferred to an unknown place in Bicol. She discovered that
Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and
then later, at San Vicente, Calabanga, Camarines Sur, and that they
(plaintiffs) were allegedly surprised to discover that the property
was mortgaged to pay personal loans obtained by Aquino from the
Bank solely for personal use and benefit of Aquino; that the
mortgagor in the deed was defendant Aquino instead of plaintiff
Gallardo whose address up to now is Manuyo, Las Piñas, M.M., per
the title (TCT No. S-79238) and in the deed vesting power of
attorney to Aquino; that correspondence relative to the mortgage
was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines
Sur" instead of Gallardo's postal address at Las Piñas, Metro Manila;
and that defendant Aquino, in the real estate mortgage, appointed
defendant Rural Bank as attorney in fact, and in case of judicial
foreclosure as receiver with corresponding power to sell and that
although without any express authority from Gallardo, defendant
Aquino waived Gallardo's rights under Section 12, Rule 39, of the
Rules of Court and the proper venue of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable Fernando P.
Agdamag, temporarily restrained the Rural Bank "from enforcing the
real estate mortgage and from foreclosing it either judicially or
extrajudicially until further orders from the court" (p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him
to mortgage her property to a bank so that he could use the
proceeds to liquidate her obligation of P350,000 to him. The
obligation to pay the Rural Bank devolved on Gallardo. Of late,
however, she asked him to pay the Bank but defendant Aquino set
terms and conditions which plaintiff did not agree to. Aquino asked
for payment to him of moral damages in the sum of P50,000 and
lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims
for litigation expenses, exemplary damages, and attorney's fees. It
also filed a crossclaim against Aquino for P350,000 with interest,
other bank charges and damages if the mortgage be declared
unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against
Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage"
docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On
motion of the plaintiff, the foreclosure case and the annulment case
(Civil Case No. 6062) were consolidated.
On January 16, 1986, the trial court rendered a summary judgment
in Civil Case No. 6062, dismissing the complaint for annulment of
mortgage and declaring the Rural Bank entitled to damages the
amount of which will be determined in appropriate proceedings. The
court lifted the writ of preliminary injunction it previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an
order suspending the foreclosure proceedings until after the
decision in the annulment case (Civil Case No. 6062) shall have
become final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals,
which on September 18, 1990, reversed the trial court. The
dispositive portion of the decision reads:
UPON ALL THESE, the summary judgment entered by the lower
court is hereby REVERSED and in lieu thereof, judgment is hereby
RENDERED, declaring the deed of real estate mortgage dated August
26, 1981, executed between Rufino S. Aquino with the marital
consent of his wife Bibiana Aquino with the appellee Rural Bank of
Bombon, Camarines Sur, unauthorized, void and unenforceable
against plaintiff Ederlinda Gallardo; ordering the reinstatement of
the preliminary injunction issued at the onset of the case and at the
same time, ordering said injunction made permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of Bombon,
Camarines Sur, alleging that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was
unauthorized, void, and unenforceable against the private
respondent Ederlinda Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage executed
by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the
Rural Bank of Bombon, (Cam. Sur), Inc.
Both assignments of error boil down to the lone issue of the validity
of the Deed of Real Estate Mortgage dated August 26, 1981,
executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda
Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by
respondent Aquino is valid because he was expressly authorized by
Gallardo to mortgage her property under the special power of
attorney she made in his favor which was duly registered and
annotated on Gallardo's title. Since the Special Power of Attorney
did not specify or indicate that the loan would be for Gallardo's
benefit, then it could be for the use and benefit of the attorney-in-
fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent of
authority given by the plaintiff to defendant Aquino. But defendant
Aquino in executing the deed of Real Estate Mortgage in favor of the
LAW ON BUSINESS ORGANIZATIONS Cases 2 27
rural bank over the three parcels of land covered by Gallardo's title
named himself as the mortgagor without stating that his signature
on the deed was for and in behalf of Ederlinda Gallardo in his
capacity as her attorney-in-fact.
At the beginning of the deed mention was made of "attorney-in-fact
of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by
Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal
age, Filipino, married to Bibiana Panganiban with postal address at
Sta. Isabel . . .," but which of itself, was merely descriptive of the
person of defendant Aquino. Defendant Aquino even signed it
plainly as mortgagor with the marital consent yet of his wife Bibiana
P. Aquino who signed the deed as "wife of mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August 31, 1981,
September 23, 1981 and October 26, 1981, were each signed by
Rufino Aquino on top of a line beneath which is written "signature of
mortgagor" and by Bibiana P. Aquino on top of a line under which is
written "signature of spouse," without any mention that execution
thereof was for and in behalf of the plaintiff as mortgagor. It results,
borne out from what were written on the deed, that the amounts
were the personal loans of defendant Aquino. As pointed out by the
appellant, Aquino's wife has not been appointed co-agent of
defendant Aquino and her signature on the deed and on the
promissory notes can only mean that the obligation was personally
incurred by them and for their own personal account.
The deed of mortgage stipulated that the amount obtained from the
loans shall be used or applied only for "fishpond (bangus and sugpo
production)." As pointed out by the plaintiff, the defendant Rural
Bank in its Answer had not categorically denied the allegation in the
complaint that defendant Aquino in the deed of mortgage was the
intended user and beneficiary of the loans and not the plaintiff. And
the special power of attorney could not be stretched to include the
authority to obtain a loan in said defendant Aquino's own benefit.
(pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed
by the general rule in the law of agency which this Court, applied in
"Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536,
538:
It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it
must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not
enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. Neither is
it ordinarily sufficient that in the mortgage the agent describes
himself as acting by virtue of a power of attorney, if in fact the agent
has acted in his own name and has set his own hand and seal to the
mortgage. This is especially true where the agent himself is a party
to the instrument. However clearly the body of the mortgage may
show and intend that it shall be the act of the principal, yet, unless
in fact it is executed by the agent for and on behalf of his principal
and as the act and deed of the principal, it is not valid as to the
principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate
Mortgage in his name alone as mortgagor, without any indication

that he was signing for and in behalf of the property owner,
Ederlinda Gallardo, bound himself alone in his personal capacity as a
debtor of the petitioner Bank and not as the agent or attorney-in-
fact of Gallardo. The Court of Appeals further observed:
It will also be observed that the deed of mortgage was executed on
August 26, 1981 therein clearly stipulating that it was being
executed "as security for the payment of certain loans, advances or
other accommodation obtained by the Mortgagor from the
Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos
only (P350,000.00)" although at the time no such loan or advance
had been obtained. The promissory notes were dated August 31,
September 23 and October 26, 1981 which were subsequent to the
execution of the deed of mortgage. The appellant is correct in
claiming that the defendant Rural Bank should not have agreed to
extend or constitute the mortgage on the properties of Gallardo
who had no existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored
the representative capacity of Aquino and dealt with him and his
wife in their personal capacities. Said appellee Rural Bank also did
not conduct an inquiry on whether the subject loans were to benefit
the interest of the principal (plaintiff Gallardo) rather than that of
the agent although the deed of mortgage was explicit that the loan
was for purpose of the bangus and sugpo production of defendant
Aquino.
In effect, with the execution of the mortgage under the
circumstances and assuming it to be valid but because the loan
taken was to be used exclusively for Aquino's business in the
"bangus" and "sugpo" production, Gallardo in effect becomes a
surety who is made primarily answerable for loans taken by Aquino
in his personal capacity in the event Aquino defaults in such
payment. Under Art. 1878 of the Civil Code, to obligate the principal
as a guarantor or surety, a special power of attorney is required. No
such special power of attorney for Gallardo to be a surety of Aquino
had been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is
enforceable against Gallardo since it was executed in accordance
with Article 1883 which provides:
Art. 1883. If an agent acts in his own name, the principal has no right
of action against the persons with whom the agent has contracted;
neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
The above provision of the Civil Code relied upon by the petitioner
Bank, is not applicable to the case at bar. Herein respondent Aquino
acted purportedly as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties titled in the name
of respondent Gallardo against which the Bank proposes to
foreclose the mortgage constituted by an agent (Aquino) acting in
his personal capacity. Under these circumstances, we hold, as we did
in Philippine Sugar Estates Development Co. vs. Poizat, supra, that
Gallardo's property is not liable on the real estate mortgage:
LAW ON BUSINESS ORGANIZATIONS Cases 2 28
There is no principle of law by which a person can become liable on
a real mortgage which she never executed either in person or by
attorney in fact. It should be noted that this is a mortgage upon real
property, the title to which cannot be divested except by sale on
execution or the formalities of a will or deed. For such reasons, the
law requires that a power of attorney to mortgage or sell real
property should be executed with all of the formalities required in a
deed. For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her own real
property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the Court
of Appeals, we AFFIRM it in toto. Costs against the petitioner.
[G.R. No. 121824. January 29, 1998]
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP
MAHTANI, and PHILIPPINE AIRLINES, respondents.
DECISION
ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA) seeks to
set aside the decision of respondent Court of Appeals[1] promulgated
on September 7, 1995, which affirmed the award of damages and
attorneys fees made by the Regional Trial Court of Cebu, 7th Judicial
Region, Branch 17, in favor of private respondent GOP Mahtani as
well as the dismissal of its third-party complaint against Philippine
Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay,
India. In anticipation of his visit, he obtained the services of a certain
Mr. Gumar to prepare his travel plans. The latter, in turn, purchased
a ticket from BA where the following itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani had
to take a flight to Hongkong via PAL, and upon arrival in Hongkong
he had to take a connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in
Manila his two pieces of luggage containing his clothings and
personal effects, confident that upon reaching Hongkong, the same
would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that
his luggage was missing and that upon inquiry from the BA
representatives, he was told that the same might have been
diverted to London. After patiently waiting for his luggage for one

week, BA finally advised him to file a claim by accomplishing the
Property Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed
his complaint for damages and attorneys fees[5] against BA and Mr.
Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim [6] to
the complaint raising, as special and affirmative defenses, that
Mahtani did not have a cause of action against it. Likewise, on
November 9, 1990, BA filed a third-party complaint[7] against PAL
alleging that the reason for the non-transfer of the luggage was due
to the latters late arrival in Hongkong, thus leaving hardly any time
for the proper transfer of Mahtanis luggage to the BA aircraft bound
for Bombay.
On February 25, 1991, PAL filed its answer to the third-party
complaint, wherein it disclaimed any liability, arguing that there was,
in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong
authorities should be considered as transfer to BA.[8]
After appropriate proceedings and trial, on March 4, 1993, the trial
court rendered its decision in favor of Mahtani,[9] the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the
plaintiff and against the defendant for which defendant is ordered
to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the
value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiffs luggage; Fifty
Thousand (P50,000.00) Pesos for moral and actual damages and
twenty percent (20%) of the total amount imposed against the
defendant for attorneys fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine
Airlines is DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however,
affirmed the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the
Decision appealed from to be in accordance with law and evidence,
the same is hereby AFFIRMED in toto, with costs against defendant-
appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of Appeals
decision.
In essence, BA assails the award of compensatory damages and
attorneys fees, as well as the dismissal of its third-party complaint
against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of
compensatory damages in the separate sum of P7,000.00 for the
loss of Mahtanis two pieces ofluggage was without basis since
Mahtani in his complaint[12] stated the following as the value of his
personal belongings:
LAW ON BUSINESS ORGANIZATIONS Cases 2 29
8. On said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his
luggage, a condition provided for in the ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a
higher value is declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of
international journeys) the liability limit is approximately U.S. $9.07
per pound (U.S. $20.00) per kilo for checked baggage and U.S. $400
per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that
the nature of an airlines contract of carriage partakes of two types,
namely: a contract to deliver a cargo or merchandise to its
destination and a contract to transport passengers to their
destination. A business intended to serve the travelling public
primarily, it is imbued with public interest, hence, the law governing
common carriers imposes an exacting standard.[14] Neglect or
malfeasance by the carriers employees could predictably furnish
bases for an action for damages.[15]
In the instant case, it is apparent that the contract of carriage was
between Mahtani and BA. Moreover, it is indubitable that his
luggage never arrived in Bombay on time. Therefore, as in a number
of cases[16] we have assessed the airlines culpability in the form of
damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of
cases, it is vital that the claimant satisfactorily prove during the trial
the existence of the factual basis of the damages and its causal
connection to defendants acts.[17]
In this regard, the trial court granted the following award as
compensatory damages:
Since plaintiff did not declare the value of the contents in his
luggage and even failed to show receipts of the alleged gifts for the
members of his family in Bombay, the most that can be expected for
compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars
($20.00) per kilo, or a combined value of Four Hundred ($400.00)
U.S. Dollars for Twenty kilos representing the contents plus Seven
Thousand (P7,000.00) Pesos representing the purchase price of the
two (2) suit cases.
However, as earlier stated, it is the position of BA that there should
have been no separate award for the luggage and the contents
thereof since Mahtani failed to declare a separate higher valuation
for the luggage,[18] and therefore, its liability is limited, at most, only
to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious
argument.
Admittedly, in a contract of air carriage a declaration by the
passenger of a higher value is needed to recover a greater amount.
Article 22(1) of the Warsaw Convention,[19] provides as follows:

xxxxxxxxx
(2) In the transportation of checked baggage and goods, the liability
of the carrier shall be limited to a sum of 250 francs per kilogram,
unless the consignor has made, at the time the package was handed
over to the carrier, a special declaration of the value at delivery and
has paid a supplementary sum if the case so requires. In that case
the carrier will be liable to pay a sum not exceeding the declared
sum, unless he proves that the sum is greater than the actual value
to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for
the loss of baggage in an amount in excess of the limits specified in
the tariff which was filed with the proper authorities, such tariff
being binding on the passenger regardless of the passengers lack of
knowledge thereof or assent thereto.[20] This doctrine is recognized
in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against
blind reliance on adhesion contracts where the facts and
circumstances justify that they should be disregarded.[22]
In addition, we have held that benefits of limited liability are subject
to waiver such as when the air carrier failed to raise timely
objections during the trial when questions and answers regarding
the actual claims and damages sustained by the passenger were
asked.[23]
Given the foregoing postulates, the inescapable conclusion is that
BA had waived the defense of limited liability when it allowed
Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard,
we quote the pertinent transcript of stenographic notes of Mahtanis
direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers
evidence deemed by counsel of the adverse party to be inadmissible
for any reason, the latter has the right to object. However, such right
is a mere privilege which can be waived. Necessarily, the objection
must be made at the earliest opportunity, lest silence when there is
opportunity to speak may operate as a waiver of objections.[25] BA
has precisely failed in this regard.
LAW ON BUSINESS ORGANIZATIONS Cases 2 30
To compound matters for BA, its counsel failed, not only to
interpose a timely objection, but even conducted his own cross-
examination as well.[26] In the early case of Abrenica v. Gonda,[27] we
ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that a
protest or objection against the admission of any evidence must be
made at the proper time, and that if not so made it will be
understood to have been waived. The proper time to make a protest
or objection is when, from the question addressed to the witness, or
from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the
Court of Appeals, are entitled to great respect.[28] Since the actual
value of the luggage involved appreciation of evidence, a task within
the competence of the Court of Appeals, its ruling regarding the
amount is assuredly a question of fact, thus, a finding not reviewable
by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against
PAL, the Court of Appeals justified its ruling in this wise, and we
quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants third-
party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket
issued by appellant to plaintiff-appellee was exclusively between the
plaintiff Mahtani and defendant-appellant BA. When plaintiff
boarded the PAL plane from Manila to Hongkong, PAL was merely
acting as a subcontractor or agent of BA. This is shown by the fact
that in the ticket issued by appellant to plaintiff-appellee, it is
specifically provided on the Conditions of Contract, paragraph 4
thereof that:
4. x x x carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive
carriers is regarded as a single operation and that the carrier issuing
the passengers ticket is considered the principal party and the other
carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,[31] we expounded on the nature of a
third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby
a third party who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with
leave of court, by the defendant, who acts as third-party plaintiff to
enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiffs
claim. The third-party complaint is actually independent of and
separate and distinct from the plaintiffs complaint. Were it not for
this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to
bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiffs claim against a third-

party in the original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter
arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to
damages from BA, in view of their contract of carriage. Yet, BA
adamantly disclaimed its liability and instead imputed it to PAL
which the latter naturally denies. In other words, BA and PAL are
blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air
transportation was exclusively between Mahtani and BA, the latter
merely endorsing the Manila to Hongkong leg of the formers journey
to PAL, as its subcontractor or agent. In fact, the fourth paragraph of
the Conditions of Contracts of the ticket[32] issued by BA to Mahtani
confirms that the contract was one of continuous air transportation
from Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent
of BA.
Parenthetically, the Court of Appeals should have been cognizant of
the well-settled rule that an agent is also responsible for any
negligence in the performance of its function[33] and is liable for
damages which the principal may suffer by reason of its negligent
act.[34] Hence, the Court of Appeals erred when it opined that BA,
being theprincipal, had no cause of action against PAL, its agent or
sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of
the International Air Transport Association (IATA), wherein member
airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their
relationship.[35] Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being
the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.
Our pronouncement that BA is the principal is consistent with our
ruling in Lufthansa German Airlines v. Court of Appeals.[36] In that
case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering
five-leg trip aboard different airlines. Unfortunately, Air Kenya, one
of the airlines which was to carry Antiporda to a specific destination
bumped him off.
An action for damages was filed against Lufthansa which, however,
denied any liability, contending that its responsibility towards its
passenger is limited to the occurrence of a mishap on its own
line. Consequently, when Antiporda transferred to Air Kenya, its
obligation as a principal in the contract of carriage ceased; from
there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal
in the contract of carriage with Antiporda and remains to be so,
regardless of those instances when actual carriage was to be
performed by various carriers. The issuance of confirmed Lufthansa
LAW ON BUSINESS ORGANIZATIONS Cases 2 31
ticket in favor of Antiporda covering his entire five-leg trip
aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of
carriage, Mahtani can only sue BA alone, and not PAL, since the
latter was not a party to the contract.However, this is not to say that
PAL is relieved from any liability due to any of its negligent
acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not exactly
in point, the case, however, illustrates the principle which governs
this particular situation. In that case, we recognized that a carrier
(PAL), acting as an agent of another carrier, is also liable for its own
negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining
who was primarily at fault as between them, is without legal
basis. After all, such proceeding is in accord with the doctrine
against multiplicity of cases which would entail receiving the same
or similar evidence for both cases and enforcing separate judgments
therefor. It must be borne in mind that the purpose of a third-party
complaint is precisely to avoid delay and circuity of action and to
enable the controversy to be disposed of in one suit.[38] It is but
logical, fair and equitable to allow BA to sue PAL for indemnification,
if it is proven that the latters negligence was the proximate cause of
Mahtanis unfortunate experience, instead of totally absolving PAL
from any liability.
G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial
Court of Manila, Branch 43, MANUEL CUADY and LILIA
CUADY, respondents.
PARAS, J.:
This is a petition for review on certiorari which seeks to reverse and
set aside (1) the decision of the Court of Appeals dated July 21, 1987
in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation, Plaintiff-
Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees,"
affirming the decision of the Regional Trial Court of Manila, Branch
43, which dismissed the complaint in Civil Case No. 82-10478, and
(2) the resolution dated February 9, 1988 denying petitioner's
motion for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady
obtained from Supercars, Inc. a credit of P39,574.80, which amount
covered the cost of one unit of Ford Escort 1300, four-door sedan.
Said obligation was evidenced by a promissory note executed by
private respondents in favor of Supercars, Inc., obligating
themselves to pay the latter or order the sum of P39,574.80,
inclusive of interest at 14% per annum, payable on monthly
installments of P1,098.00 starting August 16, 1977, and on the 16th
day of the next 35 months from September 16, 1977 until full
payment thereof. There was also stipulated a penalty of P10.00 for
every month of late installment payment. To secure the faithful and
prompt compliance of the obligation under the said promissory

note, the Cuady spouses constituted a chattel mortage on the
aforementioned motor vehicle. On July 25, 1977, Supercars, Inc.
assigned the promissory note, together with the chattel mortgage,
to B.A. Finance Corporation. The Cuadys paid a total of P36,730.15
to the B.A. Finance Corporation, thus leaving an unpaid balance of
P2,344.65 as of July 18, 1980. In addition thereto, the Cuadys owe
B.A. Finance Corporation P460.00 representing penalties or
surcharges for tardy monthly installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee of the
mortgage lien obtained the renewal of the insurance coverage over
the aforementioned motor vehicle for the year 1980 with Zenith
Insurance Corporation, when the Cuadys failed to renew said
insurance coverage themselves. Under the terms and conditions of
the said insurance coverage, any loss under the policy shall be
payable to the B.A. Finance Corporation (Memorandum for Private
Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an
accident and was badly damaged. The unfortunate happening was
reported to the B.A. Finance Corporation and to the insurer, Zenith
Insurance Corporation. The Cuadys asked the B.A. Finance
Corporation to consider the same as a total loss, and to claim from
the insurer the face value of the car insurance policy and apply the
same to the payment of their remaining account and give them the
surplus thereof, if any. But instead of heeding the request of the
Cuadys, B.A. Finance Corporation prevailed upon the former to just
have the car repaired. Not long thereafter, however, the car bogged
down. The Cuadys wrote B.A. Finance Corporation requesting the
latter to pursue their prior instruction of enforcing the total loss
provision in the insurance coverage. When B.A. Finance Corporation
did not respond favorably to their request, the Cuadys stopped
paying their monthly installments on the promissory note (Ibid., pp.
45).
On June 29, 1982, in view of the failure of the Cuadys to pay the
remaining installments on the note, B.A. Finance Corporation sued
them in the Regional Trial Court of Manila, Branch 43, for the
recovery of the said remaining installments (Memorandum for the
Petitioner, p. 1).
After the termination of the pre-trial conference, the case was set
for trial on the merits on April 25, 1984. B.A. Finance Corporation's
evidence was presented on even date and the presentation of
Cuady's evidence was set on August 15, 1984. On August 7,1984,
Atty. Noel Ebarle, counsel for the petitioner, filed a motion for
postponement, the reason being that the "handling" counsel, Atty.
Ferdinand Macibay was temporarily assigned in Cebu City and would
not be back until after August 15, 1984. Said motion was, however,
denied by the trial court on August 10, 1984. On August 15, 1984,
the date of hearing, the trial court allowed private respondents to
adduce evidence ex-parte in the form of an affidavit to be sworn to
before any authorized officer. B.A. Finance Corporation filed a
motion for reconsideration of the order of the trial court denying its
motion for postponement. Said motion was granted in an order
dated September 26, 1984, thus:
The Court grants plaintiff's motion for reconsideration dated August
22, 1984, in the sense that plaintiff is allowed to adduce evidence in
the form of counter-affidavits of its witnesses, to be sworn to before
any person authorized to administer oaths, within ten days from
notice hereof. (Ibid., pp. 1-2).
LAW ON BUSINESS ORGANIZATIONS Cases 2 32
B.A. Finance Corporation, however, never complied with the above-
mentioned order, paving the way for the trial court to render its
decision on January 18, 1985, the dispositive portion of which reads
as follows:
IN VIEW WHEREOF, the Court DISMISSES the complaint without
costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the decision of
the trial court. The decretal portion of the said decision reads as
follows:
WHEREFORE, after consultation among the undersigned members of
this Division, in compliance with the provision of Section 13, Article
VIII of the Constitution; and finding no reversible error in the
judgment appealed from, the same is hereby AFFIRMED, without
any pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the
above decision, but the motion was denied by the respondent
appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and
required the parties to submit their respective memoranda. The
parties having complied with the submission of their memoranda,
the case was submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A.
Finance Corporation has waived its right to collect the unpaid
balance of the Cuady spouses on the promissory note for failure of
the former to enforce the total loss provision in the insurance
coverage of the motor vehicle subject of the chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it failed
to enforce the total loss provision in the insurance policy of the
motor vehicle subject of the chattel mortgage, said failure does not
operate to extinguish the unpaid balance on the promissory note,
considering that the circumstances obtaining in the case at bar do
not fall under Article 1231 of the Civil Code relative to the modes of
extinguishment of obligations (Memorandum for the Petitioner, p.
11).
On the other hand, the Cuadys insist that owing to its failure to
enforce the total loss provision in the insurance policy, B.A. Finance
Corporation lost not only its opportunity to collect the insurance
proceeds on the mortgaged motor vehicle in its capacity as the
assignee of the said insurance proceeds pursuant to the
memorandum in the insurance policy which states that the "LOSS: IF
ANY, under this policy shall be payable to BA FINANCE CORP., as
their respective rights and interest may appear" (Rollo, p. 91) but
also the remaining balance on the promissory note (Memorandum
for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated to the rights and
obligations of Supercars, Inc. when the latter assigned the
promissory note, together with the chattel mortgage constituted on
the motor vehicle in question in favor of the former. Consequently,

B.A. Finance Corporation is bound by the terms and conditions of
the chattel mortgage executed between the Cuadys and Supercars,
Inc. Under the deed of chattel mortgage, B.A. Finance Corporation
was constituted attorney-in-fact with full power and authority to
file, follow-up, prosecute, compromise or settle insurance claims; to
sign execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to prove
the claim, and to collect from the latter the proceeds of insurance to
the extent of its interests, in the event that the mortgaged car
suffers any loss or damage (Rollo, p. 89). In granting B.A. Finance
Corporation the aforementioned powers and prerogatives, the
Cuady spouses created in the former's favor an agency. Thus, under
Article 1884 of the Civil Code of the Philippines, B.A. Finance
Corporation is bound by its acceptance to carry out the agency, and
is liable for damages which, through its non-performance, the
Cuadys, the principal in the case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of
salvage value of the motor vehicle in question, not to mention the
amount equivalent to the unpaid balance on the promissory note,
when B.A. Finance Corporation steadfastly refused and refrained
from proceeding against the insurer for the payment of a clearly
valid insurance claim, and continued to ignore the yearning of the
Cuadys to enforce the total loss provision in the insurance policy,
despite the undeniable fact that Rea Auto Center, the auto repair
shop chosen by the insurer itself to repair the aforementioned
motor vehicle, misrepaired and rendered it completely useless and
unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set down
by the respondent appellate court. In this connection, the Court of
Appeals said:
... Under the established facts and circumstances, it is unjust, unfair
and inequitable to require the chattel mortgagors, appellees herein,
to still pay the unpaid balance of their mortgage debt on the said
car, the non-payment of which account was due to the stubborn
refusal and failure of appellant mortgagee to avail of the insurance
money which became due and demandable after the insured motor
vehicle was badly damaged in a vehicular accident covered by the
insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A.
Finance Corporation failed to claim for the damage to the car was
not supported by evidence, the records show that instead of acting
on the instruction of the Cuadys to enforce the total loss provision in
the insurance policy, the petitioner insisted on just having the motor
vehicle repaired, to which private respondents reluctantly acceded.
As heretofore mentioned, the repair shop chosen was not able to
restore the aforementioned motor vehicle to its condition prior to
the accident. Thus, the said vehicle bogged down shortly thereafter.
The subsequent request of the Cuadys for the B.A. Finance
Corporation to file a claim for total loss with the insurer fell on deaf
ears, prompting the Cuadys to stop paying the remaining balance on
the promissory note (Memorandum for the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this Court review
and reverse the factual findings of the respondent appellate court.
This, of course, the Court cannot and will not generally do. It is
axiomatic that the judgment of the Court of Appeals is conclusive as
to the facts and may not ordinarily be reviewed by the Supreme
Court. The doctrine is, to be sure, subject to certain specific
LAW ON BUSINESS ORGANIZATIONS Cases 2 33
exceptions none of which, however, obtains in the instant case
(Luzon Brokerage Corporation v. Court of Appeals, 176 SCRA 483
[1989]).
Finally, B.A. Finance Corporation contends that respondent trial
court committed grave abuses of discretion in two instances: First,
when it denied the petitioner's motion for reconsideration praying
that the counsel be allowed to cross-examine the affiant, and;
second, when it seriously considered the evidence adduced ex-
parte by the Cuadys, and heavily relied thereon, when in truth and in
fact, the same was not formally admitted as part of the evidence for
the private respondents (Memorandum for the Petitioner, p. 10).
This Court does not have to unduly dwell on this issue which was
only raised by B.A. Finance Corporation for the first time on appeal.
A review of the records of the case shows that B.A. Finance
Corporation failed to directly raise or ventilate in the trial court nor
in the respondent appellate court the validity of the evidence
adduced ex-parte by private respondents. It was only when the
petitioner filed the instant petition with this Court that it later raised
the aforementioned issue. As ruled by this Court in a long line of
cases, issues not raised and/or ventilated in the trial court, let alone
in the Court of Appeals, cannot be raised for the first time on appeal
as it would be offensive to the basic rules of fair play, justice and due
process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate
Appellate Court, 175 SCRA 70 [1989]; Dulos Realty & Development
Corporation v. Court of Appeals, 157 SCRA 425 [1988]; Dihiansan, et
al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v.
Court of Appeals, et al., 140 SCRA 44 [1985]).
PREMISES CONSIDERED, the instant petition is DENIED, and the
decision appealed from is AFFIRMED.
SO ORDERED.
G.R. No. L-8346 March 30, 1915
GUTIERREZ HERMANOS, plaintiff-appellant,
vs.
ORIA HERMANOS & CO., defendant-appellant.
Rafael de la Sierra for plaintiff.
Chicote and Miranda for defendant.
TORRES, J.:
On August 12, 1909, counsel for the mercantile firm of Gutierrez
Hermanos of this city filed a written complaint in the Court of First
Instance of Manila against the commercial concern of Oria
Hermanos & Co. of Laoang, Province of Samar, alleging therein as a
cause of action that between plaintiff and defendant there have
existed commercial relations which gave rise to the opening of a
mutual current account, at 8 percent interest, under the name of
Oria Hermanos & Co., on the books of the plaintiff Gutierrez
Hermanos; that, on January 11, 1909, plaintiff transmitted to
defendant an abstract of the latter's current account on December
31, 1908, which showed a balance in plaintiff's favor of P144,473.78
and which was approved by defendant, Oria Hermanos & Co., by a
letter of March 9, 1909, which was copied literally in the complaint;
that, on May 25, 1909, plaintiff notified defendant that the current
account existing between them would be closed at the end of thirty

days counting from that date, at the expiration of which period
defendant should pay any debit balance that might be owing; that,
on June 30 of the same year, Gutierrez Hermanos transmitted to the
defendant, Oria Hermanos & Co., the statement of the latter's
current account up to that date and, confirming its previous letter to
the defendant of May 25, 1909, called attention to the necessity of
paying the balance, which then amounted to P147,204.28; that the
defendant firm, notwithstanding the said demands and others
subsequently made, and without having made any objection
whatever to the said statement of account, refused to pay the
principal and interest owing on the said account. Plaintiff's counsel
therefore prayed that Oria Hermanos and Co. be sentenced to pay
the sum of P147,204.28, besides the interest thereon at the rate of 8
per cent annum from June 30, 1909, and the costs.
Defendant filed its answer on November 9, 1909, setting up four
cross complaints and six counterclaims against the plaintiff,
Gutierrez Hermanos, and specifically denied such of the allegations
of the complaint as were not in agreement with its answer. Plaintiff
demurred to certain paragraphs of the answer and as to the others
thereof prayed the court to order defendant to make its allegations
more specific. The court overruled this demurrer, but granted the
petition that defendant should make its allegations more specific in
the second, third, and fourth cross complaints and first
counterclaim.
In compliance with the said order, defendant, on May 4, 1910, filed
am amended answer in which it specifically admitted paragraphs 1
and 2 of the complaint, and as the first cross complaint, alleged that,
by reason of mercantile relations and the opening of a mutual
current account from May 1, 1900, the plaintiff had obligated itself
periodically to send to the defendant firm a memorandum or
statement of the current account, and further obligated itself, in
case the said mercantile relations should be finally terminated, to
present a general and complete account, duly supported by
vouchers and other proofs; that plaintiff, Gutierrez Hermanos, had
contended itself by sending to Oria Hermanos and Co. some
memoranda or abstracts of account, accepted by defendant as such
"abstract of account," without the latter's having waived its right to
demand the presentation, as agreed upon, of the vouchers and
other proofs upon the closing of the current account, a stipulation
which Gutierrez Hermanos had failed to comply with. Defendant
therefore prayed that the plaintiff, Gutierrez Hermanos, be
sentenced to render and present the said final account, duly
accompanied by vouchers, in conformity with the agreement made.
In the second cross complaint defendant alleged that, by virtue of a
commission contract, Oria Hermanos & Co. had from the 1st of May,
1900, to the 7th of September, 1909, forwarded 65,119.66 piculs of
copra, 70,420 bales of hemp, and 5,175.03 piculs of loose hemp to
Gutierrez Hermanos for sale on commission; that the latter firm
informed the defendant that it, the plaintiff, had sold the said
products to third persons for the account of the defendant, Oria
Hermanos & Co.; that by reason of said sale or sales Gutierrez
Hermanos collected large and important sums for commission and
brokerage and had turned in for the goods sold amounts less than
what they were actually worth in Manila; that defendant, Oria
Hermanos & Co., had recently received information that these lots
of hemp and copra were purchased by the firm of Gutierrez
Hermanos for itself, notwithstanding that the latter had stated to its
principals, Oria Hermanos & Co., that they had been sold to third
LAW ON BUSINESS ORGANIZATIONS Cases 2 34
persons; that it collected by reason of such sale, commission and
brokerage; acts which redound to the fraud, injury, and prejudice of
the defendant, Oria Hermanos and Co. Therefore the latter prayed
that Gutierrez Hermanos be sentenced to render a general and
complete account of the amounts of hemp and copra received by it
for sale on commission from the year 1900 to 1909, setting out the
dates of the receipt of the said merchandise, dates of the sales,
names of the purchasers, prices stipulated, discounts obtained, and
commissions collected by Gutierrez Hermanos, etc.
Defendant alleged as the third cross complaint that, by virtue of the
said commission contract, Gutierrez Hermanos sent to the firm of
Oria Hermanos & Co., at different times according to the latter's
request, from May 1, 1900, up to the date of the closing of the
current account, 193,310 sacks of rice alleged to have been
purchased from third persons, wherefore Oria Hermanos & Co. paid
a certain stipulated percentage as commission or brokerage for the
sales; but that now Oria Hermanos & Co. have received information
which it believes to be true, and so alleges, that the rice so
forwarded had not been purchased from third persons, but
belonged to Gutierrez Hermanos who sold it directly to defendant,
collecting from the latter excessive prices, advance payments,
commission and interest, all to the fraud and injury of the defendant
firm. Oria Hermanos & Co., therefore, prayed that Gutierrez
Hermanos be sentenced to render an account, duly supported by
vouchers, of all the lots of rice forwarded to Oria Hermanos, with a
statement of the dates of the orders, amounts, dates of the
purchases, names of purchasers, amounts charged to Oria
Hermanos & Co., etc.
In the fourth cross complaint defendant related that, by reason of
the same commission contract existing between the two firms,
Gutierrez Hermanos had sent to Oria Hermanos & Co., from the 1st
of May, 1900, up to the closing of the current account, various
quantities of salt, petroleum, tobacco, groceries and beverages, and
had collected a commission for the purchase thereof, that
afterwards Oria Hermanos & Co. learned that the forwarding firm,
the plaintiff, had set larger prices on the said goods than it had
actually paid for them and had unduly charged such prices, before it
had paid them, to the defendant's account, collecting for itself
commission and interest thereon, to the fraud and prejudice of the
defendant firm. Therefore the latter prayed that Gutierrez
Hermanos be sentenced to render a complete account,
accompanied by vouchers, of the shipments aforementioned.
In the first counterclaim filed by the defendant, Oria Hermanos &
Co., petition was made that Gutierrez Hermanos be sentenced to
pay it the sum of P13,894.60, as the amount of an overcharge of 3
per cent in interest collected from defendant, in a charge of 8
percent interest per annum on a private debt of P47,649 drawing 5
per cent interest per annum, which latter amount Juan T. Molleda
owed the firm of Gutierrez Hermanos and payment for which was
assumed by Oria Hermanos & Co. upon its organization into a
mercantile firm in May, 1900.
In the second counterclaim the defendant firm, Oria Hermanos &
Co. set forth: That, on April 18, 1900, its predecessor had ordered its
consignee in Manila, Gutierrez Hermanos, to insure against all war
risks the stocks of hemp and merchandise which the said firm
possessed in the pueblo of Laoang, for P35,000, and likewise those it
had in Catubig, for P32,000; that Gutierrez Hermanos did not comply
with the said order, only insuring the stocks in Laoang for P67,000,

leaving those of Catubig totally unprotected; that when, on May 10,
1900, this latter pueblo was destroyed by fire Oria Hermanos & Co.
lost all its stocks there and could not collect the insurance of
P32,000 on the said property, which, through the fault, negligence,
and omission of Gutierrez Hermanos had not been insured. This
amount last mentioned, added to the premiums, expenses, and
interest paid by Oria Hermanos & Co. aggregates the sum of
P63,700, payment of which defendant demanded of plaintiff.
As a third counterclaim it is alleged that, on May 18, 1900, the firm
of Gutierrez Hermanos, complying with orders from Oria Hermanos,
& Co., insured against all war risks, in a certain insurance company
of London, England, whose agent in the Philippine Islands was
Stevenson & Co., the stock of hemp which the defendant company
had in the pueblo of Catarman, Samar, for 3,000 pounds sterling,
and paid the premiums thereon at the rate of 10 per cent per
quarter; that, during the first quarter for which the premiums had
been so paid, all the insured tobacco belonging to Oria Hermanos &
Co., in Catarman, was stolen by the insurgent forces; that then the
underwriter refused to pay the amount of the insurance on the
ground that Gutierrez Hermanos had made out the said insurance
defectively wherefore Oria Hermanos & Co. ordered its agent
Gutierrez Hermanos to institute proceedings before the courts of
these Islands for the collection of the amount of the said insurance;
but that plaintiff instead brought suit for the purpose before the
courts of England and by its negligence, indolence, and carelessness
had, during a period of eight years, obliged the defendant firm to
incur costly expenditures which, added to the amount of the
insurance premiums paid, attorney's fees, costs, interest, etc.,
aggregated P67,000; that for this sum, together with legal interests
thereon, it prayed that it be reimbursed by Gutierrez Hermanos.
With respect to the fourth counterclaim, the defendant firm set
forth that, under the commission contract and the current account
contract existing between both companies, Gutierrez Hermanos
bound itself to acquire for and forward to Oria Hermanos & Co. such
rice and other effects, including cash, as defendant might order from
plaintiff; but that, since the beginning of 1904, the firm of Gutierrez
Hermanos maliciously failed to make the consignments of rice and
other effects, under the false pretext that there were no such
articles in the market, thereby preventing the said firm of Oria
Hermanos & Co. from obtaining a profit of not less than P25,000
and, besides, injuring its fame, credit, and mercantile reputation in
the Island of Samar to the extent of approximately P50,000.
Therefore defendant prayed that Gutierrez Hermanos be sentenced
to pay it the sum of P75,000 as the amount of such losses and
damages occasioned it.
As the fifth counterclaim defendant alleged that, for a period of
twenty-two months, from the month of May, 1900, it chartered
several of its boats to the American military government; that the
charter parties aggregated a value of P400,000; that these contracts
were executed and the amounts thereof collected by Messrs. Oria &
Fuster, members of the defendant company, who turned the said
amounts into the current account they had with the firm of
Gutierrez Hermanos; but the plaintiff charged in the current
account, appropriated to itself, and collected from the funds of Oria
Hermanos & Co. which it had in its possession, 2 1/2 per cent of the
amount collected by reason of the said charter parties for
commission and brokerage, there being no stipulation whatever
relative to the collection of this commission; that Gutierrez
LAW ON BUSINESS ORGANIZATIONS Cases 2 35
Hermanos, moreover, charged against the said amount collected by
it 8 per cent compound interest; and that the sum in such wise
improperly charged and appropriated amounted, together with the
accumulated interest, to P15,000, which defendant prayed be
returned to it by Gutierrez Hermanos.
The object of the sixth counterclaim is the recovery of P31,000, in
which amount defendant, Oria Hermanos & Co., alleged it was
injured by Gutierrez Hermanos having arbitrarily charged in the
current account compound interest at the rate of 8 per cent per
semester from the year 1900 up to the time of the closing of the said
current account, while the agreement made between both firms
upon opening the said account was that the latter should bear a
mutual interest of 8 per cent per annum only.
On May 14, 1910, counsel for Gutierrez Hermanos filed a written
answer to the foregoing countercomplaints and counterclaims, and
prayed that plaintiff be absolved therefrom.
On August 1, 1910, this case came up for hearing and was continued
on the following days until on April 24, 1912, the Honorable S. del
Rosario, judge, rendering judgment therein, the dispositive part of
which is as follows: "Messrs. Oria Hermanos & Co. are sentenced to
pay to Messrs. Gutierrez Hermanos the sum of P147,204.28, with
interest thereon at the rate of 8 per cent per annum from the 30th
of June, 1909, after deduction of all the sums that result as balances,
in favor of the former, from the accounts that shall be rendered by
the latter, in conformity with the cross complaints and
counterclaims that have been admitted.
Messrs. Gutierrez Hermanos are sentenced:
(a) With respect to the first cross complaint, to render to Messrs.
Oria Hermanos & co. accounts, supported by vouchers, only of those
articles in the acquisition of which fraud, deceit, or error has been
proven and to which the following pronouncements refer.
(b) As regards the second cross complaint, to return to Messrs. Oria
Hermanos & Co., after due settlement of the accounts, all the sums
collected as internal-revenue tax and referred to in the invoices of
rice, salt, petroleum, lime, rattan, flour, aniseed spirit, cigarettes,
and other articles mentioned in their respective places in the record,
unless plaintiff shows in a satisfactory manner that it did actually pay
to the Bureau of Internal Revenue, the contents of Exhibit 178
notwithstanding, the sums which, for the reason aforestated, were
debited to defendant, in which case the latter may bring an action
against the said Bureau of Internal Revenue.
(c) With respect to the third cross complaint, plaintiff must render to
defendant an account, supported by vouchers, of the shipments of
rice concerned in the invoices examined in which fraud or error was
discovered, and said account shall embrace the 153 invoices
referred to by the litigants in this suit (page 324 of the transcript of
the stenographic notes, session of November 29, 1910).
(d) With regard to the fourth cross complaint, plaintiff shall render
an account, supported by vouchers, of all the purchases it made of
petroleum for Messrs. Oria Hermanos & Co., and in connection with
the invoices held in the latter's possession and referred to on page
391 of the transcript of the stenographic notes of the session of
November 29, 1910.

(e) In the matter of the second counterclaim, plaintiff shall return to
Messrs. Oria Hermanos & Co. the sum of P1,812 with interest
thereon at the rate of 8 per cent per annum from the 5th of May,
1910, to the date of payment. The interest due shall be
compounded after each semester, reckoning from June 1, 1900, and
both the principal and the interest so compounded shall bear the
same interest of 8 per cent per annum.
Messrs. Gutierrez Hermanos are absolved, in the first place, from
the second cross complaint in so far as concerns the demand therein
made for a rendition of accounts in connection with the hemp and
copra; and in the second place, from the first, third, fourth, fifth, and
sixth counterclaims.
Without special finding as to costs.
The parties, upon their notification of this judgment, duly excepted
thereto and by written motion prayed for a reopening of the case
and a new trial. These motions were overruled, with exception by
the appellants, and the proper bills of exceptions having been filed,
the same were approved and forwarded to the clerk of this court.
This action was brought to recover the sum of P147,204.28, the
balance of a current account opened on May 1, 1900, between
Gutierrez Hermanos and the commercial firm of Oria Hermanos &
Co., at the rate 8 per cent mutual interest up to June 30, 1909,
which sum was found to be owing by Oria Hermanos & Co. to the
commercial firm of Gutierrez Hermanos.
Other subject matters of the present suit are the rendition of
accounts by Gutierrez Hermanos, as commission agent, to Oria
Hermanos & Co., as principal, and the collection of various sums
demanded by the latter in the cross complaints and counterclaims
filed, during the trial, by its counsel against the claim made by
Gutierrez Hermanos for the payment of the amount specified in the
preceding paragraph.
To prove the propriety and justice of its complaint, Gutierrez
Hermanos, plaintiff, alleged: That, in accordance with the agreement
made, it sent semiannually a general account that comprised a
statement of the business transacted during the preceding six
months, to Oria Hermanos & Co. who, after examining the account
with its specification and vouchers, sometimes approved the same
without comment of any kind, and at others, after some objections,
but that, in the latter cases, upon explanations being subsequently
given by Gutierrez Hermanos, the defendant firm used at last to
accept the account rendered; that such was the procedure followed
during the nine years approximately that both firms maintained
commercial relations, and that the record showed that during the
said nine years Oria Hermanos & Co. had given in favor of Gutierrez
Hermanos 17 agreements or approvals of account, the last of which,
transcribed in the complaint, is of the following tenor:
LAOAG, March 9, 1909.
Messrs. GUTIERREZ HERMANOS, Manila.
DEAR SIRS: In our possession, your very esteemed letter dated
December 31 last, from which we have withdrawn the extract of our
current account with your firm, closed the same day, showing a
balance in your favor of P144,473.78, which extract meets with our
approval.
LAW ON BUSINESS ORGANIZATIONS Cases 2 36
We remain, Yours, very respectfully, ORIA
HERMANOS & Co.
That, on May 25, 1909, the plaintiff firm notified the defendant firm
that it could not continue to do business with the latter and
therefore the current account stipulated between both parties
would be closed within a period of thirty days; plaintiff therefore
transmitted to defendant a general detailed account that comprised
the period from January, 1909, to June 30 of the same year, with the
warning that after that date (May 25, 1909) defendant would have
to pay the debit balance, inasmuch as, although the said last account
had not been approved, no objection whatever had been made
thereto by Oria Hermanos & Co. Therefore in the said letter of May
25, plaintiff demanded of defendant the payment of the sum
mentioned of P147,204.28 which the latter had not paid in spite of
plaintiff's demands and notwithstanding the fact that defendant had
made no objection whatever to the last account rendered.
Counsel for defendant, Oria Hermanos & Co., after a denial of the
facts that had not been admitted prayed in special defense and in
four cross complaints that the plaintiff, Gutierrez Hermanos, be
compelled to present a general account, duly verified and supported
by vouchers, of all the shipments of hemp, copra, rice and other
effects specifically mentioned, and to render a final account in
conformity with the agreement made between both parties and
converting the details mentioned in the said cross complaints.
Notwithstanding the proof shown in the record of the certainty and
reality of the debt as a balance resulting from the current account
kept between the parties, it is of course impossible to determine the
net amount, the object of the claim presented by plaintiff, until
there shall have first been decided whether there should or not be
rendered a general account, accompanied by vouchers,
comprehensive of the business transacted in connection with the
different commercial articles dealt in, and of the mercantile
relations between both firms from May 1, 1900, to June 30, 1909,
and also whether Gutierrez Hermanos is indebted to Oria Hermanos
& Co. and what is the amount of the debt.
Even upon the supposition that the plaintiff, Gutierrez Hermanos, is
obliged to make a general rendition of accounts comprehensive of
the business transacted between both firms within the dates
mentioned, it is evident that, until it be known whether plaintiff is or
is not indebted to Oria Hermanos & Co. and what is the amount
owing as disclosed by the account rendered, it cannot be decided
whether plaintiff is or is not entitled to collect the whole amount
claimed in the complaint, for only in view of the result of the
rendition of accounts requested by plaintiff can it be lawfully
established whether Gutierrez Hermanos is a creditor of Oria
Hermanos & Co. and what amount is owing to it by the latter. All this
is referred to in the first error alleged by defendant.
In case it should be held that the law does not allow the rendition of
accounts requested by the defendant, Oria Hermanos & Co., and
that this latter is not a creditor of Gutierrez Hermanos, it is evident
of course that plaintiff would be unquestionably entitled to collect
the amount specified in the complaint, or some other amount duly
proved at trial to be owing it by defendant. It is therefore incumbent
upon us to elucidate hereinafter the propriety or impropriety of the
contentions made by defendant in its four cross complaints.
 LAW ON BUSINESS ORGANIZATIONS Cases 2 37

Defendant's counsel in his first cross-complaint and special defense commission agent, because there could be avoided neither the
prayed that the plaintiff, Gutierrez Hermanos, be compelled to brother resulting from their necessary examination, nor the heavy
render and present a general, final, complete and verified account, expenses and loss of time that are the inevitable accompaniment of
pursuant to the agreement made between both parties, inasmuch as this class of work."
plaintiff bound itself to send periodically to defendant a note or
numerical extract of the current account, and in case the mercantile When an account has been presented or rendered and has been
relations between both firms should come to an end or be finally approved by the party whom it concerns or interests, it is not proper
closed, Gutierrez Hermanos bound itself to present a general and to revise it, unless it should be proved that in its approval there was
complete account, duly supported by vouchers, and defendant, in deceit, fraud, or error seriously prejudicial to the party who gave
accepting and approving the semiannual accounts rendered by such approval. Arts. 1265 and 1266, Civil Code.)
plaintiff, did not waive its right to demand the general account
In the decision rendered in the case of Pastor vs. Nicasio, (6 Phil.
agreed upon, at the time of the final closing of the said current
Rep., 152), the following doctrine was laid down;
account, the obligation to furnish which was not complied with by
the plaintiff, Gutierrez Hermanos.
When accounts of the agent to the principal are once approved by
the principal, the latter has no right to ask afterwards for a revision
The latter denied in its answer the allegations made by Oria
of the same or for a detailed account of the business, unless he can
Hermanos & Co. in its cross-complaint, and set forth that, in
show that there was fraud, deceit, error or mistake in the approval
consequence of the mutual current account opened between the
of the accounts — facts not proven in this case.
parties from the year 1900, plaintiff transmitted weekly or
fortnightly, according to circumstances, a specific statement of the
The record does not show it to have been duly proven that upon
transactions effected, as well as, semiannually, a general account of
Oria Hermanos & Co. giving its approval to the 17 accounts
the business done during the six months last elapsed, and that
presented by Gutierrez Hermanos there was deceit, fraud, or
defendant, after an examination of such semiannual account
mistake prejudicial to the former's interests. For the sole reason that
together with its details and vouchers, and after some objections
Gutierrez Hermanos, upon closing the current account with Oria
thereto had been explained, was accustomed to prove the same.
Hermanos & Co. was obliged, certainly an unwarranted obligation,
This was the produre carried on for more than nine years during
to render a general account comprehensive of all the business
which Oria Hermanos & Co. from time to time approved each one of
transacted between both parties during more than nine years, and
the 17 account that were presented to it, and upon Gutierrez
there being no proof of the alleged agreement between them, it
Hermanos closing the current account from January to June, 1909, it
would be improper to hold that the plaintiff is obliged to render and
also presented to defendant a general detailed account, which,
present a general account in the sense requested by Oria Hermanos
nothwithstanding that no objection whatever was made to it, was
& Co. in its first cross-complaint.
not approved. Therefore the complaint was filed that initiated this
litigation. With respect to the second cross-complaint, relative to the sale on
commission of lots of hemp and copra by defendants to plaintiff
Had the agreement between the parties been recorded with all its
during the period from may, 1900, until the close of the mercantile
conditions in some instrument, it would have appeared whether
relations between both firms, it was alleged that for such sale or sale
Gutierrez Hermanos actually bound itself to present to Oria
on commission Gutierrez Hermanos collected a large and important
Hermanos and Co., besides the semiannual accounts rendered, a
commission of many thousands of pesos and credited defendant in
general account comprising all the business undertaken between
the current account with lesser prices than those obtained and that
1900 and June, 1909, on which latter date it was considered by
defendant received information that these lots of hemp and copra
Gutierrez Hermanos as terminated. The allegation made by
which were said to have sold to third persons were afterwards
defendant relative to this point had not been substantiated by any
found to have been purchased by the firm of Gutierrez Hermanos
evidence whatever, and therefore there is no reason nor legal
itself, to the fraud, injury, and prejudice of the defendant, Oria
ground whereby plaintiff could be compelled to present that general
Hermanos and Co.; wherefore the latter prayed that plaintiff should
account requested in the first cross-complaint.
present a general and complete account, duly verified by vouchers
and with the details specified of each and all of the shipments of
It is, in our opinion, appropriate it insert hereinafter what the trial
hemp and copra forwarded to plaintiff from May, 1900, to 1909.
court, in the judgment rendered, says with respect to this matter: "If
These facts were denied by plaintiff, and the court, in view of the
commission agents be obliged to render to their principals itemized
evidence adduced by both parties, held that the record showed
accounts, supported by vouchers, of the sums they collect as
absolutely no proof that plaintiff, Gutierrez Hermanos, had
commission and of the transactions effected by them in relation
committed any fraud or error prejudicial to defendant.
with their principals, as often as the latter may desire, in cases
where there arises some trouble, some difference of opinion or a
In fact it was not proved that Gutierrez Hermanos credited in the
conflict of interests, or where the commission agents close the
current account a lesser price than that obtained from the sale on
account, as occurs in the case at bar because the principals did not
commission of the lots of hemp and copra sent to it by Oria
pay what they were owing or because, instead of the debt being
Hermanos and Co., for from the documentary evidence consisting of
diminished, it was increased, the commission contract would
account transmitted by plaintiff to the commercial firms of
become an inexhaustible and never ending source of litigation and
Stevenson and Co. and Warner, Barnes and Co. (Limited), in
of claims without number, a formidable arm for spiteful principals
collection of the price of hemp and copra acquired by these houses,
against which it would be insufficient to oppose an arsenal of
it appears that the prices fixed at sale to the latter are the same and
vouchers such as might be treasured by the most prescient
agree with those specified in the statements transmitted by plaintiff

to defendant, Oria Hermanos and Co., and that the hemp and copra
shipped by the defendant were sold on commission to third persons
— that is, to the aforesaid commercial firms.
The charge laid against plaintiff, that it did not disclose the name of
the commercial firm or concern from whom the hemp that it sold
had come, does not, although it may have concealed this fact,
constitute a fraudulent act, nor one originating civil liability,
inasmuch as plaintiff realized on the lots of hemp under the marks
of Oria Hermanos & Co. which they bore from their point of origin
and by which they were known both in Manila and abroad (Exhibit
DD) and not only in the invoices, but also in the accounts presented
by Gutierrez Hermanos upon its collecting the price of such hemp
sold on commission, there appeared the marks stamped by Oria
Hermanos & Co. on their lots of hemp, and therefore it cannot be
affirmed that Gutierrez Hermanos superseded Oria Hermanos & Co.
as the owner of the hemp that plaintiff sold on commission and that
came from defendant during the more than nine years in which the
former was a commission agent of the latter.
With respect to the fact of Gutierrez Hermanos not having disclosed
the name of the concern to which the hemp belonged, in the cases
where plaintiff sold it in its own name, plaintiff's procedure cannot
be qualified as deceitful or fraudulent, inasmuch as article 245 of the
Code of Commerce authorized it to act as it did, to contract on its
own account without need of disclosing the name of its principal, in
which case Gutierrez Hermanos was liable to the person or concern
with whom it contracted, as if the business were its own. So, then,
the purchaser has no right of action against the principal, nor the
latter against the former, without prejudice to the actions which lie
respectively in behalf of the principal and the commission agent,
pursuant to the provisions of article 246 of the Civil Code.
With regard to the lots of copra, notwithstanding the allegations
made in this cross-complaint, defendant has not produced any proof
whatever of the facts charged, in face of plaintiff's denial in its
answer. Therefore, in consideration of the reasons set forth with
respect to the lots of hemp, the judgment of the lower court
disallowing defendant's petition that plaintiff render accounts
relative to the sales of hemp and copra is held to be in accordance
with law.
In this part of the judgment of the trial court consideration was also
given to the fact of plaintiff's having debited against defendant in
the account rendered it the payment of the internal-revenue tax of
one-third of 1 per cent.
With respect to the tax paid on the price of the hemp and copra sold
by the plaintiff in the name and for the account of the defendant,
the procedure of the plaintiff is perfectly legal, in accordance with
the provisions of section 139 of the Internal Revenue Law, in laying
upon Oria Hermanos & Co. the obligation to pay the said tax as the
owner of the hemp and copra sold, and, therefore, the claim made
by defendant against the account drawn up by Gutierrez Hermanos
is unreasonable and unfounded.
As regards the tax of one-third of 1 per cent which, according to
accounts presented by Gutierrez Hermanos to Oria Hermanos & Co.,
plaintiff had paid on the price of the rice, salt, kerosene, lime, mats,
rattan, flour, anise-seed spirits, and cigarettes, inasmuch as the said
section of the above cited Act obliges the vendors and not the
purchasers of these articles to pay the said tax, it is undeniable that
LAW ON BUSINESS ORGANIZATIONS Cases 2 38
the firm of Gutierrez Hermanos that had acquired the said articles
which were forwarded to Oria Hermanos & Co. should neither have
paid the tax in question, nor should have charged it for payment
against defendant, since it had already been paid to the Government
by the owners of the articles sold to plaintiff.
In view of the provisions of law contained in the aforesaid section
139, it is not understood how Gutierrez Hermanos could have been
compelled to pay the said tax on the rice, salt, petroleum, lime,
mats, rattan, flour, anise-seed spirit, and cigarettes, nor on the price
of the beer, on the supposition that plaintiff acquired these articles
from third persons in this city. In the case of the rice imported from
abroad, the payment of the tax thereon pertains to the importer
who sells it to third persons.
If Gutierrez Hermanos made a mistake, notwithstanding the clear
phraseology of the said section, said mistake should not prejudice
defendant who, in July, 1905, had already stated that it did not
agree with plaintiff's action in the matter for, in the letter Exhibit FF,
defendant demanded that plaintiff investigate the case in order to
avoid a double payment of the tax.
For the foregoing reasons the plaintiffs, Gutierrez Hermanos, after
liquidation of the sums paid as a tax of one-third of 1 per cent on the
price of the rice acquired in this city and of the salt, kerosene, lime,
mats, flour, anise-seed spirit, cigarettes, and beer, referred to in the
second counter-complaint, must pay to Oria Hermanos & Co. the
amount shown by said liquidation to be owing.
As regards the third cross-complaint, wherein it is alleged that fraud,
deceit, or error was committed or incurred by Gutierrez Hermanos
in connection with the accounts for the rice forwarded to Oria
Hermanos & Co., a fact denied by plaintiff, the trial judge, in view of
the evidence introduced at the hearing of the case, established the
following conclusion:
Justice, therefore, demands that Messers. Gutierrez Hermanos
render a new account of the lots of rice which they shipped to
Messrs. Oria Hermanos & Co., inasmuch as they, as proved in the
verification of some of the lots, committed the fraud of having
collected a commission of 2 per cent for the purchase of the rice, as
commission agents, in addition to a profit in reference to the said
lots, in their capacity of merchants, on the price of the rice imported
by them from Saigon.
If they acted as committed agents, they could have contented
themselves with the 2 per cent commission and should not have
charged any extra price. If, as commission agents, it was more
advantageous for them to reap the profits from the rice imported
from Saigon, they should neither have charged nor collected the 2
per cent commission. The commission agent is obliged to acquire
the articles or effects for which he has received an order from his
principal in the most advantageous and less onerous conditions for
the latter. Such an obligation, prescribed by article 258 of the Code
of Commerce, was not fulfilled by the procedure observed by
plaintiff in the matter of the verified invoices of rice, in some of
which, as has been proved, there appears to have been charged a
larger amount than the cost price.
This court reserves its opinion, unit at such proper time it shall have
seen to result, shown by the new accounts to be presented by
plaintiff, as to whether, in the rice accounts rendered by it to

defendant, there was fraud or only error susceptible of correction,
for plaintiff alleges in turn, as shown in the letter Exhibit ññ, that
Oria Hermanos & Co. required plaintiff to increase the price in the
invoices of rice, anise-seed spirit, petroleum, etc., by 25 per cent of
the cost of these articles. Therefore plaintiff shall render an account,
verified by vouchers, to Oria Hermanos of all the shipments of rice
concerned, not only in the invoices examined, but also ion those
that have not been examined, up to No. 153, which invoices are
those mentioned on page 324 of the transcript of the stenographic
notes of the session of November 29, 1910.
The approval and agreement given by defendant to the 17
semiannual accounts presented by plaintiff is no impediment to a
revision of the same, once it shall have been shown that there was
fraud, error, or serious in correction prejudicial to the party who
accepted the said accounts. The law which protects him who acts in
good faith cannot permit any considerable prejudice to be caused to
the rights and interests of a third party who had neither the
occasion nor the opportunity to acquaint himself with the truth of
the facts which he had admitted as true in such manner as they
were presented to him.
Oria Hermanos & Co., upon its accepting and approving the accounts
which were presented to it by Gutierrez Hermanos, as transcripts or
copies from the latter's books, did not have an opportunity to make
the required verification of the entries of rice contained in the said
accounts or of the invoices of this article in all their details, and
whenever it has discovered that Gutierrez Hermanos, as commission
agent, has made overcharged or placed extra prices in addition to
the 2 per cent commission, it has a right to demand reimbursement
of the excess in price which it had erroneously paid as principal. The
judgment of the lower court must, therefore, be affirmed with
respect to the entries of rice made in the 170 invoices referred to in
the accounts presented by plaintiff, by means of a revision of the
accounts presented in connection with the said article of the Code of
Commerce.
With respect to the fourth crosscomplaint relative to Gutierrez
Hermanos having entered in the invoices transmitted to Oria
Hermanos & Co. higher prices than those paid for the salt,
beverages, tobacco, wine, beer, and groceries, in spite of the
allegations made by plaintiff the record of the proceedings shows no
proof of the truth of the act charged to plaintiff. The fact of not
having recorded in the invoices of the said effects shipped to
defendant the names of the persons who had acquired them does
not constitute proof nor even a presumption of illegal procedure on
the part of Gutierrez Hermanos. Neither is plaintiff obliged by any
law to state the names of the owners of such articles, nor does the
omission thereof show bad faith on the part of the commission
agents.
As regards the petroleum, it is undeniable that in the invoices to
which the fourth cross-complaint refers higher prices were given
than those it actually cost. Moreover, Oria Hermanos & Co. is
entitled to the discount obtained by the commission house from the
commercial firm which sold the petroleum.
The trial judge, as grounds for his finding, says the following: "It is
therefore evident that, according to the proofs submitted, Messrs.
Gutierrez Hermanos committed fraud in the purchase and
shipments of the said article, not only because they kept the
discount allowed by the selling firm by which their principals, for
LAW ON BUSINESS ORGANIZATIONS Cases 2 39
whom they purchased the petroleum should have profited, and not
the commission agents who acted for them simply in the capacity of
agents; but also because in one of the invoices they charged,
besides, a greater price than they paid to the vendors, and then
collected a commission of 2 per cent on all the invoices. It is the
obligation of commission agents to make the purchases for their
principals on the most advantageous terms. For this they are paid
the rate of commission stipulated. They have no right to keep the
discount allowed by the vendors on the price of the articles they
purchase for their principals, even less to increase, to their benefit,
the price charged them."
In consideration, then, of evidence introduced relative to the
purchase of the petroleum shipped to defendant, referred to in the
fourth cross-complaint, plaintiff must render an account, verified by
vouchers, of the price of all the petroleum that it acquired for Oria
Hermanos & Co. and which is covered by the invoices mentioned on
page 391 of the transcript of the stenographic notes taken of the
session of December 28, 1910.
The judgment of the lower court treats of the fact that Gutierrez
Hermanos charged interest on the value of the articles which it had
purchased for Oria Hermanos & Co., before even having paid the
vendors the price of the articles acquired. Defendant has complaint
against this procedure on the part of plaintiff and qualifies as
improper and illegal the collection of the 8 per cent interest on the
price of the effects forwarded to Oria Hermanos & Co. from the date
of their shipment, when actual payment of such purchases was
made many days afterwards.
The accounts presented by Gutierrez Hermanos, wherein note was
made of the collection of interest at the rate of 8 per cent on the
price of the effects acquired by plaintiff for Oria Hermanos & Co. and
shipped to defendant for its disposal, notwithstanding that they
were not paid for unit many days afterwards, were approved and
accepted by plaintiff without any objection thereto whatever and
with no protest against the notation of the interest on the price of
the articles purchased. Therefore, aside from the reasons given by
the lower court in his judgment and relative to this point, it can not
be held that there was either fraud or error in the procedure
observed by Gutierrez Hermanos in charging in its account the
stipulated interest from the date when it acquired the effects,
afterwards shipped to the defendant, Oria Hermanos & Co., because
Gutierrez Hermanos could have paid cash for the articles purchased.
Even though payment might have been delayed for a few days more
it is certain that Gutierrez Hermanos as commission agent was
obliged to pay the price of the articles acquired and, consequently,
said price began to draw interest chargeable to the consignee who,
as owner of such articles, could dispose of them freely. For these
reasons defendant's claim can not be sustained.
We now take up the fifth special defense, or the first counterclaim
presented by defendant against plaintiff, wherein it is prayed that
the latter be sentenced to pay to the former the sum of P13,894.60,
together with the legal interest thereon, which sum is the difference
between the 5 per cent which was all Oria Hermanos & Co. should
have the sum of P47,649, the debt contracted by Juan T. Molleda in
favor of Gutierrez Hermanos and transferred to Oria Hermanos and
Co. who assumed its payment instead of Molleda.
The reasons, set forth in the judgment appealed from and based on
documentary evidence, are so clear and conclusive that they could

not be rejected by defendant, nor invalidated at trial by other
evidence in rebuttal. Consequently, we are constrained to admit
them as decisive of the point in controversy and as duly showing
that the interest stipulated on the amount which was transferred to
Oria Hermanos and Co. is 8 per cent and not 5 per cent as defendant
claims. Therefore the sum of P13,894.60 claimed cannot be
recovered, and it is held that the finding made by the trial judge in
respect to the first counterclaim filed by defendant is in accord with
the law and the evidence. This finding is based on the following
grounds: "If the firm of Molleda and Oria as well as that of Oria
Hermanos & Co., of which latter Mr. Tomas Oria is manager, both
consented to Messrs. Gutierrez Hermanos charging in all the
extracts of current account sent to them an interest of 8 per cent on
the sum of P47,649 56; and if they willingly and constantly
acquiesced in the payment of a particular rate of interest instead of
that of 5 per cent, during nine years without raising any objection
whatever, they are not entitled to obtained restitution for the
difference paid of 3 per cent, nor have they any right to consider as
unlawfully collected the 8 per cent interest on the sum above
mentioned. The record shows no proof of the existence of any of the
vices which, according to law, might invalidate the consent given by
defendant to the collection from it of the interest of 8 per cent,
which must be that stipulated, nor was such a vice alleged by Oria
Hermanos & Co." Moreover, against this finding in plaintiff's favor
no error whatever has been alleged by defendant.
In the second counterclaim, the sixth special defense, defendant
prays that Gutierrez Hermanos be sentenced to the payment of
P63,700, with legal interest thereon from the date of the
presentation of this counterclaim, and alleged; that the firm of
Gutierrez Hermanos, disregarding the instructions of Molleda and
Oria, the predecessor of Oria Hermanos and Co., merely insured the
stocks of hemp and merchandise which the latter had in Laoang, for
an imaginary value of P67,000, leaving totally unprotected the
stocks of hemp and merchandise in Catubig, valued at P32,000; that
such failure to comply with said instruction caused Oria Hermanos
and Co., by reason of the fire that occurred in Catubig, to lose the
sum of P63,700, including the premiums. expenses, and interest
paid, and that defendant, immediately upon discovery of the loss by
plaintiff's fault and negligence, filed claim therefor and protested
against the same.
In answer Gutierrez Hermanos alleged that in the letter from Oria
Hermanos and Co., of the date of April 28, 1900, the latter stated
that it recommended to plaintiff the question of the insurance of the
warehouses in Laoang and of the houses in Catubig, advised that if
the stocks of hemp and merchandise therein were insured, as
defendant believed they were, plaintiff should endeavor to increase
the insurance thereon; and that in another letter of the same date
Don Tomas Oria, after relating the fact that the insurgents had
attacked the pueblo of Catubig and killed the troops there
garrisoned, stated that he earnestly recommended to Gutierrez the
matter of the insurance in order that it might be made as soon as
possible in the manner explained in the official letter of the same
date.
Gutierrez Hermanos, supposing that Catubig might already have
been burned and destroyed as a result of the occurrences related by
Oria in his letter, judging by the news published in the newspapers
of this city on May 2, 1900, deemed that it would be a useless
expense to increase the insurance of the merchandise held in stock
LAW ON BUSINESS ORGANIZATIONS Cases 2 40
in the said pueblo under ordinary fire insurance which was that
taken out by the firm of Molleda and Oria, for the reason that the
insurance companies would refuse to pay the amount of the
insurance in case the damage was caused by war, invasion, riot,
military force, etc. As Gutierrez Hermanos then had no means
whereby it might communicates with Molleda and Oria to request
specific instructions from this latter firm in regard to the insurance
ordered, which ordinary and not war insurance, it had to consult
Don Casimiro Oria, a partner of Oria Hermanos and Co., and this
gentleman, with a full knowledge of the state of affairs in Catubig,
advised that no further attempt be made to increase the ordinary
fire insurance on the goods in Catubig, because it would be a useless
expense and because there were well-founded reasons for
supposing that at that date the pueblo had already been completely
destroyed, together with the buildings and stocks of merchandise
which it was proposed to insure. But after taking into account the
importance of the buildings and the large stocks of goods stored
in Laoang, which pueblo, according to a letter from Oria to Gutierrez
Hermanos, was also in danger of being attacked by the insurgents,
plaintiff proceeded to insure them against war risks for three
months for P7,000 sterling, a transaction which was communicated
by plaintiff to Molleda and Oria by a letter of May 5, 1900, and
which this latter firm acknowledged without making any objection
whatever to the war insurance placed; that, since the 2d of June of
the same year, neither was any claim or protest made by the firm of
Oria Hermanos, but, on the contrary, Oria Hermanos and Co. applied
to the Government of the United States claiming an indemnity of
P90,000 Philippine currency for the burning of the buildings and
goods in the pueblo of Catubig — a claim still pending decision by
the Government.
The judge of the Court of First Instance, deciding the question raised
in this counterclaim, set forth among others the following
considerations: "If Messrs. Gutierrez Hermanos had taken steps to
insure the stocks of merchandise in Catubig and had declared to any
officer of the insuring company the truth about the terrible
slaughter which had just taken place, it would have been impossible
to obtain a war insurance on the said merchandise; and if, instead of
declaring the truth, plaintiff had omitted it, the insurance if obtained
could not have been collected. The insurance company would have
learned of the circumstances which had not been stated and had
been omitted in the application and would have refused to pay the
insurance, as it did in the case of the Catarman insurance, as will be
seen further on. And if plaintiff had applied to the English courts, as
it did in the case referred to, the result would have been the same."
Even though Gutierrez Hermanos had increased by value of the
insurance on the hemp and merchandise in Catubig through means
of ordinary fire insurance, pursuant to the instructions given by
Molleda and Oria, the predecessors of Oria Hermanos & Co. and
whose rights this latter firm represents, the same result would have
followed, inasmuch as in this class of insurance the insuring
company does not assume risks for fires and damages caused by
war, riot, and military force; and as in the official letter
aforementioned plaintiff was not authorized to increase the
insurance through means of a war insurance policy, it is
unquestionable that plaintiff, in not increasing the ordinary
insurance, proceeded in a prudent and reasonable manner and for
the benefit of the defendant by saving the latter from uselessly
paying an important premium for an insurance which it afterwards
could not have collected, Furthermore, the news was already

disseminated in Manila that the pueblo of Catubig had been
completely burned to the ground. Not only, therefore, would it have
been impossible to obtain the increase of an ordinary insurance, but
even a war insurance, though offering to pay a large and excessive
premium.
In the letter of the date of May 34, 1900, Exhibit 5, page 190 of the
file of the record, Gutierrez Hermanos informed Oria Hermanos and
Co. that the insurance firm refused to pay the amount of the
insurance on the merchandise in Catubig, for the reason that the
cases of fire caused through military force, etc., were excluded from
the policy. So that even though Gutierrez Hermanos had, in
compliance with orders from Oria Hermanos & Co., increased the
amount of the insurance on the stock of merchandise stored in
Catubig, Oria Hermanos & Co. would not have been benefited
thereby, because the insurance company would have refused to pay
the increase, just as it did not pay the amount of the original
insurance for the reason aforementioned. Furthermore, as we have
already stated, the order to increase the insurance only refers to
ordinary insurance against fire, and not to extraordinary insurance
against war risks.
With respect to the war insurance placed on the stocks of goods
in Laoang, the trial court could not in accordance with law hold
plaintiff to be liable for the payment of the sum Oria Hermanos and
Co. did not protest nor object in any wise against the placing of the
said war insurance on the merchandise in Laoang, and also because
in the second counterclaim no petition or demand whatever was
made in connection with this transaction. For these reasons
therefore, Gutierrez Hermanos must be absolved of the second
counterclaim.
We now come to the third counterclaim, the seventh special
defense presented by defendant, wherein petition was made that
the firm of Gutierrez Hermanos be compelled to pay to Oria
Hermanos the sum of P67,000, besides the legal interest thereon
since the filing of this claim, which sum was the amount of the
insurance, premiums paid, fees, costs, interest, and charges for
telegrams, etc., alleged to have been expended and lost through the
inattention, negligence, improvidence, and carelessness of the
plaintiff, Gutierrez Hermanos, without defendant's being able to
collect the amount of the insurance on the stock of hemp in
Catarman, Samar.
In a letter of May 10, 1900, addressed by Oria Hermanos & Co. to
Gutierrez Hermanos, the former commissioned the latter to try to
insure against war risks some 1,400 piculs of hemp that Oria
Hermanos and Co. had in the pueblo of Catarman which had been
evacuated by the American troops; and in another letter of the same
date Tomas Oria said to Gutierrez Hermanos that Catarman had
been evacuated by the troops three days after the departure of the
steamer Santander which was unable to load about 3,000 piculs of
hemp that his firm had there, and, as he knew that the said pueblo
had not been burned, he wished to have insurance taken out on the
value of about 1,400 piculs of hemp stored in the Delgado
warehouse. Gutierrez Hermanos had Stevenson and Co., of Manila,
cable to the latter's head office in London for the desired insurance,
and as soon as it was obtained Gutierrez Hermanos wrote to Oria
Hermanos & Co. informing defendant that plaintiff had insured
against war risks 1,400 piculs of hemp deposited in the Delgado
warehouse in Catarman, for three months from the 18th of May,
1900.
LAW ON BUSINESS ORGANIZATIONS Cases 2 41
A few days subsequent to the placing of this insurance, Oria
Hermanos & Co. ordered Gutierrez Hermanos to collect the amount
of the insurance, for the reason that all the stock of hemp in
Catarman had been stolen by the insurgents. The representative of
the underwriter refused, however, to pay the amount of the
insurance because Oria Hermanos and Co. had concealed certain
facts which, had they been known to the underwriter, would have
deterred the company from issuing a policy for the hemp, and all the
steps taken for the purpose of obtaining the collection of the £3,000
sterling for which the hemp had been insured, resulted in failure.
Therefore, on petition of the firm of Oria Hermanos & Co. through
the firm of Stevenson and Co., suit was duly brought before the
English courts in London. The prosecution of this suit was
commended to English attorneys to whom Oria Hermanos & Co.
furnished, through Gutierrez Hermanos, all the documents and data
conducive to a successful issue. Notwithstanding, the claim of Oria
Hermanos & Co. was rejected by the London courts. No liability
attached to Gutierrez Hermanos for the failure of the suit in London.
The firm of Gutierrez Hermanos merely complied with the orders of
Oria Hermanos & Co. to insure the stock of hemp in Cataraman, with
an insurance company established in London, through Stevenson
and Co. of Manila, in view of the fact that there was no insurance
company in this city which would issue policies against war risks. For
this purpose, by a letter of October 17, 1905, Exhibit F-2 Oria
Hermanos & Co. transmitted to Gutierrez Hermanos the power of
attorney and the letter for Messrs. Horsley, Kibble and Co. for the
purpose of the latter's negotiating with the underwriters for some
honorable settlement of the matter, during the time required for
the receipt of all the documents that had been requested. In
another letter of January 25, 1906, Oria Hermanos & Co. stated to
Stevenson and Co. that it took pleasure in replying to the latter's
favor of the 19th instant, addressed to Mr. Oria; that Delgado's
letter to Oria of the date of October 19, 1901, was forwarded in the
original to London, through Messrs. Gutierrez Hermanos, to
Stevenson and Co., on July 16, 1904; that defendant inclosed a copy
of Delgado's declaration before the municipal judge of Catarman,
transmitted to Stevenson and Co. on November 21, 1903; and that
the two letters to Gutierrez Hermanos, of May 28, 1903, and
October 2, 1901, as well as the memorandum of the values of the
goods, had been transmitted to Gutierrez Hermanos with a
telegraphic order to said firm to deliver them to Stevenson and Co. If
the amount of the insurance could not afterwards be collected, it
was not through fault of Gutierrez Hermanos, who acted in the
matter in accordance with instructions from Oria Hermanos and Co.
So that firm of Gutierrez Hermanos was a mere conductor through
which the stock of hemp in Catarman was insured by a firm in
London through mediation of Messrs. Stevenson and Co., for the
firm of Oria Hermanos and Co. had to grant a power of attorney on
behalf of the said Messrs. Horsley, Kibble and Co. in order that the
latter might represent the former before the courts in England. If
afterwards the representatives of Oria Hermanos and Co. did not
obtain a favorable decision in those courts, the loss of the suit
cannot be ascribed to either the fault or the negligence of Gutierrez
Hermanos, inasmuch as this plaintiff merely complied with the
orders of the defendant, Oria Hermanos and Co., to bring suit in the
English courts, not against Stevenson and Co. of these Islands, but
against the insurance company of London.

The firm of Gutierrez Hermanos, in executing orders and charges of
Oria Hermanos and Co., became, by virtue of an implied agency, an
agent of the latter and, in the fulfillment of the orders of the
principal, adjusted its action to the instructions of Oria Hermanos &
Co. The record does not show that in so doing it proceeded with
negligence or with deceit. Therefore there is no reason nor legal
ground whereby plaintiff should be compelled to pay the sum
demanded in the third counterclaim for the causes therein stated.
(Arts. 1710, 1719 and 1726 of the Civil Code.) Consequently
Gutierrez Hermanos should be absolved from the third counterclaim
filed by defendant.
In the fourth counterclaim, the eighth special defense, defendant,
Oria Hermanos & Co., prays that plaintiff, Gutierrez Hermanos, be
sentenced to pay P75,000 for losses and damages, with interest,
inasmuch as by reason of a contract executed between both parties,
plaintiff bound itself to acquire for and transmit to defendant rice
and other articles, including coin, which Oria Hermanos & Co. might
request at Laoang, Samar, and so plaintiff did; but since 1904, the
fifth year of their mercantile relations, plaintiff failed repeatedly to
comply with its obligation to send the rice and other article
requested by defendant, totally sometimes and at other times
partially limiting the shipment of the effects ordered and excusing
itself from remitting money on the pretext that it could not obtain
insurance for the shipment of cash; that defendant afterwards
discovered that there were in this city large stocks of rice and other
effects which plaintiff [defendant] had requested, and could surely
have been sold in Laoang and the pueblos of the coast of Samar, as
Oria Hermanos & Co. was the only importing firm in that island; and
had defendant received from plaintiff the rice and the other effects
the former had requested to be shipped to it, defendant would have
obtained a profit of not less than P25,000 whereupon it could have
bought large quantities of hemp which would have brought it great
profit. Defendant further alleged that such failure on the part of
plaintiff to comply with the agreement made caused injury to the
reputation and mercantile credit of Oria Hermanos and Co., in
Samar, and losses and damages of the value of about P50,000, the
total of the losses and damages suffered on both accounts
amounting to a sum of not less than P75, 000; and that the motive
of such procedure on the part of Gutierrez Hermanos was to injure
and destroy defendant's credit in Laoang and on the entire coast of
Samar, because plaintiff planned to establish there a business of its
own like that of Oria Hermanos and Co.
Plaintiff, Gutierrez Hermanos, specifically denied the facts alleged by
defendant in its counterclaim and set forth that the evidence
introduced relative to such facts showed that since 1904 plaintiff
had been reducing the shipments of rice, wine, and other effects to
such extent that in 1906 and 1907 cases occurred where the order
shipped was reduced to one-third, and in 1908 also where the
steamer Serantes was sent without any cargo whatever, for the
reason that the debit balance in defendant's current account
amounted, in 1905, to P321,000 and because Oria Hermanos and
Co. did not send a quantity of hemp and copra sufficient in value to
cover the value of the remittance of money and of the shipments of
the effects requested; that defendant, instead of sending hemp to
plaintiff for the gradual payment of its debt, sent it to Cebu; that
therefore Oria Hermanos & Co. had no well-founded grounds
whereupon to claim indemnity for losses and damages, especially
since, according to the stipulations of the agreement and as shown
by the evidence, the part of the credit utilized by defendant was to
LAW ON BUSINESS ORGANIZATIONS Cases 2 42
be covered and paid for with the price of the hemp, copra and other
effects which Oria Hermanos & Co. should have to send to Gutierrez
Hermanos; and that, if the debtor balance of the current account
continued to increase instead of decreasing, it must be concluded
that the procedure of Gutierrez Hermanos in reducing the amount
of the shipments of the orders was due to the conduct of Oria
Hermanos & Co. who did not endeavor by the shipment of copra,
hemp, and other effects gradually to pay even a part of the credit
opened, notwithstanding that the rights and obligations established
in the contract should have been mutual.
If defendant, without concerning itself with diminishing its debtor
balance, did no more than order goods for sale and remit drafts to
the paid by Gutierrez Hermanos, not sending in exchange to plaintiff
hemp, copra, and other effects, plaintiff, Gutierrez Hermanos, in
refusing discretionally to furnish certain effects to defendant and to
pay drafts drawn by the latter, did not violate the obligations it
assumed in the contract.
The fact that the debtor balance accepted by Oria Hermanos and Co.
on March 9, 1909, Exhibit A, was raised to P144,473.78, is the best
proof of the good conduct observed by plaintiff during the nine
years of mercantile relations between both parties, and is at the
same time the most graphical demonstration that defendant's
contention made in its fourth counterclaim is not based on any just
or legal grounds.
Article 1100, last paragraph of subarticle 2, of the Civil Code
prescribes: "In mutual obligations none of the persons bound shall
incur default if the other does not fulfill or does not submit to
properly fulfill what is incumbent upon him. From the time one of
the persons obligated fulfills his obligation the default begins for the
other party." Article 1124 of the same Code provides as follows:
"The right to rescind the obligations is considered as implied in
mutual ones, in case one of the obligated persons does not comply
with what is incumbent upon him.
The person prejudiced may chose between exacting the fulfillment
of the obligation or its rescission, with indemnity for damages and
payment of interest in either case. He may also demand the
rescission, even after having requested its fulfillment, should the
latter appear impossible." Under these grounds we hold that the
absolutory finding contained in the judgment appealed from is in
accordance with the law and the evidence.
In the fifth counterclaim, the ninth special defense, defendant, Oria
Hermanos and CO., prayed that Gutierrez Hermanos be sentenced
to pay the sum of P15,000, together with the legal interest thereon,
inasmuch as plaintiff, Gutierrez Hermanos, charged in the current
account, collected and appropriated to itself the funds which Oria
Hermanos & Co. had in plaintiff's possession and assessed against
the same compound interest at 8 per cent and 2 ½ per cent on the
net amount of the collection made as charterage for the
steamers Serantes and Laoang, the
launches Comillas and Golondrina, and the cutter Remedios, as
commission for said charterage, when all the steps for the collection
of the same were taken personally by Messrs. Oria and further,
defendant's partners and there was no contracts whatever between
the parties whereby Gutierrez Hermanos might collect, enter into
the current account and appropriate to itself the said amount as
commission through the collection of the aforesaid charterage.

Plaintiff's counsel merely denied the facts alleged, which certainly
were not proved at the trial. It was, on the contrary, fully proven
that Don Tomas Oria and the managers of Oria Hermanos & Co.
knew, by reason of the accounts Gutierrez Hermanos had been
sending them, that the plaintiff firm charged the 2 per cent
commission on the amount of the charterages, for it is so recorded
in the letter from Oria addressed to Gutierrez Hermanos under date
of June 12, 1901, in which P690 appears annotated as the amount of
plaintiff's 2 per cent commission for the charterage of
the Laoang and the Serantes, and in other letter from Oria
Hermanos and Co. of October 18, 1900, (Exhibit A-2, page 476 of the
record) wherein demand was made for vouchers and a
memorandum of the collections effected for the charterage of these
steamers, the Laoang, and the Serates. Furthermore, it appears in
this same letter for it is stead that credit has been given in Gutierrez
Hermanos' account for P272.50, as being the amount this firm was
entitled to receive as 2 per cent commission on the P15,625
collected by it from the quartermaster for the charterage of the
Serates and for the transportation of eight passengers on the
steamer Laoang; and it is also therein stated that Gutierrez
Hermanos' account has been credited with the sum of P24, as the
amount of 2 per cent commission on P1,200 collected for four days'
charterage of the Laoang. These documents show that Gutierrez
Hermanos has taken part in the collection of the said charterages
and, therefore, was entitled to receive the amount agreed upon as
commission for such collection. Oria's assertion that Gutierrez
Hermanos did nothing for the collection of the P400,000, the
amount of the charterage for the boats of Oria Hermanos and Co.,
Gutierrez Hermanos relative to the collection of the charterages due
for the launches Golondrina and Adela, and for this purpose he sent
the proper vouchers for such collection. Consequently there is
neither reason nor legal ground to prevent our holding as proper the
finding established by the trial court that Oria Hermanos & Co. did,
with due knowledge of the matter, approve the amount of the
commissions collected by Gutierrez Hermanos on the sums it had
collected as charterage for the defendant's boats, in accordance
with the agreement made between the parties, which defendant
can not repudiate, nor can its regret for the part it took therein avail
it for the reimbursement sought in its fifth counterclaim. The finding
of the trial judge in regard to the latter is, therefore, in conformity
with the law.
The object of the sixth counterclaim is to obtain reimbursement of
the sum of P31,000, the amount of the interest charged and
compounded semiannually, instead of annually, at the rate of 8 per
cent net interest. Oria Hermanos & Co. demands this sum from
Gutierrez Hermanos, alleging that there was an agreement between
the parties to the effect that a settlement of the interest should be
made at the end of each year, and also that the interest due and
unpaid should be capitalized annually.
The firm of Oria Hermanos & Co., Tomas Oria, one of the partners of
the same, and the defendant's bookkeeper, a relative of the said
Oria and also a partner of the firm, had been receiving extracts or
copies of the semiannual accounts rendered by Gutierrez Hermanos,
and, after a careful examination of the same, after offering
objections thereto which sometimes delayed Oria Hermanos and
Co.'s approval thereof for more than six months, after receiving the
explanations requested and vouchers demanded of plaintiff, they
concluded by admitting and agreeing to the accounts rendered and
the amounts involved, and made neither objection nor protest
LAW ON BUSINESS ORGANIZATIONS Cases 2 43
whatever against the system or method employed by Gutierrez
Hermanos in capitalizing at the end of each year the interest of the
semiannual accounts rendered, nor against the interest charged on
the capitalized interest, not only in defendant's debit, but also by
reciprocation in the credit given it in the account of the receipts
obtained from price of the hemp, copra and other products shipped
to Gutierrez Hermanos. All the foregoing facts appear on page 18 of
the transcript of the stenographic notes taken of the hearing on July
14, 1914.
The transaction effected by Gutierrez Hermanos in the accounts it
presented to defendant, Oria Hermanos & Co., is confirmed by some
twenty letters signed, some of them, by Pria Hermanos and Co.,
others, the greater part of them, by Tomas Oria, and still others by
Mr. Fuster, a partner of the latter firm. Therefore the semiannual
capitalization made by plaintiff, Gutierrez Hermanos, was sanctioned
and approved by defendant on the seventeen occasions that it
approved the accounts presented by plaintiff, expressive of such
capitalization of the reciprocal interest stipulated between the
contracting parties.
Article 1109 of the Civil Code prescribes as follows: "Interest due
shall earn legal interest from the time it is judicially demanded, even
if the obligation should have been silent on this point.
In commercial transactions the provisions of the Code of Commerce
shall be observed.
Article 317 of the Code of Commerce provides: "Interest which has
fallen due and has not been paid shall not earn interest. The
contracting parties may, however, capitalized the net interest which
has not been paid, which, as new principal, shall earn interest."
Upon the execution of the contract which was the origin of the
mercantile relations between Gutierrez Hermanos and Oria
Hermanos & Co., the stipulation made between both parties were
not sent forth in any document, they being content with a verbal
agreement in which it was stipulated that the rate of interest of the
reciprocal current account to be kept between them should be 8 per
cent, without determining whether such interest was to fall due
annually, as affirmed by Tomas Oria, the manager of Oria Hermanos
& Co., or semiannually, as contended by Gutierrez Hermanos.
However, it is certain that in the seventeen accounts presented by
plaintiff to defendant, at the end of each period of six months from
1900 to December 31, 1908, embracing nearly nine years, the
interest due was liquidated every six months in the reciprocal
current account between both firms, without opposition or protest
on the part of Oria Hermanos and Co. In the absence of a written
agreement defendant's procedure raises the presumption that such
were the stipulations verbally made between made between the
interested parties, and the verbal agreement was constantly
maintained and confirmed without protest or objection whatever on
the part of the managers of Oria Hermanos & Co. If Tomas Oria,
changing his opinion, after the firm of which he is principal member
had approved the said seventeen accounts, believed that he was
authorized to contradict his own acts and to allege another manner
of computing and liquidating the 8 per cent interests stipulated by
stating that it should have been collected annually, and not
semiannually as was done and approved in the seventeen accounts
rendered during a period of more than nine years, the rectification
afterwards made of an assent and agreement repentance what he
himself did in agreement with defendant, since they were

authorized to take such action by article 317 of the Code of
Commerce. Therefore the ruling of the trial judge absolving plaintiff
of the sixth counterclaim filed by defendant is in accordance with
the law and with the evidence as disclosed by the record.
For all the reasons hereinabove set forth as grounds for the findings
rendered in respect to the complaint and to each one of the cross-
complaints and counterclaims presented by defendant, the errors
assigned to the judgment appealed from and not admitted in this
decision have been duly refused.
Therefore, for the reasons assigned in this decision, we sentence the
commercial firm of Oria Hermanos & Co. to the payment of the sum
of P147,204.28 and of the stipulated interest at the rate of 8 per
cent per annum from June 30, 1909, after deduction of all the sums
which as balances in favor of defendant may result from the
accounts to be rendered by Gutierrez Hermanos, in conformity with
the finding made, especially in reference to the second, third, and
fourth cross-complaints.
Gutierrez Hermanos is absolved from the first cross-complaint, and
also from the second, in which latter defendant prayed for an
accounting of the hemp and copra business. Plaintiff is likewise
absolved from the fourth cross-complaint, excepting the part
thereof relative to the petroleum, and also from the first, second,
third, fourth, fifth, and sixth counterclaims filed by defendant.
Held: (1) That Gutierrez Hermanos, after Liquidation of the sums
paid as a one-third per cent tax on the price of the rice acquired in
this city, of that of the salt, kerosene, lime, mats, rattan, flour,
anisette, cigarettes, beer, and other articles, for which plaintiff paid
said sums and charged them to defendant's account, must pay to
Oria Hermanos & Co. the sum disclosed by the said liquidation, in
conformity with the second cross-complaint.
(2) That Gutierrez Hermanos shall render to defendant an account,
supported by vouchers, of the price, expenses, and all amounts paid
for the shipments of rice covered by the invoices examined during
the trial of this case, as well as the 153 invoices mentioned by the
parties in the hearing of November 29, 1910.
(3) That plaintiff shall render an account, supported by vouchers, of
all the petroleum it acquired for Oria Hermanos & Co., the invoices
of which are mentioned in the transcript of the stenographic notes
taken at the hearing of December 28, 1910.
The judgment appealed from is affirmed in so far as it is in accord
with this decision and is reversed in so far as it is not, without special
finding as to costs.
[G.R. No. 114311. November 29, 1996]
COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF
APPEALS and ISIDRO PEREZ, respondents.
DECISION
BELLOSILLO, J.:
LAW ON BUSINESS ORGANIZATIONS Cases 2 44
COSMIC LUMBER CORPORATION through its General Manager
executed on 28 January 1985 a Special Power of Attorney appointing
Paz G. Villamil-Estrada as attorney-in-fact -
x x x to initiate, institute and file any court action for the ejectment
of third persons and/or squatters of the entire lot 9127 and 443 and
covered by TCT Nos. 37648 and 37649, for the said squatters to
remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot, and for
this purpose, to appear at the pre-trial conference and enter into
any stipulation of facts and/or compromise agreement so far as it
shall protect the rights and interest of the corporation in the
aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of
attorney, instituted an action for the ejectment of private
respondent Isidro Perez and recover the possession of a portion of
Lot No. 443 before the Regional Trial Court of Dagupan, docketed as
Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a Compromise
Agreement with respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by
Engineer Rodolfo dela Cruz the area at present occupied by
defendant wherein his house is located is 333 square meters on the
easternmost part of lot 443 and which portion has been occupied by
defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through
herein attorney-in-fact the sum of P26,640.00 computed
at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the
defendant by virtue of this compromise agreement over said portion
of 333 square m. of lot 443 which portion will be located on the
easternmost part as indicated in the sketch as annex A;
4. Whatever expenses of subdivision, registration, and other
incidental expenses shall be shouldered by the defendant.[3]
On 27 November 1985 the Compromise Agreement was approved
by the trial court and judgment was rendered in accordance
therewith.[4]
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality allegedly
due to the failure of petitioner to produce the owners duplicate
copy of Title No. 37649 needed to segregate from Lot No. 443 the
portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25
January 1993 respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case
No. D-10459 for the revival of judgment was served upon it that it
came to know of the compromise agreement entered into between
Paz G. Villamil-Estrada and respondent Isidro Perez upon which the
trial court based its decision of 26 July 1993 in Civil Case No. D-
7750. Forthwith, upon learning of the fraudulent transaction,
petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise
agreement was void because:(a) the attorney-in-fact did not have

the authority to dispose of, sell, encumber or divest the plaintiff of
its ownership over its real property or any portion thereof; (b) the
authority of the attorney-in-fact was confined to the institution and
filing of an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction therefrom; (c)
while the special power of attorney made mention of an authority to
enter into a compromise agreement, such authority was in
connection with, and limited to, the eviction of third
persons/squatters thereat, in order that the corporation may take
material possession of the entire lot; (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was never
received by the plaintiff; (e) the private defendant acted in bad faith
in the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the
real property of plaintiff; and, (f) the disposal of a corporate
property indispensably requires a Board Resolution of its Directors, a
fact which is wanting in said Civil Case No. D-7750, and the General
Manager is not the proper officer to encumber a corporate
property.[6]
On 29 October 1993 respondent court dismissed the complaint on
the basis of its finding that not one of the grounds for annulment,
namely, lack of jurisdiction, fraud or illegality was shown to exist.[7] It
also denied the motion for reconsideration filed by petitioner,
discoursing that the alleged nullity of the compromise judgment on
the ground that petitioners attorney in fact Villamit-Estrada was not
authorized to sell the subject property may be raised as a defense in
the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because
it does not affect the jurisdiction of the trial court over the action
nor does it amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the
trial court is void because the compromise agreement upon which it
was based is void. Attorney-in-fact Villamil-Estrada did not possess
the authority to sell or was she armed with a Board Resolution
authorizing the sale of its property. She was merely empowered to
enter into a compromise agreement in the recovery suit she was
authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the ejectment of third persons
or squatters of x x x lot x x x (No.) 443 x x x for the said squatters to
remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot x x x x
We agree with petitioner. The authority granted Villamil-Estrada
under the special power of attorney was explicit and
exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could
take material possession thereof, and for this purpose, to appear at
the pre-trial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this was protective of
the rights and interests of petitioner in the property. Nowhere in
this authorization was Villamil-Estrada granted expressly or impliedly
any power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the
specific authority to enter into a compromise agreement because of
the explicit limitation fixed by the grantor that the compromise
entered into shall only be so far as it shall protect the rights and
interest of the corporation in the aforementioned lots. In the context
of the specific investiture of powers to Villamil-Estrada, alienation by
sale of an immovable certainly cannot be deemed protective of the
LAW ON BUSINESS ORGANIZATIONS Cases 2 45
right of petitioner to physically possess the same, more so when the
land was being sold for a price of P80.00 per square meter, very
much less than its assessed value of P250.00 per square meter, and
considering further that petitioner never received the proceeds of
the sale.
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void.[9] Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute.[10]A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration.[11]The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of
the act mentioned.[12] For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a portion of
petitioners land through a compromise agreement, Villamil-Estrada
acted without or in obvious authority. The sale ipso jure is
consequently void. So is the compromise agreement. This being the
case, the judgment based thereon is necessarily void. Antipodal to
the opinion expressed by respondent court in resolving petitioners
motion for reconsideration, the nullity of the settlement between
Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar
v. Court of First Instance of La Union,[14] the Court held -
x x x x this court does not hesitate to hold that the judgment in
question is null and void ab initio. It is not binding upon and cannot
be executed against the petitioners. It is evident that the
compromise upon which the judgment was based was not
subscribed by them x x x x Neither could Attorney Ortega bind them
validly in the compromise because he had no special authority x x x x
As the judgment in question is null and void ab initio, it is evident
that the court acquired no jurisdiction to render it, much less to
order the execution thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by a
court without jurisdiction to do so, is without legal efficacy and may
properly be impugned in any proceeding by the party against whom
it is sought to be enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L.
Reyes, a much-respected authority on civil law, where the Court
declared that a judgment based on a compromise entered into by an
attorney without specific authority from the client is void. Such
judgment may be impugned and its execution restrained in any
proceeding by the party against whom it is sought to be
enforced. The Court also observed that a defendant against whom a
judgment based on a compromise is sought to be enforced may file
a petition for certiorari to quash the execution. He could not move
to have the compromise set aside and then appeal from the order of

denial since he was not a party to the compromise. Thus it would
appear that the obiter of the appellate court that the alleged nullity
of the compromise agreement should be raised as a defense against
its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement
may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority
to sell the land, as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now
petition the Court of Appeals to annul and set aside judgments of
Regional Trial Courts.[16] Thus, the Intermediate Appellate Court
(now Court of Appeals) shall exercise x x x x (2) Exclusive original
jurisdiction over action for annulment of judgments of the Regional
Trial Courts x x x x However, certain requisites must first be
established before a final and executory judgment can be the
subject of an action for annulment. It must either be void for want
of jurisdiction or for lack of due process of law, or it has been
obtained by fraud.[17]
Conformably with law and the above-cited authorities, the petition
to annul the decision of the trial court in Civil Case No. D-7750
before the Court of Appeals was proper. Emanating as it did from a
void compromise agreement, the trial court had no jurisdiction to
render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the
appellate court that the highly reprehensible conduct of attorney-in-
fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or
collateral fraud by reason of which the judgment rendered thereon
should have been struck down. Not all the legal semantics in the
world can becloud the unassailable fact that petitioner was deceived
and betrayed by its attorney-in-fact. Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of
petitioners property was sold to the deforciant, literally for a
song. Thus completely kept unaware of its agents artifice, petitioner
was not accorded even a fighting chance to repudiate the
settlement so much so that the judgment based thereon became
final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent
acts within too narrow limits. Fraud may assume different shapes
and be committed in as many different ways and here lies the
danger of attempting to define fraud. For man in his ingenuity and
fertile imagination will always contrive new schemes to fool the
unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P.
Blg. 129, where it is one the effect of which prevents a party from
hearing a trial, or real contest, or from presenting all of his case to
the court, or where it operates upon matters, not pertaining to the
judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in
the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting
fully his side of the case by fraud or deception practiced on him by
his opponent.[19] Fraud is extrinsic where the unsuccessful party has
been prevented from exhibiting fully his case, by fraud or deception
LAW ON BUSINESS ORGANIZATIONS Cases 2 46
practiced on him by his opponent, as by keeping him away from
court, a false promise of a compromise; or where the defendant
never had knowledge of the suit, being kept in ignorance by the acts
of the plaintiff; or where an attorney fraudulently or without
authority connives at his defeat; these and similar cases which show
that there has never been a real contest in the trial or hearing of the
case are reasons for which a new suit may be sustained to set aside
and annul the former judgment and open the case for a new and fair
hearing.[20]
It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound by the
knowledge of or notice to his agent received while the agent was
acting as such. But the general rule is intended to protect those who
exercise good faith and not as a shield for unfair dealing. Hence
there is a well-established exception to the general rule as where
the conduct and dealings of the agent are such as to raise a clear
presumption that he will not communicate to the principal the facts
in controversy.[21] The logical reason for this exception is that where
the agent is committing a fraud, it would be contrary to common
sense to presume or to expect that he would communicate the facts
to the principal. Verily, when an agent is engaged in the perpetration
of a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely
outside the scope of his agency.[22] Indeed, the basic tenets of
agency rest on the highest considerations of justice, equity and fair
play, and an agent will not be permitted to pervert his authority to
his own personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution
of respondent Court of Appeals dated 29 October 1993 and 10
March 1994, respectively, as well as the decision of the Regional
Trial Court of Dagupan City in Civil Case No. D-7750 dated 27
November 1985, are NULLIFIED and SET ASIDE. The Compromise
Agreement entered into between Attorney-in-fact Paz G. Villamil-
Estrada and respondent Isidro Perez is declared VOID. This is
without prejudice to the right of petitioner to pursue its complaint
against private respondent Isidro Perez in Civil Case No. D-7750 for
the recovery of possession of a portion of Lot No. 443.
SO ORDERED.
G.R. No. L-21237 March 22, 1924
JAMES D. BARTON, plaintiff-appellee,
vs.
LEYTE ASPHALT & MINERAL OIL CO., LTD., defendant-appellant.
Block, Johnston & Greenbaum and Ross, Lawrence & Selph for
appellant.
Frank B. Ingersoll for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of the City of
Manila by James D. Barton, to recover of the Leyte Asphalt &
Mineral Oil Co., Ltd., as damages for breach of contract, the sum of
$318,563.30, United States currency, and further to secure a judicial
pronouncement to the effect that the plaintiff is entitled to an
 LAW ON BUSINESS ORGANIZATIONS Cases 2 47

extension of the terms of the sales agencies specified in the contract Tasmania Sumatra Hongkong
Exhibit A. The defendant answered with a general denial, and the
cause was heard upon the proof, both documentary and oral, after
Siam and the Straits Settlements, also in the United States of
which the trial judge entered a judgment absolving the defendant
America until May 1, 1921.
corporation from four of the six causes of action set forth in the
complaint and giving judgment for the plaintiff to recover of said
As regard bituminous limestone mined from the Lucio property. No
defendant, upon the first and fourth causes of action, the sum of orders for less than one thousand (1,000) tons will be accepted
$202,500, United States currency, equivalent to $405,000, Philippine except under special agreement with us. All orders for said products
currency, with legal interest from June 2, 1921, and with costs. From
are to be billed to you as follows:
this judgment the defendant company appealed.
Per ton
The plaintiff is a citizen of the United States, resident in the City of
Manila, while the defendant is a corporation organized under the
In 1,000 ton lots ........................................... P15
law of the Philippine Islands with its principal office in the City of
Cebu, Province of Cebu, Philippine Islands. Said company appears to
In 2,000 ton lots ........................................... 14
be the owner by a valuable deposit of bituminous limestone and
other asphalt products, located on the Island of Leyte and known as
In 5,000 ton lots ........................................... 12
the Lucio mine. On April 21, 1920, one William Anderson, as
president and general manager of the defendant company,
addressed a letter Exhibit B, to the plaintiff Barton, authorizing the In 10,000 ton lots .......................................... 10
latter to sell the products of the Lucio mine in the Commonwealth of
with the understanding, however that, should the sales in the above
Australia and New Zealand upon a scale of prices indicated in said
territory equal or exceed ten thousand (10,000) tons in the year
letter.
ending October 1, 1921, then in that event the price of all shipments
In the third cause of action stated in the complaint the plaintiff made during the above period shall be ten pesos (P10) per ton, and
alleges that during the life of the agency indicated in Exhibit B, he any sum charged to any of your customers or buyers in the aforesaid
rendered services to the defendant company in the way of territory in excess of ten pesos (P10) per ton, shall be rebated to
advertising and demonstrating the products of the defendant and you. Said rebate to be due and payable when the gross sales have
expended large sums of money in visiting various parts of the world equalled or exceeded ten thousand (10,000) tons in the twelve
for the purpose of carrying on said advertising and demonstrations, months period as hereinbefore described. Rebates on lesser sales to
in shipping to various parts of the world samples of the products of apply as per above price list.
the defendant, and in otherwise carrying on advertising work. For
You are to have full authority to sell said product of the Lucio mine
these services and expenditures the plaintiff sought, in said third
for any sum see fit in excess of the prices quoted above and such
cause of action, to recover the sum of $16,563.80, United States
excess in price shall be your extra and additional profit and
currency. The court, however, absolved the defendant from all
commission. Should we make any collection in excess of the prices
liability on this cause of action and the plaintiff did not appeal, with
quoted, we agree to remit same to your within ten (10) days of the
the result that we are not now concerned with this phase of the
date of such collections or payments.
case. Besides, the authority contained in said Exhibit B was
admittedly superseded by the authority expressed in a later letter,
All contracts taken with municipal governments will be subject to
Exhibit A, dated October 1, 1920. This document bears the approval
inspector before shipping, by any authorized representative of such
of the board of directors of the defendant company and was
governments at whatever price may be contracted for by you and
formally accepted by the plaintiff. As it supplies the principal basis of
we agree to accept such contracts subject to draft attached to bill of
the action, it will be quoted in its entirety.
lading in full payment of such shipment.
(Exhibit A)
It is understood that the purchasers of the products of
CEBU, CEBU, P. I.
the Lucio mine are to pay freight from the mine carriers to
October 1, 1920.
destination and are to be responsible for all freight, insurance and
other charges, providing said shipment has been accepted by their
JAMES D. BARTON, Esq.,
inspectors.
Cebu Hotel City.
All contracts taken with responsible firms are to be under the same
DEAR SIR: — You are hereby given the sole and exclusive sales
conditions as with municipal governments.
agency for our bituminous limestone and other asphalt products of
the Leyte Asphalt and Mineral Oil Company, Ltd., May first, 1922, in
All contracts will be subject to delays caused by the acts of God, over
the following territory:
which the parties hereto have no control.

Australia Saigon Java It is understood and agreed that we agree to load all ships,
steamers, boats or other carriers prompty and without delay and
load not less than 1,000 tons each twenty-four hours after March 1,
New Zealand India China
1921, unless we so notify you specifically prior to that date we are
prepared to load at that rate, and it is also stipulated that we shall
 LAW ON BUSINESS ORGANIZATIONS Cases 2 48

not be required to ship orders of 5,000 tons except on 30 days
notice and 10,000 tons except on 60 days notice.
If your sales in the United States reach five thousand tons on or
before May 1, 1921, you are to have sole rights for this territory also
for one year additional and should your sales in the second year
reach or exceed ten thousand tons you are to have the option to
renew the agreement for this territory on the same terms for an
additional two years.
November 11, 1920, on terms stated in the letter Exhibit K. The
territory assigned to Ludvigsen & McCurdy included San Francisco
and all territory in California north of said city. Upon an earlier
voyage during the same year to Australia, the plaintiff had already
made an agreement with Frank B. Smith, of Sydney, whereby the
latter was to act as the plaintiff's sales agent for bituminous
limestone mined at the defendant's quarry in Leyte, until February
12, 1921. Later the same agreement was extended for the period of
one year from January 1, 1921. (Exhibit Q.)

Should your sales equal exceed ten thousand (10,000) tons in the On February 5, 1921, Ludvigsen & McCurdy, of San Francisco,
year ending October 1, 1921, or twenty thousand (20,000) tons by addressed a letter to the plaintiff, then in San Francisco, advising hi
May 1, 1922, then this contract is to be continued automatically for that he might enter an order for six thousand tons of bituminous
an additional three years ending April 30, 1925, under the same limestone to be loaded at Leyte not later than May 5, 1921, upon
terms and conditions as above stipulated. terms stated in the letter Exhibit G. Upon this letter the plaintiff
immediately indorsed his acceptance.
The products of the other mines can be sold by you in the aforesaid
territories under the same terms and conditions as the products of The plaintiff then returned to Manila; and on March 2, 1921,
the Lucio mine; scale of prices to be mutually agreed upon between Anderson wrote to him from Cebu, to the effect that the company
us. was behind with construction and was not then able to handle big
contracts. (Exhibit FF.) On March 12, Anderson was in Manila and
LEYTE ASPHALT & MINERAL OIL CO., LTD.
the two had an interview in the Manila Hotel, in the course of which
By (Sgd.) WM. ANDERSON
the plaintiff informed Anderson of the San Francisco order.
President
Anderson thereupon said that, owing to lack of capital, adequate
facilities had not been provided by the company for filling large
(Sgd.) W. C. A. PALMER
orders and suggested that the plaintiff had better hold up in the
Secretary
matter of taking orders. The plaintiff expressed surprise at this and
Approved by Board of Directors, told Anderson that he had not only the San Francisco order (which
October 1, 1920. he says he exhibited to Anderson) but other orders for large
(Sgd.) WM. ANDERSON quantities of bituminous limestone to be shipped to Australia and
President Shanghai. In another interview on the same Anderson definitely
informed the plaintiff that the contracts which be claimed to have
Accepted. procured would not be filled.
(Sgd.) JAMES D. BARTON
Witness D. G. MCVEAN Three days later the plaintiff addressed a letter (Exhibit Y) to the
defendant company in Cebu, in which he notified the company to be
Upon careful perusal of the fourth paragraph from the end of this prepared to ship five thousand tons of bituminous limestone to John
letter it is apparent that some negative word has been inadvertently Chapman Co., San Francisco, loading to commence on May 1, and to
omitted before "prepared," so that the full expression should be proceed at the rate of one thousand tons per day of each twenty-
"unless we should notify you specifically prior to that date that we four hours, weather permitting.
are unprepared to load at that rate," or "not prepared to load at
that rate." On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff
an order for five thousand tons of bituminous limestone; and in his
Very soon after the aforesaid contract became effective, the plaintiff letter of March 15 to the defendant, the plaintiff advised the
requested the defendant company to give him a similar selling defendant company to be prepared to ship another five thousand
agency for Japan. To this request the defendant company, through tons of bituminous limestone, on or about May 6, 1921, in addition
its president, Wm. Anderson, replied, under date of November 27, to the intended consignment for San Francisco. The name Henry E.
1920, as follows: White was indicated as the name of the person through whom this
contract had been made, and it was stated that the consignee would
In re your request for Japanese agency, will say, that we are willing be named later, no destination for the shipment being given. The
to give you, the same commission on all sales made by you in Japan, plaintiff explains that the name White, as used in this letter, was
on the same basis as your Australian sales, but we do not feel like based on an inference which he had erroneously drawn from the
giving you a regular agency for Japan until you can make some large cable sent by Frank B. Smith, and his intention was to have the
sized sales there, because some other people have given us second shipment consigned to Australia in response to Smith's
assurances that they can handle our Japanese sales, therefore we order.
have decided to leave this agency open for a time.
It will be noted in connection with this letter of the plaintiff, of
Meanwhile the plaintiff had embarked for San Francisco and upon March 15, 1921, that no mention was made of the names of the
arriving at that port he entered into an agreement with Ludvigsen & person, or firm, for whom the shipments were really intended. The
McCurdy, of that city, whereby said firm was constituted a subagent obvious explanation that occurs in connection with this is that the
and given the sole selling rights for the bituminous limestone plaintiff did not then care to reveal the fact that the two orders had
products of the defendant company for the period of one year from originated from his own subagents in San Francisco and Sydney.

To the plaintiff's letter of March 15, the assistant manager of the
defendant company replied on March, 25, 1921, acknowledging the
receipt of an order for five thousand tons of bituminous limestone
to be consigned to John Chapman Co., of San Francisco, and the
further amount of five thousand tons of the same material to be
consigned to Henry E. White, and it was stated that "no orders can
be entertained unless cash has been actually deposited with either
the International Banking Corporation or the Chartered Bank of
India, Australia and China, Cebu." (Exhibit Z.)
To this letter the plaintiff in turn replied from Manila, under date of
March, 1921, questioning the right of the defendant to insist upon a
cash deposit in Cebu prior to the filling of the orders. In conclusion
the plaintiff gave orders for shipment to Australia of five thousand
tons, or more, about May 22, 1921, and ten thousand tons, or more,
about June 1, 1921. In conclusion the plaintiff said "I have arranged
for deposits to be made on these additional shipments if you will
signify your ability to fulfill these orders on the dates mentioned."
No name was mentioned as the purchaser, or purchases, of these
intended Australian consignments.
Soon after writing the letter last above-mentioned, the plaintiff
embarked for China and Japan. With his activities in China we are
not here concerned, but we note that in Tokio, Japan, he came in
contact with one H. Hiwatari, who appears to have been a suitable
person for handling bituminous limestone for construction work in
Japan. In the letter Exhibit X, Hiwatari speaks of himself as if he had
been appointed exclusive sales agent for the plaintiff in Japan, but
no document expressly appointing him such is in evidence.
While the plaintiff was in Tokio he procured the letter Exhibit W,
addressed to himself, to be signed by Hiwatari. This letter, endited
by the plaintiff himself, contains an order for one thousand tons of
bituminous limestone from the quarries of the defendant company,
to be delivered as soon after July 1, 1921, as possible. In this letter
Hiwatari states, "on receipt of the cable from you, notifying me of
date you will be ready to ship, and also tonnage rate, I will agree to
transfer through the Bank of Taiwan, of Tokio, to the Asia Banking
Corporation, of Manila, P. I., the entire payment of $16,000 gold, to
be subject to our order on delivery of documents covering bill of
lading of shipments, the customs report of weight, and prepaid
export tax receipt. I will arrange in advance a confirmed or
irrevocable letter of credit for the above amounts so that payment
can be ordered by cable, in reply to your cable advising shipping
date."
In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff
that he had shown the contract, signed by himself, to the
submanager of the Taiwan Bank who had given it as his opinion that
he would be able to issue, upon request of Hiwatari, a credit note
for the contracted amount, but he added that the submanager was
not personally able to place his approval on the contract as that was
a matter beyond his authority. Accordingly Hiwatari advised that he
was intending to make further arrangements when the manager of
the bank should return from Formosa.
In the letter of May 5, 1921, containing Hiwatari's order for one
thousand tons of bituminous limestone, it was stated that if the
material should prove satisfactory after being thoroughly tested by
the Paving Department of the City of Tokio, he would contract with
the plaintiff for a minimum quantity of ten thousand additional tons,
to be used within a year from September 1, 1921, and that in this
LAW ON BUSINESS ORGANIZATIONS Cases 2 49
event the contract was to be automatically extended for an
additional four years. The contents of the letter of May 5 seems to
have been conveyed, though imperfectly, by the plaintiff to his
attorney, Mr. Frank B. Ingersoll, of Manila; and on May 17, 1921,
Ingersoll addressed a note to the defendant company in Cebu in
which he stated that he had been requested by the plaintiff to notify
the defendant that the plaintiff had accepted an order from
Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum
order of ten thousand tons of the stone annually for a period of five
years, the first shipment of one thousand tons to be made as early
after July 1 as possible. It will be noted that this communication did
not truly reflect the contents of Hiwatari's letter, which called
unconditionally for only one thousand tons, the taking of the
remainder being contingent upon future eventualities.
It will be noted that the only written communications between the
plaintiff and the defendant company in which the former gave
notice of having any orders for the sale of bituminous limestone are
the four letters Exhibit Y, AA, BB, and II. In the first of these letters,
dated March 15, 1921, the plaintiff advises the defendant company
to be prepared to ship five thousand tons of bituminous limestone,
to be consigned to John Chapman, Co., of San Francisco, to be
loaded by March 5, and a further consignment of five thousand tons,
through a contract with Henry E. White, consignees to be named
later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's
attorney gives notice of the acceptance by plaintiff of an order from
Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum
of ten thousand annually for a period of five years, first shipment of
a thousand tons to be as early after July 1 as possible. In the letter
Exhibit H the plaintiff gives notice of an "additional" (?) order from
H. E. White, Sydney, for two lots of bituminous limestone of five
thousand tons each, one for shipment not later than June 30, 1921,
and the other by July 20, 1921. In the same letter thousand tons
from F. B. Smith, to be shipped to Brisbane, Australia, by June 30,
and a similar amount within thirty days later.
After the suit was brought, the plaintiff filed an amendment to his
complaint in which he set out, in tabulated form, the orders which
he claims to have received and upon which his letters of notification
to the defendant company were based. In this amended answer the
name of Ludvigsen & McCurdy appears for the first time; and the
name of Frank B. Smith, of Sydney, is used for the first time as the
source of the intended consignments of the letters, Exhibits G, L, M,
and W, containing the orders from Ludvigen & McCurdy, Frank B.
Smith and H. Hiwatari were at no time submitted for inspection to
any officer of the defendant company, except possibly the Exhibit G,
which the plaintiff claims to have shown to Anderson in Manila on
March, 12, 1921.
The different items conspiring the award which the trial judge gave
in favor of the plaintiff are all based upon the orders given by
Ludvigsen & McCurdy (Exhibit G), by Frank B. Smith (Exhibit L and
M), and by Hiwatari in Exhibit W; and the appealed does not involve
an order which came from Shanghai, China. We therefore now
address ourselves to the question whether or not the orders
contained in Exhibit G, L, M, and W, in connection with the
subsequent notification thereof given by the plaintiff to the
defendant, are sufficient to support the judgment rendered by the
trial court.
The transaction indicated in the orders from Ludvigsen, & McCurdy
and from Frank B. Smith must, in our opinion, be at once excluded

from consideration as emanating from persons who had been
constituted mere agents of the plaintiff. The San Francisco order and
the Australian orders are the same in legal effect as if they were
orders signed by the plaintiff and drawn upon himself; and it cannot
be pretended that those orders represent sales to bona fide
purchasers found by the plaintiff. The original contract by which the
plaintiff was appointed sales agent for a limited period of time in
Australia and the United States contemplated that he should find
reliable and solvent buyers who should be prepared to obligate
themselves to take the quantity of bituminous limestone contracted
for upon terms consistent with the contract. These conditions were
not met by the taking of these orders from the plaintiff's own
subagents, which was as if the plaintiff had bought for himself the
commodity which he was authorized to sell to others. Article 267 of
the Code of Commerce declares that no agent shall purchase for
himself or for another that which he has been ordered to sell. The
law has placed its ban upon a broker's purchasing from his principal
unless the latter with full knowledge of all the facts and
circumstances acquiesces in such course; and even then the broker's
action must be characterized by the utmost good faith. A sale made
by a broker to himself without the consent of the principal is
ineffectual whether the broker has been guilty of fraudulent conduct
or not. (4 R. C. L., 276-277.) We think, therefore, that the position of
the defendant company is indubitably sound in so far as it rest upon
the contention that the plaintiff has not in fact found any bona
fide purchasers ready and able to take the commodity contracted
for upon terms compatible with the contract which is the basis of
the action.
It will be observed that the contract set out at the beginning of this
opinion contains provisions under which the period of the contract
might be extended. That privilege was probably considered a highly
important incident of the contract and it will be seen that the sale of
five thousand tons which the plaintiff reported for shipment to San
Francisco was precisely adjusted to the purpose of the extension of
the contract for the United States for the period of an additional
year; and the sales reported for shipment to Australia were likewise
adjusted to the requirements for the extention of the contract in
that territory. Given the circumstances surrounding these contracts
as they were reported to the defendant company and the
concealment by the plaintiff of the names of the authors of the
orders, -- who after all were merely the plaintiff's subagents, — the
officers of the defendant company might justly have entertained the
suspicion that the real and only person behind those contracts was
the plaintiff himself. Such at least turns out to have been the case.
Much energy has been expended in the briefs upon his appeal over
the contention whether the defendant was justified in laying down
the condition mentioned in the letter of March 26, 1921, to the
effect that no order would be entertained unless cash should be
deposited with either the International Banking Corporation of the
Chartered Bank of India, Australia and China, in Cebu. In this
connection the plaintiff points to the stipulation of the contract
which provides that contracts with responsible parties are to be
accepted "subject to draft attached to bill of lading in full payment
of such shipment." What passed between the parties upon this point
appears to have the character of mere diplomatic parrying, as the
plaintiff had no contract from any responsible purchaser other than
his own subagents and the defendant company could no probably
have filled the contracts even if they had been backed by the Bank
of England.
LAW ON BUSINESS ORGANIZATIONS Cases 2 50
Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will
be found ample assurance that deposits for the amount of each
shipment would be made with a bank in Manila provided the
defendant would indicated its ability to fill the orders; but these
assurance rested upon no other basis than the financial
responsibility of the plaintiff himself, and this circumstance
doubtless did not escape the discernment of the defendant's
officers.
With respect to the order from H. Hiwatari, we observe that while
he intimates that he had been promised the exclusive agency under
the plaintiff for Japan, nevertheless it does not affirmatively appear
that he had been in fact appointed to be such at the time he signed
to order Exhibit W at the request of the plaintiff. It may be assumed,
therefore, that he was at that time a stranger to the contract of
agency. It clearly appears, however, that he did not expect to
purchase the thousand tons of bituminous limestone referred to in
his order without banking assistance; and although the submanager
of the Bank of Taiwan had said something encouraging in respect to
the matter, nevertheless that official had refrained from giving his
approval to the order Exhibit W. It is therefore not shown
affirmatively that this order proceeds from a responsible source.
The first assignment of error in the appellant's brief is directed to
the action of the trial judge in refusing to admit Exhibit 2, 7, 8, 9 and
10, offered by the defendant, and in admitting Exhibit E, offered by
the plaintiff. The Exhibit 2 is a letter dated June 25, 1921, or more
than three weeks after the action was instituted, in which the
defendant's assistant general manager undertakes to reply to the
plaintiff's letter of March 29 proceeding. It was evidently intended
as an argumentative presentation of the plaintiff's point of view in
the litigation then pending, and its probative value is so slight, even
if admissible at all, that there was no error on the part of the trial
court in excluding it.
Exhibit 7, 8, 9 and 10 comprise correspondence which passed
between the parties by mail or telegraph during the first part of the
year 1921. The subject-matter of this correspondence relates to
efforts that were being made by Anderson to dispose of the
controlling in the defendant corporation, and Exhibit 9 in particular
contains an offer from the plaintiff, representing certain associates,
to but out Anderson's interest for a fixed sum. While these exhibits
perhaps shed some light upon the relations of the parties during the
time this controversy was brewing, the bearing of the matter upon
the litigation before us is too remote to exert any definitive
influence on the case. The trial court was not in error in our opinion
in excluding these documents.
Exhibit E is a letter from Anderson to the plaintiff, dated April 21,
1920, in which information is given concerning the property of the
defendant company. It is stated in this letter that the output of
the Lucio (quarry) during the coming year would probably be at the
rate of about five tons for twenty-four hours, with the equipment
then on hand, but that with the installation of a model cableway
which was under contemplation, the company would be able to
handle two thousand tons in twenty-four hours. We see no
legitimate reason for rejecting this document, although of slight
probative value; and her error imputed to the court in admitting the
same was not committed.
Exhibit 14, which was offered in evidence by the defendant, consists
of a carbon copy of a letter dated June 13, 1921, written by the

plaintiff to his attorney, Frank B. Ingersoll, Esq., of Manila, and in
which plaintiff states, among other things, that his profit from the
San Francisco contract would have been at the rate of eigthy-five
cents (gold) per ton. The authenticity of this city document is
admitted, and when it was offered in evidence by the attorney for
the defendant the counsel for the plaintiff announced that he had
no objection to the introduction of this carbon copy in evidence if
counsel for the defendant would explain where this copy was
secured. Upon this the attorney for the defendant informed the
court that he received the letter from the former attorneys of the
defendant without explanation of the manner in which the
document had come into their possession. Upon this the attorney
for the plaintiff made this announcement: "We hereby give notice at
this time that unless such an explanation is made, explaining fully
how this carbon copy came into the possession of the defendant
company, or any one representing it, we propose to object to its
admission on the ground that it is a confidential communication
between client and lawyer." No further information was then given
by the attorney for the defendant as to the manner in which the
letter had come to his hands and the trial judge thereupon excluded
the document, on the ground that it was a privileged
communication between client and attorney.
We are of the opinion that this ruling was erroneous; for even
supposing that the letter was within the privilege which protects
communications between attorney and client, this privilege was lost
when the letter came to the hands of the adverse party. And it
makes no difference how the adversary acquired possession. The
law protects the client from the effect of disclosures made by him to
his attorney in the confidence of the legal relation, but when such a
document, containing admissions of the client, comes to the hand of
a third party, and reaches the adversary, it is admissible in evidence.
In this connection Mr. Wigmore says:
The law provides subjective freedom for the client by assuring him
of exemption from its processes of disclosure against himself or the
attorney or their agents of communication. This much, but not a
whit more, is necessary for the maintenance of the privilege. Since
the means of preserving secrecy of communication are entirely in
the client's hands, and since the privilege is a derogation from the
general testimonial duty and should be strictly construed, it would
be improper to extend its prohibition to third persons who obtain
knowledge of the communications. One who overhears the
communication, whether with or without the client's knowledge, is
not within the protection of the privilege. The same rule ought to
apply to one who surreptitiously reads or obtains possession of a
document in original or copy. (5 Wigmore on Evidence, 2d ed., sec.
2326.)
Although the precedents are somewhat confusing, the better
doctrine is to the effect that when papers are offered in evidence a
court will take no notice of how they were obtained, whether legally
or illegally, properly or improperly; nor will it form a collateral issue
to try that question. (10 R. C. L., 931; 1 Greenl. Evid., sec. 254a;
State vs. Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.],
477, note.)
Our conclusion upon the entire record is that the judgment
appealed from must be reversed; and the defendant will be
absolved from the complaint. It is so ordered, without special
pronouncement as to costs of either instance.
LAW ON BUSINESS ORGANIZATIONS Cases 2 51
G.R. No. L-2886 August 22, 1952
GREGORIO ARANETA, INC., plaintiff-appellant,
vs.
PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.
Araneta and Araneta for appellant.
Ramirez and Ortigas for defendants-appellants.
Perkins, Ponce Enrile and Contreras And La O and Feria for appellee.
TUASON, J.:
This is a three-cornered contest between the purchasers, the seller,
and the mortgagee of certain portions (approximately 40,703 square
meters) of a big block of residential land in the district of Santa
Mesa, Manila. The plaintiff, which is the purchaser, and the
mortgagee elevated this appeal. Though not an appellant, the seller
and mortgagor has made assignments of error in her brief, some to
strengthen the judgment and others for the purpose of new trial.
The case is extremely complicated and multiple issues were raised.
The salient facts in so far as they are not controverted are these. Paz
Tuason de Paterno is the registered owner of the aforesaid land,
which was subdivided into city lots. Most of these lots were
occupied by lessees who had contracts of lease which were to expire
on December 31,1952, and carried a stipulation to the effect that in
the event the owner and lessor should decide to sell the property
the lessees were to be given priority over other buyers if they should
desire to buy their leaseholds, all things being equal. Smaller lots
were occupied by tenants without formal contract.
In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans
totalling P90,098 and constituted a first mortgage on the aforesaid
property to secure the debt. In January and April, 1943, she
obtained additional loans of P30,000 and P20,000 upon the same
security. On each of the last-mentioned occasions the previous
contract of mortgage was renewed and the amounts received were
consolidated. In the first novated contract the time of payment was
fixed at two years and in the second and last at four years. New
conditions not relevant here were also incorporated into the new
contracts.
There was, besides, a separate written agreement entitled
"Penalidad del Documento de Novacion de Esta Fecha" which, unlike
the principal contracts, was not registered. The tenor of this
separate agreement, all copies, of which were alleged to have been
destroyed or lost, was in dispute and became the subject of
conflicting evidence. The lower court did not make categorical
findings on this point, however, and it will be our task to do so at the
appropriate place in this decision.
In 1943 Paz Tuason decided to sell the entire property for the net
amount of P400,000 and entered into negotiations with Gregorio
Araneta, Inc. for this purpose. The result of the negotiations was the
execution on October 19, 1943, of a contract called "Promesa de
Compra y Venta" and identified as Exhibit "1." This contract
provided that subject to the preferred right of the lessees and that
of Jose Vidal as mortgagee, Paz Tuason would sell to Gregorio
Araneta, Inc. and the latter would buy for the said amount of
P400,000 the entire estate under these terms.

El precio sera pagado como sigue: un 40 por ciento juntamente con
la carta de aceptacion del arrendatario, un 20 por ciento delprecio al
otorgarse la escritura de compromiso de venta, y el remanente 40
por ciento al otorgarse la escritura de venta definitiva, la cual sera
otorgada despues de que se habiese canceladola hipoteca a favor de
Jose Vidal que pesa sobre dichos lotes. Lacomision del 5 por ciento
que corresponde a Jose Araneta serapagada al otorgarse la escritura
de compromiso de venta.
Paz Tuason se obliga a entregar mediante un propio las cartasque
dirigira a este efecto a los arrendatarios, de conformidad con el
formulario adjunto, que se marca como Apendice A.
Expirado el plazo arriba mencionado, Paz Tuason otorgara las
escrituras correspondientes de venta a los arrendatarios que hayan
decidido comprar sus respectivos lotes.
9. Los alquieres correspondientes a este año se prorratearan entre la
vendedora y el comprador, correspondiendo al comprador los
alquileres correspondientes a Noviembre y Diciembre de este año y
asimismo sera por cuenta del comprador el amillaramiento
correspondiente a dichos meses.
10. Paz Tuason, reconoce haver recibido en este acto de Gregorio
Araneta, Inc., la suma de Ciento Noventa Mil Pesos (P190,000)como
adelanto del precio de venta que Gregorio Araneta, Inc., tuviere que
pagar a Paz Tuason.
La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella
a saldar su deuda con Jose Vidal, los amillaramientos, sobre el
utilizado por Paz Tuason para otros fines.
11. Una vez determinados los lotes que Paz Tuason podra vendera
Gregorio Araneta, Inc., Paz Tuason otorgara una escritura deventa
definitiva sobre dichos lotes a favor de Gregorio Araneta, Inc.
Gregorio Araneta, Inc., pagara el precio de venta como sigue: 90 por
ciento del mismo al otorgarse la escritura de venta definitiva
descontandose de la cantidad que entonces se tenga que pagar de
adelanto de P190,000 que se entrega en virtud de esta escritura. El
10 por ciento remanente se pagara a Paz Tuazon, una vez se haya
cancelado la hipoteca que pesa actualmente sobre el terreno.
No obstante la dispuesto en el parrafo 8, cualquier arrendatario que
decida comprar el lote que occupa con contrato de arrendamiento
podra optar por pedir el otorgamiento inmediato a su favor el acto
de la escritura de venta definitiva pagando en el acto el 50 por
ciento del precio (ademas del 40 por ciento que debio incluir en su
carta de aceptacion) y el remanente de 10 por ciento
inmediatemente despues de cancelarse la hipoteca que pesa sobre
el terreno.
12. Si la mencionada cantidad de P190,000 excediere del 90 por
ciento de la cantidad que Gregorio Araneta, Inc., tuviere que vender
a dicho comprador, el saldo sera pagado inmediatamente por Paz
Tuazon, tomandolo de las cantidades que reciba de los arrendatarios
como precio de venta.
In furtherance of this promise to buy and sell, letters were sent the
lessees giving them until August 31, 1943, an option to buy the lots
they occupied at the price and terms stated in said letters. Most of
the tenants who held contracts of lease took advantage of the
opportunity thus extended and after making the stipulated
LAW ON BUSINESS ORGANIZATIONS Cases 2 52
payments were giving their deeds of conveyance. These sales, as far
as the record would show, have been respected by the seller.
With the elimination of the lots sold or be sold to the tenants there
remained unencumbered, except for the mortgage to Jose Vidal,
Lots 1, 8-16 and 18 which have an aggregate area of 14,810.20
square meters; and on December 2, 1943, Paz Tuason and Gregorio
Araneta, Inc. executed with regard to these lots an absolute deed of
sale, the terms of which, except in two respects, were similar to
those of the sale to the lessees. This deed, copy of which is attached
to the plaintiff's complaint as Exhibit A, provided, among other
things, as follows:
The aforesaid lots are being sold by he Vendor to the Vendee
separately at the prices mentioned in paragraph (6) of the aforesaid
contract entitled "Promesa de Compra y Venta," making a total sum
of One Hundred Thirty-Nine Thousand Eighty-three pesos and
Thirty-two centavos (P139,083.32), ninety (90%) per cent of which
amount, i.e., the sum of One Hundred Twenty-five Thousand One
Hundred Seventy-four Pesos and Ninety-nine centavos
(P125,174.99), the Vendor acknowledges to have received by virtue
of the advance of One Hundred Ninety Thousand (P190,000) Pesos
made by the Vendee to the Vendor upon the execution of the
aforesaid contract entitled "Promesa de Compra y Venta". The
balance of Sixty-Four Thousand Eight Hundred Twenty-five Pesos
and One centavo (P64,825.01) between the sum of P125,174.99, has
been returned by the Vendor to the Vendee, which amount the
Vendee acknowledges to have received by these presents;
The aforesaid sum of P190,000 was delivered by the Vendee to the
Vendor by virtue of four checks issued by the Vendee against the
Bank of the Philippine Islands, as follows:
No. C-286445 in favor of Paz Tuason de Paterno
No. C-286444 in favor of the City Treasurer, Manila
No. C-286443 in favor of Jose Vidal
No. C-286442 in favor of Jose Vidal
Total
The return of the sum of P64,825.01 was made by the Vendor to the
Vendee in a liquidation which reads as follows:
Hemos recibido de Da. Paz Tuason de Paterno la cantidad
Cuatro mil Ochocientos Veinticinco Pesos y un centimo
enconcepto de devolucion que nos hace del excesode lo pa
Menos el 90% de P139,083.32, importe de los lotes q
comprar
Exceso
Cheque BIF No. D-442988 de Simplicio del Rosario
Cheque PNB No. 177863-K de L.E. Dumas
 LAW ON BUSINESS ORGANIZATIONS Cases 2 53

Cheque PNB No. 267682-K de Alfonso Sycip The liquidation20,000.00

of the amounts respectively due between the
Vendor and the Vendee in connection with the rents and real estate
Cheque PNB No. 83940 de Josefina de Pabalan taxes as stipulated in paragraph (9) of the contract entitled
4,847.96
"Promesa de Compara y Venta" will be adjusted between the parties
in a separate document.
Billetes recibidos de Alfonso Sycip 42.96
Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 9 and
17 fail to carryP68,563.21
out their respective obligations under the option to
purchase exercised by them so that the rights of the lessee to
purchase the respective property leased by him is cancelled, the
Menos las comisiones de 5 % recibidas de Josefina de
Vendor shall be bound to sell the same to the herein Vendee,
Pabalan P538.60
Gregorio Araneta, Incorporated, in conformity with the terms and
conditions provided in the aforesaid contract of "Promesa de
L.E. Dumas 1,084.43
Compra y Venta";

Angela S. Tuason The documentary3,244.97

1,621.94 stamps to be affixed to this deed will be for the
account of the Vendor while the expenses for the registration of this
document will be for the account of the Vendee.
P65,318.24

The remaining area of the property of the Vendor subject to

Menos cheque BIF No. C-288642 a favor de Da. Paz Tuason
Transfer Certificates of Title Nos. 60471 and 60472, are lots Nos. 2,
de Paterno que le entregamos como exceso
3, 4, 5, 6, 7, 9, and 17, all of the Consolidation of lots Nos. 20 and
117 of plan II-4755, G.L.R.O. Record No. 7680.
Manila, Noviembre 2, 1943
GREGORIO ARANETA, INCORPORATED
Por;
(Fdo.) "JOSE ARANETA
Presidente
Recibido cheque No. C-288642 BIF-P493.23
Por:
(Fdo.) "M.J. GONZALEZ
In view of the foregoing liquidation, the vendor acknowledges fully
and unconditionally, having received the sum of P125,174.99 of the
present legal currency and hereby expressly declares that she will
not hold the Vendee responsible for any loss that she might suffer
due to the fact that two of the checks paid to her by the Vendee
were issued in favor of Jose Vidal and the latter has, up to the
present time, not yet collected the same.
The ten (10%) per cent balance of the purchase price not yet paid in
the total sum of P13,908.33 will be paid by the Vendee to the
Vendor when the existing mortgage over the property sold by the
Vendor to the Vendee is duly cancelled in the office of the Register
of Deeds, or sooner at the option of the Vendee.
This Deed of Sale is executed by the Vendor free from all liens and
encumbrances, with the only exception of the existing lease
contracts on parcels Nos. 1, 10, 11, and 16, which lease contracts
will expire on December 31, 1953, with the understanding, however,
that this sale is being executed free from any option or right on the
part of the lessees to purchase the lots respectively leased by them.
It is therefore clearly understood that the Vendor will pay the
existing mortgage on her property in favor of Jose Vidal.
493.23
P64,825.01
Before the execution of the above deed, that is, on October 20,
1943, the day immediately following the signing of the agreement to
buy and sell, Paz Tuason had offered to Vidal the check for P143,150
mentioned in Exhibit A, in full settlement of her mortgage
obligation, but the mortgagee had refused to receive that check or
to cancel the mortgage, contending that by the separate agreement
before mentioned payment of the mortgage was not to be effected
totally or partially before the end of four years from April, 1943.
Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso
Ponce Enrile, commenced an action against the mortgagee in
October or the early paret of November 1943. the record of that
case was destroyed and no copy of the complaint was presented in
evidence. Attached to the complaint or deposited with the clerk of
court by Attorney Ponce Enrile simultaneously with the docketing of
the suit were the check for P143,150 previously turned down by
Vidal, another certified check for P12,932.61, also drawn by
Gregorio Araneta, Inc., in favor of Vidal, and one ordinary check for
P30,000 issued by Paz Tuazon. These three checks were supposed to
cover the whole indebtedness to Vidal including the principal and
interest up to that time and the penalty provided in the separate
agreement.
But the action against Vidal never came on for trial and the record
and the checks were destroyed during the war operations in January
or February, 1945; and neither was the case reconstituted
afterward. This failure of the suit for the cancellation of Vidal's
mortgage, coupled with the destruction of the checks tendered to
the mortgagee, the nullification of the bank deposit on which those
checks had been drawn, and the tremendous rise of real estate
value following the termination of the war, gave occasion to the
breaking off the schemes outlined in Exhibits 1 and A; Paz Tuason
after liberation repudiated them for the reasons to be hereafter set
forth. The instant action was the offshoot, begun by Gregorio
Araneta, Inc. to compel Paz Tuason to deliver to the plaintiff a clear
title to the lots described in Exhibit A free from all liens and
encumbrances, and a deed of cancellation of the mortgage to Vidal.
Vidal came into the case in virtue of a summon issued by order of

the court, and filed a cross-claim against Paz Tuazon to foreclose his
mortgage.
It should be stated that the outset that all the parties are in
agreement that Vidal's loans are still outstanding. Paz Tuason's
counsel concede that the tender of payment to Vidal was legally
defective and did not operate to discharge the mortgage, while the
plaintiff is apparently uninterested in this feature of the case
considering the matter one largely between the mortgagor and the
mortgagee, although to a certain degree this notion is incorrect. At
any rate, the points of discord between Paz Tuason and Vidal
concern only the accrual of interest on the loans, Vidal's claim to
attorney's fees, and the application of the debt moratorium law
which the debtor now invokes. These matters will be taken up in the
discussion of the controversy between Paz Tuason and Jose Vidal.
The principal bone of contention between Gregorio Araneta, Inc.,
and Paz Tuason was the validity of the deed of sale of Exhibit A on
which the suit was predicated. The lower court's judgment was that
this contract was invalid and was so declared, "sin per juicio de que
la demandada Paz Tuason de Paterno pague a la entidad
demandante todas las cantidades que habia estado recibiendo de
lareferida entidad demandante, en concepto de pago de
losterrenos, en moneda corriente, segun el cambio que debiaregir al
tiempo de otorgarse la escritura segun la escalade "Ballentine",
descontando, sin embargo, de dichas cantidades cualesquiera que la
demandante haya estadorecibiendo como alquileres de los terrenos
supuestamentevendidos a ella." The court based its opinion that
Exhibit 1. His Honor, Judge Sotero Rodas, agreedwith the defendant
that under paragraph 8 of Exhibit 1 there was to be no absolute sale
to Gregorio Araneta, Inc., unless Vidal's mortgage was cancelled.
In our opinion the trial court was in error in its interpretation of
Exhibit 1. The contemplated execution of an absolute deed of sale
was not contingent on the cancellation of Vidal's mortgage. What
Exhibit 1 did provide (eleventh paragraph) was that such deed of
absolute sale should be executed "una vez determinado los lotes
que Paz Tuason podra vender a Gregorio Araneta, Inc." The lots
which could be sold to Gregorio Araneta, Inc. were definitely known
by October 31, 1943, which was the expiry of the tenants' option to
buy, and the lots included in the absolute of which the occupants'
option to buy lapsed unconditionally. Such deed as Exhibit A was
then in a condition to be made.
Vidal's mortgage was not an obstacle to the sale. An amount had
been set aside to take care of it, and the parties, it would appear,
were confident that the suit against the mortgagee would succeed.
The only doubt in their minds was in the amount to which Vidal was
entitled. The failure of the court to try and decide that the case was
not foreseen either.
This refutes, were think, the charge that there was undue rush on
the part of the plaintiff to push across the sale. The fact that
simultaneously with Exhibit A similar deeds were given the lessees
who had elected to buy their leaseholds, which comprise an area
about twice as big as the lots described in Exhibit A, and the further
fact that the sale to the lessees have never been questioned and the
proceeds thereof have been received by the defendant, should add
to dispel any suspicion of bad faith on the part of the plaintiff. If
anyone was in a hurry it could have been the defendant. The clear
preponderance of the evidence that Paz Tuason was pressed for
cash and that the payment of the mortgage was only an incident, or
LAW ON BUSINESS ORGANIZATIONS Cases 2 54
a necessary means to effectuate the sale. Otherwise she could have
settled her mortgage obligation merely by selling a portion of her
estate, say, some of the lots leased to tenants who, except two who
were in concentration camps, were only too anxious to buy and own
the lots on which their houses were built.
Whatever the terms of Exhibit 1, the plaintiff and the defendant
were at perfect liberty to make a new agreement different from or
even contrary to the provisions of that document. The validity of the
subsequent sale must of necessity depend on what it said and not
on the provisions of the promise to buy and sell.
It is as possible proof or fraud that the discrepancies between the
two documents bear some attention. It was alleged that Attorneys
Salvador Araneta and J. Antonio Araneta who the defendant said
had been her attorneys and had drawn Exhibit A, and not informed
or had misinformed her about its contents; that being English, she
had not read the deed of sale; that if she had not trusted the said
attorneys she would not have been so foolish as to affix her
signature to a contract so one-sided.
The evidence does not support the defendant. Except in two
particulars, Exhibit A was a substantial compliance with Exhibit 1 in
furtherance of which Exhibit A was made. One departure was the
proviso that 10 per cent of the purchase price should be paid only
after Vidal's mortgage should have been cancelled. This provisional
deduction was not onerous or unusual. It was not onerous or
unusual that the vendee should withhold a relatively small portion
of the purchase price before all the impediments to the final
consummation of the sale had been removed. The tenants who had
bought their lots had been granted the privilege to deduct as much
as 40 per cent of the stipulated price pending discharge of the
mortgage, although his percentage was later reduced to 10 as in the
case of Gregorio Araneta, Inc. It has also been that the validity of the
sales to the tenants has not been contested; that these sales
embraced in the aggregate 24,245.40 square meters for
P260,916.68 as compared to 14,811.20 square meters sold to
Gregorio Araneta, Inc. for P139,083.32; that the seller has already
received from the tenant purchasers 90 per cent of the purchase
money.
There is good reason to believe that had Gregorio Araneta, Inc. not
insisted on charging to the defendant the loss of the checks
deposited with the court, the sale in question would have gone the
smooth way of the sales to the tenants. Thus Dindo Gonzales,
defendant's son, declared:
P. Despues de haberse presentado esta demanda, recuerda usted
haber tenido conversacion con Salvador Araneta acerca de este
asunto?
R. Si Señor.
P. Usted fue quien se acerco al señor Salvador Araneta?
R. Si, señor.
P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo
al señor Salvador Araneta?
R. No creo que es propio que yo diga, por tratarse de mi madre.

P. En otras palabras, usted quiere decir que no quiere usted que se
vuelva decir o repetir ante este Honorable Juzgado lo que usted dijo
al señor Salvador Araneta, pues, se trata de su madre?
R. No, señor.
P. Puede usted decirnos que quiso usted decir cuando que no
quisiera decir?
R. Voy a decir lo que Salvador Araneta, yo me acerque a Don
Salvador Araneta, y yo le dije que es una verguenza de que nosotros,
en la familia tengamos que ir a la Corte por este, y tambien dije que
mi madre de por si quiere vender el terreno a ellos, porque mi
madre quiere pagar al señor Vidal, y que es una verguenza, siendo
entre parientes, tener que venir por este; era lo que yo dije al señor
Salvador Araneta.
xxx xxx xxx
P. No recuerda usted tambien dijo al señor Salvador Araneta que
usted no comulgaba con ella (su madre) en este asunto?
R. Si, Señor; porque yo creia que mi madre solamente queria anular
esta venta, pero cuando me dijo el señor La O y sus abogados
que, encima de quitar la propiedad, todavia tendria ella que pagar al
señor Vidal, este no veso claro.
xxx xxx xxx
P. Ahora bien; de tal suerte que, tal como nosotros desperendemos
de su testimonio, tanto, usted como, su madre, esteban muy
conformes en la venta, es asi?
R. Si, señor.
The other stipulation embodied in Exhibit A which had no
counterpart in Exhibit 1 was that by which Gregorio Araneta Inc.
would hold Paz Tuason liable for the lost checks and which, as
stated, appeared to be at the root of the whole trouble between the
plaintiff and the defendant.
The stipulation reads:
In view of the foregoing liquidation, the Vendor acknowledges fully
and unconditionally, having received the sum of P125,174.99 of the
present legal currency and hereby expressly declares that she will
not hold the Vendee responsible for any loss that she might suffer
due to the fact that two of the checks paid to her by the Vendee
were used in favor of Jose Vidal and the latter has, up to the present
time, not yet collected the same.
It was argued that no person in his or her right senses would
knowingly have agreed to a covenant so iniquitous and
unreasonable.
In the light of all the circumstances, it is difficult to believe that the
defendant was deceived into signing Exhibit A, in spite of the
provision of which she and her son complaint. Intelligent and well
educated who had been managing her affairs, she had an able
attorney who was assisting her in the suit against Vidal, a case which
was instituted precisely to carry into effect Exhibit A or Exhibit 1, and
a son who is leading citizen and a business-man and knew the
English language very well if she did not. Dindo Gonzalez took active
part in, if he was not the initiator of the negotiations that led to the
LAW ON BUSINESS ORGANIZATIONS Cases 2 55
execution of Exhibit 1, of which he was an attesting witness besides.
If the defendant signed Exhibit A without being apprised of its
import, it can hardly be conceived that she did not have her attorney
or her son read it to her afterward. The transaction involved the
alienation of property then already worth a fortune and now
assessed by the defendant at several times higher. Doubts in
defendant's veracity are enhanced by the fact that she denied or at
least pretended in her answer to be ignorant of the existence of
Exhibit A, and that only after she was confronted with the signed
copy of the document on the witness did she spring up the defense
of fraud. It would look as if she gambled on the chance that no
signed copy of the deed had been saved from the war. She could not
have forgotten having signed so important a document even if she
had not understood some of its provisions.
From the unreasonableness and inequity of the aforequoted Exhibit
A it is not to be presumed that the defendant did not understand it.
It was highly possible that she did not attach much importance to it,
convinced that Vidal could be forced to accept the checks and not
foreseeing the fate that lay in store for the case against the
mortgagee.
Technical objections are made against the deed of sale.
First of these is that Jose Araneta, since deceased, was defendant's
agent and at the same time the president of Gregorio Araneta, Inc.
The trial court found that Jose Araneta was not Paz Tuason's agent
or broker. This finding is contrary to the clear weight of the
evidence, although the point would be irrelevant, if the court were
right in its holding that Exhibit A was void on another ground, i.e., it
was inconsistent with Exhibit 1.
Without taking into account defendant's Exhibit 7 and 8, which the
court rejected and which, in our opinion, should have been
admitted, Exhibit 1 is decisive of the defendant's assertion. In
paragraph 8 of Exhibit 1 Jose Araneta was referred to as defendant's
agent or broker "who acts in this transaction" and who as such was
to receive a commission of 5 per cent, although the commission was
to be charged to the purchasers, while in paragraph 13 the
defendant promised, in consideration of Jose Araneta's services
rendered to her, to assign to him all her right, title and interest to
and in certain lots not embraced in the sales to Gregorio Araneta,
Inc. or the tenants.
However, the trial court hypothetically admitting the existence of
the relation of principal and agent between Paz Tuason and Jose
Araneta, pointed out that not Jose Araneta but Gregorio Araneta,
Inc. was the purchaser, and cited the well-known distinction
between the corporation and its stockholders. In other words, the
court opined that the sale to Gregorio Araneta, Inc. was not a sale to
Jose Araneta the agent or broker.
The defendant would have the court ignore this distinction and
apply to this case the other well-known principle which is thus
stated in 18 C.J.S. 380: "The courts, at law and in equity, will
disregard the fiction of corporate entity apart from the members of
the corporation when it is attempted to be used as a means of
accomplishing a fraud or an illegal act.".
It will at once be noted that this principle does not fit in with the
facts of the case at bar. Gregorio Araneta, Inc. had long been
 LAW ON BUSINESS ORGANIZATIONS Cases 2 56

organized and engaged in real estate business. The corporate entity whatsoever, which he could abuse to his advantage and to the
was not used to circumvent the law or perpetrate deception. There owner's prejudice.
is no denying that Gregorio Araneta, Inc. entered into the contract
for itself and for its benefit as a corporation. The contract and the Defendant's other ground for repudiating Exhibit A is that the law
roles of the parties who participated therein were exactly as they firm of Araneta & Araneta who handled the preparation of that deed
purported to be and were fully revealed to the seller. There is no and represented by Gregorio Araneta, Inc. were her attorneys also.
pretense, nor is there reason to suppose, that if Paz Tuason had On this point the trial court's opinion is likewise against the
known Jose Araneta to Gregorio Araneta, Inc's president, which she defendant.
knew, she would not have gone ahead with the deal. From her point
Since attorney Ponce Enrile was the defendant's lawyer in the suit
of view and from the point of view of public interest, it would have
against Vidal, it was not likely that she employed Atty. Salvador
made no difference, except for the brokerage fee, whether Gregorio
Araneta and J. Antonio Araneta as her attorneys in her dealings with
Araneta, Inc. or Jose Araneta was the purchaser. Under these
Gregorio Araneta, Inc., knowing, as she did, their identity with the
circumstances the result of the suggested disregard of a technicality
buyer. If she had needed legal counsels, in this transaction it seems
would be, not to stop the commission of deceit by the purchaser but
certain that she would have availed herself of the services of Mr.
to pave the way for the evasion of a legitimate and binding
Ponce Enrile who was allegedly representing her in another case to
commitment buy the seller. The principle invoked by the defendant
pave the way for the sale.
is resorted to by the courts as a measure or protection against
deceit and not to open the door to deceit. "The courts," it has been
The fact that Attys. Salvador and Araneta and J. Antonio Araneta
said, "will not ignore the corporate entity in order to further the
drew Exhibits 1 and A, undertook to write the letters to the tenants
perpetration of a fraud." (18 C.J.S. 381.)
and the deeds of sale to the latter, and charged the defendant the
corresponding fees for all this work, did not themselves prove that
The corporate theory aside, and granting for the nonce that Jose
they were the seller's attorneys. These letters and documents were
Araneta and Gregorio Araneta, Inc. were identical and that the acts
wrapped up with the contemplated sale in which Gregorio Araneta,
of one where the acts of the other, the relation between the
Inc. was interested, and could very well have been written by
defendant and Jose Araneta did not fall within the purview of article
Attorneys Araneta and Araneta in furtherance of Gregorio Araneta's
1459 of the Spanish Civil Code.1
own interest. In collecting the fees from the defendant they did
Agency is defined in article 1709 in broad term, and we have not what any other buyer could have appropriately done since all such
come across any commentary or decision dealing directly with the expenses normally were to be defrayed by the seller.
precise meaning of agency as employed in article 1459. But in the
Granting that Attorney Araneta and Araneta were attorneys for the
opinion of Manresa(10 Manresa 4th ed. 100), agent in the sense
defendant, yet they were not forbidden to buy the property in
there used is one who accepts another's representation to perform
question. Attorneys are only prohibited from buying their client's
in his name certain acts of more or less transcendency, while
property which is the subject of litigation. (Art. 1459, No. 5, Spanish
Scaevola (Vol. 23, p. 403) says that the agent's in capacity to buy his
Civil Code.) The questioned sale was effected before the subject
principal's property rests in the fact that the agent and the principal
thereof became involved in the present action. There was already at
form one juridicial person. In this connection Scaevola observes that
the time of the sale a litigation over this property between the
the fear that greed might get the better of the sentiments of loyalty
defendant and Vidal, but Attys. Salvador Araneta and J. Antonio
and disinterestedness which should animate an administrator or
Araneta were not her attorneys in that case.
agent, is the reason underlying various classes of incapacity
enumerated in article 1459. And as American courts commenting on
From the pronouncement that Exhibit A is valid, however, it does
similar prohibition at common law put it, the law does not trust
not follow that the defendant should be held liable for the loss of
human nature to resist the temptations likely to arise of antogonism
the certified checks attached to the complaint against Vidal or
between the interest of the seller and the buyer.
deposited with the court, or of the funds against which they had
been issued. The matter of who should bear this loss does not
So the ban of paragraph 2 of article 1459 connotes the idea of trust
depend upon the validity of the sale but on the extent and scope of
and confidence; and so where the relationship does not involve
the clause hereinbefore quoted as applied to the facts of the present
considerations of good faith and integrity the prohibition should not
case.
and does not apply. To come under the prohibition, the agent must
be in a fiduciary with his principal.
The law and the evidence on this branch of the case revealed these
facts, of some of which passing mention has already been made.
Tested by this standard, Jose Araneta was not an agent within the
meaning of article 1459. By Exhibits 7 and 8 he was to be nothing
The aforesaid checks, one for P143,150 and one for P12,932.61,
more than a go-between or middleman between the defendant and
were issued by Gregorio Araneta, Inc. and payable to Vidal, and
the purchaser, bringing them together to make the contract
were drawn against the Bank of the Philippines with which Gregorio
themselves. There was no confidence to be betrayed. Jose Araneta
Araneta, Inc. had a deposit in the certification stated that they were
was not authorize to make a binding contract for the defendant. He
to be "void if not presented for payment date of acceptance" office
was not to sell and he did not sell the defendant's property. He was
(Bank) within 90 days from date of acceptance."
to look for a buyer and the owner herself was to make, and did
make, the sale. He was not to fix the price of the sale because the Under banking laws and practice, by the clarification" the funds
price had been already fixed in his commission. He was not to make represented by the check were transferred from the credit of the
the terms of payment because these, too, were clearly specified in maker to that of the payee or holder, and, for all intents and
his commission. In fine, Jose Araneta was left no power or discretion

purposes, the latter became the depositor of the drawee bank, with
rights and duties of one such relation." But the transfer of the
corresponding funds from the credit of the depositor to that of that
of the payee had to be co-extensive with the life of the checks,
which in the case was 90 days. If the checks were not presented for
payment within that period they became invalid and the funds were
automatically restored to the credit of the drawer though not as a
current deposit but as special deposit. This is the consensus of the
evidence for both parties which does not materially differ on this
proposition.
The checks were never collected and the account against which they
were drawn was not used or claimed by Gregorio Araneta, Inc.; and
since that account "was opened during the Japanese occupation and
in Japanese currency," the checks "became obsolete as the account
subject thereto is considered null and void in accordance with
Executive Order No. 49 of the President of the Philippines",
according to the Bank.
Whether the Bank of the Philippines could lawfully limit the
negotiability of certified checks to a period less than the period
provided by the Statute of Limitations does not seem material. The
limitation imposed by the Bank as to time would adversely affect the
payee, Jose Vidal, who is not trying to recover on the instruments
but on the contrary rejected them from the outset, insisting that the
payment was premature. As far as Vidal was concerned, it was of no
importance whether the certification was or was not restricted. On
the other hand, neither the plaintiff nor the defendant now insists
that Vidal should present, or should have presented, the checks for
collection. They in fact agree that the offer of those checks to Vidal
did not, for technical reason, work to wipe out the mortgage.
But as to Gregorio Araneta and Paz Tuason, the conditions specified
in the certification and the prevailing regulations of the Bank were
the law of the case. Not only this, but they were aware of and
abided by those regulations and practice, as instanced by the fact
that the parties presented testimony to prove those regulations and
practice. And that Gregorio Araneta, Inc. knew that Vidal had not
cashed the checks within 90 days is not, and could not successfully
be denied.
In these circumstances, the stipulation in Exhibit A that the
defendant or seller "shall not hold the vendee responsible for any
loss of these checks" was unconscionable, void and unenforceable in
so far as the said stipulation would stretch the defendant's liability
for this checks beyond 90 days. It was not in accord with law, equity
or good conscience to hold a party responsible for something he or
she had no access to and could not make use of but which was
under the absolute control and disposition of the other party. To
make Paz Tuason responsible for those checks after they expired
and when they were absolutely useless would be like holding an
obligor to answer for the loss or destruction of something which the
obligee kept in its safe with no power given the obligor to protect it
or interfere with the obligee's possession.
To the extent that the contract Exhibit A would hold the vendor
responsible for those checks after they had lapsed, the said contract
was without consideration. The checks having become obsolete, the
benefit in exchange for which the defendant had consented to be
responsible for them had vanished. The sole motivation on her part
for the stipulation was the fact that by the checks the mortgage
might or was to be released. After 90 days the defendant stood to
LAW ON BUSINESS ORGANIZATIONS Cases 2 57
gain absolutely nothing by them, which had become veritable scraps
of paper, while the ownership of the deposit had reverted to the
plaintiff which alone could withdraw and make use of it.
What the plaintiff could and should have done if the disputed
stipulation was to be kept alive was to keep the funds accessible for
the purpose of paying the mortgage, by writing new checks either to
Vidal or to the defendant, as was done with the check for P30,000,
or placing the deposit at the defendant's disposal. The check for
P30,000 intended for the penalty previously had been issued in the
name of Vidal and certified, too, but by mutual agreement it was
changed to an ordinary check payable to Paz Tuason. Although that
check was also deposited with the court and lost, its loss
undoubtedly was imputable to the defendant's account, and she did
not seem to disown her liability for it.
Let it be remembered that the idea of certifying the lost checks was
all the plaintiff's. The plaintiff would not trust the defendant and
studiously so arranged matters that she could not by any possibility
put a finger on the money. For all the practical intents and purposes
the plaintiff dealt directly with the mortgagee and excluded the
defendant from meddling in the manner of payment to Vidal. And
let it also be kept in mind that Gregorio Araneta, Inc. was not a mere
accommodator in writing these checks. It was as much interested in
the cancellation of the mortgage as Paz Tuason.
Coming down to Vidal's cross-claim Judge Rodas rendered no
judgment other than declaring that the mortgage remained intact
and subsisting. The amount to be paid Vidal was not named and the
question whether interest and attorney's fees were due was not
passed upon. The motion for reconsideration of the decision by
Vidal's attorney's praying that Paz Tuason be sentenced to pay the
creditor P244,917.90 plus interest at the rate of 1 percent monthly
from September 10, 1948 and that the mortgaged property be
ordered sold in case of default within 90 days, and another motion
by the defendant seeking specification of the amount she had to pay
the mortgagee were summarily denied by Judge Potenciano Pecson,
to whom the motions were submitted, Judge Rodas by that time
having been appointed to the Court of Appeals.
All the facts and evidence on this subject are on the record,
however, and we may just as well determine from these facts and
evidence the amount to which the mortgagee is entitled, instead of
remanding the case for new trial, if only to avoid further delay if the
disposition of this case.
It is obvious that Vidal had a right to judgment for his credit and to
foreclose the mortgage if the credit was not paid.
There is no dispute as to the amount of the principal and there is
agreement that the loans made in 1943, in Japanese war notes,
should be computed under the Ballantyne conversion table. As has
been said, where the parties do not see eye-to-eye was in regard to
the mortgagee's claim to attorney's fees and interest from October,
1943, which was reached a considerable amount. It was contended
that, having offered to pay Vidal her debt in that month, the
defendant was relieved thereafter from paying such interest.
It is to be recalled that Paz Tuason deposited with the court three
checks which were intended to cover the principal and interest up to
October, 1943, plus the penalty provided in the instrument
"Penalidad del Documento de Novacion de Esta Fecha." The

mortgagor maintains that although these checks may not have
constituted a valid payment for the purpose of discharging the debt,
yet they did for the purpose of stopping the running of interest. The
defendant draws attention to the following citations:
An offer in writing to pay a particular sum of money or to deliver a
written instrument or specific personal property is, if rejected,
equivalent to the actual production and tender of the money,
instrument or property. (Sec. 24, Rule 123.)
It is not accord with either the letter or the spirit of the law to
impose upon the person affecting a redemption of property, in
addition to 12 per cent interest per annum up to the time of the
offer to redeem, a further payment of 6 per cent per annum from
the date of the officer to redeem. (Fabros vs. Villa Agustin, 18 Phil.,
336.)
A tender by the debtor of the amount of this debt, if made in the
proper manner, will suspend the running of interest on the debt for
the time of such tender. (30 Am. Jur., 42.)
In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had
been sold on execution to one Tabliga. Within the period of
redemption Fabros, to whom the land had been mortgaged by the
execution debtor, had offered to redeem the land from the
execution creditor and purchaser at public auction. The trial court
ruled that the redemptioner was not obliged to pay the stipulated
interest of 12 per cent after he offered to redeem the property;
nevertheless he was sentenced to pay 6 per cent interest from the
date of the offer.
This court on appeal held that "there is no reason for this other (6
per cent) interest, which appears to be a penalty for delinquency
while there was no delinquency." The court cited an earlier
decision, Martinez vs. Campbell, 10 Phil., 626, where this doctrine
was laid down: "When the right of redemption is exercised within
the term fixed by section 465 of the Code of Civil Procedure, and an
offer is made of the amount due for the repurchase of the property
to which said right refers, it is neither reasonable nor just that the
repurchaser should pay interest on the redemption money after the
time when he offered to repurchase and tendered the money
therefor."
In the light of these decisions and law, the next query is; Did the
mortgagor have the right under the contract to pay the mortgage on
October 20, 1943? The answer to this question requires an inquiry
into the provision of the "Penalidad del Documento de Novacion de
Esta Fecha."
Vidal introduced oral evidence to the effect that he reserved unto
himself in that agreement the right "to accept or refuse the total
payment of the loan outstanding . . ., if at the time of such offer of
payment he considered it advantageous to his interest." This was
gist of Vidal's testimony and that of Lucio M. Tiangco, one of Vidal's
former attorneys who, as notary public, had authenticated the
document. Vidal's above testimony was ordered stricken out as
hearsay, for Vidal was blind and, according to him, only had his
other lawyer read the document to him.
We are of the opinion that the court erred in excluding Vidal's
statement. There is no reason to suspect that Vidal's attorney did
not correctly read the paper to him. The reading was a
LAW ON BUSINESS ORGANIZATIONS Cases 2 58
contemporaneous incident of the writing and the circumstances
under which the document was read precluded every possibility of
design, premeditation, or fabrication.
Nevertheless, Vidal's testimony, like the testimony of Lucio M.
Tiangco's, was based on recollection which, with the lapse of time,
was for from infallible. By contrast, the testimony of Attorneys
Ponce Enrile, Salvador Araneta, and J. Antonio Araneta does not
suffer from such weakness and is entitled to full faith and credit. The
document was the subject of a close and concerted study on their
part with the object of finding the rights and obligations of the
mortgagee and the mortgagor in the premises and mapping out the
course to be pursued. And the results of their study and deliberation
were translated into concrete action and embodied in a letter which
has been preserved. In line with the results of their study, action was
instituted in court to compel acceptance by Vidal of the checks
consigned with the complaint, and before the suit was commenced,
and with the document before him, Atty. Ponce Enrile, in behalf of
his client, wrote Vidal demanding that he accept the payment and
execute a deed of cancellation of the mortgage. In his letter Atty.
Ponce Enrile reminded Vidal that the recital in the "Penalidad del
Documento de Novacion de Esta Fecha" was "to the effect that
should the debtor wish to pay the debt before the expiration of the
period the reinstated (two years) such debtor would have to pay, in
addition to interest due, the penalty of P30,000 — this is in addition
to the penalty clause of 10 per cent of the total amount due inserted
in the document of mortgage of January 20, 1943."
Atty. Ponce Enrile's concept of the agreement, formed after mature
and careful reading of it, jibes with the only possible reason for the
insertion of the penalty provision. There was no reason for the
penalty unless it was for defendant's paying her debt before the end
of the agreed period. It was to Vidal's interest that the mortgage be
not settled in the near future, first, because his money was earning
good interest and was guaranteed by a solid security, and second,
which was more important, he, in all probability, shared the
common belief that Japanese war notes were headed for a crash
and that four years thence, judging by the trends of the war, the
hostilities would be over.
To say, as Vidal says, that the debtor could not pay the mortgage
within four years and, at the same time, that there would be penalty
if she paid after that period, would be a contradiction. Moreover,
adequate remedy was provided for failure to pay or after the
expiration of the mortgage: increased rate or interest, foreclosure of
the mortgage, and attorney's fees.
It is therefore to be concluded that the defendant's offer to pay
Vidal in October, 1943, was in accordance with the parties' contract
and terminated the debtor's obligation to pay interest. The technical
defects of the consignation had to do with the discharge of the
mortgage, which is conceded on all sides to be still in force because
of the defects. But the matter of the suspension of the running of
interest on the loan stands of a different footing and is governed by
different principles. These principles regard reality rather than
technicality, substance rather than form. Good faith of the offer or
and ability to make good the offer should in simple justice excuse
the debtor from paying interest after the offer was rejected. A
debtor can not be considered delinquent who offered checks backed
by sufficient deposit or ready to pay cash if the creditor chose that
means of payment. Technical defects of the offer cannot be adduced
to destroy its effects when the objection to accept the payment was

based on entirely different grounds. If the creditor had told the
debtor that he wanted cash or an ordinary check, which Vidal now
seems to think Paz Tuason should have tendered, certainly Vidal's
wishes would have been fulfilled, gladly.
The plain truth was that the mortgagee bent all his efforts to put off
the payment, and thanks to the defects which he now, with obvious
inconsistency, points out, the mortgage has not perished with the
checks.
Falling within the reasons for the stoppage of interest are attorney's
fees. In fact there is less merit in the claim for attorney's fees than in
the claim for interest; for the creditor it was who by his refusal
brought upon himself this litigation, refusal which, as just shown,
resulted greatly to his benefit.
Vidal, however, is entitled to the penalty, a point which the debtor
seems to a grant. The suspension of the running of the interest is
premised on the thesis that the debt was considered paid as of the
date the offer to pay the principal was made. It is precisely the
mortgagor's contention that he was to pay said penalty if and when
she paid the mortgage before the expiration of the four-year period
provided in the mortgage contract. This penalty was designed to
take the place of the interest which the creditor would be entitled to
collect if the duration of the mortgage had not been cut short and
from which interest the debtor has been relieved. "In obligations
with a penalty clause the penalty shall substitute indemnity for
damages and the payment of interest. . ." (Art. 1152, Civil Code of
Spain.).
To summarize, the following are our findings and decision:
The contract of sale Exhibit A was valid and enforceable, but the loss
of the checks for P143,150 and P12,932.61 and invalidation of the
corresponding deposit is to be borne by the buyer. Gregorio
Araneta, Inc. the value of these checks as well as the several
payments made by Paz Tuason to Gregorio Araneta, Inc. shall be
deducted from the sum of P190,000 which the buyer advanced to
the seller on the execution of Exhibit 1.
The buyer shall be entitled to the rents on the land which was the
subject of the sale, rents which may have been collected by Paz
Tuason after the date of the sale.
Paz Tuason shall pay Jose Vidal the amount of the mortgage and the
stipulated interest up to October 20,1943, plus the penalty of
P30,000, provided that the loans obtained during the Japanese
occupation shall be reduced according to the Ballantyne scale of
payment, and provided that the date basis of the computation as to
the penalty is the date of the filing of the suit against Vidal.
Paz Tuason shall pay the amount that shall have been found due
under the contracts of mortgage within 90 days from the time the
court's judgment upon the liquidation shall have become final,
otherwise the property mortgaged shall be ordered sold provided by
law.
Vidal's mortgage is superior to the purchaser's right under Exhibit A,
which is hereby declared subject to said mortgage. Should Gregorio
Araneta, Inc. be forced to pay the mortgage, it will be subrogated to
the right of the mortgagee.
LAW ON BUSINESS ORGANIZATIONS Cases 2 59
This case will be remanded to the court of origin with instruction to
hold a rehearing for the purpose of liquidation as herein provided.
The court also shall hear and decide all other controversies relative
to the liquidation which may have been overlooked at this decision,
in a manner not inconsistent with the above findings and judgment.
The mortgagor is not entitled to suspension of payment under the
debt moratorium law or orders. Among other reasons: the bulk of
the debt was a pre-war obligation and the moratorium as to such
obligations has been abrogated unless the debtor has suffered war
damages and has filed claim for them; there is no allegation or proof
that she has. In the second place, the debtor herself caused her
creditor to be brought into the case which resulted in the filing of
the cross-claim to foreclose the mortgage. In the third place, prompt
settlement of the mortgage is necessary to the settlement of the
dispute and liquidation between Gregorio Araneta, Inc. and Paz
Tuason. If for no other reason, Paz Tuason would do well to forego
the benefits of the moratorium law.
There shall be no special judgments as to costs of either instance.
Paras, C.J., Pablo, Bengzon, Padilla, Bautista Angelo and Labrador,
JJ., concur.
RESOLUTION
December 22, 1952
TUASON, J.:
The motion for reconsideration of the plaintiff, Gregorio Araneta,
Inc., and the defendant, Paz Tuason de Paterno, are in large part
devoted to the question, extensively discussed in the decision, of the
validity of the contract of sale Exhibit A. The arguments are not new
and at least were given due consideration in the deliberation and
study of the case. We find no reason for disturbing our decision on
this phase of the case.
The plaintiff-appellant's alternative proposition — to wit: "Should
this Honorable Court declare that the purchase price was not paid
and that plaintiff has to bear the loss due to the invalidation of the
occupation currency, its loss should be limited to: (a) the purchase
price of P139,083.32 less P47,825.70 which plaintiff paid and the
defendant actually collected during the occupation, or the sum of
P92,233.32, or at most, (b) the purchase price of the lot in the sum
of P139,083.32," — as well as the alleged over-payment by the
defendant-appellee, may be taken up in the liquidation under the
reservation in the judgment that "the court (below) shall hold a
rehearing for the purpose of liquidation as herein provided" and
"shall also hear and decide all other controversies relative to the
liquidation which may have been overlooked in this decision, in the
manner not inconsistent with the above findings and judgment."
These payments and disbursement are matters of accounting which,
not having been put directly in issue or given due attention at the
trial and in the appealed decision, can better be treshed out in the
proposed rehearing where each party will have an opportunity to
put forward his views and reasons, with supporting evidence if

necessary, on how the various items in question should be regarded
and credited, in the light of our decision.
As to Jose Vidal's motion: There is nothing to add to or detract from
what has been said in the decision relative to the interest on the
loans and attorney's fees. There are no substantial features of the
case that have not been weighed carefully in arriving at our
conclusions. It is our considered opinion that the decision is in
accord with law, reason and equity.
The vehement protest that this court should not modify the
conclusion of the lower court on interest and attorney's fees is
actually and entirely contrary to the cross-claimant's own suggestion
in his brief. From page 20 of his brief, we copy these passages:
We submit that this Honorable Court is in a position now to render
judgment in the foreclosure of mortgage suit as no further issue of
fact need be acted upon by the trial court. Defendant Paz Tuason
has admitted the amount of capital due. That is a fact. She only
requests that interest be granted up to October 20,1943, and that
the moratorium law be applied. Whether this is possible or not is a
legal question, which can be decided by this court. Unnecessary loss
of time and expenses to the parties herein will be avoided by this
Honorable Court by rendering judgment in the foreclosure of
mortgage suit as follows:
xxx xxx xxx
In reality, the judgment did not adjudicate the foreclosure of the
mortgage nor did it fix the amount due on the mortgage. The
pronouncement that the mortgage was in full force and effect was a
conclusion which the mortgagor did not and does not now question.
There was therefore virtually no decision that could be executed.
Vidal himself moved in the Court of First Instance for amendment of
the decision alleging, correctly, that "the court failed to act on the
cross-claim of Jose Vidal dated April 22, 1947, where he demanded
foreclosure of the mortgage . . . ." That motion like Paz Tuason's
motion to complete the judgment, was summarily denied.
In strict accordance with the procedure, the case should have been
remanded to the court of origin for further proceedings in the form
stated by Paz Tuason's counsel. Both the mortgagor and the
mortgagee agree on this. We did not follow the above course
believing it best, in the interest of the parties themselves and
following Vidal's attorney's own suggestion, to decide the
controversies between Vidal and Paz Tuason upon the records and
the briefs already submitted.
The three motions for reconsideration are denied.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo, Bautista
Angelo and Labrador, JJ., concur.
RESOLUTION
January 26, 1953
TUASON, J.:
LAW ON BUSINESS ORGANIZATIONS Cases 2 60
In the second motion for reconsideration by defendant-appellee it is
urged that the sale be resolved for failure of plaintiff-appellant to
pay the entire purchase price of the property sold.
Rescission of the contract, it is true, was alternative prayer in the
cross-complaint, but the trial court declared the sale void in
accordance with the main contention of the defendant, and passed
no judgment on the matter of rescission. For this reason, and
because rescission was not pressed on appeal, we deemed
unnecessary, if not uncalled for, any pronouncement touching this
point.
In the second place, the nonpayment of a portion, albeit big portion,
of the price was not, in our opinion, such failure as would justify
recission under Articles 1124 and 1505 et seq. of the Civil Code of
Spain, which was still in force when this case was tried. "The general
rule is that recission will not be permitted for a slight
or casual breach of the contract, but only for such breaches as are so
substantial and fundamental as to defeat the object of the parties."
(Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil., 821, 827.)
In the present case, the vendee did not fail or refuse to pay by plan
or design, granting there was failure or refusal to pay. As a matter of
fact, the portion of the purchase price which is said not to have been
satisfied until now was actually received by checks by the vendor
and deposited by her with the court in the suit against Vidal, in
accordance with the understanding if not express agreement
between vendor and vendee. The question of who should bear the
loss of this amount, the checks having been destroyed and the funds
against which they were drawn having become of no value, was one
of the most bitterly debated issues, and in adjudging the vendee to
be the party to shoulder the said loss and ordering the said vendee
to pay the amount to the vendor, this Court's judgment was not, and
was not intended to be, in the nature of an extension of time of
payment. In contemplation of the Civil Code there was no default,
except possibly in connection with the alleged overcharges by the
vendee arising from honest mistakes of accounting, mistakes which,
by our decision, are to be corrected in a new trial thereby ordered.
The second motion for reconsideration is, therefore, denied.
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
LAW ON BUSINESS ORGANIZATIONS Cases 2 61
(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.
LAW ON BUSINESS ORGANIZATIONS Cases 2 62
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
LAW ON BUSINESS ORGANIZATIONS Cases 2 63
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.
The duty embodied in Article 1891 of the New Civil Code will not
apply if the agent or broker acted only as a middleman with the task
of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object therto. 11 Herein
defendant-appellee Gregorio Domingo was not merely a middleman
of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting
such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in
law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-
appellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only
recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from Vicente Domingo and Oscar
de Leon respectively the amounts of Three Hundred Pesos (P300.00)
and One Thousand Pesos (P1,000.00) or a total of One Thousand
Three Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo
to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused
Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One
Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3,
1956.

WHEREFORE, the judgment is hereby rendered, reversing the
decision of the Court of Appeals and directing defendant-appellee
Gregorio Domingo: (1) to pay to the heirs of 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.
[G.R. No. 141485. June 30, 2005]
PABLITO MURAO and NELIO HUERTAZUELA, petitioners, vs. PEOPLE
OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of
Court, petitioners pray for the reversal of the Decision of the Court
of Appeals in CA-G.R. CR No. 21134, dated 31 May 1999,[1] affirming
with modification the Judgment of the Regional Trial Court (RTC) of
Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05
May 1997,[2] finding petitioners guilty beyond reasonable doubt of
the crime of estafa under Article 315(1)(b) of the Revised Penal
Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial
Commercial Enterprises (LMICE), a company engaged in the business
of selling and refilling fire extinguishers, with branches in Palawan,
Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, and Laguna.
Petitioner Nelio Huertazuela is the Branch Manager of LMICE in
Puerto Princesa City, Palawan.[3]
On 01 September 1994, petitioner Murao and private complainant
Chito Federico entered into a Dealership Agreement for the
marketing, distribution, and refilling of fire extinguishers within
Puerto Princesa City.[4] According to the Dealership Agreement,
private complainant Federico, as a dealer for LMICE, could obtain
fire extinguishers from LMICE at a 50% discount, provided that he
sets up his own sales force, acquires and issues his own sales
invoice, and posts a bond with LMICE as security for the credit line
extended to him by LMICE. Failing to comply with the conditions
under the said Dealership Agreement, private complainant Federico,
nonetheless, was still allowed to act as a part-time sales agent for
LMICE entitled to a percentage commission from the sales of fire
extinguishers.[5]
The amount of private complainant Federicos commission as sales
agent for LMICE was under contention. Private complainant Federico
claimed that he was entitled to a commission equivalent to 50% of
the gross sales he had made on behalf of LMICE,[6] while petitioners
maintained that he should receive only 30% of the net sales.
Petitioners even contended that as company policy, part-time sales
agents were entitled to a commission of only 25% of the net sales,
but since private complainant Federico helped in establishing the
LMICE branch office in Puerto Princesa City, he was to receive the
same commission as the full-time sales agents of LMICE, which was
30% of the net sales.[7]
Private complainant Federicos first successful transaction as sales
agent of LMICE involved two fire extinguishers sold to Landbank of
LAW ON BUSINESS ORGANIZATIONS Cases 2 64
the Philippines (Landbank), Puerto Princesa City Branch, for the price
of P7,200.00. Landbank issued a check, dated 08 November 1993,
pay to the order of L.M. Industrial Comml. Enterprises c/o Chito
Federico, for the amount of P5,936.40,[8] after deducting from the
original sales price the 15% discount granted by private complainant
Federico to Landbank and the 3% withholding tax. Private
complainant Federico encashed the check at Landbank and remitted
only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his
commission from the sale.[9]
Petitioners alleged that it was contrary to the standard operating
procedure of LMICE that private complainant Federico was named
payee of the Landbank check on behalf of LMICE, and that private
complainant Federico was not authorized to encash the said check.
Despite the supposed irregularities committed by private
complainant Federico in the collection of the payment from
Landbank and in the premature withholding of his commission from
the said payment, petitioners forgave private complainant Federico
because the latter promised to make-up for his misdeeds in the next
transaction.[10]
Private complainant Federico, on behalf of LMICE, subsequently
facilitated a transaction with the City Government of Puerto
Princesa for the refill of 202 fire extinguishers. Because of the
considerable cost, the City Government of Puerto Princesa
requested that the transaction be split into two purchase orders,
and the City Government of Puerto Princesa shall pay for each of the
purchase orders separately.[11] Pursuant to the two purchase orders,
LMICE refilled and delivered all 202 fire extinguishers to the City
Government of Puerto Princesa: 154 units on 06 January 1994, 43
more units on 12 January 1994, and the last five units on 13 January
1994.[12]
The subject of this Petition is limited to the first purchase order,
Purchase Order No. GSO-856, dated 03 January 1994, for the refill of
99 fire extinguishers, with a total cost of P309,000.00.[13] On 16 June
1994, the City Government of Puerto Princesa issued Check No.
611437 to LMICE to pay for Purchase Order No. GSO-856, in the
amount of P300,572.73, net of the 3% withholding tax. [14] Within the
same day, petitioner Huertazuela claimed Check No. 611437 from
the City Government of Puerto Princesa and deposited it under the
current account of LMICE with PCIBank.[15]
On 17 June 1994, private complainant Federico went to see
petitioner Huertazuela at the LMICE branch office in Puerto Princesa
City to demand for the amount of P154,500.00 as his commission
from the payment of Purchase Order No. GSO-856 by the City
Government of Puerto Princesa. Petitioner Huertazuela, however,
refused to pay private complainant Federico his commission since
the two of them could not agree on the proper amount thereof.[16]
Also on 17 June 1994, private complainant Federico went to the
police station to file an Affidavit-Complaint for estafa against
petitioners.[17] Petitioners submitted their Joint Counter-Affidavit on
12 July 1994.[18] The City Prosecution Office of Puerto Princesa City
issued a Resolution, dated 15 August 1994, finding that a prima
facie case for estafa existed against the petitioners and
recommending the filing of an information for estafa against both of
them.[19]

The Information, docketed as Criminal Case No. 11943 and raffled to
the RTC of Puerto Princesa City, Palawan, Branch 52, reads as
follows
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C.
HUERTAZUELA of the crime of ESTAFA, committed as follows:
That on or about the 16th day of June, 1994, at Puerto Princesa City,
Philippines, and within the jurisdiction of this Honorable Court, the
said accused, conspiring and confederating together and mutually
helping one another, after having received the amount
of P309,000.00 as payment of the 99 tanks of refilled fire
extinguisher (sic) from the City Government of Puerto Princesa,
through deceit, fraud and misrepresentation, did then and there
willfully, unlawfully and feloniously defraud one Chito Federico in
the following manner, to wit: said accused, well knowing that Chito
Federico agent of LM Industrial Commercial Enterprises is entitled to
50% commission of the gross sales as per their Dealership Contract
or the amount of P154,500.00 as his commission for his sale of 99
refilled fire extinguishers worth P309,000.00, and accused once in
possession of said amount of P309,000.00 misappropriate, misapply
and convert the amount of P154,500.00 for their own personal use
and benefit and despite repeated demands made upon them by
complainant to deliver the amount of P154,500.00, accused failed
and refused and still fails and refuses to do so, to the damage and
prejudice of said Chito Federico in the amount of P154,500.00,
Philippine Currency.[20]
After holding trial, the RTC rendered its Judgment on 05 May 1997
finding petitioners guilty beyond reasonable doubt as co-principals
of the crime of estafa defined and penalized in Article 315(1)(b) of
the Revised Penal Code. Estafa, under the said provision, is
committed by
ART. 315. Swindling (estafa). Any person who shall defraud another
by any of the means mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a)
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money,
goods, or other property; . . .
In the same Judgment, the RTC expounded on its finding of guilt,
thus
For the afore-quoted provision of the Revised Penal Code to be
committed, the following requisites must concur:
1. That money, goods or other personal property be received by the
offender in trust, or on commission, or for administration, or under
any other obligation involving the duty to make delivery of, or to
return, the same;
LAW ON BUSINESS ORGANIZATIONS Cases 2 65
2. That there be misappropriation or conversion of such money or
property by the offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the
prejudice of another; and
4. That there is demand made by the offended party to the offender.
(Reyes, Revised Penal Code of the Philippines, p. 716; Manuel
Manahan, Jr. vs. Court of Appeals, Et Al., G.R. No. 111656, March 20,
1996)
All the foregoing elements are present in this case. The aborted
testimony of Mrs. Norma Dacuan, Cashier III of the Treasurers Office
of the City of Puerto Princesa established the fact that indeed, on
June 16, 1994, co-accused Nelio Huertazuela took delivery of Check
No. 611437 with face value of P300,572.73, representing payment
for the refill of 99 cylinders of fire extinguishers. Although the
relationship between complaining witness Chito Federico and LMIC
is not fiduciary in nature, still the clause any other obligation
involving the duty to make delivery of or to return personal property
is broad enough to include a civil obligation (Manahan vs. C.A., Et.
Al., Mar. 20, 1996).
The second element cannot be gainsaid. Both Pablito Murao and
Nelio Huertazuela categorically admitted that they did not give to
Chito Federico his commission. Instead, they deposited the full
amount of the consideration, with the PCIBank in the Current
Account of LMIC.
The refusal by the accused to give Chito Federico what ever
percentage his commission necessarily caused him prejudice which
constitute the third element of estafa. Demand for payment,
although not an essential element of estafa was nonetheless made
by the complainant but was rebuffed by the accused. The fraudulent
intent by the accused is indubitably indicated by their refusal to pay
Chito Federico any percentage of the gross sales as commission. If it
were true that what the dealer/sales Agent is entitled to by way of
commission is only 30% of the gross sales, then by all means the
accused should have paid Chito Federico 30%. If he refused, they
could have it deposited in his name. In that way they may not be
said to have misappropriated for themselves what pertained to their
Agent by way of commission.
WHEREFORE, premises considered judgment is hereby rendered
finding the accused PABLITO MURAO and NELIO HUERTAZUELA
guilty beyond reasonable doubt as co-principals, of the crime of
estafa defined and penalized in Article 315 par. 1(b) of the Revised
Penal Code, and applying the provisions of the Indeterminate
Sentence Law, both accused are hereby sentenced to an
indeterminate penalty ranging from a minimum of TWO (2) YEARS,
FOUR (4) MONTHS and ONE (1) DAY of prision correccional in its
medium period, to a maximum of TWENTY (20) YEARS of reclusion
temporal in its maximum period; to pay Chito Federico, jointly and
severally:
a. Sales Commission equivalent to
50% of P309,000.00 or ------------------- P154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;

b. Attorneys fees ---------------------------- P 30,0000.00.[21]
Resolving the appeal filed by the petitioners before it, the Court of
Appeals, in its Decision, dated 31 May 1999, affirmed the
aforementioned RTC Judgment, finding petitioners guilty of estafa,
but modifying the sentence imposed on the petitioners. The
dispositive portion of the Decision of the Court of Appeals reads
WHEREFORE, the appealed decision is hereby AFFIRMED with the
MODIFICATION that appellants PABLITO MURAO and NELIO
HUERTAZUELA are hereby each sentenced to an indeterminate
penalty of eight (8) years and One (1) day of prision mayor, as
minimum, to Twenty (20) years of reclusion temporal, as
maximum. The award for attorneys fee of P30,000.00 is deleted
because the prosecution of criminal action is the task of the State
prosecutors. All other aspects of the appealed decision are
maintained.[22]
When the Court of Appeals, in its Resolution, dated 19 January
2000,[23] denied their Motion for Reconsideration, petitioners filed
the present Petition for Review[24] before this Court, raising the
following errors allegedly committed by the Court of Appeals in its
Decision, dated 31 May 1999
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY
ERRED WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA
UNDER ARTICLE 315 1(B) OF THE REVISED PENAL CODE UNDER THE
FOREGOING SET OF FACTS, WHEN IT IS CLEAR FROM THE SAID
UNDISPUTED FACTS THAT THE LIABILITY IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT
UPHOLD (sic) PRIVATE COMPLAINANTS CLAIM THAT HE IS ENTITLED
TO A FIFTY (50%) PERCENT COMMISSION WITHOUT EVIDENCE TO
SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with merit. Absent
herein are two essential elements of the crime of estafa by
misappropriation or conversion under Article 315(1)(b) of the
Revised Penal Code, namely: (1) That money, goods or other
personal property be received by the offender in trust, or on
commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to return, the same; and
(2) That there be a misappropriation or conversion of such money or
property by the offender.
The findings of the RTC and the Court of Appeals that petitioners
committed estafa rest on the erroneous belief that private
complainant Federico, due to his right to commission, already
owned 50% of the amount paid by the City Government of Puerto
Princesa to LMICE by virtue of Check No. 611437, so that the
collection and deposit of the said check by petitioners under the
account of LMICE constituted misappropriation or conversion of
private complainant Federicos commission.
However, his right to a commission does not make private
complainant Federico a joint owner of the money paid to LMICE by
the City Government of Puerto Princesa, but merely establishes the
relation of agent and principal.[25] It is unequivocal that an agency
existed between LMICE and private complainant Federico. Article
LAW ON BUSINESS ORGANIZATIONS Cases 2 66
1868 of the Civil Code defines agency as a special 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. Although private complainant Federico never
had the opportunity to operate as a dealer for LMICE under the
terms of the Dealership Agreement, he was allowed to act as a sales
agent for LMICE. He can negotiate for and on behalf of LMICE for the
refill and delivery of fire extinguishers, which he, in fact, did on two
occasions with Landbank and with the City Government of Puerto
Princesa. Unlike the Dealership Agreement, however, the agreement
that private complainant Federico may act as sales agent of LMICE
was based on an oral agreement.[26]
As a sales agent, private complainant Federico entered into
negotiations with prospective clients for and on behalf of his
principal, LMICE. When negotiations for the sale or refill of fire
extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices,
and receipts were all in the name of LMICE. It was LMICE who had
the primary duty of picking up the empty fire extinguishers, filling
them up, and delivering the refilled tanks to the clients, even though
private complainant Federico personally helped in hauling and
carrying the fire extinguishers during pick-up from and delivery to
clients.
All profits made and any advantage gained by an agent in the
execution of his agency should belong to the principal.[27] In the
instant case, whether the transactions negotiated by the sales agent
were for the sale of brand new fire extinguishers or for the refill of
empty tanks, evidently, the business belonged to LMICE.
Consequently, payments made by clients for the fire extinguishers
pertained to LMICE. When petitioner Huertazuela, as the Branch
Manager of LMICE in Puerto Princesa City, with the permission of
petitioner Murao, the sole proprietor of LMICE, personally picked up
Check No. 611437 from the City Government of Puerto Princesa, and
deposited the same under the Current Account of LMICE with
PCIBank, he was merely collecting what rightfully belonged to
LMICE. Indeed, Check No. 611437 named LMICE as the lone payee.
Private complainant Federico may claim commission, allegedly
equivalent to 50% of the payment received by LMICE from the City
Government of Puerto Princesa, based on his right to just
compensation under his agency contract with LMICE,[28] but not as
the automatic owner of the 50% portion of the said payment.
Since LMICE is the lawful owner of the entire proceeds of the check
payment from the City Government of Puerto Princesa, then the
petitioners who collected the payment on behalf of LMICE did not
receive the same or any part thereof in trust, or on commission, or
for administration, or under any other obligation involving the duty
to make delivery of, or to return, the same to private complainant
Federico, thus, the RTC correctly found that no fiduciary relationship
existed between petitioners and private complainant Federico. A
fiduciary relationship between the complainant and the accused is
an essential element of estafa by misappropriation or conversion,
without which the accused could not have committed estafa.[29]
The RTC used the case of Manahan, Jr. v. Court of Appeals[30] to
support its position that even in the absence of a fiduciary
relationship, the petitioners still had the civil obligation to return
and deliver to private complainant Federico his commission. The RTC
failed to discern the substantial differences in the factual
background of the Manahan case from the present Petition.

The Manahan case involved the lease of a dump truck. Although a
contract of lease may not be fiduciary in character, the lessee clearly
had the civil obligation to return the truck to the lessor at the end of
the lease period; and failure of the lessee to return the truck as
provided for in the contract may constitute estafa. The phrase or
any other obligation involving the duty to make delivery of, or to
return the same refers to contracts of bailment, such as, contract of
lease of personal property, contract of deposit, and commodatum,
wherein juridical possession of the thing was transferred to the
lessee, depositary or borrower, and wherein the latter is obligated
to return the same thing.[31]
In contrast, the current Petition concerns an agency contract
whereby the principal already received payment from the client but
refused to give the sales agent, who negotiated the sale, his
commission. As has been established by this Court in the foregoing
paragraphs, LMICE had a right to the full amount paid by the City
Government of Puerto Princesa. Since LMICE, through petitioners,
directly collected the payment, then it was already in possession of
the amount, and no transfer of juridical possession thereof was
involved herein. Given that private complainant Federico could not
claim ownership over the said payment or any portion thereof,
LMICE had nothing at all to deliver and return to him. The obligation
of LMICE to pay private complainant Federico his commission does
not arise from any duty to deliver or return the money to its
supposed owner, but rather from the duty of a principal to give just
compensation to its agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May
1999, defined the words convert and misappropriate in the
following manner
The High Court in Saddul v. Court of Appeals [192 SCRA 277]
enunciated that the words convert and misappropriate in the crime
of estafa punished under Art. 315, par. 1(b) connote an act of using
or disposing of anothers property as if it were ones own, or if
devoting it to a purpose or use different from that agreed upon. To
misappropriate to ones use includes, not only conversion to ones
personal advantage, but also every attempt to dispose of the
property of another without right.[32]
Based on the very same definition, this Court finds that petitioners
did not convert nor misappropriate the proceeds from Check No.
611437 because the same belonged to LMICE, and was not anothers
property. Petitioners collected the said check from the City
Government of Puerto Princesa and deposited the same under the
Current Account of LMICE with PCIBank. Since the money was
already with its owner, LMICE, it could not be said that the same had
been converted or misappropriated for one could not very well
fraudulently appropriate to himself money that is his own.[33]
Although petitioners refusal to pay private complainant Federico his
commission caused prejudice or damage to the latter, said act does
not constitute a crime, particularly estafa by conversion or
misappropriation punishable under Article 315(1)(b) of the Revised
Penal Code. Without the essential elements for the commission
thereof, petitioners cannot be deemed to have committed the
crime.
While petitioners may have no criminal liability, petitioners
themselves admit their civil liability to the private complainant
Federico for the latters commission from the sale, whether it be 30%
LAW ON BUSINESS ORGANIZATIONS Cases 2 67
of the net sales or 50% of the gross sales. However, this Court is
precluded from making a determination and an award of the civil
liability for the reason that the said civil liability of petitioners to pay
private complainant Federico his commission arises from a violation
of the agency contract and not from a criminal act.[34] It would be
improper and unwarranted for this Court to impose in a criminal
action the civil liability arising from a civil contract, which should
have been the subject of a separate and independent civil action.[35]
WHEREFORE, the assailed Decision of the Court of Appeals in CA-
G.R. CR No. 21134, dated 31 May 1999, affirming with modification
the Judgment of the RTC of Puerto Princesa City, Palawan, in
Criminal Case No. 11943, dated 05 May 1997, finding petitioners
guilty beyond reasonable doubt of estafa by conversion or
misappropriation under Article 315(1)(b) of the Revised Penal Code,
and awarding the amount of P154,500.00 as sales commission to
private complainant Federico, is hereby REVERSED and SET ASIDE. A
new Judgment is hereby entered ACQUITTING petitioners based on
the foregoing findings of this Court that their actions did not
constitute the crime of estafa by conversion or misappropriation
under Article 315(1)(b) of the Revised Penal Code. The cash bonds
posted by the petitioners for their provisional liberty are hereby
ordered RELEASED and the amounts thereof RETURNED to the
petitioners, subject to the usual accounting and auditing procedures.
SO ORDERED.
CARIDAD SEGARRA SAZON, Petitioner,
- versus -
LETECIA VASQUEZ-MENANCIO, represented by attorney-in-fact
EDGAR S. SEGARRA, Respondent. G.R. No. 192085.
Promulgated: February 22, 2012
x- -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
SERENO, J.:
The present case stems from a Complaint for Recovery of Possession
of Real Properties, Accounting and Injunction[1] filed by Leticia
Vasquez-Menancio (respondent) against Caridad S. Sazon
(petitioner) in the Regional Trial Court (RTC) of Ligao City, Albay. The
RTC ruled in favor of respondent, but reversed itself when petitioner
filed a Motion for Reconsideration (MR). Respondent appealed the
case to the Court of Appeals (CA), but it affirmed the first Decision of
the RTC. She filed another MR, but the CA denied it for lack of merit.
The Case
Before us is a Petition for Review[2] under Rule 45 of the Rules of
Court, assailing the 26 November 2009 Decision[3] of the appellate
court in CA-GR CV No. 91570. The challenged Decision disposed as
follows:
WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July
2007 of the Regional Trial Court, Branch 13, Ligao City, in Civil Case
No. T-1944 is AFFIRMED with MODIFICATION in that Caridad S.

Sazon is ORDERED to pay Leticia Vasquez-Menancio the amount of
₱908,112.62, representing the unremitted fruits and income of the
subject properties from 1979 to 1997. This is already net of
administration expenses, allowance for compensation and proved
real estate taxes paid. The Decision is affirmed in all other respects.
SO ORDERED.[4]
Antecedents
Respondent is a resident of the United States of America. Sometime
in 1979, she entrusted the management, administration, care and
preservation of her properties to petitioner. These properties are
more specifically described as follows:
I. Residential lot, with an area of 573 sq. m., located in Zone III,
Libon, Albay, declared under Tax No. 097-03-0066 in the sum of
₱24,070.00
II. Residential lot, with an area of 299 sq. m., located in Zone III,
Libon, Albay, declared under Tax No. 097-003-00115 in the sum of
₱12,560.00
III. Residential lot, with an area of 873 sq. m., located in San Antonio
St., Libon, Albay, declared under Tax No. 097-003-00068 in the sum
of ₱36,670.00
IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304
hectares, located at San Isidro, Libon, Albay, declared under Tax No.
07-039-235 in the sum of ₱96,580.00
V. Irrigated riceland, with an area of 1.5652 hectares, located at
Bololo Centro, Libon, Albay, declared under Tax No. 07-005-104 in
the sum of ₱48,290.00
VI. Irrigated riceland, with an area of .6720 hectares, located at
Bololo Centro, Libon, Albay, declared under Tax No. 07-005-103 in
the sum of ₱29,730.00
VII. Irrigated riceland, with an area of .6380 hectares, located at
Balagon Centro, Libon, Albay, declared under Tax No. 07-005-222 in
the sum of ₱19,680.00
VIII. Coconut land, with an area of ten (10) hectares, located at
Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in the
sum of ₱42,840.00
IX. Coconut land, with an area of 3.7102 hectares, located at
Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in the
sum of ₱15,740.00[5]
The properties shall hereinafter be referred to individually as Lot I,
Lot II and so on for brevity.
Respondent avers that Lots I to IX are productive, and that petitioner
as the administrator has collected and received all the fruits and
income accruing therefrom. Petitioner, on the other hand, claims
that several of the properties do not produce any fruit or generate
any income at all,[6] and that any supposed income derived from
them is not sufficient to answer for all the expenses incurred to
maintain them.[7]
According to respondent, petitioner never rendered a full
accounting of the fruits and income derived from the properties, but
LAW ON BUSINESS ORGANIZATIONS Cases 2 68
has instead appropriated and in fact applied these for her own use
and benefit. Denying this allegation, petitioner presented five
lettersdated 21 January 1983, 12 March 1984, 15 September 1986, 2
December 1988, and one undatedwhich had been sent to
respondent as proof of the accounting.[8]
Furthermore, petitioner denies receipt of any letter asking her to
make an accounting or to remit the fruits collected from the
properties. [9] She further avers that, since the start of her agency
agreement with respondent, the latter never answered any of the
communications petitioner had sought to initiate.[10]
As a result of the foregoing, respondent revoked, in writing, all the
powers and authority of administration granted to petitioner
effective March 1997. Thereafter, the former demanded that
petitioner return and/or turn over the possession and
administration of the properties.
Respondent claims that she made repeated verbal, and served
written, demands upon petitioner, asking the latter to render an
accounting and to remit the owners share of the fruits. Petitioner,
however, continued to fail and to refuse to perform her
obligation.[11]In fact, she continues to hold on to the properties and
the management and administration thereof. Further, she continues
to collect, receive, and keep all the income generated by the
properties.
Thus, on 30 October 1997, respondent filed her Complaint with
Preliminary Injunction,[12] praying that the RTC order petitioner to
render an accounting and remit all the fruits and income the latter,
as the administrator, received from the properties.
In her Answer with Counterclaim,[13] petitioner alleges as follows:
2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which
is duly covered by a Lease Contract executed during the effectivity of
the Special Power of Attorney granted to the herein
defendant. Furthermore, the said Lease Contract was entered into
with the express consent, and without any objection on the part of
the plaintiff since she was consulted prior to its execution; xxx,
2.b. Lot area of 299 sq. m. This is included in the [L]ease [C]ontract
above-mentioned.
2.c. Lot area of 873 sq. m. This is likewise duly covered by a Lease
Contract executed between the herein defendant as lessee and Ana
C. Segarra when the latter was still the administrator of the
properties of the plaintiff. The said Lease Contract was likewise
entered into with the express consent and without any objection on
the part of the plaintiff since she was again consulted prior to its
execution; xxx.
2.d. Lot area of 3.1304 hectares this is administered as to 2/3 of the
total land area but not as to the other 1/3 as the same is owned by
the defendants mother Ana C. Segarra by virtue of a contract of sale
from Mrs. Josefina Segarra, the co-owner of the plaintiff over the
said land; xxx,
2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned
by the plaintiff but that of the mother of the herein defendant Ana
C. Segarra by virtue of a Deed of Redemption, as in fact, they are in
possession thereof as owners and not as administrator of the
plaintiff; xxx,

2.f. Lot area of .6380 hectares said land is presently possessed by
the alleged administrator of the plaintiff yet the plaintiff still seeks
the return of the same which constitutes an act that trifles with the
administration of justice and further prove that this groundless case
was filed with this court purely to harass the herein defendant;
2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares the
herein defendant is no longer in possession of these lots as in fact,
the fruits of these lands are not being turned over to the defendant
ever since the plaintiff revoked the authority given to the defendant,
xxx.[14]
In short, petitioner argues that respondent has no cause of action
against her for the following reasons:[15]
1. The properties that cannot be returned because they are under
valid lease agreementsLots I-IIIand those that have been transferred
to a third party by virtue of contracts of sale with corresponding
deeds of redemptionLots V and VIcan no longer be given to
respondent;[16]
2. Some properties are already in respondents possessionLots IV
and VII-IX.[17]
By way of compulsory counterclaim, petitioner is asking this Court to
order respondent to return the one-third portion of Lot IV allegedly
owned by petitioners mother and the fruits collected therefrom.[18]
During the pretrial conference held on 24 July 1998, the parties
agreed that respondent already had possession over Lots IV, VII, VIII,
and IX. They also agreed that all the income derived from Lots I to IX
since 1979 were received by petitioner.[19]
In a Decision[20] dated 31 July 2007, the RTC ruled in favor of
respondents. The dispositive portion thereof reads:
WHEREFORE, the foregoing premises duly considered, judgment is
hereby rendered in favor of plaintiff Leticia Vasquez-Menancio and
against defendant Caridad S. Sazon, as follows:
a) ordering the defendant to turn over the possession,
management and administration of all the properties enumerated in
paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which
were already under plaintiffs possession since August, 1977, to the
plaintiff, thru attorney-in-fact Edgar S. Segarra;
b) ordering the defendant to remit to the plaintiff the total
sum of ₱1,265,493.75 representing unremitted fruits and income of
the subject properties, less the amount of ₱150,000.00 by way of
administration expenses incurred by defendant;
c) ordering the defendant to pay the plaintiff the sum of
₱50,000.00 as moral damages;
d) ordering the defendant to reimburse the plaintiff the
sum of ₱20,000.00 as and for attorneys fees, plus the sum of
₱1,000.00 for every court appearance of counsel; and
e) ordering the defendant to pay the costs of the suit.
On the other hand, plaintiff Leticia Vasquez-Menancio is hereby
ordered to pay defendant Caridad S. Sazon the total sum of
₱180,000.00, representing the latters compensation in
administering the formers properties based on quantum meruit.
LAW ON BUSINESS ORGANIZATIONS Cases 2 69
SO ORDERED.[21]
Petitioner filed her MR on 20 August 2007 questioning the trial
courts Decision to rely on the computation made by respondents
attorney-in-fact. These computations, reflected in paragraph (b) of
the dispositive portion, were used by the RTC to determine the
prices of palay, corn and copra at the time that petitioner
administered the properties. Realizing, however, that it should have
considered the Certifications issued by the National Food Authority
(NFA) and the Philippine Coconut Authority (PCA) for that purpose,
the RTC ruled in favor of respondent and partly reversed its 28
March 2008 Decision, the dispositive portion of which reads:
WHEREFORE, the foregoing premises duly considered, the Court
resolves to set aside the Decision dated July 31, 2007. In lieu
thereof, a new decision is hereby rendered as follows:
a) ordering the defendant Caridad S. Sazon to turn over the
possession, management and administration of all the properties
enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8
and 9 which were already under plaintiffs possession since August,
2007, to plaintiff Leticia Vasquez-Menancio, thru her attorney-in-
fact Edgar S. Segarra;
b) ordering the defendant to render full, accurate and
complete accounting of all the fruits and proceeds of the subject
properties during the period of her administration; and
c) ordering the defendant to reimburse the plaintiff the
sum of ₱20,000.00, as and for attorneys fees;
Costs against defendant.
SO ORDERED.[22] (Emphasis supplied in the original)
Still aggrieved, petitioner raised the matter to the CA, but it
dismissed her appeal. It affirmed the trial courts 31 July 2007
Decision, except for the amount ordered to be remitted to
respondent, which was reduced to ₱908,112.62. The MR filed by
petitioner was also denied on 29 April 2010.[23]
Petitioner is now asking this Court to set aside the CAs Decision.[24]
In questioning the Decision of the CA, petitioner first raises a
procedural issue. She argues that the appellate court should not
have affirmed the RTC Decision in this case, because when the trial
court abandoned its original Decision, the latter impliedly admitted
that it had committed erroneous findings of facts.[25] Respondent
argues that the CA had the power to affirm the RTCs second
Decisionthe Resolution on the MRbecause the entire case was
opened for review upon appeal.
We agree with respondent.
In Heirs of Carlos Alcaraz v. Republic of the Philippines,[26] we
reiterated the cardinal rule that when a case is appealed, the
appellate court has the power the review the case in its entirety, to
wit:
In any event, when petitioners interposed an appeal to the Court of
Appeals, the appealed case was thereby thrown wide open for
review by that court, which is thus necessarily empowered to come
out with a judgment as it thinks would be a just determination of the

controversy. Given this power, the appellate court has the authority
to either affirm, reverse or modify the appealed decision of the trial
court. To withhold from the appellate court its power to render an
entirely new decision would violate its power of review and would,
in effect, render it incapable of correcting patent errors committed
by the lower courts.
Thus, we agree with respondent that the CA was free to affirm,
reverse, or modify either the Decision or the Order of the RTC.
Next, petitioner avers that she cannot turn over possession of Lots I
to III, because these are subject of valid lease agreements. None of
the parties question the appellate courts finding that the lease
agreements covering Lots I-III should be respected. After all, when
petitioner entered into these agreements, she acted within her
authority as respondents agent.[27]
In this matter, we agree with the CA in its ruling that even though
the lease agreements covering these lots should be respected,
petitioner must turn over the administration of the leases to
respondents attorney-in-fact.[28] The reason is that respondent has
already revoked the authority of petitioner as administrator. Hence,
the latter no longer has the right to administer the properties or to
receive the income they generate on respondents behalf.
With respect to the one-third portion of Lot IV, the parties also
agree that the sale of one-third of this lot to petitioners mother
should be respected by respondent.[29] Lot IV has been in the latters
possession since 1997. Since it is not controverted that one-third of
this lot is now owned by petitioners mother, respondent should turn
over possession of the corresponding one-third portion and remit all
fruits collected therefrom since 1997.
Petitioner questions the factual findings of the appellate court. She
claims that the CA erred in finding that the reason why petitioner
allegedly never rendered an accounting of income is because the
respondent never demanded it.[30] According to petitioner, she
never claimed that this was the reason why she never rendered an
accounting of income. In fact, she insists that she actually sent
letters of accounting to respondent. Supposedly, she only said that
respondent never demanded accounting from her to refute the
claim of respondent that such demand letter was sent to her.
Petitioner insists, however, that Article 1891 of the Civil Code
contains a few of the obligations owed by an agent to his
principal, viz:
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.
It is evident that the reason behind the failure of petitioner to
render an accounting to respondent is immaterial. What is
important is that the former fulfill her duty to render an account of
the relevant transactions she entered into as respondents agent.
Petitioner claims that in the course of her administration of the
properties, the letters she sent to respondent should be considered
as a fulfillment of her obligation, as respondents agent, to render an
LAW ON BUSINESS ORGANIZATIONS Cases 2 70
accounting of her administration.[31] Both the RTC and the CA found
these letters insufficient. We agree. Petitioner was the administrator
of respondents properties for 18 years or from 1979 to 1997, and
four letters within 18 years can hardly be considered as sufficient to
keep the principal informed and updated of the condition and status
of the latters properties.
As to Lots V and VI, petitioner avers that ownership thereof was
transferred to her mother through a Deed of Redemption,[32] viz:
Defendant averred that her mother owned parcels 5 and 6. She
Identified a Deed of Redemption purporting to have transferred the
property to her mother. When the deed was executed, plaintiff was
in the United States but defendants mother notified her. She saw
her mother putting 100-peso bills amounting to ₱6,500.00 in a big
brown envelope to pay for the lot. Her father Simeon Segarra who
just came from the United States gave her the money.[33]
On this matter, the RTC found thus:
As regards parcels 5 and 6, the defendant averred that they were
owned by her mother Ana Segarra because she was the one who
redeemed the properties. But the evidence extant in the records
disclosed that the said parcels of land were declared for taxation
purposes in the name of plaintiff Leticia Vasquez-Menancio. In many
cases, it has been repeatedly held that although tax declarations are
not conclusive evidence of ownership, nevertheless, they are good
indicia of possession in the concept of an owner for no one in his
right mind would be paying taxes for a property that is not under his
actual or at least constructive possession. Hence, the fruits and
profits of these properties shall still incur to the plaintiff.[34]
For its part, the CA held as follows:
To prove that one of Leticias properties now belongs to her mother,
Ana Segarra, Sazon presented evidence showing that when Ana was
still the administrator of Leticias properties, she redeemed Leticias
property that was sold by Leticias father to vendee-a-retro, Loreto
San Andres-Seda. However, the Deed of Redemption clearly shows
that Ana redeemed the property only in her capacity as attorney-in-
fact of Leticia, and not in her personal capacity.[35]
Factual findings of the trial court are accorded high respect and are
generally not disturbed by appellate courts, unless found to be
clearly arbitrary or baseless.[36] This Court does not review the
factual findings of an appellate court, unless these findings are
mistaken, absurd, speculative, conjectural, conflicting, tainted with
grave abuse of discretion, or contrary to the findings culled by the
trial court of origin.[37]
Although the pronouncement of the trial court is not identical to
that of the CA, the declaration of one corroborates the findings of
the other. We rule that the findings of the lower court and the CA
regarding Lots V and VI should be respected. The mother of
petitioner purchased both of these lots in her capacity as
respondents attorney-in-fact, which explains why these lots werefor
taxation purposesdeclared in the name of respondent.
Petitioner bewails the appellate courts supposed failure to rule on
her claim that respondent promised to give the former a 20%
commission for the sale of respondents properties in Las Pias,
Quiapo; and Fraternal, Sampaloc, Manila.[38] We rule that petitioner
failed to prove that this agreement had been entered into. No other

evidence, except for her testimony, was presented to prove that an
agreement of this nature had been entered into between the
parties.[39]
Finally, the crux of the present Petition is the determination of the
value of all the fruits and proceeds collected from respondents
properties from 1979 to 1997 and the total sum thereof.
Petitioner does not deny that she never remitted to respondent any
of the fruits or income derived from the properties. Instead,
petitioner claims that (1) the properties did not produce any fruit or
generate any income at all;[40] (2) any supposed income derived
from the properties was not sufficient to answer for all the expenses
incurred to maintain them;[41] and (3) she was never compensated
for the services she rendered as the administrator of respondents
properties.
As previously mentioned, every agent is bound to deliver to the
principal whatever the former may have received by virtue of the
agency, even though that amount may not be owed to the
principal.[42]
In determining the value of the fruits, the RTCin its original
Decisionrelied on the computation submitted by respondents
attorney-in-fact and ordered petitioner to remit to respondent the
total sum of ₱1,265,493.75, to wit:
At the outset, it may be stated that plaintiffs attorney-in-fact Edgar
S. Segarra, being a farmer himself and a resident of the area where
the subject properties are located can best testify regarding the
income thereof. In preparing a computation of income of his
principal, plaintiff Leticia Vasquez-Menancio, he consulted people
from the agrarian sector, as well as grains buyers. He also referred
to the lease contracts entered into between the former
administratrix and the tenants. Based on his computation, the
amount which represented the fruits of the properties being
administered by the defendant but were not remitted to the plaintiff
totaled ₱1,265,493.75 xxx, which amount to the mind of the Court,
is not colossal but a reasonable claim, especially in this instance
where the subject properties have been administered by defendant
and her mother for more than (10) years.[43]
The computation is based on the alleged prevailing price of ₱8.75
per kilo for palayand ₱12 per kilo for copra. The trial court also
ordered respondent to reimburse petitioner in the amount of
₱150,000 representing the administrative expenses the latter
incurred as the agent. Furthermore, petitioner was awarded
₱180,000 as compensation for administering respondents
properties. Lastly, petitioner was ordered to pay respondent
attorneys fees in the amount of ₱20,000 plus ₱1,000 for every
appearance of counsel.
In the Order of the RTC reversing its Decision, it found that it should
have considered the Certifications issued by the NFA and PCA with
respect to the prevailing prices of palay, corn, and copra at the time
of petitioners administration. These Certifications revealed that the
prevailing prices from 1979 to 1997 were as follows: (1) from ₱1.75
to ₱8 per kilo for palay; (2) from ₱1to ₱6 per kilo for corn; and (3)
from ₱3.15 to ₱10.77 per kilo for copra. The RTC found that the
parties failed to prove the exact quantity and quality of harvests for
the period. Consequently, it ordered petitioner to render full,
LAW ON BUSINESS ORGANIZATIONS Cases 2 71
accurate, and complete accounting of all the fruits and proceeds of
the subject properties during the period of her administration.[44]
The CA affirmed the RTCs original Decision and ordered petitioner to
pay respondent the amount of ₱1,315,533.75even though the trial
court had ordered the return of only ₱1,265,493.75representing the
total value of the fruits and rents derived from the properties from
1979 to 1997 less the ₱150,000 administrative expenses, the
₱180,000 compensation for administering the properties, and the
₱77,221.13 real estate taxes paid by petitioner from 1979 to 1997.
We disagree with the appellate courts finding with respect to the
total value of fruits and rents earned by the properties from 1979 to
1997.
As found by the RTC, the following computation of the amounts
owed by petitioner to respondent was submitted by the latters
attorney-in-fact, Edgar S. Segarra:
Witness Edgar S. Segarra testified that the properties which were
administered by defendant Caridad S. Sazon consisted of residential
and agricultural lands. Caridad Sazon leased the residential lots to
one Salome Segarra in the amount of 100 pesos a month since 1988.
Another parcel of land was leased to defendants mother Ana
Segarra in exchange for one sack or 46 kilograms of palay for a
period of 20 years. A cornland which is being tenanted by Orlando
Macalinao produced ₱72,000.00. The computation was based on a
75/25 sharing plan multiplied by the price of corn at 6 pesos and
again multiplied by 15 years, the number of years that the
properties were being tenanted. Another riceland was tilled by the
defendants husband. This 1.56 hectares Riceland produced 1,932
kilograms of rice per year and at ₱8.75 a kilogram, for 14 years, the
amount which was not remitted to the plaintiff amounted to
₱836,670.00. Another property, located at Libon, Albay, containing
an area of .6720 hectare and tilled by defendants husband produced
harvest amounting to ₱121,030.00. Further, a riceland with an area
of .6380 hectare being farmed by the defendants daughter
produced ₱183,720.00. Two coconut lands, located at Macabugos,
Libon, Albay, produced coconuts made into copras, thus bringing in
profits of about ₱705,600.00.
The foregoing amounts correspond to the years by which the
properties were administered by the defendant, the number of
crops they harvested, the sharing plan, and the prevailing price of
the produce during the years of administration. He also asked the
comprador (buyer of grains) about the prices and consulted
employees of the department of Agrarian Reform regarding the
sharing of the crops. The lease contracts affecting the properties
were also considered. All these amounts were never remitted by the
defendant to the owner-plaintiff. [45]
Petitioner correctly posits that it was wrong for the CA to base the
computation of unremitted fruits and rents solely on the evidence
submitted by respondents attorney-in-fact, as this computation was
obviously self-serving. Furthermore, the Certifications issued by the
NFA and PCA should have been be given weight, as they are
documentary evidence issued by government offices mainly
responsible for determining the buying/selling price of palay, corn,
and other food and coconut products.

We shall review the findings of fact of the Court of Appeals in view
of some inconsistencies with those of the trial court and the
evidence on record.
This Court is convinced that the Certifications are genuine,
authentic, valid, and issued in the proper exercise and regular
performance of the issuing authoritys official duties. Under Section
3(m), Rule 131 of the Revised Rules of Court, there is a legal
presumption that official duty has been regularly performed. No
evidence was presented to rebut or dispute this presumption.
Petitioner claims that several of the properties did not produce any
fruit or generate any income at all.[46] However, the trial court found
that not only was there evidence on record showing that the
properties administered yielded agricultural produce and rents, but
petitioner herself had testified that the properties increased when
she served as administrator. In effect, she admitted that the
properties indeed generated income.[47]
This Court is left with no other choice but to order both parties to
present their evidence in support of their respective claims
considering that no evidence was submitted to prove the quantity
and quality of harvests for the relevant period. Neither the RTC nor
the CA was able to explain or present a breakdown to show how it
arrived at the supposed amount representing the total value of the
fruits and rents derived from the properties.
The trial court correctly ordered petitioner to render full, accurate,
and complete accounting of all the fruits and proceeds of the subject
properties during the period of her administration. However, it
should have also ordered petitioner to present all her evidence
regarding the alleged transportation expenses, attorneys fees,
docket fees, and other fees;[48] the total amount expended for the
purchase of respondents Las Pias property; [49] and the total amount
of real property taxes paid. These claimed expenses, if and when
duly proven by sufficient evidence, should be deducted from the
total income earned by the properties.
Both parties should be required to present their evidence to finally
resolve the following issues: (1) the total amount of the income
generated by Lots I to IX during the administration of petitioner; and
(2) the total amount of expenses incurred by petitioner that should
be borne by respondent as the owner of the properties, or the total
deductibles in petitioners favor.
There is no doubt that petitioner is entitled to compensation for the
services she rendered. Respondent does not deny that she never
paid the former, since they had no agreement regarding the
amount, the determination of which she left to petitioner.[50]
Petitioner now argues that since the expenses for the maintenance
of the properties exceeded whatever income they generated, then
whatever is left of the income should now belong to her as
compensation.[51] She says that the admission of the respondent
admitted during cross-examination that she expected petitioner to
fix her own salary out of the remaining income, if any, of the
administered property is enough reason to reverse and Decision and
Resolution of the CA.[52]
The contention is not acceptable. Considering that neither of the
parties was able to prove how much the properties earned, this
Court cannot just agree with petitioners claim that whatever is left
LAW ON BUSINESS ORGANIZATIONS Cases 2 72
of this income, after the expenses have been deducted, should be
considered as her salary. To begin with, she repeatedly claimed that
all the income derived from these properties was insufficient to
cover even just the expenses; thus, there is no remaining income left
to speak of.
We have already ruled that petitioner should be compensated for
the services she rendered. Since there was no exact amount agreed
upon, and she failed to fix her own salary despite the authority given
to her, the RTC correctly applied the doctrine of quantum meruit.
With respect to this matter, the trial court found thus:
And where the payment is based on quantum meruit, the amount of
recovery would only be the reasonable value of the thing or services
rendered regardless of any agreement as to value. In the instant
case, the amount of ₱1,000.00 per month for 15 years representing
defendants compensation for administering plaintiffs properties
appears to be just, reasonable and fair.[53]
The doctrine of quantum meruit (as much as one deserves) prevents
undue enrichment based on the equitable postulate that it is unjust
for a person to retain benefit without paying for it.[54] Being an
equitable principle, it should only be applied if no express contract
was entered into, and no specific statutory provision is applicable.
Although petitioner was given the authority to set the amount of her
salary, she failed to do so. Thus, she should at least be given what
she merits for her services. We find no reason to reverse the finding
of both the RTC and the CA that ₱1,000 per month for 15 years is a
just, reasonable, and fair compensation to petitioner for
administering respondents properties. The lower court is ordered to
add this amount to the deductibles that petitioner is able to prove
or, if the deductibles exceed the monetary value of the income
generated by the properties, to add this amount to whatever
respondent ends up owing petitioner.
We delete the award of moral damages and attorney's fees in the
absence of proof of bad faith and malice on the part of petitioner.
WHEREFORE, in view of the foregoing, the Petition is PARTLY
GRANTED, as follows:
(1) Petitioner Caridad S. Sazon is ordered to TURN OVER the
possession, management, and administration of Lots I, II, III, V, and
VI to respondent Leticia Vasquez-Menancio through the latters
attorney-in-fact, Edgar S. Segarra.
(2) Respondent is ordered to TURN OVER the possession,
management, and administration of one-third of Lot IV to petitioner.
(3) The case is REMANDED to the Regional Trial Court of Ligao City,
Albay, the court of origin, which is ordered to do the following:
(a) ORDER petitioner to render full, accurate, and complete
accounting of all the fruits and proceeds earned by respondents
properties during petitioners administration thereof;
(b) ORDER petitioner to submit a detailed list with a breakdown of
all her claimed expenses, including but not limited to the following:
maintenance expenses including transportation expenses, legal
expenses, attorneys fees, docket fees, etc; the total amount
expended for the purchase of respondents Las Pias property;[55] and
the total amount of real property taxes paid, all for the period 1979
to 1997;

(c) ORDER the parties to submit their evidence to prove the exact
quantity and quality of the harvests or the fruits produced by the
properties and all the expenses incurred in maintaining them from
1979 to 1997;
(d) DETERMINE the total amount earned by the properties by using
as basis the declaration of the National Food Authority and the
Philippine Coconut Authority with respect to the prevailing prices
of palay, corn, and copra for the period 1979 to 1997; and
(e) SUBTRACT from the determined total amount the expenses
proven by petitioner and the ₱180,000 serving as her compensation
for administering the properties from 1979 to 1997.
COSTS against petitioner.
SO ORDERED.
G.R. No. L-42958 October 21, 1936
C. N. HODGES, plaintiff-appellant,
vs.
CARLOTA SALAS and PAZ SALAS, defendants-appellees.
Jose P. Orozco and Gibbs, McDonough and Ozaeta for appellant.
Vicente Varela and Conrado V. Sanchez for appellees.
IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain real
estate mortgage constituted by the defendants to secure a loan. The
plaintiff appealed from the judgment of the Court of First Instance of
Occidental Negros absolving the defendants from the complaint and
stating: That of the capital of P28,000 referred to in Exhibit A, the
defendants were liable only for the sum of P14,451.71; that the
transactions and negotiations specified in Exhibit A as well as the
interest charged are usurious; that the sum of P14,778.77 paid by
the defendants to the plaintiff should be applied to the payment of
the capital of P14,451.71; that the plaintiff must refund the sum of
P3,327.06 to the defendants and, lastly, he must pay the costs.
On September 2, 1923, the defendants executed a power of
attorney in favor of their brother-in-law Felix S. Yulo to enable him
to obtain a loan and secure it with a mortgage on the real property
described in transfer certificate of title No. 3335. The power of
attorney was registered in the registry of deeds of the Province of
Occidental Negros and the pertinent clauses thereof read as follows:
That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of
age and resident of the municipality of Bago, Province of Occidental
Negros, P. I., as required by law, a special power of attorney to
obtain, in our respective names and representation, a loan in any
amount which our said brother-in-law may deem necessary, being
empowered, by virtue of the authority conferred in this power of
attorney, to constitute a mortgage on a parcel of land absolutely
belonging to us, the technical description of which is as follows:
"TRANSFER CERTIFICATE OF TITLE NO. 3335
LAW ON BUSINESS ORGANIZATIONS Cases 2 73
"A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with
the improvements thereon, situated in municipality of Bago.
Bounded on the NE. and NW. by the Lonoy Sapa and lot No. 2465;
on the SE. by the Ilabo Sapa; and on the SW. by the Ilabo Sapa, lot
No. 2508 and the Sapa Talaptapan. Containing an area of one million
nine hundred ninety-four thousand eight hundred and thirty-four
square meters (1,994,834), more or less."
That we confer and grant to our said brother-in-law Mr. Felix S. Yulo
power and authority to perform and execute each and every act
necessary to the performance of his trust, which acts shall be for all
purposes as if we had performed or executed them personally,
hereby ratifying and confirming everything that our said brother-in-
law Mr. Felix S. Yulo may execute or cause to be executed.
Acting under said power of attorney, Felix S. Yulo, on March 27,
1926, obtained a loan of P28,000 from the plaintiff, binding his
principals jointly and severally, to pay it within ten (10) years,
together with interest thereon at 12 per cent per annum payable
annually in advance, to which effect he signed a promissory note for
said amount and executed a deed of mortgage of the real property
described in transfer certificate of title No. 3335 and the
improvements thereon consisting in concrete buildings. It was
stated in the deed that in case the defendants failed to pay the
stipulated interest and the taxes on the real property mortgaged
and if the plaintiff were compelled to bring an action to recover his
credit, said defendants would be obliged to pay 10 per cent more on
the unpaid capital, as fees for the plaintiff's attorneys. The mortgage
so constituted was registered in the registry of deeds of the Province
of Occidental Negros and noted on the back of the transfer
certificate of title.
The sum of P28,000 was not delivered to Felix S. Yulo, but by
agreement between him and the plaintiff, it was employed as
follows:
Interest for one year from March 27, 1926, to March 26, 1927,
collected in advance by the plaintiff .........................
Paid for the mortgage constituted by Felix S. Yulo, cancelled on the
date of the loan ..........................................................
Paid by Felix S. Yulo on account of the purchase price of the real
property bought by him on Ortiz Street ........................
Check No. 4590 delivered to Felix S. Yulo ..........................
Check No. 4597 in the name of Rafael Santos, paid to him to cancel
the mortgage constituted by the defendants .....
Check No. 4598 delivered to Felix S. Yulo ...........................
Total ........................................................................
The defendants failed to pay at maturity the interest stipulated
which should have been paid one year in advance. All the sums paid
by them on account of accrued interest up to March 27, 1934, on

which the complaint was filed, together with the corresponding
exhibits, are as follows:
Date
Exhibit 1 April 5, 1927 ...............................................................
Exhibit 2 May 2, 1927 ................................................................
Exhibit 4 August 30, 1927 .........................................................
Exhibit 7 June 4, 1928 ................................................................
Exhibit 8 May 15, 1929 ..............................................................
Exhibit 9 June 19, 1929 ..............................................................
Exhibit 10 July 25, 1929 ...............................................................
Exhibit 11 August 26, 1929 .........................................................
Exhibit 12 October 7, 1929 ..........................................................
Exhibit 13 October 7, 1929 ..........................................................
Exhibit 14 November 9, 1929 ......................................................
Exhibit 15 November 9, 1929 ......................................................
Exhibit 16 February 8, 1930 ........................................................
Exhibit 17 February 8, 1930 ........................................................
Exhibit 18 No date .......................................................................
Exhibit 19 February 10, 1931 ......................................................
Exhibit 20 August 20, 1931 .........................................................
Exhibit 21 July 7, 1932 .................................................................
Exhibit 22 July 29, 1932 ...............................................................
Exhibit 23 September 23, 1932 ....................................................
Exhibit 24 December 17, 1932 .....................................................
Exhibit 25 No date ........................................................................
Exhibit 26 January 23, 1934 .........................................................
Total .............................................................................................
To the foregoing amount must be added the sum of P3,360
deducted by the plaintiff upon granting the loan, as interest for one
year, thereby making the total amount of interest paid by the
defendants and received by the plaintiff P18,138.77.
LAW ON BUSINESS ORGANIZATIONS Cases 2 74
The foregoing are facts inferred from the evidence and are not
controverted by the parties, with the exception of the existence of
the promissory note, the registration of the mortgage deed and the
Amounton the back of the certificate of title.lâwphi1.nêt
notation
I.P1,500.00
The action brought by the plaintiff was for the foreclosure of a
mortgage in accordance with the provisions of sections 254 to 261
of500.00
the Code of Civil Procedure. It was not expressly alleged in the
complaint that the mortgage deed had been registered in
accordance
336.00 with Act No. 496, which was the law applicable in the
case of the real property registered under the Torrens system. A
copy of the mortgage deed was attached to the complaint and made
3,360.00
a part thereof, but said copy did not show that the original had been
duly registered. In paragraph 3 of the complaint, however, it was
67.20
alleged that the mortgage deed had been noted on the back of
transfer
67.20 certificate of title No. 3335 by the register of deeds of the
Province of Occidental Negros, in accordance with the provisions of
the Mortgage Law. This specific allegation is equivalent to a
33.60
statement that the mortgage deed had been duly registered.
33.60
At the trial of the case, the attorney for the plaintiff did not present
the mortgage deed showing the registration thereof in the registry,
or392.55
the owner's transfer certificate of title. In their stead the plaintiff
testified that the mortgage had been duly registered in the registry
of30.00
deeds of Occidental Negros and had been noted on the back of
the transfer certificate of title. The oral evidence was admitted
29.67 any objection on the part of the attorney for the
without
defendants. In the appealed decision the court held that the plaintiff
938.95
had failed to substantiate his foreclosure suit and, not having
presented competent evidence, the action arising from his evidence
61.04
was merely a personal action for the recovery of a certain sum of
money. The plaintiff excepted to this conclusion and assigns it in his
936.46
brief as the first error of law committed by the court.
Section
498.75284 of the Code of Civil Procedure requires the contents of a
writing to be proven by the writing itself, except in cases therein
specified.
498.75 Section 313, No. 6, provides that official or public
documents must be proven by presenting the original or a copy
certified
498.75 by the legal keeper thereof. According to this, the plaintiff
was obliged to present the original or a certified copy of the
mortgage
498.75 deed showing the registration thereof, as well as the
owner's transfer certificate of title. Both would have been the best
evidence
500.00 to prove the registration of the mortgage and the notation
thereof on the back of the title. Had the defendants objected to the
oral evidence offered, there is no doubt that it would have been
500.00
rejected as incompetent. But it is universally accepted that when
secondary
997.50 or incompetent evidence is presented and accepted
without any objection on the part of the other party, the latter is
bound thereby and the court is obliged to grant it, the probatory
1,000.00
value it deserves. (City of Manila vs. Cabangis, 10 Phil., 151;
Bersabal
500.00 vs. Bernal, 13 Phil., 463; Kuenzle & Streiff vs. Jiongco, 22
Phil., 110; U. S. vs. Choa Tong, 22 Phil., 562; U. S. vs. Ong Shiu, 28
Phil., 242; De Leon vs. Director of Prisons, 31 Phil., 60: U.
S. vs. Hernandez, 31 Phil., 342; 23 C. J., 39, section 1783, and the
cases therein cited; 10 R. C. L., 1008, paragraph 197, and the cases
14,779.77
therein cited.)
Inasmuch as the registration of the mortgage and the notation
thereof on the back of the transfer certificate of title have been
established by the oral evidence above stated, the court was
without authority to conclude that the action was personal in

character and, consequently, the first assignment of error is well
founded.
II. The court held that the loan and the mortgage were usurious and
illegal for two reasons: First, because the plaintiff charged
compound interest notwithstanding the fact that it had not been
stipulated, and second, because the plaintiff charged interest yearly
in advance in accordance with the agreement. These conclusions are
the subject matter of the plaintiff's second assignment of error.
The plaintiff categorically denied having charged compound interest,
stating in his brief that all the interest charged by him should be
applied to the interest unpaid by the defendants. We have examined
Exhibits 8 to 17 of the defendants, which are the evidence offered to
establish the fact that compound interest had been charged, and we
have, without any difficulty, arrived at the conclusion that the
plaintiff has really charged said unauthorized and unstipulated
interest. If there is any doubt on this fact, it is dispelled by Exhibit
10, in the handwriting of the plaintiff himself, wherein it appears
that the sum of P33.60 was charged by him on account of interest
on unpaid interest. But the fact of charging illegal interest that may
be charged, does not make the loan or the mortgage usurious
because the transactions took place subsequent to the execution of
said contracts and the latter do not appear to be void ab initio (66 C.
J., pages 243, 244, section 194). Said interest should be applied first
to the payment of the stipulated and unpaid interest and, later, to
that of the capital. (Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil.,
570; Go Chioco vs. Martinez, 45 Phil., 256; Gui Jong & Co. vs. Rivera
and Avellar, 45 Phil., 778; Lopez and Javelona vs.El Hogar Filipino, 47
Phil., 249; Sajo vs. Gustilo, 48 Phil, 451.)
The plaintiff admits having charged in advance the interest
corresponding to the first year. The mortgage deed contains the
stipulation that the defendants should pay in advance the stipulated
interest corresponding to each year. The court declared the contract
usurious for this reason, basing its opinion upon some American
authorities holding the same point of view. This court cannot adopt
said doctrine in this jurisdiction. Section 5 of Act No. 2655, as
amended by section 3 of Act No. 3291, expressly permit a creditor to
charge in advance interest corresponding to not more than one
year, whatever the duration of the loan. What is prohibited is the
charging in advance of interest for more than one year. Section 6
reiterates said rule in exempting a creditor found guilty of usury
from the obligation to return the interest and commissions collected
by him in advance, provided said interest and commissions are not
for a period of more than one year and the rate of interest does not
exceed the maximum limit fixed by law.
This court concludes, therefore, that the second assignment of error
is well founded in the sense that both the loan and the mortgage are
not usurious or illegal.
III. In his third assignment of error, the plaintiff contends that the
court should have declared the action for the usury interposed by
the defendants in their cross-complaint barred by the statute of
limitations, in accordance with the provision of section 6 of Act No.
2655, as amended by section 4 of Act No. 3291. It is true that
according to the evidence more than two years have already elapsed
from the time the defendants paid and the plaintiff received the
usurious interest to the registration of the cross-complaint, but the
plaintiff cannot successfully invoke the defense of prescription
because he failed to allege it in his reply to the cross-complaint. In
LAW ON BUSINESS ORGANIZATIONS Cases 2 75
order that prescription may constitute a valid defense and it may be
considered on appeal, it must be specifically pleaded in the answer
and proven with the same degree of certainty with which an
essential allegation in a civil action is established. Otherwise it will
not be taken into consideration, much less if it is alleged for the first
time on appeal. (Aldeguer vs. Hoskyn, 2 Phil., 500;
Domingo vs. Osorio, 7 Phil, 405; Marzon vs. Udtujan, 20 Phil., 232;
Pelaez vs. Abreu, 26 Phil., 415; Corporacion de PP. Agustinos
Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag vs. Barado, 33
Phil., 529.)
IV. The defendants proved that their attorney's fees were contracted
at P3,000. The evidence has not been contradicted. The amount so
fixed is not unreasonable or unconscionable. In the fourth
assignment of error, the plaintiff questions that part of the judgment
ordering him to pay said fees. He contends that he is not responsible
for the payment thereof because neither the loan nor the mortgage
is usurious. However, this court has already stated that the plaintiff
violated the Usury Law in charging compound interest
notwithstanding the fact that it has not been so stipulated and that
adding these sums to the stipulated interest the average exceeds
the maximum rate of interest that may be charged for the loan
which has been the subject matter of the transaction. This violation
falls under the precept of section 6 of the Usury Law and the plaintiff
is obliged to pay the fees of the attorney for the defendants. This
court holds that the fourth assignment of error is unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the
judgment is erroneous for not having declared that the defendants
ratified all the obligations contracted by their attorney in fact. In the
sixth assignment of error he contends that an error was likewise
committed in not declaring that by virtue of the authority conferred
by the defendants, agent Yulo was authorized to borrow money and
invest it as he wished, without being obliged to apply it necessarily
for the benefit of his principals. In the seventh assignment of error
the plaintiff alleges that the court erred in fixing the capital, which
the defendants are obliged to pay him by virtue of the power of
attorney executed by them, at only P14,451.71. In the eighth and
last assignment of error, he insists that the court should have
ordered the defendants to pay the entire capital owed, with interest
thereon in accordance with the mortgage deed, together with 10
per cent thereof as attorney's fees, the action having been instituted
due to nonfeasance on the part of the defendants.
These four assignments of errors refer to the interpretation and
scope of the power of attorney and to the computation of the
capital and the interest to be paid by the defendants and, finally, to
whether or not the latter are obliged to pay the fees of the attorney
for the plaintiff. For this reason, this court passes upon them jointly.
The pertinent clauses of the power of attorney from which may be
determined the intention of the principals in authorizing their agent
to obtain a loan, securing it with their real property, were quoted at
the beginning. The terms thereof are limited; the agent was thereby
authorized only to borrow any amount of money which he deemed
necessary. There is nothing, however, to indicate that the
defendants had likewise authorized him to convert the money
obtained by him to his personal use. With respect to a power of
attorney of special character, it cannot be interpreted as also
authorizing the agent to dispose of the money as he pleased,
particularly when it does not appear that such was the intention of
the principals, and in applying part of the funds to pay his personal

obligations, he exceeded his authority (art. 1714, Civil Code; Bank of
the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574).
In the case like the present one, it should be understood that the
agent was obliged to turn over the money to the principals or, at
least, place it at their disposal. In the case of Manila Trading &
Supply Co., vs. Uy Tiepo (G.R. No. 30339, March 2, 1929, not
reported), referring to a power of attorney to borrow any amount of
money in cash and to guarantee the payment thereof by the
mortgage of certain property belonging to the principals, this court
held that the agent exceeded his authority in guaranteeing his
personal account for automobile parts by the mortgage, not having
been specially authorized to do so. This court then said:
Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio
Villarosa, was only authorized to "borrow any amount of cash", and
to guaranty the payment of the sums of money so borrowed by the
mortgage of the property stated in the power of attorney, he
exceeded the authority conferred upon him in mortgaging his
principal's property to secure the payment of his personal debt for
automobile parts, and the guaranties so made are null and void, the
principals in question not being responsible for said obligations.
The plaintiff contends that the agent's act of employing part of the
loan to pay his personal debts was ratified by the defendants in their
letter to him dated August 21, 1927 (Exhibit E). This court has
carefully read the contents of said document and has found nothing
implying ratification or approval of the agent's act. In it the
defendants confined themselves to stating that they would notify
their agent of the maturity of the obligation contracted by him. They
said nothing about whether or not their agent was authorized to use
the funds obtained by him in the payment of his personal
obligations.
In view of the foregoing, this court concludes that the fifth and sixth
assignments of error are unfounded.
In the seventh assignment of error, the plaintiff insists that the
defendants should answer for the entire loan plus the stipulated
interest thereon. This court has already stated the manner in which
the agent employed the loan, according to the plaintiff. Of the loan
of P28,000, the agent applied the sum of P10,188.29 to the payment
of his personal debt to the plaintiff. The balance of P17,811.71
constitutes the capital which the defendants are obliged to pay by
virtue of the power conferred upon their agent and the mortgage
deed.
In connection with the stipulated interest, it appears that the capital
of P17,811.71 bore interest at 12 per cent per annum from March
27, 1926, to September 30, 1936, equivalent to P22,460.56. All the
interest paid by the defendants to the plaintiff, including that which
is considered as usurious, amounts to P18,138.77, so that they are
still indebted in said concept in the sum of P4,321.79. Adding this
sum to the capital of P17,811.71, makes a total of P22,133.50, from
which the sum of P3,000 constituting the fees of the attorney for the
defendants must be deducted, leaving a net balance of P19,133.50
which is all that the defendants must pay to the plaintiff up to said
date.
The foregoing disposes of the seventh assignment of error.
In the mortgage deed the defendants bound themselves to pay the
fees of the attorney for the plaintiff were to resort to the courts to
LAW ON BUSINESS ORGANIZATIONS Cases 2 76
foreclose the mortgage. Said fees were fixed at 10 per cent of the
capital which the defendants might owe. This penalty according to
what has been stated heretofore, amounts to P1,781.17 which
would have to be added to the total amount to be paid to the
plaintiff by the defendants. The court, having declared the contracts
usurious, did not order the defendants to pay the penalty and for
this reason the plaintiff assigns the omission as the eighth and last
assignment of alleged error. Inasmuch as the fees agreed upon are
neither excessive nor unreasonable, this court finds no good reason
to disapprove it, particularly because the defendants were also
granted a larger amount in the same concept.
In view of the conclusions arrived at, the motion for a new trial filed
by the attorneys for the plaintiff on March 12, 1935, is denied, and
the amendments to the complaint proposed by them in their
pleading of March 20 of said year are admitted.
For all the foregoing reasons, the appealed judgment is modified
and the defendants are ordered to, pay jointly and severally to the
plaintiff the sums of P19,133.50 and P1,781.17. Within three months
they shall make payment of said two sums of money or deposit
them with the clerk of court, at the disposal of the plaintiff, upon
failure to do which the real property mortgaged with the
improvements thereon shall be sold at public auction and the
proceeds thereof applied to the payment of the two sums of money
above-stated; without special pronouncement as to the costs of this
instance. So ordered.
Avanceña, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
RESOLUTION
December 29, 1936
IMPERIAL, J.:
The motion for reconsideration presented by the appellee based
upon the three grounds: (1) That the capital for which they must
answer to the appellant should be only P16,422.39, not P17,811.71
as stated in the decision; (2) that the computation of the payments
made is incorrect, and (3) that the oral evidence relative to the
registration of the mortgage is insufficient.
I. It is claimed that as the true capital for which the appellees were
held responsible amounts only to P16,422.39, excluding the sum of
P3,360 paid in advance as interest corresponding to the first year,
this latter sum should not be paid in its entirety by the appellees but
only that par thereof in proportion to the capital owed. The
contention is without any foundation because, as was already stated
in the decision, the agent was expressly authorized to borrow and
receive the total amount of P28,000. On the other hand, as it was
stipulated that the interest should be paid annually in advance, it is
evident and just that the entire sum of P3,360 representing said
interest be paid by the appellees who contracted the debt through
an agent. The fact that after the contract had been consummated
and the interest for the first year paid, the agent, exceeding his
authority, unduly used part of the funds intrusted to him, does not
relieve the appellees of their obligation to answer for the entire
interest for the first year. For this reason, this court declares that the
first ground is unfounded.
II. In the computation of the interest paid by the appellees and of
that which they should pay to the appellant by virtue of the terms of

the contract, this court proceeded to determine the time that
elapsed from the date the contract became effective and debited to
the appellees the interest at the rate agreed upon, deducting
therefrom what they had paid in said concept, including the interest
paid by them for the first year because, the computation
commenced from the date fixed in the contract, which is March 27,
1926. The difference represents the interest unpaid by the appellees
up to September 30, 1936, considered by this court as the date, on
which the appellees' account with the appellant was finally
liquidated and closed, and added to the capital they represent the
amount appearing in the decision. This court sees no error of
accounting in this computation.
III. The appellees insist that the oral evidence upon which this court
based its opinion in declaring that the mortgage deed is registered,
is insufficient. What has been said in the decision on this point is so
clear and understandable that this court believes itself relieved from
the obligation of reproducing it. There is no merit in the last ground
of the motion.
In answering the appellees' motion for reconsideration, the
appellant likewise seeks reconsideration of the decision, alleging
that he is entitled to a larger amount. Without going into details,
because this court deems it unnecessary, it is held that the appellant
is not entitled to ask for reconsideration of the decision on the
ground that his petition to that effect has been filed too late, after
the decision in question became final with respect to him.
The appellees' motion for reconsideration is denied.
[G.R. No. 130423. November 18, 2002]
VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE
PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September 1992, Leonida
Quilatan delivered pieces of jewelry to petitioner Virgie Serona to be
sold on commission basis. By oral agreement of the parties,
petitioner shall remit payment or return the pieces of jewelry if not
sold to Quilatan, both within 30 days from receipt of the items.
Upon petitioners failure to pay on September 24, 1992, Quilatan
required her to execute an acknowledgment receipt (Exhibit B)
indicating their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay
kumuha ng mga alahas kay Gng. Leonida Quilatan na may
kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa
kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30
araw.
Las Pinas, September 24, 1992.[1]
The receipt was signed by petitioner and a witness, Rufina G.
Navarette.
LAW ON BUSINESS ORGANIZATIONS Cases 2 77
Unknown to Quilatan, petitioner had earlier entrusted the jewelry to
one Marichu Labrador for the latter to sell on commission
basis. Petitioner was not able to collect payment from Labrador,
which caused her to likewise fail to pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of
demand[2] to petitioner for failure to settle her obligation. Quilatan
executed a complaint affidavit[3] against petitioner before the Office
of the Assistant Provincial Prosecutor. Thereafter, an information
for estafaunder Article 315, paragraph 1(b)[4] of the Revised Penal
Code was filed against petitioner, which was raffled to Branch 255 of
the Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up
to September 1992, in the Municipality of Las Pinas, Metro Manila,
Philippines, and within the jurisdiction of this Honorable Court, the
said accused received in trust from the complainant Leonida E.
Quilatan various pieces of jewelry in the total value of P567,750.00
to be sold on commission basis under the express duty and
obligation of remitting the proceeds thereof to the said complainant
if sold or returning the same to the latter if unsold but the said
accused once in possession of said various pieces of jewelry, with
unfaithfulness and abuse of confidence and with intent to defraud,
did then and there willfully, unlawfully and feloniously
misappropriate and convert the same for her own personal use and
benefit and despite oral and written demands, she failed and
refused to account for said jewelry or the proceeds of sale thereof,
to the damage and prejudice of complainant Leonida E. Quilatan in
the aforestated total amount of P567,750.00.
CONTRARY TO LAW.[5]
Petitioner pleaded not guilty to the charge upon arraignment.[6] Trial
on the merits thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and
returned P43,000.00 worth of jewelriy;[7] that at the start, petitioner
was prompt in settling her obligation; however, subsequently the
payments were remitted late;[8] that petitioner still owed her in the
amount of P424,750.00.[9]
On the other hand, petitioner admitted that she received several
pieces of jewelry from Quilatan and that she indeed failed to pay for
the same. She claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same, thereby causing
her to default in paying Quilatan.[10] She presented handwritten
receipts (Exhibits 1 & 2)[11] evidencing payments made to Quilatan
prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry
from petitioner worth P441,035.00. She identified an
acknowledgment receipt (Exhibit 3)[12] signed by her dated July 5,
1992 and testified that she sold the jewelry to a person who
absconded without paying her.Labrador also explained that in the
past, she too had directly transacted with Quilatan for the sale of
jewelry on commission basis; however, due to her outstanding
account with the latter, she got jewelry from petitioner instead.[13]
On November 17, 1994, the trial court rendered a decision finding
petitioner guilty of estafa, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the
accused Virgie Serona guilty beyond reasonable doubt, and as the

amount misappropriated is P424,750.00 the penalty provided under
the first paragraph of Article 315 of the Revised Penal Code has to
be imposed which shall be in the maximum period plus one (1) year
for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is
hereby sentenced to suffer the penalty of imprisonment ranging
from FOUR (4) YEARS and ONE (1) DAY of prision correccional as
minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as
maximum; to pay the sum of P424,750.00 as cost for the unreturned
jewelries; to suffer the accessory penalties provided by law; and to
pay the costs.
SO ORDERED.[14]
Petitioner appealed to the Court of Appeals, which affirmed the
judgment of conviction but modified the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant
guilty beyond reasonable doubt of the crime of estafa is hereby
AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty
should be imposed in its maximum period adding one (1) year for
each additional P10,000.00 albeit the total penalty should not
exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is
hereby SENTENCED to suffer the penalty of imprisonment ranging
from Four (4) Years and One (1) Day of Prision Correccional as
minimum to Twenty (20) Years of Reclusion Temporal.
SO ORDERED.[15]
Upon denial of her motion for reconsideration,[16] petitioner filed
the instant petition under Rule 45, alleging that:
I confidence because such an act was not proscribed and is, in fact,
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN
CONCLUDING THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE
PART OF PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN
CONCLUDING THAT THERE WAS MISAPPROPRIATION OR
CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO
RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE
COMPLAINANT.[17]
Petitioner argues that the prosecution failed to establish the
elements of estafa as penalized under Article 315, par. 1(b) of the
Revised Penal Code. In particular, she submits that she neither
abused the confidence reposed upon her by Quilatan nor converted
or misappropriated the subject jewelry; that her giving the pieces of
jewelry to a sub-agent for sale on commission basis did not violate
her undertaking with Quilatan. Moreover, petitioner delivered the
jewelry to Labrador under the same terms upon which it was
originally entrusted to her. It was established that petitioner had not
derived any personal benefit from the loss of the jewelry.
Consequently, it cannot be said that she misappropriated or
converted the same.
LAW ON BUSINESS ORGANIZATIONS Cases 2 78
We find merit in the petition.
The elements of estafa through misappropriation or conversion as
defined in Article 315, par. 1(b) of the Revised Penal Code are: (1)
that the money, good or other personal property is received by the
offender in trust, or on commission, or for administration, or under
any other obligation involving the duty to make delivery of, or to
return, the same; (2) that there be misappropriation or conversion
of such money or property by the offender or denial on his part of
such receipt; (3) that such misappropriation or conversion or denial
is to the prejudice of another; and (4) that there is a demand made
by the offended party on the offender.[18] While the first, third and
fourth elements are concededly present, we find the second
element of misappropriation or conversion to be lacking in the case
at bar.
Petitioner did not ipso facto commit the crime of estafa through
conversion or misappropriation by delivering the jewelry to a sub-
agent for sale on commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is sufficient ground for
holding that petitioner disposed of the jewelry as if it were hers,
thereby committing conversion and a clear breach of trust.[19]
It must be pointed out that the law on agency in our jurisdiction
allows the appointment by an agent of a substitute or sub-agent in
the absence of an express agreement to the contrary between the
agent and the principal.[20] In the case at bar, the appointment of
Labrador as petitioners sub-agent was not expressly prohibited by
Quilatan, as the acknowledgment receipt, Exhibit B, does not
contain any such limitation. Neither does it appear that petitioner
was verbally forbidden by Quilatan from passing on the jewelry to
another person before the acknowledgment receipt was executed or
at any other time. Thus, it cannot be said that petitioners act of
entrusting the jewelry to Labrador is characterized by abuse of
legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the
appropriation or conversion of money or property received to the
prejudice of the owner. The words convert and misappropriated
connote an act of using or disposing of anothers property as if it
were ones own, or of devoting it to a purpose or use different from
that agreed upon. To misappropriate for ones own use includes not
only conversion to ones personal advantage, but also every attempt
to dispose of the property of another without right.[21]
In the case at bar, it was established that the inability of petitioner
as agent to comply with her duty to return either the pieces of
jewelry or the proceeds of its sale to her principal Quilatan was due,
in turn, to the failure of Labrador to abide by her agreement with
petitioner. Notably, Labrador testified that she obligated herself to
sell the jewelry in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces of jewelry
were given by petitioner to Labrador to achieve the very same end
for which they were delivered to her in the first place. Consequently,
there is no conversion since the pieces of jewelry were not devoted
to a purpose or use different from that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the
jewelry or delivered them to Labrador without right. Aside from the
fact that no condition or limitation was imposed on the mode or
manner by which petitioner was to effect the sale, it is also

consistent with usual practice for the seller to necessarily part with
the valuables in order to find a buyer and allow inspection of the
items for sale.
In People v. Nepomuceno,[22] the accused-appellant was acquitted
of estafa on facts similar to the instant case. Accused-appellant
therein undertook to sell two diamond rings in behalf of the
complainant on commission basis, with the obligation to return the
same in a few days if not sold. However, by reason of the fact that
the rings were delivered also for sale on commission to sub-agents
who failed to account for the rings or the proceeds of its sale,
accused-appellant likewise failed to make good his obligation to the
complainant thereby giving rise to the charge of estafa. In absolving
the accused-appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal
property was entrusted for sale, conclusively proves the inability to
return the same is solely due to malfeasance of a subagent to whom
the first agent had actually entrusted the property in good faith, and
for the same purpose for which it was received; there being no
prohibition to do so and the chattel being delivered to the subagent
before the owner demands its return or before such return becomes
due, we hold that the first agent can not be held guilty of estafa by
either misappropriation or conversion. The abuse of confidence that
is characteristic of this offense is missing under the
circumstances.[23]
Accordingly, petitioner herein must be acquitted. The lower courts
reliance on People v. Flores[24] and U.S. v. Panes[25] to justify
petitioners conviction is misplaced, considering that the factual
background of the cited cases differ from those which obtain in the
case at bar. In Flores, the accused received a ring to sell under the
condition that she would return it the following day if not sold and
without authority to retain the ring or to give it to a sub-agent. The
accused in Panes, meanwhile, was obliged to return the jewelry he
received upon demand, but passed on the same to a sub-agent even
after demand for its return had already been made. In the
foregoing cases, it was held that there was conversion or
misappropriation.
Furthermore, in Lim v. Court of Appeals,[26]
the Court,
citing Nepomuceno and the case of People v. Trinidad,[27] held that:
In cases of estafa the profit or gain must be obtained by the accused
personally, through his own acts, and his mere negligence in
permitting another to take advantage or benefit from the entrusted
chattel cannot constitute estafa under Article 315, paragraph 1-b, of
the Revised Penal Code; unless of course the evidence should
disclose that the agent acted in conspiracy or connivance with the
one who carried out the actual misappropriation, then the accused
would be answerable for the acts of his co-conspirators. If there is
no such evidence, direct or circumstantial, and if the proof is clear
that the accused herself was the innocent victim of her sub-agents
faithlessness, her acquittal is in order.[28] (Italics copied)
Labrador admitted that she received the jewelry from petitioner and
sold the same to a third person. She further acknowledged that she
owed petitioner P441,035.00, thereby negating any criminal intent
on the part of petitioner. There is no showing that petitioner derived
personal benefit from or conspired with Labrador to deprive
Quilatan of the jewelry or its value. Consequently, there is
no estafa within contemplation of the law.
LAW ON BUSINESS ORGANIZATIONS Cases 2 79
Notwithstanding the above, however, petitioner is not entirely free
from any liability towards Quilatan. The rule is that an accused
acquitted of estafa may nevertheless be held civilly liable where the
facts established by the evidence so warrant. Then too, an agent
who is not prohibited from appointing a sub-agent but does so
without express authority is responsible for the acts of the sub-
agent.[29] Considering that the civil action for the recovery of civil
liability arising from the offense is deemed instituted with the
criminal action,[30] petitioner is liable to pay complainant Quilatan
the value of the unpaid pieces of jewelry.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals in CA-G.R. CR No. 17222 dated April 30,1997 and its
resolution dated August 28, 1997 are REVERSEDand SET ASIDE.
Petitioner Virgie Serona is ACQUITTED of the crime charged, but is
held civilly liable in the amount of P424,750.00 as actual damages,
plus legal interest, without subsidiary imprisonment in case of
insolvency.
SO ORDERED.
G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA,
IGNACIO E. RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely,
ALEJANDRINO R. BALOLOY and BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set aside the Decision
and Resolution of the Court of Appeals (CA) dated October 26, 1998
and January 11, 1999, respectively, in CA-G.R. CV No. 48282, entitled
"Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet
title to, real property, with preliminary injunction and issuance of [a
hold-departure order] from the Philippines against Ignacio E. Rubio.
Respondent amended her complaint to include specific performance
and damages.
In her amended complaint, respondent averred inter alia that she
bought the hereditary shares (consisting of 10 lots) of Ignacio Rubio
[and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani, and
other co-heirs; that said vendors executed a contract of sale dated
April 10, 1990 in her favor; that Ignacio Rubio and the heirs of Luz
Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the
contract of sale that the vendors would secure certificates of title
covering their respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon presentation of
their individual certificate[s] of [title]; that Ignacio Rubio refused to
receive the other half of the down payment which is P[100,000];
that Ignacio Rubio refused and still refuses to deliver to
[respondent] the certificates of title covering his share on the two
lots; that with respect to the heirs of Luz Baloloy, they also refused

and still refuse to perform the delivery of the two certificates of title
covering their share in the disputed lots; that respondent was and is
ready and willing to pay Ignacio Rubio and the heirs of Luz Baloloy
upon presentation of their individual certificates of title, free from
whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the
disputed lots have already been sold by Ignacio Rubio to
respondent, it is alleged that a simulated deed of sale involving said
lots was effected by Ignacio Rubio in her favor; and that the
simulated deed of sale by Rubio to Escueta has raised doubts and
clouds over respondent’s title.
In their separate amended answers, petitioners denied the material
allegations of the complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of
sale has no more force and effect as far as the Baloloys are
concerned, since they have withdrawn their offer to sell for the
reason that respondent failed to pay the balance of the purchase
price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon
Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered
into a contract of sale with her; that he has appointed his daughter
Patricia Llamas to be his attorney-in-fact and not in favor of Virginia
Rubio Laygo Lim (Lim for brevity) who was the one who represented
him in the sale of the disputed lots in favor of respondent; that
the P100,000 respondent claimed he received as down payment for
the lots is a simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of
respondent, the trial court declared the Baloloys in default. They
then filed a motion to lift the order declaring them in default, which
was denied by the trial court in an order dated November 27, 1991.
Consequently, respondent was allowed to adduce evidence ex parte.
Thereafter, the trial court rendered a partial decision dated July 23,
1993 against the Baloloys, the dispositive portion of which reads as
follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of [respondent] and against [petitioners, heirs] of Luz R. Balolo[y],
namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately
execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or
consignation of said amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute the Absolute
Deed of Sale over their hereditary share in the property covered by
TCT No. T-74392 and TCT No. T-74394 in favor of [respondent], the
Clerk of Court is ordered to execute the necessary Absolute Deed of
Sale in behalf of the Baloloys in favor of [respondent,] with a
consideration of P[1,500,000]. Further[,] [petitioners] Alejandrino
Baloloy and Bayani Baloloy are ordered to jointly and severally pay
[respondent] moral damages in the amount of P[50,000]
and P[20,000] for attorney’s fees. The adverse claim annotated at
the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the
LAW ON BUSINESS ORGANIZATIONS Cases 2 80
shares of Alejandrino Baloloy and Bayani Baloloy are concerned[,]
[is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani
Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order
dated July 4, 1994 and supplemental petition dated July 7, 1994.
This was denied by the trial court in an order dated September 16,
1994. Hence, appeal to the Court of Appeals was taken challenging
the order denying the petition for relief.
Trial on the merits ensued between respondent and Rubio and
Escueta. After trial, the trial court rendered its assailed Decision, as
follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended
complaint are dismissed against [petitioners] Corazon L. Escueta,
Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However, [petitioner] Ignacio E.
Rubio is ordered to return to the [respondent], Rufina Lim[,] the
amount of P102,169.80[,] with interest at the rate of six percent
(6%) per annum from April 10, [1990] until the same is fully paid.
Without pronouncement as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial court’s order and partial
decision, but reversed the later decision. The dispositive portion of
its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court
rules:
1. the appeal of the Baloloys from the Order denying the Petition for
Relief from Judgment and Orders dated July 4, 1994 and
Supplemental Petition dated July 7, 1994 is DISMISSED. The Order
appealed from is AFFIRMED.
2. the Decision dismissing [respondent’s] complaint is REVERSED and
SET ASIDE and a new one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent]
is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned
upon the payment of the balance of the purchase price by
[respondent] within 30 days from the receipt of the entry of
judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving Rubio’s
share in the disputed properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the
[respondent] the amount of P[20,000] as moral damages
and P[20,000] as attorney’s fees.
3. the appeal of Rubio and Escueta on the denial of their
counterclaim is DISMISSED.
SO ORDERED.5

Petitioners’ Motion for Reconsideration of the CA Decision was
denied. Hence, this petition.
The issues are:
I only the fact of agency, but also the nature and extent of the
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE
PETITION FOR RELIEF FROM JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE
COMPLAINT AND IN AWARDING MORAL DAMAGES AND
ATTORNEY’S FEES IN FAVOR OF RESPONDENT RUFINA L. LIM
CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE
BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND
VIRGINIA LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT
OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER
OBLIGATIONS UNDER THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN
ENTERING INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO
AND CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS’ COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners
and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding
petitioners’ failure to appear at the pre-trial and to file the petition
for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident
and/or excusable neglect, because petitioner Bayani was in the
United States. There was no service of the notice of pre-trial or
order. Neither did the former counsel of record inform him.
Consequently, the order declaring him in default is void, and all
subsequent proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power
of attorney to appear on behalf of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner
Rubio did not authorize Virginia to transact business in his behalf
pertaining to the property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not empowered to
designate a substitute attorney-in-fact. Llamas even disowned her
LAW ON BUSINESS ORGANIZATIONS Cases 2 81
signature appearing on the "Joint Special Power of Attorney," which
constituted Virginia as her true and lawful attorney-in-fact in selling
Rubio’s properties.
Dealing with an assumed agent, respondent should ascertain not
former’s authority. Besides, Virginia exceeded the authority for
failing to comply with her obligations under the "Joint Special Power
of Attorney."
The amount encashed by Rubio represented not the down payment,
but the payment of respondent’s debt. His acceptance and
encashment of the check was not a ratification of the contract of
sale.
Third, the contract between respondent and Virginia is a contract to
sell, not a contract of sale. The real character of the contract is not
the title given, but the intention of the parties. They intended to
reserve ownership of the property to petitioners pending full
payment of the purchase price. Together with taxes and other fees
due on the properties, these are conditions precedent for the
perfection of the sale. Even assuming that the contract is
ambiguous, the same must be resolved against respondent, the
party who caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the
obligation. Thus, Rubio had the right to sell his properties to Escueta
who exercised due diligence in ascertaining ownership of the
properties sold to her. Besides, a purchaser need not inquire beyond
what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners
and respondent is valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino
Baloloy. In the Baloloys’ answer to the original complaint and
amended complaint, the allegations relating to the personal
circumstances of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of
the proceedings in the same case, does not require proof." 6 The
"factual admission in the pleadings on record [dispenses] with the
need x x x to present evidence to prove the admitted fact." 7 It
cannot, therefore, "be controverted by the party making such
admission, and [is] conclusive"8 as to them. All proofs submitted by
them "contrary thereto or inconsistent therewith should be ignored
whether objection is interposed by a party or not."9 Besides, there is
no showing that a palpable mistake has been committed in their
admission or that no admission has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to
both the Baloloys and their former counsel of record. Being served
with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives
such notice and attends the pre-trial."12 What the Baloloys and their
former counsel have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the belated receipt of
Bayani Baloloy’s special power of attorney in favor of their former
counsel, not that they have not received the notice or been
informed of the scheduled pre-trial. Not having raised the ground of
lack of a special power of attorney in their motion, they are now
deemed to have waived it. Certainly, they cannot raise it at this late

stage of the proceedings. For lack of representation, Bayani Baloloy
was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. – A petition
provided for in either of the preceding sections of this Rule must be
verified, filed within sixty (60) days after the petitioner learns of the
judgment, final order, or other proceeding to be set aside, and not
more than six (6) months after such judgment or final order was
entered, or such proceeding was taken; and must be accompanied
with affidavits showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the petitioner’s
good and substantial cause of action or defense, as the case may be.
There is no reason for the Baloloys to ignore the effects of the
above-cited rule. "The 60-day period is reckoned from the time the
party acquired knowledge of the order, judgment or proceedings
and not from the date he actually read the same."13 As aptly put by
the appellate court:
The evidence on record as far as this issue is concerned shows that
Atty. Arsenio Villalon, Jr., the former counsel of record of the
Baloloys received a copy of the partial decision dated June 23, 1993
on April 5, 1994. At that time, said former counsel is still their
counsel of record. The reckoning of the 60 day period therefore is
the date when the said counsel of record received a copy of the
partial decision which was on April 5, 1994. The petition for relief
was filed by the new counsel on July 4, 1994 which means that 90
days have already lapsed or 30 days beyond the 60 day period.
Moreover, the records further show that the Baloloys received the
partial decision on September 13, 1993 as evidenced by Registry
return cards which bear the numbers 02597 and 02598 signed by
Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the
aforesaid reglementary period to file a petition for relief from
judgment[,] included in its petition the two Orders dated May 6,
1994 and June 29, 1994. The first Order denied Baloloys’ motion to
fix the period within which plaintiffs-appellants pay the balance of
the purchase price. The second Order refers to the grant of partial
execution, i.e. on the aspect of damages. These Orders are only
consequences of the partial decision subject of the petition for
relief, and thus, cannot be considered in the determination of the
reglementary period within which to file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence
exists in order that the petition for relief may be granted. 14 There is
no proof of extrinsic fraud that "prevents a party from having a trial
x x x or from presenting all of his case to the court" 15 or an "accident
x x x which ordinary prudence could not have guarded against, and
by reason of which the party applying has probably been impaired in
his rights."16 There is also no proof of either a "mistake x x x of
law"17 or an excusable negligence "caused by failure to receive
notice of x x x the trial x x x that it would not be necessary for him to
take an active part in the case x x x by relying on another person to
attend to the case for him, when such other person x x x was
chargeable with that duty x x x, or by other circumstances not
involving fault of the moving party."18
Article 1892 of the Civil Code provides:
LAW ON BUSINESS ORGANIZATIONS Cases 2 82
Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the
acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of
attorney executed by Ignacio Rubio in favor of his daughter Patricia
Llamas, it is clear that she is not prohibited from appointing a
substitute. By authorizing Virginia Lim to sell the subject properties,
Patricia merely acted within the limits of the authority given by her
father, but she will have to be "responsible for the acts of the sub-
agent,"19 among which is precisely the sale of the subject properties
in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject
properties, the contract she executed in favor of respondent is not
void, but simply unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no
authority or 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.
Ignacio Rubio merely denies the contract of sale. He claims, without
substantiation, that what he received was a loan, not the down
payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the
contract of sale and "produce the effects of an express power of
agency."20 "[H]is action necessarily implies that he waived his right
of action to avoid the contract, and, consequently, it also implies the
tacit, if not express, confirmation of the said sale effected" by
Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they
accepted and enjoyed its benefits. "The doctrine of estoppel
applicable to petitioners here is not only that which prohibits a party
from assuming inconsistent positions, based on the principle of
election, but that which precludes him from repudiating an
obligation voluntarily assumed after having accepted benefits
therefrom. To countenance such repudiation would be contrary to
equity, and would put a premium on fraud or misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of
sale. Not only has the title to the subject properties passed to the
latter upon delivery of the thing sold, but there is also no stipulation
in the contract that states the ownership is to be reserved in or
"retained by the vendor until full payment of the price."22
Applying Article 1544 of the Civil Code, a second buyer of the
property who may have had actual or constructive knowledge of
such defect in the seller’s title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer’s title. In case
a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.23 Even the
argument that a purchaser need not inquire beyond what appears in
a Torrens title does not hold water. A perusal of the certificates of

title alone will reveal that the subject properties are registered in
common, not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor to
convey title from becoming effective"24 or gives "the vendor the
right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period."25Petitioners themselves have failed to
deliver their individual certificates of title, for which reason it is
obvious that respondent cannot be expected to pay the stipulated
taxes, fees, and expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of
the Civil Code are present, such as: (1) consent or meeting of the
minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent."26 Ignacio Rubio, the Baloloys, and their co-
heirs sold their hereditary shares for a price certain to which
respondent agreed to buy and pay for the subject properties. "The
offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement."27
In fact, earnest money has been given by respondent. "[I]t shall be
considered as part of the price and as proof of the perfection of the
contract.28 It constitutes an advance payment to "be deducted from
the total price."29
Article 1477 of the same Code also states that "[t]he ownership of
the thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof."30 In the present case, there is actual
delivery as manifested by acts simultaneous with and subsequent to
the contract of sale when respondent not only took possession of
the subject properties but also allowed their use as parking terminal
for jeepneys and buses. Moreover, the execution itself of the
contract of sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject
properties to Corazon Escueta, after having sold them to
respondent. "[I]n a contract of sale, the vendor loses ownership over
the property and cannot recover it until and unless the contract is
resolved or rescinded x x x."31 The records do not show that Ignacio
Rubio asked for a rescission of the contract. What he adduced was a
belated revocation of the special power of attorney he executed in
favor of Patricia Llamas. "In the sale of immovable property, even
though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act."32
WHEREFORE, the petition is DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
LAW ON BUSINESS ORGANIZATIONS Cases 2 83
ANTONIO B. BALTAZAR, Petitioner,
- versus -
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D.
JIMENEZ, JR., TORIBIO E. ILAO, JR. and ERNESTO R. SALENGA,
Respondents. G.R. No. 136433 Promulgated: December 6, 2006
x----------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent Ombudsman, this
Petition for Review on Certiorari,[1] under Rule 45 pursuant to
Section 27 of RA 6770,[2] seeks to reverse and set aside the
November 26, 1997 Order[3] of the Office of the Special Prosecutor
(OSP) in OMB-1-94-3425 duly approved by then Ombudsman Aniano
Desierto on August 21, 1998, which recommended the dismissal of
the Information[4] in Criminal Case No. 23661 filed before the
Sandiganbayan against respondents Pampanga Provincial
Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M.
Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal
Division in San Fernando, Pampanga), and Ernesto R. Salenga. The
petition likewise seeks to set aside the October 30, 1998
Memorandum[5] of the OSP duly approved by the Ombudsman on
November 27, 1998 which denied petitioner's Motion for
Reconsideration.[6] Previously, the filing of the Information against
said respondents was authorized by the May 10, 1996
Resolution[7] and October 3, 1996 Order[8] of the Ombudsman which
found probable cause that they granted unwarranted benefits,
advantage, and preference to respondent Salenga in violation of
Section 3 (e) of RA 3019.[9]
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at
Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado
leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three
(3)-year period, that is, from August 7, 1990 to August 7,
1993.[10] Lessee Eduardo Lapid in turn sub-leased the fishpond to
Rafael Lopez for PhP 50,000.00 during the last seven (7) months of
the original lease, that is, from January 10, 1993 to August 7,
1993.[11] Respondent Ernesto Salenga was hired by Eduardo Lapid as
fishpond watchman (bante-encargado). In the sub-lease, Rafael
Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a
certain Francis Lagman, sent his January 28, 1993 demand
letter[12] to Rafael Lopez and Lourdes Lapid for unpaid salaries and
non-payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to
respondent Salenga informing the latter that for the last two (2)
months of the sub-lease, he had given the rights over the fishpond
to Mario Palad and Ambit Perez for PhP 20,000.00.[13] This prompted
respondent Salenga to file a Complaint[14] before the Provincial
Agrarian Reform Adjudication Board (PARAB), Region III, San
Fernando, Pampanga docketed as DARAB Case No. 552-P93
entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L.

Lapid for Maintenance of Peaceful Possession, Collection of Sum of
Money and Supervision of Harvest. The Complaint was signed by
respondent Jose D. Jimenez, Jr., Legal Officer of the Department of
Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga,
as counsel for respondent Salenga; whereas respondent Eulogio M.
Mariano was the Chief Legal Officer of DAR Region III. The case was
assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of
DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his
complaint.[15] The amendments included a prayer for the issuance of
a temporary restraining order (TRO) and preliminary
injunction. However, before the prayer for the issuance of a TRO
could be acted upon, on June 16, 1993, respondent Salenga filed a
Motion to Maintain Status Quo and to Issue Restraining
Order[16] which was set for hearing on June 22, 1993. In the hearing,
however, only respondent Salenga with his counsel appeared
despite notice to the other parties. Consequently, the ex-
parte presentation of respondent Salengas evidence in support of
the prayer for the issuance of a restraining order was allowed, since
the motion was unopposed, and on July 21, 1993, respondent Ilao,
Jr. issued a TRO.[17]
Thereafter, respondent Salenga asked for supervision of the harvest,
which the board sheriff did. Accordingly, defendants Lopez and
Lapid received their respective shares while respondent Salenga was
given his share under protest. In the subsequent hearing for the
issuance of a preliminary injunction, again, only respondent Salenga
appeared and presented his evidence for the issuance of the writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-
Fact of the fishpond owner Paciencia Regala, filed a motion to
intervene which was granted by respondent Ilao, Jr. through the
November 15, 1993 Order. After the trial, respondent Ilao, Jr.
rendered a Decision on May 29, 1995 dismissing the Complaint for
lack of merit; but losing plaintiff, respondent Salenga, appealed the
decision before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the
instant case was instituted by petitioner Antonio Baltazar, an alleged
nephew of Faustino Mercado, through a Complaint-
Affidavit[18] against private respondents before the Office of the
Ombudsman which was docketed as OMB-1-94-3425
entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr.,
Toribio Ilao, Jr. and Ernesto Salenga for violation of RA
3019. Petitioner charged private respondents of conspiracy through
the issuance of the TRO in allowing respondent Salenga to retain
possession of the fishpond, operate it, harvest the produce, and
keep the sales under the safekeeping of other private
respondents. Moreover, petitioner maintains that respondent Ilao,
Jr. had no jurisdiction to hear and act on DARAB Case No. 552-P93
filed by respondent Salenga as there was no tenancy relation
between respondent Salenga and Rafael L. Lopez, and thus, the
complaint was dismissible on its face.
Through the December 14, 1994 Order,[19] the Ombudsman required
private respondents to file their counter-affidavits, affidavits of their
witnesses, and other controverting evidence. While the other
respondents submitted their counter-affidavits, respondent Ilao, Jr.
LAW ON BUSINESS ORGANIZATIONS Cases 2 84
instead filed his February 9, 1995 motion to dismiss, February 21,
1995 Reply, and March 24, 1995 Rejoinder.
Ombudsmans Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution[20] finding
cause to bring respondents to court, denying the motion to dismiss
of respondent Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA 3019.Subsequently,
respondent Ilao, Jr. filed his September 16, 1996 Motion for
Reconsideration and/or Re-investigation[21] which was denied
through the October 3, 1996 Order.[22] Consequently, the March 17,
1997 Information[23] was filed against all the private respondents
before the Sandiganbayan which was docketed as Criminal Case No.
23661.
Before the graft court, respondent Ilao, Jr. filed his May 19,
1997 Motion for Reconsideration and/or Re-investigation which was
granted through the August 29, 1997Order.[24] On September 8,
1997, respondent Ilao, Jr. subsequently filed his Counter-
Affidavit[25] with attachments while petitioner did not file any reply-
affidavit despite notice to him. The OSP of the Ombudsman
conducted the re-investigation; and the result of the re-investigation
was embodied in the assailed November 26, 1997 Order[26] which
recommended the dismissal of the complaint in OMB-1-94-3425
against all private respondents. Upon review, the Ombudsman
approved the OSPs recommendation on August 21, 1998.
Petitioners Motion for Reconsideration[27] was likewise denied by
the OSP through the October 30, 1998 Memorandum[28] which was
approved by the Ombudsman on November 27, 1998. Consequently,
the trial prosecutor moved orally before the Sandiganbayan for the
dismissal of Criminal Case No. 23661 which was granted through the
December 11, 1998 Order.[29]
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A
MISPLACED COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION
OF THE PRELIMINARY INVESTIGATION AND/OR THE CASE WAS
ALREADY FILED BEFORE THE SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE
ERRED IN REVERSING HIS OWN RESOLUTION WHERE IT WAS
RESOLVED THAT ACCUSED AS PROVINCIAL AGRARIAN ADJUDICATOR
HAS NO JURISDICTION OVER A COMPLAINT WHERE THERE EXIST [sic]
NO TENANCY RELATIONSHIP CONSIDERING [sic] COMPLAINANT IS
NOT A TENANT BUT A BANTE-ENCARGADO OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS
ALLEGED IN HIS OWN COMPLAINT.[30]
Before delving into the errors raised by petitioner, we first address
the preliminary procedural issue of the authority and locus standi of
petitioner to pursue the instant petition.

Preliminary Issue: Legal Standing
Locus standi is defined as a right of appearance in a court of justice x
x x on a given question.[31] In private suits, standing is governed by
the real-parties-in interest rule found in Section 2, Rule 3 of the 1997
Rules of Civil Procedure which provides that every action must be
prosecuted or defended in the name of the real party in
interest.Accordingly, the real-party-in interest is the party who
stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit.[32] Succinctly put, the plaintiffs
standing is based on their own right to the relief sought.
The records show that petitioner is a non-lawyer appearing for
himself and conducting litigation in person. Petitioner instituted the
instant case before the Ombudsman in his own name. In so far as
the Complaint-Affidavit filed before the Office of the Ombudsman is
concerned, there is no question on his authority and legal
standing.Indeed, the Office of the Ombudsman is mandated to
investigate and prosecute on its own or on complaint by any
person, any act or omission of any public officer or employee, office
or agency, when such act or omission appears to be illegal, unjust,
improper or inefficient (emphasis supplied).[33] The Ombudsman can
act on anonymous complaints and motu proprio inquire into alleged
improper official acts or omissions from whatever source, e.g., a
newspaper.[34] Thus, any complainant may be entertained by the
Ombudsman for the latter to initiate an inquiry and investigation for
alleged irregularities.
However, filing the petition in person before this Court is another
matter. The Rules allow a non-lawyer to conduct litigation in person
and appear for oneself only when he is a party to a legal
controversy. Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. In the court of a justice of
the peace a party may conduct his litigation in person, with the aid
of an agent or friend appointed by him for that purpose, or with the
aid of an attorney. In any other court, a party may conduct his
litigation personally or by aid of an attorney,
and his appearance must be either personal or by a duly authorized
member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus
standi to pursue the instant petition? We answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is
not a real party in interest. Section 2, Rule 3 of the 1997 Rules of
Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized
by law or these Rules, every action must be prosecuted or defended
in the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming
from a civil (agrarian) case, it is clear that petitioner is not a real
party in interest. Except being the complainant, the records show
that petitioner is a stranger to the agrarian case. It must be recalled
that the undisputed owner of the fishpond is Paciencia Regala, who
LAW ON BUSINESS ORGANIZATIONS Cases 2 85
intervened in DARAB Case No. 552-P93 through her Attorney-in-Fact
Faustino Mercado in order to protect her interest. The motion for
intervention filed by Faustino Mercado, as agent of Paciencia Regala,
was granted by respondent Provincial Adjudicator Ilao, Jr. through
the November 15, 1993 Order in DARAB Case No. 552-P93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to
institute the suit and presented a Special Power of Attorney[35] (SPA)
from Faustino Mercado. However, such SPA is unavailing for
petitioner. For one, petitioners principal, Faustino Mercado, is an
agent himself and as such cannot further delegate his agency to
another. Otherwise put, an agent cannot delegate to another the
same agency. The legal maxim potestas delegata non delegare
potest; a power once delegated cannot be re-delegated, while
applied primarily in political law to the exercise of legislative power,
is a principle of agency.[36]For another, a re-delegation of the agency
would be detrimental to the principal as the second agent has no
privity of contract with the former. In the instant case, petitioner has
no privity of contract with Paciencia Regala, owner of the fishpond
and principal of Faustino Mercado.
Moreover, while the Civil Code under Article 1892[37] allows the
agent to appoint a substitute, such is not the situation in the instant
case. The SPA clearly delegates the agency to petitioner to pursue
the case and not merely as a substitute. Besides, it is clear in the
aforecited Article that what is allowed is a substitute and not a
delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to
the agrarian case, nor is he a real party in interest in the criminal
proceedings conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be benefited or injured by
the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before
the Ombudsman.Aside from that, not being an agent of the parties
in the agrarian case, he has no locus standi to pursue this
petition. He cannot be likened to an injured private complainant in a
criminal complaint who has direct interest in the outcome of the
criminal case.
More so, we note that the petition is not pursued as a public suit
with petitioner asserting a public right in assailing an allegedly illegal
official action, and doing so as a representative of the general
public. He is pursuing the instant case as an agent of an ineffective
agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we
may consider petitioner suing as a stranger, or in the category of a
citizen, or taxpayer, still petitioner has not adequately shown that he
is entitled to seek judicial protection. In other words, petitioner has
not made out a sufficient interest in the vindication of the public
order and the securing of relief as a citizen or taxpayer; more so

when there is no showing that he was injured by the dismissal of the
criminal complaint before the Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not
have locus standi to pursue this action and the instant petition must
be forthwith dismissed on that score. Even granting arguendo that
he has locus standi, nonetheless, petitioner fails to show grave
abuse of discretion of respondent Ombudsman to warrant a reversal
of the assailed November 26, 1997 Order and the October 30, 1998
Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner
imputes grave abuse of discretion on public respondent
Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-
Affidavit when the preliminary investigation was already concluded
and an Information filed with the Sandiganbayan which assumed
jurisdiction over the criminal case. This contention is utterly
erroneous.
The facts clearly show that it was not the Ombudsman through the
OSP who allowed respondent Ilao, Jr. to submit his Counter-
Affidavit. It was the Sandiganbayan who granted the prayed for re-
investigation and ordered the OSP to conduct the re-investigation
through its August 29, 1997 Order, as follows:
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that
accused Toribio E. Ilao, Jr. was not able to file his counter-
affidavit in the preliminary investigation, there appears to be some
basis for granting the motion of said accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-
affidavit, with documentary evidence attached, if any, with the
Office of the Special Prosecutor within then (10) days from
today. The prosecution is ordered to conduct a
reinvestigation within a period of thirty (30) days.[38] (Emphases
supplied.)
As it is, public respondent Ombudsman through the OSP did not
exercise any discretion in allowing respondent Ilao, Jr. to submit his
Counter-Affidavit. The OSP simply followed the graft courts directive
to conduct the re-investigation after the Counter-Affidavit of
respondent Ilao, Jr. was filed. Indeed, petitioner did not contest nor
question the August 29, 1997 Order of the graft court. Moreover,
petitioner did not file any reply-affidavit in the re-investigation
despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the
prayed for re-investigation as it can readily be seen from the
antecedent facts that respondent Ilao, Jr. was not given the
opportunity to file his Counter-Affidavit. Respondent Ilao, Jr. filed a
motion to dismiss with the Ombudsman but such was not resolved
before the Resolutionfinding cause to bring respondents to trialwas
issued. In fact, respondent Ilao, Jr.s motion to dismiss was resolved
only through the May 10, 1996 Resolution which recommended the
filing of an Information. Respondent Ilao, Jr.s Motion for
Reconsideration and/or Re-investigation was denied and the
Information was filed with the graft court.
LAW ON BUSINESS ORGANIZATIONS Cases 2 86
Verily, courts are given wide latitude to accord the accused ample
opportunity to present controverting evidence even before trial as
demanded by due process. Thus, we held in Villaflor v. Vivar that [a]
component part of due process in criminal justice, preliminary
investigation is a statutory and substantive right accorded to the
accusedbefore trial. To deny their claim to a preliminary
investigation would be to deprive them of the full measure of their
right to due process.[39]
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that
DARAB Case No. 552-P93 is not an agrarian dispute and therefore
outside the jurisdiction of the DARAB.He maintains that respondent
Salenga is not an agricultural tenant but a mere watchman of the
fishpond owned by Paciencia Regala. Moreover, petitioner further
argues that Rafael Lopez and Lourdes Lapid, the respondents in the
DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed
out by respondents and as borne out by the antecedent facts,
respondent Ilao, Jr. could not have acted otherwise. It is a settled
rule that jurisdiction over the subject matter is determined by the
allegations of the complaint.[40] The nature of an action is
determined by the material averments in the complaint and the
character of the relief sought,[41] not by the defenses asserted in the
answer or motion to dismiss.[42] Given that respondent Salengas
complaint and its attachment clearly spells out the jurisdictional
allegations that he is an agricultural tenant in possession of the
fishpond and is about to be ejected from it, clearly, respondent Ilao,
Jr. could not be faulted in assuming jurisdiction as said allegations
characterize an agricultural dispute. Besides, whatever defense
asserted in an answer or motion to dismiss is not to be considered in
resolving the issue on jurisdiction as it cannot be made dependent
upon the allegations of the defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper
assumption of jurisdiction by respondent Ilao, Jr., it can be readily
culled from the antecedent facts that his issuance of the TRO was a
proper exercise of discretion. Firstly, the averments with evidence as
to the existence of the need for the issuance of the restraining order
were manifest in respondent Salengas Motion to Maintain Status
Quo and to Issue Restraining Order,[43] the attached Police
Investigation Report,[44] and Medical Certificate.[45]Secondly, only
respondent Salenga attended the June 22, 1993 hearing despite
notice to parties. Hence, Salengas motion was not only unopposed
but his evidence adduced ex-parte also adequately supported the
issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has correctly assumed
jurisdiction and properly exercised his discretion in issuing the
TROas respondent Ilao, Jr. aptly maintained that giving due course
to the complaint and issuing the TRO do not reflect the final
determination of the merits of the case. Indeed, after hearing the
case, respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing DARAB Case No. 552-P93 for lack of merit.

Court will not review prosecutors determination of probable cause
Finally, we will not delve into the merits of the Ombudsmans
reversal of its initial finding of probable cause or cause to bring
respondents to trial. Firstly, petitioner has not shown that the
Ombudsman committed grave abuse of discretion in rendering such
reversal. Secondly, it is clear from the records that the initial finding
embodied in the May 10, 1996 Resolution was arrived at before the
filing of respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is the
responsibility of the public prosecutor, in this case the Ombudsman,
to uphold the law, to prosecute the guilty, and to protect the
innocent.Lastly, the function of determining the existence of
probable cause is proper for the Ombudsman in this case and we
will not tread on the realm of this executive function to examine and
assess evidence supplied by the parties, which is supposed to be
exercised at the start of criminal proceedings. In Perez v. Hagonoy
Rural Bank, Inc.,[46] as cited in Longos Rural Waterworks and
Sanitation Association, Inc. v. Hon. Desierto,[47] we had occasion to
rule that we cannot pass upon the sufficiency or insufficiency of
evidence to determine the existence of probable cause.[48]
WHEREFORE, the instant petition is DENIED for lack of merit,
and the November 26, 1997 Order and the October 30, 1998
Memorandum of the Office of the Special Prosecutor in Criminal
Case No. 23661 (OMB-1-94-3425) are herebyAFFIRMED IN
TOTO, with costs against petitioner.
SO ORDERED.
G.R. No. L-10099 January 27, 1916
TEOFILA DEL ROSARIO DE COSTA and BERNARDO COSTA, plaintiffs-
appellants,
vs.
LA BADENIA, a corporation, defendant-appellee.
Albert E. Somersille for appellant.
Williams, Ferrier and SyCip for appellee.
CARSON, J.:
The plaintiffs, Teofila del Rosario de Costa and her husband,
Bernardino Costa, brought this action to recover from the defendant
corporation the sum of P1,795.25 a balance alleged to be due
Teofila del Rosario de Costa as the agent of the defendant
corporation for services rendered and expenses incurred in the sale
of its products. The defendant denied the claim and set up
counterclaim for P55.43. Judgment having been rendered in favor of
the defendant, the record is now before us on plaintiff's bill of
exceptions.
The plaintiffs are residents of Legaspi, Albay, and the defendant
corporation is engaged in the manufacture and sale of tobacco
products with its head office in the city of Manila. The record shows
that in the year 1911 the defendant corporation, a new concern,
inaugurated an extensive selling campaign for the purpose of
introducing its products to the retail trade. Celestino Aragon, a
general agent of the defendant corporation, was in charged of this
campaign in Albay, Sorsogon, and other provinces in the southern
end of Luzon. He established a central distributing agency or depot
at Legaspi with the plaintiff, Teofila del Rosario de Costa, nominally
LAW ON BUSINESS ORGANIZATIONS Cases 2 87
in charge, though her husband, Bernardino de Costa appears to have
been the actual manager of the agency. The business relations
between the plaintiffs and the defendant extended from February 1,
1911, to March 24, 1912, and during this time no settlement of their
accounts was ever had. When Aragon, the general agent, came to
Legaspi in 1911 he established his headquarters there and took up
his residence with the plaintiffs, using the lower part of their house
as a store room or depository for large quantities of cigarettes and
cigars. He employed a number of persons as solicitors and paid their
salaries; he paid the internal revenue fees incident to the conduct of
the business in Legaspi, and also the rent of the building in which he
lived with the plaintiffs and which he made use of as the general
headquarters for the agency. The record shows that business
amounting to more than P24,000 (wholesale) was done by the
Legaspi agency from February 1, 1911, to March 24, 1912. All goods
sent to Legaspi were charged by the head office at Manila against
the general agent, Aragon, while on the books kept by Aragon these
goods were charged against the plaintiffs, and as goods were
withdrawn by himself, he credited the amount of the withdrawals to
the account of the plaintiffs. The business at Legaspi appears to have
been that of a distributing agency actively in charge of the plaintiffs
but over which the general agent maintained a close supervision.
Goods were withdrawn from the depository at Legaspi from time to
time by the general agent for shipment to other points; goods were
likewise withdrawn by plaintiffs and shipped to neighboring towns
without any intervention on the part of the general agent. All
accounts incident to the business were carried on the books of
Aragon. The plaintiffs do not appear to have kept a separate set of
books. The account as carried on the books of Aragon, the general
agent, was between Teofila del Rosario de Costa and La Badenia, the
defendant corporation. On March 24, 1912, the general agent had a
settlement with the plaintiffs and acknowledged over his signature
that these books showed a balance in favor of the plaintiffs
amounting to P1,795.25.
Plaintiffs' Exhibit B is a tabulated statement taken from the books of
account kept by Aragon and shows in detail the whole course of the
business at Legaspi from February 1, 1911, to March 24, 1912. In this
statement goods received by the Legaspi agency from the factory in
Manila are charged against Teofila del Rosario de Costa, while
credits are given on various items, such as, withdrawals of goods
from the depository at Legaspi shipped to other towns, remittances
made to the head office in Manila, money paid over to the general
agent, advertising expenses, commissions on sales, salaries of
employees, and other expenses incident to the conduct of the
business.
When this final settlement of accounts was had on the 24th of
March, 1912, both Aragon and the plaintiff, Teofila del Rosario de
Costa, confirmed it as a true statement of the account. The
defendant corporation however, refused to pay over to plaintiffs the
balance of P1,795.25, claiming that plaintiffs had been improperly
allowed a credit of P1,850.68 which represented unpaid accounts
due the business in Legaspi for cigars and cigarettes sold by it. If
these uncollected claims are charged to the defendant corporation a
balance is left in favor of plaintiffs amounting to P1,795.25; and if
charged to plaintiffs there remains a balance in favor of the
defendant corporation amounting to P55.43.
It is the contention of the defendant corporation that the plaintiffs
were simply merchants who purchased the goods at fixed wholesale

prices and sold them on their own account, and that they were
never employed as their agents. On the other hand plaintiffs
contend that they were the agents of the defendant corporation;
that they received commissions on the sales made by the agency;
and that they were authorized to extend a reasonable credit under
the supervision of the general agent.
It is not clear from the record just what were the precise terms of
the arrangement made by Aragon with the plaintiffs. It is not denied
however, that Aragon was acting as the general agent of the
defendant corporation and that as such he was invested with
authority to inaugurate and carry out a selling campaign with a view
of interesting the sale of the defendant's products in the territory
assigned to him. The record does not show what limitations, if any,
were placed upon his powers to act for the corporation. The general
conduct of the selling campaign intrusted to him was approved and
commended by the head office, and judging from the amount of the
sales the business appears to have been a very prosperous one for
the corporation.
It appears further that the head office at Manila was fully informed
of plaintiffs' relations with the general agent in extending the sales
of its products. Plaintiffs made direct remittances to the head office
in Manila and these remittances were credited to the account of the
agency at Legaspi, and acknowledgment was made directly to the
plaintiffs. Neither the head office nor Aragon appear to have made
any distinction between the business done by Aragon and that done
by the plaintiffs. The purchases, sales and remittances made by the
plaintiffs do not seem to have been considered as those of an
independent business concern, but rather as a part of the work of
the Legaspi agency under the control and supervision of Aragon. The
fact that the defendant corporation carried the Legaspi account in
the name of the general agent, Aragon, and carried no account with
the plaintiffs, would seem to negative the contention that plaintiffs
were simply merchants purchasing their goods in Manila at
wholesale and selling them locally on their own account.
The active management and participation of the plaintiffs in the
conduct of the business at Legaspi are fully recognized in the
following letters written by the assistant manager of the defendant
corporation to one of the plaintiffs.
EXHIBIT A.
MANILA, P.I., October 9, 1911.
Mr. BERNARDINO COSTA, Legaspi, Albay.
DEAR SIR: We have the pleasure of hereby acknowledging receipt of
your two letters dated the 4th instant, in which we found enclosed
two drafts, to wit:
No. 528________________c/ Ang Siliong
No. 1240_______________c/ Smith, Bell & Co
Which sum of one thousand one hundred and eighty pesos we have
duly credited on the account current of Mr. Celestino Aragon.
LAW ON BUSINESS ORGANIZATIONS Cases 2 88
We also acknowledge receipt of the bill of lading for the eight
packages you have forwarded to us, but to date we have not
received said packages. As soon as we get then we will send you
timely notice.
We are, yours very sincerely,
LA BADENIA, INC.,
__________ __________, Assistant Manager.
EXHIBIT B.
MANILA, P. I., Sept. 19, 1911.
Mr. BERNARDINO COSTA, Legaspi, Albay.
DEAR SIR: We have the pleasure of hereby acknowledging receipt of
your letter dated the 12th instant, of which we have made note.
By the steamer Cebu we are sending, according to the attached
invoice, 3 boxes of small cigars (cajas de tabaquitos) for the agency
in your charge.
We are, yours very sincerely,
LA BADENIA, INC.,
__________ __________, Assistant Manager.
Several other letters received by the plaintiffs from the defendant
corporation were offered in evidence, but the two letters just
quoted are sufficient to show that the defendant was fully aware of
plaintiffs' connection with the agency at Legaspi, and recognized
them as agents of the company, and clearly did not consider them as
independent merchants buying solely on their own account, but
rather as subagents working under the supervision of the general
agent, Aragon.
It seems equally clear that Aragon did not consider the plaintiffs as
independent merchants operating on their own account, but rather
as agents cooperating with him and working under his supervision.
This fact is clearly borne out by the nature of the entries made in his
books of account. A reference to that statement taken from the
books of account shows that the plaintiffs were given credit on
various items, such as advertising expenses, the free distribution of
cigars and cigarettes for advertising purposes, freight and carriage
charges on shipments to neighboring towns, and the like, and it does
not seem at all likely that plaintiffs would have been allowed credit
on such items if they had been conducting the business solely on
their own account.
P200 extended credit to certain purchasers of cigars and
Aragon
cigarettes and the entries made by him on his books of account
show that he knew that the plaintiffs were also extending credit to
980
some of the purchasers of the goods shipped from Legaspi. He
approved the very items now questioned when as general agent of
the defendant corporation he signed the statement of account
1,180
showing a balance of P1,795.25 in favor of the plaintiffs. Aragon
thereby admitted that he, at least, considered these outstanding
claims as properly chargeable against the defendant corporation,

and unless the plaintiffs had been specifically authorized by him to
extend credit it seems certain that he would never have approved
this balance in their favor.
It is contended that it is unreasonable that plaintiffs would have so
large a balance in their favor, and that they are now merely seeking
to saddle upon the defendant corporation a lot of unpaid accounts.
In view of the fact that plaintiffs are only seeking to enforce the
payment of a balance admitted by the general agent of the
defendant corporation to be rightly due them, we fail to see how it
can be reasonably urged that plaintiffs are attempting to saddle
these unpaid claims on the defendant. The general agent who was in
control of the Legaspi business, and who was fully conversant with
all of its details, clearly recognized the right of the plaintiffs to have
credit on their account for the amount of these unpaid claims. This
agent had employed the plaintiffs to assist him in extending the sale
of the defendant's products, and the defendant was well aware of
this fact. Certainly the only reliable source of information as to what
plaintiffs' account with the defendant corporation was, is to be
found in the books kept by the general agent, Aragon. The
defendant carried no account whatever with the plaintiffs, and
having intrusted the entire management of the Legaspi business to
Aragon, it can not now come into court and repudiate the account
confirmed by him, unless it can show that he acted beyond the
scope of his authority in making the arrangement he did with the
plaintiffs. Aragon's powers as a selling agent appear to have been
very broad, and there is no evidence in the record to indicate that he
acted beyond his powers in conducting the business at Legaspi as he
did; and there can be no doubt that plaintiffs had been authorized
by him to extend credit on behalf of the agency. There is no other
reasonable explanation of the entries made by Aragon in his books
of account, and his approval of the balance in favor of the plaintiffs.
The lower court was of the opinion that the specific goods sold to
the delinquent debtors, whose unpaid accounts form the basis of
this litigation, had already been paid for by the plaintiffs and that
this was conclusive evidence that the plaintiffs were not acting as
the agents of the defendant corporation, and that in effect, the
purpose of this suit was to recover back money already paid for the
goods purchased and sold by the plaintiffs. We find ourselves unable
to agree with the conclusions of the trial court in this respect.
It appears that the plan under which the business was conducted
was as follows: a shipment of cigars and cigarettes was made from
the Manila office and charged against the account of the general
agent, Aragon; these goods were deposited in the store room at
Legaspi, and in the account carried by Aragon were charged against
the plaintiffs. Withdrawals were made from the Legaspi stock by
Aragon and the plaintiffs, and credit was given the plaintiffs for the
amount of the withdrawals by Aragon. Both Aragon and the
plaintiffs drew on the Legaspi stock for advertising purposes, such as
the free distribution of cigars and cigarettes, and plaintiffs were
credited with the value of the goods so withdrawn. The stock on
hand was being replenished from time to time by new shipments
received from Manila. The plaintiffs made remittances to Manila
which were credited to the account of the Legaspi agency and this
account included not only the goods sold and withdrawn from stock
by the plaintiffs, but also the goods withdrawn by Aragon. Thus
evidently these remittances were not in payment of any particular
shipments, but were simply payments on account and covered
goods sold by Aragon as well as those sold by the plaintiffs.
LAW ON BUSINESS ORGANIZATIONS Cases 2 89
Remittances were doubtless made to Manila by Aragon and credited
on the agency account in the same manner. Under this method of
conducting the business a balance for or against the plaintiffs might
well remain at any time, and such a balance would not be
determined solely by the value of the goods withdrawn from stock
by the plaintiffs, and the amount of the remittances made by them,
but would be determined by the total value of the stock of the
Legaspi agency charged against the plaintiffs and the amounts
allowed them as credits; these credits would include not only the
remittances made to Manila, but also goods withdrawn by Aragon,
and such other items as might constitute proper credits on the
account. We do not therefore think it at all unreasonable that a
balance should have remained in favor of the plaintiffs when the
settlement was made, nor do we see that the existence of such a
balance would necessarily indicate that the plaintiffs had overpaid
their account with the defendant corporation.
It is further contended that the goods were charged to plaintiffs at
wholesale prices, and that they were to have as profits any amounts
received over and above the wholesale cost price on the goods sold
by them, and it is urged that such an arrangement indicates that
they were independent merchants doing business on their own
account. Even granting that such was the arrangement made with
the plaintiffs by Aragon, it does not necessarily follow that they were
conducting an independent business on their own account. As
already stated, the record does not disclose what were the precise
terms of arrangement made with the plaintiffs. The record does
show however, that in many instances the plaintiffs were allowed
commissions on sales made by them, but whether or not these were
in addition to other profits allowed them the record does not show.
Upon a careful examination of the whole record we are satisfied
that plaintiffs were not conducting an independent business but
were the agents of the defendant corporation operating under the
supervision of the general agent, Aragon.
For the reasons set out we are of the opinion, and so hold, that
plaintiffs are entitled to the reversal of the judgment appealed from
and to a judgment against La Badenia, the defendant corporation,
for the sum of P1,795.25, with legal interest thereon from August 5,
1914, the date of filing the complaint, until paid, and under their
costs in both instances.
Let judgment be entered in accordance herewith. So ordered.
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
- versus -
EDWIN CUIZON and ERWIN CUIZON, Respondents.
G.R. No. 167552 Promulgated: April 23, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the
Decision[1] of the Court of Appeals dated 10 August 2004 and its
Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397

entitled, Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez.The assailed Decision and Resolution affirmed the
Order[3] dated 29 January 2002rendered by Judge Antonio T.
Echavez ordering the dropping of respondent EDWIN Cuizon
(EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution
of various European industrial equipment for customers here in
the Philippines. It has as one of its customers Impact Systems Sales
(Impact Systems) which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three
hundred thirty-eight (P91,338.00) pesos.Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of fifty
thousand pesos (P50,000.00).[4] When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto
de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part
of which states:
1.) That ASSIGNOR[5] has an outstanding receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE[6] the said receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is
the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995.[8]
Allegedly unbeknownst to petitioner, respondents, despite the
existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of P365,135.29 as evidenced by
Check Voucher No. 0933[9] prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact
Systems.[10]Alarmed by this development, petitioner made several
demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7
October 1996, petitioners counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents
total obligations stood at P295,000.00 excluding interests and
attorneys fees.[11] Because of respondents failure to abide by said
final demand letter, petitioner instituted a complaint for sum of
money, damages, with application for preliminary attachment
LAW ON BUSINESS ORGANIZATIONS Cases 2 90
against herein respondents before
the Regional Trial Court of Cebu City.[12]
On 8 January 1997, the trial court granted petitioners prayer for the
issuance of writ of preliminary attachment.[13]
On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he
admitted petitioners allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and
April 1995.[15] He, however, disputed the total amount of Impact
Systems indebtedness to petitioner which, according to him,
amounted to only P220,000.00.[16]
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioners Complaint stating=
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident
of Cebu City. He is the proprietor of a single proprietorship business
known as Impact Systems Sales (Impact Systems for brevity), with
office located at 46-A del Rosario Street, Cebu City, where he may be
served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of CebuCity. He is the Sales Manager of Impact Systems and
is sued in this action in such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant
ERWIN in Default with Motion for Summary Judgment. The trial
court granted petitioners motion to declare respondent ERWIN in
default for his failure to answer within the prescribed period despite
the opportunity granted[18] but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and scheduled
the pre-trial of the case on 16 October 2001.[19] However, the
conduct of the pre-trial conference was deferred pending the
resolution by the trial court of the special and affirmative defenses
raised by respondent EDWIN.[20]
After the filing of respondent EDWINs Memorandum[21] in support of
his special and affirmative defenses and petitioners
opposition[22] thereto, the trial court rendered its assailed Order
dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court
A study of Annex G to the complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant
Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract
which is dated June 28, 1995. A study of Annex H to the complaint
reveals that [Impact] Systems Sales which is owned solely by
defendant Erwin H. Cuizon, made a down payment of P50,000.00
that Annex H is dated June 30, 1995 or two days after the execution
of Annex G, thereby showing that [Impact] Systems Sales ratified the
act of Edwin B. Cuizon; the records further show that plaintiff knew
that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment
of P50,000.00. Plaintiff, therefore, cannot say that it was deceived
 LAW ON BUSINESS ORGANIZATIONS Cases 2 91

by defendant Edwin B. Cuizon, since in the instant case the principal
has ratified the act of its agent and plaintiff knew about said
ratification. Plaintiff could not say that the subject contract was
entered into by Edwin B. Cuizon in excess of his powers since
[Impact] Systems Sales made a down payment of P50,000.00 two
days later.
ERWIN and that his status as such is known even to petitioner as it is
alleged in the Complaint that he is being sued in his capacity as the
sales manager of the said business venture. Likewise, respondent
EDWIN points to the Deed of Assignment which clearly states that
he was acting as a representative of Impact Systems in said
transaction.

In view of the Foregoing, the Court directs that defendant Edwin B. We do not find merit in the petition.
Cuizon be dropped as party defendant.[23]
In a contract of agency, a person binds himself to render some
Aggrieved by the adverse ruling of the trial court, petitioner brought service or to do something in representation or on behalf of another
the matter to the Court of Appeals which, however, affirmed the 29 with the latters consent.[29] The underlying principle of the contract
January 2002 Order of the court a quo.The dispositive portion of the of agency is to accomplish results by using the services of others to
now assailed Decision of the Court of Appeals states: do a great variety of things like selling, buying, manufacturing, and
transporting.[30]Its purpose is to extend the personality of the
WHEREFORE, finding no viable legal ground to reverse or modify the principal or the party for whom another acts and from whom he or
conclusions reached by the public respondent in his Order she derives the authority to act.[31] It is said that the basis of agency
dated January 29, 2002, it is hereby AFFIRMED.[24] 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
Petitioners motion for reconsideration was denied by the appellate
have the same legal effect as if they were personally executed by
court in its Resolution promulgated on 17 March 2005. Hence, the
the principal.[32] By this legal fiction, the actual or real absence of the
present petition raising, as sole ground for its allowance, the
principal is converted into his legal or juridical presence qui facit per
following:
alium facit per se.[33]
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
The elements of the contract of agency are: (1) consent, express or
RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
implied, of the parties to establish the relationship; (2) the object is
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
the execution of a juridical act in relation to a third person; (3) the
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
agent acts as a representative and not for himself; (4) the agent acts
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
within the scope of his authority.[34]
FRAUD.[25]
In this case, the parties do not dispute the existence of the agency
To support its argument, petitioner points to Article 1897 of the
relationship between respondents ERWIN as principal and EDWIN as
New Civil Code which states:
agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of
Art. 1897. The agent who acts as such is not personally liable to the
Assignment thereby binding himself personally to pay the
party with whom he contracts, unless he expressly binds himself or
obligations to petitioner.Petitioner firmly believes that respondent
exceeds the limits of his authority without giving such party
EDWIN acted beyond the authority granted by his principal and he
sufficient notice of his powers.
should therefore bear the effect of his deed pursuant to Article 1897
Petitioner contends that the Court of Appeals failed to appreciate of the New Civil Code.
the effect of ERWINs act of collecting the receivables from the
We disagree.
Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact
Article 1897 reinforces the familiar doctrine that an agent, who acts
Systems.While said collection did not revoke the agency relations of
as such, is not personally liable to the party with whom he
respondents, petitioner insists that ERWINs action repudiated
contracts. The same provision, however, presents two instances
EDWINs power to sign the Deed of Assignment. As EDWIN did not
when an agent becomes personally liable to a third person. The first
sufficiently notify it of the extent of his powers as an agent,
is when he expressly binds himself to the obligation and the second
petitioner claims that he should be made personally liable for the
is when he exceeds his authority. In the last instance, the agent can
obligations of his principal.[26]
be held liable if he does not give the third party sufficient notice of
his powers. We hold that respondent EDWIN does not fall within any
Petitioner also contends that it fell victim to the fraudulent scheme
of the exceptions contained in this provision.
of respondents who induced it into selling the one unit of sludge
pump to Impact Systems and signing the Deed of
The Deed of Assignment clearly states that respondent EDWIN
Assignment. Petitioner directs the attention of this Court to the fact
signed thereon as the sales manager of Impact Systems. As
that respondents are bound not only by their principal and agent
discussed elsewhere, the position of manager is unique in that it
relationship but are in fact full-blooded brothers whose successive
presupposes the grant of broad powers with which to conduct the
contravening acts bore the obvious signs of conspiracy to defraud
business of the principal, thus:
petitioner.[27]
The powers of an agent are particularly broad in the case of one
In his Comment,[28] respondent EDWIN again posits the argument
acting as a general agent or manager; such a position presupposes a
that he is not a real party in interest in this case and it was proper
degree of confidence reposed and investiture with liberal powers for
for the trial court to have him dropped as a defendant. He insists
the exercise of judgment and discretion in transactions and concerns
that he was a mere agent of Impact Systems which is owned by
 LAW ON BUSINESS ORGANIZATIONS Cases 2 92

which are incidental or appurtenant to the business entrusted to his SO ORDERED.

care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he
deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. x x x.[35] G.R. No. L-109937 March 21, 1994

Applying the foregoing to the present case, we hold that Edwin DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
Cuizon acted well-within his authority when he signed the Deed of vs.
Assignment. To recall, petitioner refused to deliver the one unit of COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
sludge pump unless it received, in full, the payment for Impact represented by CANDIDA G. DANS, and the DBP MORTGAGE
Systems indebtedness.[36] We may very well assume that Impact REDEMPTION INSURANCE POOL, respondents.
Systems desperately needed the sludge pump for its business since
QUIASON, J.:
after it paid the amount of fifty thousand pesos (P50,000.00)
as down payment on 3 March 1995,[37] it still persisted in negotiating
This is a petition for review on certiorari under Rule 45 of the
with petitioner which culminated in the execution of the Deed of
Revised Rules of Court to reverse and set aside the decision of the
Assignment of its receivables from Toledo Power Company on 28
Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
June 1995.[38] The significant amount of time spent on the
reconsideration thereof.
negotiation for the sale of the sludge pump underscores Impact
Systems perseverance to get hold of the said equipment. There is, We affirm the decision of the Court of Appeals with modification.
therefore, no doubt in our mind that respondent EDWINs
participation in the Deed of Assignment was reasonably necessary or I
was required in order for him to protect the business of his
principal. Had he not acted in the way he did, the business of his In May 1987, Juan B. Dans, together with his wife Candida, his son
principal would have been adversely affected and he would have and daughter-in-law, applied for a loan of P500,000.00 with the
violated his fiduciary relation with his principal. Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by DBP
We likewise take note of the fact that in this case, petitioner is to obtain a mortgage redemption insurance (MRI) with the DBP
seeking to recover both from respondents ERWIN, the principal, and Mortgage Redemption Insurance Pool (DBP MRI Pool).
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against A loan, in the reduced amount of P300,000.00, was approved by DBP
respondent EDWIN does not hold that in case of excess of authority, on August 4, 1987 and released on August 11, 1987. From the
both the agent and the principal are liable to the other contracting proceeds of the loan, DBP deducted the amount of P1,476.00 as
party.[39] To reiterate, the first part of Article 1897 declares that the payment for the MRI premium. On August 15, 1987, Dans
principal is liable in cases when the agent acted within the bounds of accomplished and submitted the "MRI Application for Insurance"
his authority. Under this, the agent is completely absolved of any and the "Health Statement for DBP MRI Pool."
liability. The second part of the said provision presents the situations
On August 20, 1987, the MRI premium of Dans, less the DBP service
when the agent himself becomes liable to a third party when he
fee of 10 percent, was credited by DBP to the savings account of the
expressly binds himself or he exceeds the limits of his authority
DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the
without giving notice of his powers to the third person. However, it
credit.
must be pointed out that in case of excess of authority by the agent,
like what petitioner claims exists here, the law does not say that a
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon
third person can recover from both the principal and the agent.[40]
notice, relayed this information to the DBP MRI Pool. On September
23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
As we declare that respondent EDWIN acted within his authority as
for MRI coverage, being over the acceptance age limit of 60 years at
an agent, who did not acquire any right nor incur any liability arising
the time of application.
from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in
On October 21, 1987, DBP apprised Candida Dans of the disapproval
interest is one who stands to be benefited or injured by the
of her late husband's MRI application. The DBP offered to refund the
judgment in the suit, or the party entitled to the avails of the
premium of P1,476.00 which the deceased had paid, but Candida
suit.[41] In this respect, we sustain his exclusion as a defendant in the
Dans refused to accept the same, demanding payment of the face
suit before the court a quo.
value of the MRI or an amount equivalent to the loan. She, likewise,
refused to accept an ex gratia settlement of P30,000.00, which the
WHEREFORE, premises considered, the present petition
DBP later offered.
is DENIED and the Decision dated 10 August 2004 and Resolution
dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No.
On February 10, 1989, respondent Estate, through Candida Dans as
71397, affirming the Order dated 29 January 2002 of the Regional
administratrix, filed a complaint with the Regional Trial Court,
Trial Court, Branch 8, Cebu City, is AFFIRMED.
Branch I, Basilan, against DBP and the insurance pool for "Collection
of Sum of Money with Damages." Respondent Estate alleged that
Let the records of this case be remanded to the Regional Trial Court,
Dans became insured by the DBP MRI Pool when DBP, with full
Branch 8, Cebu City, for the continuation of the proceedings against
knowledge of Dans' age at the time of application, required him to
respondent ERWIN CUIZON.
apply for MRI, and later collected the insurance premium thereon.

Respondent Estate therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be
reimbursed; (2) that the mortgage debt of the deceased be declared
fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with
the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a result
of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for
summary judgment. Consequently, the trial court ordered the
parties to submit their respective position papers and documentary
evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of
respondent Estate and against DBP. The DBP MRI Pool, however,
was absolved from liability, after the trial court found no privity of
contract between it and the deceased. The trial court declared DBP
in estoppel for having led Dans into applying for MRI and actually
collecting the premium and the service fee, despite knowledge of his
age ineligibility. The dispositive portion of the decision read as
follows:
WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus
legal rate of interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied or
set-off by virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation
and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are
hereby dismissed. The Cross-claim of Defendant DBP is likewise
dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the decision
of the trial court. The DBP's motion for reconsideration was denied
in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a
"Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:
I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for insurance.
It is understood and agreed that no insurance coverage shall be
effected unless and until this application is approved and the full
premium is paid during my continued good health (Records, p. 40).
LAW ON BUSINESS ORGANIZATIONS Cases 2 93
Under the aforementioned provisions, the MRI coverage shall take
effect: (1) when the application shall be approved by the insurance
pool; and (2) when the full premium is paid during the continued
good health of the applicant. These two conditions, being joined
conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with
the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as a
result, no perfected contract of insurance; hence, the DBP MRI Pool
cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans,
the borrower, to secure MRI coverage. Instead of allowing Dans to
look for his own insurance carrier or some other form of insurance
policy, DBP compelled him to apply with the DBP MRI Pool for MRI
coverage. When Dan's loan was released on August 11, 1987, DBP
already deducted from the proceeds thereof the MRI premium. Four
days latter, DBP made Dans fill up and sign his application for MRI,
as well as his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at the
DBP Main Building, Makati Metro Manila. As service fee, DBP
deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a
lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI acceptance
is 60 years as clearly and specifically provided in Article 1 of the
Group Mortgage Redemption Insurance Policy signed in 1984 by all
the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent
who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his
powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the
while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance
premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of
the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino,

Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25,
1907). The rule that the agent is liable when he acts without
authority is founded upon the supposition that there has been some
wrong or omission on his part either in misrepresenting, or in
affirming, or concealing the authority under which he assumes to act
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y.
70, 75). Inasmuch as the non-disclosure of the limits of the agency
carries with it the implication that a deception was perpetrated on
the unsuspecting client, the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and
observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the
insurance policy. To assume that were it not for DBP's concealment
of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. Considering his
advanced age, there is no absolute certainty that Dans could obtain
an insurance coverage from another company. It must also be noted
that Dans died almost immediately, i.e., on the nineteenth day after
applying for the MRI, and on the twenty-third day from the date of
release of his loan.
One is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved (Civil Code of
the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v.
Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages
are too remote to be included in an accurate estimate of damages
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled
to moral damages. No proof of pecuniary loss is required in the
assessment of said kind of damages (Civil Code of Philippines, Art.
2216). The same may be recovered in acts referred to in Article 2219
of the Civil Code.
The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code of the
Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00 to respondent Estate in ex gratia settlement of its claim
and that DBP's non-disclosure of the limits of its authority amounted
to a deception to its client, an award of moral damages in the
amount of P50,000.00 would be reasonable.
LAW ON BUSINESS ORGANIZATIONS Cases 2 94
The award of attorney's fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to
REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount of
Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With
costs against petitioner.
SO ORDERED.
[G.R. No. 129577-80. February 15, 2000]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. BULU
CHOWDURY, accused-appellant.
DECISION
PUNO, J.:
In November 1995, Bulu Chowdury and Josephine Ong were charged
before the Regional Trial Court of Manila with the crime of illegal
recruitment in large scale committed as follows:
"That sometime between the period from August 1994 to October
1994 in the City of Manila, Philippines and within the jurisdiction of
this Honorable Court, the above-named accused, representing
themselves to have the capacity to contract, enlist and transport
workers for employment abroad, conspiring, confederating and
mutually helping one another, did then and there willfully,
unlawfully and feloniously recruit the herein complainants: Estrella
B. Calleja, Melvin C. Miranda and Aser S. Sasis, individually or as a
group for employment in Korea without first obtaining the required
license and/or authority from the Philippine Overseas Employment
Administration."[1]
They were likewise charged with three counts of estafa committed
against private complainants.[2] The State Prosecutor, however, later
dismissed the estafa charges against Chowdury[3] and filed an
amended information indicting only Ong for the offense.[4]
Chowdury was arraigned on April 16, 1996 while Ong remained at
large. He pleaded "not guilty" to the charge of illegal recruitment in
large scale.[5]
Trial ensued.
The prosecution presented four witnesses: private complainants
Aser Sasis, Estrella Calleja and Melvin Miranda, and Labor
Employment Officer Abbelyn Caguitla.
Sasis testified that he first met Chowdury in August 1994 when he
applied with Craftrade Overseas Developers (Craftrade) for
employment as factory worker in South Korea. Chowdury, a
consultant of Craftrade, conducted the interview. During the
interview, Chowdury informed him about the requirements for
employment. He told him to submit his passport, NBI clearance,
passport size picture and medical certificate. He also required him to

undergo a seminar. He advised him that placement would be on a
first-come-first-serve basis and urged him to complete the
requirements immediately. Sasis was also charged a processing fee
of P25,000.00. Sasis completed all the requirements in September
1994. He also paid a total amount of P16,000.00 to Craftrade as
processing fee. All payments were received by Ong for which she
issued three receipts.[6] Chowdury then processed his papers and
convinced him to complete his payment.[7]
Sasis further said that he went to the office of Craftrade three times
to follow up his application but he was always told to return some
other day. In one of his visits to Craftrades office, he was informed
that he would no longer be deployed for employment abroad. This
prompted him to withdraw his payment but he could no longer find
Chowdury. After two unsuccessful attempts to contact him, he
decided to file with the Philippine Overseas Employment
Administration (POEA) a case for illegal recruitment against
Chowdury. Upon verification with the POEA, he learned that
Craftrade's license had already expired and has not been renewed
and that Chowdury, in his personal capacity, was not a licensed
recruiter.[8]
Calleja testified that in June 1994, she applied with Craftrade for
employment as factory worker in South Korea. She was interviewed
by Chowdury. During the interview, he asked questions regarding
her marital status, her age and her province. Toward the end of the
interview, Chowdury told her that she would be working in a factory
in Korea. He required her to submit her passport, NBI clearance, ID
pictures, medical certificate and birth certificate. He also obliged her
to attend a seminar on overseas employment. After she submitted
all the documentary requirements, Chowdury required her to
pay P20,000.00 as placement fee. Calleja made the payment on
August 11, 1994 to Ong for which she was issued a
receipt.[9] Chowdury assured her that she would be able to leave on
the first week of September but it proved to be an empty promise.
Calleja was not able to leave despite several follow-ups. Thus, she
went to the POEA where she discovered that Craftrade's license had
already expired. She tried to withdraw her money from Craftrade to
no avail. Calleja filed a complaint for illegal recruitment against
Chowdury upon advice of POEA's legal counsel.[10]
Miranda testified that in September 1994, his cousin accompanied
him to the office of Craftrade in Ermita, Manila and introduced him
to Chowdury who presented himself as consultant and interviewer.
Chowdury required him to fill out a bio-data sheet before
conducting the interview. Chowdury told Miranda during the
interview that he would send him to Korea for employment as
factory worker. Then he asked him to submit the following
documents: passport, passport size picture, NBI clearance and
medical certificate. After he complied with the requirements, he was
advised to wait for his visa and to pay P25,000.00 as processing fee.
He paid the amount of P25,000.00 to Ong who issued receipts
therefor.[11] Craftrade, however, failed to deploy him. Hence,
Miranda filed a complaint with the POEA against Chowdury for
illegal recruitment.[12]
Labor Employment Officer Abbelyn Caguitla of the Licensing Branch
of the POEA testified that she prepared a certification on June 9,
1996 that Chowdury and his co-accused, Ong, were not, in their
personal capacities, licensed recruiters nor were they connected
with any licensed agency. She nonetheless stated that Craftrade was
previously licensed to recruit workers for abroad which expired on
LAW ON BUSINESS ORGANIZATIONS Cases 2 95
December 15, 1993. It applied for renewal of its license but was only
granted a temporary license effective December 16, 1993 until
September 11, 1994. From September 11, 1994, the POEA granted
Craftrade another temporary authority to process the expiring visas
of overseas workers who have already been deployed. The POEA
suspended Craftrade's temporary license on December 6, 1994.[13]
For his defense, Chowdury testified that he worked as interviewer
at Craftrade from 1990 until 1994. His primary duty was to interview
job applicants for abroad. As a mere employee, he only followed the
instructions given by his superiors, Mr. Emmanuel Geslani, the
agencys President and General Manager, and Mr. Utkal Chowdury,
the agency's Managing Director. Chowdury admitted that he
interviewed private complainants on different dates. Their office
secretary handed him their bio-data and thereafter he led them to
his room where he conducted the interviews. During the interviews,
he had with him a form containing the qualifications for the job and
he filled out this form based on the applicant's responses to his
questions. He then submitted them to Mr. Utkal Chowdury who in
turn evaluated his findings. He never received money from the
applicants. He resigned from Craftrade on November 12, 1994.[14]
Another defense witness, Emelita Masangkay who worked at the
Accreditation Branch of the POEA presented a list of the accredited
principals of Craftrade Overseas Developers[15] and a list of
processed workers of Craftrade Overseas Developers from 1988 to
1994.[16]
The trial court found Chowdury guilty beyond reasonable doubt of
the crime of illegal recruitment in large scale. It sentenced him to life
imprisonment and to pay a fine of P100,000.00. It further ordered
him to pay Aser Sasis the amount of P16,000.00, Estrella
Calleja, P20,000.00 and Melvin Miranda, P25,000.00. The dispositive
portion of the decision reads:
"WHEREFORE, in view of the foregoing considerations, the
prosecution having proved the guilt of the accused Bulu Chowdury
beyond reasonable doubt of the crime of Illegal Recruitment in large
scale, he is hereby sentenced to suffer the penalty of life
imprisonment and a fine of P100,000.00 under Art. 39 (b) of the
New Labor Code of the Philippines. The accused is ordered to pay
the complainants Aser Sasis the amount of P16,000.00; Estrella
Calleja the amount of P20,000.00; Melvin Miranda the amount
of P25,000.00."[17]
Chowdury appealed.
The elements of illegal recruitment in large scale are:
(1) The accused undertook any recruitment activity defined under
Article 13 (b) or any prohibited practice enumerated under Article
34 of the Labor Code;
(2) He did not have the license or authority to lawfully engage in the
recruitment and placement of workers; and
(3) He committed the same against three or more persons,
individually or as a group.[18]
The last paragraph of Section 6 of Republic Act (RA)
8042[19] states whoshall be held liable for the offense, thus:

"The persons criminally liable for the above offenses are the
principals, accomplices and accessories. In case of juridical persons,
the officers having control, management or direction of their
business shall be liable."
The Revised Penal Code which supplements the law on illegal
recruitment[20] defines who are the principals, accomplices and
accessories. The principals are: (1) those who take a direct part in
the execution of the act; (2) those who directly force or induce
others to commit it; and (3) those who cooperate in the commission
of the offense by another act without which it would not have been
accomplished.[21] The accomplices are those persons who may not
be considered as principal as defined in Section 17 of the Revised
Penal Code but cooperate in the execution of the offense by
previous or simultaneous act.[22] The accessories are those who,
having knowledge of the commission of the crime, and without
having participated therein, either as principals or accomplices, take
part subsequent to its commission in any of the following manner:
(1) by profiting themselves or assisting the offenders to profit by the
effects of the crime; (2) by concealing or destroying the body of the
crime, or the effects or instruments thereof, in order to prevent its
discovery; and (3) by harboring, concealing, or assisting in the
escape of the principal of the crime, provided the accessory acts
with abuse of his public functions or whenever the author of the
crime is guilty of treason, parricide, murder, or an attempt at the life
of the chief executive, or is known to be habitually guilty of some
other crime.[23]
Citing the second sentence of the last paragraph of Section 6 of RA
8042, accused-appellant contends that he may not be held liable for
the offense as he was merely an employee of Craftrade and he only
performed the tasks assigned to him by his superiors. He argues that
the ones who should be held liable for the offense are the officers
having control, management and direction of the agency.
As stated in the first sentence of Section 6 of RA 8042, the persons
who may be held liable for illegal recruitment are the principals,
accomplices and accessories. An employee of a company or
corporation engaged in illegal recruitment may be held liable as
principal, together with his employer,[24] if it is shown that
he actively and consciously participatedin illegal recruitment.[25] It
has been held that the existence of the corporate entity does not
shield from prosecution the corporate agent who knowingly and
intentionally causes the corporation to commit a crime. The
corporation obviously acts, and can act, only by and through its
human agents, and it is their conduct which the law must deter. The
employee or agent of a corporation engaged in unlawful business
naturally aids and abets in the carrying on of such business and will
be prosecuted as principal if, with knowledge of the business, its
purpose and effect, he consciously contributes his efforts to its
conduct and promotion, however slight his contribution may
be.[26] The law of agency, as applied in civil cases, has no application
in criminal cases, and no man can escape punishment when he
participates in the commission of a crime upon the ground that he
simply acted as an agent of any party.[27] The culpability of the
employee therefore hinges on his knowledge of the offense and his
active participation in its commission. Where it is shown that the
employee was merely acting under the direction of his superiors and
was unaware that his acts constituted a crime, he may not be held
criminally liable for an act done for and in behalf of his employer.[28]
LAW ON BUSINESS ORGANIZATIONS Cases 2 96
The fundamental issue in this case, therefore, is whether accused-
appellant knowingly and intentionally participated in the
commission of the crime charged.
We find that he did not.
Evidence shows that accused-appellant interviewed private
complainants in the months of June, August and September in 1994
at Craftrade's office. At that time, he was employed as interviewer
of Craftrade which was then operating under a temporary authority
given by the POEA pending renewal of its license.[29] The temporary
license included the authority to recruit workers.[30] He was
convicted based on the fact that he was not registered with the
POEA as employee of Craftrade. Neither was he, in his personal
capacity, licensed to recruit overseas workers. Section 10 Rule II
Book II of the Rules and Regulation Governing Overseas Employment
(1991) requires that every change, termination or appointment of
officers, representatives and personnel of licensed agencies be
registered with the POEA. Agents or representatives appointed by a
licensed recruitment agency whose appointments are not previously
approved by the POEA are considered "non-licensee " or "non-
holder of authority" and therefore not authorized to engage in
recruitment activity.[31]
Upon examination of the records, however, we find that the
prosecution failed to prove that accused-appellant was aware of
Craftrade's failure to register his name with the POEA and that he
actively engaged in recruitment despite this knowledge. The
obligation to register its personnel with the POEA belongs to the
officers of the agency.[32] A mere employee of the agency cannot be
expected to know the legal requirements for its operation. The
evidence at hand shows that accused-appellant carried out his
duties as interviewer of Craftrade believing that the agency was duly
licensed by the POEA and he, in turn, was duly authorized by his
agency to deal with the applicants in its behalf. Accused-appellant in
fact confined his actions to his job description. He merely
interviewed the applicants and informed them of the requirements
for deployment but he never received money from them. Their
payments were received by the agency's cashier, Josephine Ong.
Furthermore, he performed his tasks under the supervision of its
president and managing director. Hence, we hold that the
prosecution failed to prove beyond reasonable doubt accused-
appellant's conscious and active participation in the commission of
the crime of illegal recruitment. His conviction, therefore, is without
basis.
This is not to say that private complainants are left with no remedy
for the wrong committed against them. The Department of Justice
may still file a complaint against the officers having control,
management or direction of the business of Craftrade Overseas
Developers (Craftrade), so long as the offense has not yet
prescribed. Illegal recruitment is a crime of economic sabotage
which need to be curbed by the strong arm of the law. It is
important, however, to stress that the government's action must be
directed to the real offenders, those who perpetrate the crime and
benefit from it.
IN VIEW WHEREOF, the assailed decision of the Regional Trial Court
is REVERSED and SET ASIDE. Accused-appellant is hereby
ACQUITTED. The Director of the Bureau of Corrections is ordered to
RELEASE accused-appellant unless he is being held for some other
cause, and to REPORT to this Court compliance with this order

within ten (10) days from receipt of this decision. Let a copy of this
Decision be furnished the Secretary of the Department of Justice for
his information and appropriate action.
SO ORDERED.
G.R. No. L-49395 December 26, 1984
GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner
vs.
THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS
PHILIPPINE CORPORATION, respondents.
ABAD SANTOS, J.:
This is a petition to review a decision of the defunct Court of Appeals
which affirmed the judgment of the trial court whereby:
... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb
& Sons Philippine Corporation], ordering the defendant [Green
Valley Poultry & Allied Products, Inc.] to pay the sum of P48,374.74
plus P96.00 with interest at 6% per annum from the filing of this
action; plus attorney's fees in the amount of P5,000.00 and to pay
the costs.
On November 3, 1969, Squibb and Green Valley entered into a letter
agreement the text of which reads as follows:
E.R. Squibb & Sons Philippine Corporation is pleased to appoint
Green Valley Poultry & Allied Products, Inc. as a non-exclusive
distributor for Squibb Veterinary Products, as recommended by Dr.
Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales
Supervisor.
As a distributor, Green Valley Poultry & Allied Products, Inc. wig be
entitled to a discount as follows:
Feed Store Price (Catalogue)
Less 10%
Wholesale Price
Less 10%
Distributor Price
There are exceptions to the above price structure. At present, these
are:
1. Afsillin Improved — 40 lbs. bag
The distributor commission for this product size is 8% off P120.00
2. Narrow — Spectrum Injectible Antibiotics
These products are subject to price fluctuations. Therefore, they are
invoiced at net price per vial.
3. Deals and Special Offers are not subject to the above distributor
price structure. A 5% distributor commission is allowed when the
LAW ON BUSINESS ORGANIZATIONS Cases 2 97
distributor furnishes copies for each sale of a complete deal or
special offer to a feedstore, drugstore or other type of account.
Deals and Special Offers purchased for resale at regular price
invoiced at net deal or special offer price.
Prices are subject to change without notice. Squibb will endeavor to
advise you promptly of any price changes. However, prices in effect
at the tune orders are received by Squibb Order Department will
apply in all instances.
Green Valley Poultry & Allied Products, Inc. win distribute only for
the Central Luzon and Northern Luzon including Cagayan Valley
areas. We will not allow any transfer or stocks from Central Luzon
and Northern Luzon including Cagayan Valley to other parts of
Luzon, Visayas or Mindanao which are covered by our other
appointed Distributors. In line with this, you will follow strictly our
stipulations that the maximum discount you can give to your direct
and turnover accounts will not go beyond 10%.
It is understood that Green Valley Poultry and Allied Products, Inc.
will accept turn-over orders from Squibb representatives for delivery
to customers in your area. If for credit or other valid reasons a turn-
over order is not served, the Squibb representative will be notified
within 48 hours and hold why the order will not be served.
It is understood that Green Valley Poultry & Allied Products, Inc. will
put up a bond of P20,000.00 from a mutually acceptable bonding
company.
Payment for Purchases of Squibb Products will be due 60 days from
date of invoice or the nearest business day thereto. No payment win
be accepted in the form of post-dated checks. Payment by check
must be on current dating.
It is mutually agreed that this non-exclusive distribution agreement
can be terminated by either Green Valley Poultry & Allied Products,
Inc. or Squibb Philippines on 30 days notice.
I trust that the above terms and conditions will be met with your
approval and that the distributor arrangement will be one of mutual
satisfaction.
If you are agreeable, please sign the enclosed three (3) extra copies
of this letter and return them to this Office at your earliest
convenience.
Thank you for your interest and support of the products of E.R.
Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to
collect. The trial court as aforesaid gave judgment in favor of Squibb
which was affirmed by the Court of Appeals.
In both the trial court and the Court of Appeals, the parties
advanced their respective theories.
Green Valley claimed that the contract with Squibb was a mere
agency to sell; that it never purchased goods from Squibb; that the
goods received were on consignment only with the obligation to
turn over the proceeds, less its commission, or to return the goods ff
not sold, and since it had sold the goods but had not been able to
collect from the purchasers thereof, the action was premature.

Upon the other hand, Squibb claimed that the contract was one of
sale so that Green Valley was obligated to pay for the goods
received upon the expiration of the 60-day credit period.
Both courts below upheld the claim of Squibb that the agreement
between the parties was a sales contract.
We do not have to categorize the contract. Whether viewed as an
agency to sell or as a contract of sale, the liability of Green Valley is
indubitable. Adopting Green Valley's theory that the contract is an
agency to sell, it is liable because it sold on credit without authority
from its principal. The Civil Code has a provision exactly in point. It
reads:
Art. 1905. The commission agent cannot, without the express or
implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit, which
may result from such sale.
WHEREFORE, the petition is hereby dismissed; the judgment of the
defunct Court of Appeals is affirmed with costs against the
petitioner.
SO ORDERED.
PNB VS AGUDELO – REPEATED CASE
G.R. No. 179625 February 24, 2014
NICANORA G. BUCTON (deceased), substituted by REQUILDA B.
YRAY, Petitioner,
vs.
RURAL BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, and
REYNALDO CUYONG, Respondents,
vs.
ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON
LUGOD, Third Party Defendants.
DECISION
DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed in his own
name without indicating that he acted for and on behalf of his
principal binds only the agent and not the principal.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court assails the August 17, 2005 Decision2and the June 7, 2007
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 60841.
Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed with the
Regional Trial Court (RTC) of Cagayan de Oro a case4 for Annulment
of Mortgage, Foreclosure, and Special Power of Attorney (SPA)
against Erlinda Concepcion (Concepcion) and respondents Rural
Bank of El Salvador, Misamis Oriental, and Sheriff Reynaldo Cuyong.5
LAW ON BUSINESS ORGANIZATIONS Cases 2 98
Petitioner alleged that she is the owner of a parcel of land, covered
by Transfer Certificate of Title (TCT) No. T-3838, located in Cagayan
de Oro City;6 that on June 6, 1982, Concepcion borrowed the title on
the pretext that she was going to show it to an interested
buyer;7 that Concepcion obtained a loan in the amount of
₱30,000.00 from respondent bank;8 that as security for the loan,
Concepcion mortgaged petitioner’s house and lot to respondent
bank using a SPA9 allegedly executed by petitioner in favor of
Concepcion;10 that Concepcion failed to pay the loan;11 that
petitioner’s house and lot were foreclosed by respondent sheriff
without a Notice of Extra-Judicial Foreclosure or Notice of Auction
Sale;12 and that petitioner’s house and lot were sold in an auction
sale in favor of respondent bank.13
Respondent bank filed an Answer14 interposing lack of cause of
action as a defense.15 It denied the allegation of petitioner that the
SPA was forged16 and averred that on June 22, 1987, petitioner went
to the bank and promised to settle the loan of Concepcion before
September 30, 1987.17 As to the alleged irregularities in the
foreclosure proceedings, respondent bank asserted that it complied
with the requirements of the law in foreclosing the house and
lot.18 By way of cross-claim, respondent bank prayed that in the
event of an adverse judgment against it, Concepcion, its co-
defendant, be ordered to indemnify it for all damages.19
However, since summons could not be served upon Concepcion,
petitioner moved to drop her as a defendant,20which the RTC
granted in its Order dated October 19, 1990.21
This prompted respondent bank to file a Third-Party
Complaint22 against spouses Concepcion and Agnes Bucton Lugod
(Lugod), the daughter of petitioner. Respondent bank claimed that it
would not have granted the loan and accepted the mortgage were it
not for the assurance of Concepcion and Lugod that the SPA was
valid.23 Thus, respondent bank prayed that in case it be adjudged
liable, it should be reimbursed by third-party defendants.24
On January 30, 1992, spouses Concepcion were declared in default
for failing to file a responsive pleading.25
During the trial, petitioner testified that a representative of
respondent bank went to her house to inform her that the loan
secured by her house and lot was long overdue. 26 Since she did not
mortgage any of her properties nor did she obtain a loan from
respondent bank, she decided to go to respondent bank on June 22,
1987 to inquire about the matter.27 It was only then that she
discovered that her house and lot was mortgaged by virtue of a
forged SPA.28 She insisted that her signature and her husband’s
signature on the SPA were forged29 and that ever since she got
married, she no longer used her maiden name, Nicanora Gabar, in
signing documents.30 Petitioner also denied appearing before the
notary public, who notarized the SPA.31 She also testified that the
property referred to in the SPA, TCT No. 3838, is a vacant lot and
that the house, which was mortgaged and foreclosed, is covered by
a different title, TCT No. 3839.32
To support her claim of forgery, petitioner presented Emma Nagac
who testified that when she was at Concepcion’s boutique, she was
asked by the latter to sign as a witness to the SPA;33 that when she
signed the SPA, the signatures of petitioner and her husband had
already been affixed;34 and that Lugod instructed her not to tell
petitioner about the SPA.35

Respondent bank, on the other hand, presented the testimonies of
its employees36 and respondent sheriff. Based on their testimonies,
it appears that on June 8, 1982, Concepcion applied for a loan for
her coconut production business37 in the amount of ₱40,000.00 but
only the amount of ₱30,000.00 was approved;38 that she offered as
collateral petitioner’s house and lot using the SPA; 39 and that the
proceeds of the loan were released to Concepcion and Lugod on
June 11, 1982.40
Edwin Igloria, the bank appraiser, further testified that Concepcion
executed a Real Estate Mortgage41 over two properties, one
registered in the name of petitioner and the other under the name
of a certain Milagros Flores.42 He said that he inspected petitioner’s
property;43 that there were several houses in the compound;44 and
although he was certain that the house offered as collateral was
located on the property covered by TCT No. 3838, he could not
explain why the house that was foreclosed is located on a lot
covered by another title, not included in the Real Estate Mortgage.45
Ruling of the Regional Trial Court
On February 23, 1998, the RTC issued a Decision46 sustaining the
claim of petitioner that the SPA was forged as the signatures
appearing on the SPA are different from the genuine signatures
presented by petitioner.47 The RTC opined that the respondent bank
should have conducted a thorough inquiry on the authenticity of the
SPA considering that petitioner’s residence certificate was not
indicated in the acknowledgement of the SPA.48 Thus, the RTC
decreed:
WHEREFORE, the court hereby declares null and void or annuls the
following:
1. The special power of attorney which was purportedly executed by
[petitioner] x x x;
2. The real estate mortgage x x x
3. The sheriff’s sale of Lot No. 2078-B-1-E, and the certificate of title
issued in favor of the Rural Bank of El Salavador [by] virtue thereof,
as well as the sheriff’s sale of the two[-]story house described in the
real estate mortgage.
4. The certificate of title in the name of the Rural Bank of El Salvador
if any, issued [by] virtue of the sheriff’s sale.
The court hereby also orders [respondent] bank to pay [petitioner]
attorney’s fees of ₱20,000 and moral damages of ₱20,000 as well as
the costs of the case.
SO ORDERED.49
On reconsideration,50the RTC in its May 8, 1998
Resolution51 rendered judgment on the Third-Party Complaint filed
by respondent bank, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered under the third-party
complaint and against third-party defendants Erlinda Concepcion
and her husband:
To indemnify or reimburse [respondent bank] all sums of money
plus interests thereon or damages that [respondent bank] has in this
LAW ON BUSINESS ORGANIZATIONS Cases 2 99
case been forced to pay, disburse or deliver to [petitioner] including
the costs.
SO ORDERED.52
Ruling of the Court of Appeals
Dissatisfied, respondent bank elevated the case to the CA arguing
that the SPA was not forged53 and that being a notarized document,
it enjoys the presumption of regularity.54 Petitioner, on the other
hand, maintained that the signatures were forged55 and that she
cannot be made liable as both the Promissory Note56 and the Real
Estate Mortgage, which were dated June 11, 1982, were signed by
Concepcion in her own personal capacity.57
On August 17, 2005, the CA reversed the findings of the RTC. The CA
found no cogent reason to invalidate the SPA, the Real Estate
Mortgage, and Foreclosure Sale as it was not convinced that the SPA
was forged. The CA declared that although the Promissory Note and
the Real Estate Mortgage did not indicate that Concepcion was
signing for and on behalf of her principal, petitioner is estopped
from denying liability since it was her negligence in handing over her
title to Concepcion that caused the loss.58 The CA emphasized that
under the Principle of Equitable Estoppel, where one or two
innocent persons must suffer a loss, he who by his conduct made
the loss possible must bear it.59 Thus:
WHEREFORE, the above premises considered, the Decision and the
Resolution of the Regional Trial Court (RTC), 10th Judicial Region, Br.
19 of Cagayan de Oro City in Civil Case No. 88-113 is hereby
REVERSED and SET ASIDE. The Second Amended Complaint of
Nicanora Bucton is DISMISSED. Accordingly, the following are
declared VALID:
1. The Special Power of Attorney of Nicanora Gabar in favor of
Erlinda Concepcion, dated June 7, 1982;
2. The Real Estate Mortgage, the foreclosure of the same, and the
foreclosure sale to the Rural Bank of El Salvador, Misamis Oriental;
and
3. The certificate of title issued to the Rural Bank of El Salavador,
Misamis Oriental as a consequence of the foreclosure sale.
Costs against [petitioner].
SO ORDERED.60
Petitioner moved for reconsideration61 but the same was denied by
the CA in its June 7, 2007 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
FIRST
X X X WHETHER X X X THE [CA] WAS RIGHT IN DECLARING THE
PETITIONER LIABLE ON THE LITIGATED LOAN/MORTGAGE WHEN (i)
SHE DID NOT EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-FACT
SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN HER
PERSONAL CAPACITY AS MORTGAGOR, AND (iii) THE LOAN SECURED
BY THE MORTGAGE WAS CONCEPCION’S EXCLUSIVE LOAN FOR HER
OWN COCONUT PRODUCTION

SECOND
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL CODE) THE
[CA] WAS RIGHT IN MAKING PETITIONER A SURETY PRIMARILY
ANSWERABLE FOR CONCEPCION’S PERSONAL LOAN, IN THE
ABSENCE OF THE REQUIRED [SPA]
THIRD
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT
PETITIONER’S DECLARATIONS ARE SELF-SERVING TO JUSTIFY ITS
REVERSAL OF THE TRIAL COURT’S JUDGMENT, IN THE FACE OF THE
RESPONDENTS’ DOCUMENTARY EVIDENCES X X X, WHICH
INCONTROVERTIBLY PROVED THAT PETITIONER HAS ABSOLUTELY
NO PARTICIPATION OR LIABILITY ON THE LITIGATED
LOAN/MORTGAGE
FOURTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS
PETITIONER’S NEGLIGENCE WHICH MADE THE LOSS POSSIBLE,
DESPITE [THE FACT] THAT SHE HAS NO PART IN [THE] SUBJECT
LOAN/MORTGAGE, THE BANK’S [FAILURE] TO CONDUCT CAREFUL
EXAMINATION OF APPLICANT’S TITLE AS WELL AS PHYSICAL
INVESTIGATION OF THE LAND OFFERED AS SECURITY, AND TO
INQUIRE AND DISCOVER UPON ITS OWN PERIL THE AGENT’S
AUTHORITY, ALSO ITS INORDINATE HASTE IN THE PROCESSING,
EVALUATION AND APPROVAL OF THE LOAN.
FIFTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT DISREGARDED THE
FALSE TESTIMONY OF THE [RESPONDENT] BANK’S EMPLOYEE,
[WHEN HE DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION
OF THE MORTGAGED PROPERTY AND INVESTIGATION WHERE HE
ALLEGEDLY VERIFIED THE QUESTIONED SPA.
SIXTH
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED
ESTABLISHED FACTS AND CIRCUMSTANCES PROVING THAT THE
[SPA] IS A FORGED DOCUMENT AND/OR INFECTED BY INFIRMITIES
DIVESTING IT OF THE PRESUMPTION OF REGULARITY CONFERRED BY
LAW ON NOTARIZED DEEDS, AND EVEN IF VALID, THE POWER WAS
NOT EXERCISED BY CONCEPCION.63
Petitioner’s Arguments
Petitioner maintains that the signatures in the SPA were
forged64 and that she could not be held liable for the loan as it was
obtained by Concepcion in her own personal capacity, not as an
attorney-in-fact of petitioner.65 She likewise denies that she was
negligent and that her negligence caused the damage. 66 Instead, she
puts the blame on respondent bank as it failed to carefully examine
the title and thoroughly inspect the property.67 Had it done so, it
would have discovered that the house and lot mortgaged by
Concepcion are covered by two separate titles. 68Petitioner further
claims that respondent sheriff failed to show that he complied with
the requirements of notice and publication in foreclosing her house
and lot.69
Respondent bank’s Arguments
LAW ON BUSINESS ORGANIZATIONS Cases 2 100
Respondent bank, on the other hand, relies on the presumption of
regularity of the notarized SPA.70 It insists that it was not negligent
as it inspected the property before it approved the loan,71 unlike
petitioner who was negligent in entrusting her title to
Concepcion.72 As to the foreclosure proceedings, respondent bank
contends that under the Rural Bank Act, all loans whose principal is
below ₱100,000.00 are exempt from publication. 73 Hence, the
posting of the Notice of Foreclosure in the places defined by the
rules was sufficient.74 Besides, respondent sheriff is presumed to
have regularly performed his work.75
Our Ruling
The Petition is meritorious.
The Real Estate Mortgage was entered
into by Concepcion in her own personal
capacity.
As early as the case of Philippine Sugar Estates Development Co. v.
Poizat,76 we already ruled that "in order to bind the principal by a
deed executed by an agent, the deed must upon its face purport to
be made, signed and sealed in the name of the principal." 77 In other
words, the mere fact that the agent was authorized to mortgage the
property is not sufficient to bind the principal, unless the deed was
executed and signed by the agent for and on behalf of his principal.
This ruling was adhered to and reiterated with consistency in the
cases of Rural Bank of Bombon (Camarines Sur), Inc. v. Court of
Appeals,78 Gozun v. Mercado,79 and Far East Bank and Trust
Company (Now Bank of the Philippine Island) v. Cayetano.80
In Philippine Sugar Estates Development Co., the wife authorized her
husband to obtain a loan and to secure it with mortgage on her
property. Unfortunately, although the real estate mortgage stated
that it was executed by the husband in his capacity as attorney-in-
fact of his wife, the husband signed the contract in his own name
without indicating that he also signed it as the attorney-in-fact of his
wife.
In Rural Bank of Bombon, the agent contracted a loan from the bank
and executed a real estate mortgage. However, he did not indicate
that he was acting on behalf of his principal.
In Gozun, the agent obtained a cash advance but signed the receipt
in her name alone, without any indication that she was acting for
and on behalf of her principal.
In Far East Bank and Trust Company, the mother executed an SPA
authorizing her daughter to contract a loan from the bank and to
mortgage her properties. The mortgage, however, was signed by the
daughter and her husband as mortgagors in their individual
capacities, without stating that the daughter was executing the
mortgage for and on behalf of her mother.
Similarly, in this case, the authorized agent failed to indicate in the
mortgage that she was acting for and on behalf of her principal. The
Real Estate Mortgage, explicitly shows on its face, that it was signed
by Concepcion in her own name and in her own personal capacity. In
fact, there is nothing in the document to show that she was acting or
signing as an agent of petitioner. Thus, consistent with the law on
agency and established jurisprudence, petitioner cannot be bound
by the acts of Concepcion.

In light of the foregoing, there is no need to delve on the issues of
forgery of the SPA and the nullity of the foreclosure sale. For even if
the SPA was valid, the Real Estate Mortgage would still not bind
petitioner as it was signed by Concepcion in her personal capacity
and not as an agent of petitioner. Simply put, the Real Estate
Mortgage is void and unenforceable against petitioner.
Respondent bank was negligent.
At this point, we find it significant to mention that respondent bank
has no one to blame but itself.1âwphi1 Not only did it act with
undue haste when it granted and released the loan in less than three
days, it also acted negligently in preparing the Real Estate Mortgage
as it failed to indicate that Concepcion was signing it for and on
behalf of petitioner. We need not belabor that the words "as
attorney-in-fact of," "as agent of," or "for and on behalf of," are vital
in order for the principal to be bound by the acts of his agent.
Without these words, any mortgage, although signed by the agent,
cannot bind the principal as it is considered to have been signed by
the agent in his personal capacity.
Respondent bank is liable to pay
petitioner attorney’s fees, and the costs
of the suit.
Considering that petitioner was compelled to litigate or to incur
expenses to protect her interest,81 the RTC was right when it ruled
that respondent bank is liable to pay petitioner attorney’s fees in the
amount of ₱20,000.00. However, we are not convinced that
petitioner is entitled to an award of moral damages as it was not
satisfactorily shown that respondent bank acted in bad faith or with
malice. Neither was it proven that respondent bank’s acts were the
proximate cause of petitioner’s wounded feelings. On the contrary,
we note that petitioner is not entirely free of blame considering her
negligence in entrusting her title to Concepcion. In any case, the RTC
did not fully explain why petitioner is entitled to such award.
Concepcion is liable to pay respondent
bank her unpaid obligation and
reimburse it for all damages, attorney’s
fees and costs of suit.
Concepcion, on the other hand, is liable to pay respondent bank her
unpaid obligation under the Promissory Note dated June 11, 1982,
with interest. As we have said, Concepcion signed the Promissory
Note in her own personal capacity; thus, she cannot escape liability.
She is also liable to reimburse respondent bank for all damages,
attorneys' fees, and costs the latter is adjudged to pay petitioner in
this case.
WHEREFORE, the Petition is hereby GRANTED. The assailed August
17, 2005 Decision and the June 7, 2007 Resolution of the Court of
Appeals in CA-G.R. CV No. 60841 are hereby REVERSED and SET
ASIDE.
The February 23, 1998 Decision of the Regional Trial Court of
Cagayan de Oro, Branch 19, in Civil Case No. 88-113 is hereby
REINSTATED, insofar as it (a) annuls the Real Estate Mortgage dated
June 11, 1982, the Sheriffs Sale of petitioner Nicanora Bucton's
house and lot and the Transfer Certificate of Title issued in the name
of respondent Rural Bank of El Salvador, Misamis Oriental; and (b)
orders respondent bank to pay petitioner attorney's fees in the
LAW ON BUSINESS ORGANIZATIONS Cases 2 101
amount of ₱20,000.00 and costs of suit with MODIFICATION that the
award of moral damages in the amount of ₱20,000.00 is deleted for
lack of basis.
Likewise, the May 8, 1998 Resolution of the Regional Trial Court of
Cagayan de Oro, Branch 19, in Civil Case No. 88-113 ordering the
Third-Party Defendants, Erlinda Concepcion and her husband, to
indemnify or reimburse respondent bank damages, attorneys' fees,
and costs the latter is adjudged to pay petitioner, is hereby
REINSTATED.
Finally, Third-Party Defendants, Erlinda Concepcion and her
husbahd, are hereby ordered to pay respondent bank the unpaid
obligation under the Promissory Note dated June 11, 1982 with
interest.
SO ORDERED.
G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the firm name and style"KUE
CUISON PAPER SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT INVESTMENT
ASSOCIATES, respondents.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.
BIDIN, J.:
This petition for review assails the decision of the respondent Court
of Appeals ordering petitioner to pay private respondent, among
others, the sum of P297,482.30 with interest. Said decision reversed
the appealed decision of the trial court rendered in favor of
petitioner.
The case involves an action for a sum of money filed by respondent
against petitioner anchored on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship engaged in the
purchase and sale of newsprint, bond paper and scrap, with places
of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila.
Private respondent Valiant Investment Associates, on the other
hand, is a partnership duly organized and existing under the laws of
the Philippines with business address at Kalookan City.
From December 4, 1979 to February 15, 1980, private respondent
delivered various kinds of paper products amounting to P297,487.30
to a certain Lilian Tan of LT Trading. The deliveries were made by
respondent pursuant to orders allegedly placed by Tiu Huy Tiac who
was then employed in the Binondo office of petitioner. It was
likewise pursuant to Tiac's instructions that the merchandise was
delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the
merchandise by issuing several checks payable to cash at the specific
request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated
checks to private respondent as payment for the paper products.

Unfortunately, sad checks were later dishonored by the drawee
bank.
Thereafter, private respondent made several demands upon
petitioner to pay for the merchandise in question, claiming that Tiu
Huy Tiac was duly authorized by petitioner as the manager of his
Binondo office, to enter into the questioned transactions with
private respondent and Lilian Tan. Petitioner denied any
involvement in the transaction entered into by Tiu Huy Tiac and
refused to pay private respondent the amount corresponding to the
selling price of the subject merchandise.
Left with no recourse, private respondent filed an action against
petitioner for the collection of P297,487.30 representing the price of
the merchandise. After due hearing, the trial court dismissed the
complaint against petitioner for lack of merit. On appeal, however,
the decision of the trial court was modified, but was in effect
reversed by the Court of Appeals, the dispositive portion of which
reads:
WHEREFORE, the decision appealed from is MODIFIED in that
defendant-appellant Kue Cuison is hereby ordered to pay plaintiff-
appellant Valiant Investment Associates the sum of P297,487.30
with 12% interest from the filing of the complaint until the amount
is fully paid, plus the sum of 7% of the total amount due as
attorney's fees, and to pay the costs. In all other respects, the
decision appealed from is affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY TO THE
UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED IN FINDING DEFENDANT-
APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING
TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED
DECISION OF THE TRIAL COURT, (Rollo, p, 19)
The issue here is really quite simple — whether or not Tiu Huy Tiac
possessed the required authority from petitioner sufficient to hold
the latter liable for the disputed transaction.
This petition ought to have been denied outright, forin the final
analysis, it raises a factual issue. It is elementary that in petitions for
review under Rule 45, this Court only passes upon questions of law.
An exception thereto occurs where the findings of fact of the Court
of Appeals are at variance with the trial court, in which case the
Court reviews the evidence in order to arrive at the correct findings
based on the records.
As to the merits of the case, it is a well-established rule that one
who clothes another with apparent authority as his agent and holds
him out to the public as such cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in
the honest belief that he is what he appears to be (Macke, et al, v.
Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of
Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on
record, there is no doubt that this rule obtains. The petition must
therefore fail.
LAW ON BUSINESS ORGANIZATIONS Cases 2 102
It is evident from the records that by his own acts and admission,
petitioner held out Tiu Huy Tiac to the public as the manager of his
store in Sto. Cristo, Binondo, Manila. More particularly, petitioner
explicitly introduced Tiu Huy Tiac to Bernardino Villanueva,
respondent's manager, as his (petitioner's) branch manager as
testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while, also testified
that she knew Tiu Huy Tiac to be the manager of petitioner's Sto.
Cristo, Binondo branch. This general perception of Tiu Huy Tiac as
the manager of petitioner's Sto. Cristo store is even made manifest
by the fact that Tiu Huy Tiac is known in the community to be the
"kinakapatid" (godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac when he said that
they are "like brothers" (Rollo, p. 54). There was thus no reason for
anybody especially those transacting business with petitioner to
even doubt the authority of Tiu Huy Tiac as his manager in the Sto.
Cristo Binondo branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the
former's testimony is clearly self-serving inasmuch as Villanueva
worked for private respondent as its manager.
We disagree, The argument that Villanueva's testimony is self-
serving and therefore inadmissible on the lame excuse of his
employment with private respondent utterly misconstrues the
nature of "'self-serving evidence" and the specific ground for its
exclusion. As pointed out by this Court in Co v. Court of Appeals et,
al., (99 SCRA 321 [1980]):
Self-serving evidence is evidence made by a party out of court at one
time; it does not include a party's testimony as a witness in court. It
is excluded on the same ground as any hearsay evidence, that is the
lack of opportunity for cross-examination by the adverse party, and
on the consideration that its admission would open the door to
fraud and to fabrication of testimony. On theother hand, a party's
testimony in court is sworn and affords the other party the
opportunity for cross-examination (emphasis supplied)
Petitioner cites Villanueva's failure, despite his commitment to do so
on cross-examination, to produce the very first invoice of the
transaction between petitioner and private respondent as another
ground to discredit Villanueva's testimony. Such failure, proves that
Villanueva was not only bluffing when he pretended that he can
produce the invoice, but that Villanueva was likewise prevaricating
when he insisted that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's counsel himself
who withdrew the reservation to have Villanueva produce the
document in court. As aptly observed by the Court of Appeals in its
decision:
. . . However, during the hearing on March 3, 1981, Villanueva failed
to present the document adverted to because defendant-appellant's
counsel withdrew his reservation to have the former (Villanueva)
produce the document or invoice, thus prompting plaintiff-appellant
to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3,
1981). Now, defendant-appellant assails the credibility of Villanueva
for having allegedly failed to produce even one single document to
show that plaintiff-appellant have had transactions before, when in
fact said failure of Villanueva to produce said document is a direct
off-shoot of the action of defendant-appellant's counsel who
withdrew his reservation for the production of the document or

invoice and which led plaintiff-appellant to rest its case that very
day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by
alleging that Tan was part of an intricate plot to defraud him.
However, petitioner failed to substantiate or prove that the subject
transaction was designed to defraud him. Ironically, it was even the
testimony of petitioner's daughter and assistant manager Imelda
Kue Cuison which confirmed the credibility of Tan as a witness. On
the witness stand, Imelda testified that she knew for a fact that prior
to the transaction in question, Tan regularly transacted business
with her father (petitioner herein), thereby corroborating Tan's
testimony to the same effect. As correctly found by the respondent
court, there was no logical explanation for Tan to impute liability
upon petitioner. Rather, the testimony of Imelda Kue Cuison only
served to add credence to Tan's testimony as regards the
transaction, the liability for which petitioner wishes to be absolved.
But of even greater weight than any of these testimonies, is
petitioner's categorical admission on the witness stand that Tiu Huy
Tiac was the manager of his store in Sto. Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in Sto. Cristo?
A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot
remember the exact year.
Q So, Mr. Tiu Huy Tiac took over the management,.
A Not that was because every afternoon, I was there, sir.
Q But in the morning, who takes charge?
A Tiu Huy Tiac takes charge of management and if there (sic) orders
for newsprint or bond papers they are always referred to the
compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA
decision, Rollo, p. 50, emphasis supplied).
Such admission, spontaneous no doubt, and standing alone, is
sufficient to negate all the denials made by petitioner regarding the
capacity of Tiu Huy Tiac to enter into the transaction in question.
Furthermore, consistent with and as an obvious indication of the
fact that Tiu Huy Tiac was the manager of the Sto. Cristo branch,
three (3) months after Tiu Huy Tiac left petitioner's employ,
petitioner even sent, communications to its customers notifying
them that Tiu Huy Tiac is no longer connected with petitioner's
business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's
valuable position as petitioner's manager than any uttered
disclaimer. More than anything else, this act taken together with the
declaration of petitioner in open court amount to admissions under
Rule 130 Section 22 of the Rules of Court, to wit : "The act,
declaration or omission of a party as to a relevant fact may be given
in evidence against him." For well-settled is the rule that "a man's
acts, conduct, and declaration, wherever made, if voluntary, are
admissible against him, for the reason that it is fair to presume that
they correspond with the truth, and it is his fault if they do not. If a
man's extrajudicial admissions are admissible against him, there
seems to be no reason why his admissions made in open court,
LAW ON BUSINESS ORGANIZATIONS Cases 2 103
under oath, should not be accepted against him." (U.S. vs. Ching Po,
23 Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in disowning the
transactions entered into by Tiu Huy Tiac despite several attempts
made by respondent to collect the amount from him, proved all the
more that petitioner was aware of the questioned commission was
tantamount to an admission by silence under Rule 130 Section 23 of
the Rules of Court, thus: "Any act or declaration made in the
presence of and within the observation of a party who does or says
nothing when the act or declaration is such as naturally to call for
action or comment if not true, may be given in evidence against
him."
All of these point to the fact that at the time of the transaction Tiu
Huy Tiac was admittedly the manager of petitioner's store in Sto.
Cristo, Binondo. Consequently, the transaction in question as well as
the concomitant obligation is valid and binding upon petitioner.
By his representations, petitioner is now estopped from disclaiming
liability for the transaction entered by Tiu Huy Tiac on his behalf. It
matters not whether the representations are intentional or merely
negligent so long as innocent, third persons relied upon such
representations in good faith and for value As held in the case
of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622
[1990]):
More in point, we find that by the principle of estoppel, Manila
Remnant is deemed to have allowed its agent to act as though it had
plenary powers. Article 1911 of the Civil Code provides:
"Even when the agent has exceeded his authority, the principal
issolidarily liable with the agent if the former allowed the latter to
act as though he had full powers." (Emphasis supplied).
The above-quoted article is new. It is intended to protect the rights
of innocent persons. In such a situation, both the principal and the
agent may be considered as joint tortfeasors whose liability is joint
and solidary.
Authority by estoppel has arisen in the instant case because by its
negligence, the principal, Manila Remnant, has permitted its agent,
A.U. Valencia and Co., to exercise powers not granted to it. That the
principal might not have had actual knowledge of theagent's
misdeed is of no moment.
Tiu Huy Tiac, therefore, by petitioner's own representations and
manifestations, became an agent of petitioner by estoppel, an
admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person
relying thereon (Article 1431, Civil Code of the Philippines). A party
cannot be allowed to go back on his own acts and representations to
the prejudice of the other party who, in good faith, relied upon them
(Philippine National Bank v. Intermediate Appellate Court, et al., 189
SCRA 680 [1990]).
Taken in this light,. petitioner is liable for the transaction entered
into by Tiu Huy Tiac on his behalf. Thus, even when the agent has
exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to fact as though he had full
powers (Article 1911 Civil Code), as in the case at bar.

Finally, although it may appear that Tiu Huy Tiac defrauded his
principal (petitioner) in not turning over the proceeds of the
transaction to the latter, such fact cannot in any way relieve nor
exonerate petitioner of his liability to private respondent. For it is an
equitable maxim that as between two innocent parties, the one who
made it possible for the wrong to be done should be the one to bear
the resulting loss (Francisco vs. Government Service Insurance
System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the capacity or incapacity of
the purported agent Tiu Huy Tiac, has already been resolved, the
Court deems it unnecessary to resolve the other peripheral issues
raised by petitioner.
WHEREFORE, the instant petition in hereby DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE
ASSURANCE, INC.), Petitioner, G.R. No. 159489
- versus -
CLEMENTE N. PEDROSO,
TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, Respondents.
Promulgated: February 4, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the
Decision[1] and Resolution,[2] dated November 29, 2002 and August
5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568. The appellate court had affirmed the Decision[3] dated
October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch
3, finding petitioner as defendant and the co-defendants below
jointly and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year
endowment life insurance issued by petitioner Filipinas Life
Assurance Company (Filipinas Life). Pedroso claims Renato Valle was
her insurance agent since 1972 and Valle collected her monthly
premiums.In the first week of January 1977, Valle told her that the
Filipinas Life Escolta Office was holding a promotional investment
program for policyholders. It was offering 8% prepaid interest a
month for certain amounts deposited on a monthly basis. Enticed,
she initially invested and issued a post-dated check dated January 7,
1977 for P10,000.[4] In return, Valle issued Pedroso his personal
check for P800 for the 8%[5]prepaid interest and a Filipinas Life
Agents Receipt No. 807838.[6]
Subsequently, she called the Escolta office and talked to Francisco
Alcantara, the administrative assistant, who referred her to the
branch manager, Angel Apetrior. Pedroso inquired about the
LAW ON BUSINESS ORGANIZATIONS Cases 2 104
promotional investment and Apetrior confirmed that there was such
a promotion. She was even told she could push through with the
check she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the account
of Filipinas Life with the Commercial Bank and Trust Company
(CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly
authorized representatives Apetrior and Alcantara, as well as having
known agent Valle for quite some time, Pedroso waited for the
maturity of her initial investment. A month after, her investment
of P10,000 was returned to her after she made a written request for
its refund. The formal written request, dated February 3, 1977, was
written on an inter-office memorandum form of Filipinas Life
prepared by Alcantara.[7] To collect the amount, Pedroso personally
went to the Escolta branch where Alcantara gave her the P10,000 in
cash. After a second investment, she made 7 to 8 more investments
in varying amounts, totaling P37,000 but at a lower rate of
5%[8] prepaid interest a month. Upon maturity of Pedrosos
subsequent investments, Valle would take back from Pedroso the
corresponding yellow-colored agents receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life
insurance policyholder, about the investment plan. Palacio made a
total investment of P49,550[9] but at only 5% prepaid
interest. However, when Pedroso tried to withdraw her investment,
Valle did not want to return some P17,000 worth of it. Palacio also
tried to withdraw hers, but Filipinas Life, despite demands, refused
to return her money. With the assistance of their lawyer, they went
to Filipinas Life Escolta Office to collect their respective investments,
and to inquire why they had not seen Valle for quite some time. But
their attempts were futile. Hence, respondents filed an action for
the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-
defendants Valle, Apetrior and Alcantara jointly and solidarily liable
to the respondents.
On appeal, the Court of Appeals affirmed the trial courts ruling and
subsequently denied the motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN
AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC
[FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CO-
DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF
HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE
RESPONDENTS.[10]
Simply put, did the Court of Appeals err in holding petitioner and its
co-defendants jointly and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims
that it was only a life insurance company and was not engaged in the
business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and
Alcantara was outside the scope of their authority as agents of
Filipinas Life such that, it cannot be held liable to the
respondents.[11]
 LAW ON BUSINESS ORGANIZATIONS Cases 2 105

On the other hand, respondents contend that Filipinas Life respectively, of the Court of Appeals in CA-G.R. CV No. 33568
authorized Valle to solicit investments from them. In fact, Filipinas are AFFIRMED.
Lifes official documents and facilities were used in consummating
the transactions. These transactions, according to respondents, Costs against the petitioner.
were confirmed by its officers Apetrior and Alcantara. Respondents
SO ORDERED.
assert they exercised all the diligence required of them in
ascertaining the authority of petitioners agents; and it is Filipinas
Life that failed in its duty to ensure that its agents act within the
scope of their authority.
[G.R. No. 151319. November 22, 2004]
Considering the issue raised in the light of the submissions of the
MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO
parties, we find that the petition lacks merit. The Court of Appeals
L. LINSANGAN, respondent.
committed no reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution. DECISION

It appears indisputable that respondents Pedroso and Palacio had TINGA, J.:
invested P47,000 and P49,550, respectively. These were received by
Valle and remitted to Filipinas Life, using Filipinas Lifes official For resolution in this case is a classic and interesting texbook
receipts, whose authenticity were not disputed. Valles authority to question in the law on agency.
solicit and receive investments was also established by the
parties.When respondents sought confirmation, Alcantara, holding a This is a petition for review assailing the Decision[1] of the Court of
supervisory position, and Apetrior, the branch manager, confirmed Appeals dated 22 June 2001, and its Resolution[2] dated 12
that Valle had authority. While it is true that a person dealing with December 2001 in CA G.R. CV No. 49802 entitled Pedro L. Linsangan
an agent is put upon inquiry and must discover at his own peril the v. Manila Memorial Cemetery, Inc. et al., finding Manila Memorial
agents authority, in this case, respondents did exercise due diligence Park Cemetery, Inc. (MMPCI) jointly and severally liable with
in removing all doubts and in confirming the validity of the Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
representations made by Valle.
The facts of the case are as follows:
Filipinas Life, as the principal, is liable for obligations contracted by
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L.
its agent Valle. By the contract of agency, a person binds himself to
Linsangan a lot called Garden State at the Holy Cross Memorial Park
render some service or to do something in representation or on
owned by petitioner (MMPCI). According to Baluyot, a former owner
behalf of another, with the consent or authority of the latter. [12] The
of a memorial lot under Contract No. 25012 was no longer
general rule is that the principal is responsible for the acts of its
interested in acquiring the lot and had opted to sell his rights subject
agent done within the scope of its authority, and should bear the
to reimbursement of the amounts he already paid. The contract was
damage caused to third persons.[13] When the agent exceeds his
for P95,000.00. Baluyot reassured Atty. Linsangan that once
authority, the agent becomes personally liable for the
reimbursement is made to the former buyer, the contract would be
damage.[14] But even when the agent exceeds his authority, the
transferred to him. Atty. Linsangan agreed and gave
principal is still solidarily liable together with the agent if the
Baluyot P35,295.00 representing the amount to be reimbursed to
principal allowed the agent to act as though the agent had full
the original buyer and to complete the down payment to
powers.[15] In other words, the acts of an agent beyond the scope of
MMPCI.[3] Baluyot issued handwritten and typewritten receipts for
his authority do not bind the principal, unless the principal ratifies
these payments.[4]
them, expressly or impliedly.[16]Ratification in agency is the adoption
or confirmation by one person of an act performed on his behalf by
Sometime in March 1985, Baluyot informed Atty. Linsangan that he
another without authority.[17]
would be issued Contract No. 28660, a new contract covering the
subject lot in the name of the latter instead of old Contract No.
Filipinas Life cannot profess ignorance of Valles acts. Even if Valles
25012. Atty. Linsangan protested, but Baluyot assured him that he
representations were beyond his authority as a debit/insurance
would still be paying the old price of P95,000.00 with P19,838.00
agent, Filipinas Life thru Alcantara and Apetrior expressly and
credited as full down payment leaving a balance of
knowingly ratified Valles acts. It cannot even be denied that Filipinas
about P75,000.00.[5]
Life benefited from the investments deposited by Valle in the
account of Filipinas Life. In our considered view, Filipinas Life had
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase
clothed Valle with apparent authority; hence, it is now estopped to
Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract
deny said authority. Innocent third persons should not be prejudiced
No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for
if the principal failed to adopt the needed measures to prevent
the amount of P19,838.00. Contract No. 28660 has a listed price
misrepresentation, much more so if the principal ratified his agents
of P132,250.00. Atty. Linsangan objected to the new contract price,
acts beyond the latters authority. The act of the agent is considered
as the same was not the amount previously agreed upon. To
that of the principal itself. Qui per alium facit per seipsum facere
convince Atty. Linsangan, Baluyot executed a
videtur. He who does a thing by an agent is considered as doing it
document[6] confirming that while the contract price is P132,250.00,
himself.[18]
Atty. Linsangan would pay only the original price of P95,000.00.
WHEREFORE, the petition is DENIED for lack of merit. The Decision
The document reads in part:
and Resolution, dated November 29, 2002 and August 5, 2003,

The monthly installment will start April 6, 1985; the amount
of P1,800.00 and the difference will be issued as discounted to
conform to the previous price as previously agreed upon. ---
P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase
under Contract No. 28660 states that the total price of P132,250.00
your undertaking is to pay only the total sum of P95,000.00 under
the old price. Further the total sum of P19,838.00 already paid by
you under O.R. # 118912 dated April 6, 1985 has been credited in
the total purchase price thereby leaving a balance of P75,162.00 on
a monthly installment of P1,800.00 including interests (sic) charges
for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660
and accepted Official Receipt No. 118912. As requested by Baluyot,
Atty. Linsangan issued twelve (12) postdated checks of P1,800.00
each in favor of MMPCI. The next year, or on 29 April 1986, Atty.
Linsangan again issued twelve (12) postdated checks in favor of
MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that
Contract No. 28660 was cancelled for reasons the latter could not
explain, and presented to him another proposal for the purchase of
an equivalent property. He refused the new proposal and insisted
that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their
agreement, Atty. Linsangan filed a Complaint[7] for Breach of
Contract and Damages against 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
LAW ON BUSINESS ORGANIZATIONS Cases 2 106
expressly admits that Contract No. 28660 on account of serious
delinquencyis 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 ATTORNEYS 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 courts 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. Linsangans
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 Baluyots 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 formers obligation, as a party knowingly dealing with
an alleged agent, to determine the limitations of such agents
authority, particularly when such alleged agents actions were
patently questionable. According to MMPCI, Atty. Linsangan did not
even bother to verify Baluyots 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 courts finding that Baluyot was an agent of MMPCI

at the time the disputed contract was entered into, having
represented MMPCIs 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 Baluyots 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 quooverlooked, 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. Linsangans 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 MMPCIs 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
LAW ON BUSINESS ORGANIZATIONS Cases 2 107
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.[35]However, 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 Baluyots authority. To repeat, Baluyots
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 agents 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 latters 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 agents
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. Linsangans 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.
LAW ON BUSINESS ORGANIZATIONS Cases 2 108
The trial and appellate courts found MMPCI liable based on
ratification and estoppel. For the trial court, MMPCIs 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 MMPCIs
acceptance of the benefits of Baluyots 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 principals 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.[45] Nevertheless, this principle does not apply
if the principals 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 Baluyots Answer[48] reveals that the real arrangement
between her and Atty. Linsangan was for the latter to pay a monthly
installment of P1,800.00 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 Baluyots statements in
her letter[50] 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. Linsangans 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 MMPCIs 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 Baluyots 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 MMPCIs 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
latters 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 MMPCIs 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 Baluyots 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 MMPCIs 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 principals written contract. Estoppel must
be intentional and unequivocal, for when misapplied, it can easily
LAW ON BUSINESS ORGANIZATIONS Cases 2 109
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 formers
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
principals 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 Baluyots 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 MMPCIs 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.
Linsangans 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 latters breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in
addition to Atty. Linsangans 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 Baluyots 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.
G.R. No. L-18805 August 14, 1967
THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF
THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE
DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-
appellees.
Simeon M. Gopengco and Solicitor General for plaintiff-appellant.
L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.;
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendants-
appellees.
SANCHEZ, J.:
The National Coconut Corporation (NACOCO, for short) was
chartered as a non-profit governmental organization on May 7, 1940
by Commonwealth Act 518 avowedly for the protection,
preservation and development of the coconut industry in the
Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power "to
buy, sell, barter, export, and in any other manner deal in, coconut,
copra, and dessicated coconut, as well as their by-products, and to
act as agent, broker or commission merchant of the producers,
dealers or merchants" thereof. The charter amendment was enacted
to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not
altogether eliminate, the margin of middlemen, mostly aliens.4
General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the
Board; defendant Leonor Moll became director only on December
22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on copra
trading activities. Amongst the scores of contracts executed by
general manager Kalaw are the disputed contracts, for the delivery
of copra, viz:
LAW ON BUSINESS ORGANIZATIONS Cases 2 110
(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons,
$167.00: per ton, f. o. b., delivery: August and September, 1947. This
contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.
(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons
$145.00 per long ton, f.o.b., Philippine ports, to be shipped:
September-October, 1947. This contract was also assigned to Louis
Dreyfus & Co. (Overseas) Ltd.
(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50
per ton, delivery: September, 1947.
(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons,
$160.00 per ton, c.i.f., Los Angeles, California, delivery: November,
1947.
(e) September 9, 1947: Franklin Baker Division of General Foods
Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to
be shipped in November, 1947.
(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for
3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery:
November, 1947.
(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per
ton, delivery: November and December, 1947. This contract was
assigned to Pacific Vegetable Co.
(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per
short ton, c.i.f., Pacific ports, delivery: December, 1947 and January,
1948. This contract was assigned to Pacific Vegetable Co.
(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per
short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract
was assigned to Pacific Vegetable Co.
An unhappy chain of events conspired to deter NACOCO from
fulfilling these contracts. Nature supervened. Four devastating
typhoons visited the Philippines: the first in October, the second and
third in November, and the fourth in December, 1947. Coconut trees
throughout the country suffered extensive damage. Copra
production decreased. Prices spiralled. Warehouses were destroyed.
Cash requirements doubled. Deprivation of export facilities
increased the time necessary to accumulate shiploads of copra.
Quick turnovers became impossible, financing a problem.
When it became clear that the contracts would be unprofitable,
Kalaw submitted them to the board for approval. It was not until
December 22, 1947 when the membership was completed.
Defendant Moll took her oath on that date. A meeting was then
held. Kalaw made a full disclosure of the situation, apprised the
board of the impending heavy losses. No action was taken on the
contracts. Neither did the board vote thereon at the meeting of
January 7, 1948 following. Then, on January 11, 1948, President
Roxas made a statement that the NACOCO head did his best to avert
the losses, emphasized that government concerns faced the same
risks that confronted private companies, that NACOCO was
recouping its losses, and that Kalaw was to remain in his post. Not
long thereafter, that is, on January 30, 1948, the board met again
with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously
approved the contracts hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the
contracts, as follows:
Tons
Buyers Undelivered
Delivered
Pacific Vegetable Oil 2,386.45 4,613.55
Spencer Kellog None 1,000
Franklin Baker 1,000 500
Louis Dreyfus 800 2,200
Louis Dreyfus (Adamson
1,150 850
contract of July 30, 1947)
Louis Dreyfus (Adamson
1,755 245
Contract of August 14, 1947)
TOTALS 7,091.45 9,408.55
The buyers threatened damage suits. Some of the claims were
settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO,
P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer
Kellog & Sons, P159,040.00.
But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue
before the Court of First Instance of Manila, upon claims as follows:
For the undelivered copra under the July 30 contract (Civil Case
4459); P287,028.00; for the balance on the August 14 contract (Civil
Case 4398), P75,098.63; for that per the September 12 contract
reduced to judgment (Civil Case 4322, appealed to this Court in L-
2829), P447,908.40. These cases culminated in an out-of-court
amicable settlement when the Kalaw management was already out.
The corporation thereunder paid Dreyfus P567,024.52 representing
70% of the total claims. With particular reference to the Dreyfus
claims, NACOCO put up the defenses that: (1) the contracts were
void because Louis Dreyfus & Co. (Overseas) Ltd. did not have
license to do business here; and (2) failure to deliver was due
to force majeure, the typhoons. To project the utter
unreasonableness of this compromise, we reproduce in haec
verba this finding below:
x x x However, in similar cases brought by the same claimant [Louis
Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for non-
delivery of copra also involving a claim of P345,654.68 wherein
defendant set up same defenses as above, plaintiff accepted
a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the
same proportion, the claim of Dreyfus against NACOCO should have
been compromised for only P10,000.00, if at all. Now, why should
defendants be held liable for the large sum paid as compromise by
the Board of Liquidators? This is just a sample to show how unjust it
would be to hold defendants liable for the readiness with which the
Board of Liquidators disposed of the NACOCO funds, although there
LAW ON BUSINESS ORGANIZATIONS Cases 2 111
was much possibility of successfully resisting the claims, or at least
settlement for nominal sums like what happened in the Syjuco case.5
All the settlements sum up to P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the
above sum of P1,343,274.52 from general manager and board
chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro
Garcia and Leonor Moll. It charges Kalaw with negligence under
Article 1902 of the old Civil Code (now Article 2176, new Civil Code);
and defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts. The fifth
amended complaint, on which this case was tried, was filed on July
2, 1959. Defendants resisted the action upon defenses hereinafter in
this opinion to be discussed.
The lower court came out with a judgment dismissing the complaint
without costs as well as defendants' counterclaims, except that
plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of
P2,601.94 for unpaid salaries and cash deposit due the deceased
Kalaw from NACOCO.
Plaintiff appealed direct to this Court.
Plaintiff's brief did not, question the judgment on Kalaw's
counterclaim for the sum of P2,601.94.
Right at the outset, two preliminary questions raised before, but
adversely decided by, the court below, arrest our attention. On
appeal, defendants renew their bid. And this, upon established
jurisprudence that an appellate court may base its decision of
affirmance of the judgment below on a point or points ignored by
the trial court or in which said court was in error.6
1. First of the threshold questions is that advanced by defendants
that plaintiff Board of Liquidators has lost its legal personality to
continue with this suit.
Accepted in this jurisdiction are three methods by which a
corporation may wind up its affairs: (1) under Section 3, Rule 104, of
the Rules of Court [which superseded Section 66 of the Corporation
Law]7 whereby, upon voluntary dissolution of a corporation, the
court may direct "such disposition of its assets as justice requires,
and may appoint a receiver to collect such assets and pay the debts
of the corporation;" (2) under Section 77 of the Corporation Law,
whereby a corporation whose corporate existence is terminated,
"shall nevertheless be continued as a body corporate for three years
after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and of
enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established;"
and (3) under Section 78 of the Corporation Law, by virtue of which
the corporation, within the three year period just mentioned, "is
authorized and empowered to convey all of its property to trustees
for the benefit of members, stockholders, creditors, and others
interested."8
It is defendants' pose that their case comes within the coverage of
the second method. They reason out that suit was commenced in
February, 1949; that by Executive Order 372, dated November 24,
1950, NACOCO, together with other government-owned
corporations, was abolished, and the Board of Liquidators was

entrusted with the function of settling and closing its affairs; and
that, since the three year period has elapsed, the Board of
Liquidators may not now continue with, and prosecute, the present
case to its conclusion, because Executive Order 372 provides in
Section 1 thereof that —
Sec.1. The National Abaca and Other Fibers Corporation, the
National Coconut Corporation, the National Tobacco Corporation,
the National Food Producer Corporation and the former enemy-
owned or controlled corporations or associations, . . . are hereby
abolished. The said corporations shall be liquidated in accordance
with law, the provisions of this Order, and/or in such manner as the
President of the Philippines may direct; Provided, however, That
each of the said corporations shall nevertheless be continued as a
body corporate for a period of three (3) years from the effective
date of this Executive Order for the purpose of prosecuting and
defending suits by or against it and of enabling the Board of
Liquidators gradually to settle and close its affairs, to dispose of and,
convey its property in the manner hereinafter provided.
Citing Mr. Justice Fisher, defendants proceed to argue that even
where it may be found impossible within the 3 year period to reduce
disputed claims to judgment, nonetheless, "suits by or against a
corporation abate when it ceases to be an entity capable of suing or
being sued" (Fisher, The Philippine Law of Stock Corporations, pp.
390-391). Corpus Juris Secundum likewise is authority for the
statement that "[t]he dissolution of a corporation ends its existence
so that there must be statutory authority for prolongation of its
life even for purposes of pending litigation"9and that suit "cannot be
continued or revived; nor can a valid judgment be rendered therein,
and a judgment, if rendered, is not only erroneous, but void and
subject to collateral attack." 10 So it is, that abatement of pending
actions follows as a matter of course upon the expiration of the legal
period for liquidation, 11 unless the statute merely requires a
commencement of suit within the added time. 12 For, the court
cannot extend the time alloted by statute. 13
We, however, express the view that the executive order abolishing
NACOCO and creating the Board of Liquidators should be examined
in context. The proviso in Section 1 of Executive Order 372, whereby
the corporate existence of NACOCO was continued for a period of
three years from the effectivity of the order for "the purpose of
prosecuting and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its affairs, to
dispose of and convey its property in the manner hereinafter
provided", is to be read not as an isolated provision but in
conjunction with the whole. So reading, it will be readily observed
that no time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of the various
government owned corporations, including NACOCO.
By Section 2 of the executive order, while the boards of directors of
the various corporations were abolished, their powers and functions
and duties under existing laws were to be assumed and exercised by
the Board of Liquidators. The President thought it best to do away
with the boards of directors of the defunct corporations; at the
same time, however, the President had chosen to see to it that the
Board of Liquidators step into the vacuum. And nowhere in the
executive order was there any mention of the lifespan of the Board
of Liquidators. A glance at the other provisions of the executive
order buttresses our conclusion. Thus, liquidation by the Board of
Liquidators may, under section 1, proceed in accordance with law,
LAW ON BUSINESS ORGANIZATIONS Cases 2 112
the provisions of the executive order, "and/or in such manner as the
President of the Philippines may direct." By Section 4, when any
property, fund, or project is transferred to any governmental
instrumentality "for administration or continuance of any project,"
the necessary funds therefor shall be taken from the corresponding
special fund created in Section 5. Section 5, in turn, talks of special
funds established from the "net proceeds of the liquidation" of the
various corporations abolished. And by Section, 7, fifty per centum
of the fees collected from the copra standardization and inspection
service shall accrue "to the special fund created in section 5 hereof
for the rehabilitation and development of the coconut industry."
Implicit in all these, is that the term of life of the Board of
Liquidators is without time limit. Contemporary history gives us the
fact that the Board of Liquidators still exists as an office with officials
and numerous employees continuing the job of liquidation and
prosecution of several court actions.
Not that our views on the power of the Board of Liquidators to
proceed to the final determination of the present case is without
jurisprudential support. The first judicial test before this Court
is National Abaca and Other Fibers Corporation vs. Pore, L-16779,
August 16, 1961. In that case, the corporation, already dissolved,
commenced suit within the three-year extended period for
liquidation. That suit was for recovery of money advanced to
defendant for the purchase of hemp in behalf of the corporation.
She failed to account for that money. Defendant moved to dismiss,
questioned the corporation's capacity to sue. The lower court
ordered plaintiff to include as co-party plaintiff, The Board of
Liquidators, to which the corporation's liquidation was entrusted
by Executive Order 372. Plaintiff failed to effect inclusion. The lower
court dismissed the suit. Plaintiff moved to reconsider. Ground:
excusable negligence, in that its counsel prepared the amended
complaint, as directed, and instructed the board's incoming and
outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to
mail the original thereof to the court and a copy of the same to
defendant's counsel. She mailed the copy to the latter but failed to
send the original to the court. This motion was rejected below.
Plaintiff came to this Court on appeal. We there said that "the rule
appears to be well settled that, in the absence of statutory provision
to the contrary, pending actions by or against a corporation are
abated upon expiration of the period allowed by law for the
liquidation of its affairs." We there said that "[o]ur Corporation Law
contains no provision authorizing a corporation, after three (3) years
from the expiration of its lifetime, to continue in its corporate name
actions instituted by it within said period of three (3)
years." 14 However, these precepts notwithstanding, we, in effect,
held in that case that the Board of Liquidators escapes from the
operation thereof for the reason that "[o]bviously, the complete loss
of plaintiff's corporate existence after the expiration of the period of
three (3) years for the settlement of its affairs is what impelled the
President to create a Board of Liquidators, to continue the
management of such matters as may then be pending." 15 We
accordingly directed the record of said case to be returned to the
lower court, with instructions to admit plaintiff's amended
complaint to include, as party plaintiff, the Board of Liquidators.
Defendants' position is vulnerable to attack from another direction.
By Executive Order 372, the government, the sole stockholder,
abolished NACOCO, and placed its assets in the hands of the Board
of Liquidators. The Board of Liquidators thus became the trustee on

behalf of the government. It was an express trust. The legal interest
became vested in the trustee — the Board of Liquidators. The
beneficial interest remained with the sole stockholder — the
government. At no time had the government withdrawn the
property, or the authority to continue the present suit, from the
Board of Liquidators. If for this reason alone, we cannot stay the
hand of the Board of Liquidators from prosecuting this case to its
final conclusion. 16 The provisions of Section 78 of the Corporation
Law — the third method of winding up corporate affairs — find
application.
We, accordingly, rule that the Board of Liquidators has personality
to proceed as: party-plaintiff in this case.
2. Defendants' second poser is that the action is unenforceable
against the heirs of Kalaw.
Appellee heirs of Kalaw raised in their motion to dismiss, 17 which
was overruled, and in their nineteenth special defense, that
plaintiff's action is personal to the deceased Maximo M. Kalaw, and
may not be deemed to have survived after his death. 18 They say that
the controlling statute is Section 5, Rule 87, of the 1940 Rules of
Court.19which provides that "[a]ll claims for money against the
decedent, arising from contract, express or implied", must be filed in
the estate proceedings of the deceased. We disagree.
The suit here revolves around the alleged negligent acts of Kalaw for
having entered into the questioned contracts without prior approval
of the board of directors, to the damage and prejudice of plaintiff;
and is against Kalaw and the other directors for having subsequently
approved the said contracts in bad faith and/or breach of trust."
Clearly then, the present case is not a mere action for the recovery
of money nor a claim for money arising from contract. The suit
involves alleged tortious acts. And the action is embraced in suits
filed "to recover damages for an injury to person or property, real or
personal", which survive. 20
The leading expositor of the law on this point is Aguas vs. Llemos, L-
18107, August 30, 1962. There, plaintiffs sought to recover damages
from defendant Llemos. The complaint averred that Llemos had
served plaintiff by registered mail with a copy of a petition for a writ
of possession in Civil Case 4824 of the Court of First Instance at
Catbalogan, Samar, with notice that the same would be submitted
to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of
the copy and notice served, plaintiffs proceeded to the said court of
Samar from their residence in Manila accompanied by their lawyers,
only to discover that no such petition had been filed; and that
defendant Llemos maliciously failed to appear in court, so that
plaintiffs' expenditure and trouble turned out to be in vain, causing
them mental anguish and undue embarrassment. Defendant died
before he could answer the complaint. Upon leave of court,
plaintiffs amended their complaint to include the heirs of the
deceased. The heirs moved to dismiss. The court dismissed the
complaint on the ground that the legal representative, and not the
heirs, should have been made the party defendant; and that,
anyway, the action being for recovery of money, testate or intestate
proceedings should be initiated and the claim filed therein. This
Court, thru Mr. Justice Jose B. L. Reyes, there declared:
Plaintiffs argue with considerable cogency that contrasting the
correlated provisions of the Rules of Court, those concerning claims
that are barred if not filed in the estate settlement proceedings
LAW ON BUSINESS ORGANIZATIONS Cases 2 113
(Rule 87, sec. 5) and those defining actions that survive and may be
prosecuted against the executor or administrator (Rule 88, sec. 1), it
is apparent that actions for damages caused by tortious conduct of a
defendant (as in the case at bar) survive the death of the latter.
Under Rule 87, section 5, the actions that are abated by death are:
(1) claims for funeral expenses and those for the last sickness of the
decedent; (2) judgments for money; and (3) "all claims for money
against the decedent, arising from contract express or implied."
None of these includes that of the plaintiffs-appellants; for it is not
enough that the claim against the deceased party be for money, but
it must arise from "contract express or implied", and these words
(also used by the Rules in connection with attachments and derived
from the common law) were construed in Leung Ben vs. O'Brien, 38
Phil. 182, 189-194,
"to include all purely personal obligations other than those which
have their source in delict or tort."
Upon the other hand, Rule 88, section 1, enumerates actions that
survive against a decedent's executors or administrators, and they
are: (1) actions to recover real and personal property from the
estate; (2) actions to enforce a lien thereon; and (3) actions to
recover damages for an injury to person or property. The present
suit is one for damages under the last class, it having been held that
"injury to property" is not limited to injuries to specific property, but
extends to other wrongs by which personal estate is injured or
diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R.,
1395). To maliciously cause a party to incur unnecessary expenses,
as charged in this case, is certainly injury to that party's property
(Javier vs. Araneta, L-4369, Aug. 31, 1953).
The ruling in the preceding case was hammered out of facts
comparable to those of the present. No cogent reason exists why we
should break away from the views just expressed. And, the
conclusion remains: Action against the Kalaw heirs and, for the
matter, against the Estate of Casimiro Garcia survives.
The preliminaries out of the way, we now go to the core of the
controversy.
3. Plaintiff levelled a major attack on the lower court's holding that
Kalaw justifiedly entered into the controverted contracts without
the prior approval of the corporation's directorate. Plaintiff leans
heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III
thereof, recites, as amongst the duties of the general manager, the
obligation: "(b) To perform or execute on behalf of the Corporation
upon prior approval of the Board, all contracts necessary and
essential to the proper accomplishment for which the Corporation
was organized."
Not of de minimis importance in a proper approach to the problem
at hand, is the nature of a general manager's position in the
corporate structure. A rule that has gained acceptance through the
years is that a corporate officer "intrusted with the general
management and control of its business, has implied authority to
make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the
corporation. 21 As such officer, "he may, without any special
authority from the Board of Directors perform all acts of an ordinary
nature, which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising in the usual
course of business. 22

The problem, therefore, is whether the case at bar is to be taken out
of the general concept of the powers of a general manager, given
the cited provision of the NACOCO by-laws requiring prior
directorate approval of NACOCO contracts.
The peculiar nature of copra trading, at this point, deserves express
articulation. Ordinary in this enterprise are copra sales for future
delivery. The movement of the market requires that sales
agreements be entered into, even though the goods are not yet in
the hands of the seller. Known in business parlance as forward sales,
it is concededly the practice of the trade. A certain amount of
speculation is inherent in the undertaking. NACOCO was much more
conservative than the exporters with big capital. This short-selling
was inevitable at the time in the light of other factors such as
availability of vessels, the quantity required before being accepted
for loading, the labor needed to prepare and sack the copra for
market. To NACOCO, forward sales were a necessity. Copra could
not stay long in its hands; it would lose weight, its value decrease.
Above all, NACOCO's limited funds necessitated a quick turnover.
Copra contracts then had to be executed on short notice — at times
within twenty-four hours. To be appreciated then is the difficulty of
calling a formal meeting of the board.
Such were the environmental circumstances when Kalaw went into
copra trading.
Long before the disputed contracts came into being, Kalaw
contracted — by himself alone as general manager — for forward
sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed
some 60 such contracts for the sale of copra to divers parties. During
that period, from those copra sales, NACOCO reaped a gross profit
of P3,631,181.48. So pleased was NACOCO's board of directors that,
on December 5, 1946, in Kalaw's absence, it voted to grant him
a special bonus "in recognition of the signal achievement rendered
by him in putting the Corporation's business on a self-sufficient basis
within a few months after assuming office, despite numerous
handicaps and difficulties."
These previous contract it should be stressed, were signed by
Kalaw without prior authority from the board. Said contracts were
known all along to the board members. Nothing was said by them.
The aforesaid contracts stand to prove one thing: Obviously,
NACOCO board met the difficulties attendant to forward sales by
leaving the adoption of means to end, to the sound discretion of
NACOCO's general manager Maximo M. Kalaw.
Liberally spread on the record are instances of contracts executed by
NACOCO's general manager and submitted to the board after their
consummation, not before. These agreements were not Kalaw's
alone. One at least was executed by a predecessor way back in 1940,
soon after NACOCO was chartered. It was a contract of lease
executed on November 16, 1940 by the then general manager and
board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the
lease of a space in Soriano Building On November 14, 1946,
NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra
to the Food Ministry, London, thru Sebastian Palanca. On December
22, 1947, when the controversy over the present contract cropped
up, the board voted to approve a lease contract previously executed
between Kalaw and Fidel Isberto and Ulpiana Isberto covering a
warehouse of the latter. On the same date, the board gave its nod to
a contract for renewal of the services of Dr. Manuel L. Roxas. In fact,
also on that date, the board requested Kalaw to report for action all
LAW ON BUSINESS ORGANIZATIONS Cases 2 114
copra contracts signed by him "at the meeting immediately following
the signing of the contracts." This practice was observed in a later
instance when, on January 7, 1948, the board approved two
previous contracts for the sale of 1,000 tons of copra each to a
certain "SCAP" and a certain "GNAPO".
And more. On December 19, 1946, the board resolved to ratify the
brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale
of 4,300 long tons of copra to the French Government. Such
ratification was necessary because, as stated by Kalaw in that same
meeting, "under an existing resolution he is authorized to give a
brokerage fee of only 1% on sales of copra made through brokers."
On January 15, 1947, the brokerage fee agreements of 1-1/2% on
three export contracts, and 2% on three others, for the sale of copra
were approved by the board with a proviso authorizing the general
manager to pay a commission up to the amount of 1-1/2% "without
further action by the Board." On February 5, 1947, the brokerage fee
of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was
favorably acted upon by the board. On March 19, 1947, a 2%
brokerage commission was similarly approved by the board for
Pacific Trading Corporation on the sale of 2,000 tons of copra.
It is to be noted in the foregoing cases that only the brokerage fee
agreements were passed upon by the board, not the sales contracts
themselves. And even those fee agreements were
submitted only when the commission exceeded the ceiling fixed by
the board.
Knowledge by the board is also discernible from other recorded
instances.1äwphï1.ñët
When the board met on May 10, 1947, the directors discussed the
copra situation: There was a slow downward trend but belief was
entertained that the nadir might have already been reached and an
improvement in prices was expected. In view thereof, Kalaw
informed the board that "he intends to wait until he has signed
contracts to sell before starting to buy copra."23
In the board meeting of July 29, 1947, Kalaw reported on the copra
price conditions then current: The copra market appeared to have
become fairly steady; it was not expected that copra prices would
again rise very high as in the unprecedented boom during January-
April, 1947; the prices seemed to oscillate between $140 to $150
per ton; a radical rise or decrease was not indicated by the trends.
Kalaw continued to say that "the Corporation has been closing
contracts for the sale of copra generally with a margin of P5.00 to
P7.00 per hundred kilos." 24
We now lift the following excerpts from the minutes of that same
board meeting of July 29, 1947:
521. In connection with the buying and selling of copra the Board
inquired whether it is the practice of the management to close
contracts of sale first before buying. The General Manager replied
that this practice is generally followed but that it is not always
possible to do so for two reasons:
(1) The role of the Nacoco to stabilize the prices of copra requires
that it should not cease buying even when it does not have actual
contracts of sale since the suspension of buying by the Nacoco will
result in middlemen taking advantage of the temporary inactivity of

the Corporation to lower the prices to the detriment of the
producers.
(2) The movement of the market is such that it may not be practical
always to wait for the consummation of contracts of sale before
beginning to buy copra.
The General Manager explained that in this connection a certain
amount of speculation is unavoidable. However, he said that the
Nacoco is much more conservative than the other big exporters in
this respect.25
Settled jurisprudence has it that where similar acts have been
approved by the directors as a matter of general practice, custom,
and policy, the general manager may bind the company without
formal authorization of the board of directors. 26 In varying
language, existence of such authority is established, by proof of the
course of business, the usage and practices of the company and by
the knowledge which the board of directors has, or must
bepresumed to have, of acts and doings of its subordinates in and
about the affairs of the corporation. 27 So also,
x x x authority to act for and bind a corporation may be presumed
from acts of recognition in other instances where the power was in
fact exercised. 28
x x x Thus, when, in the usual course of business of a corporation, an
officer has been allowed in his official capacity to manage its affairs,
his authority to represent the corporation may be implied from the
manner in which he has been permitted by the directors to manage
its business.29
In the case at bar, the practice of the corporation has been to allow
its general manager to negotiate and execute contracts in its copra
trading activities for and in NACOCO's behalf without prior board
approval. If the by-laws were to be literally followed, the board
should give its stamp of prior approval on all corporate contracts.
But that board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid
corporate acts.
4. But if more were required, we need but turn to the board's
ratification of the contracts in dispute on January 30, 1948, though it
is our (and the lower court's) belief that ratification here is nothing
more than a mere formality.
Authorities, great in number, are one in the idea that "ratification by
a corporation of an unauthorized act or contract by its officers or
others relates back to the time of the act or contract ratified, and is
equivalent to original authority;" and that " [t]he corporation and
the other party to the transaction are in precisely the same position
as if the act or contract had been authorized at the time." 30 The
language of one case is expressive: "The adoption or ratification of a
contract by a corporation is nothing more or less than the making of
an original contract. The theory of corporate ratification
is predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior authority." 31
Indeed, our law pronounces that "[r]atification cleanses the contract
from all its defects from the moment it was constituted." 32 By
LAW ON BUSINESS ORGANIZATIONS Cases 2 115
corporate confirmation, the contracts executed by Kalaw are thus
purged of whatever vice or defect they may have. 33
In sum, a case is here presented whereunder, even in the face of an
express by-law requirement of prior approval, the law on
corporations is not to be held so rigid and inflexible as to fail to
recognize equitable considerations. And, the conclusion inevitably is
that the embattled contracts remain valid.
5. It would be difficult, even with hostile eyes, to read the record in
terms of "bad faith and/or breach of trust" in the board's ratification
of the contracts without prior approval of the board. For, in reality,
all that we have on the government's side of the scale is that the
board knew that the contracts so confirmed would cause heavy
losses.
As we have earlier expressed, Kalaw had authority to execute the
contracts without need of prior approval. Everybody, including
Kalaw himself, thought so, and for a long time. Doubts were first
thrown on the way only when the contracts turned out to be
unprofitable for NACOCO.
Rightfully had it been said that bad faith does not simply connote
bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of a
known duty thru some motive or interest or ill will; it partakes of the
nature of fraud.34 Applying this precept to the given facts herein, we
find that there was no "dishonest purpose," or "some moral
obliquity," or "conscious doing of wrong," or "breach of a known
duty," or "Some motive or interest or ill will" that "partakes of the
nature of fraud."
Nor was it even intimated here that the NACOCO directors acted for
personal reasons, or to serve their own private interests, or to
pocket money at the expense of the corporation. 35 We have had
occasion to affirm that bad faith contemplates a "state of mind
affirmatively operating with furtive design or with some motive of
self-interest or ill will or for ulterior purposes." 36 Briggs vs.
Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with
approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the
following: "Upon a close examination of all the reported cases,
although there are many dicta not easily reconcilable, yet I have
found no judgment or decree which has held directors to account,
except when they have themselves been personally guilty of some
fraud on the corporation, or have known and connived at some
fraud in others, or where such fraud might have been prevented had
they given ordinary attention to their duties. . . ." Plaintiff did not
even dare charge its defendant-directors with any of these
malevolent acts.
Obviously, the board thought that to jettison Kalaw's contracts
would contravene basic dictates of fairness. They did not think of
raising their voice in protest against past contracts which brought in
enormous profits to the corporation. By the same token, fair dealing
disagrees with the idea that similar contracts, when unprofitable,
should not merit the same treatment. Profit or loss resulting from
business ventures is no justification for turning one's back on
contracts entered into. The truth, then, of the matter is that — in
the words of the trial court — the ratification of the contracts was
"an act of simple justice and fairness to the general manager and the
best interest of the corporation whose prestige would have been

seriously impaired by a rejection by the board of those contracts
which proved disadvantageous." 37
The directors are not liable." 38
6. To what then may we trace the damage suffered by NACOCO.
The facts yield the answer. Four typhoons wreaked havoc then on
our copra-producing regions. Result: Copra production was
impaired, prices spiralled, warehouses destroyed. Quick turnovers
could not be expected. NACOCO was not alone in this misfortune.
The record discloses that private traders, old, experienced, with
bigger facilities, were not spared; also suffered tremendous losses.
Roughly estimated, eleven principal trading concerns did run losses
to about P10,300,000.00. Plaintiff's witness Sisenando Barretto,
head of the copra marketing department of NACOCO, observed that
from late 1947 to early 1948 "there were many who lost money in
the trade." 39 NACOCO was not immune from such usual business
risk.
The typhoons were known to plaintiff. In fact, NACOCO resisted the
suits filed by Louis Dreyfus & Co. by pleading in its answers force
majeure as an affirmative defense and there vehemently asserted
that "as a result of the said typhoons, extensive damage was caused
to the coconut trees in the copra producing regions of the
Philippines and according to estimates of competent authorities, it
will take about one year until the coconut producing regions will be
able to produce their normal coconut yield and it will take some
time until the price of copra will reach normal levels;" and that "it
had never been the intention of the contracting parties in entering
into the contract in question that, in the event of a sharp rise in the
price of copra in the Philippine market produce by force majeure or
by caused beyond defendant's control, the defendant should buy
the copra contracted for at exorbitant prices far beyond the buying
price of the plaintiff under the contract." 40
A high regard for formal judicial admissions made in court pleadings
would suffice to deter us from permitting plaintiff to stray away
therefrom, to charge now that the damage suffered was because of
Kalaw's negligence, or for that matter, by reason of the board's
ratification of the contracts. 41
Indeed, were it not for the typhoons, 42 NACOCO could have, with
ease, met its contractual obligations. Stock accessibility was no
problem. NACOCO had 90 buying agencies spread throughout the
islands. It could purchase 2,000 tons of copra a day. The various
contracts involved delivery of but 16,500 tons over a five-month
period. Despite the typhoons, NACOCO was still able to deliver a
little short of 50% of the tonnage required under the contracts.
As the trial court correctly observed, this is a case of damnum
absque injuria. Conjunction of damage and wrong is here absent.
There cannot be an actionable wrong if either one or the other is
wanting. 43
7. On top of all these, is that no assertion is made and no proof is
presented which would link Kalaw's acts — ratified by the board —
to a matrix for defraudation of the government. Kalaw is clear of the
stigma of bad faith. Plaintiff's corporate counsel 44 concedes that
Kalaw all along thought that he had authority to enter into the
contracts, that he did so in the best interests of the corporation; that
he entered into the contracts in pursuance of an overall policy to
LAW ON BUSINESS ORGANIZATIONS Cases 2 116
stabilize prices, to free the producers from the clutches of the
middlemen. The prices for which NACOCO contracted in the
disputed agreements, were at a level calculated to produce profits
and higher than those prevailing in the local market. Plaintiff's
witness, Barretto, categorically stated that "it would be foolish to
think that one would sign (a) contract when you are going to lose
money" and that no contract was executed "at a price unsafe for the
Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO
envisioned a profit of around P752,440.00. 46
Kalaw's acts were not the result of haphazard decisions either.
Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando
Barretto, or the Assistant General Manager. The dailies and
quotations from abroad were guideposts to him.
Of course, Kalaw could not have been an insurer of profits. He could
not be expected to predict the coming of unpredictable typhoons.
And even as typhoons supervened Kalaw was not remissed in his
duty. He exerted efforts to stave off losses. He asked the Philippine
National Bank to implement its commitment to extend a
P400,000.00 loan. The bank did not release the loan, not even the
sum of P200,000.00, which, in October, 1947, was approved by the
bank's board of directors. In frustration, on December 12, 1947,
Kalaw turned to the President, complained about the bank's short-
sighted policy. In the end, nothing came out of the negotiations with
the bank. NACOCO eventually faltered in its contractual obligations.
That Kalaw cannot be tagged with crassa negligentia or as much as
simple negligence, would seem to be supported by the fact that
even as the contracts were being questioned in Congress and in the
NACOCO board itself, President Roxas defended the actuations of
Kalaw. On December 27, 1947, President Roxas expressed his desire
"that the Board of Directors should reelect Hon. Maximo M. Kalaw
as General Manager of the National Coconut Corporation." 47 And,
on January 7, 1948, at a time when the contracts had already been
openly disputed, the board, at its regular meeting, appointed
Maximo M. Kalaw as acting general manager of the corporation.
Well may we profit from the following passage from Montelibano vs.
Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962:
"They (the directors) hold such office charged with the duty to act
for the corporation according to their best judgment, and in so doing
they cannot be controlled in the reasonable exercise and
performance of such duty. Whether the business of a corporation
should be operated at a loss during a business depression, or closed
down at a smaller loss, is a purely business and economic problem
to be determined by the directors of the corporation, and not by the
court. It is a well known rule of law that questions of policy of
management are left solely to the honest decision of officers and
directors of a corporation, and the court is without authority to
substitute its judgment for the judgment of the board of directors;
the board is the business manager of the corporation, and so long as
it acts in good faith its orders are not reviewable by the courts."
(Fletcher on Corporations, Vol. 2, p. 390.) 48
Kalaw's good faith, and that of the other directors, clinch the case
for defendants. 49
Viewed in the light of the entire record, the judgment under review
must be, as it is hereby, affirmed.

Without costs. So ordered.
WOODCHILD HOLDINGS, INC., Petitioner, G.R. No. 140667
- versus -
ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision [1] of the
Court of Appeals in CA-G.R. CV No. 56125 reversing the Decision[2]of
the Regional Trial Court of Makati, Branch 57, which ruled in favor of
the petitioner.
The Antecedents
The respondent Roxas Electric and Construction Company, Inc.
(RECCI), formerly the Roxas Electric and Construction Company, was
the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1
covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No.
491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-
B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to
the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondents Board of
Directors approved a resolution authorizing the corporation,
through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086, with an area of 7,213 square meters, at a
price and under such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and to execute,
sign and deliver the pertinent sales documents and receive the
proceeds of the sale for and on behalf of the company.[3]
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No.
491-A-3-B-2 covered by TCT No. 78086 on which it planned to
construct its warehouse building, and a portion of the adjoining lot,
Lot No. 491-A-3-B-1, so that its 45-foot container van would be able
to readily enter or leave the property. In a Letter to Roxas dated
June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No.
491-A-3-B-2 under stated terms and conditions for P1,000 per
square meter or at the price of P7,213,000.[4] One of the terms
incorporated in Dys offer was the following provision:
5. This Offer to Purchase is made on the representation and
warranty of the OWNER/SELLER, that he holds a good and
registrable title to the property, which shall be conveyed CLEAR and
FREE of all liens and encumbrances, and that the area of 7,213
square meters of the subject property already includes the area on
which the right of way traverses from the main lot (area) towards
the exit to the Sumulong Highway as shown in the location plan
LAW ON BUSINESS ORGANIZATIONS Cases 2 117
furnished by the Owner/Seller to the buyer. Furthermore, in the
event that the right of way is insufficient for the buyers purposes
(example: entry of a 45-foot container), the seller agrees to sell
additional square meter from his current adjacent property to allow
the buyer to full access and full use of the property.[5]
Roxas indicated his acceptance of the offer on page 2 of the
deed. Less than a month later or on July 1, 1991, Roxas, as President
of RECCI, as vendor, and Dy, as President of WHI, as vendee,
executed a contract to sell in which RECCI bound and obliged itself
to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086
for P7,213,000.[6] On September 5, 1991, a Deed of Absolute
Sale[7] in favor of WHI was issued, under which Lot No. 491-A-3-B-2
covered by TCT No. 78086 was sold for P5,000,000, receipt of which
was acknowledged by Roxas under the following terms and
conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give
Vendee the beneficial use of and a right of way from Sumulong
Highway to the property herein conveyed consists of 25 square
meters wide to be used as the latters egress from and ingress to and
an additional 25 square meters in the corner of Lot No. 491-A-3-B-1,
as turning and/or maneuvering area for Vendees vehicles.
The Vendor agrees that in the event that the right of way is
insufficient for the Vendees use (ex entry of a 45-foot container) the
Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the
property.
The Vendor hereby undertakes and agrees, at its account, to defend
the title of the Vendee to the parcel of land and improvements
herein conveyed, against all claims of any and all persons or entities,
and that the Vendor hereby warrants the right of the Vendee to
possess and own the said parcel of land and improvements thereon
and will defend the Vendee against all present and future claims
and/or action in relation thereto, judicial and/or administrative. In
particular, the Vendor shall eject all existing squatters and occupants
of the premises within two (2) weeks from the signing hereof. In
case of failure on the part of the Vendor to eject all occupants and
squatters within the two-week period or breach of any of the
stipulations, covenants and terms and conditions herein provided
and that of contract to sell dated 1 July 1991, the Vendee shall have
the right to cancel the sale and demand reimbursement for all
payments made to the Vendor with interest thereon at 36% per
annum.[8]
On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted
its quotation for P8,649,000 to WHI for the construction of the
warehouse building on a portion of the property with an area of
5,088 square meters.[9] WBI proposed to start the project on
October 1, 1991 and to turn over the building to WHI on February
29, 1992.[10]
In a Letter dated September 16, 1991, Ponderosa Leather Goods
Company, Inc. confirmed its lease agreement with WHI of a 5,000-
square-meter portion of the warehouse yet to be constructed at the
rental rate of P65 per square meter. Ponderosa emphasized the
need for the warehouse to be ready for occupancy before April 1,
1992.[11]WHI accepted the offer. However, WBI failed to commence
the construction of the warehouse in October 1, 1991 as planned
because of the presence of squatters in the property and suggested

a renegotiation of the contract after the squatters shall have been
evicted.[12] Subsequently, the squatters were evicted from the
property.
On March 31, 1992, WHI and WBI executed a Letter-Contract for the
construction of the warehouse building for P11,804,160.[13]The
contractor started construction in April 1992 even before the
building officials of Antipolo City issued a building permit on May 28,
1992. After the warehouse was finished, WHI issued on March 21,
1993 a certificate of occupancy by the building official. Earlier, or on
March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed
a contract of lease over a portion of the property for a monthly
rental of P300,000 for a period of three years from March 1, 1993 up
to February 28, 1996.[14]
In the meantime, WHI complained to Roberto Roxas that the
vehicles of RECCI were parked on a portion of the property over
which WHI had been granted a right of way. Roxas promised to look
into the matter. Dy and Roxas discussed the need of the WHI to buy
a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT
No. 78085 as provided for in the deed of absolute sale. However,
Roxas died soon thereafter. On April 15, 1992, the WHI wrote the
RECCI, reiterating its verbal requests to purchase a portion of the
said lot as provided for in the deed of absolute sale, and complained
about the latters failure to eject the squatters within the three-
month period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-
B-1 covered by TCT No. 78085 for its beneficial use within 72 hours
from notice thereof, otherwise the appropriate action would be filed
against it. RECCI rejected the demand of WHI. WHI reiterated its
demand in a Letter dated May 29, 1992. There was no response
from RECCI.
On June 17, 1992, the WHI filed a complaint against the RECCI with
the Regional Trial Court of Makati, for specific performance and
damages, and alleged, inter alia, the following in its complaint:
5. The current adjacent property referred to in the aforequoted
paragraph of the Deed of Absolute Sale pertains to the property
covered by Transfer Certificate of Title No. N-78085 of the Registry
of Deeds of Antipolo, Rizal, registered in the name of herein
defendant Roxas Electric.
6. Defendant Roxas Electric in patent violation of the express and
valid terms of the Deed of Absolute Sale unjustifiably refused to
deliver to Woodchild Holdings the stipulated beneficial use and right
of way consisting of 25 square meters and 55 square meters to the
prejudice of the plaintiff.
7. Similarly, in as much as the 25 square meters and 55 square
meters alloted to Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering area of its 45-foot
container van, Woodchild Holdings manifested its intention
pursuant to para. 5 of the Deed of Sale to purchase additional
square meters from Roxas Electric to allow it full access and use of
the purchased property, however, Roxas Electric refused and failed
to merit Woodchild Holdings request contrary to defendant Roxas
Electrics obligation under the Deed of Absolute Sale (Annex A).
8. Moreover, defendant, likewise, failed to eject all existing
squatters and occupants of the premises within the stipulated time
LAW ON BUSINESS ORGANIZATIONS Cases 2 118
frame and as a consequence thereof, plaintiffs planned construction
has been considerably delayed for seven (7) months due to the
squatters who continue to trespass and obstruct the subject
property, thereby Woodchild Holdings incurred substantial losses
amounting to P3,560,000.00 occasioned by the increased cost of
construction materials and labor.
9. Owing further to Roxas Electrics deliberate refusal to comply with
its obligation under Annex A, Woodchild Holdings suffered
unrealized income of P300,000.00 a month or P2,100,000.00
supposed income from rentals of the subject property for seven (7)
months.
10. On April 15, 1992, Woodchild Holdings made a final demand to
Roxas Electric to comply with its obligations and warranties under
the Deed of Absolute Sale but notwithstanding such demand,
defendant Roxas Electric refused and failed and continue to refuse
and fail to heed plaintiffs demand for compliance.
Copy of the demand letter dated April 15, 1992 is hereto attached as
Annex B and made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild Holdings made a letter
request addressed to Roxas Electric to particularly annotate on
Transfer Certificate of Title No. N-78085 the agreement under Annex
A with respect to the beneficial use and right of way, however,
Roxas Electric unjustifiably ignored and disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto attached as
Annex C and made an integral part hereof.
12. By reason of Roxas Electrics continuous refusal and failure to
comply with Woodchild Holdings valid demand for compliance
under Annex A, the latter was constrained to litigate, thereby
incurring damages as and by way of attorneys fees in the amount
of P100,000.00 plus costs of suit and expenses of litigation.[15]
The WHI prayed that, after due proceedings, judgment be rendered
in its favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in
favor of Woodchild Holdings and ordering Roxas Electric the
following:
a) to deliver to Woodchild Holdings the beneficial use of the
stipulated 25 square meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100 square
meters to allow it full access and use of the purchased property
pursuant to para. 5 of the Deed of Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-78085
the beneficial use and right of way granted to Woodchild Holdings
under the Deed of Absolute Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00,
representing actual damages and unrealized income;
e) to pay attorneys fees in the amount of P100,000.00; and
f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.[16]
In its answer to the complaint, the RECCI alleged that it never
authorized its former president, Roberto Roxas, to grant the
beneficial use of any portion of Lot No. 491-A-3-B-1, nor agreed to
sell any portion thereof or create a lien or burden thereon. It alleged
that, under the Resolution approved on May 17, 1991, it merely
authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086. As such, the grant of a right of way and the agreement to sell
a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the
said deed are ultra vires. The RECCI further alleged that the
provision therein that it would sell a portion of Lot No. 491-A-3-B-1
to the WHI lacked the essential elements of a binding contract.[17]
In its amended answer to the complaint, the RECCI alleged that the
delay in the construction of its warehouse building was due to the
failure of the WHIs contractor to secure a building permit
thereon.[18]
During the trial, Dy testified that he told Roxas that the petitioner
was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of
500 square meters, for the price of P1,000 per square meter.
On November 11, 1996, the trial court rendered judgment in favor
of the WHI, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered directing defendant:
(1) To allow plaintiff the beneficial use of the existing right of way
plus the stipulated 25 sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of 500 sq. m. priced
at P1,000 per sq. m. to allow said plaintiff full access and use of the
purchased property pursuant to Par. 5 of their Deed of Absolute
Sale;
(3) To cause annotation on TCT No. N-78085 the beneficial use and
right of way granted by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000 representing actual
damages and plaintiffs unrealized income;
(5) To pay plaintiff P100,000 representing attorneys fees; and
To pay the costs of suit.
SO ORDERED.[19]
The trial court ruled that the RECCI was estopped from disowning
the apparent authority of Roxas under the May 17, 1991 Resolution
of its Board of Directors. The court reasoned that to do so would
prejudice the WHI which transacted with Roxas in good faith,
believing that he had the authority to bind the WHI relating to the
easement of right of way, as well as the right to purchase a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered a
decision on November 9, 1999 reversing that of the trial court, and
ordering the dismissal of the complaint. The CA ruled that, under the
resolution of the Board of Directors of the RECCI, Roxas was merely
authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086,
but not to grant right of way in favor of the WHI over a portion of
Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a
portion thereof. The appellate court also ruled that the grant of a
LAW ON BUSINESS ORGANIZATIONS Cases 2 119
right of way and an option to the respondent were so lopsided in
favor of the respondent because the latter was authorized to fix the
location as well as the price of the portion of its property to be sold
to the respondent.Hence, such provisions contained in the deed of
absolute sale were not binding on the RECCI. The appellate court
ruled that the delay in the construction of WHIs warehouse was due
to its fault.
The Present Petition
The petitioner now comes to this Court asserting that:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ABSOLUTE SALE (EXH. C) IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING
OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE
BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE
STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE
THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE
DEED OF ABSOLUTE SALE (EXH. C).
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF
APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF
ABSOLUTE SALE (EXH. C) WERE DISADVANTAGEOUS TO THE
APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY
WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY
WITHOUT DUE PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF
THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED
IN THE DEED OF ABSOLUTE SALE (EXH. C).
VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING
OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE
PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL
DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL AS
ATTORNEYS FEES.[20]
The threshold issues for resolution are the following: (a) whether
the respondent is bound by the provisions in the deed of absolute
sale granting to the petitioner beneficial use and a right of way over
a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting
the option to the petitioner to buy a portion thereof, and, if so,
whether such agreement is enforceable against the respondent; (b)
whether the respondent failed to eject the squatters on its property
within two weeks from the execution of the deed of absolute sale;
and, (c) whether the respondent is liable to the petitioner for
damages.

On the first issue, the petitioner avers that, under its Resolution of
May 17, 1991, the respondent authorized Roxas, then its president,
to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor
of the petitioner, and an option for the respondent to buy a portion
of the said property. The petitioner contends that when the
respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the
petitioner with a means of ingress to or egress from the property to
the Sumulong Highway, since the latter had no adequate outlet to
the public highway. The petitioner asserts that it agreed to buy the
property covered by TCT No. 78085 because of the grant by the
respondent of a right of way and an option in its favor to buy a
portion of the property covered by TCT No. 78085.It contends that
the respondent never objected to Roxas acceptance of its offer to
purchase the property and the terms and conditions therein; the
respondent even allowed Roxas to execute the deed of absolute sale
in its behalf. The petitioner asserts that the respondent even
received the purchase price of the property without any objection to
the terms and conditions of the said deed of sale. The petitioner
claims that it acted in good faith, and contends that after having
been benefited by the said sale, the respondent is estopped from
assailing its terms and conditions. The petitioner notes that the
respondents Board of Directors never approved any resolution
rejecting the deed of absolute sale executed by Roxas for and in its
behalf. As such, the respondent is obliged to sell a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square
meters at the price of P1,000 per square meter, based on its
evidence and Articles 649 and 651 of the New Civil Code.
For its part, the respondent posits that Roxas was not so authorized
under the May 17, 1991 Resolution of its Board of Directors to
impose a burden or to grant a right of way in favor of the petitioner
on Lot No. 491-A-3-B-1, much less convey a portion thereof to the
petitioner.Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale. Besides, the respondent
contends, the petitioner cannot enforce its right to buy a portion of
the said property since there was no agreement in the deed of
absolute sale on the price thereof as well as the specific portion and
area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of
Appeals,[21] we held that:
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express
authorization from the corporations board of directors. Section 23 of
BP 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.
LAW ON BUSINESS ORGANIZATIONS Cases 2 120
Indubitably, a corporation 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. [22]
Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article
1910 of the New Civil Code, acts done by such officers beyond the
scope of their authority cannot bind the corporation unless it has
ratified such acts expressly or tacitly, or is estopped from denying
them:
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope
of authority are unenforceable against the corporation unless
ratified by the corporation.[23]
In BA Finance Corporation v. Court of Appeals,[24] we also ruled that
persons dealing with an assumed agency, whether the assumed
agency be a general or special one, 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.
In this case, the respondent denied authorizing its then president
Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085, and to create a lien or burden thereon. The
petitioner was thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the
Board of Directors of the respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the corporation, thru the
President, sell to any interested buyer, its 7,213-sq.-meter property
at the Sumulong Highway, Antipolo, Rizal, covered by Transfer
Certificate of Title No. N-78086, at a price and on terms and
conditions which he deems most reasonable and advantageous to
the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the
corporation, be, as he is hereby authorized to execute, sign and
deliver the pertinent sales documents and receive the proceeds of
sale for and on behalf of the company.[25]
Evidently, Roxas was not specifically authorized under the said
resolution to grant a right of way in favor of the petitioner on a
portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a
portion thereof. The authority of Roxas, under the resolution, to sell
Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the
authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or
to create or convey real rights thereon. Neither may such authority
be implied from the authority granted to Roxas to sell Lot No. 491-A-
3-B-2 to the petitioner on such terms and conditions which he
deems most reasonable and advantageous. Under paragraph 12,

Article 1878 of the New Civil Code, a special power of attorney is
required to convey real rights over immovable property. [26] Article
1358 of the New Civil Code requires that contracts which have for
their object the creation of real rights over immovable property
must appear in a public document.[27] The petitioner cannot feign
ignorance of the need for Roxas to have been specifically authorized
in writing by the Board of Directors to be able to validly grant a right
of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is
that if the act of the agent is one which requires authority in writing,
those dealing with him are charged with notice of that fact.[28]
Powers of attorney are generally construed strictly and courts will
not infer or presume broad powers from deeds which do not
sufficiently include property or subject under which the agent is to
deal.[29] The general rule is
that the power of attorney must be pursued within legal strictures,
and the agent can neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be done.[30] In sum,
then, the consent of the respondent to the assailed provisions in the
deed of absolute sale was not obtained; hence, the assailed
provisions are not binding on it.
We reject the petitioners submission that, in allowing Roxas to
execute the contract to sell and the deed of absolute sale and failing
to reject or disapprove the same, the respondent thereby gave him
apparent authority to grant a right of way over Lot No. 491-A-3-B-1
and to grant an option for the respondent to sell a portion thereof
to the petitioner. Absent estoppel or ratification, apparent authority
cannot remedy the lack of the written power required under the
statement of frauds.[31] In addition, the petitioners fallacy is its
wrong assumption of the unproved premise that the respondent
had full knowledge of all the terms and conditions contained in the
deed of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on estoppel and
can arise from two instances: first, the principal may knowingly
permit the agent to so hold himself out as having such authority,
and in this way, the principal becomes estopped to claim that the
agent does not have such authority; second, the principal may so
clothe the agent with the indicia of authority as to lead a reasonably
prudent person to believe that he actually has such
authority.[32] There can be no apparent authority of an agent
without acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon in
good faith and as a result of the exercise of reasonable prudence by
a third person as claimant and such must have produced a change of
position to its detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the
agent.[33]
For the principle of apparent authority to apply, the petitioner was
burdened to prove the following: (a) the acts of the respondent
justifying belief in the agency by the petitioner; (b) knowledge
thereof by the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with ordinary care and
prudence.[34] In this case, there is no evidence on record of specific
acts made by the respondent[35] showing or indicating that it had full
knowledge of any representations made by Roxas to the petitioner
that the respondent had authorized him to grant to the respondent
an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT
LAW ON BUSINESS ORGANIZATIONS Cases 2 121
No. 78085, or to create a burden or lien thereon, or that the
respondent allowed him to do so.
The petitioners contention that by receiving and retaining
the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the
respondent effectively and impliedly ratified the grant of a right of
way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the
petitioner an option to sell a portion thereof, is barren of merit. It
bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the
petitioner, and the latter had taken possession of the property. As
such, the respondent had the right to retain the P5,000,000, the
purchase price of the property it had sold to the petitioner. For an
act of the principal to be considered as an implied ratification of an
unauthorized act of an agent, such act must be inconsistent with any
other hypothesis than that he approved and intended to adopt what
had been done in his name.[36] Ratification is based on waiver the
intentional relinquishment of a known right.Ratification cannot be
inferred from acts that a principal has a right to do independently of
the unauthorized act of the agent. Moreover, if a writing is required
to grant an authority to do a particular act, ratification of that act
must also be in writing.[37] Since the respondent had not ratified the
unauthorized acts of Roxas, the same are unenforceable.[38] Hence,
by the respondents retention of the amount, it cannot thereby be
implied that it had ratified the unauthorized acts of its agent,
Roberto Roxas.
On the last issue, the petitioner contends that the CA erred in
dismissing its complaint for damages against the respondent on its
finding that the delay in the construction of its warehouse was due
to its (petitioners) fault. The petitioner asserts that the CA should
have affirmed the ruling of the trial court that the respondent failed
to cause the eviction of the squatters from the property on or
before September 29, 1991; hence, was liable for P5,660,000. The
respondent, for its part, asserts that the delay in the construction of
the petitioners warehouse was due to its late filing of an application
for a building permit, only on May 28, 1992.
The petitioners contention is meritorious. The respondent does not
deny that it failed to cause the eviction of the squatters on or before
September 29, 1991. Indeed, the respondent does not deny the fact
that when the petitioner wrote the respondent demanding that the
latter cause the eviction of the squatters on April 15, 1992, the latter
were still in the premises. It was only after receiving the said letter in
April 1992 that the respondent caused the eviction of the squatters,
which thus cleared the way for the petitioners contractor to
commence the construction of its warehouse and secure the
appropriate building permit therefor.
The petitioner could not be expected to file its application for a
building permit before April 1992 because the squatters were still
occupying the property. Because of the respondents failure to cause
their eviction as agreed upon, the petitioners contractor failed to
commence the construction of the warehouse in October 1991 for
the agreed price of P8,649,000. In the meantime, costs of
construction materials spiraled. Under the construction contract
entered into between the petitioner and the contractor, the
petitioner was obliged to pay P11,804,160,[39] including the
additional work costing P1,441,500, or a net increase
of P1,712,980.[40] The respondent is liable for the difference
between the original cost of construction and the increase thereon,
conformably to Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
The petitioner, likewise, lost the amount of P3,900,000 by way of
unearned income from the lease of the property to the Ponderosa
Leather Goods Company. The respondent is, thus, liable to the
petitioner for the said amount, under Articles 2200 and 2201 of the
New Civil Code:
Art. 2200. Indemnification for damages shall comprehend not only
the value of the loss suffered, but also that of the profits which the
obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts, the damages for which
the obligor who acted in good faith is liable shall be those that are
the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
In sum, we affirm the trial courts award of damages and attorneys
fees to the petitioner.
IN LIGHT OF ALL THE FOREGOING, judgment is hereby
rendered AFFIRMING the assailed Decision of the Court of
Appeals WITH MODIFICATION. The respondent is ordered to pay to
the petitioner the amount of P5,612,980 by way of actual damages
and P100,000 by way of attorneys fees. No costs.
SO ORDERED.
G.R. No. 199990 February 4, 2015
SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners,
vs.
SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO
GONZALES, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set
aside the August 22, 2011 Decision1 and the January 5, 2012
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 90296
which affirmed with modification the March 29, 2007 Decision of
the Regional Trial Court Branch 214 (RTC-Branch 214), Mandaluyong
City in Civil Case No. MC-03-2175, for rescission of a contract
(rescission case).
The Facts
This case stemmed from a dispute involving the sellers, petitioner
spouses Rolando and Herminia Salvador (Spouses Salvador); the
sellers' agent, Rosario Gonzales (Gonzales),· and the buyers,
respondent Spouses Rogelio and Elizabeth Rabaja (Spouses Rabaja),
over a parcel of land situated at No. 25, Merryland Village, 375 Jose
Rizal Street, Mandaluyong City (subject property),covered by
LAW ON BUSINESS ORGANIZATIONS Cases 2 122
Transfer Certificate of Title (TCT) No. 13426 and registered in the
names of Spouses Salvador. From 1994 until 2002, Spouses Rabaja
were leasing an apartment in the subject lot.
Sometime in July 1998, Spouses Rabaja learned that Spouses
Salvador were looking for a buyer of the subject property. Petitioner
Herminia Salvador (Herminia)personally introduced Gonzales to
them as the administrator of the said property. Spouses Salvador
even handed to Gonzales the owner’s duplicate certificate of title
over the subject property. On July, 3, 1998, Spouses Rabaja made an
initial payment of ₱48,000.00 to Gonzales in the presence of
Herminia. Gonzales then presented the Special Power of
Attorney3 (SPA),executed by Rolando Salvador (Rolando) and dated
July 24, 1998. On the same day, the parties executed the Contract to
Sell4 which stipulated that for a consideration of ₱5,000,000.00,
Spouses Salvador sold, transferred and conveyed in favor of Spouses
Rabaja the subject property. Spouses Rabaja made several payments
totalling ₱950,000.00, which were received by Gonzales pursuant to
the SPA provided earlier as evidenced by the check vouchers signed
by Gonzales and the improvised receiptssigned by Herminia.
Sometime in June 1999, however, Spouses Salvador complained to
Spouses Rabaja that they did not receive any payment from
Gonzales. This prompted Spouses Rabaja to suspend further
payment of the purchase price; and as a consequence, they received
a notice to vacate the subject property from Spouses Salvador for
non-payment of rentals.
Thereafter, Spouses Salvador instituted an action for ejectment
against Spouses Rabaja. In turn, Spouses Rabaja filed an action for
rescission of contract against Spouses Salvador and Gonzales, the
subject matter of the present petition.
In the action for ejectment, the complaint was filed before the
Metropolitan Trial Court of Mandaluyong City, Branch 60
(MeTC),where it was docketed as Civil Case No. 17344. In its August
14, 2002 Decision,5 the MeTC ruled in favor of Spouses Salvador
finding that valid grounds existed for the eviction of Spouses Rabaja
from the subject property and ordering them to pay back rentals.
Spouses Salvador were able to garnish the amount of
₱593,400.006from Spouses Rabaja’s time deposit account pursuant
to a writ of execution issued by the MeTC.7 Spouses Rabaja appealed
to the Regional Trial Court, Branch 212, Mandaluyong City (RTC-Br.
212)which reversed the MeTC ruling in its March 1, 2005
decision.8 The RTC-Br. 212 found that no lease agreement existed
between the parties. Thereafter, Spouses Salvador filed an appeal
with the CA which was docketed as CAG.R. SP No. 89259. On March
31, 2006, the CA ruled in favor of Spouses Salvador and reinstated
the MeTC ruling ejecting Spouses Rabaja.9 Not having been
appealed, the CA decision in CA-G.R. SP No. 89259 became final and
executory on May 12, 2006.10
Meanwhile, the rescission case filed by Spouses Rabaja against
Spouses Salvador and Gonzales and docketed as Civil Case No. MC
No. 03-2175 was also raffled to RTC-Br. 212. In their
complaint,11 dated July 7, 2003, Spouses Rabaja demanded the
rescission of the contract to sell praying that the amount of
₱950,000.00 they previously paid to Spouses Salvador be returned
to them. They likewise prayed that damages be awarded due to the
contractual breach committed by Spouses Salvador.

Spouses Salvador filed their answer with counterclaim and cross-
claim12 contending that there was no meeting of the minds between
the parties and that the SPA in favor of Gonzales was falsified. In
fact, they filed a case for falsification against Gonzales, but it was
dismissed because the original of the alleged falsified SPAcould not
be produced. They further averred that they did not receive any
payment from Spouses Rabaja through Gonzales. In her defense,
Gonzales filed her answer13 stating that the SPA was not falsified
and that the payments of Spouses Rabaja amounting to ₱950,000.00
were all handed over to Spouses Salvador.
The pre-trial conference began but attempts to amicably settle the
case were unsuccessful. It was formally reset to February 4, 2005,
but Spouses Salvador and their counsel failed to attend.
Consequently, the RTC issued the pre-trial order14 declaring Spouses
Salvador in default and allowing Spouses Rabaja to present their
evidence ex parte against Spouses Salvador and Gonzales to present
evidence in her favor.
A motion for reconsideration,15 dated March 28, 2005, was filed by
Spouses Salvador on the said pre-trial order beseeching the liberality
of the court. The rescission case was then re-raffled to RTC-Br. 214
after the Presiding Judge of RTC-Br. 212 inhibited herself. In the
Order,16 dated October 24, 2005, the RTC-Br. 214 denied the motion
for reconsideration because Spouses Salvador provided a flimsy
excuse for their non-appearance in the pre-trial conference.
Thereafter, trial proceeded and Spouses Rabaja and Gonzales
presented their respective testimonial and documentary evidence.
RTC Ruling
On March 29, 2007, the RTC-Br. 214 rendered a decision17 in favor of
Spouses Rabaja. It held that the signature of Spouses Salvador
affixed in the contract to sell appeared to be authentic. It also held
that the contract, although denominated as "contract to sell," was
actually a contract of sale because Spouses Salvador, as vendors, did
not reserve their title to the property until the vendees had fully
paid the purchase price. Since the contract entered into was a
reciprocal contract, it could bevalidly rescinded by Spouses Rabaja,
and in the process, they could recover the amount of ₱950,000.00
jointly and severally from Spouses Salvador and Gonzales. The RTC
stated that Gonzales was undoubtedly the attorney-in-fact of
Spouses Salvador absent any taint of irregularity. Spouses Rabaja
could not be faulted in dealing with Gonzales who was duly
equipped with the SPA from Spouses Salvador.
The RTC-Br. 214 then ruled that the amount of ₱593,400.00
garnished from the time deposit account of Spouses Rabaja,
representing the award of rental arrearages in the separate
ejectment suit, should be returned by Spouses Salvador.18 The court
viewed that such amount was part of the purchase price of the
subject property which must be returned. It also awarded moral and
exemplary damages in favor of Spouses Rabaja and attorney’s fees
in favor of Gonzales. The dispositive portion of the said decision
reads:
WHEREFORE, this court renders judgment as follows:
a. Ordering the "Contract to Sell" entered into by the plaintiff and
defendant spouses Rolando and Herminia Salvador on July 24, 1998
as RESCINDED;
LAW ON BUSINESS ORGANIZATIONS Cases 2 123
b. Ordering defendant spouses Rolando and Herminia Salvador and
defendant Rosario S. Gonzales jointly and severally liable to pay
plaintiffs:
1. the amount of NINE HUNDRED FIFTY THOUSAND PESOS
(₱950,000.00), representing the payments made by the latter for the
purchase of subject property;
2. the amount of TWENTY THOUSAND PESOS (₱20,000.00), as moral
damages;
3. the amount of TWENTY THOUSAND PESOS (₱20,000.00), as
exemplary damages;
4. the amount of ONE HUNDRED THOUSAND PESOS (₱100,000.00),
as attorney’s fees;
5. the cost of suit.
c. Ordering defendant Spouses Rolando and Herminia Salvador to
pay plaintiffs the amount of FIVE HUNDRED NINETY THREE
THOUSAND PESOS (₱593,000.00) (sic), representing the amount
garnished from the Metrobank deposit of plaintiffs as payment for
their alleged back rentals;
d. Ordering the defendant Spouses Rolando and Herminia Salvador
to pay defendant Rosario Gonzales on her cross-claim in the amount
of ONE HUNDRED THOUSAND PESOS (₱100,000.00);
e. Dismissing the counterclaims of the defendants against the
plaintiff.
SO ORDERED.19
Gonzales filed a motion for partial reconsideration, but it was denied
by the RTC-Br. 114 in its Order,20 dated September 12, 2007.
Undaunted, Spouses Salvador and Gonzales filed an appeal before
the CA.
CA Ruling
On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114
with modifications. It ruled that the "contract to sell" was indeed a
contract of sale and that Gonzales was armed with an SPA and was,
in fact, introduced to Spouses Rabaja by Spouses Salvador as the
administrator of the property. Spouses Rabaja could not be blamed
if they had transacted with Gonzales. The CA then held that Spouses
Salvador should return the amount of ₱593,400.00 pursuant to a
separate ejectment case, reasoning that Spouses Salvador misled
the court because an examination of CA-G.R. SP No. 89260showed
that Spouses Rabaja were not involved in that case. CA-G.R. SP No.
59260 was an action between Spouses Salvador and Gonzales only
and involved a completely different residential apartment located at
302-C Jupiter Street, Dreamland Subdivision, Mandaluyong City.
The CA, however, ruled that Gonzales was not solidarily liable with
Spouses Salvador. The agent must expressly bind himself or exceed
the limit of his authority in order to be solidarily liable. It was not
shown that Gonzales as agent of Spouses Salvador exceeded her
authority or expressly bound herself to be solidarily liable. The
decretal portion of the CA decision reads: WHEREFORE, the appeal is
PARTLY GRANTED. The assailed Decision dated March 29, 2007 and
the Order dated September 12, 2007, of the Regional Trial Court,

Branch 214, Mandaluyong City, in Civil Case No. MC-03-2175, are
AFFIRMED with MODIFICATION in that Rosario Gonzalez is not
jointly and severally liable to pay Spouses Rabaja the amounts
enumerated in paragraph (b) of the Decision dated March 29, 2007.
SO ORDERED.21
Spouses Salvador filed a motion for reconsideration but it was
denied by the CA in its January 5, 2012 Resolution.
Hence, this petition.
ASSIGNMENT OF ERRORS
I them. As there was no consideration, then no valid contract to sell
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER
COURT GRAVELY ABUSED ITS DISCRETION IN DECLARING
PETITIONERS IN DEFAULT AND IN DEPRIVING THEM OF THE
OPPORTUNITY TO CROSS-EXAMINE RESPONDENTS SPS. RABAJA AS
WELL AS TO PRESENT EVIDENCE FOR AND IN THEIR BEHALF, GIVEN
THE MERITORIOUS DEFENSES RAISED IN THEIR ANSWER THAT
CATEGORICALLY AND DIRECTLY DISPUTE RESPONDENTS SPS.
RABAJA’S CAUSE OF ACTION.
II
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL
COURT GRAVELY ERRED IN GIVING CREDENCE TO THE TESTIMONY
OF RESPONDENT GONZALES THAT PAYMENTS WERE INDEED
REMITTED TO AND RECEIVED BY PETITIONER HERMINIA SALVADOR
EVEN AS THE IMPROVISED RECEIPTS WEREEVIDENTLY MADE UP
AND FALSIFIED BY RESPONDENT GONZALES.
III
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL
COURT GRAVELY ERRED IN RESCINDING THE CONTRACT TO SELL
WHENTHERE IS NOTHING TO RESCIND AS NO VALID CONTRACT TO
SELL WAS ENTERED INTO, AND IN DIRECTING THE REFUND OF THE
AMOUNT OF ₱950,000.00 WHEN THE EVIDENCECLEARLY SHOWS
THAT SAID AMOUNT WAS PAIDTO AND RECEIVED BY RESPONDENT
GONZALES ALONE WHO MISAPPROPRIATED THE SAME.
IV
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S
DECISION FOR PETITIONERS TO RETURN THE AMOUNT OF
₱543,400.00 REPRESENTING RENTALS IN ARREARS GARNISHED OR
WITHDRAWN BY VIRTUE OF A WRIT OF EXECUTION ISSUED IN AN
EJECTMENT CASE WHICH WAS TRIED AND DECIDED BY ANOTHER
COURT.
V
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER
COURT GRAVELY ERRED IN AWARDING DAMAGES TO RESPONDENTS
SPS. RABAJA, THERE BEING NO FACTUAL AND LEGAL BASES FOR
SUCH AWARD. VI THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE TRIAL COURT GRAVELY ERRED IN AWARDING ₱100,000.00
TO RESPONDENT GONZALES AS ATTORNEY’S FEES WHEN
RESPONDENT GONZALES, IN FACT, COMMITTED FORGERY AND
FALSIFICATION IN DEALING WITH THE PROPERTY OF PETITIONERS
AND MISAPPROPRIATED THE MONIES PAID TO HER BY
LAW ON BUSINESS ORGANIZATIONS Cases 2 124
RESPONDENTS SPS. RABAJA, THUS GIVING PREMIUM TO HER
FRAUDULENT ACTS.22
The foregoing can be synthesized into three main issues. First,
Spouses Salvador contend that the order of default must be lifted
because reasonable grounds exist to justify their failure to attend
the pre-trial conference on February 4, 2005. Second, Spouses
Salvador raise in issue the veracity of the receipts given by Gonzales,
the SPA and the validity of the contract to sell. They claim that the
improvised receipts should not be given credence because these
were crude and suspicious, measuring only by 2 x 2 inches which
showed that Gonzales misappropriated the payments of Spouses
Rabaja for herself and did not remit the amount of ₱950,000.00 to
existed. Third, Spouses Salvador argue that the ejectment case, from
which the amount of ₱593,400.00 was garnished, already became
final and executory and could not anymore be disturbed. Lastly, the
award of damages in favor of Spouses Rabaja and Gonzales was
improper absent any legal and factual bases.
On January 21, 2013, Spouses Salvador filed their supplemental
petition23 informing the Court that RTC-Br. 213 had rendered a
decision in Civil Case No. MC00-1082, an action for rescission of the
SPA. The said decision held that Spouses Salvador properly revoked
the SPA in favor of Gonzales due to loss of trust and confidence. On
September 11, 2013, Gonzales filed her comment to the
supplemental petition,24 contending that the RTC-Branch 213
decision had no bearing because it had not yet attained finality. On
even date, Spouses Rabaja filed their Comment,25 asserting that the
present petition is a mere rehash of the previous arguments of
Spouses Salvador before the CA. On November 15, 2013, Spouses
Salvador replied that they merely wanted to show that the findings
by the RTC-Br. 213 should be given weight as a full-blown trial was
conducted therein.26
The Court’s Ruling
As a general rule, the Court’s jurisdiction in a Rule 45 petition is
limited to the review of pure questions of law. A question of law
arises when the doubt or difference exists as to what the law is on a
certain state of facts. Negatively put, Rule 45 does not allow the
review of questions of fact. A question of fact exists when the doubt
or difference arises as to the truth or falsity of the allegations.27
The present petition presents questions of fact because it requires
the Court to examine the veracity of the evidence presented during
the trial, such as the improvised receipts, the SPA given to Gonzales
and the contract to sell. Even the petitioner spouses themselves
concede and ask the Court to consider questions of fact,28 but the
Court finds no reason to disturb the findings of fact of the lower
courts absent any compelling reason to the contrary.
The failure of Spouses Salvador
to attend pre-trial conference
warrants the presentation of
evidence ex parte by Spouses
Rabaja
On the procedural aspect, the Court reiterates the rule that the
failure to attend the pre-trial conference does not result in the
default of an absent party. Under the 1997 Rules of Civil Procedure,
a defendant is only declared in default if he fails to file his Answer

within the reglementary period.29 On the other hand, if a defendant
fails to attend the pre-trial conference, the plaintiff can present his
evidence ex parte. Sections 4 and 5, Rule 18 of the Rules of Court
provide:
Sec. 4. Appearance of parties.
It shall be the duty of the parties and their counsel to appear at the
pre-trial. The non-appearance of a party may be excused only if a
valid cause is shown therefor or if a representative shall appear in
his behalf fully authorized in writing to enter into an amicable
settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and of
documents.
Sec. 5. Effect of failure to appear.
The failure of the plaintiff to appear when so required pursuant to
the next preceding section shall be cause for dismissal of the action.
The dismissal shall be with prejudice, unless otherwise ordered by
the court. A similar failure on the part of the defendant shall be
cause to allow the plaintiff to present his evidence ex parteand the
court to render judgment on the basis thereof.
[Emphasis supplied]
The case of Philippine American Life & General Insurance Company
v. Joseph Enario30 discussed the difference between the non-
appearance of a defendant in a pre-trial conference and the
declaration of a defendant in default in the present Rules of Civil
Procedure. The decision instructs:
Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in
default" was initially included in Rule 20 of the old rules, and which
read as follows:
Sec. 2. A party who fails to appear at a pre-trial conference may be
non-suited or considered as in default.
It was, however, amended in the 1997 Revised Rules of Civil
Procedure. Justice Regalado, in his book, REMEDIAL LAW
COMPENDIUM, explained the rationale for the deletion of the
phrase "as in default" in the amended provision, to wit:
1. This is a substantial reproduction of Section 2 of the former Rule
20 with the change that, instead of defendant being declared "as in
default" by reason of his non-appearance, this section now spells
out that the procedure will be to allow the ex parte presentation of
plaintiff’s evidence and the rendition of judgment on the basis
thereof. While actually the procedure remains the same, the
purpose is one of semantical propriety or terminological accuracy as
there were criticisms on the use of the word "default" in the former
provision since that term is identified with the failure to file a
required answer, not appearance in court.
Still, in the same book, Justice Regalado clarified that while the order
of default no longer obtained, its effects were retained, thus:
Failure to file a responsive pleading within the reglementary period,
and not failure to appear at the hearing, is the sole ground for an
order of default, except the failure to appear at a pre-trial
conference wherein the effects of a default on the part of the
defendant are followed, that is, the plaintiff shall be allowed to
LAW ON BUSINESS ORGANIZATIONS Cases 2 125
present evidence ex parte and a judgment based thereon may be
rendered against defendant.
From the foregoing, the failure of a party to appear at the pre-trial
has indeed adverse consequences. If the absent party is the plaintiff,
then his case shall be dismissed. If it is the defendant who fails to
appear, then the plaintiff is allowed to present his evidence ex parte
and the court shall render judgment based on the evidence
presented. Thus, the plaintiff is given the privilege to present his
evidence without objection from the defendant, the likelihood being
that the court will decide in favor of the plaintiff, the defendant
having forfeited the opportunity to rebut or present its own
evidence.31 The stringent application of the rules on pre-trial is
necessitated from the significant role of the pre-trial stage in the
litigation process. Pretrial is an answer to the clarion call for the
speedy disposition of cases. Although it was discretionary under the
1940 Rules of Court, it was made mandatory under the 1964 Rules
and the subsequent amendments in 1997.32 "The importance of pre-
trial in civil actions cannot be overemphasized."33
There is no dispute that Spouses Salvador and their counsel failed to
attend the pre-trial conference set on February 4, 2005 despite
proper notice. Spouses Salvador aver that their non-attendance was
due to the fault of their counsel as he forgot to update his
calendar.34 This excuse smacks of carelessness, and indifference to
the pre-trial stage. It simply cannot be considered as a justifiable
excuse by the Court. As a result of their inattentiveness, Spouses
Salvador could no longer present any evidence in their favor.
Spouses Rabaja, as plaintiffs, were properly allowed by the RTC to
present evidence ex parte against Spouses Salvador as defendants.
Considering that Gonzales as co-defendant was able to attend the
pre-trial conference, she was allowed to present her evidence. The
RTC could only render judgment based on the evidence presented
during the trial.
Gonzales, as agent of Spouses
Salvador, could validly receive
the payments of Spouses
Rabaja
Even on the substantial aspect, the petition does not warrant
consideration. The Court agrees with the courts below in finding that
the contract entered into by the parties was essentially a contract of
sale which could be validly rescinded. Spouses Salvador insist that
they did not receive the payments made by Spouses Rabaja from
Gonzales which totalled ₱950,000.00 and that Gonzales was not
their duly authorized agent. These contentions, however, must fail
in light of the applicable provisions of the New Civil Code which
state:
Art. 1900. So far as third persons are concerned, an act is deemed to
have been performed within the scope of the agent's authority, if
such act is within the terms of the power of attorney, as written,
even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
xxxx
Art. 1902. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third
 LAW ON BUSINESS ORGANIZATIONS Cases 2 126

persons who have relied upon the power of attorney or instructions action, however, is not any more covered by the present
shown them. proceeding.

xxxx The amount of ₱593,400.00

should not be returned by
Art. 1910. The principal must comply with all the obligations which Spouses Salvador
the agent may have contracted within the scope of his authority.
Nevertheless, the assailed decision of the CA must be modified with
Persons dealing with an agent must ascertain not only the fact of respect to the amount of ₱593,400.00 garnished by Spouses
agency, but also the nature and extent of the agent’s authority. A Salvador and ordered returned to Spouses Rabaja. The RTC ordered
third person with whom the agent wishes to contract on behalf of the return of the amount garnished holding that it constituted a part
the principal may require the presentation of the power of attorney, of the purchase price. The CA ruled that Spouses Salvador misled the
or the instructions as regards the agency. The basis for agency is Court when they improperly cited CA-G.R. SP No. 89260 to prove
representation and a person dealing with an agent is put upon their entitlement to the said amount. Both courts erred in their
inquiry and must discover on his own peril the authority of the ruling. First, the garnishment of the amount of ₱593,400.00 against
agent.35 Spouses Rabaja was pursuant to the CA decision in CA-G.R. SP No.
89259, an entirely different case involving an action for ejectment,
According to Article 1990 of the New Civil Code, insofar as third
and it does not concern the rescission case which is on appeal
persons are concerned, an act is deemed to have been performed
before this Court. Moreover, the decision on the ejectment case is
within the scope of the agent's authority, if such act is within the
final and executory and an entry of judgment has already been
terms of the power of attorney, as written. In this case, Spouses
made.41 Nothing is more settled in law than that when a final
Rabaja did not recklessly enter into a contract to sell with Gonzales.
judgment is executory, it thereby becomes immutable and
They required her presentation of the power of attorney before they
unalterable. The judgment may no longer be modified in any
transacted with her principal. And when Gonzales presented the SPA
respect, even if the modification is meant to correct what is
to Spouses Rabaja, the latter had no reason not to rely on it.
perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be made by
The law mandates an agent to act within the scope of his authority
the court which rendered it or by the highest Court of the land. The
which what appears in the written terms of the power of attorney
doctrine is founded on consideration of public policy and sound
granted upon him.36 The Court holds that, indeed, Gonzales acted
practice that, at the risk of occasional errors, judgments must
within the scope of her authority. The SPA precisely stated that she
become final at some definite point in time.42
could administer the property, negotiate the sale and collect any
document and all payments related to the subject property.37 As the
The March 31, 2006 CA decision43 in CA-G.R. SP No. 89259has long
agent acted within the scope of his authority, the principal must
been final and executory and cannot any more be disturbed by the
comply with all the obligations.38 As correctly held by the CA,
Court. Public policy dictates that once a judgment becomes final,
considering that it was not shown that Gonzales exceeded her
executory and unappealable, the prevailing party should not be
authority or that she expressly bound herself to be liable, then she
denied the fruits of his victory by some subterfuge devised by the
could not be considered personally and solidarily liable with the
losing party. Unjustified delay in the enforcement of a judgment sets
principal, Spouses Salvador.39
at naught the role and purpose of the courts to resolve justiciable
controversies with finality.44
Perhaps the most significant point which defeats the petition would
be the fact that it was Herminia herself who personally introduced
Meanwhile, in ruling that the garnishment was improper and thus
Gonzalez to Spouses Rabaja as the administrator of the subject
ordering the return of the garnished amount, the CA referred to its
property. By their own ostensible acts, Spouses Salvador made third
decision in CA-G.R. SP No. 89260. Spouses Salvador, however,
persons believe that Gonzales was duly authorized to administer,
clarified in its motion for reconsideration45 before the CA and in the
negotiate and sell the subject property. This fact was even affirmed
present petition46 that the garnishment was pursuant to CA-G.R. SP
by Spouses Salvador themselves in their petition where they stated
No. 89259, and not CA-G.R. SP No. 89260, another ejectment case
that they had authorized Gonzales to look for a buyer of their
involving another property. A perusal of the records reveals that
property.40 It is already too late in the day for Spouses Salvador to
indeed the garnishment was pursuant to the ejectment case in the
retract the representation to unjustifiably escape their principal
MeTC, docketed as Civil Case No. 17344,47 where Spouses Rabaja
obligation.
were the defendants. The MeTC decision was then reinstated by the
CA in CA-G.R. SP No. 89259, not CA-G.R. SP No. 89260. There, a writ
As correctly held by the CA and the RTC, considering that there was
of execution48 and notice of pay49 were issued against Spouses
a valid SPA, then Spouses Rabaja properly made payments to
Rabaja in the amount of ₱591,900.00.
Gonzales, as agent of Spouses Salvador; and it was as if they paid to
Spouses Salvador. It is of no moment, insofar as Spouses Rabaja are
Second, Spouses Rabaja’s appeal with the RTC never sought relief in
concerned, whether or not the payments were actually remitted to
returning the garnished amount.50 Such issue simply emerged in the
Spouses Salvador. Any internal matter, arrangement, grievance or
RTC decision. This is highly improper because the court’s grant of
strife between the principal and the agent is theirs alone and should
relief is limited only to what has been prayed for in the complaint or
not affect third persons. If Spouses Salvador did not receive the
related thereto, supported by evidence, and covered by the party’s
payments or they wish to specifically revoke the SPA, then their
cause of action.51
recourse is to institute a separate action against Gonzales. Such
 LAW ON BUSINESS ORGANIZATIONS Cases 2 127

If Spouses Rabaja would have any objection on the manner and WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007
propriety of the execution, then they must institute their opposition Decision of the Regional Trial Court, Branch 214, Mandaluyong City,
to the execution proceeding a separate case. Spouses Rabaja can in Civil Case No. MC-03-2175, is MODIFIED to read as follows:
invoke the Civil Code provisions on legal compensation or set-off
under Articles 1278, 1279 and 1270.52 The two obligations appear to "WHEREFORE, this Court renders judgment as follows:
have respectively offset each other, compensation having taken
a. Ordering the "Contract to Sell" entered into by Spouses Rogelio
effectby operation of law pursuant to the said provisions of the Civil
and Elizabeth Rabaja and Spouses Rolando and Herminia Salvador
Code, since all the requisites provided in Art. 1279 of the said Code
on July 24, 1998 as RESCINDED;
for automatic compensation are duly present.
b. Ordering Spouses Rolando and Herminia Salvador to pay Spouses
No award of actual, moral and
Rogelio and Elizabeth Rabaja:
exemplary damages
1. The amount of Nine Hundred Fifty Thousand (₱950,000.00) Pesos,
The award of damages to Spouses Rabaja cannot be sustained by
representing the payments made by the latter for the purchase of
this Court. The filing alone of a civil action should not be a ground
the subject property; and
for an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral
2. The cost of suit;
damages.53 Article 2220 of the New Civil Code provides that to
award moral damages in a breach of contract, the defendant must c. Dismissing the counterclaims of Spouses Rolando and Herminia
act fraudulently or in bad faith. In this case, Spouses Rabaja failed to Salvador and Rosario Gonzales against Spouses Rogelio and
sufficiently show that Spouses Salvador acted in a fraudulent Elizabeth Rabaja.
manner or with bad faith when it breached the contract of sale.
Thus, the award of moral damages cannot be warranted. The amounts awarded are subject to interest at the legal rate of 6%
per annum to be reckoned from the date of finality of this judgment
As to the award of exemplary damages, Article 2229 of the New Civil until fully paid."
Code provides that exemplary damages may be imposed by way of
example or correction for the public good, in addition to the moral, As aforestated, this is without prejudice to the invocation by either
temperate, liquidated or compensatory damages. 54 The claimant party of the Civil Code provisions on legal compensation or set-off
must first establish his right to moral, temperate, liquidated or under Articles 1278, 1279 and 1270.
compensatory damages. In this case, considering that Spouses
Rabaja failed to prove moral or compensatory damages, then there SO ORDERED.
could be no award of exemplary damages.

With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales

is entitled to the award.1âwphi1 The settled rule is that no premium SARGASSO VS PPA – REPEATED CASE
should be placed on the right to litigate and that not every winning
party is entitled to an automatic grant of attorney’s fees.55 The RTC
reasoned that Gonzales was forced to litigate due to the acts of
VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL,
Spouses Salvador. The Court does not agree. Gonzales, as agent of
BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA
Spouses Salvador, should have expected that she would be called to
MONILAR, Petitioners,
litigation in connection with her fiduciary duties to the principal.

- versus -
In view of all the foregoing, the CA decision should be affirmed with
the following modifications:
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC.
and TEOFILO SOON, JR., Respondents. -- -
1. The order requiring defendant Spouses Rolando and Herminia
Salvador to pay plaintiffs the amount of Five Hundred Ninety Three
G.R. No. 163825 Promulgated: July 13, 2010
Thousand (₱593,000.00) Pesos, representing the amount garnished
from the Metrobank deposit of plaintiffs as for their back rentals x-----------------------------------------------------------------------------------x
should be deleted;
DECISION
2. The award of moral damages in the amount of Twenty Thousand
(₱20,000.00) Pesos; exemplary damages in the amount of Twenty
Thousand (₱20,000.00) Pesos, and attorney’s fees in the amount of
One Hundred Thousand (₱100,000.00) Pesos in favor of Spouses BRION, J.:
Rabaja should be deleted; and
Before the Court is a petition for review on certiorari[1] assailing the
3. The award of attorney’s fees in amount of One Hundred Thousand December 19, 2003 decision[2] and the May 5, 2004 resolution[3] of
(₱100,000.00) Pesos in favor of Gonzales should be deleted. the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision
reversed the Regional Trial Court (RTC) decision[4] of June 27, 2001
The other amounts awarded are subject to interest at the legal rate granting the petitioners complaint for specific performance and
of 6% per annum, to be reckoned from the date of finality of this damages against the respondent Philippine Countryside Rural Bank,
judgment until fully paid. Inc. (PCRB).[5]

THE FACTUAL ANTECEDENTS
On July 22, 1997, petitioner spouses Rosendo Maglasang and
Patrocinia Monilar (spouses Maglasang) obtained a loan (subject
loan) from PCRB for P1,070,000.00. The subject loan was evidenced
by a promissory note and was payable on January 18, 1998. To
secure the payment of the subject loan, the spouses Maglasang
executed, in favor of PCRB a real estate mortgage over their
property, Lot 12868-H-3-C,[6] including the house constructed
thereon (collectively referred to as subject properties), owned by
petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the
spouses Maglasangs daughter and son-in-law, respectively. Aside
from the subject loan, the spouses Maglasang obtained two other
loans from PCRB which were covered by separate promissory
notes[7] and secured by mortgages on their other properties.
Sometime in November 1997 (before the subject loan became due),
the spouses Maglasang and the spouses Cortel asked PCRBs
permission to sell the subject properties. They likewise requested
that the subject properties be released from the mortgage since the
two other loans were adequately secured by the other mortgages.
The spouses Maglasang and the spouses Cortel claimed that the
PCRB, acting through its Branch Manager, Pancrasio Mondigo,
verbally agreed to their request but required first the full payment
of the subject loan. The spouses Maglasang and the spouses Cortel
thereafter sold to petitioner Violeta Banate the subject properties
for P1,750,000.00. The spouses Magsalang and the spouses Cortel
used the amount to pay the subject loan with PCRB. After settling
the subject loan, PCRB gave the owners duplicate certificate of title
of Lot 12868-H-3-C to Banate, who was able to secure a new title in
her name. The title, however, carried the mortgage lien in favor of
PCRB, prompting the petitioners to request from PCRB a Deed of
Release of Mortgage. As PCRB refused to comply with the
petitioners request, the petitioners instituted an action for specific
performance before the RTC to compel PCRB to execute the release
deed.
The petitioners additionally sought payment of damages from PCRB,
which, they claimed, caused the publication of a news report stating
that they surreptitiously caused the transfer of ownership of Lot
12868-H-3-C. The petitioners considered the news report false and
malicious, as PCRB knew of the sale of the subject properties and, in
fact, consented thereto.
PCRB countered the petitioners allegations by invoking the cross-
collateral stipulation in the mortgage deed which states:
1. That as security for the payment of the loan or advance
in principal sum of one million seventy thousand pesos only
(P1,070,000.00) and such other loans or advances already
obtained, or still to be obtained by the MORTGAGOR(s) as
MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE
plus interest at the rate of _____ per annum and penalty and
litigation charges payable on the dates mentioned in the
corresponding promissory notes, the MORTGAGOR(s) hereby
transfer(s) and convey(s) to MORTGAGEE by way of first mortgage
the parcel(s) of land described hereunder, together with the
improvements now existing for which may hereafter be made
thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that
MORTGAGOR(s) is/are the absolute owner(s) and that the same
is/are free from all liens and encumbrances;
LAW ON BUSINESS ORGANIZATIONS Cases 2 128
TRANSFER CERTIFICATE OF TITLE NO. 82746[8]
Accordingly, PCRB claimed that full payment of the three loans,
obtained by the spouses Maglasang, was necessary before any of
the mortgages could be released; the settlement of the subject loan
merely constituted partial payment of the total obligation. Thus, the
payment does not authorize the release of the subject properties
from the mortgage lien.
PCRB considered Banate as a buyer in bad faith as she was fully
aware of the existing mortgage in its favor when she purchased the
subject properties from the spouses Maglasang and the spouses
Cortel. It explained that it allowed the release of the owners
duplicate certificate of title to Banate only to enable her to annotate
the sale. PCRB claimed that the release of the title should not
indicate the corresponding release of the subject properties from
the mortgage constituted thereon.
After trial, the RTC ruled in favor of the petitioners. It noted that the
petitioners, as necessitous men, could not have bargained on equal
footing with PCRB in executing the mortgage, and concluded that it
was a contract of adhesion. Therefore, any obscurity in the
mortgage contract should not benefit PCRB.[9]
The RTC observed that the official receipt issued by PCRB stated that
the amount owed by the spouses Maglasang under the subject loan
was only about P1.2 million; that Mary Melgrid Cortel paid the
subject loan using the check which Banate issued as payment of the
purchase price; and that PCRB authorized the release of the title
further indicated that the subject loan had already been settled.
Since the subject loan had been fully paid, the RTC considered the
petitioners as rightfully entitled to a deed of release of mortgage,
pursuant to the verbal agreement that the petitioners made with
PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to
execute a deed of release of mortgage over the subject properties,
and to pay the petitioners moral damages and attorneys fees.[10]
On appeal, the CA reversed the RTCs decision. The CA did not
consider as valid the petitioners new agreement with Mondigo,
which would novate the original mortgage contract containing the
cross-collateral stipulation. It ruled that Mondigo cannot orally
amend the mortgage contract between PCRB, and the spouses
Maglasang and the spouses Cortel; therefore, the claimed
commitment allowing the release of the mortgage on the subject
properties cannot bind PCRB. Since the cross-collateral stipulation in
the mortgage contract (requiring full settlement of all three loans
before the release of any of the mortgages) is clear, the parties must
faithfully comply with its terms. The CA did not consider as material
the release of the owners duplicate copy of the title, as it was done
merely to allow the annotation of the sale of the subject properties
to Banate.[11]
Dismayed with the reversal by the CA of the RTCs ruling, the
petitioners filed the present appeal by certiorari, claiming that the
CA ruling is not in accord with established jurisprudence.
THE PETITION
The petitioners argue that their claims are consistent with their
agreement with PCRB; they complied with the required full payment
of the subject loan to allow the release of the subject properties
from the mortgage.

Having carried out their part of the bargain, the petitioners maintain
that PCRB must honor its commitment to release the mortgage over
the subject properties.
The petitioners disregard the cross-collateral stipulation in the
mortgage contract, claiming that it had been novated by the
subsequent agreement with Mondigo. Even assuming that the cross-
collateral stipulation subsists for lack of authority on the part of
Mondigo to novate the mortgage contract, the petitioners contend
that PCRB should nevertheless return the amount paid to settle the
subject loan since the new agreement should be deemed rescinded.
The basic issues for the Court to resolve are as follows:
1. Whether the purported agreement between the petitioners and
Mondigo novated the mortgage contract over the subject properties
and is thus binding upon PCRB.
2. If the first issue is resolved negatively, whether Banate can
demand restitution of the amount paid for the subject properties on
the theory that the new agreement with Mondigo is deemed
rescinded.
THE COURTS RULING
We resolve to deny the petition.
The purported agreement did not novate the mortgage contract,
particularly the cross- collateral stipulation thereon
Before we resolve the issues directly posed, we first dwell on the
determination of the nature of the cross-collateral stipulation in the
mortgage contract. As a general rule, a mortgage liability is usually
limited to the amount mentioned in the contract. However, the
amounts named as consideration in a contract of mortgage do not
limit the amount for which the mortgage may stand as security if,
from the four corners of the instrument, the intent to secure future
and other indebtedness can be gathered. This stipulation is valid and
bindingbetween the parties and is known as the blanket
mortgage clause (also known as the dragnet clause).[12]
In the present case, the mortgage contract indisputably provides
that the subject properties serve as security, not only for the
payment of the subject loan, but also for such other loans or
advances already obtained, or still to be obtained. The cross-
collateral stipulation in the mortgage contract between the parties is
thus simply a variety of a dragnet clause. After agreeing to such
stipulation, the petitioners cannot insist that the subject properties
be released from mortgage since the security covers not only the
subject loan but the two other loans as well.
The petitioners, however, claim that their agreement with Mondigo
must be deemed to have novated the mortgage contract. They posit
that the full payment of the subject loan extinguished their
obligation arising from the mortgage contract, including the
stipulated cross-collateral provision. Consequently, consistent with
their theory of a novated agreement, the petitioners maintain that it
devolves upon PCRB to execute the corresponding Deed of Release
of Mortgage.
We find the petitioners argument unpersuasive. Novation, in its
broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a
LAW ON BUSINESS ORGANIZATIONS Cases 2 129
new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement. An
extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the
debtor or subrogating a third person in the rights of the creditor
(subjective or personal). Under this mode,novation would have dual
functions one to extinguish an existing obligation, the other to
substitute a new one in its place requiring a conflux of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all
parties concerned to a new contract; (3) the extinguishment of the
old obligation; and (4) the birth of a valid new obligation.[13]
The second requisite is lacking in this case. Novation presupposes
not only the extinguishment or modification of an existing obligation
but, more importantly, the creation of a valid new obligation.[14] For
the consequent creation of a new contractual obligation, consent of
both parties is, thus, required. As a general rule, no form of words or
writing is necessary to give effect to a novation. Nevertheless, where
either or both parties involved are juridical entities, proof that the
second contract was executed by persons with the proper authority
to bind their respective principals is necessary.[15]
Section 23 of the Corporation Code[16] expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. The power and the responsibility to decide whether the
corporation should enter into a contract that will bind the
corporation are lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law. In the absence
of authority from the board of directors, no person, not even its
officers, can validly bind a corporation.
However, just as a natural person may authorize another to do
certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to its officers,
committees or agents. The authority of these individuals to bind the
corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of business.[17]
The authority of a corporate officer or agent in dealing with third
persons may be actual or apparent. Actual authority is either
express or implied. The extent of an agents express authority is to be
measured by the power delegated to him by the corporation, while
the extent of his implied authority is measured by his prior acts
which have been ratified or approved, or their benefits accepted by
his principal.[18] The doctrine of apparent authority, on the other
hand, with special reference to banks, had long been recognized in
this jurisdiction. The existence of apparent authority may be
ascertained through:
1) the general manner in which the corporation holds out an
officer or agent as having the power to act, or in other words,
the apparent authority to act in general, with which it clothes him;
or
2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, within or beyond the scope of
his ordinary powers.

Accordingly, the authority to act for and to bind a corporation may
be presumed from acts of recognition in other instances when the
power was exercised without any objection from its board or
shareholders.[19]
Notably, the petitioners action for specific performance is premised
on the supposed actual or apparent authority of the branch
manager, Mondigo, to release the subject properties from the
mortgage, although the other obligations remain unpaid. In light of
our discussion above, proof of the branch managers authority
becomes indispensable to support the petitioners contention. The
petitioners make no claim that Mondigo had actual authority from
PCRB, whether express or implied. Rather, adopting the trial courts
observation, the petitioners posited that PCRB should be held liable
for Mondigos commitment, on the basis of the latters apparent
authority.
We disagree with this position.
Under the doctrine of apparent authority, acts and contracts of the
agent, as are within the apparent scope of the authority conferred
on him, although no actual authority to do such acts or to make such
contracts has been conferred, bind the principal.[20] The principals
liability, however, is limited only to third persons who have been led
reasonably to believe by the conduct of the principal that such
actualauthority exists, although none was given. In other words,
apparent authority is determined only by the acts of the principal
and not by the acts of the agent.[21] There can be no apparent
authority of an agent without acts or conduct on the part of the
principal; such acts or conduct must have been known and relied
upon in good faith as a result of the exercise of reasonable prudence
by a third party as claimant, and such acts or conduct must have
produced a change of position to the third partys detriment.[22]
In the present case, the decision of the trial court was utterly silent
on the manner by which PCRB, as supposed principal, has clothed or
held out its branch manager as having the power to enter into an
agreement, as claimed by petitioners. No proof of the course of
business, usages and practices of the bank about, or knowledge that
the board had or is presumed to have of, its responsible officers acts
regarding bank branch affairs, was ever adduced to establish the
branch managers apparent authority to verbally alter the terms of
mortgage contracts.[23] Neither was there any allegation, much less
proof, that PCRB ratified Mondigos act or is estopped to make a
contrary claim.[24]
Further, we would be unduly stretching the doctrine of apparent
authority were we to consider the power to undo or nullify solemn
agreements validly entered into as within the doctrines ambit.
Although a branch manager, within his field and as to third persons,
is the general agent and is in general charge of the corporation, with
apparent authority commensurate with the ordinary business
entrusted him and the usual course and conduct thereof, [25] yet the
power to modify or nullify corporate contracts remains generally in
the board of directors.[26] Being a mere branch manager alone is
insufficient to support the conclusion that Mondigo has been
clothed with apparent authority to verbally alter terms of written
contracts, especially when viewed against the telling circumstances
of this case: the unequivocal provision in the mortgage contract;
PCRBs vigorous denial that any agreement to release the mortgage
was ever entered into by it; and, the fact that the purported
agreement was not even reduced into writing considering its legal
LAW ON BUSINESS ORGANIZATIONS Cases 2 130
effects on the parties interests. To put it simply, the burden of
proving the authority of Mondigo to alter or novate the mortgage
contract has not been established.[27]
It is a settled rule that persons dealing with an agent are bound at
their peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of the agents
authority, and in case either is controverted, the burden of proof is
upon them to establish it.[28] As parties to the mortgage contract,
the petitioners are expected to abide by its terms. The subsequent
purported agreement is of no moment, and cannot prejudice PCRB,
as it is beyond Mondigos actual or apparent authority, as above
discussed.
Rescission has no legal basis; there can be
no restitution of the amount paid
The petitioners, nonetheless, invoke equity and alternatively pray
for the restitution of the amount paid, on the rationale that if PCRBs
branch manager was not authorized to accept payment in
consideration of separately releasing the mortgage, then the
agreement should be deemed rescinded, and the amount paid by
them returned.
PCRB, on the other hand, counters that the petitioners alternative
prayer has no legal and factual basis, and insists that the clear
agreement of the parties was for the full payment of the subject
loan, and in return, PCRB would deliver the title to the subject
properties to the buyer, only to enable the latter to obtain a transfer
of title in her own name.
We agree with PCRB. Even if we were to assume that the purported
agreement has been sufficiently established, since it is not binding
on the bank for lack of authority of PCRBs branch manager, then the
prayer for restitution of the amount paid would have no legal
basis. Of course, it will be asked: what then is the legal significance
of the payment made by Banate? Article 2154 of the Civil Code
reads:
Art 2154. If something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to
return it arises.
Notwithstanding the payment made by Banate, she is not entitled to
recover anything from PCRB under Article 2154. There could not
have been any payment by mistake to PCRB, as the check which
Banate issued as payment was to her co-petitioner Mary Melgrid
Cortel (the payee), and not to PCRB. The same check was simply
endorsed by the payee to PCRB in payment of the subject loan that
the Maglasangs owed PCRB.[29]
The mistake, if any, was in the perception of the authority of
Mondigo, as branch manager, to verbally alter the mortgage
contract, and not as to whether the Cortels, as sellers, were entitled
to payment. This mistake (on Mondigos lack of authority to alter the
mortgage) did not affect the validity of the payment made to the
bank as the existence of the loan was never disputed. The dispute
was merely on the effect of the payment on the security given.[30]
Consequently, no right to recover accrues in Banates favor as PCRB
never dealt with her. The borrowers-mortgagors, on the other hand,
merely paid what was really owed. Parenthetically, the subject loan

was due on January 18, 1998, but was paid sometime in November
1997. It appears, however, that at the time the complaint was filed,
the subject loan had already matured. Consequently, recovery of the
amount paid, even under a claim of premature payment, will not
prosper.
In light of these conclusions, the claim for moral damages must
necessarily fail. On the alleged injurious publication, we quote with
approval the CAs ruling on the matter, viz:
Consequently, there is no reason to hold [respondent] PCRB liable to
[petitioners] for damages. x x x [Petitioner] Maglasang cannot hold
[respondent] PCRB liable for the publication of the extra-judicial
sale. There was no evidence submitted to prove that [respondent]
PCRB authored the words Mortgagors surreptitiously caused the
transfer of ownership of Lot 12868-H-3-C x x x contained in the
publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.s
name. Moreover, there was not even an iota of proof which shows
damage on the part of [petitioner] Mary Melgrid
M. Cortel[VAC1] .[31]
WHEREFORE, we DENY the petitioners petition for review
on certiorari for lack of merit, and AFFIRM the decision of the Court
of Appeals dated December 19, 2003 and its resolution dated May 5,
2004 in CA-G.R. CV No. 74332. No pronouncement as to costs.
SO ORDERED.
SPOUSES VILORIA VS CONTINENTAL AIRLINES – REPEATED CASE
PETRON CORPORATION, Petitioner,
- versus –
Spouses Cesar Jovero and Erma F. Cudilla, Spouses Lonito Tan
and Luzvilla Samson, and Spouses Rogelio Limpoco and Lucia
Josue, being represented by Pio Josue, Respondents.
G.R. No. 151038 Promulgated: January 18, 2012
x--------------------------------------------------x
Decision
SERENO, J.:
The present case is a Petition for Review1 under Rule 45 filed by
petitioner Petron Corporation. Petitioner assails the Decision2 of the
Court of Appeals (CA), which affirmed the Decision of the Regional
Trial Court (RTC) of Iloilo City in consolidated Civil Case Nos. 19633,
19684, 20122, respectively filed by herein respondents.
The facts of the case are as follows:
On 25 April 1984, Rubin Uy entered into a Contract of Lease with
Cesar J. Jovero over a property located at E. Reyes Ave., Estancia,
Iloilo for the purpose of operating a gasoline station for a period of
five (5) years.
LAW ON BUSINESS ORGANIZATIONS Cases 2 131
On 30 April 1984, petitioner, a domestic corporation engaged in the
importation and distribution of gasoline and other petroleum
products, entered into a Retail Dealer Contract3 with Rubin Uy for
the period 1 May 1984 to 30 April 1989. Under the dealership
contract, petitioner sold its products in quantities as ordered by the
dealer. It likewise obligated itself to deliver the products to the
dealer at the places agreed upon by the parties. The dealer,
meanwhile, obligated himself to exclusively maintain petitioner’s
trademarks and brand names in his gasoline station. The parties also
agreed that the dealer shall make good, settle and pay, and hold
petitioner harmless against all losses and claims including those of
the parties, their agents and employees – for death, personal injury
or property damage arising out of any use or condition of the
dealer’s premises or the equipment and facilities thereon, regardless
of any defects therein; the dealer’s non-performance of the
contract; or the storage and handling of products on the premises.
In order to comply with its obligation to deliver the petroleum
products to the dealer, petitioner contracted the hauling services of
Jose Villaruz, who did business under the name Gale Freight
Services. The hauling contract4 was executed in March 1988 for a
period of three years, renewable for another three upon agreement
of the parties.
Under the hauling contract, Villaruz specifically assigned three (3)
units of tank trucks exclusively for the hauling requirements of
petitioner for the delivery of the latter’s products, namely tank
trucks with the plate numbers FVG 605, FVG 581 and FVG 583.
Delivery “includes not only transportation but also proper loading
and unloading and delivery.”5 The parties also agreed that Villaruz
shall save petitioner from any and all claims of third persons arising
out of, but not necessarily limited to, his performance of the terms
and conditions of the contract. Furthermore, Villaruz obligated
himself to be answerable to petitioner for damage to its plant,
equipment and facilities, including those of its employees, dealers
and customers, resulting from his negligence and/or lack of
diligence.
Meanwhile, on 27 October 1988, Rubin Uy executed a Special Power
of Attorney (SPA) in favor of Chiong Uy authorizing the latter to
manage and administer the gasoline station. Chiong Uy and his wife,
Dortina M. Uy, operated the gasoline station as agents of Rubin Uy.
However, on 27 November 1990, Chiong Uy left for Hong Kong,
leaving Dortina Uy to manage the gasoline station.
On 3 January 1991, around ten o’clock in the morning, Ronnie
Allanaraiz, an employee of the gasoline station, ordered from
petitioner various petroleum products. Petitioner then requested
the services of Villaruz for the delivery of the products to the
gasoline station in Estancia, Iloilo. He, however, used a tank truck
different from the trucks specifically enumerated in the hauling
contract executed with petitioner. Petitioner nevertheless allowed
the transport and delivery of its products to Estancia in the tank
truck driven by Pepito Igdanis.
During the unloading of the petroleum from the tank truck into the
fill pipe that led to the gasoline station’s underground tank, for
reasons unknown, a fire started in the fill pipe and spread to the
rubber hose connected to the tank truck. During this time, driver
Pepito Igdanis was nowhere to be found. Bystanders then tried to
put out the flames. It was then that Igdanis returned to the gasoline
station with a bag of dried fish in hand. Seeing the fire, he got into
 LAW ON BUSINESS ORGANIZATIONS Cases 2 132

the truck without detaching the rubber hose from the fill pipe and The counter-claims of the defendants against all the plaintiffs are
drove in reverse, dragging the burning fuel hose along the way. As a hereby dismissed.
result, a conflagration started and consumed the nearby properties
of herein defendants, spouses Cesar J. Jovero and Erma Cudilla- The cross-claims of the defendants against each other are likewise
Jovero, amounting to P1,500,000; of spouses Leonito Tan and dismissed as they are all in “pari delicto”.
Luzvilla Samson, amounting to P800,000; and of spouses Rogelio
SO ORDERED.6
Limpoco and Lucia Josue Limpoco, amounting to P4,112,000.
The RTC held that Igdanis, as the driver of the tank truck, was
Herein respondents thereafter filed separate actions for damages
negligent in the performance of his work when he left the tank truck
against petitioner, Villaruz, Rubin Uy, and Dortina Uy, docketed as
while it was in the process of unloading the petroleum. He was also
Civil Case Nos. 19633, 19684 and 20122 at the Regional Trial Court
negligent when he drove the truck in reverse without detaching the
(RTC) of Iloilo City. The cases, having arisen from the same set of
burning fuel hose. The trial court stated that defendant Villaruz
facts, were subsequently consolidated. Respondents alleged that the
failed to convince the court that he had exercised due diligence in
negligence of petitioner and its co-defendants in the conduct of
the hiring and supervision of his employees.
their businesses caused the fire that destroyed the former’s
properties.
The RTC likewise held that petitioner was negligent in allowing
Villaruz to use a tank truck that was not included among the trucks
In its separate Answer, petitioner Petron alleged that the petroleum
specifically enumerated under the hauling contract.
products were already paid for and owned by Rubin Uy and Dortina
Uy. Moreover, it alleged that Villaruz was responsible for the safe
Finally, the court ruled that the gasoline station was owned and
delivery of the products by virtue of the hauling contract. Thus,
operated by Rubin Uy and Dortina Uy at the time of the incident.
petitioner asserted, liability for the damages caused by the fire
rested on Rubin Uy and Villaruz. Petitioner likewise filed a cross- Petitioner and co-defendants Dortina Uy and Rubin Uy thereafter
claim against its co-defendants for contribution, indemnity, filed their separate Notices of Appeal.
subrogation, or other reliefs for all expenses and damages that it
may have suffered by virtue of the incident. It also filed a Petitioner, in its appeal, insisted that it had already sold and
counterclaim against respondents herein. transferred ownership of its petroleum products to the dealer, Rubin
Uy, upon payment and receipt of these products at its depot. Thus,
On 27 April 1998, after trial on the merits, the RTC rendered its it asserted, it ceased to own the products even during transit and
Decision in favor of respondents and found petitioner and its co- while being unloaded at the gasoline station. It also stated that the
defendants solidarily liable for damages. The dispositive portion of transportation, delivery, receipt and storage of the petroleum
the Decision states: products were solely the responsibility of hauler Villaruz, who was
neither an employee nor an agent of petitioner. It reiterated that
WHEREFORE, in view of the foregoing, DECISION is hereby rendered:
liability rested on Rubin Uy and Villaruz pursuant to the respective
contracts it had executed with them.
1. Declaring defendants Petron Corporation, Jose Villaruz,
Pepito Igdanis, Rubin Uy and Dortina Uy as being negligent
Petitioner also alleged that the RTC erred in ruling that the former
in the conduct of their business activities, which led to the
was negligent in allowing the use of a tank truck not specified in the
conflagration of January 3, 1991 at E. Reyes Avenue,
hauling contract. Petitioner thus insisted that it had examined the
Estancia, Iloilo, which resulted to (sic) the damages
tank truck and found it to be in good condition. It added that, since
suffered by all the plaintiffs;
the fire did not originate from the tank truck, the proximate cause of
the fire was not attributable to any defect in the truck.
2. Ordering all the aforenamed defendants to pay solidarily
all the plaintiffs as follows:
Finally, petitioner alleged that respondents failed to prove that the
damages they suffered were the direct result of any culpable act or
1. In Civil Case No. 19633, plaintiffs-spouses Cesar J. Jovero
omission on its part.
and Erma Cudilla-Jovero the amount of P1,500,00.00 as
actual damages; P2,000.00 as litigation
Meanwhile, defendant Villaruz allegedly proved during trial that he
expenses; P4,000.00 as attorney’s fees, and to pay the
had exercised diligence in the selection and supervision of his
costs;
employees and, thus, he was not responsible for the damages
caused by the fire. In addition, he alleged that Igdanis, whom
2. In Civil Case No. 19684, to pay plaintiffs-spouses Leonito
respondents failed to implead as a defendant in the lower court, did
Tan and Luzvilla Samson the sum of P800,000.00 as actual
not have a chance to defend himself. Since there was no showing
damages, P2,000.00 as litigation expenses; P4,000.00 as
that any act or omission of Igdanis was the proximate cause of the
attorney’s fees and to pay the costs;
fire, Villaruz insisted that the latter himself could not be held liable
3. In Civil Case No. 20122, to pay the plaintiffs-spouses for the acts of his employee, who was not even impleaded or proven
Rogelio C. Limpoco and Lucia Josue Limpoco the amount to be negligent.
of P4,112,000.00 as actual damages; P2,000.00 as
Dortina Uy, in her appeal, alleged that she had no direct
litigation expenses; P5,000.00 as attorney’s fees, and to
participation in the management or administration of the gasoline
pay the costs.
station. She also alleged that she was not the employer of Igdanis,

the driver of the tank truck who had caused the fire to spread in the
vicinity.
Since defendant Rubin Uy failed to file his Appellant’s Brief within
the reglementary period, the CA dismissed his appeal.7
Respondents, meanwhile, maintained that petitioner Petron was
negligent in selling and storing its products in a gasoline station
without an existing dealer’s contract from May 1989 up to the time
of the incident on 3 January 1991. They contended that petitioner,
in effect, was itself operating the gasoline station, with the dealer as
mere agent of the former. Respondents also insisted that petitioner
had the obligation to ensure that the gasoline station was safe and
properly maintained, considering the products stored and sold
there. Likewise, they asserted that petitioner was responsible for the
safe delivery and proper storage of its goods in the gasoline station,
and that this responsibility would cease only when the goods had
been sold to the end consumer.
Additionally, respondents contended that petitioner Petron was also
negligent when the latter allowed the use of an unaccredited truck
in violation of its hauling contract with Villaruz.
On 12 December 2001, the CA promulgated its Decision affirming
that of the trial court, to wit:
WHEREFORE, premises considered, the instant appeals
areDISMISSED and the assailed consolidated Decision of the court a
quo dated 27 April 1998 in Civil Case Nos. 19633, 19684 and 20122
is AFFIRMED in all respects. Costs against appellants.
SO ORDERED.8
The appellate court upheld the findings of the RTC that petitioner
Petron was negligent for having allowed the operation of the
gasoline station absent a valid dealership contract. Thus, the CA
considered the gasoline station as one run by petitioner itself, and
the persons managing the gasoline station as petitioner’s mere
agents. Even if a valid dealership contract existed, petitioner was still
liable for damages, because there was as yet no complete delivery of
its products. The fire had broken out while petroleum was being
unloaded from the tank truck to the storage tank.
The CA further held that petitioner was also negligent in allowing
Villaruz to use an unaccredited tank truck for the transport and
delivery of the petroleum at the time of the incident.
With regard to the liability of Villaruz, the appellate court found him
to be negligent in the conduct of his business. Thus, he was made
liable for the damages caused by his employee in accordance with
Article 2180 in relation to Article 2176 of the Civil Code.
Finally, with regard to Dortina Uy, the CA held that, as one of the
operators of the gasoline station, she failed to submit evidence that
she had exercised due diligence in the operation thereof.
Dissatisfied with the CA’s ruling, petitioner is now before us with the
present Petition for Review.
Petitioner presents the following issues for the resolution of this
Court:
LAW ON BUSINESS ORGANIZATIONS Cases 2 133
1. Whether or not Petron may be considered at fault for
continuing to do business with Rubin Uy, an independent
petroleum dealer, without renewing or extending their
expired dealership agreement;
2. Whether or not a causal connection exists between
Petron’s failure to renew or extend its dealership contract
with Rubin Uy and the fire that inflicted damages on the
buildings surrounding the latter’s gas station;
3. Whether or not Petron is liable for the fire that occurred
during the unloading by an independent hauler of the fuel
it sold to an equally independent dealer at the latter’s gas
station; and
4. Whether or not a supplier of fuel can be held liable for the
neglect of others in distributing and storing such fuel. 9
In the present case, petitioner does not implead its co-defendants
Villaruz, Rubin Uy and Dortina Uy. Neither does it assail the dismissal
by the lower courts of the cross-claim or counterclaim it filed against
its co-defendants and herein respondents, respectively. Nor is there
any question on respondents’ right to claim damages. Petitioner
merely prays for absolution from liability resulting from the fire by
claiming that it had no direct participation in the incident.
In support of the issues raised above, petitioner contends that, first,
there was an implied renewal of the dealership contract – Rubin Uy
remained as the operator of the gasoline station. It further contends
that there is no law supporting the conclusion of the CA that, upon
expiration of the contract, the dealer automatically became the
supplier’s agent.
Second, petitioner asserts that there was no rational link between
its alleged neglect in renewing the dealership agreement and the act
that caused the fire.
Third, petitioner insists that ownership of the petroleum products
was transferred when the dealer’s representative, Ronnie Allanaraiz,
went to petitioner’s oil depot, bought and paid for the gasoline, and
had Villaruz’s tank truck receive the products for delivery.
Moreover, petitioner points out, neither Igdanis nor Villaruz was its
employee and, thus, it cannot be held vicariously liable for the
damages to respondents caused by Igdanis. Furthermore, it asserted
that the tank truck transporting the petroleum – though not
included in the enumeration in the hauling contract – had complied
with the standards required of Villaruz.
Petitioner also alleges that there was no evidence that the fire was
attributable to its distribution and storage safety measures.
Finally, petitioner states that both hauler and dealer must bear the
costs of their acts and those of their employees, considering that
this was an explicit provision in their respective contracts with it.
The Petition has some merit.
We first discuss the liability of petitioner in relation to the dealership
contract.
Petitioner, as an importer and a distributer of gasoline and other
petroleum product, executed with a dealer of these products an

exclusive dealership agreement for mutual benefit and gain. On one
hand, petitioner benefits from the sale of its products, as well as the
advertisement it gains when it broadens its geographical coverage in
contracting with independent dealers in different areas. The
products sold and the services rendered by the dealer also
contribute to its goodwill. Thus, despite the transfer of ownership
upon the sale and delivery of its products, petitioner still imposes
the obligation on the dealer to exclusively carry its products.
The dealer also benefits from the dealership agreement, not only
from the resale of the products of petitioner, but also from the
latter’s goodwill.
However, with the use of its trade name and trademark, petitioner
and the dealer inform and guarantee to the public that the products
and services are of a particular standard or quality. More
importantly, the public, which is not privy to the dealership contract,
assumes that the gasoline station is owned or operated by
petitioner. Thus, respondents, who suffered damages from the act
or omission that occurred in the gasoline station and that caused the
fire, may file an action against petitioner based on the
representations it made to the public. As far as the public is
concerned, it is enough that the establishment carries exclusively
the name and products of petitioner to assume that the latter is
liable for acts done within the premises.
Second, respondents have a claim against petitioner based on the
dealership agreement.
The RTC and the CA ruled that, by virtue of the expiration of the
dealership contract, the dealer was relegated to being petitioner’s
agent. On this point, we agree with petitioner that the expiration or
nonexistence of a dealership contract did not ipso facto transform
the relationship of the dealer and petitioner into one of agency. As
far as the parties to the dealership contract were concerned, the
rights and obligations as to them still subsisted, since they continued
to mutually benefit from the agreement. Thus, neither party can
claim that it is no longer bound by the terms of the contract and the
expiration thereof.
We then judiciously reviewed the terms of the contract and found
that petitioner is liable to respondents for the damages caused by
the fire.
As petitioner itself points out, it owns the equipment relevant to the
handling and storage of gasoline, including the gasoline pumps and
the underground tank.10 It is also responsible for the delivery of the
petroleum to the dealer. The incident occurred at the time the
petroleum was being unloaded to the underground tank petitioner
owned. Aside from failing to show the actual cause of the fire, it also
failed to rebut the presumption that it was negligent in the
maintenance of its properties and in the conduct of its business.
Petitioner contends that under paragraph 8 of the dealership
contract, the dealer’s liability is as follows:
LOSSES AND CLAIMS. BUYER shall make good, settle and pay, and
hold SELLER harmless against all losses and claims (including those
of the parties, their agents and employees) for death, personal
injury or property arising out of (1) any use or condition of BUYER’s
premises or the equipment and facilities thereon, regardless of any
LAW ON BUSINESS ORGANIZATIONS Cases 2 134
defects therein (2) BUYER’s non-performance of this contract, or (3)
the storage and handling of products on the premises.
While both parties to the contract have the right to provide a clause
for non-liability, petitioner admits that they both share the
maintenance of its equipment. Petitioner states that its
responsibility extended to “the operating condition of the gasoline
station, e.g.whether the fuel pumps were functioning properly.”11
Moreover, it cannot be denied that petitioner likewise obligated
itself to deliver the products to the dealer. When the incident
occurred, petitioner, through Gale Freight Services, was still in the
process of fulfilling its obligation to the dealer. We disagree with its
contention that delivery was perfected upon payment of the goods
at its depot. There was yet no complete delivery of the goods as
evidenced by the aforementioned hauling contract petitioner
executed with Villaruz. That contract made it clear that delivery
would only be perfected upon the complete unloading of the
gasoline.
Thus, with regard to the delivery of the petroleum, Villaruz was
acting as the agent of petitioner Petron. For a fee, he delivered the
petroleum products on its behalf. Notably, petitioner even imposed
a penalty clause in instances when there was a violation of the
hauling contract, wherein it may impose a penalty ranging from a
written warning to the termination of the contract. Therefore, as far
as the dealer was concerned with regard to the terms of the
dealership contract, acts of Villaruz and his employees are also acts
of petitioner. Both the RTC and the CA held that Villaruz failed to
rebut the presumption that the employer was negligent in the
supervision of an employee who caused damages to another; and,
thus, petitioner should likewise be held accountable for the
negligence of Villaruz and Igdanis.
To reiterate, petitioner, the dealer Rubin Uy – acting through his
agent, Dortina Uy – shared the responsibility for the maintenance of
the equipment used in the gasoline station and for making sure that
the unloading and the storage of highly flammable products were
without incident. As both were equally negligent in those aspects,
petitioner cannot pursue a claim against the dealer for the incident.
Therefore, both are solidarily liable to respondents for damages
caused by the fire.
Petitioner was likewise negligent in allowing a tank truck different
from that specifically provided under its hauling contract with
Villaruz. The enumeration and specification of particular tank trucks
in the contract serve a purpose – to ensure the safe transportation,
storage and delivery of highly flammable products. Under the
hauling contract, these requirements are as follows:12
1. Duly registered under the hired truck (TH) classification
and subject to the rules and regulations of Land
Transportation Commission (LTC) and Board of
Transportation (BOT).
2. Properly sealed and calibrated in accordance with the
requirements of NSTA.
3. Equipped with safety and other auxiliary equipment as
specified by PETROPHIL (Petron) as per attached Annex
“8”.13
 LAW ON BUSINESS ORGANIZATIONS Cases 2 135

4. Provided with fire permits and other permits required by Petitioner maintains that by virtue of the hauling contract, Villaruz
the government authorities. must be held responsible for the acts of Igdanis, the driver of the
tank truck. In this aspect, petitioner is correct. While it may be
5. In good working condition and in good appearance at all vicariously liable to third persons for damages caused by Villaruz,
times, the latter is nevertheless liable to petitioner by virtue of the non-
liability clause in the hauling contract. Under this provision, he saved
6. Fully complying with the tank truck color scheme, standard
petitioner from any and all claims of third persons arising out of, but
truck number, bumper stripes, hauler’s name on cab door,
not necessarily limited to, his performance of the terms and
and such other similar requirements for good appearance
conditions of this agreement. Petitioner even obligated him to
as may be required by PETROPHIL.
maintain an acceptable Merchandise Floater Policy to provide
insurance coverage for the products entrusted to him; and a
Annex “B” attached to the contract, which refers to the tank truck
Comprehensive General Liability Insurance to cover any and all
safety and accessories equipment, likewise provides that the
claims for damages for personal injury, including death or damages
following are the specified safety equipment and other accessories
to property, which may arise from operations under the contract.15
for tank truck operations:14
Thus, Villaruz is also liable to petitioner based on the hauling
1. Fire extinguisher, Type B & C
contract. Under Rule 6, Sec. 8 of the Rules of Court, petitioner may
2. Manhole covers enforce the terms of the hauling contract against him. However,
considering that it did not implead Villaruz in the present case, nor
3. Manhole cover gasket did it assail the Decision of the CA in dismissing the cross-claim,
petitioner can no longer go after him based on that cross-claim.
4. Product level markers
Nonetheless, this is not the same as saying that Villaruz is no longer
5. Manhole cover pins solidarily liable to respondents.

6. NIST Calibration and scale As the employer of Igdanis, Villaruz was impleaded by herein
respondents in the lower court and was found to be solidarily liable
7. Discharge valves (quick closing)
with his other co-defendants. Absent an appeal before this Court
8. Front Fenders assailing the ruling of the lower court and the CA, Villaruz remains to
be solidarily liable with petitioner and co-defendants Rubin Uy and
9. Door glasses Dortina Uy. Thus, petitioner may only claim contribution from him in
accordance with Article 1217 of the Civil Code, and not by virtue of
10. ________ (illegible) glasses its hauling contract, in the event that respondents decide to proceed
against petitioner alone for the satisfaction of judgment. Art. 1217
11. Windshield states:

12. Wipers Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor
13. Horn
may choose which offer to accept.
14. Floor matting
He who made the payment may claim from his co-debtors only the
15. Ceiling share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
16. Seats interest for the intervening period may be demanded. (Emphasis
supplied)
17. (Illegible)
The share, meanwhile, of solidary debtors is contained in Art. 1208,
18. Air hose connector to wit:

With respect to the claims of third persons, it is not enough for
petitioner to allege that the tank truck met the same requirements
provided under the contract; it must duly prove its allegations. This,
petitioner failed to do. To reiterate, it was not able to prove the
proximate cause of the fire, only the involvement of the tank truck
and the underground storage tank. Notably, both pieces of
equipment were under its responsibility. Absent any positive
determination of the cause of the fire, a presumption exists that
there was something wrong with the truck or the underground
storage tank, or both. Petitioner, which had the obligation to ensure
that the truck was safe, is likewise liable for the operation of that
truck.
If from the law, or the nature of the wording of the obligations to
which the preceding article refers the contrary does not appear, the
credit of debt shall be presumed to be divided into as many equal
shares as there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (Emphasis supplied)
To put it simply, based on the ruling of the lower courts, there are
four (4) persons who are liable to pay damages to respondents. The
latter may proceed against any one of the solidary debtors or some
or all of them simultaneously, pursuant to Article 1216 of the Civil
Code. These solidary debtors are petitioner Petron, the hauler
Villaruz, the operator Dortina Uy and the dealer Rubin Uy. To
 LAW ON BUSINESS ORGANIZATIONS Cases 2 136

determine the liability of each defendant to one another, the
amount of damages shall be divided by four, representing the share
of each defendant. Supposedly, under the hauling contract,
petitioner may require Villaruz to indemnify it for its share.
However, because it was not able to maintain the cross-claim filed
against him, it shall be liable for its own share under Article 1208
and can no longer seek indemnification or subrogation from him
under its dismissed cross-claim. Petitioner may not pursue its cross-
claim against Rubin Uy and Dortina Uy, because the cross-claims
against them were also dismissed; moreover, they were all equally
liable for the conflagration as discussed herein.
Finally, the incident occurred in 1992. Almost 20 years have passed;
yet, respondents, who were innocent bystanders, have not been
compensated for the loss of their homes, properties and livelihood.
Notably, neither the RTC nor the CA imposed legal interest on the
actual damages that it awarded respondents. In Eastern Shipping
Lines v. Court of Appeals,16 enunciated in PCI Leasing & Finance Inc.
v. Trojan Metal Industries, Inc.,17 we laid down the rules for the
imposition of legal interest as follows:
In the interest of substantial justice, we deem it necessary to impose
legal interest on the awarded actual damages at the rate of 6% per
annum from the time the cases were filed with the lower court; and
12% from the time the judgment herein becomes final and
executory up to the satisfaction of such judgment.
WHEREFORE, in view of the foregoing, we AFFIRM the Decision of
the Court of Appeals in Civil Case No. 60845 insofar as herein
petitioner has been held solidarily liable to pay damages to
respondents. The CA Decision is, however, MODIFIED and the actual
damages awarded to respondents shall be subject to the rate of
legal interest of 6% per annum from the time of filing of Civil Case
Nos. 19633, 19684 and 20122 with the Regional Trial Court of Iloilo
City up to the time this judgment becomes final and executory.
Henceforth, the rate of legal interest shall be 12% until the
satisfaction of judgment.
Costs against petitioner.
SO ORDERED.

I. When an obligation, regardless of its source, i.e., law, contracts,

quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
“Damages” of the Civil Code govern in determining the measure of
[G.R. No. 115838. July 18, 2002]
recoverable damages.
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE
II. With regard particularly to an award of interest in the concept of
CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO
actual and compensatory damages, the rate of interest, as well as
ARTIGO, respondents.
the accrual thereof, is imposed, as follows:
DECISION
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest CARPIO, J.:
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the The Case
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, Before us is a Petition for Review on Certiorari[1] seeking to annul
i.e., from judicial or extrajudicial demand under and subject to the the Decision of the Court of Appeals[2] dated May 4, 1994 in CA-G.R.
provisions of Article 1169 of the Civil Code. CV No. 37996, which affirmed in toto the decision[3] of the Regional
Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-
2. When an obligation, not constituting a loan or forbearance of 2631. The trial court disposed as follows:
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per WHEREFORE, the Court finds defendants Constante and Corazon
annum. No interest, however, shall be adjudged on unliquidated Amor de Castro jointly and solidarily liable to plaintiff the sum of:
claims or damages except when or until the demand can be
a) P303,606.24 representing unpaid commission;
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
b) P25,000.00 for and by way of moral damages;
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot c) P45,000.00 for and by way of attorneys fees;
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the d) To pay the cost of this suit.
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for Quezon City, Metro Manila, December 20, 1991.
the computation of legal interest shall, in any case, be on the
The Antecedent Facts
amount finally adjudged.
On May 29, 1989, private respondent Francisco Artigo (Artigo for
3. When the judgment of the court awarding a sum of money
brevity) sued petitioners Constante A. De Castro (Constante for
becomes final and executory, the rate of legal interest, whether the
brevity) and Corazon A. De Castro (Corazon for brevity) to collect the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
unpaid balance of his brokers commission from the De
annum from such finality until its satisfaction, this interim period
Castros.[4] The Court of Appeals summarized the facts in this wise:
being deemed to be by then an equivalent to a forbearance of
credit.

x x x. Appellants[5] 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),
appellee[6] 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.
On the other hand, appellants completely traverse appellees 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 appellees, 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 lions 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.
LAW ON BUSINESS ORGANIZATIONS Cases 2 137
Second. The Court of Appeals ruled that Artigos 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 courts 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 ARTIGOS 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 ANDATTORNEYS
FEES;
VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY
DAMAGES, AND ATTORNEYS FEES.
The Courts 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 Artigos 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
courts 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 P23,000,000.00 with
5% commission as agents 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 Constantes 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
LAW ON BUSINESS ORGANIZATIONS Cases 2 138
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 Artigos 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 Constantes 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 brokers 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 brokers
commission is reasonable and within the standard practice in the
real estate industry for transactions of this nature.
The De Castros also contend that Artigos 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.Artigos 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, Artigos 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
LAW ON BUSINESS ORGANIZATIONS Cases 2 139
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 Artigos claim was filed within the ten-year
prescriptive period. The De Castros, however, still maintain that
Artigos 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
ones 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 courts 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 Appeals[24] bears reiteration:
At the outset, it is evident from the errors assigned that the petition
is anchored on a plea to review the factual conclusion reached by
the respondent court. Such task however is foreclosed by the rule
that in petitions for certiorari as a mode of appeal, like this one, only
questions of law distinctly set forth may be raised. These questions
have been defined as those that do not call for any examination of
the probative value of the evidence presented by the
parties. (Uniland Resources vs. Development Bank of the Philippines,
200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119
Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when
this court is asked to go over the proof presented by the parties, and
analyze, assess and weigh them to ascertain if the trial court and the
appellate court were correct in according superior credit to this or
that piece of evidence and eventually, to the totality of the evidence
of one party or the other, the court cannot and will not do the
same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in
the absence of any showing that the findings complained of are
totally devoid of support in the record, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, such findings
must stand, for this court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the
parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing
Santa Ana vs. Hernandez, 18 SCRA 973 [1966]).
We find no reason to depart from this principle. The trial and
appellate courts are in a much better position to evaluate properly
the evidence. Hence, we find no other recourse but to affirm their
finding on the actual purchase price.
Fourth Issue: whether award of moral damages and attorneys fees
is proper
The De Castros claim that Artigo failed to prove that he is entitled to
moral damages and attorneys fees. The De Castros, however, cite no
concrete reason except to say that they are the ones entitled to
LAW ON BUSINESS ORGANIZATIONS Cases 2 140
damages since the case was filed to harass and extort money from
them.
Law and jurisprudence support the award of moral damages and
attorneys fees in favor of Artigo. The award of damages and
attorneys 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, attorneys fees are
awarded in instances where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs plainly valid, just
and demandable claim.[27] There is no reason to disturb the trial
courts 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 P45,000.00 in attorneys 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 brokers commission
based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of
the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is
AFFIRMED in toto.
SO ORDERED.
G.R. No. 94566 July 3, 1992
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the
respondent appellate court which reversed the ruling of the trial
court dismissing the case against petitioner.
The antecedent facts are as follows:
On December 17, 1980, Renato Gaytano, doing business under the
name Gebbs International, applied for and was granted a loan with
respondent Traders Royal Bank in the amount of P60,000.00. As
security for the payment of said loan, the Gaytano spouses executed
a deed of suretyship whereby they agreed to pay jointly and
severally to respondent bank the amount of the loan including
interests, penalty and other bank charges.
In a letter dated December 5, 1980 addressed to respondent bank,
Philip Wong as credit administrator of BA Finance Corporation for
and in behalf of the latter, undertook to guarantee the loan of the
Gaytano spouses. The letter reads:
This is in reference to the application of Gebbs International for a
twenty-five (25) month term loan of 60,000.00 with your Bank.

In this connection, please be advised that we unconditionally
guarantee full payment in peso value the said accommodation (sic)
upon non-payment by subject up to a maximum amount of
P60,000.00.
Hoping this would meet your requirement and expedite the early
processing of their application.
Thank you.
Very truly yours,
BA FINANCE CORPORATION
(signed)
PHILIP H. WONG
Credit Administrator
(p. 12, Rollo)
Partial payments were made on the loan leaving an unpaid balance
in the amount of P85,807.25. Since the Gaytano spouses refused to
pay their obligation, respondent bank filed with the trial court
complaint for sum of money against the Gaytano spouses and
petitioner corporation as alternative defendant.
The Gaytano spouses did not present evidence for their defense.
Petitioner corporation, on the other hand, raised the defense of lack
of authority of its credit administrator to bind the corporation.
On December 12, 1988, the trial court rendered a decision the
dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of plaintiff and against defendants/Gaytano spouses, ordering the
latter to jointly and severally pay the plaintiff the following:
1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100
(P85,807.25), representing the total unpaid balance with
accumulated interests, penalties and bank charges as of September
22, 1987, plus interests, penalties and bank charges thereafter until
the whole obligation shall have been fully paid.
2) Attorney's fees at the stipulated rate of ten (10%) percent
computed from the total obligation; and
3) The costs of suit.
The dismissal of the case against defendant BA Finance Corporation
is hereby ordered without pronouncement as to cost.
SO ORDERED. (p. 31, Rollo)
Not satisfied with the decision, respondent bank appealed with the
Court of Appeals. On March 13, 1990, respondent appellate court
rendered judgment modifying the decision of the trial court as
follows:
In view of the foregoing, the judgment is hereby rendered ordering
the defendants Gaytano spouses and alternative defendant BA
Finance Corporation, jointly and severally, to pay the plaintiff the
amount of P85,807.25 as of September 8, 1987, including interests,
penalties and other back (sic) charges thereon, until the full
obligation shall have been fully paid. No pronouncement as to costs.
LAW ON BUSINESS ORGANIZATIONS Cases 2 141
SO ORDERED. (p. 27 Rollo)
Hence this petition was filed with the petitioner assigning the
following errors committed by respondent appellate court:
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH
GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER
GUARANTY (EXH. "C") IS "INVALID AT ITS INCEPTION";
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT
THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
RULING THAT SUCH LETTER GUARANTY (EXHIBIT "C") BEING
PATENTLY ULTRA VIRES, IS UNENFORCEABLE;
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
RELIEF ON PETITIONER'S COUNTERCLAIM
(p. 10, Rollo).
Since the issues are interrelated, it would be well to discuss them
jointly.
Petitioner contends that the letter guaranty is ultra vires, and
therefore unenforceable; that said letter-guaranty was issued by an
employee of petitioner corporation beyond the scope of his
authority since the petitioner itself is not even empowered by its
articles of incorporation and by-laws to issue guaranties. Petitioner
also submits that it is not guilty of estoppel to make it liable under
the letter-guaranty because petitioner had no knowledge or notice
of such letter-guaranty; that the allegation of Philip Wong, credit
administrator, that there was an audit was not supported by
evidence of any audit report or record of such transaction in the
office files.
We find the petitioner's contentions meritorious. It is a settled rule
that persons dealing with an assumed agent, whether the assumed
agency be a general or special one 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 (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on
respondent bank to satisfactorily prove that the credit administrator
with whom they transacted acted within the authority given to him
by his principal, petitioner corporation. The only evidence presented
by respondent bank was the testimony of Philip Wong, credit
administrator, who testified that he had authority to issue
guarantees as can be deduced from the wording of the
memorandum given to him by petitioner corporation on his lending
authority. The said memorandum which allegedly authorized Wong
not only to approve and grant loans but also to enter into contracts
of guaranty in behalf of the corporation, partly reads:
To: Philip H. Wong, SAM
Credit Administrator
From: Hospicio B. Bayona, Jr., VP and
Head of Credit Administration
Re: Lending Authority

I am pleased to delegate to you in your capacity as Credit
Administrator the following lending limits:
a) P650,000.00 — Secured Loans
b) P550,000.00 — Supported Loans
c) P350,000.00 — Truck Loans/Contracts/Leases
d) P350,000.00 — Auto Loan Contracts/Leases
e) P350,000.00 — Appliance Loan Contracts
f) P350,000.00 — Unsecured Loans
Total loans and/or credits [combination of (a) thru (f) extended to
any one borrower including parents, affiliates and/or subsidiaries,
should not exceed P750,000.00. In exercising the limits
aforementioned, both direct and contingent commitments to the
borrower(s) should be considered.
All loans must be within the Company's established lending
guideline and policies.
xxx xxx xxx
LEVELS OF APPROVAL
All transactions in excess of any branch's limit must be
recommended to you through the Official Credit Report for
approval. If the transaction exceeds your limit, you must concur in
application before submitting it to the Vice President, Credit
Administration for approval or concurrence.
. . . (pp. 62-63, Rollo) (Emphasis ours)
Although Wong was clearly authorized to approve loans even up to
P350,000.00 without any security requirement, which is far above
the amount subject of the guaranty in the amount of P60,000.00,
nothing in the said memorandum expressly vests on the credit
administrator power to issue guarantees. We cannot agree with
respondent's contention that the phrase "contingent commitment"
set forth in the memorandum means guarantees. It has been held
that a power of attorney or authority of an agent should not be
inferred from the use of vague or general words. Guaranty is not
presumed, it must be expressed and cannot be extended beyond its
specified limits (Director v. Sing Juco, 53 Phil. 205). In one case,
where it appears that a wife gave her husband power of attorney to
loan money, this Court ruled that such fact did not authorize him to
make her liable as a surety for the payment of the debt of a third
person (Bank of Philippine Islands v. Coster, 47 Phil. 594).
The sole allegation of the credit administrator in the absence of any
other proof that he is authorized to bind petitioner in a contract of
guaranty with third persons should not be given weight. The
representation of one who acts as agent cannot by itself serve as
proof of his authority to act as agent or of the extent of his authority
as agent (Velasco v. La Urbana, 58 Phil. 681). Wong's testimony that
he had entered into similar transactions of guaranty in the past for
and in behalf of the petitioner, lacks credence due to his failure to
show documents or records of the alleged past transactions. The
actuation of Wong in claiming and testifying that he has the
authority is understandable. He would naturally take steps to save
himself from personal liability for damages to respondent bank
considering that he had exceeded his authority. The rule is clear that
an agent who exceeds his authority is personally liable for damages
(National Power Corporation v. National Merchandising Corporation,
LAW ON BUSINESS ORGANIZATIONS Cases 2 142
Nos. L-33819 and
L-33897, October 23, 1982, 117 SCRA 789).
Anent the conclusion of respondent appellate court that petitioner
is estopped from alleging lack of authority due to its failure to cancel
or disallow the guaranty, We find that the said conclusion has no
basis in fact. Respondent bank had not shown any evidence aside
from the testimony of the credit administrator that the disputed
transaction of guaranty was in fact entered into the official records
or files of petitioner corporation, which will show notice or
knowledge on the latter's part and its consequent ratification of the
said transaction. In the absence of clear proof, it would be unfair to
hold petitioner corporation guilty of estoppel in allowing its credit
administrator to act as though the latter had power to guarantee.
ACCORDINGLY, the petition is GRANTED and the assailed decision of
the respondent appellate court dated March 13, 1990 is hereby
REVERSED and SET ASIDE and another one is rendered dismissing
the complaint for sum of money against BA Finance Corporation.
SO ORDERED.
G.R. No. 114091 June 29, 1995
BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,
vs.
HON. COURT OF APPEALS and SAN MIGUEL
CORPORATION, respondents.
DAVIDE, JR., J.:
Petitioners seek the reversal of the decision of 30 September 1993
of the Court of Appeals in CA-G.R. CV No. 35180,1 entitled "San
Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and
Rene R. Savellon," which affirmed the decision of 19 August 1991 of
the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No.
CEB-81872 holding petitioners Bacaltos Coal Mines and German A.
Bacaltos and their co-defendant Rene R. Savellon jointly and
severally liable to private respondent San Miguel Corporation under
a Trip Charter Party.
The paramount issue raised is whether Savellon was duly authorized
by the petitioners to enter into the Trip Charter Party (Exhibit
"A") 3 under and by virtue of an Authorization (Exhibit "C" and
Exhibit "1"),4 dated 1 March 1988, the pertinent portions of which
read as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and
residing at second street, Espina Village, Cebu City, province of
Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal
age, Filipino and residing at 376-R Osmeña Blvd., Cebu City, Province
of Cebu, Philippines, to use the coal operating contract of BACALTOS
COAL MINES of which I am the proprietor, for any legitimate
purpose that it may serve. Namely, but not by way of limitation, as
follows:
(1) To acquire purchase orders for and in behalf of BACALTOS COAL
MINES;

(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or
companies having dealings under BACALTOS COAL MINES/RENE
SAVELLON;
(4) To extend to any person or company by substitution the same
extent of authority that is granted to Rene Savellon;
(5) In connection with the preceeding paragraphs to execute and
sign documents, contracts, and other pertinent papers.
Further, I hereby give and grant to RENE SAVELLON full authority to
do and perform all and every lawful act requisite or necessary to
carry into effect the foregoing stipulations as fully to all intents and
purposes as I might or would lawfully do if personally present, with
full power of substitution and revocation.
The Trip Charter Party was executed on 19 October 1988 "by and
between BACALTOS COAL MINES, represented by its Chief Operating
Officer, RENE ROSEL SAVELLON" and private respondent San Miguel
Corporation (hereinafter SMC), represented by Francisco B. Manzon,
Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder,
Savellon claims that Bacaltos Coal Mines is the owner of the vessel
M/V Premship II and that for P650,000.00 to be paid within seven
days after the execution of the contract, it "lets, demises" the vessel
to charterer SMC "for three round trips to Davao."
As payment of the aforesaid consideration, SMC issued a check
(Exhibit "B")5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS
COAL MINES" for which Savellon issued a receipt under the heading
of BACALTOS COAL MINES with the address at No 376-R Osmeña
Blvd., Cebu City (Exhibit "B-1"). 6
The vessel was able to make only one trip. Its demands to comply
with the contract having been unheeded, SMC filed against the
petitioners and Rene Savellon the complaint in Civil Case No. CEB-
8187 for specific performance and damages. In their Answer,7 the
petitioners alleged that Savellon was not their Chief Operating
Officer and that the powers granted to him are only those clearly
expressed in the Authorization which do not include the power to
enter into any contract with SMC. They further claimed that if it is
true that SMC entered into a contract with them, it should have
issued the check in their favor. They setup counterclaims for moral
and exemplary damages and attorney's fees.
Savellon did not file his Answer and was declared in default on 17
July 1990. 8
At the pre-trial conference on 1 February 1991, the petitioners and
SMC agreed to submit the following issues for resolution:
Plaintiff —
1. Whether or not defendants are jointly liable to plaintiff for
damages on account of breach of contract;
2. Whether or not the defendants acted in good faith in its
representations to the plaintiff;
3. Whether or not defendant Bacaltos was duly enriched on the
payment made by the plaintiff for the use of the vessel;
LAW ON BUSINESS ORGANIZATIONS Cases 2 143
4. Whether or not defendant Bacaltos is estopped to deny the
authorization given to defendant Savellon;
Defendants —
1. Whether or not the plaintiff should have first investigated the
ownership of vessel M/V PREM [SHIP] II before entering into any
contract with defendant Savellon;
2. Whether or not defendant Savellon was authorized to enter into a
shipping contract with the [plaintiff] corporation;
3. Whether or not the plaintiff was correct and not mistaken in
issuing the checks in payment of the contract in the name of
defendant Savellon and not in the name of defendant Bacaltos Coal
Mines;
4. Whether or not the plaintiff is liable on defendants'
counterclaim.9
After trial, the lower court rendered the assailed decision in favor of
SMC and against the petitioners and Savellon as follows:
WHEREFORE, by preponderance of evidence, the Court hereby
renders judgment in favor of plaintiff and against defendants,
ordering defendants Rene Savellon, Bacaltos Coal Mines and
German A. Bacaltos, jointly and severally, to pay to plaintiff:
1. The amount of P433,000.00 by way of reimbursement of the
consideration paid by plaintiff, plus 12% interest to start from date
of written demand, which is June 14, 1989;
2. The amount of P20,000.00 by way of exemplary damages;
3. The amount of P20,000.00 as attorney's fees and P5,000.00 as
Litigation expenses. Plus costs. 10
It ruled that the Authorization given by German Bacaltos to Savellon
necessarily included the power to enter into the Trip Charter Party.
It did not give credence to the petitioners' claim that the
authorization refers only to coal or coal mining and not to shipping
because, according to it, "the business of coal mining may also
involve the shipping of products" and "a company such as a coal
mining company is not prohibited to engage in entering into a Trip
Charter Party contract." It further reasoned out that even assuming
that the petitioners did not intend to authorize Savellon to enter
into the Trip Charter Party, they are still liable because: (a) SMC
appears to be an innocent party which has no knowledge of the real
intent of the parties to the Authorization and has reason to rely on
the written Authorization submitted by Savellon pursuant to Articles
1900 and 1902 of the Civil Code; (b) Savellon issued an official
receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration
of the Trip Charter Party, and the petitioners denial that they caused
the printing of such official receipt is "lame" because they submitted
only a cash voucher and not their official receipt; (c) the "Notice of
Readiness" (Exhibit "A-1") is written on a paper with the letterhead
"Bacaltos Coal Mines" and the logo therein is the same as that
appearing in their voucher; (d) the petitioners were benefited by the
payment because the real payee in the check is actually Bacaltos
Coal Mines and since in the Authorization they authorized Savellon
to collect receivables due or in arrears, the check was then properly
delivered to Savellon; and, (e) if indeed Savellon had not been
authorized or if indeed he exceeded his authority or if the Trip

Charter Party was personal to him and the petitioners have nothing
to do with it, then Savellon should have "bother[ed] to answer" the
complaint and the petitioners should have filed "a cross-claim"
against him.
In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the
petitioners asserted that the trial court erred in: (a) not holding that
SMC was negligent in (1) not verifying the credentials of Savellon
and the ownership of the vessel, (2) issuing the check in the name of
Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon
to encash the check, and, (3) making full payment of P650,000.00
after the vessel made only one trip and before it completed three
trips as required in the Trip Charter Party; (b) holding that under the
authority given to him Savellon was authorized to enter into the Trip
Charter Party; and, (c) holding German Bacaltos jointly and severally
liable with Savellon and Bacaltos Coal Mines. 11
As stated at the beginning, the Court of Appeals affirmed in toto the
judgment of the trial court. It held that: (a) the credentials of
Savellon is not an issue since the petitioners impliedly admitted the
agency while the ownership of the vessel was warranted on the face
of the Trip Charter Party; (b) SMC was not negligent when it issued
the check in the name of Savellon in trust for Bacaltos Coal Mines
since the Authorization clearly provides that collectibles of the
petitioners can be coursed through Savellon as the agent; (c) the
Authorization includes the power to enter into the Trip Charter Party
because the "five prerogatives" enumerated in the former is
prefaced by the phrase "but not by way of limitation"; (d) the
petitioners' statement that the check should have been issued in the
name of Bacaltos Coal Mines is another implicit admission that the
Trip Charter Party is part and parcel of the petitioners' business
notwithstanding German Bacaltos's contrary interpretation when he
testified, and in any event, the construction of obscure words should
not favor him since he prepared the Authorization in favor of
Savellon; and, (e) German Bacaltos admitted in the Answer that he is
the proprietor of Bacaltos Coal Mines and he likewise represented
himself to be so in the Authorization itself, hence he should not now
be permitted to disavow what he initially stated to be true and to
interpose the defense that Bacaltos Coal Mines has a distinct legal
personality.
Their motion for a reconsideration of the above decision having
been denied, the petitioners filed the instant petition wherein they
raise the following errors:
I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE
SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER
PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS
FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR
CORNERS OF THE AUTHORIZATION;
II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY
ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR
BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE
AUTHOR OF ITS OWN DAMAGE; AND
III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER
GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE
SAVELLON AND CO-PETITIONER BACALTOS COAL MINES IN SPITE OF
THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS
COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT AND
SEPARATE LEGAL PERSONALITIES. 12
LAW ON BUSINESS ORGANIZATIONS Cases 2 144
After due deliberations on the allegations, issues raised, and
arguments adduced in the petition, and the comment thereto and
reply to the comment, the Court resolved to give due course to the
petition.
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not
make such inquiry, he is chargeable with knowledge of the agent's
authority, and his ignorance of that authority will not be any excuse.
Persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they
would hold the principal, to ascertain not only the fact of the agency
but also the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish
it. 13 American jurisprudence 14 summarizes the rule in dealing with
an agent as follows:
A third person dealing with a known agent may not act negligently
with regard to the extent of the agent's authority or blindly trust the
agent's statements in such respect. Rather, he must use reasonable
diligence and prudence to ascertain whether the agent is acting and
dealing with him within the scope of his powers. The mere opinion
of an agent as to the extent of his powers, or his mere assumption of
authority without foundation, will not bind the principal; and a third
person dealing with a known agent must bear the burden of
determining for himself, by the exercise of reasonable diligence and
prudence, the existence or nonexistence of the agent's authority to
act in the premises. In other words, whether the agency is general or
special, the third person is bound to ascertain not only the fact of
agency, but the nature and extent of the authority. 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.
Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting
Mechem on Agency:
The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has
good reason to believe that the agent is exceeding his authority, he
cannot claim protection. So if the suggestions of probable limitations
be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an
unusual or improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party dealing with him
may not shut his eyes to the real estate of the case, but should
either refuse to deal with the agent at all, or should ascertain from
the principal the true condition of affairs. [emphasis supplied].
In the instant case, since the agency of Savellon is based on a written
document, the Authorization of 1 March 1988 (Exhibits "C" and "1"),
the extent and scope of his powers must be determined on the basis
thereof. The language of the Authorization is clear. It pertinently
states as follows:
I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . .
. to use the coal operating contract of BACALTOS COAL MINES, of
which I am the proprietor, for any legitimate purpose that it may
serve. Namely, but not by way of limitation, as follows . . . [emphasis
supplied].

There is only one express power granted to Savellon, viz., to use the
coal operating contract for anylegitimate purpose it may serve. The
enumerated "five prerogatives" — to employ the term used by the
Court of Appeals — are nothing but the specific prerogatives
subsumed under or classified as part of or as examples of the power
to use the coal operating contract. The clause "but not by way of
limitation" which precedes the enumeration could only refer to or
contemplate other prerogatives which must exclusively pertain or
relate or be germane to the power to use the coal operating
contract. The conclusion then of the Court of Appeals that the
Authorization includes the power to enter into the Trip Chapter
Party because the "five prerogatives" are prefaced by such clause, is
seriously flawed. It fails to note that the broadest scope of Savellon's
authority is limited to the use of the coal operating contract and the
clause cannot contemplate any other power not included in the
enumeration or which are unrelated either to the power to use the
coal operating contract or to those already enumerated. In short,
while the clause allows some room for flexibility, it can comprehend
only additional prerogatives falling within the primary power and
within the same class as those enumerated. The trial court,
however, went further by hastily making a sweeping conclusion that
"a company such as a coal mining company is not prohibited to
engage in entering into a Trip Charter Party contract." 16 But what
the trial court failed to consider was that there is no evidence at all
that Bacaltos Coal Mines as a coal mining company owns and
operates vessels, and even if it owned any such vessels, that it was
allowed to charter or lease them. The trial court also failed to note
that the Authorization is not a general power of attorney. It is
a special power of attorney for it refers to a clear mandate
specifically authorizing the performance of a specific power and of
express acts subsumed therein. 17 In short, both courts below
unreasonably expanded the express terms of or otherwise gave
unrestricted meaning to a clause which was precisely intended to
prevent unwarranted and unlimited expansion of the powers
entrusted to Savellon. The suggestion of the Court of Appeals that
there is obscurity in the Authorization which must be construed
against German Bacaltos because he prepared the Authorization has
no leg to stand on inasmuch as there is no obscurity or ambiguity in
the instrument. If any obscurity or ambiguity indeed existed, then
there will be more reason to place SMC on guard and for it to
exercise due diligence in seeking clarification or enlightenment
thereon, for that was part of its duty to discover upon its peril the
nature and extent of Savellon's written agency. Unfortunately, it did
not.
Howsoever viewed, the foregoing conclusions of the Court of
Appeals and the trial court are tenuous and farfetched, bringing to
unreasonable limits the clear parameters of the powers granted in
the Authorization.
Furthermore, had SMC exercised due diligence and prudence, it
should have known in no time that there is absolutely nothing on
the face of the Authorization that confers upon Savellon the
authority to enter into any Trip Charter Party. Its conclusion to the
contrary is based solely on the second prerogative under the
Authorization, to wit:
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
unmindful that such is but a part of the primary authority to use the
coal operating contract which it did not even require Savellon to
LAW ON BUSINESS ORGANIZATIONS Cases 2 145
produce. Its principal witness, Mr. Valdescona, expressly so
admitted on cross-examination, thus:
Atty. Zosa (to witness — ON CROSS)
Q You said that in your office Mr. Rene Savellon presented to you
this authorization marked Exhibit "C" and Exhibit "1" for the
defendant?
A Yes, sir.
Q Did you read in the first part[y] of this authorization Mr.
Valdescona that Mr. Rene Savellon was authorized as the coal
operating contract of Bacaltos Coal Mines?
A Yes, sir.
Q Did it not occur to you that you should have examined further the
authorization of Mr. Rene Savellon, whether or not this coal
operating contract allows Mr. Savellon to enter into a trip charter
party?
A Yes, sir. We discussed about the extent of his authorization and he
referred us to the number 2 provision of this authorization which is
to engage in trading under the style of Bacaltos Coal Mines/Rene
Savellon, which we followed up to the check preparation because it
is part of the authority.
Q In other words, you examined this and you found out that Mr.
Savellon is authorized to use the coal operating contract of Bacaltos
Coal Mines?
A Yes, sir.
Q You doubted his authority but you found out in paragraph 2 that
he is authorized that's why you agreed and entered into that trip
charter party?
A We did not doubt his authority but we were questioning as to the
extent of his operating contract.
Q Did you not require Mr. Savellon to produce that coal operating
contract of Bacaltos Coal Mines?
A No sir. We did not. 18
Since the principal subject of the Authorization is the coal operating
contract, SMC should have required its presentation to determine
what it is and how it may be used by Savellon. Such a determination
is indispensable to an inquiry into the extent or scope of his
authority. For this reason, we now deem it necessary to examine the
nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972 (The Coal
Development Act of 1976), as amended by P.D. No. 1174. It is one of
the authorized ways of active exploration, development, and
production of coal resources 19 in a specified contract
area. 20 Section 9 of the decree prescribes the obligation of the
contractor, thus:
Sec. 9. Obligations of Operator in Coal Operating Contract. — The
operator under a coal operating contract shall undertake, manage
and execute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain
coal, by detailed surface geologic mapping, core drilling, trenching,
test pitting and other appropriate means, for the purpose of probing
the presence of coal deposits and the extent thereof;
(b) Steps necessary to reach the coal deposit so that it can be mined,
including but not limited to shaft sinking and tunneling; and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of the operation
contemplated in a coal operating contract and in this connection,
shall require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program prescribed in the coal
operating contract which shall not be less than those prescribed in
this Decree;
(d) Operate the area on behalf of the Government in accordance
with good coal mining practices using modern methods appropriate
for the geological conditions of the area to enable maximum
economic production of coal, avoiding hazards to life, health and
property, avoiding pollution of air, lands and waters, and pursuant
to an efficient and economic program of operation;
(e) Furnish the Energy Development Board promptly with all
information, data and reports which it may require;.
(f) Maintain detailed technical records and account of its
expenditures;
(g) Conform to regulations regarding, among others, safety
demarcation of agreement acreage and work areas, non-
interference
with the rights of the other petroleum, mineral and natural
resources operators; —
(h) Maintain all necessary equipment in good order and allow access
to these as well as to the exploration, development and production
sites and operations to inspectors authorized by the Energy
Development Board;
(i) Allow representatives authorized by the Energy Development
Board full access to their accounts, books and records for tax and
other fiscal purposes.
Section 11 thereof provides for the minimum terms and conditions
of a coal operating contract.
From the foregoing, it is obvious that a scrutiny of the coal operating
contract of Bacaltos Coal Mines would have provided SMC
knowledge of the activities which are germane, related, or incident
to the power to use it. But it did not even require Savellon to
produce the same.
SMC's negligence was further compounded by its failure to verify if
Bacaltos Coal Mines owned a vessel. A party desiring to charter a
vessel must satisfy itself that the other party is the owner of the
vessel or is at least entitled to its possession with power to lease or
charter the vessel. In the instant case, SMC made no such attempt. It
LAW ON BUSINESS ORGANIZATIONS Cases 2 146
merely satisfied itself with the claim of Savellon that the vessel it
was leasing is owned by Bacaltos Coal Mines and relied on the
presentation of the Authorization as well as its test on the sea
worthiness of the vessel. Valdescona thus declared on direct
examination as follows:
A In October, a certain Rene Savellon called our office offering us
shipping services. So I told him to give us a formal proposal and also
for him to come to our office so that we can go over his proposal
and formally discuss his offer.
Q Did Mr. Rene Savellon go to your office?
A Few days later he came to our office and gave us his proposal
verbally offering a vessel for us to use for our cargo.
Q Did he mention the owner of that vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the authorization.
Q When Mr. Rene Savellon presented to you the authorization what
did you do?.
A On the strength of that authorization we initially asked him for us
to check the vessel to see its sea worthiness, and we assigned our in-
house surveyor to check the sea worthiness of the vessel which was
on dry dock that time in Danao.
Q What was the result of your inspection?
A We found out the vessel's sea worthiness to be our cargo carrier.
Q After that what did you do?
A After that we were discussing the condition of the contract.
Q Were you able to execute that contract?
A Yes, sir .21
He further declared as follows:
Q When you entered into a trip charter contract did you check the
ownership of M/V Premship?
A The representation made by Mr. Rene Savellon was that Bacaltos
Coal Mines operates the vessel and on the strength of the
authorization he showed us we were made to believe that it was
Bacaltos Coal Mines that owned it.
COURT: (to witness)
Q In other words, you just believed Rene Savellon?
A Yes, sir.
COURT: (to witness)
Q You did not check with Bacaltos Coal Mines?
A That is the representation he made.
 LAW ON BUSINESS ORGANIZATIONS Cases 2 147

Q Did he show you document regarding this M/V Premship II?
A No document shown.22
The Authorization itself does not state that Bacaltos Coal Mines
owns any vessel, and since it is clear therefrom that it is not engaged
in shipping but in coal mining or in coal business, SMC should have
required the presentation of pertinent documentary proof of
ownership of the vessel to be chartered. Its in-house surveyor who
saw the vessel while drydocked in Danao and thereafter conducted
a sea worthiness test could not have failed to ascertain the
registered owner of the vessel. The petitioners themselves declared
in open court that they have not leased any vessel for they do not
need it in their coal operations23 thereby implying that they do not
even own one.
The Court of Appeals' asseveration that there was no need to verify
the ownership of the vessel because such ownership is warranted on
the face of the trip charter party begs the question since Savellon's
authority to enter into that contract is the very heart of the
controversy.
and limits of the authority of Savellon. In not doing so, SMC dealt
with Savellon at its own peril.
Having thus found that SMC was the author of its own damage and
that the petitioners are, therefore, free from any liability, it has
become unnecessary to discuss the issue of whether Bacaltos Coal
Mines is a corporation with a personality distinct and separate from
German Bacaltos.
WHEREFORE, the instant petition is GRANTED and the challenged
decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV
No. 35180 is hereby REVERSED and SET ASIDE and another judgment
is hereby rendered MODIFYING the judgment of the Regional Trial
Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside
the declaration of solidary liability, holding defendant RENE R.
SAVELLON solely liable for the amounts adjudged, and ordering the
dismissal of the case as against herein petitioners.
SO ORDERED.

We are not prepared to accept SMC's contention that the

petitioners' claim that they are not engaged in shipping and do not
own any ship is belied by the fact that they maintained a pre-printed
business form known as a "Notice of Readiness" (Exhibit "A-
1"). 24 This paper is only a photocopy and, despite its reservation to
present the original for purposes of comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of
Readiness" is not, therefore, the best evidence, hence inadmissible
under Section 3, Rule 130 of the Rules of Court. It is true that when
SMC made a formal offer of its exhibits, the petitioners did not
object to the admission of Exhibit "A-1," the "Notice of Readiness,"
under the best evidence rule but on the ground that Savellon was
not authorized to enter into the Trip Charter Party and that the
party who signed it, one Elmer Baliquig, is not the petitioners'
employee but of Premier Shipping Lines, the owner of the vessel in
question. 26 The petitioners raised the issue of inadmissibility under
the best evidence rule only belatedly in this petition. But although
Exhibit "A-1" remains admissible for not having been timely objected
to, it has no probative value as to the ownership of the vessel.

There is likewise no proof that the petitioners received the

consideration of the Trip Charter Party. The petitioners denied
having received it. 27 The evidence for SMC established beyond
doubt that it was Savellon who requested in writing on 19 October
1988 that the check in payment therefor be drawn in favor of
BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that
SMC drew the check in favor of RENE SAVELLON IN TRUST FOR
BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who
there upon issued a receipt (Exhibit "B-1"). We agree with the
petitioners that SMC committed negligence in drawing the check in
the manner aforestated. It even disregarded the request of Savellon
that it be drawn in favor of BACALTOS COAL MINES/RENE
SAVELLON. Furthermore, assuming that the transaction was
permitted in the Authorization, the check should still have been
drawn in favor of the principal. SMC then made possible the wrong
done. There is an equitable maxim that between two innocent
parties, the one who made it possible for the wrong to be done
should be the one to bear the resulting loss. 28 For this rule to apply,
the condition precedent is that both parties must be innocent. In the
present case, however, SMC is guilty of not ascertaining the extent