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G.R. No. 125138 March 2, 1999 Aggrieved, petitioner Cervantes filed a

Complaint for Damages, for breach of contract
NICHOLAS Y. CERVANTES, petitioner, of carriage docketed as Civil Case No. 3807
vs. before Branch 32 of the Regional Trial Court of
COURT OF APPEALS AND THE PHILIPPINE Surigao del Norte in Surigao City. But the said
AIR LINES, INC., respondent. complaint was dismissed for lack of merit. 3

PURISMA, J.: On September 20, 1993, petitioner interposed

an appeal to the Court of Appeals, which came
This Petition for Review on certiorari assails out with a Decision, on July 25, 1995,
the 25 July 1995 decision of the Court of upholding the dismissal of the case.
Appeals 1 in CA GR CV No. 41407, entitled
"Nicholas Y. Cervantes vs. Philippine Air Lines On May 22, 1996, petitioner came to this Court
Inc.", affirming in toto the judgment of the trial via the Petition for Review under consideration.
court dismissing petitioner's complaint for
damages. The issues raised for resolution are: (1)
Whether or not the act of the PAL agents in
On March 27, 1989, the private respondent, confirming subject ticket extended the period of
Philippines Air Lines, Inc. (PAL), issued to the validity of petitioner's ticket; (2) Whether or not
herein petitioner, Nicholas the defense of lack of authority was correctly
Cervantes (Cervantes), a round trip plane ruled upon; and (3) Whether or not the denial
ticket for Manila-Honolulu-Los Angeles- of the award for damages was proper.
Honolulu-Manila, which ticket expressly
provided an expiry of date of one year from To rule on the first issue, there is a need to
issuance, i.e., until March 27, 1990. The quote the findings below. As a rule, conclusions
issuance of the said plane ticket was in and findings of fact arrived at by the trial court
compliance with a Compromise Agreement are entitled to great weight on appeal and
entered into between the contending parties in should not be disturbed unless for strong and
two previous suits, docketed as Civil Case cogent reasons. 4
Nos. 3392 and 3451 before the Regional Trial
Court in Surigao City. 2 The facts of the case as found by the lower
court 5 are, as follows:
On March 23, 1990, four days before the expiry
date of subject ticket, the petitioner used it. The plane ticket itself (Exhibit A for
Upon his arrival in Los Angeles on the same plaintiff; Exhibit 1 for defendant) provides
day, he immediately booked his Los Angeles- that it is not valid after March 27, 1990.
Manila return ticket with the PAL office, and it (Exhibit 1-F). It is also stipulated in
was confirmed for the April 2, 1990 flight. paragraph 8 of the Conditions of Contract
(Exhibit 1, page 2) as follows:
Upon learning that the same PAL plane would
make a stop-over in San Francisco, and 8. This ticket is good for carriage for
considering that he would be there on April 2, one year from date of issue, except as
1990, petitioner made arrangements with PAL otherwise provided in this ticket, in
for him to board the flight In San Francisco carrier's tariffs, conditions of carriage,
instead of boarding in Las Angeles. or related regulations. The fare for
carriage hereunder is subject to
On April 2, 1990, when the petitioner checked change prior to commencement of
in at the PAL counter in San Francisco, he was carriage. Carrier may refuse
not allowed to board. The PAL personnel transportation if the applicable fare has
concerned marked the following notation on his not been paid. 6
EXPIRATION OF VALIDITY." 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 From the aforestated facts, it can be gleaned
tickets on April 3, 1982, which will be valid until that the petitioner was fully aware that there
April 10, 1983. On June 10, 1982, they was a need to send a letter to the legal counsel
changed their accommodations to economy of PAL for the extension of the period of validity
class but the replacement tickets still contained of his ticket.
the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, Since the PAL agents are not privy to the said
which request was refused by the petitioner on Agreement and petitioner knew that a written
the ground that the said tickets had already request to the legal counsel of PAL was
expired. The non-extension of their tickets necessary, he cannot use what the PAL agents
prompted the Tolentinos to bring a complaint did to his advantage. The said agents,
for breach of contract of carriage against the according to the Court of Appeals, 10 acted
petitioner. In ruling against the award of without authority when they confirmed the
damages, the Court held that the "ticket flights of the petitioner.
constitute the contract between the parties. It is
axiomatic that when the terms are clear and Under Article 1989 11 of the New Civil Code, the
leave no doubt as to the intention of the acts an agent beyond the scope of his authority
contracting parties, contracts are to be do not bind the principal, unless the latter
interpreted according to their literal meaning." ratifies the same expressly or impliedly.
Furthermore, when the third person (herein
In his effort to evade this inevitable conclusion, petitioner) knows that the agent was acting
petitioner theorized that the confirmation by the beyond his power or authority, the principal
PAL's agents in Los Angeles and San cannot be held liable for the acts of the agent.
Francisco changed the compromise agreement If the said third person is aware of such limits
between the parties. of authority, he is to blame, and is not entitled
to recover damages from the agent, unless the
As aptly by the appellate court: latter undertook to secure the principal's
ratification. 12
. . . on March 23, 1990, he was aware
of the risk that his ticket could expire, Anent the second issue, petitioner's stance that
as it did, before he returned to the the defense of lack of authority on the part of
Philippines.' (pp. 320-321, Original the PAL employees was deemed waived under
Records) 8 Rule 9, Section 2 of the Revised Rules of
Court, is unsustainable. Thereunder, failure of
The question is: "Did these two (2) a party to put up defenses in their answer or in
employees, in effect, extend the validity a motion to dismiss is a waiver thereof.
or lifetime of the ticket in question? The
answer is in the negative. Both had no Petitioner stresses that the alleged lack of
authority to do so. Appellant knew this authority of the PAL employees was neither
from the very start when he called up raised in the answer nor in the motion to
the Legal Department of appellee in dismiss. But records show that the question of
the Philippines before he left for the whether there was authority on the part of the
United States of America. He had first PAL employees was acted upon by the trial
hand knowledge that the ticket in court when Nicholas Cervantes was presented
question would expire on March 27, as a witness and the depositions of the PAL
1990 and that to secure an extension, employees, Georgina M. Reyes and Ruth
he would have to file a written request Villanueva, were presented.
for extension at the PAL's office in the
Philippines (TSN, Testimony of The admission by Cervantes that he was told
Nicholas Cervantes, August 2, 1991, by PAL's legal counsel that he had to submit a
pp. 20-23). Despite this knowledge, letter requesting for an extension of the validity
appellant persisted to use the ticket in of subject tickets was tantamount to knowledge
question." 9 on his part that the PAL employees had no
authority to extend the validity of subject tickets

and only PAL's legal counsel was authorized to negligence. No injury resulted on the part of
do so. petitioner because he had a back-up ticket
should PAL refuse to accommodate him with
However, notwithstanding PAL's failure to raise the use of subject ticket.
the defense of lack of authority of the said PAL
agents in its answer or in a motion to dismiss, Neither can the claim for exemplary damages
the omission was cured since the said issue be upheld. Such kind of damages is imposed
was litigated upon, as shown by the testimony by way of example or correction for the public
of the petitioner in the course of trial. Rule 10, good, and the existence of bad faith is
Section 5 of the 1997 Rules of Civil Procedure established. The wrongful act must be
provides: accompanied by bad faith, and an award of
damages would be allowed only if the guilty
Sec. 5. Amendment to conform, party acted in a wanton, fraudulent, reckless or
or authorize presentation of malevolent manner. 15 Here, there is no
evidence. — When issues not showing that PAL acted in such a manner. An
raised by the pleadings are tried award for attorney's fees is also improper.
with express or implied consent
of the parties, as if they had been WHEREFORE, the Petition is DENIED and the
raised in the pleadings. Such decision of the Court of Appeals dated July 25,
amendment of the pleadings as 1995 AFFIRMED in toto. No pronouncement as
may be necessary to cause them to costs.
to conform to the evidence and to
raise these issues may be made SO ORDERED.
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. . . .

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

[G.R. No. 129039. September 17, 2002] Marilao, Bulacan. However, all proceeds from
said contract or contracts shall be deposited in
SIREDY ENTERPRISES, INC. petitioner, vs. my name, payments of all obligation in
HON. COURT OF APPEALS and CONRADO connection with the said contract or contracts
DE GUZMAN, respondents. should be made and the remainder will be paid
2. To sell lots on our subdivisions and;
3. To represent us, intercede and agree for or
Before us is a petition for review seeking to make agreements for all payments in our favor,
annul the decision[1] dated April 26, 1996 of the provided that actual receipts thereof shall be
Court of Appeals in CA-G.R. CV No. 30374, made by the undersigned.
reversing the decision of the Regional Trial
Court of Malolos, Bulacan, and the (SGD) DR. ISMAEL E. YANGA, SR.
resolution[2] dated April 22, 1997, denying For myself and in my capacity as
petitioners motion for reconsideration. President of SIREDY ENTERPRISE,
The following are the facts as found by the INCORPORATED RINCIPAL
Court of Appeals,[3] undisputed by the parties On October 15, 1978, Santos entered into
and adopted by petitioner:[4] a Deed of Agreement[10] with De Guzman. The
Private respondent Conrado De Guzman is deed expressly stated that Santos was
an architect-contractor doing business under representing Siredy Enterprises, Inc. Private
the name and style of Jigscon respondent was referred to as contractor while
Construction. Herein petitioner Siredy petitioner Siredy was cited as principal.
Enterprises, Inc. (hereafter Siredy) is the owner In said Deed of Agreement we find the
and developer of Ysmael Village, a subdivision following stipulations:
in Sta. Cruz, Marilao, Bulacan. [5] The president
of Siredy is Ismael E. Yanga.[6] 1.) That, the PRINCIPAL has contracts
with different SSS members
As stated in its Articles of Incorporation,
[7] employed with different domestic
the primary corporate purpose of Siredy is to entities to build for them 2-bedroom
acquire lands, subdivide and develop them, single housing units and 4-bedroom
erect buildings and houses thereon, and sell, duplex housing units;
lease or otherwise dispose of said properties to
interested buyers.[8] 2.) That, the site of the said housing
project is at YSMAEL VILLAGE, Bo.
Sometime before October 1978, Yanga Sta. Rosa, Marilao, Bulacan owned
executed an undated Letter of Authority,
[9] and developed by SIREDY
hereunder reproduced verbatim: ENTERPRISES and Mr. Ismael E.
Yanga, Sr.;
3.) That, the PRINCIPAL has
That I, DR. ISMAEL E. YANGA, SR., of legal contracted to build the said units at
age, Filipino, married, resident of and with the amount of FORTY FIVE
Postal address at Poblacion, Bocaue, Bulacan THOUSAND (P45,000.00) PESOS
and duly authorized to execute this LETTER for the 2-bedroom single and SIXTY
OF AUTHORITY, do hereby authorize MR. NINE THOUSAND (P69,000.00)
HERMOGENES B. SANTOS of legal age, PESOS, Philippine Currency for the
Filipino, married, resident of and with Postal duplex residences;
Address at 955 Banawe St., Quezon City to do
4.) That, the CONTRACTOR intends to
and execute all or any of the following acts:
build for the PRINCIPAL eighty (80)
units singles and eighteen (18) units
1. To negotiate and enter into contract or duplex residences at the cost above
contracts to build Housing Units on our mentioned or a lump sum total of
subdivision lots in Ysmael Village, Sta. Rosa, FOUR MILLION, EIGHT HUNDRED


(P4,842,000.00) PESOS, Philippine
Currency; From October 1978 to April 1990, De
Guzman constructed 26 residential units at
5.) That, the CONTRACTOR agrees to
Ysmael Village. Thirteen (13) of these were
supply all Construction Materials,
fully paid but the other 13 remained
labor, tools and equipments
unpaid. The total contractual price of these 13
necessary for the completion of the
unpaid houses is P412,154.93 which was
said housing units;
verified and confirmed to be correct by Santos,
6.) That, the PRINCIPAL agrees to pay per an Accomplishment Billing[11] that the latter
all necessary permits and papers in signed.
accordance with Government rules
De Guzman tried but failed to collect the
and regulations;
unpaid account from petitioner. Thus, he
7.) That, the PRINCIPAL agrees to instituted the action below for specific
supply water and electrical facilities performance against Siredy, Yanga, and
needed during the time of Santos who all denied liability.
During the trial, Santos disappeared and
8.) That, the manner of payment shall his whereabouts remain unknown.
be in accordance with SSS
In its defense, petitioner presented
releases. Should the SSS fail to pay
testimonial evidence to the effect that Siredy
had no contract with De Guzman and had not
still in obligation to pay the
authorized Santos to enter into a contract with
CONTRACTOR for whatever
anyone for the construction of housing units at
accomplishments the
Ysmael Village.
finished provided, that the failure of The trial court agreed with petitioner based
the SSS to pay is not due to on the doctrine of privity of contract and gave
defective work of the the following rationale:[12]
The Deed of Agreement (Exh. A and A-1)
9.) That, the CONTRACTOR promises
clearly reflects that the said contract was
to finish the project at the rate of
entered into by and between plaintiff De
TEN (10) units in THIRTY (30) days
Guzman, on one hand, and defendant
or a total of THREE HUNDRED
Hermogenes B. Santos as purported
(300) working days;
authorized representative of defendant Siredy
10.) That, the integral part of this Enterprises, on the other. Plainly and clearly
CONTRACT are: enough, defendants Siredy Enterprises and
Ismael Yanga, Sr. were neither parties nor
a. Plans and Specifications
signatories to the same. It does not bear any
b. Subdivision Plan indicating
legal significance that Dr. Yanga appears to
the Lot location of each unit
have signed the Letter of Authority (Exh. B)
c. Authority of the National
designating defendant Santos as the
Housing Authority;
authorized representative for myself and as
11.) That, the CONTRACTOR agree[s] president of the Siredy Enterprises, Inc. For the
to start work on the housing evidentiary fact remains that Siredy Enterprises
units thirty (30) days after signing of and Dr. Yanga had absolutely had nothing to
this CONTRACT. do with the fulfillment of the terms and
conditions stipulated in the Deed of Agreement,
NOW THEREFORE, for and in consideration of much less had they benefited in any
the amount of FOUR MILLION, EIGHT perceptible degree therefrom.
(P4,842,000.00) PESOS, Philippine Currency, In the light of the foregoing circumstances,
the PARTIES agree and herein set their hands Siredy Enterprises and Dr. Yanga cannot be
on the date and place above-mentioned. held liable in favor of the plaintiff in any manner

whatsoever respecting the unpaid residential interest thereon from the filing of the Complaint
units constructed by the plaintiff. This is as it on July 29, 1982 until full payment thereof. All
should be, because contracts take effect only other claims and counterclaims are dismissed.
between the parties, their assigns and heirs,
except only in the cases provided for by SO ORDERED.[16]
law. (Art. 1311, Civil Code of the Philippines).
Not one of the exceptions obtains in this case. Petitioner Siredy Enterprises, Inc. now
comes to us via a petition for review on
certiorari[17] under Rule 45 of the Rules of
Thus, the trial court disposed of the case Court, on the following grounds:
as follows:
WHEREFORE, premises considered, judgment
is hereby rendered:
a) directing defendant Hermogenes B.
Santos to pay unto plaintiff Conrado
de Guzman the amount of II. RESPONDENT COURT ERRED IN
P412,154.93 as actual damages FAILING TO CONSIDER A VITAL
with legal interest thereon from the PROVISION IN THE DEED OF
filing of the complaint on July 29, AGREEMENT (PAR. 8), WHEN IT
1982 until the same shall have been RENDERED ITS DECISION; and
fully paid, and P25,000.00 as
attorneys fees, plus costs;
b) dismissing the above-entitled case PRIVATE RESPONDENT WAS
as against defendants Siredy NOT ENTITLED TO HIS CLAIM AS
Enterprises, Inc. and Dr. Ismael HE WAS THE PARTY WHO
We find two main issues presented for
resolution: First, whether or not Hermogenes
B. Santos was a duly constituted agent of
On appeal, De Guzman obtained a
Siredy, with authority to enter into contracts for
favorable judgment from the Court of
the construction of residential units in Ysmael
Appeals. The appellate court held that the
Village and thus the capacity to bind Siredy to
Letter of Authority duly signed by Yanga clearly
the Deed of Agreement; and Second,
constituted Santos as Siredys agent,[15] whose
assuming arguendo that Siredy was bound by
authority included entering into a contract for
the acts of Santos, whether or not under the
the building of housing units at Ysmael
terms of the Deed of Agreement, Siredy can be
Village. Consequently, Siredy cannot deny
held liable for the amount sought to be
liability for the Deed of Agreement with private
collected by private respondent De Guzman.
respondent De Guzman, since the same
contract was entered into by Siredys duly By the relationship of agency, one party
designated agent, Santos. There was no need called the principal authorizes another called
for Yanga himself to be a signatory to the the agent to act for and in his behalf in
contract, for him and Siredy to be bound by the transactions with third persons. The authority of
terms thereof. the agent to act emanates from the powers
granted to him by his principal; his act is the
Hence, the Court of Appeals held:
act of the principal if done within the scope of
the authority. He who acts through another acts
WHEREFORE, We find merit in the appeal and
We hereby REVERSE the appealed Decision.
In its stead, we render the following verdict: Was Santos then an agent of Siredy? Was
Appellee Siredy Enterprises. Inc. is ordered to he acting within the scope of his authority?
pay appellant Conrado de Guzman cost (sic)
and P412,154.93 as actual damage plus legal

Resolution of the first issue necessitates a As it is, the mere denial of petitioner cannot
review of the Letter of Authority executed by outweigh the strength of the documentary
Ismael E. Yanga as president of Siredy in favor evidence presented by and the positive
of Santos. Within its terms can be found the testimony of private respondents. As a jurist
nature and extent of the authority granted to once said, I would sooner trust the smallest slip
Santos which, in turn, determines the extent of of paper for truth than the strongest and most
Siredys participation in the Deed of Agreement. retentive memory ever bestowed on moral
On its face, the instrument executed by
Yanga clearly and unequivocally constituted
Aside from the Letter of Authority, Siredys
Santos to do and execute, among other things,
Articles of Incorporation, duly approved by the
the act of negotiating and entering into contract
Securities and Exchange Commission, shows
or contracts to build Housing Units on our
that Siredy may also undertake to erect
subdivision lots in Ysmael Village, Sta. Rosa,
buildings and houses on the lots and sell,
Marilao, Bulacan.[20] Nothing could be more
lease, or otherwise dispose of said properties
express than the written stipulations contained
to interested buyers.[24] Such Articles, coupled
with the Letter of Authority, is sufficient to have
It was upon the authority of this document given De Guzman reason to believe that
that De Guzman transacted business with Santos was duly authorized to represent Siredy
Santos that resulted in the construction for the purpose stated in the Deed of
contract denominated as the Deed of Agreement. Petitioners theory that it merely
Agreement. sold lots is effectively debunked.
However, petitioner denies any liability by Thus, it was error for the trial court to have
stating that: (1) the nature of Siredys business ignored the Letter of Authority. As correctly held
did not involve the construction of housing by the Court of Appeals:
units since it was merely engaged in the selling
of empty lots; (2) the Letter of Authority is There is absolutely no question that the Letter
defective, and hence needed reformation; (3) of Authority (Exhibit B) executed by appellee
Santos entering into the Deed of Agreement Yanga constituted defendant Santos as his and
was invalid because the same was in excess of appellee Siredys agent. As agent, he was
his authority; and (4) there is now implied empowered inter alia to enter into a contract to
revocation of such Letter of Authority. build housing units in the Ysmael Village. This
was in furtherance of appellees business of
Testifying on the nature of the business
developing and subdividing lands, erecting
and the business practices of Siredy, its owner
houses thereon, and selling them to the public.
Yanga testified[21] that Siredy was interested
only in the sale of lots. It was up to the buyers,
x x x [25]
as owners, to construct their houses in the
particular style they prefer. It was allegedly
We find that a valid agency was created
never the practice of the company to sell lots
between Siredy and Santos, and the authority
with houses already erected thereon. On the
conferred upon the latter includes the power to
basis of the foregoing testimony, petitioner
enter into a construction contract to build
states that despite the letter of authority, it is
houses such as the Deed of Agreement
quite certain that such provision would go
between Santos and De Guzmans Jigscon
against the nature of the business of Siredy as
Construction. Hence, the inescapable
the same has absolutely no capability of
conclusion is that Siredy is bound by the
undertaking such a task as constructing
contract through the representation of its agent
However, the self-serving contention of
petitioner cannot stand against the The basis of agency is representation, that is,
documentary evidence clearly showing the the agent acts for and in behalf of the principal
companys liability to De Guzman. As we stated on matters within the scope of his authority
in the case of Cuizon vs. Court of Appeals:[22] (Art, 1881) and said acts have the same legal
effect as if they were personally done by the

principal. By this legal fiction of representation, Such an argument deserves scant

the actual or legal absence of the principal is consideration. As found by the Court of
converted into his legal or juridical presence. [26] Appeals, being a doctor of medicine and a
businessman, Yanga knew the meaning and
Moreover, even if arguendo Santos import of this document and had in fact
mandate was only to sell subdivision lots as admitted having signed it. As aptly observed by
Siredy asserts, the latter is still bound to pay the Court of Appeals, there is no evidence
De Guzman. De Guzman is considered a third that ante litem, he abrogated the Letter of
party to the agency agreement who had no Authority and withdrew the power conferred on
knowledge of the specific instructions or Santos.
agreements between Siredy and its agent.
Siredys contention that the present case is
What De Guzman only saw was the written
in effect a revocation of the Letter of Authority
Letter of Authority where Santos appears to be
also deserves scant consideration. This is a
duly authorized. Article 1900 of the Civil Code
patently erroneous claim considering that it
was, in fact, private respondent De Guzman
who instituted the civil case before the RTC.
Art. 1900. So far as third persons are
concerned, an act is deemed to have been With regard to the second issue put forth
performed within the scope of the agents by petitioner, this Court notes that this issue is
authority, if such act is within the terms of the being raised for the first time on appeal. From
power of attorney, as written, even if the agent the trial in the RTC to the appeal before the
has in fact exceeded the limits of his authority Court of Appeals, the alleged violation of the
according to an understanding between the Deed of Agreement by Conrado de Guzman
principal and the agent. was never put in issue. Heretofore, the
substance of petitioners defense before the
The scope of the agents authority is what courts a quoconsisted of its denial of any
appears in the written terms of the power of liability under the Deed of Agreement.
attorney. While third persons are bound to
As we held in the case of Safic Alcan & Cie
inquire into the extent or scope of the agents
vs. Imperial Vegetable Oil Co., Inc.:[28]
authority, they are not required to go beyond
the terms of the written power of attorney. Third
It must be borne in mind that a question that
persons cannot be adversely affected by an
was never raised in the courts below cannot be
understanding between the principal and his
allowed to be raised for the first time on appeal
agent as to the limits of the latters authority. In
without offending basic rules of fair play, justice
the same way, third persons need not concern
and due process. Such an issue was not
themselves with instructions given by the
brought to the fore either in the trial court or the
principal to his agent outside of the written
appellate court, and would have been
power of attorney.
disregarded by the latter tribunal for the
The essence of agency being the reasons previously stated. With more reason,
representation of another, it is evident that the the same does not deserve consideration by
obligations contracted are for and on behalf of this Court.[29]
the principal. This is what gives rise to the
juridical relation. A consequence of this WHEREFORE, this petition is DENIED for
representation is the liability of the principal for lack of merit. The Decision of the Court of
the acts of his agent performed within the limits Appeals dated April 26, 1996, in CA-G.R. CV
of his authority that is equivalent to the No. 30374, is hereby AFFIRMED. Petitioner
performance by the principal himself who Siredy Enterprises, Inc. is ordered to pay
should answer therefor.[27] Conrado de Guzman actual damages in the
amount of P412,154.93, with legal interest
Petitioner belatedly asserts, however, that
thereon from the time the case was filed until
the Letter of Authority was defective as it
its full payment.Costs against petitioner.
allegedly failed to reduce into writing the real
intentions of the parties, and insists on its SO ORDERED.

G.R. No. 85685 September 11, 1991 constrained to hire the services of
LAURO CRUZ, petitioner,
vs. WHEREFORE, judgment is hereby
THE HONORABLE COURT OF APPEALS rendered in favor of the plaintiff and
and PURE FOODS CORP., respondents. against the defendant, ordering the
latter to pay the former the following:
Alfonso G. Salvador for petitioner.
1. The sum of P 55,246.21, representing
Hilario, Go & De la Cruz for private his outstanding unpaid account plus
respondent. interest of 12% percent per annum to be
counted from the date of the filing of this
DAVIDE, JR., J.: case on April 15, 1983 until fully paid;
In C.A.-G.R. CV No. 07859 (entitled Pure
Foods Corporation versus Lauro Cruz, doing 2. The sum equivalent to 15% of the
business under the name and style Mang Uro total amount due as and for attorney's
Store), a decision was promulgated on 9 fees and litigation expenses.
August 1988 by respondent Court of
Appeals1affirming in toto the decision Costs against the defendant.
promulgated on 28 February 1985 of the
Regional Trial Court of Pasig (Branch 151) of SO ORDERED.
the National Capital Judicial Region in Civil
Case No. 496722 which, by reason of its His motion for reconsideration having been
unusual brevity, is fully reproduced as follows: denied in the resolution of respondent Court on
27 October 1988,3petitioner filed the instant
DECISION appeal by certiorari under Rule 45 of the Rules
of Court urging Us to annul and set aside the
This is an action for sum of money. aforesaid decision and resolution because
From the record, the following facts are respondent Court committed the following
gathered: The plaintiff is a domestic errors — which are the very errors he ascribed
corporation engaged in the to the trial court: (a) in not holding that
manufacture, processing and selling of petitioner is not a signatory to the credit
various meat products while the application card attached as Annex "A" of
defendant is the owner/manager of private respondent's complaint as clearly
Mang Uro Store in Dela Paz Street, evidenced by the fact that only the signatures
Marikina, Metro Manila. Sometime in of Me Cruz and Marilou Cruz, who are not
November 1977, the defendant was impleaded as party defendants, appear therein;
granted by the plaintiff a credit line on (b) in not holding that his signature does not
which the defendant, on several appear in the invoices submitted by private
occasions, bought on credit several respondent; (c) in not holding that he did not
Purefoods products. The defendant had receive the letters of demand; (d) in not finding
an unpaid balance with the plaintiff in and concluding that private respondent failed
the amount of P57,897.63, from which to comply with the Order of the trial court to
the former was credited the amount of amend the complaint; and (e) in denying his
P2,651.42 representing the amount of motion for reconsideration.
returned goods, thereby leaving the
balance of P 55,246.21. Demands were The antecedent facts are not disputed.
made upon the defendant for him to
settle his account with the plaintiff. A On 15 April 1983, private respondent Pure
demand letter dated January 17, 1983 Foods Corporation filed with the trial court a
was sent to and was received by the complaint4 for sum of money against petitioner
defendant who failed to heed the same. alleging therein that sometime in November
The plaintiff, to protect its interest, was 1977, petitioner applied for a credit line with the

plaintiff which was consequently approved by operated by his son Rodolfo Cruz for the
the latter subject to the conditions therein reason that he "is getting old already and
stated; pursuant to said approved credit moreover, because of deteriorating physical
arrangement, defendant (petitioner herein) condition;" and according to his son Rodolfo,
made various purchases from plaintiff until the he had already settled the matter with the
early part of 1982, when he accumulated a private respondent under an agreement
total unpaid account of P57,897.63 as whereby Rodolfo would make partial payments
evidenced by short payment notices and and the private respondent would dismiss the
invoices; against this obligation, defendant was case.
credited with the amount of P2,651.42
representing the value of returned goods, In its Order of 9 November 1983, 7 the trial court
thereby leaving a balance of P55,246.21, granted the aforesaid motion, required
which remained unpaid despite numerous petitioner to file his responsive pleading within
demands made upon him. five (5) days, and to present his evidence on 6
January 1984.
The parties who signed the Credit Application
card as applicants are Me Cruz, who signed Petitioner filed an Answer With Counterclaim
over the printed words name of signatory, on 28 March 1983.8 He reiterates therein his
and Marilou L. Cruz, who signed over the allegations in the motion to lift the default order
printed words Authorized Signature. The and further avers that his signature does not
opening paragraph thereof reads: even appear on the credit application card. On
the counter-claim, he prays for judgment
I/We hereby apply for a charge account awarding him moral damages in an amount to
in the amount stated above, and be proved at the trial, and attorney's fees in the
herewith are the information for your amount of P15,000.00.
consideration as a basis for the
extension of credit to us: Pre-trial was set on 2 January 1984. It was
reset by the trial court for 19 January 1984,
TRADE NAME: MANG URO STORE and further reset for 21 February 1984 at 1:00
P.M. upon motion of private respondent. On the
Owner/Manager: Lauro Cruz last mentioned date, however, petitioner
arrived late and by then, the court had already
xxx xxx xxx issued an order declaring him in default for
failure to appear at the pre-trial. Forthwith, he
Petitioner did not sign any of the invoices filed a motion for reconsideration which the trial
attached to the complaint. court granted in its order of 22 February 1984.
Pre-trial was reset to 27 March 1984.9
For failure to file an answer within the
reglementary period, and upon motion of Pre-trial was held as above scheduled and was
private respondent, the trial court issued an concluded with the issuance of the following
Order on 29 September 1983 declaring the order:
petitioner in default and authorizing the private
respondent to present its evidence ex parte on As prayed for, the plaintiff is given ten
4 October 1983.5 (10) days from today to file amended
On 19 October 1983, petitioner filed a motion
to set aside the order of default6 alleging By agreement, the presentation of
therein that he did not file an answer anymore defendant's evidence is set for May 16,
because upon examination of the records of 1984, at 8:30 a.m., without prejudice to
the case, he discovered that it was his son the filing of a compromise agreement.10
Rodolfo who received the summons and copy
of the complaint; he never entered into any As stated by petitioner, 11 which is not denied by
transaction with private respondent and that private respondent, the purpose of the
although the store referred to is still licensed in amendment was to implead Me
his name, it has, since 1977, been owned and Cruz and Marilou Cruz as parties defendants

since they are the applicants in the credit complaint is no cause for reversal because
application card. these persons were known to private
respondent as petitioner's "progeny"; besides,
Both parties did not appear on 16 May 1984. the transfer of business, if indeed there was
Thereupon, the trial court issued an order such, is a matter of defense which need not be
declaring the case as submitted for decision on "negatived" in the complaint. A complaint
the basis of the evidence on record. 12 should not, by the averments, anticipate a
defense thereto.
As adverted to earlier, on 28 February 1985,
the trial court rendered its decision against In respect to the failure of private respondent to
petitioner who, on 21 March 1985, filed a comply with the order of 27 March 1984
motion to reconsider13 the decision, which the directing it to amend the complaint, respondent
trial court denied for lack of merit in its order of Court held that the non-compliance was
16 May 1985.14 "muted by the subsequent order of 16 May
1984 which considered the case submitted for
Petitioner appealed from the decision to the decision." By such order, the trial court gave its
then Intermediate Appellate Court, now Court assent to resolving the case on the basis of the
of Appeals. unamended complaint. Section 11 of Rule 3
(erroneously stated as Section 3 of Rule 11) of
The appeal was docketed as C.A.-G.R. CV No. the Rules of Court provides that parties may be
07859. dropped or added by order of the court on
motion of any party or on its own initiative at
In his Brief in said case, petitioner attributes to any stage of the action and on such terms as
the trial court the errors15 which, as earlier are just; in the instant case, it may be inferred
mentioned, are the very same errors submitted that the trial court opted to resolve the case
before Us as having been committed by the without the proposed change in parties
respondent court. defendants.

According to the respondent Court, these Finally, it ruled that both oral and documentary
errors bring into focus one crucial issue: the evidence presented at the hearing on 3
liability of petitioner for the amounts adjudged October 1983 proved petitioner's unsatisfied
by the trial court in favor of private respondent. obligation to the private respondent.
It held that petitioner is liable because in his
motion to set aside the order of default, he To bring this petition within Our authority,
admitted that the Mang Uro Store is still petitioner asserts, in effect, that at the bottom
licensed under his name and the credit of the assigned errors is the issue of whether
application card indicates that he is the the respondent Court has made conclusions of
owner/manager thereof. Hence, even on the fact which are not substantiated by the
assumption that there had been a transfer of evidence on record. Petitioner asserts that it
ownership and management of the store to did.
Rodolfo Cruz, previous to the transactions
made with appellee, petitioner permitted the We have held in a long line of cases that
business to be carried on in his name as its findings of facts of the Court of Appeals are
ostensible owner. Private respondent should conclusive upon this Court.17There are,
not be expected to be aware of such a transfer however, recognized exceptions to this
and whatever agreement or understanding rule,18 as where the findings are totally devoid
appellant had with petitioner's son Rodolfo of support in the record, or are glaringly
regarding the store cannot bind or affect private erroneous as to constitute serious abuse of
respondent, for matters accomplished between discretion,19 or when the findings are grounded
two parties ought not to operate to the entirely on speculation, surmise or conjecture.20
prejudice of a third person.16 Accordingly, it
also finds as superfluous the amendment of Deliberating on this case, We hold that the
the complaint for the purpose of impleading findings and conclusions of both the trial court
Rodolfo Cruz, Marilou Cruz and Me Cruz; and the respondent Court are not supported by
moreover, it contends that failure to amend the the evidence and that such conclusions are

glaringly erroneous. This petition is impressed Unfortunately, however, this conclusion is

with merit. bereft of substantial factual basis and
disregards fundamental principles concerning
In its very brief decision, the trial court, without the primary duty of persons dealing with parties
even laying the factual premises, made a who act for others, and of estoppel.
sweeping conclusion that it was the petitioner Indisputably, the credit application card is a
who applied for a credit line with private form prepared and supplied by private
respondent and which the latter approved for respondent. There is no evidence, much less
him; on the basis of such approval, he an allegation by private respondent, that it was
subsequently bought Purefoods products on petitioner who filled up the entries in said form.
credit from private respondent. Evidently, the It is logical to presume then that the parties
trial court may have in mind the Credit who signed it (Me Cruz and Marilou L. Cruz),
Application Card21 and the several invoices for or anyone of them, made or accomplished the
the delivery of the goods.22 But as correctly entries. Needless to state, since on the face of
pointed out by the petitioner, and as the the document, the "owner/manager" of the
documents themselves show, he did not sign "Mang Uro Store", which is written on the
any of them. column Trade Name, is Lauro Cruz, and not
the parties signing the same, it was incumbent
It is the respondent Court which endeavored to upon the private respondent to inquire into the
supply the arguments in support of the relationship of the signatories to the petitioner
foregoing conclusion. According to the or to satisfy itself as to their authority to act for
respondent court: or represent the petitioner. Under the
circumstances, it is apparent that petitioner had
In his Motion to Set Aside Order of no direct participation and that the two
Default filed on October 19, 1983 applicants could have acted without authority
appellant23 admitted that subject store is from him or as his duly authorized
still licensed under his name ... Also, the representatives. In either case, for the
credit application card accomplished in protection of its interest, private respondent
behalf of the store clearly indicates should have made the necessary inquiry
appellant as owner/manager thereof ... verification as to the authority of the applicants
Hence, even on the assumption that and to find out from them whether Lauro Cruz
there really had been a transfer of is both the owner and manager or merely
ownership and management of the the owner or the manager, for that is what
"Mang Uro Store" to Rodolfo Cruz "owner/manager" in its form could signify.
previous to the transactions made with
appellee24 the fact is that appellant A person dealing with an agent is put upon
permitted the carrying of the business of inquiry and must discover upon his peril the
Id store with him as ostensible owner. authority of the agent.26 It is for this reason that
Appellee should not be expected to be under Article No. 1902 of the Civil Code, a third
aware of such transfer. Whatever private person with whom the agent wishes to contract
agreement or understanding appellant on behalf of the principal may require the
made with his son Rodolfo regarding the presentation of the power of attorney, or the
store cannot bind or affect appellee. instructions as regards the agency, and that
Insofar as the latter is concerned, the private or secret orders and instructions of the
store is business property of appellant. principal do not prejudice third persons who
The maxim res inter alios acta alteri have relied upon the power of attorney or
nocere non debet is square. Matters instructions shown them.
accomplished between two parties
ought not to operate to the prejudice of In short, petitioner is not under estoppel, as
a third person (Blanza vs. Arcangel, 21 against the claim of private respondent, which
SCRA 4; Perez vs. Mendoza, 65 SCRA seems to be at the bottom of the respondent
493; Tinitigan vs. Tinitigan 100 SCRA Court's rationalization.
In Kalalo vs. Luz,27 We held that the essential
elements of estoppel in respect to the party

claiming it are: (a) lack of knowledge and of the Private respondent did not amend the
means of knowledge of the truth as the facts in complaint within the period aforesaid. So, when
question; (b) reliance, in good faith, upon the the case was caned for heating on 16 May
conduct or statements of the party to be 1984, pursuant to the Order of 27 March 1984,
estopped; and (c) action or inaction based and the parties did not appear, the trial court
thereon of such character as to change the should have dismissed the case for failure on
position or status of the party claiming the the part of private respondent to file the
estoppel, to his injury, detriment, or prejudice. amended complaint. Such dismissal is
authorized under Section 3 of Rule 17 of the
The above disquisitions ineluctably show the Rules of Court. The respondent Court,
absence of said elements in this case. however, brushed aside this point by holding
that the non-compliance by private respondent
In the instant case, there is no showing at all "was muted by the subsequent order dated
that private respondent tried to ascertain the May 16, 1984 which submitted the case for
ownership of Mang Uro Store and the extent of decision;" and that by said order "the trial court
the authority of the applicants to represent appears to have given its assent to resolving
Lauro Cruz at any time before it approved the the case on the basis of the unamended
credit application card. complaint," which is authorized by Section 11
of Rule 3 of the Rules of Court. Although this
There is as well no evidence, much less any justification is flimsy and begs the question, the
claim by private respondent, that before Me foregoing resolution on the issue of petitioner's
Cruz and Marilou Cruz signed the credit liability to the private respondent renders
application card, it had been dealing with unnecessary further discussion on the
petitioner or the Mang Uro Store, or that for remaining assigned errors.
sometime prior thereto, petitioner ever
represented to it as the owner of the store that WHEREFORE, the instant petition is
he has authorized the above signatories to GRANTED, and the decision of the respondent
represent him in any transaction. Clearly, it was Court of Appeals of 9 August 1988 and its
error for the respondent Court to conclude that resolution of 27 October 1988 in C.A.-G.R. CV
petitioner should be held liable to private No. 07859, as well as the decision of the trial
respondent on account of the credit application court of 28 February 1985 in Civil Case No.
card on the theory that he permitted the 49672, are hereby REVERSED and SET
carrying of the business of the store. This ASIDE. With costs against private respondent.
theory further erroneously assumes that the
business of the store before the filing of the SO ORDERED.
credit application card included the sale of
products of private respondent. There is Separate Opinions
evidence on this appoint.
FELICIANO, J,: dissenting:
Moreover, it is apparent that the purpose of the
request of private respondent to file an With much regret, I am unable to join the
amended complaint within ten (10) days from majority opinion. Although petitioner Lauro
27 March 1984, the date when the pre-trial was Cruz did not personally sign the credit
held, which the trial court granted, 28 was application nor the Pure Foods invoices issued
precisely to implead the signatories to the under that credit line, I believe that he is liable
credit application card. This was precisely for the amounts due under that credit line.
prompted by the insistence of petitioner that he
is not liable for the claims in the complaint While petitioner may have turned over active
because he did not sign the credit card management of his single proprietorship
application and the invoices. In short, he is enterprise to his son, Rodolfo Cruz, petitioner
erroneously impleaded as defendant. Since remained legal or registered owner of that
among the matters to be considered at pre-trial enterprise and he was directly or indirectly
is the necessity or desirability of amendments benefitting from the revenues generated by
to pleadings,29 the request was seasonably and that store. Those revenues were earned over a
properly made. period of approximately five (5) years from the

time the credit application was signed by Me sold in the Mang Uro Store and Pure Foods
Cruz and Merle Cruz. During that five-year invoices were paid. Thus petitioner Lauro Cruz
period, credit was drawn under the Pure Foods must or should have known about the
credit line to finance the canned goods and existence of the credit line supporting at least
other items purchased from Pure Foods and the Pure Foods inventory of the Mang Uro
sold in the Mang Uro Store and Pure Foods Store. If there was lack of formal authority on
invoices were paid. Thus petitioner Lauro Cruz the part of Me Cruz and Merle Cruz to contract
must or should have known about the for the credit line, that lack of authority must be
existence of the credit line supporting at least held to have been cured by prolonged inaction
the Pure Foods inventory of the Mang Uro on the part of petitioner and, more importantly,
Store. If there was lack of formal authority on by receipt of benefits by petitioner from
the part of Me Cruz and Merle Cruz to contract operation of the credit line and the purchase of
for the credit line, that lack of authority must be Pure Foods goods on credit.
held to have been cured by prolonged inaction
on the part of petitioner and, more importantly, If this is a case of an unauthorized agent, I
by receipt of benefits by petitioner from believe there was at least implied ratification on
operation of the credit line and the purchase of the part of the principal. It is too late for
Pure Foods goods on credit. petitioner to disclaim responsibility for the
amount due to Pure Foods. It seems to me that
If this is a case of an unauthorized agent, I it would be grossly inequitable to permit
believe there was at least implied ratification on petitioner to escape that liability on such a
the part of the principal. It is too late for technical basis.
petitioner to disclaim responsibility for the
amount due to Pure Foods. It seems to me that I vote to DENY the Petition for Review for lack
it would be grossly inequitable to permit of merit.
petitioner to escape that liability on such a
technical basis.

I vote to DENY the Petition for Review for lack

of merit.

Separate Opinions

FELICIANO, J,: dissenting:

With much regret, I am unable to join the

majority opinion. Although petitioner Lauro
Cruz did not personally sign the credit
application nor the Pure Foods invoices issued
under that credit line, I believe that he is liable
for the amounts due under that credit line.

While petitioner may have turned over active

management of his single proprietorship
enterprise to his son, Rodolfo Cruz, petitioner
remained legal or registered owner of that
enterprise and he was directly or indirectly
benefitting from the revenues generated by
that store. Those revenues were earned over a
period of approximately five (5) years from the
time the credit application was signed by Me
Cruz and Merle Cruz. During that five-year
period, credit was drawn under the Pure Foods
credit line to finance the canned goods and
other items purchased from Pure Foods and

G.R. No. 88866 February 18, 1991 and also as an accommodation for a "valued
client," the petitioner says it finally decided to
METROPOLITAN BANK & TRUST allow Golden Savings to withdraw from the
COMPANY, petitioner, proceeds of the
vs. warrants.3
LOAN ASSOCIATION, INC., LUCIA The first withdrawal was made on July 9, 1979,
CASTILLO, MAGNO CASTILLO and GLORIA in the amount of P508,000.00, the second on
CASTILLO, respondents. July 13, 1979, in the amount of P310,000.00,
and the third on July 16, 1979, in the amount of
CRUZ, J.: P150,000.00. The total withdrawal was
This case, for all its seeming complexity, turns
on a simple question of negligence. The facts, In turn, Golden Savings subsequently allowed
pruned of all non-essentials, are easily told. Gomez to make withdrawals from his own
account, eventually collecting the total amount
The Metropolitan Bank and Trust Co. is a of P1,167,500.00 from the proceeds of the
commercial bank with branches throughout the apparently cleared warrants. The last
Philippines and even abroad. Golden Savings withdrawal was made on July 16, 1979.
and Loan Association was, at the time these
events happened, operating in Calapan, On July 21, 1979, Metrobank informed Golden
Mindoro, with the other private respondents as Savings that 32 of the warrants had been
its principal officers. dishonored by the Bureau of Treasury on July
19, 1979, and demanded the refund by Golden
In January 1979, a certain Eduardo Gomez Savings of the amount it had previously
opened an account with Golden Savings and withdrawn, to make up the deficit in its account.
deposited over a period of two months 38
treasury warrants with a total value of The demand was rejected. Metrobank then
P1,755,228.37. They were all drawn by the sued Golden Savings in the Regional Trial
Philippine Fish Marketing Authority and Court of Mindoro.5 After trial, judgment was
purportedly signed by its General Manager and rendered in favor of Golden Savings, which,
countersigned by its Auditor. Six of these were however, filed a motion for reconsideration
directly payable to Gomez while the others even as Metrobank filed its notice of appeal.
appeared to have been indorsed by their On November 4, 1986, the lower court
respective payees, followed by Gomez as modified its decision thus:
second indorser.1
ACCORDINGLY, judgment is hereby
On various dates between June 25 and July rendered:
16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of 1. Dismissing the complaint with costs
Golden Savings and deposited to its Savings against the plaintiff;
Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for 2. Dissolving and lifting the writ of
clearing by the branch office to the principal attachment of the properties of
office of Metrobank, which forwarded them to defendant Golden Savings and Loan
the Bureau of Treasury for special clearing.2 Association, Inc. and defendant
Spouses Magno Castillo and Lucia
More than two weeks after the deposits, Gloria Castillo;
Castillo went to the Calapan branch several
times to ask whether the warrants had been 3. Directing the plaintiff to reverse its
cleared. She was told to wait. Accordingly, action of debiting Savings Account No.
Gomez was meanwhile not allowed to 2498 of the sum of P1,754,089.00 and
withdraw from his account. Later, however, to reinstate and credit to such account
"exasperated" over Gloria's repeated inquiries such amount existing before the debit

was made including the amount of and Golden Savings, the latter should
P812,033.37 in favor of defendant bear the loss.
Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant 4. Respondent Court of Appeals erred in
Golden Savings and Loan Association, holding that the treasury warrants
Inc. to withdraw the amount outstanding involved in this case are not negotiable
thereon before the debit; instruments.

4. Ordering the plaintiff to pay the The petition has no merit.

defendant Golden Savings and Loan
Association, Inc. attorney's fees and From the above undisputed facts, it would
expenses of litigation in the amount of appear to the Court that Metrobank was indeed
P200,000.00. negligent in giving Golden Savings the
impression that the treasury warrants had been
5. Ordering the plaintiff to pay the cleared and that, consequently, it was safe to
defendant Spouses Magno Castillo and allow Gomez to withdraw the proceeds thereof
Lucia Castillo attorney's fees and from his account with it. Without such
expenses of litigation in the amount of assurance, Golden Savings would not have
P100,000.00. allowed the withdrawals; with such assurance,
there was no reason not to allow the
SO ORDERED. withdrawal. Indeed, Golden Savings might
even have incurred liability for its refusal to
On appeal to the respondent court, 6 the return the money that to all appearances
decision was affirmed, prompting Metrobank to belonged to the depositor, who could therefore
file this petition for review on the following withdraw it any time and for any reason he saw
grounds: fit.

1. Respondent Court of Appeals erred in It was, in fact, to secure the clearance of the
disregarding and failing to apply the treasury warrants that Golden Savings
clear contractual terms and conditions deposited them to its account with Metrobank.
on the deposit slips allowing Metrobank Golden Savings had no clearing facilities of its
to charge back any amount erroneously own. It relied on Metrobank to determine the
credited. validity of the warrants through its own
services. The proceeds of the warrants were
(a) Metrobank's right to charge withheld from Gomez until Metrobank allowed
back is not limited to instances Golden Savings itself to withdraw them from its
where the checks or treasury own deposit.7 It was only when Metrobank
warrants are forged or gave the go-signal that Gomez was finally
unauthorized. allowed by Golden Savings to withdraw them
from his own account.
(b) Until such time as Metrobank
is actually paid, its obligation is The argument of Metrobank that Golden
that of a mere collecting agent Savings should have exercised more care in
which cannot be held liable for its checking the personal circumstances of
failure to collect on the warrants. Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting
2. Under the lower court's decision, the warrants, not Golden Savings that was
affirmed by respondent Court of extending him a loan; and moreover, the
Appeals, Metrobank is made to pay for treasury warrants were subject to clearing,
warrants already dishonored, thereby pending which the depositor could not
perpetuating the fraud committed by withdraw its proceeds. There was no question
Eduardo Gomez. of Gomez's identity or of the genuineness of
his signature as checked by Golden Savings.
3. Respondent Court of Appeals erred in In fact, the treasury warrants were dishonored
not finding that as between Metrobank allegedly because of the forgery of the

signatures of the drawers, not of Gomez as According to Metrobank, the said conditions
payee or indorser. Under the circumstances, it clearly show that it was acting only as a
is clear that Golden Savings acted with due collecting agent for Golden Savings and give it
care and diligence and cannot be faulted for the right to "charge back to the depositor's
the withdrawals it allowed Gomez to make. account any amount previously credited,
whether or not such item is returned. This also
By contrast, Metrobank exhibited extraordinary applies to checks ". . . which are unpaid due to
carelessness. The amount involved was not insufficiency of funds, forgery, unauthorized
trifling — more than one and a half million overdraft of any other reason." It is claimed that
pesos (and this was 1979). There was no the said conditions are in the nature of
reason why it should not have waited until the contractual stipulations and became binding on
treasury warrants had been cleared; it would Golden Savings when Gloria Castillo, as its
not have lost a single centavo by waiting. Yet, Cashier, signed the deposit slips.
despite the lack of such clearance — and
notwithstanding that it had not received a Doubt may be expressed about the binding
single centavo from the proceeds of the force of the conditions, considering that they
treasury warrants, as it now repeatedly have apparently been imposed by the bank
stresses — it allowed Golden Savings to unilaterally, without the consent of the
withdraw — not once, not twice, but thrice depositor. Indeed, it could be argued that the
— from the uncleared treasury warrants in the depositor, in signing the deposit slip, does so
total amount of P968,000.00 only to identify himself and not to agree to the
conditions set forth in the given permit at the
Its reason? It was "exasperated" over the back of the deposit slip. We do not have to rule
persistent inquiries of Gloria Castillo about the on this matter at this time. At any rate, the
clearance and it also wanted to Court feels that even if the deposit slip were
"accommodate" a valued client. It "presumed" considered a contract, the petitioner could still
that the warrants had been cleared simply not validly disclaim responsibility thereunder in
because of "the lapse of one week." 8 For a the light of the circumstances of this case.
bank with its long experience, this explanation
is unbelievably naive. In stressing that it was acting only as a
collecting agent for Golden Savings,
And now, to gloss over its carelessness, Metrobank seems to be suggesting that as a
Metrobank would invoke the conditions printed mere agent it cannot be liable to the principal.
on the dorsal side of the deposit slips through This is not exactly true. On the contrary, Article
which the treasury warrants were deposited by 1909 of the Civil Code clearly provides that —
Golden Savings with its Calapan branch. The
conditions read as follows: Art. 1909. — The agent is responsible
not only for fraud, but also for
Kindly note that in receiving items on negligence, which shall be judged 'with
deposit, the bank obligates itself only as more or less rigor by the courts,
the depositor's collecting agent, according to whether the agency was or
assuming no responsibility beyond care was not for a compensation.
in selecting correspondents, and until
such time as actual payment shall have The negligence of Metrobank has been
come into possession of this bank, the sufficiently established. To repeat for emphasis,
right is reserved to charge back to the it was the clearance given by it that assured
depositor's account any amount Golden Savings it was already safe to allow
previously credited, whether or not such Gomez to withdraw the proceeds of the
item is returned. This also applies to treasury warrants he had deposited
checks drawn on local banks and Metrobank misled Golden Savings. There may
bankers and their branches as well as have been no express clearance, as
on this bank, which are unpaid due Metrobank insists (although this is refuted by
to insufficiency of funds, forgery, Golden Savings) but in any case that clearance
unauthorized overdraft or any other could be implied from its allowing Golden
reason. (Emphasis supplied.) Savings to withdraw from its account not only

once or even twice but three times. The total Sec. 1. — Form of negotiable
withdrawal was in excess of its original balance instruments. — An instrument to be
before the treasury warrants were deposited, negotiable must conform to the following
which only added to its belief that the treasury requirements:
warrants had indeed been cleared.
(a) It must be in writing and signed by
Metrobank's argument that it may recover the the maker or drawer;
disputed amount if the warrants are not
paid for any reason is not acceptable. Any (b) Must contain an unconditional
reason does not mean no reason at all. promise or order to pay a sum certain in
Otherwise, there would have been no need at money;
all for Golden Savings to deposit the treasury
warrants with it for clearance. There would (c) Must be payable on demand, or at a
have been no need for it to wait until the fixed or determinable future time;
warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, (d) Must be payable to order or to
if interpreted in the way the petitioner suggests, bearer; and
is not binding for being arbitrary and
unconscionable. And it becomes more so in the (e) Where the instrument is addressed
case at bar when it is considered that the to a drawee, he must be named or
supposed dishonor of the warrants was not otherwise indicated therein with
communicated to Golden Savings before it reasonable certainty.
made its own payment to Gomez.
xxx xxx xxx
The belated notification aggravated the
petitioner's earlier negligence in giving express Sec. 3. When promise is unconditional.
or at least implied clearance to the treasury — An unqualified order or promise to
warrants and allowing payments therefrom to pay is unconditional within the meaning
Golden Savings. But that is not all. On top of of this Act though coupled with —
this, the supposed reason for the dishonor, to
wit, the forgery of the signatures of the general (a) An indication of a particular fund out
manager and the auditor of the drawer of which reimbursement is to be made
corporation, has not been established. 9 This or a particular account to be debited
was the finding of the lower courts which we with the amount; or
see no reason to disturb. And as we said in
MWSS v. Court of Appeals:10 (b) A statement of the transaction which
gives rise to the instrument judgment.
Forgery cannot be presumed (Siasat, et
al. v. IAC, et al., 139 SCRA 238). It must But an order or promise to pay out of a
be established by clear, positive and particular fund is not unconditional.
convincing evidence. This was not done
in the present case. The indication of Fund 501 as the source of the
payment to be made on the treasury warrants
A no less important consideration is the makes the order or promise to pay "not
circumstance that the treasury warrants in unconditional" and the warrants themselves
question are not negotiable instruments. non-negotiable. There should be no question
Clearly stamped on their face is the word "non- that the exception on Section 3 of the
negotiable." Moreover, and this is of equal Negotiable Instruments Law is applicable in the
significance, it is indicated that they are case at bar. This conclusion conforms to
payable from a particular fund, to wit, Fund Abubakar vs. Auditor General11 where the
501. Court held:

The following sections of the Negotiable The petitioner argues that he is a holder
Instruments Law, especially the underscored in good faith and for value of a
parts, are pertinent: negotiable instrument and is entitled to

the rights and privileges of a holder in The total value of the 32 treasury warrants
due course, free from defenses. But this dishonored was P1,754,089.00, from which
treasury warrant is not within the scope Gomez was allowed to withdraw
of the negotiable instrument law. For P1,167,500.00 before Golden Savings was
one thing, the document bearing on its notified of the dishonor. The amount he has
face the words "payable from the withdrawn must be charged not to Golden
appropriation for food administration, is Savings but to Metrobank, which must bear the
actually an Order for payment out of "a consequences of its own negligence. But the
particular fund," and is not unconditional balance of P586,589.00 should be debited to
and does not fulfill one of the essential Golden Savings, as obviously Gomez can no
requirements of a negotiable instrument longer be permitted to withdraw this amount
(Sec. 3 last sentence and section [1(b)] from his deposit because of the dishonor of the
of the Negotiable Instruments Law). warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings
Metrobank cannot contend that by indorsing would unduly enrich it at the expense of
the warrants in general, Golden Savings Metrobank, let alone the fact that it has already
assumed that they were "genuine and in all been informed of the dishonor of the treasury
respects what they purport to be," in warrants.
accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this WHEREFORE, the challenged decision is
law is not applicable to the non-negotiable AFFIRMED, with the modification that
treasury warrants. The indorsement was made Paragraph 3 of the dispositive portion of the
by Gloria Castillo not for the purpose of judgment of the lower court shall be reworded
guaranteeing the genuineness of the warrants as follows:
but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made 3. Debiting Savings Account No. 2498 in
the guarantee when it stamped on the back of the sum of P586,589.00 only and
the warrants: "All prior indorsement and/or lack thereafter allowing defendant Golden
of endorsements guaranteed, Metropolitan Savings & Loan Association, Inc. to
Bank & Trust Co., Calapan Branch." withdraw the amount outstanding
thereon, if any, after the debit.
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine SO ORDERED.
Islands,12 but we feel this case is inapplicable
to the present controversy.1âwphi1 That case
involved checks whereas this case involves
treasury warrants. Golden Savings never
represented that the warrants were negotiable
but signed them only for the purpose of
depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai
Alai Corporation negligent in accepting the
checks without question from one Antonio
Ramirez notwithstanding that the payee was
the Inter-Island Gas Services, Inc. and it did
not appear that he was authorized to indorse it.
No similar negligence can be imputed to
Golden Savings.

We find the challenged decision to be basically

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

G.R. No. 94050 November 21, 1991 understand that the above cost includes
overall exterior booth decoration and
SYLVIA H. BEDIA and HONTIVEROS & materials but does not include interior
ASSOCIATED PRODUCERS PHILS. YIELDS, designs which will be per our
INC., petitioners, specifications and expenses.
The basic issue before us is the capacity in H. BEDIA
which petitioner Sylvia H. Bedia entered into DATE: 8/13/80 DATE: Aug. 1, 1980
the subject contract with private respondent
Emily A. White. Both the trial court and the On August 10, 1986, White and her husband
respondent court held she was acting in her filed a complaint in the Regional Trial Court of
own personal behalf. She faults this finding as Pasay City for damages against Bedia and
reversible error and insists that she was merely Hontiveros & Associated Producers Phil.
acting as an agent. Yields, Inc. for damages caused by their
fraudulent violation of their agreement. She
The case arose when Bedia and White entered averred that Bedia had approached her and
into a Participation Contract 1 reading in full as persuaded her to participate in the State of
follows: Texas Fair, and that she made a down
payment of $500.00 to Bedia on the agreed
THE STATE FAIR OF TEXAS '80 display space. In due time, she enplaned for
PARTICIPATION CONTRACT Dallas with her merchandise but was dismayed
to learn later that the defendants had not paid
PARTICIPANT (COMPANY NAME) for or registered any display space in her
EMILY WHITE name, nor were they authorized by the state
ENTERPRISES fair director to recruit participants. She said she
incurred losses as a result for which the
I/We, the abovementioned company defendants should be held solidarily liable. 2
hereby agrees to participate in the 1980
Dallas State Fair to be held in Dallas, In their joint answer, the defendants denied the
Texas on October 3, to October plaintiff's allegation that they had deceived her
19,1980. I/We request for a 15 square and explained that no display space was
meter booth space worth $2,250.00 U.S. registered in her name as she was only
Dollars. supposed to share the space leased by
Hontiveros in its name. She was not allowed to
I/We further understand that this display her goods in that space because she
participation contract shall be deemed had not paid her balance of $1,750.00, in
non-cancellable after payment of the violation of their contract. Bedia also made the
said down payment, and that any particular averment that she did not sign the
intention on our part to cancel the same Participation Contract on her own behalf but as
shall render whatever amount we have an agent of Hontiveros and that she had later
paid forfeited in favor of HONTIVEROS returned the advance payment of $500.00 to
& ASSOCIATED PRODUCERS the plaintiff. The defendants filed their own
PHILIPPINE YIELDS, INC. counterclaim and complained of malice on the
part of the plaintiffs. 3
I/We understand the HONTIVEROS & In the course of the trial, the complaint against
ASSOCIATED PRODUCERS PHIL. Hontiveros was dismissed on motion of the
YIELDS, INC. shall: Reserve said booth plaintiffs. 4
for our exclusive perusal; We also

In his decision dated May 29, 1986, Judge is $2,250.00 (Two Thousand Two
Fermin Martin, Jr. found Bedia liable for fraud Hundred Fifty Dollars). 6
and awarded the plaintiffs actual and moral
damages plus attorney's fees and the costs.
The court said:
As the Participation Contract was signed by
In claiming to be a mere agent of Bedia, the above statement was an
Hontiveros & Associated Producers Phil. acknowledgment by White that Bedia was only
Yields, Inc., defendant Sylvia H. Bedia acting for Hontiveros when it recruited her as a
evidently attempted to escape liability participant in the Texas State Fair and charged
for herself. Unfortunately for her, the her a partial payment of $500.00. This amount
"Participation Contract" is not actually in was to be fortified to Hontiveros in case of
representation or in the name of said cancellation by her of the agreement. The fact
corporation. It is a covenant entered into that the contract was typewritten on the
by her in her personal capacity, for no letterhead stationery of Hontiveros bolsters this
one may contract in the name of another conclusion in the absence of any showing that
without being authorized by the latter, or said stationery had been illegally used by
unless she has by law a right to Bedia.
represent her. (Art. 1347, new Civil
Code) Significantly, Hontiveros itself has not
repudiated Bedia's agency as it would have if
she had really not signed in its name. In the
answer it filed with Bedia, it did not deny the
Sustaining the trail court on this point, the latter's allegation in Paragraph 4 thereof that
respondent court 5 declared in its decision she was only acting as its agent when she
dated March 30, 1990: solicited White's participation. In fact, by filing
the answer jointly with Bedia through their
The evidence, on the whole, shows that common counsel, Hontiveros affirmed this
she definitely acted on her own. She allegation.
represented herself as authorized by the
State of Texas to solicit and assign If the plaintiffs had any doubt about the
booths at the Texas fair; she assured the capacity in which Bedia was acting, what they
appellee that she could give her booth. should have done was verify the matter with
Under Article 1883 of the New Civil Hontiveros. They did not. Instead, they simply
Code, if the agent acts in his own name, accepted Bedia's representation that she was
the principal has no right of action an agent of Hontiveros and dealt with her as
against the persons with whom the such. Under Article 1910 of the Civil Code, "the
agent had contracted. principal must comply with all the obligations
which the agent may have contracted within
We do not share these views. the scope of his authority." Hence, the private
respondents cannot now hold Bedia liable for
It is noteworthy that in her letter to the Minister the acts performed by her for, and imputable
of Trade dated December 23,1984, Emily to, Hontiveros as her principal.
White began:

I am a local exporter who was recruited

by Hontiveros & Associated Producers The plaintiffs' position became all the more
Phil. Yields, Inc. to participate in the untenable when they moved on June 5, 1984,
State Fair of Dallas, Texas which was for the dismissal of the complaint against
held last Oct. 3 to 19, 1980. Hontiveros Hontiveros, 7 leaving Bedia as the sole
& Associated charged me US$150.00 defendant. Hontiveros had admitted as early as
per square meter for display booth of when it filed its answer that Bedia was acting
said fair. I have paid an advance of as its agent. The effect of the motion was to
US$500.00 as partial payment for the leave the plaintiffs without a cause of action
total space of 15 square meter of which

against Bedia for the obligation, if any, of


Our conclusion is that since it has not been

found that Bedia was acting beyond the scope
of her authority when she entered into the
Participation Contract on behalf of Hontiveros,
it is the latter that should be held answerable
for any obligation arising from that agreement.
By moving to dismiss the complaint against
Hontiveros, the plaintiffs virtually disarmed
themselves and forfeited whatever claims they
might have proved against the latter under the
contract signed for it by Bedia. It should be
obvious that having waived these claims
against the principal, they cannot now assert
them against the agent.

WHEREFORE, the appealed decision dated

March 30, 1990, of the respondent court is
REVERSED and a new judgment is rendered
dismissing Civil Case No. 9246-P in the
Regional Trial Court of Pasay City.


G.R. No. 95641 September 22, 1994 insurance policy covering the one-year period
between noon of November 28, 1984 and noon
SANTOS B. AREOLA and LYDIA D. of November 28, 1985. 1 Under the terms of
AREOLA, petitioners-appellants, the statement of account issued by respondent
vs. insurance company, petitioner-insured was
COURT OF APPEALS and PRUDENTIAL supposed to pay the total amount of P1,609.65
GUARANTEE AND ASSURANCE, which included the premium of P1,470.00,
INC., respondents-appellees. documentary stamp of P110.25 and 2%
premium tax of P29.40. 2 At the lower left-hand
ROMERO, J.: corner of the statement of account, the
following is legibly printed:
On June 29, 1985, seven months after the
issuance of petitioner Santos Areola's Personal This Statement of Account must
Accident Insurance Policy No. PA-20015, not be considered a receipt.
respondent insurance company unilaterally Official Receipt will be issued to
cancelled the same since company records you upon payment of this
revealed that petitioner-insured failed to pay account.
his premiums.
If payment is made to our
On August 3, 1985, respondent insurance representative, demand for a
company offered to reinstate same policy it had Provisional Receipt and if our
previously cancelled and even proposed to Official Receipts is (sic) not
extend its lifetime to December 17, 1985, upon received by you within 7 days
a finding that the cancellation was erroneous please notify us.
and that the premiums were paid in full by
petitioner-insured but were not remitted by If payment is made to our office,
Teofilo M. Malapit, respondent insurance demand for an OFFICIAL
company's branch manager. RECEIPT.

These, in brief, are the material facts that gave On December 17, 1984, respondent insurance
rise to the action for damages due to breach of company issued collector's provisional receipt
contract instituted by petitioner-insured before No. 9300 to petitioner-insured for the amount
Branch 40 RTC, Dagupan City against of P1,609.65 3 On the lower portion of the
respondent insurance company. receipt the following is written in capital letters:

There are two issues for resolution in this case: Note: This collector's provisional
receipt will be confirmed by our
(1) Did the erroneous act of cancelling subject official receipt. If our official
insurance policy entitle petitioner-insured to receipt is not received by you
payment of damages? within 7 days, please notify us. 4

(2) Did the subsequent act of reinstating the On June 29, 1985, respondent insurance
wrongfully cancelled insurance policy by company, through its Baguio City manager,
respondent insurance company, in an effort to Teofilo M. Malapit, sent petitioner-insured
rectify such error, obliterate whatever liability Endorsement
for damages it may have to bear, thus No. BG-002/85 which "cancelled flat" Policy
absolving it therefrom? No. PA BG-20015 "for non-payment of
premium effective as of inception dated." 5 The
From the factual findings of the trial court, it same endorsement also credited "a return
appears that petitioner-insured, Santos Areola, premium of P1,609.65 plus documentary
a lawyer from Dagupan City, bought, through stamps and premium tax" to the account of the
the Baguio City branch of Prudential insured.
Guarantee and Assurance, Inc. (hereinafter
referred to as Prudential), a personal accident

Shocked by the cancellation of the policy, Areola that Prudential was "amenable to
petitioner-insured confronted Carlito Ang, agent extending PGA-PA-BG-20015 up to December
of respondent insurance company, and 17, 1985 or one year from the date when
demanded the issuance of an official receipt. payment was received." Apologizing again for
Ang told petitioner-insured that the cancellation the inconvenience caused Areola, Ampil
of the policy was a mistake but he would exhorted him to indicate his conformity to the
personally see to its rectification. However, proposal by signing on the space provided for
petitioner-insured failed to receive any official in the letter. 9
receipt from Prudential.
The letter was personally delivered by Carlito
Hence, on July 15, 1985, petitioner-insured Ang to Areola on
sent respondent insurance company a letter August 13, 1985 10 but unfortunately, Areola
demanding that he be insured under the same and his wife, Lydia, as early as August 6, 1985
terms and conditions as those contained in had filed a complaint for breach of contract with
Policy No. PA-BG-20015 commencing upon its damages before the lower court.
receipt of his letter, or that the current
commercial rate of increase on the payment he In its Answer, respondent insurance company
had made under provisional receipt No. 9300 admitted that the cancellation of petitioner-
be returned within five days. 6 Areola also insured's policy was due to the failure of
warned that should his demands be Malapit to turn over the premiums collected, for
unsatisfied, he would sue for damages. which reason no official receipt was issued to
him. However, it argued that, by acknowledging
On July 17, 1985, he received a letter from the inconvenience caused on petitioner-insured
production manager Malapit informing him that and after taking steps to rectify its omission by
the "partial payment" of P1,000.00 he had reinstating the cancelled policy prior to the
made on the policy had been "exhausted filing of the complaint, respondent insurance
pursuant to the provisions of the Short Period company had complied with its obligation
Rate Scale" printed at the back of the policy. under the contract. Hence, it concluded that
Malapit warned Areola that should be fail to petitioner-insured no longer has a cause of
pay the balance, the company's liability would action against it. It insists that it cannot be held
cease to operate. 7 liable for damages arising from breach of
contract, having demonstrated fully well its
In reply to the petitioner-insured's letter of July fulfillment of its obligation.
15, 1985, respondent insurance company,
through its Assistant Vice-President Mariano M. The trial court, on June 30, 1987, rendered a
Ampil III, wrote Areola a letter dated July 25, judgment in favor of petitioner-insured,
1985 stating that the company was verifying ordering respondent insurance company to pay
whether the payment had in fact been issued the former the following:
therefor. Ampil emphasized that the official
receipt should have been issued seven days a) P1,703.65 as actual damages;
from the issuance of the provisional receipt but
because no official receipt had been issued in b) P200,000.00 as moral
Areola's name, there was reason to believe damages; and
that no payment had been made. Apologizing
for the inconvenience, Ampil expressed the c) P50,000.00 as exemplary
company's concern by agreeing "to hold you damages;
cover (sic) under the terms of the referenced
policy until such time that this matter is 2. To pay to the plaintiff, as and
cleared." 8 for attorney's fees the amount of
P10,000.00; and
On August 3, 1985, Ampil wrote Areola another
letter confirming that the amount of P1,609.65 3. To pay the costs.
covered by provisional receipt No. 9300 was in
fact received by Prudential on December 17, In its decision, the court below declared that
1984. Hence, Ampil informed respondent insurance company acted in bad

faith in unilaterally cancelling subject insurance petitioner-insured. The appellate court added
policy, having done so only after seven months that respondent insurance company even
from the time that it had taken force and effect relieved Malapit, its Baguio City manager, of
and despite the fact of full payment of his job by forcing him to resign.
premiums and other charges on the issued
insurance policy. Cancellation from the date of Petitioner-insured moved for the
the policy's inception, explained the lower reconsideration of the said decision which the
court, meant that the protection sought by Court of Appeals denied. Hence, this petition
petitioner-insured from the risks insured for review on certiorari anchored on these
against was never extended by respondent arguments:
insurance company. Had the insured met an
accident at the time, the insurance company I
would certainly have disclaimed any liability
because technically, the petitioner could not Respondent Court of Appeals is
have been considered insured. Consequently, guilty of grave abuse of discretion
the trial court held that there was breach of and committed a serious and
contract on the part of respondent insurance reversible error in not holding
company, entitling petitioner-insured to an Respondent Prudential liable for
award of the damages prayed for. the cancellation of the insurance
contract which was admittedly
This ruling was challenged on appeal by caused by the fraudulent acts
respondent insurance company, denying bad and bad faith of its own officers.
faith on its part in unilaterally cancelling subject
insurance policy. II

After consideration of the appeal, the appellate Respondent Court of Appeals

court issued a reversal of the decision of the committed serious and reversible
trial court, convinced that the latter had erred in error and abused its discretion in
finding respondent insurance company in bad ruling that the defenses of good
faith for the cancellation of petitioner-insured's faith and honest mistake can co-
policy. According to the Court of Appeals, exist with the admitted fraudulent
respondent insurance company was not acts and evident bad faith.
motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the III
cancellation of the insurance policy was based
on what the existing records showed, i.e., Respondent Court of Appeals
absence of an official receipt issued to committed a reversible error in
petitioner-insured confirming payment of not finding that even without
premiums. Bad faith, said the Court of Appeals, considering the fraudulent acts of
is some motive of self-interest or ill-will; a its own officer in misappropriating
furtive design of ulterior purpose, proof of the premium payment, the act
which must be established convincingly. On the itself in cancelling the insurance
contrary, it further observed, the following acts policy was done with bad faith
indicate that respondent insurance company and/or gross negligence and
did not act precipitately or willfully to inflict a wanton attitude amounting to bad
wrong on petitioner-insured: faith, because among others, it
(a) the investigation conducted by Alfredo was
Bustamante to verify if petitioner-insured had Mr. Malapit — the person who
indeed paid the premium; (b) the letter of committed the fraud — who sent
August 3, 1985 confirming that the premium and signed the notice of
had been paid on December 17, 1984; (c) the cancellation.
reinstatement of the policy with a proposal to
extend its effective period to December 17, IV
1985; and (d) respondent insurance company's
apologies for the "inconvenience" caused upon

Respondent Court of Appeals has We uphold petitioner-insured's submission.

decided a question of substance Malapit's fraudulent act of misappropriating the
contrary to law and applicable premiums paid by petitioner-insured is beyond
decision of the Supreme Court doubt directly imputable to respondent
when it refused to award insurance company. A corporation, such as
damages in favor of herein respondent insurance company, acts solely
Petitioner-Appellants. thru its employees. The latters' acts are
considered as its own for which it can be held
It is petitioner-insured's submission that the to account. 11 The facts are clear as to the
fraudulent act of Malapit, manager of relationship between private respondent
respondent insurance company's branch office insurance company and Malapit. As admitted
in Baguio, in misappropriating his premium by private respondent insurance company in its
payments is the proximate cause of the answer, 12 Malapit was the manager of its
cancellation of the insurance policy. Petitioner- Baguio branch. It is beyond doubt that he
insured theorized that Malapit's act of signing represented its interest and acted in its behalf.
and even sending the notice of cancellation His act of receiving the premiums collected is
himself, notwithstanding his personal well within the province of his authority. Thus,
knowledge of petitioner-insured's full payment his receipt of said premiums is receipt by
of premiums, further reinforces the allegation of private respondent insurance company who, by
bad faith. Such fraudulent act committed by provision of law, particularly under Article 1910
Malapit, argued petitioner-insured, is of the Civil Code, is bound by the acts of its
attributable to respondent insurance company, agent.
an artificial corporate being which can act only
through its officers or employees. Malapit's Article 1910 thus reads:
actuation, concludes petitioner-insured, is
therefore not separate and distinct from that of Art. 1910. The principal must
respondent-insurance company, contrary to the comply with all the obligations
view held by the Court of Appeals. It must, which the agent may have
therefore, bear the consequences of the contracted within the scope of his
erroneous cancellation of subject insurance authority.
policy caused by the non-remittance by its own
employee of the premiums paid. Subsequent As for any obligation wherein the
reinstatement, according to petitioner-insured, agent has exceeded his power,
could not possibly absolve respondent the principal is not bound except
insurance company from liability, there being when he ratifies it expressly or
an obvious breach of contract. After all, tacitly.
reasoned out petitioner-insured, damage had
already been inflicted on him and no amount of Malapit's failure to remit the premiums he
rectification could remedy the same. received cannot constitute a defense for
private respondent insurance company; no
Respondent insurance company, on the other exoneration from liability could result
hand, argues that where reinstatement, the therefrom. The fact that private respondent
equitable relief sought by petitioner-insured insurance company was itself defrauded due to
was granted at an opportune moment, i.e. prior the anomalies that took place in its Baguio
to the filing of the complaint, petitioner-insured branch office, such as the non-accrual of said
is left without a cause of action on which to premiums to its account, does not free the
predicate his claim for damages. same from its obligation to petitioner Areola. As
Reinstatement, it further explained, effectively held in Prudential Bank v. Court of
restored petitioner-insured to all his rights Appeals 13 citing the ruling in McIntosh v.
under the policy. Hence, whatever cause of Dakota Trust Co.: 14
action there might have been against it, no
longer exists and the consequent award of A bank is liable for wrongful acts
damages ordered by the lower court in of its officers done in the interests
unsustainable. of the bank or in the course of
dealings of the officers in their

representative capacity but not this case, is given a choice between fulfillment
for acts outside the scope of their or rescission of the obligation in case one of
authority. A bank holding out its the obligors, such as respondent insurance
officers and agent as worthy of company, fails to comply with what is
confidence will not be permitted incumbent upon him. However, said article
to profit by the frauds they may entitles the injured party to payment of
thus be enabled to perpetrate in damages, regardless of whether he demands
the apparent scope of their fulfillment or rescission of the obligation.
employment; nor will it be Untenable then is reinstatement insurance
permitted to shirk its company's argument, namely, that
responsibility for such frauds, reinstatement being equivalent to fulfillment of
even though no benefit may its obligation, divests petitioner-insured of a
accrue to the bank therefrom. rightful claim for payment of damages. Such a
Accordingly, a banking claim finds no support in our laws on
corporation is liable to innocent obligations and contracts.
third persons where the
representation is made in the The nature of damages to be awarded,
course of its business by an however, would be in the form of nominal
agent acting within the general damages 17 contrary to that granted by the
scope of his authority even court below. Although the erroneous
though, in the particular case, the cancellation of the insurance policy constituted
agent is secretly abusing his a breach of contract, private respondent
authority and attempting to insurance company, within a reasonable time
perpetrate a fraud upon his took steps to rectify the wrong committed by
principal or some other person, reinstating the insurance policy of petitioner.
for his own ultimate benefit. Moreover, no actual or substantial damage or
injury was inflicted on petitioner Areola at the
Consequently, respondent insurance company time the insurance policy was cancelled.
is liable by way of damages for the fraudulent Nominal damages are "recoverable where a
acts committed by Malapit that gave occasion legal right is technically violated and must be
to the erroneous cancellation of subject vindicated against an invasion that has
insurance policy. Its earlier act of reinstating produced no actual present loss of any kind, or
the insurance policy can not obliterate the where there has been a breach of contract and
injury inflicted on petitioner-insured. no substantial injury or actual damages
Respondent company should be reminded that whatsoever have been or can be shown. 18
a contract of insurance creates reciprocal
obligations for both insurer and insured. WHEREFORE, the petition for review
Reciprocal obligations are those which arise on certiorari is hereby GRANTED and the
from the same cause and in which each party decision of the Court of Appeals in CA-G.R.
is both a debtor and a creditor of the other, No. 16902 on May 31, 1990, REVERSED. The
such that the obligation of one is dependent decision of Branch 40, RTC Dagupan City, in
upon the obligation of the other. 15 Civil Case No. D-7972 rendered on June 30,
1987 is hereby REINSTATED subject to the
Under the circumstances of instant case, the following modifications: (a) that nominal
relationship as creditor and debtor between the damages amounting to P30,000.00 be
parties arose from a common cause: i.e., by awarded petitioner in lieu of the damages
reason of their agreement to enter into a adjudicated by court a quo; and (b) that in the
contract of insurance under whose terms, satisfaction of the damages awarded therein,
respondent insurance company promised to respondent insurance company is ORDERED
extend protection to petitioner-insured against to pay the legal rate of interest computed from
the risk insured for a consideration in the form date of filing of complaint until final payment
of premiums to be paid by the latter. Under the thereof.
law governing reciprocal obligations,
particularly the second paragraph of Article SO ORDERED.
1191, 16 the injured party, petitioner-insured in

G.R. No. 156335 November 28, 2007 product which had a higher interest. However,
as the PRPN was not available that day,
SPOUSES RAUL and AMALIA Amalia put her money in the Citihi savings
PANLILIO, Petitioners, account.9
CITIBANK, N.A., Respondent. More than a month later, or on November 28,
1997, Amalia phoned Citibank saying she
DECISION wanted to place an investment, this time in the
amount of three million pesos (PhP3 million).
AUSTRIA-MARTINEZ, J.: Again, she spoke with Lee, the bank employee,
who introduced her to Citibank's various
Before the Court is a Petition for Review investment offerings. After the phone
on Certiorari under Rule 45 of the Rules of conversation, apparently decided on where to
Court, seeking to reverse the Decision 1 of the invest the money, Amalia went to Citibank
Court of Appeals (CA) dated May 28, 2002 in bringing a PCIBank check in the amount of
CA-G.R. CV No. 66649 and its Resolution of three million pesos (PhP3 million). During the
December 11, 2002, which reversed and set visit, Amalia instructed Lee on what to do with
aside the Decision of the Regional Trial Court the PhP3 million. Later, she learned that out of
(RTC) of Makati City. the said amount, PhP2,134,635.87 was placed
by Citibank in a Long-Term Commercial Paper
The case originated as a Complaint 2 for a sum (LTCP), a debt instrument that paid a high
of money and damages, filed with the RTC of interest, issued by the corporation Camella and
Makati City on March 2, 1999, by the spouses Palmera Homes (C&P Homes).10 The rest of
Raul and Amalia Panlilio (petitioners) against the money was placed in two PRPN accounts,
Citibank N.A. (respondent). in trust for each of Amalia's two children.11

The factual antecedents are as follows: Allegations differ between petitioners and
respondent as to whether Amalia instructed
On October 10, 1997, petitioner Amalia Panlilio Lee to place the money in the LTCP of C&P
(Amalia) visited respondent's Makati City office Homes.12
and deposited one million pesos (PhP1 million)
in the bank's "Citihi" account, a fixed-term An LTCP is an evidence of indebtedness, with
savings account with a higher-than-average a maturity period of more than 365 days,
interest.3 On the same day, Amalia also opened issued by a corporation to any person or
a current or checking account with respondent, entity.13 It is in effect a loan obtained by a
to which interest earnings of the Citihi account corporation (as borrower) from the investing
were to be credited.4 Respondent assigned public (as lender)14 and is one of many
one of its employees, Jinky Suzara Lee (Lee), instruments that investment banks can legally
to personally transact with Amalia and to buy on behalf of their clients, upon the latter's
handle the accounts.5 express instructions, for investment
purposes. LTCPs' attraction is that they
Amalia opened the accounts as ITF or "in trust usually have higher yields than most
for" accounts, as they were intended to benefit investment instruments. In the case of the
her minor children, Alejandro King Aguilar and LTCP issued by C&P Homes, the gross interest
Fe Emanuelle C. Panlilio, in case she would rate was 16.25% per annum at the time Amalia
meet an untimely death.6 To open these made her investment.16
accounts, Amalia signed two documents: a
Relationship Opening Form (ROF)7 and an On November 28, 1997, the day she made the
Investor Profiling and Suitability Questionnaire PhP3million investment, Amalia signed the
(Questionnaire).8 following documents: a Directional Investment
Management Agreement (DIMA),17 Term
Amalia's initial intention was to invest the Investment Application (TIA),18 and Directional
money in a Citibank product called the Peso Letter/Specific Instructions.19 Key features of
Repriceable Promissory Note (PRPN), a the DIMA and the Directional Letter are

provisions that essentially clear Citibank of any answer to the letters, respondent noted that the
obligation to guarantee the principal and investment had a 2003 maturity, was not a
interest of the investment, absent fraud or deposit, and thus, its return to the investor was
negligence on the latter's part. The provisions not guaranteed by respondent; however, it
likewise state that all risks are to be assumed added that the LTCP may be sold prior to
by the investor (petitioner). maturity and had in fact been put up for sale,
but such sale was "subject to the availability of
As to the amount invested, only buyers in the secondary market."29 At that time,
PhP2,134,635.87 out of the PhP3 million respondent was not able to find a buyer for the
brought by Amalia was placed in the LTCP LTCP. As this response did not satisfy
since, according to Lee, this was the only petitioners, Amalia again wrote respondent,
amount of LTCP then available.20 According to this time a final demand letter dated
Lee, the balance of the PhP3 million was September 21, 1998, asking for a
placed in two PRPN accounts, each one in reconsideration and a return of the money she
trust for Amalia's two children, per her invested.30 In reply, respondent wrote a letter
instructions.21 dated October 12, 1998 stating that despite
efforts to sell the LTCP, no willing buyers were
Following this investment, respondent claims to found and that even if a buyer would come
have regularly sent confirmations of investment later, the price would be lower than Amalia's
(COIs) to petitioners.22 A COI is a one-page, original investment.31
computer generated document informing the
customer of the investment earlier made with Thus, petitioners filed with the RTC their
the bank. The first of these COIs was received complaint against respondent for a sum of
by petitioners on or about December 9, 1997, money and damages.
as admitted by Amalia, which is around a week
after the investment was made.23 Respondent The Complaint32 essentially demanded a return
claims that other succeeding COIs were sent to of the investment, alleging that Amalia never
and received by petitioners. instructed respondent's employee Lee to invest
the money in an LTCP; and that far from what
Amalia claims to have called Lee as soon as Lee executed, Amalia's instructions were to
she received the first COI in December 1997, invest the money in a "trust account" with an
and demanded that the investment in LTCP be "interest of around 16.25% with a term of 91
withdrawn and placed in a days." Further, petitioners alleged that it was
PRPN.24 Respondent, however, denies this, only later, or on December 8, 1997, when
claiming that Amalia merely called to clarify Amalia received the first confirmation of
provisions in the COI and did not demand a investment (COI) from respondent, that she
withdrawal.25 and her husband learned of Lee's infidelity to
her orders. The COI allegedly informed
On August 6, 1998, petitioners met with petitioners that the money was placed in an
respondent's other employee, Lizza Colet, to LTCP of C&P Homes with a maturity in 2003,
preterminate the LTCP and their other and that the investment was not guaranteed by
investments. Petitioners were told that as to respondent. Petitioners also claimed that as
the LTCP, liquidation could be made only if soon as Amalia received the COI, she
there is a willing buyer, a prospect which could immediately called Lee; however, the latter
be difficult at that time because of the allegedly convinced her to ignore the COI, that
economic crisis. Still, petitioners signed three C&P Homes was an Ayala company, that the
sets of Sales Order Slip to sell the LTCP and investment was secure, and that it could be
left these with Colet.26 easily "withdrawn"; hence, Amalia decided not
to immediately "withdraw" the investment.
On August 18, 1998, Amalia, through counsel, Several months later, or on August 6, 1998,
sent her first formal, written demand to petitioners allegedly wanted to "withdraw" the
respondent "for a withdrawal of her investment investment to buy a property; however, they
as soon as possible."27 The same was followed failed to do so, since respondent told them the
by another letter dated September 7, 1998, LTCP had not yet matured, and that no buyers
which reiterated the same demands.28 In were willing to buy it. Hence, they sent various

demand letters to respondent, asking for a 2. The sum of PhP300,000.00

return of their money; and when these went representing moral damages;
unheeded, they filed the complaint.
3. The sum of PhP100,000.00
In its Answer,33 respondent admitted that, representing attorney's fees;
indeed, Amalia was its client and that she
invested the amounts stated in the complaint. 4. Costs.
However, respondent disputed the claim that
Amalia opened a "trust account" with a SO ORDERED.35
"request for an interest rate of around 16.25%
with a term of 91 days;" instead, respondent The RTC upheld all the allegations of
presented documents stating that Amalia petitioners and concluded that Amalia never
opened a "directional investment management instructed Citibank to invest the money in an
account," with investments to be made in C&P LTCP. Thus, the RTC found Citibank in
Homes' LTCP with a 2003 maturity. violation of its contractual and fiduciary duties
Respondent disputed allegations that it violated and held it liable to return the money invested
petitioners' express instructions. Respondent by petitioners plus damages.
likewise denied that Amalia, upon her receipt of
the COI, immediately called respondent and Respondent appealed to the CA.
protested the investment in LTCP, its 2003
maturity and Citibank's lack of guarantee. On appeal, in its Decision promulgated on May
According to respondent, no such protest was 28, 2002, the CA reversed the Decision of the
made and petitioners actually decided to RTC, thus:
liquidate their investment only months later,
after the newspapers reported that Ayala Land, WHEREFORE, premises considered, the
Inc. was cancelling plans to invest in C&P assailed decision dated 16 February 2000 is
Homes. REVERSED and SET ASIDE and a new one
entered DISMISSING Civil Case No. 99-500.36
The rest of respondent's Answer denied (1)
that it convinced Amalia not to liquidate or The CA held that with respect to the amount of
"withdraw" her investment or to ignore the PhP2,134,635.87, the account opened by
contents of the COI; (2) that it assured Amalia Amalia was an investment management
that the investment could be easily or quickly account; as a result, the money invested was
"withdrawn" or sold; (3) that it misrepresented the sole and exclusive obligation of C&P
that C&P was an Ayala company, implying that Homes, the issuer of the LTCP, and was not
C&P had secure finances; and (4) that guaranteed or insured by herein respondent
respondent had been unfaithful to and in Citibank;37 that Amalia opened such an account
breach of its contractual obligations. as evidenced by the documents she executed
with Citibank, namely, the Directional
After trial, the RTC rendered its Investment Management Agreement (DIMA),
Decision,34 dated February 16, 2000, the Term Investment Application (TIA), and
dispositive portion of which states: Directional Letter/Specific Instructions, which
were all dated November 28, 1997, the day
The foregoing considered, the court hereby Amalia brought the money to Citibank. Further,
rules in favor of plaintiffs and order defendant the CA brushed aside petitioners' arguments
to pay: that Amalia failed to understand the true nature
of the LTCP investment, and that she failed to
1. The sum of PhP2,134,635.87 read the documents as they were written in fine
representing the actual amount print. The CA ruled that petitioners could not
deposited by plaintiffs with defendant seek the court's aid to extricate them from their
plus interest corresponding to time contractual obligations. Citing jurisprudence,
deposit during the time material to this the CA held that the courts protected only
action from date of filing of this case those who were innocent victims of fraud, and
until fully paid; not those who simply made bad bargains or
exercised unwise judgment.

On petitioners' motion for reconsideration, the The Court finds no merit in the petition. After a
CA reiterated its ruling and denied the motion careful examination of the records, the Court
in a Resolution38 dated December 11, 2002. affirms the CA's ruling for being more in accord
with the facts and evidence on record.
Thus, the instant petition which raises issues,
summarized as follows: (1) whether petitioners On the first issue of whether petitioners are
are bound by the terms and conditions of the bound by the terms and conditions of the
Directional Investment Management DIMA, TIA, Directional Letter and COIs, the
Agreement (DIMA), Term Investment Court holds in the affirmative and finds for
Application (TIA), Directional Letter/Specific respondent.
Instructions, and Confirmations of Investment
(COIs); (2) and whether petitioners are entitled The DIMA, Directional Letter and COIs are
to take back the money they invested from evidence of the contract between the parties
respondent bank; or stated differently, whether and are binding on them, following Article 1159
respondent is obliged to return the money to of the Civil Code which states that contracts
petitioners upon their demand prior to maturity. have the force of law between the parties and
must be complied with in good faith. 47 In
Petitioners contend that they are not bound by particular, petitioner Amalia affixed her
the terms and conditions of the DIMA, signatures on the DIMA, Directional Letter and
Directional Letter and COIs because these TIA, a clear evidence of her consent which,
were inconsistent with the TIA and other under Article 1330 of the same Code, she
documents they signed.39 Further, they claim cannot deny absent any evidence of mistake,
that the DIMA and the Directional letter were violence, intimidation, undue influence or
signed in blank or contained unauthorized fraud.48
intercalations by Citibank.40 Petitioners argue
that contrary to the contents of the documents, As the documents have the effect of law, an
they did not instruct Citibank to invest in an examination is in order to reveal what underlies
LTCP or to put their money in such high-risk, petitioners' zeal to exclude these from
long-term instruments.41 consideration.

The Court notes the factual nature of the Under the DIMA, the following provisions
questions raised in the petition. Although the appear:
general rule is that only questions of law are
entertained by the Court in petitions for review 4. Nature of Agreement – THIS AGREEMENT
on certiorari,42 as the Court is not tasked to IS AN AGENCY AND NOT A TRUST
repeat the lower courts' analysis or weighing of AGREEMENT. AS SUCH, THE PRINCIPAL
evidence,43 there are instances when the Court SHALL AT ALL TIMES RETAIN LEGAL TITLE
may resolve factual issues, such as (1) when TO THE FUNDS AND PROPERTIES
the trial court misconstrued facts and SUBJECT OF THE ARRANGEMENT.
circumstances of substance which if
considered would alter the outcome of the THIS AGREEMENT IS FOR FINANCIAL
case;44 and (2) when the findings of facts of the RETURN AND FOR THE APPRECIATION OF
CA and the trial court differ.45 ASSETS OF THE ACCOUNT. THIS
In the instant case, the CA completely reversed YIELD, RETURN OR INCOME BY THE
the findings of facts of the trial court on the INVESTMENT MANAGER. AS SUCH, PAST
ground that the RTC failed to appreciate PERFORMANCE OF THE ACCOUNT IS NOT
certain facts and circumstances. Thus, A GUARANTY OF FUTURE PERFORMANCE
applying the standing jurisprudence on the AND THE INCOME OF INVESTMENTS CAN
matter,46 the Court proceeded to examine the FALL AS WELL AS RISE DEPENDING ON



DEPOSIT INSURANCE CORPORATION shall not be required to inquire as to the

(PDIC) AND THAT LOSSES, IF ANY, SHALL income/principal so withdrawn from the
BE FOR THE ACCOUNT OF THE PRINCIPAL. Portfolio. Any income of the Portfolio not
(Underscoring supplied.) withdrawn shall be accumulated and added to
the principal of the Portfolio for further
xxxx investment and reinvestment.49 (Underscoring
6. Exemption from Liability. - In the absence
of fraud, bad faith, or gross or willful negligence Under the Directional Letter, which constituted
on the part of the INVESTMENT MANAGER or petitioners' instructions to respondent, the
any person acting in its behalf, the following provisions are found:
INVESTMENT MANAGER shall not be liable
for any loss or damage to the Portfolio arising In the absence of fraud, bad faith or gross or
out of or in connection with any act done or willful negligence on your part or any person
omitted or caused to be done or omitted by the acting in your behalf, you shall not be held
INVESTMENT MANAGER pursuant to the liable for any loss or damage arising out of or
terms and conditions herein agreed upon, and in connection with any act done or performed
pursuant to and in accordance with the written or caused to be done or performed by you
instructions of the PRINCIPAL to carry out the pursuant to the terms and conditions of our
powers, duties and purposes for which this Agreement. I/We shall hold you free and
Agreement is executed. The PRINCIPAL will harmless from any liability, claim, damage, or
hold the INVESTMENT MANAGER free and fiduciary responsibility that may arise from this
harmless from any liability, claim, damage or investment made pursuant to the foregoing due
fiduciary responsibility that may arise from any to the default, bankruptcy or insolvency of the
investment made pursuant to this Agreement Borrower/Issuer, or the Broker/Dealer handling
and to such letters or instructions under the aforesaid transactions/s, it being our
Paragraph 3 hereof due to the default, intention and understanding that the
bankruptcy or insolvency of the investment/reinvestment under these
Borrower/Issuer or the Broker/Dealer handling transaction/s shall be strictly for my/our
the transaction and or their failure in any account and risk.
manner to comply with any of their obligations
under the aforesaid transactions, it being the In case of default of the Borrower/Issuers, we
PRINCIPAL'S understanding and intention that hereby authorize you at your sole option, to
the investments/reinvestments under this terminate the investment/s therein and deliver
account shall be strictly for his/its account and to us the securities/loan documents then
risk except as indicated above. constituting the assets of my/our DIMA/trust
account with you for me/us to undertake the
The INVESTMENT MANAGER shall manage necessary legal action to collect and/or recover
the Portfolio with the skill, care, prudence, and from the borrower/issuers.50 (Underscoring
diligence necessary under the prevailing supplied.)
circumstances that a good father of the family,
acting in a like capacity and familiar with such The documents, characterized by the quoted
matters, would exercise in the conduct of an provisions, generally extricate respondent from
enterprise of like character and with similar liability in case the investment is lost.
aims. (Underscoring supplied.) Accordingly, petitioners assumed all risks and
the task of collecting from the borrower/issuer
xxxx C&P Homes.

11. Withdrawal of Income/Principal – Subject In addition to the DIMA and Directional Letter,
to availability of funds and taking into respondent also sent petitioners the COIs on a
consideration the commitment of this account regular basis, the first of which was received by
to third parties, the PRINCIPAL may withdraw petitioners on December 9, 1997. The COIs
the income/principal of the Portfolio or portion have the following provisions in common:
thereof upon request or application thereof
from the Bank. The INVESTMENT MANAGER xxxx

NATURE OF INVESTMENT assumed all obligations or inherent risks

TRANSACTION IN LTCP entailed by the transaction under Article 1910
NAME OF of the Civil Code, which provides:
xxxx Article 1910. The principal must comply with all
TENOR 91 DAYS the obligations which the agent may have
contracted within the scope of his authority.
MATURITY DATE 11/05/03 As for any obligation wherein the agent has
xxxx exceeded his power, the principal is not bound
REPRICEABLE except when he ratifies it expressly or tacitly.
DAYS The transaction is perfectly legal, as
investment management activities may be
PURSUANT TO THE BANGKO SENTRAL exercised by a banking institution, pursuant to
REGULATIONS, THE PRINCIPAL AND Republic Act No. 337 or the General Banking
INTEREST OF YOUR INVESTMENT ARE Act of 1948, as amended, which was the law
OBLIGATIONS OF THE BORROWER AND then in effect.1avvphi1 Section 72 of said Act
BY CITIBANK N.A. Sec. 72. In addition to the operations
specifically authorized elsewhere in this Act,
xxxx banking institutions other than building and
loan associations may perform the following
Please examine this Confirmation and notify us services:
in writing within seven (7) days from receipt
hereof of any deviation from your prior (a) Receive in custody funds,
conformity to the investment. If no notice is documents, and valuable objects, and
received by us within this period, this rent safety deposit boxes for the
Confirmation shall be deemed correct and safeguarding of such effects;
approved by you, and we shall be released and
discharged as to all items, particulars, matters (b) Act as financial agent and buy and
and things set forth in this Confirmation.51 sell, by order of and for the account
of their customers, shares, evidences
Petitioners admit receiving only the first COI on of indebtedness and all types of
December 8, 1997.52 The evidence on record, securities;
however, supports respondent's contentions
that petitioners received the three other COIs (c) Make collections and payments for
on February 12, 1998,53 May 14, 1998,54and the account of others and perform such
August 14, 1998,55 before petitioners' first other services for their customers as are
demand letter dated August 18, 1998.56 not incompatible with banking business.

The DIMA, Directional Letter, TIA and COIs, (d) Upon prior approval of the Monetary
read together, establish the agreement Board, act as managing agent, adviser,
between the parties as an investment consultant or administrator of
management agreement, which created a investment management/
principal-agent relationship between petitioners advisory/consultancy accounts.
as principals and respondent as agent for
investment purposes. The agreement is not a The banks shall perform the services
trust or an ordinary bank deposit; hence, no permitted under subsections (a), (b) and (c)
trustor-trustee-beneficiary or even borrower- of this section as depositories or as agents.
lender relationship existed between petitioners Accordingly, they shall keep the funds,
and respondent with respect to the DIMA securities and other effects which they thus
account. Respondent purchased the LTCPs receive duly separated and apart from the
only as agent of petitioners; thus, the latter bank's own assets and liabilities.

The Monetary Board may regulate the PART FOUR: TRUST, OTHER FIDUCIARY
operations authorized by this section in order BUSINESS AND INVESTMENT
to insure that said operations do not endanger MANAGEMENT ACTIVITIES
the interests of the depositors and other
creditors of the banks. (Emphasis supplied.) xxxx

while Section 74 prohibits banks from Sec. X402 Scope of Regulations. These
guaranteeing obligations of any person, thus: regulations shall govern the grant of authority
to and the management, administration and
Sec. 74. No bank or banking institution shall conduct of trust, other fiduciary business and
enter, directly, or indirectly into any investment management activities (as these
contract of guaranty or suretyship, or shall terms are defined in Sec. X403) of banks. The
guarantee the interest or principal of any regulations are divided into three (3)
obligation of any person, copartnership,
association, corporation or other entity. The Sub-Parts where:
provisions of this section shall, however, not
apply to the following: (a) borrowing of money A. Trust and Other Fiduciary Business
by banking institution through the rediscounting shall apply to banks authorized to
of receivables; (b) acceptance of drafts or bills engage in trust and other fiduciary
of exchange (c) certification of checks; (d) business including investment
transactions involving the release of management activities;
documents attached to items received for
collection; (e) letters of credit transaction, B. Investment Management Activities
including stand-by arrangements; (f) shall apply to banks without trust
repurchase agreements; (g) shipside bonds; authority but with authority to engage
(h) ordinary guarantees or indorsements in in investment management activities;
favor of foreign creditors where the principal and
obligation involves loans and credits extended
directly by foreign investment purposes; and (i) C. General Provisions shall apply to
other transactions which the Monetary Board both.
may, by regulation, define or specify as not
covered by the prohibition. (Emphasis xxxx
Sec. X403 Definitions. For purposes of
Nothing also taints the legality of the LTCP regulating the operations of trust and other
bought in behalf of petitioners. C&P Homes' fiduciary business and investment
LTCP was duly registered with the Securities management activities, unless the context
and Exchange Commission while the issuer clearly connotes otherwise, the following shall
was accredited by the Philippine Trust have the meaning indicated.
a. Trust business shall refer to any
The evidence also sustains respondent's claim activity resulting from a trustor-trustee
that its trust department handled the account relationship (trusteeship) involving the
only because it was the department tasked to appointment of a trustee by a trustor for
oversee the trust, and other fiduciary and the administration, holding,
investment management services of the management of funds and/or properties
bank.58Contrary to petitioners' claim, this did of the trustor by the trustee for the use,
not mean that petitioners opened a "trust benefit or advantage of the trustor or of
account." This is consistent with Bangko others called beneficiaries.
Sentral ng Pilipinas (BSP) regulations,
specifically the Manual of Regulations for b. Other fiduciary business shall refer
Banks (MORB), which groups a bank's trust, to any activity of a trust-licensed
and other fiduciary and investment bank resulting from a contract or
management activities under the same set of agreement whereby the bank binds
regulations, to wit: itself to render services or to act in a

representative capacity such as in an that the contents of the documents were

agency, guardianship, explained to her before she signed.63
administratorship of wills, properties
and estates, executorship, Testimonial evidence and the complaint itself
receivership, and other similar contained allegations that petitioners' reason
services which do not create or result for transferring their money from local banks to
in a trusteeship. It shall exclude respondent is because it is safer to do so, 64 a
collecting or paying agency clear indicia of their intelligence and keen
arrangements and similar fiduciary business sense which they could not have
services which are inherent in the easily surrendered upon meeting with
use of the facilities of the other respondent.
operating departments of said bank.
Investment management activities, Nothing irregular or illegal attends the
which are considered as among other execution or construction of the DIMA and the
fiduciary business, shall be Directional Letter, as their provisions merely
separately defined in the succeeding conform with BSP regulations governing these
item to highlight its being a major types of transactions. Specifically, the MORB
source of fiduciary business. mandates that investment managers act as
agents, not as trustees, of the investor;65 that
c. Investment management activity the investment manager is prohibited from
shall refer to any activity resulting guaranteeing returns on the funds or
from a contract or agreement properties;66 that a written document should
primarily for financial return whereby state that the account is not covered by the
the bank (the investment manager) PDIC; and that losses are to be borne by
binds itself to handle or manage clients.67 That these legal requirements were
investible funds or any investment communicated to petitioners is evident in
portfolio in a representative capacity Amalia's signatures on the documents and in
as financial or managing agent, testimony to this effect.68
adviser, consultant or administrator
of financial or investment As to the allegation that the documents were in
management, advisory, consultancy "fine print," the Court notes that although the
or any similar arrangement which print may have looked smaller than average,
does not create or result in a they were nevertheless of the same size
trusteeship. (Emphasis supplied.) throughout the documents, so that no part or
provision is hidden from the reader. The Court
The Court finds no proof to sustain petitioners' also takes judicial notice that the print is no
contention that the DIMA and Directional Letter smaller than those found in similar contracts in
contradict other papers on record, or were common usage, such as insurance, mortgage,
signed in blank, or had unauthorized sales contracts and even ordinary bank deposit
intercalations.59 Petitioners themselves admit contracts. In the documents in question, the
that Amalia signed the DIMA and the provisions hurtful to petitioners' cause were
Directional Letter, which bars them from likewise in no smaller print than the rest of the
disowning the contract on the belated claim document, as indeed they were even
that she signed it in blank or did not read it first highlighted either in bold or in all caps. This
because of the "fine print." 60 On the contrary, disposes of the argument that they were
the evidence does not support these latter designed to hide their damaging nature to the
allegations, and it is highly improbable that signatory.69 The conclusion is that the print is
someone fairly educated and with investment readable and should not have prevented
experience would sign a document in blank or petitioners from studying the papers before
without reading it first.61 Petitioners owned their signing. Considering petitioners' social
various businesses and were clients of other stature, the nature of the transaction and the
banks, which omits the possibility of such amount of money involved, the Court
carelessness.62 Even more damning for presumes that petitioners exercised adequate
petitioners is that, on record, Amalia admitted care and diligence in studying the contract prior
that it was not her habit to sign in blank and to its execution.70

In Sweet Lines, Inc. v. Teves,71 the Court instant case, petitioners were under no such
pronounced the general rule regarding pressure; petitioners were free to invest
contracts of adhesion, thus: anytime and through any of the dozens of local
and foreign banks in the market.
x x x there are certain contracts almost all the
provisions of which have been drafted only by In addition, it has been held that contracts of
one party, usually a corporation. Such adhesion are not necessarily voidable. The
contracts are called contracts of adhesion, Court has consistently held that contracts of
because the only participation of the other adhesion, wherein one party imposes a ready-
party is the signing of his signature or his made form of contract on the other, are
‘adhesion’ thereto. Insurance contracts, bills of contracts not entirely prohibited, since the one
lading, contracts of sale of lots on the who adheres to the contract is in reality free to
installment plan fall into this category. reject it entirely; if he adheres, he gives his
consent.75 It is the rule that these contracts are
x x x it is drafted only by one party, usually the upheld unless they are in the nature of a
corporation, and is sought to be accepted or patently lopsided deal where blind adherence
adhered to by the other party x x x who cannot is not justified by other factual circumstances.76
change the same and who are thus made to
adhere hereto on the ‘take it or leave it’ basis. Petitioners insist that other documents Amalia
signed -- that is, the
x x x it is hardly just and proper to expect the ROF,77 Questionnaire78 and TIA79 -- contradict
passengers to examine their tickets received the DIMA and Directional Letter. Specifically,
from crowded/congested counters, more often they argue that under the ROF and the
than not during rush hours, for conditions that Questionnaire, they manifested an intent to
may be printed thereon, much less charge invest only in a time deposit in the medium
them with having consented to the conditions, term of over a year to three years, with no risk
so printed, especially if there are a number of on the capital, or with returns in line with a time
such conditions in fine print, as in this case. deposit.80 However, this contention is belied by
the evidence and testimony on record.
However, Sweet Lines72 further expounded that Respondent explains that investors fill up the
the validity and/or enforceability of contracts of ROF and Questionnaire only when they first
adhesion will have to be determined by the visit the bank and only for the account they first
peculiar circumstances obtaining in each case opened,81 as confirmed by the evidence on
and the nature of the conditions or terms record and the fact that there were no
sought to be enforced.73 Thus, while any subsequent ROFs and Questionnaires
ambiguity, obscurity or doubt in a contract of presented by petitioners.
adhesion is construed or resolved strictly
against the party who prepared it, 74 it is also The ROF and Questionnaire were filled up
equally obvious that in a case where no such when the PhP1 million "Citihi" savings account
ambiguity, obscurity or doubt exists, no such was opened by Amalia on October 10, 1997,
construction is warranted. This was the case in during her first visit to the bank. When Amalia
the DIMA and the Directional Letter signed by returned more than a month later on November
Amalia in the instant controversy. 28, 1997, a change in her investment attitude
occurred in that she wanted to invest an even
The parties to this case only disagree on bigger amount (PhP3 million) and her interest
whether petitioners were properly informed of had shifted to high-yield but riskier long-term
the contents of the documents. But as earlier instruments like PRPNs and LTCPs. When
stated, petitioners were free to read and study Amalia proceeded to sign new documents like
the contents of the papers before signing them, the DIMA and the Directional Letter for the
without compulsion to sign immediately or even LTCP investment, despite their obviously
days after, as indeed the parties were even different contents from those she was used to
free not to sign the documents at all. Unlike signing for ordinary deposits, she essentially
in Sweet Lines, where the plaintiffs had no confirmed that she knew what she was
choice but to take the services of monopolistic agreeing to and that it was different from all her
transport companies during rush hours, in the previous transactions.

In addition, even the ROF and Questionnaire ____________________

signed by Amalia during the first visit contained ____________________
provisions that clearly contradict petitioners' PANLILIO, ________
claims. The ROF contained the following: AMALIA ITF _________
I/We declare the above information to be ALEJANDRO _________
correct. I/We hereby acknowledge to have KING AGUILAR & FE ________
received, read, understood and agree to be _________
bound by the general terms and conditions EMMANUELLE ________
applicable and governing my/our account/s PANLILIO
and/or investment/s which appear in a
separate brochure/manual as well as
separate documents relative to said Address
account/s and/or investment/s. Said terms _______________________________
and conditions shall likewise apply to all our _______________________
existing and future account/s and/or For corporations, c/o
investment/s with Citibank. I/We hereby further _______________________ Tel. No.
authorize Citibank to open additional account/s ____________
and/or investment/s in the future with the same
account title as contained in this relationship Dear Sir:
opening form subject to the rules governing the
aforementioned account/s and/or investment/s THIS IS TO ( ) rollover
and the terms and conditions therein or herein. AUTHORIZE ( ) rollover w/
I/We agree to notify you in writing of any CITIBANK, N. A. TO: ( ) added
change in the information supplied in this open funds
relationship opening form.82 (Emphasis ( ) rollover w/
supplied.) payout
Ref. No.
while the Questionnaire had the following ____
provisions: [ ]
[ ] Peso [ ] Dollar
I am aware that investment products are not Time TD
of Sale
bank deposits or other obligations of, or Depositorie [ ]
guaranteed or insured by Citibank N.A., s Multicurre
Citicorp or their affiliates. I am aware that the [ ] NNPN ncy TD
principal and interest of my investments are
obligations of the borrower/issuer. They are NEW ADDED FUNDS
subject to risk and possible loss of WILL COME FROM: for P/$
principal. Past performance is not indicative of ( ) debit my/our account __________
future performance. In addition, investments no. ________________ _____
are not covered by the Philippine Deposit ( ) Check No. for P/$
Insurance Corporation (PDIC) or the Federal ___________________ __________
Deposit Insurance Corporation (FDIC). 83 which _________ _____
do not need further elaboration on the matter. ( ) Cash deposit for P/$
___________________ __________
Petitioners contend that the Term Investment _______ _____
Application (TIA), viz:
MAKATI 1/28/97 3,000,000
L/Money In 11/28/97
Branch and Service Area
CIF Keys MATURITY Maturity Date
TITLE OF ACCOUNT _________ AMOUNT/Par Value P/ _______

$____________ All the documents signed by Amalia, including

the DIMA and Directional Letter, show that her
INTEREST around Term 91 agreement with respondent is one of agency,
RATE 16.25% days and not a trust.

(Emphasis supplied.) The DIMA, TIA, Directional Letter and COIs,

viewed altogether, establish without doubt the
clearly contradicts the DIMA, Directional Letter transaction between the parties, that on
and COIs. November 28, 1997, with PhP3 million in tow,
Amalia opened an investment management
Petitioners insist that the amount PhP3 million account with respondent, under which she
in the TIA does not tally with the actual value of instructed the latter as her agent to invest the
the investment which appeared on the first bulk of the money in LTCP.
COI, which was PhP2,134,635.87. Petitioners
add that the TIA's interest rate of "around Aside from their bare allegations, evidence that
16.25%" with the term "91 days" contradicts supports petitioners' contentions that no such
the COI's interest rate of 16.95% with a tenor deal took place, or that the agreement was
of 75 days repriceable after 91 days. 85 Further, different, simply does not exist in the records.
petitioners claim that the word "TRUST"
inscribed on the TIA obviously meant that they Petitioners were experienced and intelligent
opened a trust account, and not any other enough to be able to demand and sign a
account.86 different document to signify their real intention;
but no such document exists. Thus, petitioners'
The explanation of respondent is plausible. acts and omissions negate their allegations
Only PhP2,134,635.87 out of the PhP3 million that they were essentially defrauded by the
was placed in the LTCP since this was the only bank.
amount of LTCP then available, while the
balance was placed in two PRPN accounts, Petitioners had other chances to protest
each one in trust for Amalia's two children, respondent's alleged disregard of their
upon her instructions.87 The disparity in the instructions. The COIs sent by respondent to
interest rate is also explained by the fact that petitioners encapsulate the spirit of the DIMA
the 16.95% rate placed in the COI is gross and and Directional Letter, with the proviso that
not net interest,88 and that it is subject to should there be any deviations from petitioners'
repricing every 91 days. instructions, they may inform respondent in
writing within seven days.
The Court gives credence to respondent's Assuming arguendo that respondent violated
explanation that the word "TRUST" appearing the instructions, petitioners did not file a single
on the TIA simply means that the account is to timely written protest, however, despite their
be handled by the bank's trust department, admission that they received the first COI on
which handles not only the trust business but December 8, 1997.91 It took eight months for
also the other fiduciary business and petitioners to formally demand the return of
investment management activities of the bank, their investment through their counsel in a
while the "ITF" or "in trust for" appearing on the letter dated August 18, 1998. 92 The letter,
other documents only signifies that the money however, did not even contest the placement of
was invested by Amalia in trust for her two the money in an LTCP, but merely its maturity
children, a device that she uses even in her in the year 2003. Prior to the letter, it has been
ordinary deposit accounts with other shown that petitioners had received COIs on
banks. The ITF device allows the children to February 12, 1998,93 May 14, 1998,94 and
obtain the money without need of paying estate August 14, 1998,95 and in between, petitioners
taxes in case Amalia meets a premature never demanded a return of the money they
death.90 However, it creates a trustee- invested.
beneficiary relationship only between Amalia
and her children, and not between Amalia, her Petitioners' acts and omissions strongly
children, and Citibank. indicate that they in fact conformed to the
agreement in the months after the signing. In

that period, they were receiving their bank return of their investment before the maturity
statements and earning interest from the date, their only way is to find a willing buyer to
investment, as in fact, C&P Homes under the purchase the LTCP at an agreed price, or to go
LTCP continuously paid interest even up to the directly against the issuer C&P Homes, not
time the instant case was already on against the respondent.
trial.96 When petitioners finally contested the
contract months after its signing, it was The nature of the DIMA and the other
suspiciously during the time when newspaper documents signed by the parties calls for this
reports came out that C&P Homes' stock had condition. The DIMA states that respondent is a
plunged in value and that Ayala Land was mere agent of petitioners and that losses from
withdrawing its offer to invest in the both the principal and interest of the
company.97 The connection is too obvious to investment are strictly on petitioners' account.
ignore. It is reasonable to conclude that Meanwhile, the Directional Letter clearly states
petitioners' repudiation of the agreement was that the investment is to be made in an LTCP
nothing more than an afterthought, a reaction which, by definition, has a term of more than
to the negative events in the market and an 365 days.99 Prior to the expiry of the term,
effort to flee from a losing investment. which in the case of the C&P Homes LTCP is
five years, petitioners may not claim back their
Anent the second issue, whether petitioners investment, especially not from respondent
are entitled to recover from respondent the bank.
amount of PhP2,134,635.87 invested under the
LTCP, the Court agrees with the CA in Having bound themselves under the contract
dismissing the complaint filed by petitioners. as earlier discussed, petitioners are governed
by its provisions. Petitioners as principals in an
Petitioners may not seek a return of their agency relationship are solely obliged to
investment directly from respondent at or prior observe the solemnity of the transaction
to maturity. As earlier explained, the investment entered into by the agent on their behalf,
is not a deposit and is not guaranteed by absent any proof that the latter acted beyond
respondent. Absent any fraud or bad faith, the its authority.100 Concomitant to this obligation is
recourse of petitioners in the LTCP is solely that the principal also assumes the risks that
against the issuer, C&P Homes, and only upon may arise from the transaction.101 Indeed, as in
maturity. The DIMA states, thus: the instant case, bank regulations prohibit
banks from guaranteeing profits or the principal
11. Withdrawal of Income/Principal in an investment management
– Subject to availability of funds and taking account. Hence, the CA correctly dismissed
into consideration the commitment of this petitioners’ complaint against respondent.
account to third parties, the PRINCIPAL
may withdraw the income/principal of the WHEREFORE, the Petition is DENIED. For
Portfolio or portion thereof upon request or lack of evidence, the Decision of the Court of
application thereof from the Bank. The Appeals dated dated May 28, 2002 and its
INVESTMENT MANAGER shall not be Resolution of December 11, 2002,
required to inquire as to the income/principal are AFFIRMED.
so withdrawn from the Portfolio. Any income of
the Portfolio not withdrawn shall be Costs against the petitioners.
accumulated and added to the principal of the
Portfolio for further investment and SO ORDERED.
reinvestment.98 (Emphasis supplied.)

It is clear that since the money is committed to

C&P Homes via LTCP for five years, or until
2003, petitioners may not seek its recovery
from respondent prior to the lapse of this
period. Petitioners must wait and meanwhile
just be content with receiving their interest
regularly. If petitioners want the immediate

G.R. No. 111924 January 27, 1997 virtue of the aforementioned Deed of Definite
Sale. Under said document, petitioner
ADORACION LUSTAN, petitioner, conveyed the subject property and all the
vs. improvements thereon unto Parangan
COURT OF APPEALS, NICOLAS absolutely for and in consideration of the sum
PARANGAN and SOLEDAD PARANGAN, of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for
FRANCISCO, J.: cancellation of liens, quieting of title, recovery
of possession and damages against Parangan
Petitioner Adoracion Lustan is the registered and PNB in the Regional Trial Court of Iloilo
owner of a parcel of land otherwise known as City. After trial, the lower court rendered
Lot 8069 of the Cadastral Survey of Calinog, judgment, disposing as follows:
Iloilo containing an area of 10.0057 hectares
and covered by TCT No. T-561. On February WHEREFORE and in view of the
25, 1969, petitioner leased the above foregoing, a decision is rendered
described property to private respondent as follows:
Nicolas Parangan for a term of ten (10) years
and an annual rent of One Thousand 1. Ordering cancellation by the
(P1,000.00) Pesos. During the period of lease, Register of Deeds of the Province
Parangan was regularly extending loans in of Iloilo, of the unauthorized
small amounts to petitioner to defray her daily loans, the liens and
expenses and to finance her daughter's encumbrances appearing in the
education. On July 29, 1970, petitioner Transfer Certificate of Title No. T-
executed a Special Power of Attorney in favor 561, especially entries nos.
of Parangan to secure an agricultural loan from 286231; 338638; and 352794;
private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On 2. Declaring the Deed of Pacto
February 18, 1972, a second Special Power of de Retro Sale dated April 25,
Attorney was executed by petitioner, by virtue 1978 and the Deed of Definite
of which, Parangan was able to secure four (4) Sale dated May 6, 1979, both
additional loans, to wit: the sums of documents executed by
P24,000.00, P38,000.00, P38,600.00 and Adoracion Lustan in favor of
P25,000.00 on December 15, 1975, Nicolas Parangan over Lot 8069
September 6, 1976, July 2, 1979 and June 2, in TCT No. T-561 of the Register
1980, respectively. The last three loans were of Deeds of Iloilo, as null and
without the knowledge of herein petitioner and void, declaring the same to be
all the proceeds therefrom were used by Deeds of Equitable Mortgage;
Parangan for his own benefit. 1 These
encumbrances were duly annotated on the 3. Ordering defendant Nicolas
certificate of title. On April 16, 1973, petitioner Parangan to pay all the loans he
signed a Deed of Pacto de Retro Sale2 in favor secured from defendant PNB
of Parangan which was superseded by the using thereto as security TCT No.
Deed of Definite Sale3dated May 4, 1979 which T-561 of plaintiff and defendant
petitioner signed upon Parangan's PNB to return TCT No. T-561 to
representation that the same merely evidences plaintiff;
the loans extended by him unto the former.
4. Ordering defendant Nicolas
For fear that her property might be prejudiced Parangan to return possession of
by the continued borrowing of Parangan, the land in question, Lot 8069 of
petitioner demanded the return of her the Calinog Cadastre, described
certificate of title. Instead of complying with the in TCT No. T-561 of the Register
request, Parangan asserted his rights over the of Deeds of Iloilo, to plaintiff upon
property which allegedly had become his by payment of the sum of

P75,000.00 by plaintiff to necessitating a review of the evidence on

defendant Parangan which record.5 After a thorough examination, we note
payment by plaintiff must be some errors, both in fact and in law, committed
made within ninety (90) days by public respondent CA.
from receipt of this decision;
otherwise, sale of the land will be The court a quo ruled that the Deed of Definite
ordered by the court to satisfy Sale is in reality an equitable mortgage as it
payment of the amount; was shown beyond doubt that the intention of
the parties was one of a loan secured by
5. Ordering defendant Nicolas petitioner's land.6 We agree.
Parangan to pay plaintiff
attorney's fees in the sum of A contract is perfected by mere consent. 7 More
P15,000.00 and to pay the costs particularly, a contract of sale is perfected at
of the suit. the moment there is a meeting of minds upon
the thing which is the object of the contract and
SO ORDERED.4 upon the price.8 This meeting of the minds
speaks of the intent of the parties in entering
Upon appeal to the Court of Appeals (CA), into the contract respecting the subject matter
respondent court reversed the trial court's and the consideration thereof. If the words of
decision. Hence this petition contending that the contract appear to be contrary to the
the CA committed the following errors: evident intention of the parties, the latter shall
prevail over the former.9 In the case at bench,
IN ARRIVING AT THE the evidence is sufficient to warrant a finding
CONCLUSION THAT NONE OF that petitioner and Parangan merely intended
THE CONDITIONS STATED IN to consolidate the former's indebtedness to the
ART. 1602 OF THE NEW CIVIL latter in a single instrument and to secure the
CODE HAS BEEN PROVEN TO same with the subject property. Even when a
EXIST BY PREPONDERANCE document appears on its face to be a sale, the
OF EVIDENCE; owner of the property may prove that the
contract is really a loan with mortgage by
IN CONCLUDING THAT raising as an issue the fact that the document
PETITIONER SIGNED THE does not express the true intent of the parties.
DEED OF SALE WITH In this case, parol evidence then becomes
KNOWLEDGE AS TO THE competent and admissible to prove that the
CONTENTS THEREOF; instrument was in truth and in fact given merely
as a security for the repayment of a loan. And
IN ARRIVING AT THE upon proof of the truth of such allegations, the
CONCLUSION THAT THE court will enforce the agreement or
TESTIMONY OF WITNESS understanding in consonance with the true
DELIA CABIAL DESERVES intent of the parties at the time of the execution
FULL FAITH AND CREDIT; of the contract. 10

IN FINDING THAT THE SPECIAL Articles 1602 and 1604 of the Civil Code
POWER OF ATTORNEY respectively provide:
FOR "UNLIMITED" LOANS AS The contract shall be presumed
RELEVANT. to be an equitable mortgage in
any of the following cases:
Two main issues confront us in this case, to
wit: whether or not the Deed of Definite Sale is 1) When the price of a sale with
in reality an equitable mortgage and whether or right to repurchase is unusually
not petitioner's property is liable to PNB for the inadequate;
loans contracted by Parangan by virtue of the
special power of attorney. The lower court and
the CA arrived at different factual findings thus

2) When the vendor remains in under this category can be inferred from the
possession as lessor or circumstances surrounding the transaction as
otherwise; herein set forth:

3) When upon or after the Petitioner had no knowledge that the

expiration of the right to contract 12 she signed is a deed of sale. The
repurchase, another instrument contents of the same were not read nor
extending the period of explained to her so that she may intelligibly
redemption or granting a new formulate in her mind the consequences of her
period is executed; conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is
4) When the vendor binds himself illiterate and her condition constrained her to
to pay the taxes on the thing sold; merely rely on Parangan's assurance that the
contract only evidences her indebtedness to
5) When the purchaser retains for the latter. When one of the contracting parties
himself a part of the purchase is unable to read, or if the contract is in a
price; language not understood by him, and mistake
or fraud is alleged, the person enforcing the
6) In any other case where it may contract must show that the terms thereof have
be fairly inferred that the real been fully explained to the former. 13 Settled is
intention of the parties is that the the rule that where a party to a contract is
transaction shall secure the illiterate or cannot read or cannot understand
payment of a debt or the the language in which the contract is written,
performance of any other the burden is on the party interested in
obligation. enforcing the contract to prove that the terms
thereof are fully explained to the former in a
Art. 1604. The provisions of language understood by him.14 To our mind,
Article 1602 shall also apply to a this burden has not been satisfactorily
contract purporting to be an discharged.
absolute sale.
We do not find the testimony of Parangan and
From a reading of the above-quoted Delia Cabial that the contract was duly read
provisions, for a presumption of an equitable and explained to petitioner worthy of credit.
mortgage to arise, we must first satisfy two The assessment by the trial court of the
requisites namely: that the parties entered into credibility of witnesses is entitled to great
a contract denominated as a contract of sale respect and weight for having had the
and that their intention was to secure an opportunity of observing the conduct and
existing debt by way of mortgage. Under Art. demeanor of the witnesses while
1604 of the Civil Code, a contract purporting to testifying. 15 The lower court may not have
be an absolute sale shall be presumed to be categorically declared Cabial's testimony as
an equitable mortgage should any of the doubtful but this fact is readily apparent when it
conditions in Art. 1602 be present. The ruled on the basis of petitioner's evidence in
existence of any of the circumstances therein, total disregard of the positive testimony on
not a concurrence nor an overwhelming Parangan's side. We have subjected the
number of such circumstances, suffices to give records to a thorough examination, and a
rise to the presumption that the contract is an reading of the transcript of stenographic notes
equitable mortgage. 11 would bear out that the court a quo is correct in
its assessment. The CA committed a reversible
Art. 1602, (6), in relation to Art 1604 provides error when it relied on the testimony of Cabial
that a contract of sale is presumed to be an in upholding the validity of the Deed of Definite
equitable mortgage in any other case where it Sale. For one, there are noted major
may be fairly inferred that the real intention of contradictions between the testimonies of
the parties is that the transaction shall secure Cabial and Judge Lebaquin, who notarized the
the payment of a debt or the performance of purported Deed of Definite Sale. While the
any other obligation. That the case clearly falls former testified that receipts were presented

before Judge Lebaquin, who in turn made an A: No, sir.

accounting to determine the price of the land 16,
the latter categorically denied the Q: Did Nicolas
allegation. 17 This contradiction casts doubt on Parangan right in
the credibility of Cabial as it is ostensible that that very room tell
her version of the story is concocted. Adoracion what she
was signing?
On the other hand, petitioner's witness Celso
Pamplona, testified that the contract was not A: No, sir.
read nor explained to petitioner. We believe
that this witness gave a more accurate account xxx xxx xxx
of the circumstances surrounding the
transaction. He has no motive to prevaricate or Q: What did you
concoct a story as he witnessed the execution have in mind when
of the document at the behest of Parangan you were signing
himself who, at the outset, informed him that this document, Exh.
he will witness a document consolidating "4"?
petitioner's debts. He thus testified:
A: To show that
Q: In (sic) May 4, Adoracion Lustan
1979, you has debts with
remember having Nicolas
went (sic) to the Parangan. 18
Municipality of
Calinog? Furthermore, we note the absence of any
question propounded to Judge Lebaquin to
A: Yes, sir. establish that the deed of sale was read and
explained by him to petitioner. When asked if
Q: Who invited you witness has any knowledge whether petitioner
to go there? knows how to read or write, he answered in the
negative. 19 This latter admission impresses
A: Parangan. upon us that the contract was not at all read or
explained to petitioner for had he known that
Q: You mean petitioner is illiterate, his assistance would not
Nicolas Parangan? have been necessary.

A: Yes, sir. The foregoing squares with the sixth instance

when a presumption of equitable mortgage
Q: What did Nicolas prevails. The contract of definite sale, where
tell you why he petitioner purportedly ceded all her rights to the
invited you to go subject lot in favor of Parangan, did not
there? embody the true intention of the parties. The
evidence speaks clearly of the nature of the
A: He told me that I agreement — it was one executed to secure
will witness on the some loans.
indebtedness of
Adoracion to Anent the issue of whether the outstanding
Parangan. mortgages on the subject property can be
enforced against petitioner, we rule in the
Q: Before affirmative.
Adoracion Lustan
signed her name in Third persons who are not parties to a loan
this Exh. "4", was may secure the latter by pledging or
this document read mortgaging their own property. 20So long as
to her? valid consent was given, the fact that the loans

were solely for the benefit of Parangan would former allowed the latter to act as though he
not invalidate the mortgage with respect to had full powers (Article 1911, Civil
petitioner's property. In consenting thereto, Code). 24 The mortgage directly and
even granting that petitioner may not be immediately subjects the property upon which
assuming personal liability for the debt, her it is imposed. 25 The property of third persons
property shall nevertheless secure and which has been expressly mortgaged to
respond for the performance of the principal guarantee an obligation to which the said
obligation. 21 It is admitted that petitioner is the persons are foreign, is directly and jointly liable
owner of the parcel of land mortgaged to PNB for the fulfillment thereof; it is therefore subject
on five (5) occasions by virtue of the Special to execution and sale for the purpose of paying
Powers of Attorney executed by petitioner in the amount of the debt for which it is
favor of Parangan. Petitioner argues that the liable. 26 However, petitioner has an
last three mortgages were void for lack of unquestionable right to demand proportional
authority. She totally failed to consider that said indemnification from Parangan with respect to
Special Powers of Attorney are a continuing the sum paid to PNB from the proceeds of the
one and absent a valid revocation duly sale of her property 27 in case the same is sold
furnished to the mortgagee, the same to satisfy the unpaid debts.
continues to have force and effect as against
third persons who had no knowledge of such WHEREFORE, premises considered, the
lack of authority. Article 1921 of the Civil Code judgment of the lower court is hereby
provides: REINSTATED with the following
Art. 1921. If the agency has been
entrusted for the purpose of 1. DECLARING THE DEED OF DEFINITE
contracting with specified SALE AS AN EQUITABLE MORTGAGE;
persons, its revocation shall not
prejudice the latter if they were 2. ORDERING PRIVATE RESPONDENT
not given notice thereof. NICOLAS PARANGAN TO RETURN THE
The Special Power of Attorney executed by UNTO PETITIONER UPON THE LATTER'S
petitioner in favor of Parangan duly authorized PAYMENT OF THE SUM OF P75,000.00
the latter to represent and act on behalf of the WITHIN NINETY (90) DAYS FROM RECEIPT
former. Having done so, petitioner clothed OF THIS DECISION;
Parangan with authority to deal with PNB on
her behalf and in the absence of any proof that 3. DECLARING THE MORTGAGES IN FAVOR
the bank had knowledge that the last three OF PNB AS VALID AND SUBSISTING AND
loans were without the express authority of MAY THEREFORE BE SUBJECTED TO
petitioner, it cannot be prejudiced thereby. As EXECUTION SALE.
far as third persons are concerned, an act is
deemed to have been performed within the 4. ORDERING PRIVATE RESPONDENT
scope of the agent's authority if such is within PARANGAN TO PAY PETITIONER THE
the terms of the power of attorney as written AMOUNT OF P15,000.00 BY WAY OF
even if the agent has in fact exceeded the ATTORNEY'S FEES AND TO PAY THE
limits of his authority according to the COSTS OF THE SUIT.
understanding between the principal and the
agent. 22 The Special Power of Attorney SO ORDERED.
particularly provides that the same is good not
only for the principal loan but also for
subsequent commercial, industrial, agricultural
loan or credit accommodation that the attorney-
in-fact may obtain and until the power of
attorney is revoked in a public instrument and a
copy of which is furnished to PNB. 23 Even
when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the

G.R. No. 115838 July 18, 2002 24, 1984 (Exhibit "A-1, p. 144, Records),
appellee6 was authorized by appellants
CONSTANTE AMOR DE CASTRO and to act as real estate broker in the sale of
CORAZON AMOR DE CASTRO, petitioners, these properties for the amount
vs. of P23,000,000.00, five percent (5%) of
COURT OF APPEALS and FRANCISCO which will be given to the agent as
ARTIGO, respondents. commission. It was appellee who first
found Times Transit Corporation,
CARPIO, J.: represented by its president Mr.
Rondaris, as prospective buyer which
The Case desired to buy two (2) lots only,
specifically lots 14 and 15. Eventually,
Before us is a Petition for Review on sometime in May of 1985, the sale of
Certiorari1 seeking to annul the Decision of the lots 14 and 15 was consummated.
Court of Appeals2 dated May 4, 1994 in CA- Appellee received from
G.R. CV No. 37996, which affirmed in toto the appellants P48,893.76 as commission.
decision3 of the Regional Trial Court of Quezon
City, Branch 80, in Civil Case No. Q-89-2631. It was then that the rift between the
The trial court disposed as follows: contending parties soon emerged.
Appellee apparently felt short changed
"WHEREFORE, the Court finds because according to him, his total
defendants Constante and Corazon commission should be P352,500.00
Amor de Castro jointly and solidarily which is five percent (5%) of the agreed
liable to plaintiff the sum of: price of P7,050,000.00 paid by Times
Transit Corporation to appellants for the
a) P303,606.24 representing unpaid two (2) lots, and that it was he who
commission; introduced the buyer to appellants and
unceasingly facilitated the negotiation
b) P25,000.00 for and by way of moral which ultimately led to the
damages; consummation of the sale. Hence, he
sued below to collect the balance
c) P45,000.00 for and by way of of P303,606.24 after having
attorney's fees; received P48,893.76 in
d) To pay the cost of this suit.
On the other hand, appellants
Quezon City, Metro Manila, December completely traverse appellee's claims
20, 1991." and essentially argue that appellee is
selfishly asking for more than what he
The Antecedent Facts truly deserved as commission to the
prejudice of other agents who were
On May 29, 1989, private respondent more instrumental in the consummation
Francisco Artigo ("Artigo" for brevity) sued of the sale. Although appellants readily
petitioners Constante A. De Castro concede that it was appellee who first
("Constante" for brevity) and Corazon A. De introduced Times Transit Corp. to them,
Castro ("Corazon" for brevity) to collect the appellee was not designated by them as
unpaid balance of his broker's commission their exclusive real estate agent but that
from the De Castros.4 The Court of Appeals in fact there were more or less eighteen
summarized the facts in this wise: (18) others whose collective efforts in
the long run dwarfed those of appellee's,
"x x x. Appellants5 were co-owners of considering that the first negotiation for
four (4) lots located at EDSA corner the sale where appellee took active
New York and Denver Streets in Cubao, participation failed and it was these
Quezon City. In a letter dated January other agents who successfully brokered

in the second negotiation. But despite Times Transit to the De Castros for the two
this and out of appellants' "pure lots. The Court of Appeals ruled that
liberality, beneficence and evidence aliunde could be presented to prove
magnanimity", appellee nevertheless that the actual purchase price was P7.05
was given the largest cut in the million and not P3.6 million as appearing in the
commission (P48,893.76), although on deed of sale. Evidence aliunde is admissible
the principle of quantum meruit he considering that Artigo is not a party, but a
would have certainly been entitled to mere witness in the deed of sale between the
less. So appellee should not have been De Castros and Times Transit. The Court of
heard to complain of getting only a Appeals explained that, "the rule that oral
pittance when he actually got the lion's evidence is inadmissible to vary the terms of
share of the commission and worse, he written instruments is generally applied only in
should not have been allowed to get the suits between parties to the instrument and
entire commission. Furthermore, the strangers to the contract are not bound by it."
purchase price for the two lots was Besides, Artigo was not suing under the deed
only P3.6 million as appearing in the of sale, but solely under the contract of agency.
deed of sale and not P7.05 million as Thus, the Court of Appeals upheld the trial
alleged by appellee. Thus, even court's finding that the purchase price was
assuming that appellee is entitled to the P7.05 million and not P3.6 million.
entire commission, he would only be
getting 5% of the P3.6 million, Hence, the instant petition.
or P180,000.00."
The Issues
Ruling of the Court of Appeals
According to petitioners, the Court of Appeals
The Court of Appeals affirmed in toto the erred in -
decision of the trial court.
First. The Court of Appeals found that OF THE COMPLAINT FOR FAILURE
Constante authorized Artigo to act as agent in TO IMPLEAD INDISPENSABLE
the sale of two lots in Cubao, Quezon City. The PARTIES-IN-INTEREST;
handwritten authorization letter signed by
Constante clearly established a contract of II. NOT ORDERING THE DISMISSAL
agency between Constante and Artigo. Thus, OF THE COMPLAINT ON THE
Artigo sought prospective buyers and found GROUND THAT ARTIGO'S CLAIM HAS
Times Transit Corporation ("Times Transit" for BEEN EXTINGUISHED BY FULL
brevity). Artigo facilitated the negotiations PAYMENT, WAIVER, OR
which eventually led to the sale of the two lots. ABANDONMENT;
Therefore, the Court of Appeals decided that
Artigo is entitled to the 5% commission on the III. CONSIDERING INCOMPETENT
purchase price as provided in the contract of EVIDENCE;
Second. The Court of Appeals ruled that PERJURED TESTIMONY;
Artigo's complaint is not dismissible for failure
to implead as indispensable parties the other V. SANCTIONING AN AWARD OF
co-owners of the two lots. The Court of Appeals MORAL DAMAGES AND ATTORNEY'S
explained that it is not necessary to implead FEES;
the other co-owners since the action is
exclusively based on a contract of agency VI. NOT AWARDING THE DE
between Artigo and Constante. CASTRO'S MORAL AND EXEMPLARY
Third. The Court of Appeals likewise declared
that the trial court did not err in admitting parol The Court's Ruling
evidence to prove the true amount paid by

The petition is bereft of merit. located at Edsa Corner New York &
Denver, Cubao, Quezon City.
First Issue: whether the complaint merits
dismissal for failure to implead other co- Asking price P 23,000,000.00 with 5%
owners as indispensable parties commission as agent's fee.

The De Castros argue that Artigo's complaint

should have been dismissed for failure to C.C. de Castro
implead all the co-owners of the two lots. The owner & representing
De Castros claim that Artigo always knew that co-owners
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 This authority is on a first-come
such indispensable parties is fatal to the
complaint since Artigo, as agent of all the four First serve basis –CAC"
co-owners, would be paid with funds co-owned
by the four co-owners. Constante signed the note as owner and as
representative of the other co-owners. Under
The De Castros' contentions are devoid of this note, a contract of agency was clearly
legal basis. constituted between Constante and Artigo.
Whether Constante appointed Artigo as agent,
An indispensable party is one whose interest in Constante's individual or representative
will be affected by the court's action in the capacity, or both, the De Castros cannot seek
litigation, and without whom no final the dismissal of the case for failure to implead
determination of the case can be had. 7 The the other co-owners as indispensable
joinder of indispensable parties is mandatory parties. The De Castros admit that the other
and courts cannot proceed without their co-owners are solidarily liable under the
presence.8 Whenever it appears to the court in contract of agency,10 citing Article 1915 of the
the course of a proceeding that an Civil Code, which reads:
indispensable party has not been joined, it is
the duty of the court to stop the trial and order Art. 1915. If two or more persons have
the inclusion of such party.9 appointed an agent for a common
transaction or undertaking, they shall be
However, the rule on mandatory joinder of solidarily liable to the agent for all the
indispensable parties is not applicable to the consequences of the agency.
instant case.
The solidary liability of the four co-owners,
There is no dispute that Constante appointed however, militates against the De Castros'
Artigo in a handwritten note dated January 24, theory that the other co-owners should be
1984 to sell the properties of the De Castros impleaded as indispensable parties. A noted
for P23 million at a 5 percent commission. The commentator explained Article 1915 thus –
authority was on a first come, first serve basis.
The authority reads in full: "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
"24 Jan. 84 transaction. The solidarity arises from
the common interest of the
principals, and not from the act of
To Whom It May Concern: constituting the agency. By virtue of
this solidarity, the agent can recover
This is to state that Mr. Francisco Artigo from any principal the whole
is authorized as our real estate broker in compensation and indemnity owing
connection with the sale of our property to him by the others. The parties,

however, may, by express agreement, The De Castros claim that Artigo was fully paid
negate this solidary responsibility. The on June 14, 1985, that is, Artigo was given "his
solidarity does not disappear by the proportionate share and no longer entitled to
mere partition effected by the principals any balance." According to them, Artigo was
after the accomplishment of the agency. just one of the agents involved in the sale and
entitled to a "proportionate share" in the
If the undertaking is one in which commission. They assert that Artigo did
several are interested, but only some absolutely nothing during the second
create the agency, only the latter are negotiation but to sign as a witness in the deed
solidarily liable, without prejudice to the of sale. He did not even prepare the
effects of negotiorum gestio with respect documents for the transaction as an active real
to the others. And if the power granted estate broker usually does.
includes various transactions some of
which are common and others are not, The De Castros' arguments are flimsy.
only those interested in each transaction
shall be liable for it."11 A contract of agency which is not contrary to
law, public order, public policy, morals or good
When the law expressly provides for solidarity custom is a valid contract, and constitutes the
of the obligation, as in the liability of co- law between the parties.14 The contract of
principals in a contract of agency, each obligor agency entered into by Constante with Artigo is
may be compelled to pay the entire the law between them and both are bound to
obligation.12 The agent may recover the whole comply with its terms and conditions in good
compensation from any one of the co- faith.
principals, as in this case.
The mere fact that "other agents" intervened in
Indeed, Article 1216 of the Civil Code provides the consummation of the sale and were paid
that a creditor may sue any of the solidary their respective commissions cannot vary the
debtors. This article reads: terms of the contract of agency granting Artigo
a 5 percent commission based on the selling
Art. 1216. The creditor may proceed price. These "other agents" turned out to be
against any one of the solidary debtors employees of Times Transit, the buyer Artigo
or some or all of them simultaneously. introduced to the De Castros. This prompted
The demand made against one of them the trial court to observe:
shall not be an obstacle to those which
may subsequently be directed against "The alleged `second group' of agents
the others, so long as the debt has not came into the picture only during the so-
been fully collected. called `second negotiation' and it is
amusing to note that these (sic) second
Thus, the Court has ruled in Operators group, prominent among whom are Atty.
Incorporated vs. American Biscuit Co., Del Castillo and Ms. Prudencio,
Inc.13 that – happened to be employees of Times
Transit, the buyer of the properties. And
"x x x solidarity does not make a their efforts were limited to convincing
solidary obligor an indispensable Constante to 'part away' with the
party in a suit filed by the creditor. properties because the redemption
Article 1216 of the Civil Code says that period of the foreclosed properties is
the creditor `may proceed against around the corner, so to speak. (tsn.
anyone of the solidary debtors or some June 6, 1991).
or all of them simultaneously'."
(Emphasis supplied) xxx

Second Issue: whether Artigo's claim has To accept Constante's version of the
been extinguished by full payment, waiver story is to open the floodgates of fraud
or abandonment and deceit. A seller could always
pretend rejection of the offer and wait for

sometime for others to renew it who are There is thus a clear distinction between
much willing to accept a commission far acceptance and mere receipt. In this case, it is
less than the original broker. The evident that Artigo merely received the partial
immorality in the instant case easily payment without waiving the balance. Thus,
presents itself if one has to consider there is no estoppel to speak of.
that the alleged `second group' are
the employees of the buyer, Times The De Castros further argue that laches
Transit and they have not bettered should apply because Artigo did not file his
the offer secured by Mr. Artigo for P7 complaint in court until May 29, 1989, or almost
million. four years later. Hence, Artigo's claim for the
balance of his commission is barred by laches.
It is to be noted also that while
Constante was too particular about the Laches means the failure or neglect, for an
unrenewed real estate broker's license unreasonable and unexplained length of time,
of Mr. Artigo, he did not bother at all to to do that which by exercising due diligence
inquire as to the licenses of Prudencio could or should have been done earlier. It is
and Castillo. (tsn, April 11, 1991, pp. 39- negligence or omission to assert a right within
40)."15 (Emphasis supplied) a reasonable time, warranting a presumption
that the party entitled to assert it either has
In any event, we find that the 5 percent real abandoned it or declined to assert it.17
estate broker's commission is reasonable and
within the standard practice in the real estate Artigo disputes the claim that he neglected to
industry for transactions of this nature. assert his rights. He was appointed as agent
on January 24, 1984. The two lots were finally
The De Castros also contend that Artigo's sold in June 1985. As found by the trial court,
inaction as well as failure to protest estops him Artigo demanded in April and July of 1985 the
from recovering more than what was actually payment of his commission by Constante on
paid him. The De Castros cite Article 1235 of the basis of the selling price of P7.05 million
the Civil Code which reads: but there was no response from
Constante.18 After it became clear that his
Art. 1235. When the obligee accepts the demands for payment have fallen on deaf ears,
performance, knowing its Artigo decided to sue on May 29, 1989.
incompleteness and irregularity, and
without expressing any protest or Actions upon a written contract, such as a
objection, the obligation is deemed fully contract of agency, must be brought within ten
complied with. years from the time the right of action
accrues.19 The right of action accrues from the
The De Castros' reliance on Article 1235 of the moment the breach of right or duty occurs.
Civil Code is misplaced. Artigo's acceptance of From this moment, the creditor can institute the
partial payment of his commission neither action even as the ten-year prescriptive period
amounts to a waiver of the balance nor puts begins to run.20
him in estoppel. This is the import of Article
1235 which was explained in this wise: The De Castros admit that Artigo's claim was
filed within the ten-year prescriptive period. The
"The word accept, as used in Article De Castros, however, still maintain that Artigo's
1235 of the Civil Code, means to take cause of action is barred by laches. Laches
as satisfactory or sufficient, or agree to does not apply because only four years had
an incomplete or irregular lapsed from the time of the sale in June 1985.
performance. Hence, the mere receipt Artigo made a demand in July 1985 and filed
of a partial payment is not equivalent the action in court on May 29, 1989, well within
to the required acceptance of the ten-year prescriptive period. This does not
performance as would extinguish the constitute an unreasonable delay in asserting
whole obligation."16(Emphasis one's right. The Court has ruled, "a delay
supplied) within the prescriptive period is sanctioned
by law and is not considered to be a delay

that would bar relief."21 In explaining that They likewise claim that the Court of Appeals
laches applies only in the absence of a erred in relying on evidence which were not
statutory prescriptive period, the Court has offered for the purpose considered by the trial
stated - court. Specifically, Exhibits "B", "C", "D" and "E"
were not offered to prove that the purchase
"Laches is recourse in equity. Equity, price was P7.05 Million. Finally, they argue
however, is applied only in the that the courts a quo erred in giving credence
absence, never in contravention, of to the perjured testimony of Artigo. They want
statutory law. Thus, laches, cannot, the entire testimony of Artigo rejected as a
as a rule, be used to abate a falsehood because he was lying when he
collection suit filed within the claimed at the outset that he was a licensed
prescriptive period mandated by the real estate broker when he was not.
Civil Code."22
Whether the actual purchase price was P7.05
Clearly, the De Castros' defense of laches finds Million as found by the trial court and affirmed
no support in law, equity or jurisprudence. by the Court of Appeals, or P3.6 Million as
claimed by the De Castros, is a question of fact
Third issue: whether the determination of and not of law. Inevitably, this calls for an
the purchase price was made in violation of inquiry into the facts and evidence on record.
the Rules on Evidence This we can not do.

The De Castros want the Court to re-examine It is not the function of this Court to re-examine
the probative value of the evidence adduced in the evidence submitted by the parties, or
the trial court to determine whether the actual analyze or weigh the evidence again. 23 This
selling price of the two lots was P7.05 million Court is not the proper venue to consider a
and not P3.6 million. The De Castros contend factual issue as it is not a trier of facts. In
that it is erroneous to base the 5 percent petitions for review on certiorari as a mode of
commission on a purchase price of P7.05 appeal under Rule 45, a petitioner can only
million as ordered by the trial court and the raise questions of law. Our pronouncement in
appellate court. The De Castros insist that the the case of Cormero vs. Court of
purchase price is P3.6 million as expressly Appeals bears reiteration:
stated in the deed of sale, the due execution
and authenticity of which was admitted during "At the outset, it is evident from the
the trial. errors assigned that the petition is
anchored on a plea to review the factual
The De Castros believe that the trial and conclusion reached by the respondent
appellate courts committed a mistake in court. Such task however is foreclosed
considering incompetent evidence and by the rule that in petitions for certiorari
disregarding the best evidence and parole as a mode of appeal, like this one, only
evidence rules. They claim that the Court of questions of law distinctly set forth may
Appeals erroneously affirmed sub silentio the be raised. These questions have been
trial court's reliance on the various defined as those that do not call for any
correspondences between Constante and examination of the probative value of
Times Transit which were mere photocopies the evidence presented by the parties.
that do not satisfy the best evidence rule. (Uniland Resources vs. Development
Further, these letters covered only the first Bank of the Philippines, 200 SCRA 751
negotiations between Constante and Times [1991] citing Goduco vs. Court of
Transit which failed; hence, these are appeals, et al., 119 Phil. 531; Hernandez
immaterial in determining the final purchase vs. Court of Appeals, 149 SCRA 67).
price. And when this court is asked to go over
the proof presented by the parties, and
The De Castros further argue that if there was analyze, assess and weigh them to
an undervaluation, Artigo who signed as ascertain if the trial court and the
witness benefited therefrom, and being equally appellate court were correct in
guilty, should be left where he presently stands. according superior credit to this or that

piece of evidence and eventually, to the damages and P 45,000.00 in attorney's fees.
totality of the evidence of one party or The amounts are, in our view, fair and
the other, the court cannot and will not reasonable. Having found a buyer for the two
do the same. (Elayda vs. Court of lots, Artigo had already performed his part of
Appeals, 199 SCRA 349 [1991]). Thus, the bargain under the contract of agency. The
in the absence of any showing that the De Castros should have exercised fairness and
findings complained of are totally devoid good judgment in dealing with Artigo by
of support in the record, or that they are fulfilling their own part of the bargain - paying
so glaringly erroneous as to constitute Artigo his 5 percent broker's commission based
serious abuse of discretion, such on the actual purchase price of the two lots.
findings must stand, for this court is not
expected or required to examine or WHEREFORE, the petition is denied for lack of
contrast the oral and documentary merit. The Decision of the Court of Appeals
evidence submitted by the parties. dated May 4, 1994 in CA-G.R. CV No. 37996
(Morales vs. Court of Appeals, 197 is AFFIRMED in toto.
SCRA 391 [1991] citing Santa Ana vs.
Hernandez, 18 SCRA 973 [1966])." SO ORDERED.

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

Fourth Issue: whether award of moral

damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove

that he is entitled to moral damages and
attorney's fees. The De Castros, however, cite
no concrete reason except to say that they are
the ones entitled to damages since the case
was filed to harass and extort money from

Law and jurisprudence support the award of

moral damages and attorney's fees in favor of
Artigo. The award of damages and attorney's
fees is left to the sound discretion of the court,
and if such discretion is well exercised, as in
this case, it will not be disturbed on
appeal.25 Moral damages may be awarded
when in a breach of contract the defendant
acted in bad faith, or in wanton disregard of his
contractual obligation.26 On the other hand,
attorney's fees are awarded in instances where
"the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim." 27 There is
no reason to disturb the trial court's finding that
"the defendants' lack of good faith and unkind
treatment of the plaintiff in refusing to give his
due commission deserve censure." This
warrants the award of P25,000.00 in moral

G.R. No. 88539 October 26, 1993 sad checks were later dishonored by the
drawee bank.
KUE CUISON, doing business under the
firm name and style"KUE CUISON PAPER Thereafter, private respondent made several
SUPPLY," petitioner, demands upon petitioner to pay for the
vs. merchandise in question, claiming that Tiu Huy
THE COURT OF APPEALS, VALIANT Tiac was duly authorized by petitioner as the
INVESTMENT ASSOCIATES, respondents. manager of his Binondo office, to enter into the
questioned transactions with private
Leighton R. Siazon for petitioner. respondent and Lilian Tan. Petitioner denied
any involvement in the transaction entered into
Melanio L. Zoreta for private respondent. by Tiu Huy Tiac and refused to pay private
respondent the amount corresponding to the
selling price of the subject merchandise.

BIDIN, J.: Left with no recourse, private respondent filed

an action against petitioner for the collection of
This petition for review assails the decision of P297,487.30 representing the price of the
the respondent Court of Appeals ordering merchandise. After due hearing, the trial court
petitioner to pay private respondent, among dismissed the complaint against petitioner for
others, the sum of P297,482.30 with interest. lack of merit. On appeal, however, the decision
Said decision reversed the appealed decision of the trial court was modified, but was in effect
of the trial court rendered in favor of petitioner. reversed by the Court of Appeals, the
dispositive portion of which reads:
The case involves an action for a sum of
money filed by respondent against petitioner WHEREFORE, the decision
anchored on the following antecedent facts: appealed from is MODIFIED in
that defendant-appellant Kue
Petitioner Kue Cuison is a sole proprietorship Cuison is hereby ordered to pay
engaged in the purchase and sale of plaintiff-appellant Valiant
newsprint, bond paper and scrap, with places Investment Associates the sum of
of business at Baesa, Quezon City, and Sto. P297,487.30 with 12% interest
Cristo, Binondo, Manila. Private respondent from the filing of the complaint
Valiant Investment Associates, on the other until the amount is fully paid, plus
hand, is a partnership duly organized and the sum of 7% of the total amount
existing under the laws of the Philippines with due as attorney's fees, and to pay
business address at Kalookan City. the costs. In all other respects,
the decision appealed from is
From December 4, 1979 to February 15, 1980, affirmed. (Rollo, p. 55)
private respondent delivered various kinds of
paper products amounting to P297,487.30 to a In this petition, petitioner contends that:
certain Lilian Tan of LT Trading. The deliveries
were made by respondent pursuant to orders THE HONORABLE COURT
allegedly placed by Tiu Huy Tiac who was then ERRED IN FINDING TIU HUY
employed in the Binondo office of petitioner. It TIAC AGENT OF DEFENDANT-
was likewise pursuant to Tiac's instructions that APPELLANT CONTRARY TO
the merchandise was delivered to Lilian Tan. THE
Upon delivery, Lilian Tan paid for the UNDISPUTED/ESTABLISHED
merchandise by issuing several checks FACTS AND CIRCUMSTANCES.
payable to cash at the specific request of Tiu
Huy Tiac. In turn, Tiac issued nine (9) THE HONORABLE COURT
postdated checks to private respondent as ERRED IN FINDING
payment for the paper products. Unfortunately, DEFENDANT-APPELLANT

UNDISPUTEDLY BELONGING Tiac is known in the community to be the

TO TIU HUY TIAC. "kinakapatid" (godbrother) of petitioner. In fact,
even petitioner admitted his close relationship
THE HONORABLE COURT ERRED IN with Tiu Huy Tiac when he said that they are
REVERSING THE WELL-FOUNDED "like brothers" (Rollo, p. 54). There was thus no
DECISION OF THE TRIAL COURT, (Rollo, p, reason for anybody especially those
19) transacting business with petitioner to even
doubt the authority of Tiu Huy Tiac as his
The issue here is really quite simple — manager in the Sto. Cristo Binondo branch.
whether or not Tiu Huy Tiac possessed the
required authority from petitioner sufficient to In a futile attempt to discredit Villanueva,
hold the latter liable for the disputed petitioner alleges that the former's testimony is
transaction. clearly self-serving inasmuch as Villanueva
worked for private respondent as its manager.
This petition ought to have been denied
outright, forin the final analysis, it raises a We disagree, The argument that Villanueva's
factual issue. It is elementary that in petitions testimony is self-serving and therefore
for review under Rule 45, this Court only inadmissible on the lame excuse of his
passes upon questions of law. An exception employment with private respondent utterly
thereto occurs where the findings of fact of the misconstrues the nature of "'self-serving
Court of Appeals are at variance with the trial evidence" and the specific ground for its
court, in which case the Court reviews the exclusion. As pointed out by this Court in Co
evidence in order to arrive at the correct v. Court of Appeals et, al., (99 SCRA 321
findings based on the records. [1980]):

As to the merits of the case, it is a well- Self-serving evidence is evidence

established rule that one who clothes another made by a party out of court at
with apparent authority as his agent and holds one time; it does not include a
him out to the public as such cannot be party's testimony as a witness in
permitted to deny the authority of such person court. It is excluded on the same
to act as his agent, to the prejudice of innocent ground as any hearsay evidence,
third parties dealing with such person in good that is the lack of opportunity for
faith and in the honest belief that he is what he cross-examination by the adverse
appears to be (Macke, et al, v. Camps, 7 Phil. party, and on the consideration
553 (1907]; Philippine National Bank. v Court that its admission would open the
of Appeals, 94 SCRA 357 [1979]). From the door to fraud and to fabrication of
facts and the evidence on record, there is no testimony. On theother hand, a
doubt that this rule obtains. The petition must party's testimony in court is sworn
therefore fail. and affords the other party the
opportunity for cross-examination
It is evident from the records that by his own (emphasis supplied)
acts and admission, petitioner held out Tiu Huy
Tiac to the public as the manager of his store in Petitioner cites Villanueva's failure, despite his
Sto. Cristo, Binondo, Manila. More particularly, commitment to do so on cross-examination, to
petitioner explicitly introduced Tiu Huy Tiac to produce the very first invoice of the transaction
Bernardino Villanueva, respondent's manager, between petitioner and private respondent as
as his (petitioner's) branch manager as testified another ground to discredit Villanueva's
to by Bernardino Villanueva. Secondly, Lilian testimony. Such failure, proves that Villanueva
Tan, who has been doing business with was not only bluffing when he pretended that
petitioner for quite a while, also testified that he can produce the invoice, but that Villanueva
she knew Tiu Huy Tiac to be the manager of was likewise prevaricating when he insisted
petitioner's Sto. Cristo, Binondo branch. This that such prior transactions actually took place.
general perception of Tiu Huy Tiac as the Petitioner is mistaken. In fact, it was petitioner's
manager of petitioner's Sto. Cristo store is counsel himself who withdrew the reservation
even made manifest by the fact that Tiu Huy to have Villanueva produce the document in

court. As aptly observed by the Court of admission on the witness stand that Tiu Huy
Appeals in its decision: Tiac was the manager of his store in Sto.
Cristo, Binondo, to wit:
. . . However, during the hearing
on March 3, 1981, Villanueva Court:
failed to present the document
adverted to because defendant- xxx xxx xxx
appellant's counsel withdrew his
reservation to have the former Q And who was managing the store in
(Villanueva) produce the Sto. Cristo?
document or invoice, thus
prompting plaintiff-appellant to A At first it was Mr. Ang, then later Mr. Tiu
rest its case that same day (t.s.n., Huy Tiac but I cannot remember the exact
pp. 39-40, Sess. of March 3, year.
1981). Now, defendant-appellant
assails the credibility of Q So, Mr. Tiu Huy Tiac took over the
Villanueva for having allegedly management,.
failed to produce even one single
document to show that plaintiff- A Not that was because every afternoon, I
appellant have had transactions was there, sir.
before, when in fact said failure of
Villanueva to produce said Q But in the morning, who takes charge?
document is a direct off-shoot of
the action of defendant- A Tiu Huy Tiac takes charge of
appellant's counsel who withdrew management and if there (sic) orders for
his reservation for the production newsprint or bond papers they are always
of the document or invoice and referred to the compound in Baesa, sir.
which led plaintiff-appellant to (t.s.n., p. 16, Session of January 20,
rest its case that very day. (Rollo, 1981, CA decision, Rollo, p. 50, emphasis
p.52) supplied).

In the same manner, petitioner assails the Such admission, spontaneous no doubt, and
credibility of Lilian Tan by alleging that Tan was standing alone, is sufficient to negate all the
part of an intricate plot to defraud him. denials made by petitioner regarding the
However, petitioner failed to substantiate or capacity of Tiu Huy Tiac to enter into the
prove that the subject transaction was transaction in question. Furthermore,
designed to defraud him. Ironically, it was even consistent with and as an obvious indication of
the testimony of petitioner's daughter and the fact that Tiu Huy Tiac was the manager of
assistant manager Imelda Kue Cuison which the Sto. Cristo branch, three (3) months after
confirmed the credibility of Tan as a witness. Tiu Huy Tiac left petitioner's employ, petitioner
On the witness stand, Imelda testified that she even sent, communications to its customers
knew for a fact that prior to the transaction in notifying them that Tiu Huy Tiac is no longer
question, Tan regularly transacted business connected with petitioner's business. Such
with her father (petitioner herein), thereby undertaking spoke unmistakenly of Tiu Huy
corroborating Tan's testimony to the same Tiac's valuable position as petitioner's manager
effect. As correctly found by the respondent than any uttered disclaimer. More than
court, there was no logical explanation for Tan anything else, this act taken together with the
to impute liability upon petitioner. Rather, the declaration of petitioner in open court amount
testimony of Imelda Kue Cuison only served to to admissions under Rule 130 Section 22 of
add credence to Tan's testimony as regards the the Rules of Court, to wit : "The act, declaration
transaction, the liability for which petitioner or omission of a party as to a relevant fact may
wishes to be absolved. be given in evidence against him." For well-
settled is the rule that "a man's acts, conduct,
But of even greater weight than any of these and declaration, wherever made, if voluntary,
testimonies, is petitioner's categorical are admissible against him, for the reason that

it is fair to presume that they correspond with persons. In such a situation, both the
the truth, and it is his fault if they do not. If a principal and the agent may be
man's extrajudicial admissions are admissible considered as joint tortfeasors whose
against him, there seems to be no reason why liability is joint and solidary.
his admissions made in open court, under
oath, should not be accepted against him." Authority by estoppel has arisen in the
(U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];). instant case because by its negligence,
the principal, Manila Remnant, has
Moreover, petitioner's unexplained delay in permitted its agent, A.U. Valencia and
disowning the transactions entered into by Tiu Co., to exercise powers not granted to it.
Huy Tiac despite several attempts made by That the principal might not have had
respondent to collect the amount from him, actual knowledge of theagent's misdeed
proved all the more that petitioner was aware is of no moment.
of the questioned commission was tantamount
to an admission by silence under Rule 130 Tiu Huy Tiac, therefore, by petitioner's own
Section 23 of the Rules of Court, thus: "Any act representations and manifestations, became
or declaration made in the presence of and an agent of petitioner by estoppel, an
within the observation of a party who does or admission or representation is rendered
says nothing when the act or declaration is conclusive upon the person making it, and
such as naturally to call for action or comment cannot be denied or disproved as against the
if not true, may be given in evidence against person relying thereon (Article 1431, Civil Code
him." of the Philippines). A party cannot be allowed
to go back on his own acts and representations
All of these point to the fact that at the time of to the prejudice of the other party who, in good
the transaction Tiu Huy Tiac was admittedly the faith, relied upon them (Philippine National
manager of petitioner's store in Sto. Cristo, Bank v. Intermediate Appellate Court, et al.,
Binondo. Consequently, the transaction in 189 SCRA 680 [1990]).
question as well as the concomitant obligation
is valid and binding upon petitioner. Taken in this light,. petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his
By his representations, petitioner is now behalf. Thus, even when the agent has
estopped from disclaiming liability for the exceeded his authority, the principal is
transaction entered by Tiu Huy Tiac on his solidarily liable with the agent if the former
behalf. It matters not whether the allowed the latter to fact as though he had full
representations are intentional or merely powers (Article 1911 Civil Code), as in the case
negligent so long as innocent, third persons at bar.
relied upon such representations in good faith
and for value As held in the case of Manila Finally, although it may appear that Tiu Huy
Remnant Co. Inc. v. Court of Appeals, (191 Tiac defrauded his principal (petitioner) in not
SCRA 622 [1990]): turning over the proceeds of the transaction to
the latter, such fact cannot in any way relieve
More in point, we find that by the principle nor exonerate petitioner of his liability to private
of estoppel, Manila Remnant is deemed respondent. For it is an equitable maxim that
to have allowed its agent to act as though as between two innocent parties, the one who
it had plenary powers. Article 1911 of the made it possible for the wrong to be done
Civil Code provides: should be the one to bear the resulting loss
(Francisco vs. Government Service Insurance
"Even when the agent has exceeded System, 7 SCRA 577 [1963]).
his authority, the principal issolidarily
liable with the agent if the former Inasmuch as the fundamental issue of the
allowed the latter to act as though he capacity or incapacity of the purported agent
had full powers." (Emphasis supplied). Tiu Huy Tiac, has already been resolved, the
Court deems it unnecessary to resolve the
The above-quoted article is new. It is other peripheral issues raised by petitioner.
intended to protect the rights of innocent

WHEREFORE, the instant petition in hereby

DENIED for lack of merit. Costs against


G.R. No. 76931 May 29, 1991 Orient Air Services will act on
American's behalf as its exclusive
ORIENT AIR SERVICES & HOTEL General Sales Agent within the
REPRESENTATIVES, petitioner, Philippines, including any United States
vs. military installation therein which are not
COURT OF APPEALS and AMERICAN AIR- serviced by an Air Carrier
LINES INCORPORATED, respondents. Representation Office (ACRO), for the
sale of air passenger transportation. The
G.R. No. 76933 May 29, 1991 services to be performed by Orient Air
Services shall include:
INCORPORATED, petitioner, (a) soliciting and promoting
vs. passenger traffic for the services
COURT OF APPEALS and ORIENT AIR of American and, if necessary,
SERVICES & HOTEL REPRESENTATIVES, employing staff competent and
INCORPORATED,respondents. sufficient to do so;

PADILLA, J.: (b) providing and maintaining a

suitable area in its place of
This case is a consolidation of two (2) petitions business to be used exclusively
for review on certiorari of a decision1 of the for the transaction of the
Court of Appeals in CA-G.R. No. CV-04294, business of American;
entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." (c) arranging for distribution of
which affirmed, with modification, the American's timetables, tariffs and
decision2 of the Regional Trial Court of Manila, promotional material to sales
Branch IV, which dismissed the complaint and agents and the general public in
granted therein defendant's counterclaim for the assigned territory;
agent's overriding commission and damages.
(d) servicing and supervising of
The antecedent facts are as follows: sales agents (including such sub-
agents as may be appointed by
On 15 January 1977, American Airlines, Inc. Orient Air Services with the prior
(hereinafter referred to as American Air), an air written consent of American) in
carrier offering passenger and air cargo the assigned territory including if
transportation in the Philippines, and Orient Air required by American the control
Services and Hotel Representatives of remittances and commissions
(hereinafter referred to as Orient Air), entered retained; and
into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), (e) holding out a passenger
whereby the former authorized the latter to act reservation facility to sales
as its exclusive general sales agent within the agents and the general public in
Philippines for the sale of air passenger the assigned territory.
transportation. Pertinent provisions of the
agreement are reproduced, to wit: In connection with scheduled or non-
scheduled air passenger transportation
WITNESSETH within the United States, neither Orient
Air Services nor its sub-agents will
In consideration of the mutual perform services for any other air carrier
convenants herein contained, the similar to those to be performed
parties hereto agree as follows: hereunder for American without the prior
written consent of American. Subject to
1. Representation of American by Orient periodic instructions and continued
Air Services consent from American, Orient Air

Services may sell air passenger the Air Traffic Conference of

transportation to be performed within the America.
United States by other scheduled air
carriers provided American does not (ii) For transportation included in
provide substantially equivalent a through ticket covering
schedules between the points involved. transportation between points
other than those described
xxx xxx xxx above: 8% or such other rate(s)
as may be prescribed by the
4. Remittances International Air Transport
Orient Air Services shall remit in United
States dollars to American the ticket (b) Overriding commission
stock or exchange orders, less
commissions to which Orient Air In addition to the above commission
Services is entitled hereunder, not less American will pay Orient Air Services an
frequently than semi-monthly, on the overriding commission of 3% of the tariff
15th and last days of each month for fares and charges for all sales of
sales made during the preceding half transportation over American's service
month. by Orient Air Service or its sub-agents.

All monies collected by Orient Air xxx xxx xxx

Services for transportation sold
hereunder on American's ticket stock or 10. Default
on exchange orders, less applicable
commissions to which Orient Air If Orient Air Services shall at any time
Services is entitled hereunder, are the default in observing or performing any of
property of American and shall be held the provisions of this Agreement or shall
in trust by Orient Air Services until become bankrupt or make any
satisfactorily accounted for to American. assignment for the benefit of or enter
into any agreement or promise with its
5. Commissions creditors or go into liquidation, or suffer
any of its goods to be taken in
American will pay Orient Air Services execution, or if it ceases to be in
commission on transportation sold business, this Agreement may, at the
hereunder by Orient Air Services or its option of American, be terminated
sub-agents as follows: forthwith and American may, without
prejudice to any of its rights under this
(a) Sales agency commission Agreement, take possession of any
ticket forms, exchange orders, traffic
American will pay Orient Air Services a material or other property or funds
sales agency commission for all sales of belonging to American.
transportation by Orient Air Services or
its sub-agents over American's services 11. IATA and ATC Rules
and any connecting through air
transportation, when made on The provisions of this Agreement are
American's ticket stock, equal to the subject to any applicable rules or
following percentages of the tariff fares resolutions of the International Air
and charges: Transport Association and the Air Traffic
Conference of America, and such rules
(i) For transportation solely or resolutions shall control in the event
between points within the United of any conflict with the provisions
States and between such points hereof.
and Canada: 7% or such other
rate(s) as may be prescribed by xxx xxx xxx

13. Termination the trial court ruled in its favor, rendering a

decision dated 16 July 1984, the dispositive
American may terminate the Agreement portion of which reads:
on two days' notice in the event Orient
Air Services is unable to transfer to the WHEREFORE, all the foregoing
United States the funds payable by premises considered, judgment is
Orient Air Services to American under hereby rendered in favor of defendant
this Agreement. Either party may and against plaintiff dismissing the
terminate the Agreement without cause complaint and holding the termination
by giving the other 30 days' notice by made by the latter as affecting the GSA
letter, telegram or cable. agreement illegal and improper and
order the plaintiff to reinstate defendant
xxx xxx x x x3 as its general sales agent for passenger
tranportation in the Philippines in
On 11 May 1981, alleging that Orient Air had accordance with said GSA agreement;
reneged on its obligations under the plaintiff is ordered to pay defendant the
Agreement by failing to promptly remit the net balance of the overriding commission on
proceeds of sales for the months of January to total flown revenue covering the period
March 1981 in the amount of US $254,400.40, from March 16, 1977 to December 31,
American Air by itself undertook the collection 1980 in the amount of US$84,821.31
of the proceeds of tickets sold originally by plus the additional amount of
Orient Air and terminated forthwith the US$8,000.00 by way of proper 3%
Agreement in accordance with Paragraph 13 overriding commission per month
thereof (Termination). Four (4) days later, or on commencing from January 1, 1981 until
15 May 1981, American Air instituted suit such reinstatement or said amounts in
against Orient Air with the Court of First its Philippine peso equivalent legally
Instance of Manila, Branch 24, for Accounting prevailing at the time of payment plus
with Preliminary Attachment or Garnishment, legal interest to commence from the
Mandatory Injunction and Restraining filing of the counterclaim up to the time
Order4 averring the aforesaid basis for the of payment. Further, plaintiff is directed
termination of the Agreement as well as therein to pay defendant the amount of One
defendant's previous record of failures "to Million Five Hundred Thousand
promptly settle past outstanding refunds of (Pl,500,000.00) pesos as and for
which there were available funds in the exemplary damages; and the amount of
possession of the defendant, . . . to the Three Hundred Thousand
damage and prejudice of plaintiff." 5 (P300,000.00) pesos as and by way of
attorney's fees.
In its Answer6 with counterclaim dated 9 July
1981, defendant Orient Air denied the material Costs against plaintiff.7
allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted On appeal, the Intermediate Appellate Court
amounts, contending that after application (now Court of Appeals) in a decision
thereof to the commissions due it under the promulgated on 27 January 1986, affirmed the
Agreement, plaintiff in fact still owed Orient Air findings of the court a quo on their material
a balance in unpaid overriding commissions. points but with some modifications with respect
Further, the defendant contended that the to the monetary awards granted. The
actions taken by American Air in the course of dispositive portion of the appellate court's
terminating the Agreement as well as the decision is as follows:
termination itself were untenable, Orient Air
claiming that American Air's precipitous WHEREFORE, with the following
conduct had occasioned prejudice to its modifications —
business interests.
1) American is ordered to pay Orient the
Finding that the record and the evidence sum of US$53,491.11 representing the
substantiated the allegations of the defendant, balance of the latter's overriding

commission covering the period March decision of January 27, 1986 is modified
16, 1977 to December 31, 1980, or its in paragraphs (1) and (2) of the
Philippine peso equivalent in dispositive part so that the payment of
accordance with the official rate of the sums mentioned therein shall be at
exchange legally prevailing on July 10, their Philippine peso equivalent in
1981, the date the counterclaim was accordance with the official rate of
filed; exchange legally prevailing on the date
of actual payment.9
2) American is ordered to pay Orient the
sum of US$7,440.00 as the latter's Both parties appealed the aforesaid resolution
overriding commission per month and decision of the respondent court, Orient Air
starting January 1, 1981 until date of as petitioner in G.R. No. 76931 and American
termination, May 9, 1981 or its Air as petitioner in G.R. No. 76933. By
Philippine peso equivalent in resolution10 of this Court dated 25 March 1987
accordance with the official rate of both petitions were consolidated, hence, the
exchange legally prevailing on July 10, case at bar.
1981, the date the counterclaim was
filed The principal issue for resolution by the Court
is the extent of Orient Air's right to the 3%
3) American is ordered to pay interest of overriding commission. It is the stand of
12% on said amounts from July 10, American Air that such commission is based
1981 the date the answer with only on sales of its services actually negotiated
counterclaim was filed, until full or transacted by Orient Air, otherwise referred
payment; to as "ticketed sales." As basis thereof, primary
reliance is placed upon paragraph 5(b) of the
4) American is ordered to pay Agreement which, in reiteration, is quoted as
Orient exemplary damages of follows:
5. Commissions
5) American is ordered to pay Orient the
sum of P25,000.00 as attorney's fees. a) . . .

the rest of the appealed decision is b) Overriding Commission

In addition to the above commission,
Costs against American.8 American will pay Orient Air Services an
overriding commission of 3% of the tariff
American Air moved for reconsideration of the fees and charges for all sales of
aforementioned decision, assailing the transportation over American's services
substance thereof and arguing for its reversal. by Orient Air Services or itssub-
The appellate court's decision was also the agents. (Emphasis supplied)
subject of a Motion for Partial Reconsideration
by Orient Air which prayed for the restoration of Since Orient Air was allowed to carry only the
the trial court's ruling with respect to the ticket stocks of American Air, and the former
monetary awards. The Court of Appeals, by not having opted to appoint any sub-agents, it
resolution promulgated on 17 December 1986, is American Air's contention that Orient Air can
denied American Air's motion and with respect claim entitlement to the disputed overriding
to that of Orient Air, ruled thus: commission based only on ticketed sales. This
is supposed to be the clear meaning of the
Orient's motion for partial underscored portion of the above provision.
reconsideration is denied insofar as it Thus, to be entitled to the 3% overriding
prays for affirmance of the trial court's commission, the sale must be made by Orient
award of exemplary damages and Air and the sale must be done with the use of
attorney's fees, but granted insofar as American Air's ticket stocks.
the rate of exchange is concerned. The

On the other hand, Orient Air contends that the would lead to the absurd conclusion that the
contractual stipulation of a 3% overriding parties had entered into a contract with
commission covers the total revenue of meaningless provisions. Such an interpretation
American Air and not merely that derived from must at all times be avoided with every effort
ticketed sales undertaken by Orient Air. The exerted to harmonize the entire Agreement.
latter, in justification of its submission, invokes
its designation as the exclusive General Sales An additional point before finally disposing of
Agent of American Air, with the corresponding this issue. It is clear from the records that
obligations arising from such agency, such as, American Air was the party responsible for the
the promotion and solicitation for the services preparation of the Agreement. Consequently,
of its principal. In effect, by virtue of such any ambiguity in this "contract of adhesion" is
exclusivity, "all sales of transportation over to be taken "contra proferentem", i.e.,
American Air's services are necessarily by construed against the party who caused the
Orient Air."11 ambiguity and could have avoided it by the
exercise of a little more care. Thus, Article
It is a well settled legal principle that in the 1377 of the Civil Code provides that the
interpretation of a contract, the entirety thereof interpretation of obscure words or stipulations
must be taken into consideration to ascertain in a contract shall not favor the party who
the meaning of its provisions.12 The various caused the obscurity.14 To put it differently,
stipulations in the contract must be read when several interpretations of a provision are
together to give effect to all.13 After a careful otherwise equally proper, that interpretation or
examination of the records, the Court finds construction is to be adopted which is most
merit in the contention of Orient Air that the favorable to the party in whose favor the
Agreement, when interpreted in accordance provision was made and who did not cause the
with the foregoing principles, entitles it to the ambiguity.15 We therefore agree with the
3% overriding commission based on total respondent appellate court's declaration that:
revenue, or as referred to by the parties, "total
flown revenue." Any ambiguity in a contract, whose
terms are susceptible of different
As the designated exclusive General Sales interpretations, must be read against the
Agent of American Air, Orient Air was party who drafted it.16
responsible for the promotion and marketing of
American Air's services for air passenger We now turn to the propriety of American Air's
transportation, and the solicitation of sales termination of the Agreement. The respondent
therefor. In return for such efforts and services, appellate court, on this issue, ruled thus:
Orient Air was to be paid commissions of two
(2) kinds: first, a sales agency commission, It is not denied that Orient withheld
ranging from 7-8% of tariff fares and charges remittances but such action finds
from sales by Orient Air when made on justification from paragraph 4 of the
American Air ticket stock; and second, an Agreement, Exh. F, which provides for
overriding commission of 3% of tariff fares and remittances to American less
charges for all sales of passenger commissions to which Orient is entitled,
transportation over American Air services. It is and from paragraph 5(d) which
immediately observed that the precondition specifically allows Orient to retain the
attached to the first type of commission does full amount of its commissions. Since,
not obtain for the second type of commissions. as stated ante, Orient is entitled to the
The latter type of commissions would accrue 3% override. American's premise,
for sales of American Air services made not on therefore, for the cancellation of the
its ticket stock but on the ticket stock of other Agreement did not exist. . . ."
air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. We agree with the findings of the respondent
To rule otherwise, i.e., to limit the basis of such appellate court. As earlier established, Orient
overriding commissions to sales from American Air was entitled to an overriding commission
Air ticket stock would erase any distinction based on total flown revenue. American Air's
between the two (2) types of commissions and perception that Orient Air was remiss or in

default of its obligations under the Agreement WHEREFORE, with the foregoing modification,
was, in fact, a situation where the latter acted the Court AFFIRMS the decision and resolution
in accordance with the Agreement—that of of the respondent Court of Appeals, dated 27
retaining from the sales proceeds its accrued January 1986 and 17 December 1986,
commissions before remitting the balance to respectively. Costs against petitioner American
American Air. Since the latter was still obligated Air.
to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and SO ORDERED.
refusing to remit the sums claimed by
American Air. The latter's termination of the
Agreement was, therefore, without cause and
basis, for which it should be held liable to
Orient Air.

On the matter of damages, the respondent

appellate court modified by reduction the trial
court's award of exemplary damages and
attorney's fees. This Court sees no error in
such modification and, thus, affirms the same.

It is believed, however, that respondent

appellate court erred in affirming the rest of the
decision of the trial court.1âwphi1We refer
particularly to the lower court's decision
ordering American Air to "reinstate defendant
as its general sales agent for passenger
transportation in the Philippines in accordance
with said GSA Agreement."

By affirming this ruling of the trial court,

respondent appellate court, in effect, compels
American Air to extend its personality to Orient
Air. Such would be violative of the principles
and essence of agency, defined by law as a
contract whereby "a person binds himself to
render some service or to do something in
representation or on behalf of another, WITH
LATTER .17 (emphasis supplied) In an agent-
principal relationship, the personality of the
principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform
all acts which the latter would have him do.
Such a relationship can only be effected with
the consent of the principal, which must not, in
any way, be compelled by law or by any court.
The Agreement itself between the parties
states that "either party may terminate the
Agreementwithout cause by giving the other 30
days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside
the portion of the ruling of the respondent
appellate court reinstating Orient Air as general
sales agent of American Air.

G.R. No. 85494 May 7, 1991 checks. A building was constructed thereon by
Choithram in 1966 and this was occupied and
CHOITHRAM JETHMAL RAMNANI AND/OR rented by Jethmal Industries and a wardrobe
NIRMLA V. RAMNANI and MOTI G. shop called Eppie's Creation. Three other
RAMNANI, petitioners, buildings were built thereon by Choithram
vs. through a loan of P100,000.00 obtained from
COURT OF APPEALS, SPOUSES ISHWAR the Merchants Bank as well as the income
JETHMAL RAMNANI, SONYA JETHMAL derived from the first building. The buildings
RAMNANI and OVERSEAS HOLDING CO., were leased out by Choithram as attorney-in-
LTD., respondents. fact of Ishwar. Two of these buildings were later
G.R. No. 85496 May 7, 1991
Sometime in 1970 Ishwar asked Choithram to
SPOUSES ISHWAR JETHMAL RAMNANI account for the income and expenses relative
AND SONYA JET RAMNANI, petitioners, to these properties during the period 1967 to
vs. 1970. Choithram failed and refused to render
THE HONORABLE COURT OF APPEALS, such accounting. As a consequence, on
ORTIGAS & CO., LTD. PARTNERSHIP, and February 4, 1971, Ishwar revoked the general
OVERSEAS HOLDING CO., power of attorney. Choithram and Ortigas were
LTD., respondents. duly notified of such revocation on April 1, 1971
and May 24, 1971, respectively. 3 Said notice
GANCAYCO, J.: was also registered with the Securities and
Exchange Commission on March 29,
This case involves the bitter quarrel of two 19714 and was published in the April 2, 1971
brothers over two (2) parcels of land and its issue of The Manila Times for the information
improvements now worth a fortune. The bone of the general public.5
of contention is the apparently conflicting
factual findings of the trial court and the Nevertheless, Choithram as such attorney-in-
appellate court, the resolution of which will fact of Ishwar, transferred all rights and
materially affect the result of the contest. interests of Ishwar and Sonya in favor of his
daughter-in-law, Nirmla Ramnani, on February
The following facts are not disputed. 19, 1973. Her husband is Moti, son of
Choithram. Upon complete payment of the lots,
Ishwar, Choithram and Navalrai, all surnamed Ortigas executed the corresponding deeds of
Jethmal Ramnani, are brothers of the full sale in favor of Nirmla.6 Transfer Certificates of
blood. Ishwar and his spouse Sonya had their Title Nos. 403150 and 403152 of the Register
main business based in New York. Realizing of Deeds of Rizal were issued in her favor.
the difficulty of managing their investments in
the Philippines they executed a general power Thus, on October 6, 1982, Ishwar and Sonya
of attorney on January 24, 1966 appointing (spouses Ishwar for short) filed a complaint in
Navalrai and Choithram as attorneys-in-fact, the Court of First Instance of Rizal against
empowering them to manage and conduct their Choithram and/or spouses Nirmla and Moti
business concern in the Philippines.1 (Choithram et al. for brevity) and Ortigas for
reconveyance of said properties or payment of
On February 1, 1966 and on May 16, 1966, its value and damages. An amended complaint
Choithram, in his capacity as aforesaid for damages was thereafter filed by said
attorney-in-fact of Ishwar, entered into two spouses.
agreements for the purchase of two parcels of
land located in Barrio Ugong, Pasig, Rizal, After the issues were joined and the trial on the
from Ortigas & Company, Ltd. Partnership merits, a decision was rendered by the trial
(Ortigas for short) with a total area of court on December 3, 1985 dismissing the
approximately 10,048 square meters.2Per complaint and counterclaim. A motion for
agreement, Choithram paid the down payment reconsideration thereof filed by spouses Ishwar
and installments on the lot with his personal was denied on March 3, 1986.

An appeal therefrom was interposed by Exhibit "P"; and from 1979 to

spouses Ishwar to the Court of Appeals 1981, based on then prevailing
wherein in due course a decision was rates as indicated under Exhibit
promulgated on March 14, 1988, the "Q";
dispositive part of which reads as follows:
c) On Building A occupied by
WHEREFORE, judgment is hereby Transworld Knitting Mills from
rendered reversing and setting aside the 1972 to 1978, the rental incomes
appealed decision of the lower court based upon then prevailing rates
dated December 3, 1985 and the Order shown under Exhibit "P", and
dated March 3, 1986 which denied from 1979 to 1981, based on
plaintiffs-appellants' Motion for prevailing rates per Exhibit "Q";
Reconsideration from aforesaid
decision. A new decision is hereby d) On the two Bays Buildings
rendered sentencing defendants- occupied by Sigma-Mariwasa
appellees Choithram Jethmal Ramnani, from 1972 to 1978, the rentals
Nirmla V. Ramnani, Moti C. Ramnani, based on the Lease Contract,
and Ortigas and Company Limited Exhibit "P", and from 1979 to
Partnership to pay, jointly and severally, 1980, the rentals based on the
plaintiffs-appellants the following: Lease Contract, Exhibit "Q",

1. Actual or compensatory damages to and thereafter commencing 1982, to

the extent of the fair market value of the account for and turn over the rental
properties in question and all incomes paid or ought to be paid for the
improvements thereon covered by use and occupancy of the properties
Transfer Certificate of Title No. 403150 and all improvements totalling 10,048
and Transfer Certificate of Title No. sq. m based on the rate per square
403152 of the Registry of Deeds of meter prevailing in 1981 as indicated
Rizal, prevailing at the time of the annually cumulative up to 1984. Then,
satisfaction of the judgment but in no commencing 1985 and up to the
case shall such damages be less than satisfaction of the judgment, rentals
the value of said properties as shall be computed at ten percent (10%)
appraised by Asian Appraisal, Inc. in its annually of the fair market values of the
Appraisal Report dated August 1985 properties as appraised by the Asian
(Exhibits T to T-14, inclusive). Appraisal, Inc. in August 1985 (Exhibits
T to T-14, inclusive.)
2. All rental incomes paid or ought to be
paid for the use and occupancy of the 3. Moral damages in the sum of
properties in question and all P200,000.00;
improvements thereon consisting of
buildings, and to be computed as 4. Exemplary damages in the sum of
follows: P100,000.00;

a) On Building C occupied by 5. Attorney's fees equivalent to 10% of

Eppie's Creation and Jethmal the award herein made;
Industries from 1967 to 1973,
inclusive, based on the 1967 to 6. Legal interest on the total amount
1973 monthly rentals paid by awarded computed from first demand in
Eppie's Creation; 1967 and until the full amount is paid
and satisfied; and
b) Also on Building C above,
occupied by Jethmal Industries 7. The cost of suit.7
and Lavine from 1974 to 1978,
the rental incomes based on then Acting on a motion for reconsideration filed by
rates prevailing as shown under Choithram, et al. and Ortigas, the appellate

court promulgated an amended decision on THE COURT OF APPEALS ACTED IN

October 17, 1988 granting the motion for EXCESS OF JURISDICTION IN
reconsideration of Ortigas by affirming the AWARDING DAMAGES BASED ON
dismissal of the case by the lower court as THE VALUE OF THE PROPERTIES
against Ortigas but denying the motion for AND THE FRUITS OF THE
reconsideration of Choithram, et al.8 IMPROVEMENTS THEREON.9

Choithram, et al. thereafter filed a petition for Similarly, spouses Ishwar filed a petition for
review of said judgment of the appellate court review of said amended decision of the
alleging the following grounds: appellate court exculpating Ortigas of liability
based on the following assigned errors
1. The Court of Appeals gravely abused
its discretion in making a factual finding I
not supported by and contrary, to the
evidence presented at the Trial Court. THE RESPONDENT HONORABLE
2. The Court of Appeals acted in excess GRAVE ERROR AND HAS DECIDED A
of jurisdiction in awarding damages QUESTION OF SUBSTANCE NOT IN
based on the value of the real properties ACCORD WITH LAW AND/OR WITH
in question where the cause of action of APPLICABLE DECISIONS OF THIS
private respondents is recovery of a HONORABLE COURT—
sum of money.
$150,000.00 TO PETITIONER


29,1971 (EXH. H); The center of controversy is the testimony of
Ishwar that during the latter part of 1965, he
E) IN DISCARDING ITS sent the amount of US $150,000.00 to
FINDINGS CONTAINED IN ITS Choithram in two bank drafts of US$65,000.00
DECISION OF 14 MARCH 1988 and US$85,000.00 for the purpose of investing
(ANNEX B) THAT ORTIGAS the same in real estate in the Philippines. The
WAS DULY NOTIFIED OF THE trial court considered this lone testimony
REVOCATION OF THE POWER unworthy of faith and credit. On the other hand,
OF ATTORNEY OF the appellate court found that the trial court
CHOITHRAM, HENCE ORTIGAS misapprehended the facts in complete
ACTED IN BAD FAITH IN disregard of the evidence, documentary and

Another crucial issue is the claim of Choithram sense of the word. Remember his main
that because he was then a British citizen, as a business is based in New York, and he
temporary arrangement, he arranged the should know better how to send these
purchase of the properties in the name of alleged remittances. Worst, plaintiffs did
Ishwar who was an American citizen and who not present even a scum of proof, that
was then qualified to purchase property in the defendant Choithram Ramnani received
Philippines under the then Parity Amendment. the alleged two US dollar drafts.
The trial court believed this account but it was Significantly, he does not know even the
debunked by the appellate court. bank where these two (2) US dollar
drafts were purchased. Indeed, plaintiff
As to the issue of whether of not spouses Ishwar Ramnani's lone testimony is
Ishwar actually sent US$150,000.00 to unworthy of faith and credit and,
Choithram precisely to be used in the real therefore, deserves scant consideration,
estate business, the trial court made the and since the plaintiffs' theory is built or
following disquisition — based on such testimony, their cause of
action collapses or falls with it.
After a careful, considered and
conscientious examination of the Further, the rate of exchange that time
evidence adduced in the case at bar, in 1966 was P4.00 to $1.00. The alleged
plaintiff Ishwar Jethmal Ramanani's two US dollar drafts amounted to
main evidence, which centers on the $150,000.00 or about P600,000.00.
alleged payment by sending through Assuming the cash price of the two (2)
registered mail from New York two (2) lots was only P530,000.00 (ALTHOUGH
US$ drafts of $85,000.00 and he said: "Based on my knowledge I
$65,000.00 in the latter part of 1965 have no evidence," when asked if he
(TSN 28 Feb. 1984, p. 10-11). The even knows the cash price of the two
sending of these moneys were before lots). If he were really the true and
the execution of that General Power of bonafide investor and purchaser for
Attorney, which was dated in New York, profit as he asserted, he could have
on January 24, 1966. Because of these paid the price in full in cash directly and
alleged remittances of US $150,000.00 obtained the title in his name and not
and the subsequent acquisition of the thru "Contracts To Sell" in installments
properties in question, plaintiffs averred paying interest and thru an attorney-in
that they constituted a trust in favor of fact (TSN of May 2, 1984, pp. 10-11)
defendant Choithram Jethmal and, again, plaintiff Ishwar Ramnani told
Ramnani. This Court can be in full this Court that he does not know
agreement if the plaintiffs were only able whether or not his late father-in-law
to prove preponderantly these borrowed the two US dollar drafts from
remittances. The entire record of this the Swiss Bank or whether or not his
case is bereft of even a shred of proof to late father-in-law had any debit memo
that effect. It is completely barren. His from the Swiss Bank (TSN of May 2,
uncorroborated testimony that he 1984, pp. 9-10).11
remitted these amounts in the "later part
of 1965" does not engender enough On the other hand, the appellate court, in
faith and credence. Inadequacy of giving credence to the version of Ishwar, had
details of such remittance on the two (2) this to say —
US dollar drafts in such big amounts is
completely not positive, credible, While it is true, that generally the
probable and entirely not in accord with findings of fact of the trial court are
human experience. This is a classic binding upon the appellate courts, said
situation, plaintiffs not exhibiting any rule admits of exceptions such as when
commercial document or any document (1) the conclusion is a finding grounded
and/or paper as regard to these alleged entirely on speculations, surmises and
remittances. Plaintiff Ishwar Ramnani is conjectures; (2) when the inferences
not an ordinary businessman in the strict made is manifestly mistaken, absurd

and impossible; (3) when there is grave COURT:

abuse of discretion; (4) when the
judgment is based on a Witness can answer.
misapprehension of facts and when the
court, in making its findings, went A I paid through my attorney-in-
beyond the issues of the case and the fact. I am the one who gave him
same are contrary to the admissions of the money.
both appellant and appellee (Ramos vs.
Court of Appeals, 63 SCRA 33; ATTY. MARAPAO:
Philippine American Life Assurance Co.
vs. Santamaria, 31 SCRA 798; Aldaba Q You gave him the money?
vs. Court of Appeals, 24 SCRA 189).
A That's right.
The evidence on record shows that the t
court acted under a misapprehension of Q How much money did you give
facts and the inferences made on the him?
evidence palpably a mistake.
A US $ 150,000.00.
The trial court's observation that "the
entire records of the case is bereft of Q How was it given then?
even a shred of proof" that plaintiff-
appellants have remitted to defendant- A Through Bank drafts. US
appellee Choithram Ramnani the $65,000.00 and US $85,000.00
amount of US $ 150,000.00 for bank drafts. The total amount
investment in real estate in the which is $ 150,000.00 (TSN, 28
Philippines, is not borne by the evidence February 1984, p. 10; Emphasis
on record and shows the trial court's supplied.)
misapprehension of the facts if not a
complete disregard of the evidence, xxx xxx xxx
both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal
Ramnani testifying in his own behalf, Q The two bank drafts which you
declared that during the latter part of sent I assume you bought that
1965, he sent the amount of US from some banks in New York?
$150,000.00 to his brother Choithram in
two bank drafts of US $65,000.00 and A No, sir.
US $85,000.00 for the purpose of
investing the same in real estate in the Q But there is no question those
Philippines. His testimony is as follows: two bank drafts were for the
purpose of paying down payment
ATTY. MARAPAO: and installment of the two parcels
of land?
Mr. Witness, you said that your
attorney-in-fact paid in your A Down payment, installment and
behalf. Can you tell this to put up the building.
Honorable Court where your
attorney-in-fact got the money to Q I thought you said that the
pay this property? buildings were constructed . . .
subject to our continuing
ATTY. CRUZ: objection from rentals of first
Wait. It is now clear it becomes
incompetent or hearsay. ATTY. MARAPAO:

Your Honor, that is misleading. A From Switzerland.

COURT; Q He was in Switzerland.

Witness (may) answer. A Probably, they sent out these

two drafts from Switzerland.
A Yes, the first building was
immediately put up after the (TSN, 7 March 1984, pp. 16-17;
purchase of the two parcels of Emphasis supplied.)
land that was in 1966 and the
finds were used for the This positive and affirmative testimony
construction of the building from of plaintiff-appellant that he sent the two
the US $150,000.00 (TSN, 7 (2) bank drafts totalling US $
March 1984, page 14; Emphasis 150,000.00 to his brother, is proof of
supplied.) said remittance. Such positive testimony
has greater probative force than
xxx xxx xxx defendant-appellee's denial of receipt of
said bank drafts, for a witness who
Q These two bank drafts which testifies affirmatively that something did
you mentioned and the use for it happen should be believed for it is
you sent them by registered mail, unlikely that a witness will remember
did you send them from New what never happened (Underhill's Cr.
Your? Guidance, 5th Ed., Vol. 1, pp. 10-11).

A That is right. That is not all. Shortly thereafter,

plaintiff-appellant Ishwar Ramnani
Q And the two bank drafts which executed a General Power of Attorney
were put in the registered mail, (Exhibit "A") dated January 24, 1966
the registered mail was appointing his brothers, defendants-
addressed to whom? appellees Navalrai and Choithram as
attorney-in-fact empowering the latter to
A Choithram Ramnani. (TSN, 7 conduct and manage plaintiffs-
March 1984, pp. 14-15). appellants' business affairs in the
Philippines and specifically—
On cross-examination, the witness
reiterated the remittance of the money No. 14. To acquire, purchase for
to his brother Choithram, which was us, real estates and
sent to him by his father-in-law, improvements for the purpose of
Rochiram L. Mulchandoni from real estate business anywhere in
Switzerland, a man of immense wealth, the Philippines and to develop,
which even defendants-appellees' subdivide, improve and to resell
witness Navalrai Ramnani admits to be to buying public (individual, firm
so (tsn., p. 16, S. Oct. 13, 1985). Thus, or corporation); to enter in any
on cross-examination, Ishwar testified contract of sale in oar behalf and
as follows: to enter mortgages between the
vendees and the herein grantors
Q How did you receive these two that may be needed to finance
bank drafts from the bank the the real estate business being
name of which you cannot undertaken.
Pursuant thereto, on February 1, 1966
A I got it from my father-in-law. and May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements
Q From where did your father- in- (Exhibits "B' and "C") with the other
law sent these two bank drafts? defendant. Ortigas and Company,

Ltd., for the purchase of two (2) parcels testimonial evidence but also
of land situated at Barrio Ugong, Pasig, documentary and circumstantial
Rizal, with said defendant-appellee evidence proving said remittance of the
signing the Agreements in his capacity money and the fiduciary relationship
as Attorney-in-fact of Ishwar Jethmal between the former and Ishwar.12
The Court agrees. The environmental
Again, on January 5, 1972, almost circumstances of this case buttress the claim of
seven (7) years after Ishwar sent the US Ishwar that he did entrust the amount of US $
$ 150,000.00 in 1965, Choithram 150,000.00 to his brother, Choithram, which
Ramnani, as attorney-in fact of Ishwar the latter invested in the real property business
entered into a Contract of Lease with subject of this litigation in his capacity as
Sigma-Mariwasa (Exhibit "P") thereby attorney-in-fact of Ishwar.
re-affirming the ownership of Ishwar
over the disputed property and the trust True it is that there is no receipt whatever in
relationship between the latter as the possession of Ishwar to evidence the
principal and Choithram as attorney-in- same, but it is not unusual among brothers and
fact of Ishwar. close family members to entrust money and
valuables to each other without any formalities
All of these facts indicate that if plaintiff- or receipt due to the special relationship of
appellant Ishwar had not earlier sent the trust between them.
US $ 150,000.00 to his brother,
Choithram, there would be no purpose And another proof thereof is the fact that
for him to execute a power of attorney Ishwar, out of frustration when Choithram failed
appointing his brothers as s attorney-in- to account for the realty business despite his
fact in buying real estate in the demands, revoked the general power of
Philippines. attorney he extended to Choithram and
Navalrai. Thereafter, Choithram wrote a letter
As against Choithram's denial that he to Ishwar pleading that the power of attorney
did not receive the US $150,000.00 be renewed or another authority to the same
remitted by Ishwar and that the Power of effect be extended, which reads as follows:
Attorney, as well as the Agreements
entered into with Ortigas & Co., were June 25,1971
only temporary arrangements, Ishwar's
testimony that he did send the bank MR. ISHWAR JETHMAL
drafts to Choithram and was received by NEW YORK
the latter, is the more credible version
since it is natural, reasonable and (1) Send power of Atty.
probable. It is in accord with the immediately, because the case
common experience, knowledge and has been postponed for two
observation of ordinary men (Gardner weeks. The same way as it has
vs. Wentors 18 Iowa 533). And in been send before in favor of both
determining where the superior weight names. Send it immediately
of the evidence on the issues involved otherwise everything will be lost
lies, the court may consider the unnecessarily, and then it will
probability or improbability of the take us in litigation. Now that we
testimony of the witness (Sec. 1, Rule have gone ahead with a case and
133, Rules of Court). would like to end it immediately
otherwise squatters will take the
Contrary, therefore, to the trial court's entire land. Therefore, send it
sweeping observation that 'the entire immediately.
records of the case is bereft of even a
shred of proof that Choithram received (2) Ortigas also has sued us
the alleged bank drafts amounting to US because we are holding the
$ 150,000.00, we have not only installments, because they have

refused to give a rebate of P5.00 about it what could you have done? You do not
per meter which they have to give know me. I am not after money. I can earn
us as per contract. They have money anytime. It has been ten months since I
filed the law suit that since we have not received a single penny for expenses
have not paid the installment they from Dada (elder brother). Why there are no
should get back the land. The expenses? We can not draw a single penny
hearing of this case is in the from knitting (factory). Well I am not going to
month of July. Therefore, please write you further, nor there is any need for it.
send the power immediately. In This much I am writing you because of the way
one case DADA (Elder Brother) you have conducted yourself. But remember,
will represent and in another one, whenever I hale the money I will not keep it
I shall. myself Right now I have not got anything at all.

(3) In case if you do not want to I am not going to write any further.
give power then make one letter
in favor of Dada and the other Keep your business clean with Naru.
one in my favor showing that in Otherwise he will discontinue because he likes
any litigation we can represent to keep his business very clean.13
you and your wife, and whatever
the court decide it will be The said letter was in Sindhi language. It was
acceptable by me. You can ask translated to English by the First Secretary of
any lawyer, he will be able to the Embassy of Pakistan, which translation
prepare these letters. After that was verified correct by the Chairman,
you can have these letters ratify Department of Sindhi, University of Karachi.14
before P.I. Consulate. It should be
dated April 15, 1971. From the foregoing letter what could be
gleaned is that—
(4) Try to send the power
because it will be more useful. 1. Choithram asked for the issuance of
Make it in any manner whatever another power of attorney in their favor
way you have confident in it. But so they can continue to represent
please send it immediately. Ishwar as Ortigas has sued them for
unpaid installments. It also appears
You have cancelled the power. Therefore, you therefrom that Ortigas learned of the
have lost your reputation everywhere. What revocation of the power of attorney so
can I further write you about it. I have told the request to issue another.
everybody that due to certain reasons I have
written you to do this that is why you have 2. Choithram reassured Ishwar to have
done this. This way your reputation have been confidence in him as he was not after
kept intact. Otherwise if I want to do something money, and that he was not interested in
about it, I can show you that inspite of the Ishwar's money.
power you have cancelled you can not do
anything. You can keep this letter because my 3. To demonstrate that he can be relied
conscience is clear. I do not have anything in upon, he said that he could have ante-
my mind. dated the sales agreement of the
Ortigas lots before the issuance of the
I should not be writing you this, but because powers of attorney and acquired the
my conscience is clear do you know that if I same in his name, if he wanted to, but
had predated papers what could you have he did not do so.
done? Or do you know that I have many paper
signed by you and if had done anything or do 4. He said he had not received a single
then what can you do about it? It is not penny for expenses from Dada (their
necessary to write further about this. It does elder brother Navalrai). Thus, confirming
not matter if you have cancelled the power. At that if he was not given money by
that time if I had predated and done something

Ishwar to buy the Ortigas lots, he could P22,364,000.00 (Exhibits T to T-

not have consummated the sale. 14, inclusive), and yet for such
valuable pieces of property,
5. It is important to note that in said Choithram who now belatedly
letter Choithram never claimed that he purchased the same for
ownership of the property in question. himself did not document in
He affirmed the fact that he bought the writing or in a memorandum the
same as mere agent and in behalf of alleged temporary arrangement
Ishwar. Neither did he mention the with Ishwar' (pp. 4-41, Appellant's
alleged temporary arrangement Brief).
whereby Ishwar, being an American
citizen, shall appear to be the buyer of Such verbal allegation of a temporary
the said property, but that after arrangement is simply improbable and
Choithram acquires Philippine inconsistent. It has repeatedly been held
citizenship, its ownership shall be that important contracts made without
transferred to Choithram. evidence are highly improbable.

This brings us to this temporary arrangement The improbability of such temporary

theory of Choithram. arrangement is brought to fore when we
consider that Choithram has a son
The appellate court disposed of this matter in (Haresh Jethmal Ramnani) who is an
this wise American citizen under whose name the
properties in question could be
Choithram's claim that he purchased the registered, both during the time the
two parcels of land for himself in 1966 contracts to sell were executed and at
but placed it in the name of his younger the time absolute title over the same
brother, Ishwar, who is an American was to be delivered. At the time the
citizen, as a temporary arrangement,' Agreements were entered into with
because as a British subject he is defendant Ortigas & Co. in 1966,
disqualified under the 1935 Constitution Haresh, was already 18 years old and
to acquire real property in the consequently, Choithram could have
Philippines, which is not so with respect executed the deeds in trust for his minor
to American citizens in view of the son. But, he did not do this. Three (3)
Ordinance Appended to the Constitution years, thereafter, or in 1968 after
granting them parity rights, there is Haresh had attained the age of 21,
nothing in the records showing that Choithram should have terminated the
Ishwar ever agreed to such a temporary temporary arrangement with Ishwar,
arrangement. which according to him would be
effective only pending the acquisition of
During the entire period from 1965, citizenship papers. Again, he did not do
when the US $ 150,000. 00 was anything.
transmitted to Choithram, and until
Ishwar filed a complaint against him in Evidence to be believed, said
1982, or over 16 years, Choithram Vice Chancellor Van Fleet of New
never mentioned of a temporary Jersey, must not only proceed
arrangement nor can he present any from the mouth of a credible
memorandum or writing evidencing witness, but it must be credible in
such temporary arrangement, prompting itself—such as the common
plaintiff-appellant to observe: experience and observation of
mankind can approve as
The properties in question which probable under the
are located in a prime industrial circumstances. We have no test
site in Ugong, Pasig, Metro of the truth of human testimony,
Manila have a present fair market except its conformity to our
value of no less than knowledge, observation and

experience. Whatever is Ishwar. Section 3(a) of Rule 131 of the

repugnant to these belongs to the Rules of Court states that whenever a
miraculous and is outside of party has, by his own declaration, act, or
judicial cognizance. (Daggers vs. omission intentionally and deliberately
Van Dyek 37 M.J. Eq. 130, 132). led another to believe a particular thing
true and act upon such belief, he cannot
Another factor that can be counted in any litigation arising out of such
against the temporary arrangement declaration, act or omission be
excuse is that upon the revocation on permitted to falsify it.' While estoppel by
February 4, 1971 of the Power of deed is a bar which precludes a party to
attorney dated January 24, 1966 in a deed and his privies from asserting as
favor of Navalrai and Choithram by against the other and his privies any
Ishwar, Choithram wrote (tsn, p. 21, S. right of title in derogation of the deed,
July 19, 1985) a letter dated June 25, or from denying the truth of any material
1971 (Exhibits R, R-1, R-2 and R-3) fact asserted in it (31 C.J.S. 195; 19 Am.
imploring Ishwar to execute a new Jur. 603).
power of attorney in their favor. That if
he did not want to give power, then Thus, defendants-appellees are not
Ishwar could make a letter in favor of permitted to repudiate their admissions
Dada and another in his favor so that in and representations or to assert any
any litigation involving the properties in right or title in derogation of the deeds
question, both of them could represent or from denying the truth of any material
Ishwar and his wife. Choithram tried to fact asserted in the (1) power of
convince Ishwar to issue the power of attorney dated January 24, 1966
attorney in whatever manner he may (Exhibit A); (2) the Agreements of
want. In said letter no mention was February 1, 1966 and May 16, 1966
made at all of any temporary (Exhibits B and C); and (3) the Contract
arrangement. of Lease dated January 5, 1972 (Exhibit
On the contrary, said letter recognize(s)
the existence of principal and attorney- . . . The doctrine of estoppel is
in-fact relationship between Ishwar and based upon the grounds of public
himself. Choithram wrote: . . . do you policy, fair dealing, good faith and
know that if I had predated papers what justice, and its purpose is to
could you have done? Or do you know forbid one to speak against his
that I have many papers signed by you own act, representations, or
and if I had done anything or do then commitments to the injury of one
what can you do about it?' Choithram to whom they were directed and
was saying that he could have who reasonably relied thereon.
repudiated the trust and ran away with The doctrine of estoppel springs
the properties of Ishwar by predating from equitable principles and the
documents and Ishwar would be entirely equities in the case. It is
helpless. He was bitter as a result of designed to aid the law in the
Ishwar's revocation of the power of administration of justice where
attorney but no mention was made of without its aid injustice might
any temporary arrangement or a claim result. It has been applied by
of ownership over the properties in court wherever and whenever
question nor was he able to present any special circumstances of a case
memorandum or document to prove the so demands' (Philippine National
existence of such temporary Bank vs. Court of Appeals, 94
arrangement. SCRA 357, 368 [1979]).

Choithram is also estopped in pais or by It was only after the services of counsel
deed from claiming an interest over the has been obtained that Choithram
properties in question adverse to that of alleged for the first time in his Answer

that the General Power of attorney Being in delicto, he does not have any
(Annex A) with the Contracts to Sell right whatsoever being shielded from his
(Annexes B and C) were made only for own wrong-doing, which is not so with
the sole purpose of assuring respect to Ishwar, who was not a party
defendants' acquisition and ownership to such an arrangement.
of the lots described thereon in due time
under the law; that said instruments do The falsity of Choithram's defense is
not reflect the true intention of the further aggravated by the material
parties (par. 2, Answer dated May 30, inconsistencies and contradictions in his
1983), seventeen (17) long years from testimony. While on January 23, 1985
the time he received the money he testified that he purchased the land
transmitted to him by his brother, in question on his own behalf (tsn, p. 4,
Ishwar. S. Jan. 23, 1985), in the July 18, 1985
hearing, forgetting probably what he
Moreover, Choithram's 'temporary stated before, Choithram testified that
arrangement,' by which he claimed he was only an attorney-in-fact of Ishwar
purchasing the two (2) parcels in (tsn, p. 5, S. July 18, 1985). Also in the
question in 1966 and placing them in hearing of January 23, 1985, Choithram
the name of Ishwar who is an American declared that nobody rented the building
citizen, to circumvent the disqualification that was constructed on the parcels of
provision of aliens acquiring real land in question (tsn, pp. 5 and 6), only
properties in the Philippines under the to admit in the hearing of October 30,
1935 Philippine Constitution, as 1985, that he was in fact renting the
Choithram was then a British subject, building for P12,000. 00 per annum (tsn,
show a palpable disregard of the law of p. 3). Again, in the hearing of July 19,
the land and to sustain the supposed 1985, Choithram testified that he had no
"temporary arrangement" with Ishwar knowledge of the revocation of the
would be sanctioning the perpetration of Power of Attorney (tsn, pp. 20- 21), only
an illegal act and culpable violation of to backtrack when confronted with the
the Constitution. letter of June 25, 1971 (Exhibits R to R-
3), which he admitted to be in "his own
Defendants-appellees likewise violated writing," indicating knowledge of the
the Anti-Dummy Law (Commonwealth revocation of the Power of Attorney.
Act 108, as amended), which provides
in Section 1 thereof that: These inconsistencies are not minor but
go into the entire credibility of the
In all cases in which any testimony of Choithram and the rule is
constitutional or legal provision that contradictions on a very crucial
requires Philippine or any other point by a witness, renders s testimony
specific citizenship as a requisite incredible People vs. Rafallo, 80 Phil.
for the exercise or enjoyment of a 22). Not only this the doctrine of falsus
right, franchise or privilege, . . . in uno, falsus in omnibus is fully
any alien or foreigner profiting applicable as far as the testimony of
thereby, shall be punished . . . by Choithram is concerned. The cardinal
imprisonment . . . and of a fine of rule, which has served in all ages, and
not less than the value of the has been applied to all conditions of
right, franchise or privileges, men, is that a witness willfully falsifying
which is enjoyed or acquired in the truth in one particular, when upon
violation of the provisions hereof . oath, ought never to be believed upon
.. the strength of his own testimony,
whatever he may assert (U.S. vs.
Having come to court with unclean Osgood 27 Feb. Case No. 15971-a, p.
hands, Choithram must not be permitted 364); Gonzales vs. Mauricio, 52 Phil,
foist his 'temporary arrangement' 728), for what ground of judicial relief
scheme as a defense before this court. can there be left when the party has

shown such gross insensibility to the Ishwar, why the inclusion of their elder brother
difference between right and wrong, Navalrai as an attorney-in-fact?
between truth and falsehood? (The
Santisima Trinidad, 7 Wheat, 283, 5 Then, acting as attorney-in-fact of Ishwar,
U.S. [L. ed.] 454). Choithram purchased two parcels of land
located in Barrio Ugong Pasig, Rizal, from
True, that Choithram's testimony finds Ortigas in 1966. With the balance of the money
corroboration from the testimony of his of Ishwar, Choithram erected a building on said
brother, Navalrai, but the same would lot. Subsequently, with a loan obtained from a
not be of much help to Choithram. Not bank and the income of the said property,
only is Navalrai an interested and Choithram constructed three other buildings
biased witness, having admitted his thereon. He managed the business and
close relationship with Choithram and collected the rentals. Due to their relationship
that whenever he or Choithram had of confidence it was only in 1970 when Ishwar
problems, they ran to each other (tsn, demanded for an accounting from Choithram.
pp. 17-18, S. Sept. 20, 1985), Navalrai And even as Ishwar revoked the general power
has a pecuniary interest in the success of attorney on February 4, 1971, of which
of Choithram in the case in question. Choithram was duly notified, Choithram wrote
Both he and Choithram are business to Ishwar on June 25, 1971 requesting that he
partners in Jethmal and Sons and/or execute a new power of attorney in their
Jethmal Industries, wherein he owns favor.16 When Ishwar did not respond thereto,
60% of the company and Choithram, Choithram nevertheless proceeded as such
40% (p. 62, Appellant's Brief). Since the attorney-in-fact to assign all the rights and
acquisition of the properties in question interest of Ishwar to his daughter-in-law Nirmla
in 1966, Navalrai was occupying 1,200 in 1973 without the knowledge and consent of
square meters thereof as a factory site Ishwar. Ortigas in turn executed the
plus the fact that his son (Navalrais) was corresponding deeds of sale in favor of Nirmla
occupying the apartment on top of the after full payment of the purchase accomplice
factory with his family rent free except of the lots.
the amount of P l,000.00 a month to pay
for taxes on said properties (tsn, p. 17, In the prefatory statement of their petition,
S. Oct. 3, 1985). Choithram pictured Ishwar to be so motivated
by greed and ungratefulness, who squandered
Inherent contradictions also marked the family business in New York, who had to
Navalrai testimony. "While the latter was turn to his wife for support, accustomed to
very meticulous in keeping a receipt for living in ostentation and who resorted to
the P 10,000.00 that he paid Ishwar as blackmail in filing several criminal and civil
settlement in Jethmal Industries, yet in suits against them. These statements find no
the alleged payment of P 100,000.00 to support and should be stricken from the
Ishwar, no receipt or voucher was ever records. Indeed, they are irrelevant to the
issued by him (tsn, p. 17, S. Oct. 3, proceeding.
Moreover, assuming Ishwar is of such a low
We concur. character as Choithram proposes to make this
The foregoing findings of facts of the Court of Court to believe, why is it that of all persons,
Appeals which are supported by the evidence under his temporary arrangement theory,
is conclusive on this Court. The Court finds that Choithram opted to entrust the purchase of
Ishwar entrusted US$150,000.00 to Choithram valuable real estate and built four buildings
in 1965 for investment in the realty business. thereon all in the name of Ishwar? Is it not an
Soon thereafter, a general power of attorney unconscious emergence of the truth that this
was executed by Ishwar in favor of both otherwise wayward brother of theirs was on the
Navalrai and Choithram. If it is true that the contrary able to raise enough capital through
purpose only is to enable Choithram to the generosity of his father-in-law for the
purchase realty temporarily in the name of purchase of the very properties in question? As
the appellate court aptly observed if truly this

temporary arrangement story is the only with a capital of only $100.00 divided
motivation, why Ishwar of all people? Why not into 100 shares of $1.00 each, and with
the own son of Choithram, Haresh who is also address at P.O. Box 1790, Grand
an American citizen and who was already 18 Cayman, Cayman Islands.20
years old at the time of purchase in 1966? The
Court agrees with the observation that this An opposition thereto was filed by Choithram,
theory is an afterthought which surfaced only et al. but no documents were produced. A
when Choithram, Nirmla and Moti filed their manifestation and reply to the opposition was
answer. filed by spouses Ishwar.

When Ishwar asked for an accounting in 1970 All these acts of Choithram, et al. appear to be
and revoked the general power of attorney in fraudulent attempts to remove these properties
1971, Choithram had a total change of heart. to the detriment of spouses Ishwar should the
He decided to claim the property as his. He latter prevail in this litigation.
caused the transfer of the rights and interest of
Ishwar to Nirmla. On his representation, On December 10, 1990 the court issued a
Ortigas executed the deeds of sale of the resolution that substantially reads as follows:
properties in favor of Nirmla. Choithram
obviously surmised Ishwar cannot stake a valid Considering the allegations of
claim over the property by so doing. petitioners Ishwar Jethmal Ramnani and
Sonya Ramnani that respondents
Clearly, this transfer to Nirmla is fictitious and, Choithram Jethmal Ramnani, Nirmla
as admitted by Choithram, was intended only Ramnani and Moti G. Ramnani have
to place the property in her name until fraudulently executed a simulated
Choithram acquires Philippine mortgage of the properties subject of
citizenship.17 What appears certain is that it this litigation dated June 20, 1989, in
appears to be a scheme of Choithram to place favor of Overseas Holding Co., Ltd.
the property beyond the reach of Ishwar should which appears to be a corporation
he successfully claim the same. Thus, it must organized in Cayman Islands, for the
be struck down. amount of $ 3,000,000.00, which is
much more than the value of the
Worse still, on September 27, 1990 spouses properties in litigation; that said alleged
Ishwar filed an urgent motion for the issuance mortgagee appears to be a "shell"
of a writ of preliminary attachment and to corporation with a capital of only
require Choithram, et al. to submit certain $100.00; and that this alleged
documents, inviting the attention of this Court transaction appears to be intended to
to the following: defraud petitioners Ishwar and Sonya
Jethmal Ramnani of any favorable
a) Donation by Choithram of his 2,500 judgment that this Court may render in
shares of stock in General Garments this case;
Corporation in favor of his children on
December 29, 1989;18 Wherefore the Court Resolved to issue
a writ of preliminary injunction enjoining
b) Sale on August 2, 1990 by Choithram and prohibiting said respondents
of his 100 shares in Biflex (Phils.), Inc., Choithram Jethmal Ramnani, Nirmla V.
in favor of his children;19 and Ramnani, Moti G. Ramnani and the
Overseas Holding Co., Ltd. from
c) Mortgage on June 20, 1989 by Nirmla encumbering, selling or otherwise
through her attorney-in-fact, Choithram, disposing of the properties and
of the properties subject of this litigation, improvements subject of this litigation
for the amount of $3 Million in favor of until further orders of the Court.
Overseas Holding, Co. Ltd., (Overseas Petitioners Ishwar and Sonya Jethmal
for brevity), a corporation which appears Ramnani are hereby required to post a
to be organized and existing under and bond of P 100,000.00 to answer for any
by virtue of the laws of Cayman Islands, damages d respondents may suffer by

way of this injunction if the Court finally reason for its issuance, and that acts already
decides the said petitioners are not executed cannot be enjoined. They also
entitled thereto. offered to file a counterbond to dissolve the
The Overseas Holding Co., Ltd. with
address at P.O. Box 1790 Grand A comment/opposition thereto was filed by
Cayman, Cayman Islands, is hereby spouses Ishwar that there is basis for the
IMPLEADED as a respondent in these injunction as the alleged mortgage of the
cases, and is hereby required to property is simulated and the other donations
SUBMIT its comment on the Urgent of the shares of Choithram to his children are
Motion for the Issuance of a Writ of fraudulent schemes to negate any judgment
Preliminary Attachment and Motion for the Court may render for petitioners.
Production of Documents, the
Manifestation and the Reply to the No comment or answer was filed by Overseas
Opposition filed by said petitioners, despite due notice, thus it is and must be
within Sixty (60) days after service by considered to be in default and to have lost the
publication on it in accordance with the right to contest the representations of spouses
provisions of Section 17, Rule 14 of the Ishwar to declare the aforesaid alleged
Rules of Court, at the expense of mortgage nun and void.
petitioners Ishwar and Sonya Jethmal
Ramnani. This purported mortgage of the subject
properties in litigation appears to be fraudulent
Let copies of this resolution be served and simulated. The stated amount of $3 Million
on the Register of Deeds of Pasig, for which it was mortgaged is much more than
Rizal, and the Provincial Assessor of the value of the mortgaged properties and its
Pasig, Rizal, both in Metro Manila, for its improvements. The alleged mortgagee-
annotation on the transfer Certificates of company (Overseas) was organized only on
Titles Nos. 403150 and 403152 June 26,1989 but the mortgage was executed
registered in the name of respondent much earlier, on June 20, 1989, that is six (6)
Nirmla V. Ramnani, and on the tax days before Overseas was organized.
declarations of the said properties and Overseas is a "shelf" company worth only
its improvements subject of this $100.00.25 In the manifestation of spouses
litigation.21 Ishwar dated April 1, 1991, the Court was
informed that this matter was brought to the
The required injunction bond in the amount of attention of the Central Bank (CB) for
P 100,000.00 was filed by the spouses Ishwar investigation, and that in a letter of March 20,
which was approved by the Court. The above 1991, the CB informed counsel for spouses
resolution of the Court was published in the Ishwar that said alleged foreign loan of
Manila Bulletin issue of December 17, 1990 at Choithram, et al. from Overseas has not been
the expense of said spouses.22 On December previously approved/registered with the CB. 26
19, 1990 the said resolution and petition for
review with annexes in G.R. Nos. 85494 and Obviously, this is another ploy of Choithram, et
85496 were transmitted to respondent al. to place these properties beyond the reach
Overseas, Grand Cayman Islands at its of spouses Ishwar should they obtain a
address c/o Cayman Overseas Trust Co. Ltd., favorable judgment in this case. The Court
through the United Parcel Services Bill of finds and so declares that this alleged
Lading23 and it was actually delivered to said mortgage should be as it is hereby declared
company on January 23, 1991.24 null and void.

On January 22, 1991, Choithram, et al., filed a All these contemporaneous and subsequent
motion to dissolve the writ of preliminary acts of Choithram, et al., betray the weakness
injunction alleging that there is no basis of their cause so they had to take an steps,
therefor as in the amended complaint what is even as the case was already pending in
sought is actual damages and not a Court, to render ineffective any judgment that
reconveyance of the property, that there is no may be rendered against them.

The problem is compounded in that respondent defendant Nirmla Ramnani in

Ortigas is caught in the web of this bitter fight. connivance with defendant Ortigas &
It had all the time been dealing with Choithram Co., the latter having agreed to the said
as attorney-in-fact of Ishwar. However, transfer despite receiving a letter from
evidence had been adduced that notice in plaintiffs' lawyer informing them of the
writing had been served not only on Choithram, said revocation; copy of the letter is
but also on Ortigas, of the revocation of hereto attached and made an integral
Choithram's power of attorney by Ishwar's part hereof as Annex "H";
lawyer, on May 24, 1971.27 A publication of said
notice was made in the April 2, 1971 issue 8. Defendant Nirmla Ramnani having
of The Manila Times for the information of the acquired the aforesaid property by fraud
general public.28 Such notice of revocation in a is, by force of law, considered a trustee
newspaper of general circulation is sufficient of an implied trust for the benefit of
warning to third persons including Ortigas. 29 A plaintiff and is obliged to return the
notice of revocation was also registered with same to the latter:
the Securities and Exchange Commission on
March 29, 1 971.30 9. Several efforts were made to settle
the matter within the family but
Indeed in the letter of Choithram to Ishwar of defendants (Choithram Ramnani, Nirmla
June 25, 1971, Choithram was pleading that Ramnani and Moti Ramnani) refused
Ishwar execute another power of attorney to be and up to now fail and still refuse to
shown to Ortigas who apparently learned of the cooperate and respond to the same;
revocation of Choithram's power of thus, the present case;
attorney. Despite said notices, Ortigas
nevertheless acceded to the representation of 10. In addition to having been deprived
Choithram, as alleged attorney-in-fact of of their rights over the properties
Ishwar, to assign the rights of petitioner Ishwar (described in par. 3 hereof), plaintiffs, by
to Nirmla. While the primary blame should be reason of defendants' fraudulent act,
laid at the doorstep of Choithram, Ortigas is not suffered actual damages by way of lost
entirely without fault. It should have required rental on the property which defendants
Choithram to secure another power of attorney (Choithram Ramnani, Nirmla Ramnani
from Ishwar. For recklessly believing the and Moti Ramnani have collected for
pretension of Choithram that his power of themselves;34
attorney was still good, it must, therefore,
share in the latter's liability to Ishwar. In said amended complaint, spouses Ishwar,
among others, pray for payment of actual
In the original complaint, the spouses Ishwar damages in an amount no less than the value
asked for a reconveyance of the properties of the properties in litigation instead of a
and/or payment of its present value and reconveyance as sought in the original
damages.32 In the amended complaint they complaint. Apparently they opted not to insist
asked, among others, for actual damages of on a reconveyance as they are American
not less than the present value of the real citizens as alleged in the amended complaint.
properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and The allegations of the amended complaint
further prayed for "such other reliefs as may be above reproduced clearly spelled out that the
deemed just and equitable in the premises . transfer of the property to Nirmla was
The amended complaint contain the following fraudulent and that it should be considered to
positive allegations: be held in trust by Nirmla for spouses Ishwar.
As above-discussed, this allegation is well-
7. Defendant Choithram Ramnani, in taken and the transfer of the property to Nirmla
evident bad faith and despite due notice should be considered to have created an
of the revocation of the General Power implied trust by Nirmla as trustee of the
of Attorney, Annex 'D" hereof, caused property for the benefit of spouses Ishwar.35
the transfer of the rights over the said
parcels of land to his daughter-in-law,

The motion to dissolve the writ of preliminary (d) In an action against a party who has
injunction filed by Choithram, et al. should be been guilty of a fraud in contracting the
denied. Its issuance by this Court is proper and debt or incurring the obligation upon
warranted under the circumstances of the which the action is brought, or in
case. Under Section 3(c) Rule 58 of the Rules concealing or disposing of the property
of Court, a writ of preliminary injunction may be for the taking, detention or conversion of
granted at any time after commencement of which the action is brought;
the action and before judgment when it is
established: (e) In an action against a party who has
removed or disposed of his property, or
(c) that the defendant is doing, is about to do so, with intent to defraud
threatens, or is about to do, or is his creditors; . . .
procuring or suffering to be done, some
act probably in violation of plaintiffs's Verily, the acts of Choithram, et al. of disposing
rights respecting the subject of the the properties subject of the litigation disclose
action, and tending to render the a scheme to defraud spouses Ishwar so they
judgment ineffectual. may not be able to recover at all given a
judgment in their favor, the requiring the
As above extensively discussed, Choithram, et issuance of the writ of attachment in this
al. have committed and threaten to commit instance.
further acts of disposition of the properties in
litigation as well as the other assets of Nevertheless, under the peculiar
Choithram, apparently designed to render circumstances of this case and despite the fact
ineffective any judgment the Court may render that Choithram, et al., have committed acts
favorable to spouses Ishwar. which demonstrate their bad faith and scheme
to defraud spouses Ishwar and Sonya of their
The purpose of the provisional remedy of rightful share in the properties in litigation, the
preliminary injunction is to preserve the status Court cannot ignore the fact that Choithram
quo of the things subject of the litigation and to must have been motivated by a strong
protect the rights of the spouses Ishwar conviction that as the industrial partner in the
respecting the subject of the action during the acquisition of said assets he has as much
pendency of the Suit36 and not to obstruct the claim to said properties as Ishwar, the capitalist
administration of justice or prejudice the partner in the joint venture.
adverse party.37 In this case for damages,
should Choithram, et al. continue to commit The scenario is clear. Spouses Ishwar supplied
acts of disposition of the properties subject of the capital of $150,000.00 for the
the litigation, an award of damages to spouses business.1âwphi1 They entrusted the money to
Ishwar would thereby be rendered ineffectual Choithram to invest in a profitable business
and meaningless.38 venture in the Philippines. For this purpose
they appointed Choithram as their attorney-in-
Consequently, if only to protect the interest of fact.
spouses Ishwar, the Court hereby finds and
holds that the motion for the issuance of a writ Choithram in turn decided to invest in the real
of preliminary attachment filed by spouses estate business. He bought the two (2) parcels
Ishwar should be granted covering the of land in question from Ortigas as attorney-in-
properties subject of this litigation. fact of Ishwar- Instead of paying for the lots in
cash, he paid in installments and used the
Section 1, Rule 57 of the Rules of Court balance of the capital entrusted to him, plus a
provides that at the commencement of an loan, to build two buildings. Although the
action or at any time thereafter, the plaintiff or buildings were burned later, Choithram was
any proper party may have the property of the able to build two other buildings on the
adverse party attached as security for the property. He rented them out and collected the
satisfaction of any judgment that may be rentals. Through the industry and genius of
recovered, in, among others, the following Choithram, Ishwar's property was developed
cases: and improved into what it is now—a valuable

asset worth millions of pesos. As of the last judgment but in no case less than their value
estimate in 1985, while the case was pending as appraised by the Asian Appraisal, Inc. in its
before the trial court, the market value of the Appraisal Report dated August 1985 (Exhibits
properties is no less than P22,304,000.00. 39 It T to T-14, inclusive).
should be worth much more today.
3. Petitioners Choithram, Nirmla and Moti
We have a situation where two brothers Ramnani and respondent Ortigas & Co., Ltd.
engaged in a business venture. One furnished Partnership shall also be jointly and severally
the capital, the other contributed his industry liable to pay to said respondents spouses
and talent. Justice and equity dictate that the Ishwar and Sonya Ramnani one-half (1/2) of
two share equally the fruit of their joint the total rental income of said properties and
investment and efforts. Perhaps this Solomonic improvements from 1967 up to the date of
solution may pave the way towards their satisfaction of the judgment to be computed as
reconciliation. Both would stand to gain. No follows:
one would end up the loser. After all, blood is
thicker than water. a. On Building C occupied by
Eppie's Creation and Jethmal
However, the Court cannot just close its eyes Industries from 1967 to 1973,
to the devious machinations and schemes that inclusive, based on the 1967 to
Choithram employed in attempting to dispose 1973 monthly rentals paid by
of, if not dissipate, the properties to deprive Eppie's Creation;
spouses Ishwar of any possible means to
recover any award the Court may grant in their b. Also on Building C above,
favor. Since Choithram, et al. acted with occupied by Jethmal Industries
evident bad faith and malice, they should pay and Lavine from 1974 to 1978,
moral and exemplary damages as well as the rental incomes based on then
attorney's fees to spouses Ishwar. rates prevailing as shown under
Exhibit "P"; and from 1979 to
WHEREFORE, the petition in G.R. No. 85494 1981, based on then prevailing
is DENIED, while the petition in G.R. No. rates as indicated under Exhibit
85496 is hereby given due course and "Q";
GRANTED. The judgment of the Court of
Appeals dated October 18, 1988 is hereby c. On Building A occupied by
modified as follows: Transworld Knitting Mills from
1972 to 1978, the rental incomes
1. Dividing equally between respondents based upon then prevailing rates
spouses Ishwar, on the one hand, and shown under Exhibit "P", and
petitioner Choithram Ramnani, on the other, (in from 1979 to 1981, based on
G.R. No. 85494) the two parcels of land prevailing rates per Exhibit "Q";
subject of this litigation, including all the
improvements thereon, presently covered by d. On the two Bays Buildings
transfer Certificates of Title Nos. 403150 and occupied by Sigma-Mariwasa
403152 of the Registry of Deeds, as well as the from 1972 to 1978, the rentals
rental income of the property from 1967 to the based on the Lease Contract,
present. Exhibit "P", and from 1979 to
1980, the rentals based on the
2. Petitioner Choithram Jethmal Ramnani, Lease Contract, Exhibit "Q".
Nirmla V. Ramnani, Moti C. Ramnani and
respondent Ortigas and Company, Limited and thereafter commencing 1982, to account
Partnership (in G.R. No. 85496) are ordered for and turn over the rental incomes paid or
solidarily to pay in cash the value of said one- ought to be paid for the use and occupancy of
half (1/2) share in the said land and the properties and all improvements totalling
improvements pertaining to respondents 10,048 sq. m., based on the rate per square
spouses Ishwar and Sonya at their fair market meter prevailing in 1981 as indicated annually
value at the time of the satisfaction of this cumulative up to 1984. Then, commencing

1985 and up to the satisfaction of the Nirmla V. Ramnani, Moti C. Ramnani and
judgment, rentals shall be computed at ten Ortigas, Co., Ltd. Partnership. Said petitioners
percent (10%) annually of the fair market Choithram, et al. and respondent Ortigas shall
values of the properties as appraised by the also pay the costs.
Asian Appraisals, Inc. in August 1985. (Exhibits
T to T-14, inclusive.) SO ORDERED.

4. To determine the market value of the

properties at the time of the satisfaction of this
judgment and the total rental incomes thereof,
the trial court is hereby directed to hold a
hearing with deliberate dispatch for this
purpose only and to have the judgment
immediately executed after such determination.

5. Petitioners Choithram, Nirmla and Moti, all

surnamed Ramnani, are also jointly and
severally liable to pay respondents Ishwar and
Sonya Ramnani the amount of P500,000.00 as
moral damages, P200,000.00 as exemplary
damages and attorney's fees equal to 10% of
the total award. to said respondents spouses.

6. The motion to dissolve the writ of preliminary

injunction dated December 10, 1990 filed by
petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, is hereby DENIED and
the said injunction is hereby made permanent.
Let a writ of attachment be issued and levied
against the properties and improvements
subject of this litigation to secure the payment
of the above awards to spouses Ishwar and

7. The mortgage constituted on the subject

property dated June 20, 1989 by petitioners
Choithram and Nirmla, both surnamed
Ramnani in favor of respondent Overseas
Holding, Co. Ltd. (in G.R. No. 85496) for the
amount of $3-M is hereby declared null and
void. The Register of Deeds of Pasig, Rizal, is
directed to cancel the annotation of d mortgage
on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd.

Partnership pay the awards to Ishwar and
Sonya Ramnani under this judgment, it shall be
entitled to reimbursement from petitioners
Choithram, Nirmla and Moti, all surnamed

9. The above awards shag bear legal rate of

interest of six percent (6%) per annum from the
time this judgment becomes final until they are
fully paid by petitioners Choithram Ramnani,

G.R. No. L-41420 July 10, 1992 3. It is expressly agreed that

DRACOR shall handle
CMS LOGGING, INC., petitioner, exclusively all negotiations of all
vs. export sales of SISON with the
THE COURT OF APPEALS and D.R. buyers and arrange the
AGUINALDO CORPORATION, respondents. procurement and schedules of
the vessel or vessels for the
NOCON, J.: shipment of SISON's logs in
accordance with SISON's written
This is a petition for review on certiorari from requests, but DRACOR shall not
the decision dated July 31, 1975 of the Court of in anyway [sic] be liable or
Appeals in CA-G.R. No. 47763-R which responsible for any delay, default
affirmed in toto the decision of the Court of or failure of the vessel or vessels
First Instance of Manila, Branch VII, in Civil to comply with the schedules
Case No. 56355 dismissing the complaint filed agreed upon;
by petitioner CMS Logging, Inc. (CMS, for
brevity) against private respondent D.R. xxx xxx xxx
Aguinaldo Corporation (DRACOR, for brevity)
and ordering the former to pay the latter 9. It is expressly agreed by the
attorney's fees in the amount of P1,000.00 and parties hereto that DRACOR
the costs. shall receive five (5%) per cent
commission of the gross sales of
The facts of the case are as follows: Petitioner logs of SISON based on F.O.B.
CMS is a forest concessionaire engaged in the invoice value which commission
logging business, while private respondent shall be deducted from the
DRACOR is engaged in the business of proceeds of any and/or all
exporting and selling logs and lumber. On moneys received by DRACOR for
August 28, 1957, CMS and DRACOR entered and in behalf and for the account
into a contract of agency 1 whereby the former of SISON;
appointed the latter as its exclusive export and
sales agent for all logs that the former may By virtue of the aforesaid agreement, CMS was
produce, for a period of five (5) years. The able to sell through DRACOR a total of
pertinent portions of the agreement, which was 77,264,672 board feet of logs in Japan, from
drawn up by DRACOR, 2 are as follows: September 20, 1957 to April 4, 1962.

1. SISON [CMS] hereby appoints About six months prior to the expiration of the
DRACOR as his sole and agreement, while on a trip to Tokyo, Japan,
exclusive export sales agent with CMS's president, Atty. Carlos Moran Sison,
full authority, subject to the and general manager and legal counsel, Atty.
conditions and limitations Teodoro R. Dominguez, discovered that
hereinafter set forth, to sell and DRACOR had used Shinko Trading Co., Ltd.
export under a firm sales contract (Shinko for brevity) as agent, representative or
acceptable to SISON, all logs liaison officer in selling CMS's logs in Japan for
produced by SISON for a period which Shinko earned a commission of U.S.
of five (5) years commencing $1.00 per 1,000 board feet from the buyer of
upon the execution of the the logs. Under this arrangement, Shinko was
agreement and upon the terms able to collect a total of U.S. $77,264.67. 3
and conditions hereinafter
provided and DRACOR hereby CMS claimed that this commission paid to
accepts such appointment; Shinko was in violation of the agreement and
that it (CMS) is entitled to this amount as part
xxx xxx xxx of the proceeds of the sale of the logs. CMS
contended that since DRACOR had been paid
the 5% commission under the agreement, it is

no longer entitled to the additional commission Moreover, the appellate court held:
paid to Shinko as this tantamount to DRACOR
receiving double compensation for the services There is reason to believe that
it rendered. Shinko Trading Co. Ltd., was paid
by defendant-appellee out of its
After this discovery, CMS sold and shipped own commission of 5%, as
logs valued at U.S. $739,321.13 or indicated in the letter of its
P2,883,351.90, 4 directly to several firms in president to the president of
Japan without the aid or intervention of Sison, dated February 2, 1963
DRACOR. (Exhibit "N"), and in the
Agreement between Aguinaldo
CMS sued DRACOR for the commission Development Corporation
received by Shinko and for moral and (ADECOR) and Shinko Trading
exemplary damages, while DRACOR Co., Ltd. (Exhibit "9"). Daniel R.
counterclaimed for its commission, amounting Aguinaldo stated in his said letter:
to P144,167.59, from the sales made by CMS
of logs to Japanese firms. In its reply, CMS . . . , I informed you that if you
averred as a defense to the counterclaim that wanted to pay me for the service,
DRACOR had retained the sum of then it would be no more than at
P101,167.59 as part of its commission for the the standard rate of 5%
sales made by CMS. 5 Thus, as its commission because in our own
counterclaim to DRACOR's counterclaim, CMS case, we pay our Japanese
demanded DRACOR return the amount it agents 2-1/2%. Accordingly, we
unlawfully retained. DRACOR later filed an would only add a similar amount
amended counterclaim, alleging that the of 2-1/2% for the service which
balance of its commission on the sales made we would render you in the
by CMS was P42,630.82, 6 thus impliedly Philippines. 11
admitting that it retained the amount alleged by
CMS. Aggrieved, CMS appealed to this Court by way
of a petition for review on certiorari, alleging (1)
In dismissing the complaint, the trial court ruled that the Court of Appeals erred in not making a
that no evidence was presented to show that complete findings of fact; (2) that the testimony
Shinko received the commission of U.S. of Atty. Teodoro R. Dominguez, regarding the
$77,264.67 arising from the sale of CMS's logs admission by Shinko's president and director
in Japan, though the trial court stated that that it collected a commission of U.S. $1.00 per
"Shinko was able to collect the total amount of 1,000 board feet of logs from the Japanese
$77,264.67 US Dollars (Exhs. M and M- buyers, is admissible against DRACOR; (3)
1)." 7 The counterclaim was likewise dismissed, that the statement of DRACOR's chief legal
as it was shown that DRACOR had waived its counsel in his memorandum dated May 31,
rights to the balance of its commission in a 1965, Exhibit "K", is an admission that Shinko
letter dated February 2, 1963 to Atty. Carlos was able to collect the commission in question;
Moran Sison, president of CMS. 8 From said (4) that the fact that Shinko received the
decision, only CMS appealed to the Court of questioned commissions is deemed admitted
Appeals. by DRACOR by its silence under Section 23,
Rule 130 of the Rules of Court when it failed to
The Court of Appeals, in a 3 to 2 reply to Atty. Carlos Moran Sison's letter dated
decision, 9 affirmed the dismissal of the February 6, 1962; (5) that DRACOR is not
complaint since "[t]he trial court could not have entitled to its 5% commission arising from the
made a categorical finding that Shinko direct sales made by CMS to buyers in Japan;
collected commissions from the buyers of and (6) that DRACOR is guilty of fraud and bad
Sison's logs in Japan, and could not have held faith in its dealings with CMS.
that Sison is entitled to recover from Dracor the
amount collected by Shinko as commissions,
plaintiff-appellant having failed to prove by
competent evidence its claims." 10

With regard to CMS's arguments concerning questioning CMS's tally of logs delivered
whether or not Shinko received the to various Japanese firms.
commission in question, We find the same
unmeritorious. Similarly, the statement of Daniel R. Aguinaldo,
to wit —
To begin with, these arguments question the
findings of fact made by the Court of Appeals, . . . Knowing as we do that Toyo
which are final and conclusive and can not be Menka is a large and reputable
reviewed on appeal to the Supreme Court. 12 company, it is obvious that they
paid Shinko for certain services
Moreover, while it is true that the evidence which Shinko must have
adduced establishes the fact that Shinko is satisfactorily performed for them
DRACOR's agent or liaison in Japan, 13 there is in Japan otherwise they would
no evidence which established the fact that not have paid Shinko
Shinko did receive the amount of U.S.
$77,264.67 as commission arising from the and that of Atty. V. E. Del Rosario,
sale of CMS's logs to various Japanese firms.
. . . It does not seem proper,
The fact that Shinko received the commissions therefore, for CMS Logging, Inc.,
in question was not established by the as principal, to concern itself with,
testimony of Atty. Teodoro R. Dominguez to the much less question, the right of
effect that Shinko's president and director told Shinko Trading Co., Ltd. with
him that Shinko received a commission of U.S. which our client debt directly, to
$1.00 for every 1,000 board feet of logs sold, whatever benefits it might have
since the same is hearsay. Similarly, the letter derived form the ultimate
of Mr. K. Shibata of Toyo Menka Kaisha, consumer/buyer of these logs,
Ltd. 14 is also hearsay since Mr. Shibata was Toyo Menka Kaisha, Ltd. There
not presented to testify on his letter. appears to be no justification for
your client's contention that these
CMS's other evidence have little or no benefits, whether they can be
probative value at all. The statements made in considered as commissions paid
the memorandum of Atty. Simplicio R. Ciocon by Toyo Menka Kaisha to Shinko
to DRACOR dated May 31, 1965, 15 the letter Trading, are to be regarded part
dated February 2, 1963 of Daniel of the gross sales.
R. Aguinaldo, president of DRACOR, and the
reply-letter dated January 9, 1964 17 by can not be considered admissions that
DRACOR's counsel Atty. V. E. Del Rosario to Shinko received the questioned
CMS's demand letter dated September 25, commissions since neither statements
1963 can not be categorized as admissions declared categorically that Shinko did in
that Shinko did receive the commissions in fact receive the commissions and that
question. these arose from the sale of CMS's logs.

The alleged admission made by Atty. Ciocon, As correctly stated by the appellate court:
to wit —

Furthermore, as per our records,

our shipment of logs to Toyo
Menka Kaisha, Ltd., is only for a
net volume of 67,747,732 board
feet which should enable Shinko
to collect a commission of US
$67,747.73 only

can not be considered as such since the

statement was made in the context of

It is a rule that "a statement is not However, We find merit in CMS's contention
competent as an admission that the appellate court erred in holding that
where it does not, under a DRACOR was entitled to its commission from
reasonable construction, appear the sales made by CMS to Japanese firms.
to admit or acknowledge the fact
which is sought to be proved by The principal may revoke a contract of agency
it". An admission or declaration to at will, and such revocation may be express, or
be competent must have been implied, 20 and may be availed of even if the
expressed in definite, certain and period fixed in the contract of agency as not yet
unequivocal language (Bank of expired. 21 As the principal has this absolute
the Philippine Islands vs. Fidelity right to revoke the agency, the agent can not
& Surety Co., 51 Phil. 57, 64). 18 object thereto; neither may he claim damages
arising from such revocation, 22 unless it is
CMS's contention that DRACOR had admitted shown that such was done in order to evade
by its silence the allegation that Shinko the payment of agent's commission. 23
received the commissions in question when it
failed to respond to Atty. Carlos Moran Sison's In the case at bar, CMS appointed DRACOR
letter dated February 6, 1963, is not supported as its agent for the sale of its logs to Japanese
by the evidence. DRACOR did in fact reply to firms. Yet, during the existence of the contract
the letter of Atty. Sison, through the letter dated of agency, DRACOR admitted that CMS sold
March 5, 1963 of F.A. Novenario, 19 which its logs directly to several Japanese firms. This
stated: act constituted an implied revocation of the
contract of agency under Article 1924 of the
This is to acknowledge receipt of Civil Code, which provides:
your letter dated February 6,
1963, and addressed to Mr. D. R. Art. 1924 The agency is revoked
Aguinaldo, who is at present out if the principal directly manages
of the country. the business entrusted to the
agent, dealing directly with third
xxx xxx xxx persons.

We have no record or knowledge In New Manila Lumber Company, Inc. vs.

of any such payment of Republic of the Philippines, 24 this Court ruled
commission made by Toyo that the act of a contractor, who, after
Menka to Shinko. If the payment executing powers of attorney in favor of
was made by Toyo Menka to another empowering the latter to collect
Shinko, as stated in your letter, whatever amounts may be due to him from the
we knew nothing about it and had Government, and thereafter demanded and
nothing to do with it. collected from the government the money the
collection of which he entrusted to his attorney-
The finding of fact made by the trial court, i.e., in-fact, constituted revocation of the agency in
that "Shinko was able to collect the total favor of the attorney-in-fact.
amount of $77,264.67 US Dollars," can not be
given weight since this was based on the
summary prepared by CMS itself, Exhibits "M"
and "M-1".

Moreover, even if it was shown that Shinko did

in fact receive the commissions in question,
CMS is not entitled thereto since these were
apparently paid by the buyers to Shinko for
arranging the sale. This is therefore not part of
the gross sales of CMS's logs.

Since the contract of agency was revoked by

CMS when it sold its logs to Japanese firms
without the intervention of DRACOR, the latter
is no longer entitled to its commission from the
proceeds of such sale and is not entitled to
retain whatever moneys it may have received
as its commission for said transactions. Neither
would DRACOR be entitled to collect damages
from CMS, since damages are generally not
awarded to the agent for the revocation of the
agency, and the case at bar is not one falling
under the exception mentioned, which is to
evade the payment of the agent's commission.

Regarding CMS's contention that the Court of

Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find
the same unmeritorious. Like the contention
involving Shinko and the questioned
commissions, the findings of the Court of
Appeals on the matter were based on its
appreciation of the evidence, and these
findings are binding on this Court.

In fine, We affirm the ruling of the Court of

Appeals that there is no evidence to support
CMS's contention that Shinko earned a
separate commission of U.S. $1.00 for every
1,000 board feet of logs from the buyer of
CMS's logs. However, We reverse the ruling of
the Court of Appeals with regard to DRACOR's
right to retain the amount of P101,536.77 as
part of its commission from the sale of logs by
CMS, and hold that DRACOR has no right to
its commission. Consequently, DRACOR is
hereby ordered to remit to CMS the amount of

WHEREFORE, the decision appealed from is

hereby MODIFIED as stated in the preceding
paragraph. Costs de officio.


G.R. No. 141525 September 2, 2005 general manager), also a respondent, to

request petitioner to reduce his commission,
CARLOS SANCHEZ, Petitioners, but the latter refused.
MEDICARD PHILIPPINES, INC., DR. In a letter dated October 3, 1990, Unilab,
NICANOR MONTOYA and CARLOS through Carlos Ejercito, another respondent,
EJERCITO, Respondent. confirmed its decision not to renew the health
program contract with Medicard.
Meanwhile, in order not to prejudice its
SANDOVAL-GUTIERREZ, J.: personnel by the termination of their health
insurance, Unilab, through respondent Ejercito,
This petition for review on certiorari seeks to negotiated with Dr. Montoya and other officers
reverse the Decision1 of the Court of Appeals of Medicard, to discuss ways in order to
dated February 24, 1999 and its Resolution continue the insurance coverage of those
dated January 12, 2000 in CA-G.R. CV No. personnel.
Under the new scheme, Unilab shall pay
The facts, as established by the trial court and Medicard only the amount corresponding to the
affirmed by the Court of Appeals, follow: actual hospitalization expenses incurred by
each personnel plus 15% service fee for using
Sometime in 1987, Medicard Philippines, Inc. Medicard facilities, which amount shall not be
(Medicard), respondent, appointed petitioner less than ₱780,000.00.
as its special corporate agent. As such agent,
Medicard gave him a commission based on the Medicard did not give petitioner any
"cash brought in." commission under the new scheme.

In September, 1988, through petitioner’s In a letter dated March 15, 1991, petitioner
efforts, Medicard and United Laboratories demanded from Medicard payment of
Group of Companies (Unilab) executed a ₱338,000.00 as his commission plus damages,
Health Care Program Contract. Under this but the latter refused to heed his demand.
contract, Unilab shall pay Medicard a fixed
monthly premium for the health insurance of its Thus, petitioner filed with the Regional Trial
personnel. Unilab paid Medicard Court (RTC), Branch 66, Makati City, a
₱4,148,005.00 representing the premium for complaint for sum of money against Medicard,
one (1) year. Medicard then handed petitioner Dr. Nicanor Montoya and Carlos Ejercito,
18% of said amount or ₱746,640.90 herein respondents.
representing his commission.
After hearing, the RTC rendered its Decision
Again, through petitioner’s initiative, the agency dismissing petitioner’s complaint and
contract between Medicard and Unilab was respondents’ counterclaim.
renewed for another year, or from October 1,
1989 to September 30, 1990, incorporating On appeal, the Court of Appeals affirmed the
therein the increase of premium from trial court’s assailed Decision. The Appellate
₱4,148,005.00 to ₱7,456,896.00. Medicard Court held that there is no proof that the
paid petitioner ₱1,342,241.00 as his execution of the new contract between the
commission. parties under the "cost plus" system is a
strategy to deprive petitioner of his
Prior to the expiration of the renewed contract, commission; that Medicard did not commit any
Medicard proposed to Unilab, through fraudulent act in revoking its agency contract
petitioner, an increase of the premium for the with Sanchez; that when Unilab rejected
next year. Unilab rejected the proposal "for the Medicard’s proposal for an increase of
reason that it was too high," prompting Dr. premium, their Health Care Program Contract
Nicanor Montoya (Medicard’s president and on its third year was effectively revoked; and

that where the contract is ineffectual, then the received his commission. Before the expiration
agent is not entitled to a commission. of the renewed contract, Medicard, through
petitioner, proposed an increase in premium,
Petitioner filed a motion for reconsideration, but but Unilab rejected this proposal. Medicard
this was denied by the Court of Appeals on then requested petitioner to reduce his
January 12, 2000. commission should the contract be renewed on
its third year, but he was obstinate. Meantime,
Hence, the instant petition for review on October 3, 1990, Unilab informed Medicard
on certiorari. it was no longer renewing the Health Care
Program contract.
The basic issue for our resolution is whether
the Court of Appeals erred in holding that the In order not to prejudice its personnel, Unilab,
contract of agency has been revoked by through respondent Ejercito, negotiated with
Medicard, hence, petitioner is not entitled to a respondent Dr. Montoya of Medicard, in order
commission. to find mutually beneficial ways of continuing
the Health Care Program. The negotiations
It is dictum that in order for an agent to be resulted in a new contract wherein Unilab shall
entitled to a commission, he must be the pay Medicard the hospitalization expenses
procuring cause of the sale, which simply actually incurred by each employees, plus a
means that the measures employed by him service fee. Under the "cost plus" system which
and the efforts he exerted must result in a replaced the premium scheme, petitioner was
sale.2 In other words, an agent receives his not given a commission.
commission only upon the successful
conclusion of a sale.3 Conversely, it follows that It is clear that since petitioner refused to
where his efforts are unsuccessful, or there reduce his commission, Medicard directly
was no effort on his part, he is not entitled to a negotiated with Unilab, thus revoking its
commission. agency contract with petitioner. We hold that
such revocation is authorized by Article 1924 of
In Prats vs. Court of Appeals,4 this Court held the Civil Code which provides:
that for the purpose of equity, an agent who is
not the efficient procuring cause is nonetheless "Art. 1924. The agency is revoked if the
entitled to his commission, where said agent, principal directly manages the business
notwithstanding the expiration of his authority, entrusted to the agent, dealing directly with
nonetheless, took diligent steps to bring third persons."
back together the parties, such that a sale
was finalized and consummated between Moreover, as found by the lower courts,
them. In Manotok Borthers vs. Court of petitioner did not render services to Medicard,
Appeals,5 where the Deed of Sale was only his principal, to entitle him to a commission.
executed after the agent’s extended authority There is no indication from the records that he
had expired, this Court, applying its ruling exerted any effort in order that Unilab and
in Prats, held that the agent (in Manotok) is Medicard, after the expiration of the Health
entitled to a commission since he was the Care Program Contract, can renew it for the
efficient procuring cause of the sale, third time. In fact, his refusal to reduce his
notwithstanding that the sale took place after commission constrained Medicard to negotiate
his authority had lapsed. The proximate, close, directly with Unilab. We find no reason in law or
and causal connection between the agent’s in equity to rule that he is entitled to a
efforts and the principal’s sale of his property commission. Obviously, he was not the agent
can not be ignored. or the "procuring cause" of the third Health
Care Program Contract between Medicard and
It may be recalled that through petitioner’s Unilab.
efforts, Medicard was able to enter into a one-
year Health Care Program Contract with WHEREFORE, the petition is DENIED. The
Unilab. As a result, Medicard paid petitioner his challenged Decision and Resolution of the
commission. Again, through his efforts, the Court of Appeals in CA-G.R. CV No. 47681
contract was renewed and once more, he

are AFFIRMED IN TOTO. Costs against

petitioner. SO ORDERED.

G.R. No. 161757 January 25, 2006 year contract and the 2-year extended contract
which was with the knowledge and consent of
SUNACE INTERNATIONAL MANAGEMENT Sunace, the following amounts representing
SERVICES, INC.Petitioner, income tax and savings were deducted:
NATIONAL LABOR RELATIONS Deduction for Deduction for
COMMISSION, Second Division; HON. Income Tax Savings
ERNESTO S. DINOPOL, in his capacity as 199
Labor Arbiter, NLRC; NCR, Arbitration NT10,450.00 NT23,100.00
Branch, Quezon City and DIVINA A. 199
MONTEHERMOZO,Respondents. NT9,500.00 NT36,000.00
DECISION NT13,300.00 NT36,000.00;5
CARPIO MORALES, J.: and while the amounts deducted in 1997 were
refunded to her, those deducted in 1998 and
Petitioner, Sunace International Management 1999 were not. On even date, Sunace, by its
Services (Sunace), a corporation duly Proprietor/General Manager Maria Luisa
organized and existing under the laws of the Olarte, filed its Verified Answer and Position
Philippines, deployed to Taiwan Divina A. Paper,6claiming as follows, quoted verbatim:
Montehermozo (Divina) as a domestic helper
under a 12-month contract effective February COMPLAINANT IS NOT ENTITLED FOR THE
1, 1997.1 The deployment was with the REFUND OF HER 24 MONTHS SAVINGS
assistance of a Taiwanese broker, Edmund
Wang, President of Jet Crown International 3. Complainant could not anymore claim nor
Co., Ltd. entitled for the refund of her 24 months savings
as she already took back her saving already
After her 12-month contract expired on last year and the employer did not deduct any
February 1, 1998, Divina continued working for money from her salary, in accordance with
her Taiwanese employer, Hang Rui Xiong, for a Fascimile Message from the respondent
two more years, after which she returned to the SUNACE’s employer, Jet Crown International
Philippines on February 4, 2000. Co. Ltd., a xerographic copy of which is
herewith attached as ANNEX "2" hereof;
Shortly after her return or on February 14,
2000, Divina filed a complaint2 before the COMPLAINANT IS NOT ENTITLED TO
National Labor Relations Commission (NLRC) REFUND OF HER 14 MONTHS TAX AND
against Sunace, one Adelaide Perez, the PAYMENT OF ATTORNEY’S FEES
Taiwanese broker, and the employer-foreign
principal alleging that she was jailed for three 4. There is no basis for the grant of tax refund
months and that she was underpaid. to the complainant as the she finished her one
year contract and hence, was not illegally
The following day or on February 15, 2000, dismissed by her employer. She could only lay
Labor Arbitration Associate Regina T. Gavin claim over the tax refund or much more be
issued Summons3 to the Manager of Sunace, awarded of damages such as attorney’s fees
furnishing it with a copy of Divina’s complaint as said reliefs are available only when the
and directing it to appear for mandatory dismissal of a migrant worker is without just
conference on February 28, 2000. valid or lawful cause as defined by law or
The scheduled mandatory conference was
reset. It appears to have been concluded, The rationales behind the award of tax refund
however. and payment of attorney’s fees is not to enrich
the complainant but to compensate him for
On April 6, 2000, Divina filed her Position actual injury suffered. Complainant did not
Paper4 claiming that under her original one-

suffer injury, hence, does not deserve to be We reject Sunace’s submission that it should
compensated for whatever kind of damages. not be held responsible for the amount
withheld because her contract was extended
Hence, the complainant has NO cause of for 2 more years without its knowledge and
action against respondent SUNACE for consent because as Annex "B"9 shows, Sunace
monetary claims, considering that she has and Edmund Wang have not stopped
been totally paid of all the monetary benefits communicating with each other and yet the
due her under her Employment Contract to her matter of the contract’s extension
full satisfaction. and Sunace’s alleged non-consent thereto has
not been categorically established.
6. Furthermore, the tax deducted from her
salary is in compliance with the Taiwanese law, What Sunace should have done was to write to
which respondent SUNACE has no control and POEA about the extension and its objection
complainant has to obey and this Honorable thereto, copy furnished the complainant
Office has no authority/jurisdiction to intervene herself, her foreign employer, Hang Rui Xiong
because the power to tax is a sovereign power and the Taiwanese broker, Edmund Wang.
which the Taiwanese Government is supreme
in its own territory. The sovereign power of And because it did not, it is presumed to have
taxation of a state is recognized under consented to the extension and should be
international law and among sovereign states. liable for anything that resulted thereform
(sic).10 (Underscoring supplied)
7. That respondent SUNACE respectfully
reserves the right to file supplemental Verified The Labor Arbiter rejected too Sunace’s
Answer and/or Position Paper to substantiate argument that it is not liable on account of
its prayer for the dismissal of the above case Divina’s execution of a Waiver and Quitclaim
against the herein respondent. AND BY WAY and an Affidavit of Desistance. Observed the
OF - Labor Arbiter:

x x x x (Emphasis and underscoring supplied) Should the parties arrive at any agreement as
to the whole or any part of the dispute, the
Reacting to Divina’s Position Paper, Sunace same shall be reduced to writing and signed by
filed on April 25, 2000 an ". . . answer to the parties and their respective counsel (sic), if
complainant’s position paper"7alleging that any, before the Labor Arbiter.
Divina’s 2-year extension of her contract was
without its knowledge and consent, hence, it The settlement shall be approved by the Labor
had no liability attaching to any claim arising Arbiter after being satisfied that it was
therefrom, and Divina in fact executed a voluntarily entered into by the parties and after
Waiver/Quitclaim and Release of Responsibility having explained to them the terms and
and an Affidavit of Desistance, copy of each consequences thereof.
document was annexed to said ". . . answer to
complainant’s position paper." A compromise agreement entered into by the
parties not in the presence of the Labor Arbiter
To Sunace’s ". . . answer to complainant’s before whom the case is pending shall be
position paper," Divina filed a 2-page approved by him, if after confronting the
reply,8 without, however, refuting Sunace’s parties, particularly the complainants, he is
disclaimer of knowledge of the extension of her satisfied that they understand the terms and
contract and without saying anything about the conditions of the settlement and that it was
Release, Waiver and Quitclaim and Affidavit of entered into freely voluntarily (sic) by them and
Desistance. the agreement is not contrary to law, morals,
and public policy.
The Labor Arbiter, rejected Sunace’s claim that
the extension of Divina’s contract for two more And because no consideration is indicated in
years was without its knowledge and consent the documents, we strike them down as
in this wise: contrary to law, morals, and public policy.11

He accordingly decided in favor of Divina, by SO ORDERED.

decision of October 9, 2000,12 the dispositive
portion of which reads: (Emphasis on words in capital letters in the
original; emphasis on words in small letters
Wherefore, judgment is hereby rendered and underscoring supplied)
ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner Its Motion for Reconsideration having been
ADELAIDA PERGE, both in their personal denied by the appellate court by Resolution of
capacities and as agent of Hang Rui January 14, 2004,18Sunace filed the present
Xiong/Edmund Wang to jointly and severally petition for review on certiorari.
pay complainant DIVINA A.
MONTEHERMOZO the sum of NT91,950.00 in The Court of Appeals affirmed the Labor Arbiter
its peso equivalent at the date of payment, as and NLRC’s finding that Sunace knew of and
refund for the amounts which she is hereby impliedly consented to the extension of Divina’s
adjudged entitled to as earlier discussed plus 2-year contract. It went on to state that "It is
10% thereof as attorney’s fees since compelled undisputed that [Sunace] was continually
to litigate, complainant had to engage the communicating with [Divina’s] foreign
services of counsel. employer." It thus concluded that "[a]s agent of
the foreign principal, ‘petitioner cannot profess
SO ORDERED.13 (Underescoring supplied) ignorance of such extension as obviously, the
act of the principal extending complainant (sic)
On appeal of Sunace, the NLRC, by Resolution employment contract necessarily bound it.’"
of April 30, 2002,14 affirmed the Labor Arbiter’s
decision. Contrary to the Court of Appeals finding, the
alleged continuous communication was with
Via petition for certiorari,15 Sunace elevated the the Taiwanese brokerWang, not with the
case to the Court of Appeals which dismissed it foreign employer Xiong.
outright by Resolution of November 12,
2002,16 the full text of which reads: The February 21, 2000 telefax message from
the Taiwanese broker to Sunace,
The petition for certiorari faces outright the only basis of a finding of continuous
dismissal. communication, reads verbatim:

The petition failed to allege facts constitutive of

grave abuse of discretion on the part of the xxxx
public respondent amounting to lack of
jurisdiction when the NLRC affirmed the Labor Regarding to Divina, she did not say
Arbiter’s finding that petitioner Sunace anything about her saving in police
International Management Services impliedly station. As we contact with her employer,
consented to the extension of the contract of she took back her saving already last
private respondent Divina A. Montehermozo. It years. And they did not deduct any money
is undisputed that petitioner was continually from her salary. Or she will call back her
communicating with private respondent’s employer to check it again. If her
foreign employer (sic). As agent of the foreign employer said yes! we will get it back for
principal, "petitioner cannot profess ignorance her.
of such extension as obviously, the act of the
principal extending Thank you and best regards.
complainant (sic) employment contract
necessarily bound it." Grave abuse of (Sgd.)
discretion is not present in the case at bar. Edmund Wang
ACCORDINGLY, the petition is
COURSE and DISMISSED.17 The finding of the Court of Appeals solely on
the basis of the above-quoted telefax

message, that Sunace continually and its "owner" cannot be held solidarily liable
communicated with the foreign "principal" for any of Divina’s claims arising from the 2-
(sic) and therefore was aware of and had year employment extension. As the New Civil
consented to the execution of the extension of Code provides,
the contract is misplaced. The message does
not provide evidence that Sunace was privy to Contracts take effect only between the parties,
the new contract executed after the expiration their assigns, and heirs, except in case where
on February 1, 1998 of the original contract. the rights and obligations arising from the
That Sunace and the contract are not transmissible by their nature,
Taiwanese broker communicated regarding or by stipulation or by provision of law.24
Divina’s allegedly withheld savings does not
necessarily mean that Sunace ratified the Furthermore, as Sunace correctly points out,
extension of the contract. As Sunace points out there was an implied revocation of its agency
in its Reply20 filed before the Court of Appeals, relationship with its foreign principal when,
after the termination of the original employment
As can be seen from that letter communication, contract, the foreign principal directly
it was just an information given to the petitioner negotiated with Divina and entered into a new
that the private respondent had t[aken] already and separate employment contract in Taiwan.
her savings from her foreign employer and that Article 1924 of the New Civil Code reading
no deduction was made on her salary. It
contains nothing about the extension or the The agency is revoked if the principal directly
petitioner’s consent thereto.21 manages the business entrusted to the agent,
dealing directly with third persons.
Parenthetically, since the telefax message is
dated February 21, 2000, it is safe to assume thus applies.
that it was sent to enlighten Sunace who had
been directed, by Summons issued on In light of the foregoing discussions,
February 15, 2000, to appear on February 28, consideration of the validity of the Waiver and
2000 for a mandatory conference following Affidavit of Desistance which Divina executed
Divina’s filing of the complaint on February 14, in favor of Sunace is rendered unnecessary.
WHEREFORE, the petition is GRANTED. The
Respecting the Court of Appeals challenged resolutions of the Court of Appeals
following dictum: are hereby REVERSED and SET ASIDE. The
complaint of respondent
As agent of its foreign principal, [Sunace] Divina A. Montehermozo against petitioner
cannot profess ignorance of such an extension is DISMISSED.
as obviously, the act of its principal extending
[Divina’s] employment contract necessarily SO ORDERED.
bound it,22

it too is a misapplication, a misapplication of

the theory of imputed knowledge.

The theory of imputed knowledge ascribes the

knowledge of the agent, Sunace, to the
principal, employer Xiong, not the other way
around.23 The knowledge of the principal-
foreign employer cannot, therefore, be imputed
to its agent Sunace.

There being no substantial proof that Sunace

knew of and consented to be bound under the
2-year employment contract extension, it
cannot be said to be privy thereto. As such, it

G.R. No. 175885 February 13, 2009 3. To receive and collect payment in
check in behalf of E.M. PAULE
ENGR. EDUARDO PAULE, ENGR. 4. To do and perform such acts and
ALEXANDER COLOMA and NATIONAL things that may be necessary and/or
IRRIGATION ADMINISTRATION (NIA required to make the herein authority
MUÑOZ, NUEVA ECIJA), Respondents. effective.4

x - - - - - - - - - - - - - - - - - - - - - - -x On September 29, 1999, EMPCT, through

MENDOZA, participated in the bidding of the
G.R. No. 176271 February 13, 2009 NIA-Casecnan Multi-Purpose Irrigation and
Power Project (NIA-CMIPP) and was awarded
MANUEL DELA CRUZ Petitioner, Packages A-10 and B-11 of the NIA-CMIPP
vs. Schedule A. On November 16, 1999,
ENGR. EDUARDO M. PAULE, ENGR. MENDOZA received the Notice of Award which
ALEXANDER COLOMA and NATIONAL was signed by Engineer Alexander M. Coloma
IRRIGATION ADMINISTRATION (NIA (COLOMA), then Acting Project Manager for
MUÑOZ, NUEVA ECIJA), Respondents. the NIA-CMIPP. Packages A-10 and B-11
involved the construction of a road system,
DECISION canal structures and drainage box culverts with
a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that
These consolidated petitions assail the August MENDOZA is in need of heavy equipment for
28, 2006 Decision1 of the Court of Appeals in use in the NIA project, he met up with
CA-G.R. CV No. 80819 dismissing the MENDOZA in Bayuga, Muñoz, Nueva Ecija, in
complaint in Civil Case No. 18-SD (2000),2 and an apartment where the latter was holding
its December 11, 2006 Resolution 3 denying the office under an EMPCT signboard. A series of
herein petitioners’ motion for reconsideration. meetings followed in said EMPCT office among
Engineer Eduardo M. Paule (PAULE) is the
proprietor of E.M. Paule Construction and On December 2 and 20, 1999, MENDOZA and
Trading (EMPCT). On May 24, 1999, PAULE CRUZ signed two Job Orders/Agreements 5 for
executed a special power of attorney (SPA) the lease of the latter’s heavy equipment
authorizing Zenaida G. Mendoza (MENDOZA) (dump trucks for hauling purposes) to EMPCT.
to participate in the pre-qualification and
bidding of a National Irrigation Administration On April 27, 2000, PAULE revoked6 the SPA he
(NIA) project and to represent him in all previously issued in favor of MENDOZA;
transactions related thereto, to wit: consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ, therefore,
1. To represent E.M. PAULE could not be paid for the rent of the equipment.
CONSTRUCTION & TRADING of which Upon advice of MENDOZA, CRUZ addressed
I (PAULE) am the General Manager in his demands for payment of lease rentals
all my business transactions with directly to NIA but the latter refused to
National Irrigation Authority, Muñoz, acknowledge the same and informed CRUZ
Nueva Ecija. that it would be remitting payment only to
EMPCT as the winning contractor for the
2. To participate in the bidding, to secure project.
bid bonds and other documents pre-
requisite in the bidding of Casicnan
Multi-Purpose Irrigation and Power Plant
(CMIPPL 04-99), National Irrigation
Authority, Muñoz, Nueva Ecija.

In a letter dated April 5, 2000, CRUZ 3. To do and perform such acts and
demanded from MENDOZA and/or EMPCT things that may be necessary and
payment of the outstanding rentals which required to make the herein power and
amounted to P726,000.00 as of March 31, authority effective.7
At the pre-trial conference, the other parties
On June 30, 2000, CRUZ filed Civil Case No. were declared as in default and CRUZ was
18-SD (2000) with Branch 37 of the Regional allowed to present his evidence ex parte.
Trial Court of Nueva Ecija, for collection of sum Among the witnesses he presented was
of money with damages and a prayer for the MENDOZA, who was impleaded as defendant
issuance of a writ of preliminary injunction in PAULE’s third-party complaint.
against PAULE, COLOMA and the NIA. PAULE
in turn filed a third-party complaint against On March 6, 2003, MENDOZA filed a motion to
MENDOZA, who filed her answer thereto, with declare third-party plaintiff PAULE non-suited
a cross-claim against PAULE. with prayer that she be allowed to present her
evidence ex parte.
MENDOZA alleged in her cross-claim that
because of PAULE’s "whimsical revocation" of However, without resolving MENDOZA’s
the SPA, she was barred from collecting motion to declare PAULE non-suited, and
payments from NIA, thus resulting in her without granting her the opportunity to present
inability to fund her checks which she had her evidence ex parte, the trial court rendered
issued to suppliers of materials, equipment and its decision dated August 7, 2003, the
labor for the project. She claimed that estafa dispositive portion of which states, as follows:
and B.P. Blg. 22 cases were filed against her;
that she could no longer finance her children’s WHEREFORE, judgment is hereby rendered in
education; that she was evicted from her favor of the plaintiff as follows:
home; that her vehicle was foreclosed upon;
and that her reputation was destroyed, thus 1. Ordering defendant Paule to pay the
entitling her to actual and moral damages in plaintiff the sum of P726,000.00 by way
the respective amounts of P3 million and P1 of actual damages or compensation for
million. the services rendered by him;

Meanwhile, on August 23, 2000, PAULE again 2. Ordering defendant Paule to pay
constituted MENDOZA as his attorney-in-fact – plaintiff the sum of P500,000.00 by way
of moral damages;
1. To represent me (PAULE), in my
capacity as General Manager of the 3. Ordering defendant Paule to pay
E.M. PAULE CONSTRUCTION AND plaintiff the sum of P50,000.00 by way of
TRADING, in all meetings, conferences reasonable attorney’s fees;
and transactions exclusively for the
construction of the projects known as 4. Ordering defendant Paule to pay the
Package A-10 of Schedule A and costs of suit; and
Package No. B-11 Schedule B, which
are 38.61% and 63.18% finished as of 5. Ordering defendant National Irrigation
June 21, 2000, per attached Administration (NIA) to withhold the
Accomplishment Reports x x x; balance still due from it to defendant
Paule/E.M. Paule Construction and
2. To implement, execute, administer Trading under NIA-CMIPP Contract
and supervise the said projects in Package A-10 and to pay plaintiff
whatever stage they are in as of to date, therefrom to the extent of defendant
to collect checks and other payments Paule’s liability herein adjudged.
due on said projects and act as the
Project Manager for E.M. PAULE SO ORDERED.8

In holding PAULE liable, the trial court found contract with CRUZ for hauling services; the
that MENDOZA was duly constituted as SPAs limit MENDOZA’s authority to only
EMPCT’s agent for purposes of the NIA project represent EMPCT in its business transactions
and that MENDOZA validly contracted with with NIA, to participate in the bidding of the
CRUZ for the rental of heavy equipment that project, to receive and collect payment in
was to be used therefor. It found unavailing behalf of EMPCT, and to perform such acts as
PAULE’s assertion that MENDOZA merely may be necessary and/or required to make the
borrowed and used his contractor’s license in said authority effective. Thus, the engagement
exchange for a consideration of 3% of the of CRUZ’s hauling services was done beyond
aggregate amount of the project. The trial court the scope of MENDOZA’s authority.
held that through the SPAs he executed,
PAULE clothed MENDOZA with apparent As for CRUZ, the Court of Appeals held that he
authority and held her out to the public as his knew the limits of MENDOZA’s authority under
agent; as principal, PAULE must comply with the SPAs yet he still transacted with her.
the obligations which MENDOZA contracted Citing Manila Memorial Park Cemetery, Inc. v.
within the scope of her authority and for his Linsangan,9 the appellate court declared that
benefit. Furthermore, PAULE knew of the the principal (PAULE) may not be bound by the
transactions which MENDOZA entered into acts of the agent (MENDOZA) where the third
since at various times when she and CRUZ person (CRUZ) transacting with the agent
met at the EMPCT office, PAULE was present knew that the latter was acting beyond the
and offered no objections. The trial court scope of her power or authority under the
declared that it would be unfair to allow PAULE agency.
to enrich himself and disown his acts at the
expense of CRUZ. With respect to MENDOZA’s appeal, the Court
of Appeals held that when the trial court
PAULE and MENDOZA both appealed the trial rendered judgment, not only did it rule on the
court’s decision to the Court of Appeals. plaintiff’s complaint; in effect, it resolved the
third-party complaint as well;10 that the trial
PAULE claimed that he did not receive a copy court correctly dismissed the cross-claim and
of the order of default; that it was improper for did not unduly ignore or disregard it; that
MENDOZA, as third-party defendant, to have MENDOZA may not claim, on appeal, the
taken the stand as plaintiff CRUZ’s witness; amounts of P3,018,864.04, P500,000.00, and
and that the trial court erred in finding that an P839,450.88 which allegedly represent the
agency was created between him and unpaid costs of the project and the amount
MENDOZA, and that he was liable as principal PAULE received in excess of payments made
thereunder. by NIA, as these are not covered by her cross-
claim in the court a quo, which seeks
On the other hand, MENDOZA argued that the reimbursement only of the amounts of P3
trial court erred in deciding the case without million and P1 million, respectively, for actual
affording her the opportunity to present damages (debts to suppliers, laborers, lessors
evidence on her cross-claim against PAULE; of heavy equipment, lost personal property)
that, as a result, her cross-claim against and moral damages she claims she suffered as
PAULE was not resolved, leaving her unable to a result of PAULE’s revocation of the SPAs;
collect the amounts of P3,018,864.04, and that the revocation of the SPAs is a
P500,000.00, and P839,450.88 which allegedly prerogative that is allowed to PAULE under
represent the unpaid costs of the project and Article 192011 of the Civil Code.
the amount PAULE received in excess of
payments made by NIA. CRUZ and MENDOZA’s motions for
reconsideration were denied; hence, these
On August 28, 2006, the Court of Appeals consolidated petitions:
rendered the assailed Decision which
dismissed CRUZ’s complaint, as well as G.R. No. 175885 (MENDOZA PETITION)
MENDOZA’s appeal. The appellate court held
that the SPAs issued in MENDOZA’s favor did a) The Court of Appeals erred in
not grant the latter the authority to enter into sustaining the trial court’s failure to

resolve her motion praying that PAULE WHEREFORE, judgment is hereby rendered in
be declared non-suited on his third-party favor of the plaintiff (MENDOZA) and against
complaint, as well as her motion seeking the defendant (PAULE) as follows:
that she be allowed to present
evidence ex parte on her cross-claim; 1. Ordering defendant Paule to pay
plaintiff the sum of P138,304.00
b) The Court of Appeals erred when it representing the obligation incurred by
sanctioned the trial court’s failure to the plaintiff with LGH Construction;
resolve her cross-claim against PAULE;
and, 2. Ordering defendant Paule to pay
plaintiff the sum of P200,000.00
c) The Court of Appeals erred in its representing the balance of the
application of Article 1920 of the Civil obligation incurred by the plaintiff with
Code, and in adjudging that MENDOZA Artemio Alejandrino;
had no right to claim actual damages
from PAULE for debts incurred on 3. Ordering defendant Paule to pay
account of the SPAs issued to her. plaintiff the sum of P520,000.00 by way
of moral damages, and further sum of
G.R. No. 176271 (CRUZ PETITION) P100,000.00 by way of exemplary
CRUZ argues that the decision of the Court of
Appeals is contrary to the provisions of law on 4. Ordering defendant Paule to pay
agency, and conflicts with the Resolution of the plaintiff the sum of P25,000.00 as for
Court in G.R. No. 173275, which affirmed the attorney’s fees; and
Court of Appeals’ decision in CA-G.R. CV No.
81175, finding the existence of an agency 5. To pay the cost of suit.13
relation and where PAULE was declared as
MENDOZA’s principal under the subject SPAs PAULE appealed14 the above decision, but it
and, thus, liable for obligations (unpaid was dismissed by the Court of Appeals in a
construction materials, fuel and heavy Decision15 which reads, in part:
equipment rentals) incurred by the latter for the
purpose of implementing and carrying out the As to the finding of the trial court that the
NIA project awarded to EMPCT. principle of agency is applicable in this case,
this Court agrees therewith. It must be
CRUZ argues that MENDOZA was acting emphasized that appellant (PAULE) authorized
within the scope of her authority when she appellee (MENDOZA) to perform any and all
hired his services as hauler of debris because acts necessary to make the business
the NIA project (both Packages A-10 and B-11 transaction of EMPCT with NIA effective.
of the NIA-CMIPP) consisted of construction of Needless to state, said business transaction
canal structures, which involved the clearing pertained to the construction of canal
and disposal of waste, acts that are necessary structures which necessitated the utilization of
and incidental to PAULE’s obligation under the construction materials and
NIA project; and that the decision in a civil case equipments.1avvphi1 Having given said
involving the same SPAs, where PAULE was authority, appellant cannot be allowed to turn
found liable as MENDOZA’s principal already its back on the transactions entered into by
became final and executory; that in Civil Case appellee in behalf of EMPCT.
No. 90-SD filed by MENDOZA against
PAULE,12 the latter was adjudged liable to the The amount of moral damages and attorney’s
former for unpaid rentals of heavy equipment fees awarded by the trial court being justifiable
and for construction materials which and commensurate to the damage suffered by
MENDOZA obtained for use in the subject NIA appellee, this Court shall not disturb the same.
project. On September 15, 2003, judgment was It is well-settled that the award of damages as
rendered in said civil case against PAULE, to well as attorney’s fees lies upon the discretion
wit: of the court in the context of the facts and
circumstances of each case.

WHEREFORE, the appeal is DISMISSED and MENDOZA. PAULE admits to this arrangement
the appealed Decision is AFFIRMED. in all his pleadings.17

SO ORDERED.16 Although the SPAs limit MENDOZA’s authority

to such acts as representing EMPCT in its
PAULE filed a petition to this Court docketed as business transactions with NIA, participating in
G.R. No. 173275 but it was denied with finality the bidding of the project, receiving and
on September 13, 2006. collecting payment in behalf of EMPCT, and
performing other acts in furtherance thereof,
MENDOZA, for her part, claims that she has a the evidence shows that when MENDOZA and
right to be heard on her cause of action as CRUZ met and discussed (at the EMPCT office
stated in her cross-claim against PAULE; that in Bayuga, Muñoz, Nueva Ecija) the lease of
the trial court’s failure to resolve the cross- the latter’s heavy equipment for use in the
claim was a violation of her constitutional right project, PAULE was present and interposed no
to be apprised of the facts or the law on which objection to MENDOZA’s actuations. In his
the trial court’s decision is based; that PAULE pleadings, PAULE does not even deny this.
may not revoke her appointment as attorney- Quite the contrary, MENDOZA’s actions were
in-fact for and in behalf of EMPCT because, as in accord with what she and PAULE originally
manager of their partnership in the NIA project, agreed upon, as to division of labor and
she was obligated to collect from NIA the funds delineation of functions within their partnership.
to be used for the payment of suppliers and Under the Civil Code, every partner is an agent
contractors with whom she had earlier of the partnership for the purpose of its
contracted for labor, materials and equipment. business;18 each one may separately execute
all acts of administration, unless a specification
PAULE, on the other hand, argues in his of their respective duties has been agreed
Comment that MENDOZA’s authority under the upon, or else it is stipulated that any one of
SPAs was for the limited purpose of securing them shall not act without the consent of all the
the NIA project; that MENDOZA was not others.19 At any rate, PAULE does not have
authorized to contract with other parties with any valid cause for opposition because his only
regard to the works and services required for role in the partnership is to provide his
the project, such as CRUZ’s hauling services; contractor’s license and expertise, while the
that MENDOZA acted beyond her authority in sourcing of funds, materials, labor and
contracting with CRUZ, and PAULE, as equipment has been relegated to MENDOZA.
principal, should not be made civilly liable to
CRUZ under the SPAs; and that MENDOZA Moreover, it does not speak well for PAULE
has no cause of action against him for actual that he reinstated MENDOZA as his attorney-
and moral damages since the latter exceeded in-fact, this time with broader powers to
her authority under the agency. implement, execute, administer and supervise
the NIA project, to collect checks and other
We grant the consolidated petitions. payments due on said project, and act as the
Project Manager for EMPCT, even after CRUZ
Records show that PAULE (or, more has already filed his complaint. Despite
appropriately, EMPCT) and MENDOZA had knowledge that he was already being sued on
entered into a partnership in regard to the NIA the SPAs, he proceeded to execute another in
project. PAULE‘s contribution thereto is his MENDOZA’s favor, and even granted her
contractor’s license and expertise, while broader powers of administration than in those
MENDOZA would provide and secure the being sued upon. If he truly believed that
needed funds for labor, materials and services; MENDOZA exceeded her authority with
deal with the suppliers and sub-contractors; respect to the initial SPA, then he would not
and in general and together with PAULE, have issued another SPA. If he thought that his
oversee the effective implementation of the trust had been violated, then he should not
project. For this, PAULE would receive as his have executed another SPA in favor of
share three per cent (3%) of the project cost MENDOZA, much less grant her broader
while the rest of the profits shall go to authority.

Given the present factual milieu, CRUZ has a his only entitlement in the partnership with
cause of action against PAULE and MENDOZA is his 3% royalty for the use of his
MENDOZA. Thus, the Court of Appeals erred contractor’s license, he knew that the rest of
in dismissing CRUZ’s complaint on a finding of the amounts collected from NIA was owing to
exceeded agency. Besides, that PAULE could MENDOZA and suppliers of materials and
be held liable under the SPAs for transactions services, as well as the laborers. Yet, he
entered into by MENDOZA with laborers, deliberately revoked MENDOZA’s authority
suppliers of materials and services for use in such that the latter could no longer collect from
the NIA project, has been settled with finality in NIA the amounts necessary to proceed with the
G.R. No. 173275. What has been adjudged in project and settle outstanding
said case as regards the SPAs should be made
to apply to the instant case. Although the said
case involves different parties and From the way he conducted himself, PAULE
transactions, it finally disposed of the matter committed a willful and deliberate breach of his
regarding the SPAs – specifically their effect as contractual duty to his partner and those with
among PAULE, MENDOZA and third parties whom the partnership had contracted. Thus,
with whom MENDOZA had contracted with by PAULE should be made liable for moral
virtue of the SPAs – a disposition that should damages.
apply to CRUZ as well. If a particular point or
question is in issue in the second action, and Bad faith does not simply connote bad
the judgment will depend on the determination judgment or negligence; it imputes a dishonest
of that particular point or question, a former purpose or some moral obliquity and conscious
judgment between the same parties or their doing of a wrong; a breach of a sworn duty
privies will be final and conclusive in the through some motive or intent or ill-will; it
second if that same point or question was in partakes of the nature of fraud (Spiegel v.
issue and adjudicated in the first suit. Identity Beacon Participation, 8 NE 2nd Series, 895,
of cause of action is not required but merely 1007). It contemplates a state of mind
identity of issues.20 affirmatively operating with furtive design or
some motive of self-interest or ill will for ulterior
There was no valid reason for PAULE to purposes (Air France v. Carrascoso, 18 SCRA
revoke MENDOZA’s SPAs. Since MENDOZA 155, 166-167). Evident bad faith connotes a
took care of the funding and sourcing of labor, manifest deliberate intent on the part of the
materials and equipment for the project, it is accused to do wrong or cause damage.22
only logical that she controls the finances,
which means that the SPAs issued to her were Moreover, PAULE should be made civilly liable
necessary for the proper performance of her for abandoning the partnership, leaving
role in the partnership, and to discharge the MENDOZA to fend for her own, and for unduly
obligations she had already contracted prior to revoking her authority to collect payments from
revocation. Without the SPAs, she could not NIA, payments which were necessary for the
collect from NIA, because as far as it is settlement of obligations contracted for and
concerned, EMPCT – and not the PAULE- already owing to laborers and suppliers of
MENDOZA partnership – is the entity it had materials and equipment like CRUZ, not to
contracted with. Without these payments from mention the agreed profits to be derived from
NIA, there would be no source of funds to the venture that are owing to MENDOZA by
complete the project and to pay off obligations reason of their partnership agreement. Thus,
incurred. As MENDOZA correctly argues, an the trial court erred in disregarding and
agency cannot be revoked if a bilateral contract dismissing MENDOZA’s cross-claim – which is
depends upon it, or if it is the means of fulfilling properly a counterclaim, since it is a claim
an obligation already contracted, or if a partner made by her as defendant in a third-party
is appointed manager of a partnership in the complaint – against PAULE, just as the
contract of partnership and his removal from appellate court erred in sustaining it on the
the management is unjustifiable.21 justification that PAULE’s revocation of the
SPAs was within the bounds of his discretion
PAULE’s revocation of the SPAs was done in under Article 1920 of the Civil Code.
evident bad faith. Admitting all throughout that

Where the defendant has interposed a

counterclaim (whether compulsory or
permissive) or is seeking affirmative relief by a
cross-complaint, the plaintiff cannot dismiss the
action so as to affect the right of the defendant
in his counterclaim or prayer for affirmative
relief. The reason for that exception is clear.
When the answer sets up an independent
action against the plaintiff, it then becomes an
action by the defendant against the plaintiff,
and, of course, the plaintiff has no right to ask
for a dismissal of the defendant’s action. The
present rule embodied in Sections 2 and 3 of
Rule 17 of the 1997 Rules of Civil Procedure
ordains a more equitable disposition of the
counterclaims by ensuring that any judgment
thereon is based on the merit of the
counterclaim itself and not on the survival of
the main complaint. Certainly, if the
counterclaim is palpably without merit or
suffers jurisdictional flaws which stand
independent of the complaint, the trial court is
not precluded from dismissing it under the
amended rules, provided that the judgment or
order dismissing the counterclaim is premised
on those defects. At the same time, if the
counterclaim is justified, the amended rules
now unequivocally protect such counterclaim
from peremptory dismissal by reason of the
dismissal of the complaint.23

Notwithstanding the immutable character of

PAULE’s liability to MENDOZA, however, the
exact amount thereof is yet to be determined
by the trial court, after receiving evidence for
and in behalf of MENDOZA on her
counterclaim, which must be considered
pending and unresolved.

WHEREFORE, the petitions are GRANTED.

The August 28, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 80819 dismissing
the complaint in Civil Case No. 18-SD (2000)
and its December 11, 2006 Resolution denying
the motion for reconsideration are REVERSED
and SET ASIDE. The August 7, 2003 Decision
of the Regional Trial Court of Nueva Ecija,
Branch 37 in Civil Case No. 18-SD (2000)
finding PAULE liable is REINSTATED, with the
MODIFICATION that the trial court is
ORDERED to receive evidence on the
counterclaim of petitioner Zenaida G.


G.R. No. 83122 October 19, 1990 premium payments amounting to

P1,946,886.00 were paid directly to Philamgen
ARTURO P. VALENZUELA and and Valenzuela's commission to which he is
HOSPITALITA N. VALENZUELA, petitioners, entitled amounted to P632,737.00.
THE HONORABLE COURT OF APPEALS, In 1977, Philamgen started to become
BIENVENIDO M. ARAGON, ROBERT E. interested in and expressed its intent to share
PARNELL, CARLOS K. CATOLICO and THE in the commission due Valenzuela (Exhibits
PHILIPPINE AMERICAN GENERAL "III" and "III-1") on a fifty-fifty basis (Exhibit
INSURANCE COMPANY, INC., respondents. "C"). Valenzuela refused (Exhibit "D").

Albino B. Achas for petitioners. On February 8, 1978 Philamgen and its

President, Bienvenido M. Aragon insisted on
Angara, Abello, Concepcion, Regala & Cruz for the sharing of the commission with Valenzuela
private respondents. (Exhibit E). This was followed by another
sharing proposal dated June 1, 1978. On June
16,1978, Valenzuela firmly reiterated his
objection to the proposals of respondents
GUTIERREZ, JR., J.: stating that: "It is with great reluctance that I
have to decline upon request to signify my
This is a petition for review of the January 29, conformity to your alternative proposal
1988 decision of the Court of Appeals and the regarding the payment of the commission due
April 27, 1988 resolution denying the me. However, I have no choice for to do
petitioners' motion for reconsideration, which otherwise would be violative of the Agency
decision and resolution reversed the decision Agreement executed between our goodselves."
dated June 23,1986 of the Court of First (Exhibit B-1)
Instance of Manila, Branch 34 in Civil Case No.
121126 upholding the petitioners' causes of Because of the refusal of Valenzuela,
action and granting all the reliefs prayed for in Philamgen and its officers, namely: Bienvenido
their complaint against private respondents. Aragon, Carlos Catolico and Robert E. Parnell
took drastic action against Valenzuela. They:
The antecedent facts of the case are as (a) reversed the commission due him by not
follows: crediting in his account the commission earned
from the Delta Motors, Inc. insurance (Exhibit
Petitioner Arturo P. Valenzuela (Valenzuela for "J" and "2"); (b) placed agency transactions on
short) is a General Agent of private respondent a cash and carry basis; (c) threatened the
Philippine American General Insurance cancellation of policies issued by his agency
Company, Inc. (Philamgen for short) since (Exhibits "H" to "H-2"); and (d) started to leak
1965. As such, he was authorized to solicit and out news that Valenzuela has a substantial
sell in behalf of Philamgen all kinds of non-life account with Philamgen. All of these acts
insurance, and in consideration of services resulted in the decline of his business as
rendered was entitled to receive the full agent's insurance agent (Exhibits "N", "O", "K" and "K-
commission of 32.5% from Philamgen under 8"). Then on December 27, 1978, Philamgen
the scheduled commission rates (Exhibits "A" terminated the General Agency Agreement of
and "1"). From 1973 to 1975, Valenzuela Valenzuela (Exhibit "J", pp. 1-3, Decision Trial
solicited marine insurance from one of his Court dated June 23, 1986, Civil Case No.
clients, the Delta Motors, Inc. (Division of 121126, Annex I, Petition).
Electronics Airconditioning and Refrigeration)
in the amount of P4.4 Million from which he The petitioners sought relief by filing the
was entitled to a commission of 32% (Exhibit complaint against the private respondents in
"B"). However, Valenzuela did not receive his the court a quo (Complaint of January 24,
full commission which amounted to P1.6 Million 1979, Annex "F" Petition). After due
from the P4.4 Million insurance coverage of the proceedings, the trial court found:
Delta Motors. During the period 1976 to 1978,

xxx xxx xxx Not only that, defendants have

also started (a) to treat separately
Defendants tried to justify the the Delta Commission of plaintiff
termination of plaintiff Arturo P. Arturo P. Valenzuela, (b) to
Valenzuela as one of defendant reverse the Delta commission
PHILAMGEN's General Agent by due plaintiff Arturo P. Valenzuela
making it appear that plaintiff by not crediting or applying said
Arturo P. Valenzuela has a commission earned to the
substantial account with account of plaintiff Arturo P.
defendant PHILAMGEN Valenzuela, (c) placed plaintiff
particularly Delta Motors, Inc.'s Arturo P. Valenzuela's agency
Account, thereby prejudicing transactions on a "cash and carry
defendant PHILAMGEN's interest basis", (d) sending threats to
(Exhibits 6,"11","11- "12- cancel existing policies issued by
A"and"13-A"). plaintiff Arturo P. Valenzuela's
agency, (e) to divert plaintiff
Defendants also invoked the Arturo P. Valenzuela's insurance
provisions of the Civil Code of the business to other agencies, and
Philippines (Article 1868) and the (f) to spread wild and malicious
provisions of the General Agency rumors that plaintiff Arturo P.
Agreement as their basis for Valenzuela has substantial
terminating plaintiff Arturo P. account with defendant
Valenzuela as one of their PHILAMGEN to force plaintiff
General Agents. Arturo P. Valenzuela into
agreeing with the sharing of his
That defendants' position could Delta commission." (pp. 9-10,
have been justified had the Decision, Annex 1, Petition).
termination of plaintiff Arturo P.
Valenzuela was (sic) based solely xxx xxx xxx
on the provisions of the Civil
Code and the conditions of the These acts of harrassment done
General Agency Agreement. But by defendants on plaintiff Arturo
the records will show that the P. Valenzuela to force him to
principal cause of the termination agree to the sharing of his Delta
of the plaintiff as General Agent commission, which culminated in
of defendant PHILAMGEN was the termination of plaintiff Arturo
his refusal to share his Delta P. Valenzuela as one of
commission. defendant PHILAMGEN's
General Agent, do not justify said
That it should be noted that there termination of the General
were several attempts made by Agency Agreement entered into
defendant Bienvenido M. Aragon by defendant PHILAMGEN and
to share with the Delta plaintiff Arturo P. Valenzuela.
commission of plaintiff Arturo P.
Valenzuela. He had persistently That since defendants are not
pursued the sharing scheme to justified in the termination of
the point of terminating plaintiff plaintiff Arturo P. Valenzuela as
Arturo P. Valenzuela, and to one of their General Agents,
make matters worse, defendants defendants shall be liable for the
made it appear that plaintiff Arturo resulting damage and loss of
P. Valenzuela had substantial business of plaintiff Arturo P.
accounts with defendant Valenzuela. (Arts. 2199/2200,
PHILAMGEN. Civil Code of the Philippines).
(Ibid, p. 11)

The court accordingly rendered judgment, the I

dispositive portion of which reads:
hereby rendered in favor of the ARTURO P. VALENZUELA HAD
plaintiffs and against defendants NO OUTSTANDING ACCOUNT
ordering the latter to reinstate WITH DEFENDANT
plaintiff Arturo P. Valenzuela as its PHILAMGEN AT THE TIME OF
General Agent, and to pay THE TERMINATION OF THE
plaintiffs, jointly and severally, the AGENCY.
1. The amount of five hundred
twenty-one thousand nine THE LOWER COURT ERRED IN
hundred sixty four and 16/100 HOLDING THAT PLAINTIFF
pesos (P521,964.16) ARTURO P. VALENZUELA IS
representing plaintiff Arturo P. ENTITLED TO THE FULL
Valenzuela's Delta Commission COMMISSION OF 32.5% ON
with interest at the legal rate from THE DELTA ACCOUNT.
the time of the filing of the
complaint, which amount shall be III
adjusted in accordance with
Article 1250 of the Civil Code of THE LOWER COURT ERRED IN
the Philippines; HOLDING THAT THE
2. The amount of seventy-five ARTURO P. VALENZUELA WAS
thousand pesos (P75,000.00) per NOT JUSTIFIED AND THAT
month as compensatory CONSEQUENTLY
damages from 1980 until such DEFENDANTS ARE LIABLE
time that defendant Philamgen FOR ACTUAL AND MORAL
shall reinstate plaintiff Arturo P. DAMAGES, ATTORNEYS FEES
Valenzuela as one of its general AND COSTS.
3. The amount of three hundred
fifty thousand pesos ASSUMING ARGUENDO THAT
(P350,000.00) for each plaintiff as THE AWARD OF DAMAGES
moral damages; AGAINST DEFENDANT
4. The amount of seventy-five THE LOWER COURT ERRED IN
thousand pesos (P75,000.00) as AWARDING DAMAGES EVEN
and for attorney's fees; AGAINST THE INDIVIDUAL
5. Costs of the suit. (Ibid., P. 12) CORPORATE AGENTS ACTING
From the aforesaid decision of AUTHORITY.
the trial court, Bienvenido
Aragon, Robert E. Parnell, Carlos V
K. Catolico and PHILAMGEN
respondents herein, and ASSUMING ARGUENDO THAT
defendants-appellants below, THE AWARD OF DAMAGES IN
interposed an appeal on the FAVOR OF PLAINTIFF ARTURO

FAVOR OF HOSPITALITA 133; Reyes v. Mosqueda, 53

VALENZUELA, WHO, NOT O.G. 2158 and Infante V.
BEING THE REAL PARTY IN Cunanan, 93 Phil. 691, cited in
INTEREST IS NOT TO OBTAIN Paras, Vol. V, Civil Code of the
RELIEF. Philippines Annotated [1986]
On January 29, 1988, respondent Court of
Appeals promulgated its decision in the The lower court, however,
appealed case. The dispositive portion of the thought the termination of
decision reads: Valenzuela as General Agent
improper because the record will
WHEREFORE, the decision show the principal cause of the
appealed from is hereby modified termination of the plaintiff as
accordingly and judgment is General Agent of defendant
hereby rendered ordering: Philamgen was his refusal to
share his Delta commission.
1. Plaintiff-appellee Valenzuela to (Decision, p. 9; p. 13, Rollo, 41)
pay defendant-appellant
Philamgen the sum of one million Because of the conflicting conclusions, this
nine hundred thirty two thousand Court deemed it necessary in the interest of
five hundred thirty-two pesos and substantial justice to scrutinize the evidence
seventeen centavos and records of the cases. While it is an
(P1,902,532.17), with legal established principle that the factual findings of
interest thereon from the date of the Court of Appeals are final and may not be
finality of this judgment until fully reviewed on appeal to this Court, there are
paid. however certain exceptions to the rule which
this Court has recognized and accepted,
2. Both plaintiff-appellees to pay among which, are when the judgment is based
jointly and severally defendants- on a misapprehension of facts and when the
appellants the sum of fifty findings of the appellate court, are contrary to
thousand pesos (P50,000.00) as those of the trial court (Manlapaz v. Court of
and by way of attorney's fees. Appeals, 147 SCRA 236 [1987]); Guita v. Court
of Appeals, 139 SCRA 576 [1986]). Where the
No pronouncement is made as to findings of the Court of Appeals and the trial
costs. (p. 44, Rollo) court are contrary to each other, this Court may
scrutinize the evidence on record (Cruz v.
There is in this instance irreconcilable Court of Appeals, 129 SCRA 222 [1984];
divergence in the findings and conclusions of Mendoza v. Court of Appeals, 156 SCRA 597
the Court of Appeals, vis-a-visthose of the trial [1987]; Maclan v. Santos, 156 SCRA 542
court particularly on the pivotal issue whether [1987]). When the conclusion of the Court of
or not Philamgen and/or its officers can be held Appeals is grounded entirely on speculation,
liable for damages due to the termination of the surmises or conjectures, or when the inference
General Agency Agreement it entered into with made is manifestly mistaken, absurd or
the petitioners. In its questioned decision the impossible, or when there is grave abuse of
Court of Appeals observed that: discretion, or when the judgment is based on a
misapprehension of facts, and when the
In any event the principal's power findings of facts are conflict the exception also
to revoke an agency at will is so applies (Malaysian Airline System Bernad v.
pervasive, that the Supreme Court of Appeals, 156 SCRA 321 [1987]).
Court has consistently held that
termination may be effected even After a painstaking review of the entire records
if the principal acts in bad faith, of the case and the findings of facts of both the
subject only to the principal's court a quo and respondent appellate court, we
liability for damages (Danon v. are constrained to affirm the trial court's
Antonio A. Brimo & Co., 42 Phil. findings and rule for the petitioners.

We agree with the court a quo that the principal agencies. (Exhibit "NNN"). Rumors were also
cause of the termination of Valenzuela as spread about alleged accounts of the
General Agent of Philamgen arose from his Valenzuela agency (TSN., January 25, 1980, p.
refusal to share his Delta commission. The 41). The petitioners consistently opposed the
records sustain the conclusions of the trial pressures to hand over the agency or half of
court on the apparent bad faith of the private their commissions and for a treatment of the
respondents in terminating the General Agency Delta account distinct from other accounts. The
Agreement of petitioners. It is axiomatic that pressures and demands, however, continued
the findings of fact of a trial judge are entitled until the agency agreement itself was finally
to great weight (People v. Atanacio, 128 SCRA terminated.
22 [1984]) and should not be disturbed on
appeal unless for strong and cogent reasons, It is also evident from the records that the
because the trial court is in a better position to agency involving petitioner and private
examine the evidence as well as to observe respondent is one "coupled with an interest,"
the demeanor of the witnesses while testifying and, therefore, should not be freely revocable
(Chase v. Buencamino, Sr., 136 SCRA 365 at the unilateral will of the latter.
[1985]; People v. Pimentel, 147 SCRA 25
[1987]; and Baliwag Trans., Inc. v. Court of In the insurance business in the Philippines,
Appeals, 147 SCRA 82 [1987]). In the case at the most difficult and frustrating period is the
bar, the records show that the findings and solicitation and persuasion of the prospective
conclusions of the trial court are supported by clients to buy insurance policies. Normally,
substantial evidence and there appears to be agents would encounter much embarrassment,
no cogent reason to disturb them (Mendoza v. difficulties, and oftentimes frustrations in the
Court of Appeals. 156 SCRA 597 [1987]). solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great
As early as September 30,1977, Philamgen effort, patience, perseverance, ingenuity, tact,
told the petitioners of its desire to share the imagination, time and money. In the case of
Delta Commission with them. It stated that Valenzuela, he was able to build up an Agency
should Delta back out from the agreement, the from scratch in 1965 to a highly productive
petitioners would be charged interests through enterprise with gross billings of about Two
a reduced commission after full payment by Million Five Hundred Thousand Pesos
Delta. (P2,500,000.00) premiums per annum. The
records sustain the finding that the private
On January 23, 1978 Philamgen proposed respondent started to covet a share of the
reducing the petitioners' commissions by 50% insurance business that Valenzuela had built
thus giving them an agent's commission of up, developed and nurtured to profitability
16.25%. On February 8, 1978, Philamgen through over thirteen (13) years of patient work
insisted on the reduction scheme followed on and perseverance. When Valenzuela refused
June 1, 1978 by still another insistence on to share his commission in the Delta account,
reducing commissions and proposing two the boom suddenly fell on him.
alternative schemes for reduction. There were
other pressures. Demands to settle accounts, The private respondents by the simple
to confer and thresh out differences regarding expedient of terminating the General Agency
the petitioners' income and the threat to Agreement appropriated the entire insurance
terminate the agency followed. The petitioners business of Valenzuela. With the termination of
were told that the Delta commissions would not the General Agency Agreement, Valenzuela
be credited to their account (Exhibit "J"). They would no longer be entitled to commission on
were informed that the Valenzuela agency the renewal of insurance policies of clients
would be placed on a cash and carry basis sourced from his agency. Worse, despite the
thus removing the 60-day credit for premiums termination of the agency, Philamgen
due. (TSN., March 26, 1979, pp. 54-57). continued to hold Valenzuela jointly and
Existing policies were threatened to be severally liable with the insured for unpaid
cancelled (Exhibits "H" and "14"; TSN., March premiums. Under these circumstances, it is
26, 1979, pp. 29-30). The Valenzuela business clear that Valenzuela had an interest in the
was threatened with diversion to other continuation of the agency when it was

unceremoniously terminated not only because determination upon some fairly

of the commissions he should continue to reliable basis. And a principal's
receive from the insurance business he has revocation of the agency
solicited and procured but also for the fact that agreement made to avoid
by the very acts of the respondents, he was payment of compensation for a
made liable to Philamgen in the event the result which he has actually
insured fail to pay the premiums due. They are accomplished (Hildendorf v.
estopped by their own positive averments and Hague, 293 NW 2d 272; Newhall
claims for damages. Therefore, the v. Journal Printing Co., 105 Minn
respondents cannot state that the agency 44,117 NW 228; Gaylen
relationship between Valenzuela and Machinery Corp. v. Pitman-Moore
Philamgen is not coupled with interest. "There Co. [C.A. 2 NY] 273 F 2d 340)
may be cases in which an agent has been
induced to assume a responsibility or incur a If a principal violates a
liability, in reliance upon the continuance of the contractual or quasi-contractual
authority under such circumstances that, if the duty which he owes his agent,
authority be withdrawn, the agent will be the agent may as a rule bring an
exposed to personal loss or liability" (See MEC appropriate action for the breach
569 p. 406). of that duty. The agent may in a
proper case maintain an action at
Furthermore, there is an exception to the law for compensation or
principle that an agency is revocable at will and damages ... A wrongfully
that is when the agency has been given not discharged agent has a right of
only for the interest of the principal but for the action for damages and in such
interest of third persons or for the mutual action the measure and element
interest of the principal and the agent. In these of damages are controlled
cases, it is evident that the agency ceases to generally by the rules governing
be freely revocable by the sole will of the any other action for the
principal (See Padilla, Civil Code Annotated, 56 employer's breach of an
ed., Vol. IV p. 350). The following citations are employment contract. (Riggs v.
apropos: Lindsay, 11 US 500, 3L Ed 419;
Tiffin Glass Co. v. Stoehr, 54 Ohio
The principal may not defeat the 157, 43 NE 2798)
agent's right to indemnification by
a termination of the contract of At any rate, the question of whether or not the
agency (Erskine v. Chevrolet agency agreement is coupled with interest is
Motors Co. 185 NC 479, 117 SE helpful to the petitioners' cause but is not the
706, 32 ALR 196). primary and compelling reason. For the pivotal
factor rendering Philamgen and the other
Where the principal terminates or private respondents liable in damages is that
repudiates the agent's the termination by them of the General Agency
employment in violation of the Agreement was tainted with bad faith. Hence, if
contract of employment and a principal acts in bad faith and with abuse of
without cause ... the agent is right in terminating the agency, then he is liable
entitled to receive either the in damages. This is in accordance with the
amount of net losses caused and precepts in Human Relations enshrined in our
gains prevented by the breach, or Civil Code that "every person must in the
the reasonable value of the exercise of his rights and in the performance of
services rendered. Thus, the his duties act with justice, give every one his
agent is entitled to prospective due, and observe honesty and good faith: (Art.
profits which he would have 19, Civil Code), and every person who,
made except for such wrongful contrary to law, wilfully or negligently causes
termination provided that such damages to another, shall indemnify the latter
profits are not conjectural, or for the same (Art. 20, id). "Any person who
speculative but are capable of wilfully causes loss or injury to another in a

manner contrary to morals, good customs and pay indemnity in case of loss and
public policy shall compensate the latter for the correlatively he had also the right
damages" (Art. 21, id.). to sue for payment of the
premium. But the amendment to
As to the issue of whether or not the petitioners Sec. 72 has radically changed
are liable to Philamgen for the unpaid and the legal regime in that unless
uncollected premiums which the respondent the premium is paid there is no
court ordered Valenzuela to pay Philamgen the insurance. " (Arce v. Capitol
amount of One Million Nine Hundred Thirty- Insurance and Surety Co., Inc.,
Two Thousand Five Hundred Thirty-Two and 117 SCRA 66; Emphasis
17/100 Pesos (P1,932,532,17) with legal supplied)
interest thereon until fully paid (Decision-
January 20, 1988, p. 16; Petition, Annex "A"), In Philippine Phoenix Surety case, we held:
we rule that the respondent court erred in
holding Valenzuela liable. We find no factual Moreover, an insurer cannot treat
and legal basis for the award. Under Section a contract as valid for the
77 of the Insurance Code, the remedy for the purpose of collecting premiums
non-payment of premiums is to put an end to and invalid for the purpose of
and render the insurance policy not binding — indemnity. (Citing Insurance Law
and Practice by John Alan
Sec. 77 ... [N]otwithstanding any Appleman, Vol. 15, p. 331;
agreement to the contrary, no Emphasis supplied)
policy or contract of insurance is
valid and binding unless and until The foregoing findings are
the premiums thereof have been buttressed by Section 776 of the
paid except in the case of a life or insurance Code (Presidential
industrial life policy whenever the Decree No. 612, promulgated on
grace period provision applies December 18, 1974), which now
(P.D. 612, as amended otherwise provides that no contract of
known as the Insurance Code of Insurance by an insurance
1974) company is valid and binding
unless and until the premium
In Philippine Phoenix Surety and Insurance, thereof has been paid,
Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) notwithstanding any agreement
we held that the non-payment of premium does to the contrary (Ibid., 92 SCRA
not merely suspend but puts an end to an 425)
insurance contract since the time of the
payment is peculiarly of the essence of the Perforce, since admittedly the premiums have
contract. And in Arce v. The Capital Insurance not been paid, the policies issued have lapsed.
and Surety Co. Inc. (117 SCRA 63, [1982]), we The insurance coverage did not go into effect
reiterated the rule that unless premium is paid, or did not continue and the obligation of
an insurance contract does not take effect. Philamgen as insurer ceased. Hence, for
Thus: Philamgen which had no more liability under
the lapsed and inexistent policies to demand,
It is to be noted that Delgado much less sue Valenzuela for the unpaid
(Capital Insurance & Surety Co., premiums would be the height of injustice and
Inc. v. Delgado, 9 SCRA 177 unfair dealing. In this instance, with the lapsing
[1963] was decided in the light of of the policies through the nonpayment of
the Insurance Act before Sec. 72 premiums by the insured there were no more
was amended by the insurance contracts to speak of. As this Court
underscored portion. Supra. Prior held in the Philippine Phoenix
to the Amendment, an insurance Surety case, supra "the non-payment of
contract was effective even if the premiums does not merely suspend but puts
premium had not been paid so an end to an insurance contract since the time
that an insurer was obligated to

of the payment is peculiarly of the essence of must prevail over unconfirmed and unaudited
the contract." statements made to support a position made in
the course of defending against a lawsuit.
The respondent appellate court also seriously
erred in according undue reliance to the report It is not correct to say that Valenzuela should
of Banaria and Banaria and Company, have presented its own records to refute the
auditors, that as of December 31, 1978, unconfirmed and unaudited finding of the
Valenzuela owed Philamgen P1,528,698.40. Banaria auditor. The records of Philamgen
This audit report of Banaria was commissioned itself are the best refutation against figures
by Philamgen after Valenzuela was almost made as an afterthought in the course of
through with the presentation of his evidence. litigation. Moreover, Valenzuela asked for a
In essence, the Banaria report started with an meeting where the figures would be reconciled.
unconfirmed and unaudited beginning balance Philamgen refused to meet with him and,
of account of P1,758,185.43 as of August 20, instead, terminated the agency agreement.
1976. But even with that unaudited and
unconfirmed beginning balance of After off-setting the amount of P744,159.80,
P1,758,185.43, Banaria still came up with the beginning balance as of July 1977, by way of
amount of P3,865.49 as Valenzuela's balance credits representing the commission due from
as of December 1978 with Philamgen (Exh. Delta and other accounts, Valenzuela had
"38-A-3"). In fact, as of December 31, 1976, overpaid Philamgen the amount of
and December 31, 1977, Valenzuela had no P530,040.37 as of November 30, 1978.
unpaid account with Philamgen (Ref: Annexes Philamgen cannot later be heard to complain
"D", "D-1", "E", Petitioner's Memorandum). But that it committed a mistake in its computation.
even disregarding these annexes which are The alleged error may be given credence if
records of Philamgen and addressed to committed only once. But as earlier stated, the
Valenzuela in due course of business, the facts reconciliation of accounts was arrived at four
show that as of July 1977, the beginning (4) times on different occasions where
balance of Valenzuela's account with Philamgen was duly represented by its account
Philamgen amounted to P744,159.80. This was executives. On the basis of these admissions
confirmed by Philamgen itself not only once but and representations, Philamgen cannot later
four (4) times on different occasions, as shown on assume a different posture and claim that it
by the records. was mistaken in its representation with respect
to the correct beginning balance as of July
On April 3,1978, Philamgen sent Valenzuela a 1977 amounting to P744,159.80. The Banaria
statement of account with a beginning balance audit report commissioned by Philamgen is
of P744,159-80 as of July 1977. unreliable since its results are admittedly
based on an unconfirmed and unaudited
On May 23, 1978, another statement of beginning balance of P1,758,185.43 as of
account with exactly the same beginning August 20,1976.
balance was sent to Valenzuela.
As so aptly stated by the trial court in its
On November 17, 1978, Philamgen sent still decision:
another statement of account with P744,159.80
as the beginning balance. Defendants also conducted an
audit of accounts of plaintiff
And on December 20, 1978, a statement of Arturo P. Valenzuela after the
account with exactly the same figure was sent controversy has started. In fact,
to Valenzuela. after hearing plaintiffs have
already rested their case.
It was only after the filing of the complaint that
a radically different statement of accounts The results of said audit were
surfaced in court. Certainly, Philamgen's own presented in Court to show
statements made by its own accountants over plaintiff Arturo P. Valenzuela's
a long period of time and covering accountability to defendant
examinations made on four different occasions PHILAMGEN. However, the

auditor, when presented as necessarily follows that the former are liable in
witness in this case testified that damages. Respondent Philamgen has been
the beginning balance of their appropriating for itself all these years the gross
audit report was based on an billings and income that it unceremoniously
unaudited amount of took away from the petitioners. The
P1,758,185.43 (Exhibit 46-A) as preponderance of the authorities sustain the
of August 20, 1976, which was preposition that a principal can be held liable
unverified and merely supplied by for damages in cases of unjust termination of
the officers of defendant agency. In Danon v. Brimo, 42 Phil. 133
PHILAMGEN. [1921]), this Court ruled that where no time for
the continuance of the contract is fixed by its
Even defendants very own terms, either party is at liberty to terminate it at
Exhibit 38- A-3, showed that will, subject only to the ordinary requirements
plaintiff Arturo P. Valenzuela's of good faith. The right of the principal to
balance as of 1978 amounted to terminate his authority is absolute and
only P3,865.59, not P826,128.46 unrestricted, except only that he may not do so
as stated in defendant in bad faith.
Bienvenido M. Aragon's letter
dated December 20,1978 (Exhibit The trial court in its decision awarded to
14) or P1,528,698.40 as reflected Valenzuela the amount of Seventy Five
in defendant's Exhibit 46 (Audit Thousand Pesos (P75,000,00) per month as
Report of Banaria dated compensatory damages from June 1980 until
December 24, 1980). its decision becomes final and executory. This
award is justified in the light of the evidence
These glaring discrepancy (sic) in extant on record (Exhibits "N", "N-10", "0", "0-
the accountability of plaintiff 1", "P" and "P-1") showing that the average
Arturo P. Valenzuela to defendant gross premium collection monthly of
PHILAMGEN only lends Valenzuela over a period of four (4) months
credence to the claim of plaintiff from December 1978 to February 1979,
Arturo P. Valenzuela that he has amounted to over P300,000.00 from which he
no outstanding account with is entitled to a commission of P100,000.00
defendant PHILAMGEN when the more or less per month. Moreover, his annual
latter, thru defendant Bienvenido sales production amounted to P2,500,000.00
M. Aragon, terminated the from where he was given 32.5% commissions.
General Agency Agreement Under Article 2200 of the new Civil Code,
entered into by plaintiff (Exhibit A) "indemnification for damages shall
effective January 31, 1979 (see comprehend not only the value of the loss
Exhibits "2" and "2-A"). Plaintiff suffered, but also that of the profits which the
Arturo P. Valenzuela has shown obligee failed to obtain."
that as of October 31, 1978, he
has overpaid defendant The circumstances of the case, however,
PHILAMGEN in the amount of require that the contractual relationship
P53,040.37 (Exhibit "EEE", which between the parties shall be terminated upon
computation was based on the satisfaction of the judgment. No more
defendant PHILAMGEN's claims arising from or as a result of the agency
balance of P744,159.80 furnished shall be entertained by the courts after that
on several occasions to plaintiff date.
Arturo P. Valenzuela by
defendant PHILAMGEN (Exhibits ACCORDINGLY, the petition is GRANTED.
H-1, VV, VV-1, WW, WW-1 , YY , The impugned decision of January 29, 1988
YY-2 , ZZ and , ZZ-2). and resolution of April 27, 1988 of respondent
court are hereby SET ASIDE. The decision of
Prescinding from the foregoing, and the trial court dated January 23, 1986 in Civil
considering that the private respondents Case No. 121126 is REINSTATED with the
terminated Valenzuela with evident mala fide it MODIFICATIONS that the amount of FIVE


(P521,964.16) representing the petitioners
Delta commission shall earn only legal
interests without any adjustments under Article
1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and
Philippine American General Insurance
Company shall be deemed terminated upon
the satisfaction of the judgment as modified.


G.R. No. 163720 December 16, 2004 for P18,743.00; BPI Check No. 1112646 dated
June 26, 1994 for P25,000.00; and Equitable
GENEVIEVE LIM, petitioner, PCI Bank Check No. 021491B dated June 20,
vs. 1994 for P168,000.00.
FLORENCIO SABAN, respondents.
Subsequently, Ybañez sent a letter dated June
10, 1994 addressed to Lim. In the letter
DECISION Ybañez asked Lim to cancel all the checks
issued by her in Saban’s favor and to "extend
TINGA, J.: another partial payment" for the lot in his
(Ybañez’s) favor.6
Before the Court is a Petition for Review on
Certiorari assailing the Decision1 dated October After the four checks in his favor were
27, 2003 of the Court of Appeals, Seventh dishonored upon presentment, Saban filed
Division, in CA-G.R. V No. 60392.2 a Complaint for collection of sum of money and
damages against Ybañez and Lim with the
The late Eduardo Ybañez (Ybañez), the owner Regional Trial Court (RTC) of Cebu City on
of a 1,000-square meter lot in Cebu City (the August 3, 1994.7 The case was assigned to
"lot"), entered into an Agreement and Authority Branch 20 of the RTC.
to Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on In his Complaint, Saban alleged that Lim and
February 8, 1994. Under the Agency the Spouses Lim agreed to purchase the lot
Agreement, Ybañez authorized Saban to look for P600,000.00, i.e., with a mark-up of Four
for a buyer of the lot for Two Hundred Hundred Thousand Pesos (P400,000.00) from
Thousand Pesos (P200,000.00) and to mark the price set by Ybañez. Of the total purchase
up the selling price to include the amounts price of P600,000.00, P200,000.00 went to
needed for payment of taxes, transfer of title Ybañez, P50,000.00 allegedly went to Lim’s
and other expenses incident to the sale, as agent, and P113,257.00 was given to Saban to
well as Saban’s commission for the sale.3 cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated
Through Saban’s efforts, Ybañez and his wife checks8 in favor of Saban for the
were able to sell the lot to the petitioner remaining P236,743.00.
Genevieve Lim (Lim) and the spouses
Benjamin and Lourdes Lim (the Spouses Lim) Saban alleged that Ybañez told Lim that he
on March 10, 1994. The price of the lot as (Saban) was not entitled to any commission for
indicated in the Deed of Absolute Sale is Two the sale since he concealed the actual selling
Hundred Thousand Pesos (P200,000.00).4 It price of the lot from Ybañez and because he
appears, however, that the vendees agreed to was not a licensed real estate broker. Ybañez
purchase the lot at the price of Six Hundred was able to convince Lim to cancel all four
Thousand Pesos (P600,000.00), inclusive of checks.
taxes and other incidental expenses of the
sale. After the sale, Lim remitted to Saban the Saban further averred that Ybañez and Lim
amounts of One Hundred Thirteen Thousand connived to deprive him of his sales
Two Hundred Fifty Seven Pesos (P113,257.00) commission by withholding payment of the first
for payment of taxes due on the transaction as three checks. He also claimed that Lim failed to
well as Fifty Thousand Pesos (P50,000.00) as make good the fourth check which was
broker’s commission.5 Lim also issued in the dishonored because the account against which
name of Saban four postdated checks in the it was drawn was closed.
aggregate amount of Two Hundred Thirty Six
Thousand Seven Hundred Forty Three Pesos In his Answer, Ybañez claimed that Saban was
(P236,743.00). These checks were Bank of the not entitled to any commission because he
Philippine Islands (BPI) Check No. 1112645 concealed the actual selling price from him and
dated June 12, 1994 for P25,000.00; BPI because he was not a licensed real estate
Check No. 1112647 dated June 19, 1994 broker.

Lim, for her part, argued that she was not privy Lim filed a Motion for Reconsideration of the
to the agreement between Ybañez and Saban, appellate court’s Decision, but her Motion was
and that she issued stop payment orders for denied by the Court of Appeals in
the three checks because Ybañez requested a Resolution dated May 6, 2004.16
her to pay the purchase price directly to him,
instead of coursing it through Saban. She also Not satisfied with the decision of the Court of
alleged that she agreed with Ybañez that the Appeals, Lim filed the present petition.
purchase price of the lot was
only P200,000.00. Lim argues that the appellate court ignored the
fact that after paying her agent and remitting to
Ybañez died during the pendency of the case Saban the amounts due for taxes and transfer
before the RTC. Upon motion of his counsel, of title, she paid the balance of the purchase
the trial court dismissed the case only against price directly to Ybañez.17
him without any objection from the other
parties.10 She further contends that she is not liable for
Ybañez’s debt to Saban under the Agency
On May 14, 1997, the RTC rendered Agreement as she is not privy thereto, and that
its Decision11 dismissing Saban’s complaint, Saban has no one but himself to blame for
declaring the four (4) checks issued by Lim as consenting to the dismissal of the case against
stale and non-negotiable, and absolving Lim Ybañez and not moving for his substitution by
from any liability towards Saban. his heirs.18

Saban appealed the trial court’s Decision to the Lim also assails the findings of the appellate
Court of Appeals. court that she issued the checks as an
accommodation party for Ybañez and that she
On October 27, 2003, the appellate court connived with the latter to deprive Saban of his
promulgated its Decision12 reversing the trial commission.19
court’s ruling. It held that Saban was entitled to
his commission amounting to P236,743.00.13 Lim prays that should she be found liable to
pay Saban the amount of his commission, she
The Court of Appeals ruled that Ybañez’s should only be held liable to the extent of one-
revocation of his contract of agency with Saban third (1/3) of the amount, since she had two co-
was invalid because the agency was coupled vendees (the Spouses Lim) who should share
with an interest and Ybañez effected the such liability.20
revocation in bad faith in order to deprive
Saban of his commission and to keep the In his Comment, Saban maintains that Lim
profits for himself.14 agreed to purchase the lot for P600,000.00,
which consisted of the P200,000.00 which
The appellate court found that Ybañez and Lim would be paid to Ybañez, the P50,000.00 due
connived to deprive Saban of his commission. to her broker, the P113,257.00 earmarked for
It declared that Lim is liable to pay Saban the taxes and other expenses incidental to the sale
amount of the purchase price of the lot and Saban’s commission as broker for Ybañez.
corresponding to his commission because she According to Saban, Lim assumed the
issued the four checks knowing that the total obligation to pay him his commission. He
amount thereof corresponded to Saban’s insists that Lim and Ybañez connived to
commission for the sale, as the agent of unjustly deprive him of his commission from
Ybañez. The appellate court further ruled that, the negotiation of the sale.21
in issuing the checks in payment of Saban’s
commission, Lim acted as an accommodation The issues for the Court’s resolution are
party. She signed the checks as drawer, whether Saban is entitled to receive his
without receiving value therefor, for the commission from the sale; and, assuming that
purpose of lending her name to a third person. Saban is entitled thereto, whether it is Lim who
As such, she is liable to pay Saban as the is liable to pay Saban his sales commission.
holder for value of the checks.15

The Court gives due course to the petition, but her co-vendees. Moreover, the contract of
agrees with the result reached by the Court of agency very clearly states that Saban is
Appeals. entitled to the excess of the mark-up of the
price of the lot after deducting Ybañez’s share
The Court affirms the appellate court’s finding of P200,000.00 and the taxes and other
that the agency was not revoked since Ybañez incidental expenses of the sale.
requested that Lim make stop payment orders
for the checks payable to Saban only after the However, the Court does not agree with the
consummation of the sale on March 10, 1994. appellate court’s pronouncement that Saban’s
At that time, Saban had already performed his agency was one coupled with an interest.
obligation as Ybañez’s agent when, through his Under Article 1927 of the Civil Code, an
(Saban’s) efforts, Ybañez executed the Deed agency cannot be revoked if a bilateral contract
of Absolute Sale of the lot with Lim and the depends upon it, or if it is the means of fulfilling
Spouses Lim. an obligation already contracted, or if a partner
is appointed manager of a partnership in the
To deprive Saban of his commission contract of partnership and his removal from
subsequent to the sale which was the management is unjustifiable. Stated
consummated through his efforts would be a differently, an agency is deemed as one
breach of his contract of agency with Ybañez coupled with an interest where it is established
which expressly states that Saban would be for the mutual benefit of the principal and of the
entitled to any excess in the purchase price agent, or for the interest of the principal and of
after deducting the P200,000.00 due to Ybañez third persons, and it cannot be revoked by the
and the transfer taxes and other incidental principal so long as the interest of the agent or
expenses of the sale.22 of a third person subsists. In an agency
coupled with an interest, the agent’s interest
In Macondray & Co. v. Sellner,23 the Court must be in the subject matter of the power
recognized the right of a broker to his conferred and not merely an interest in the
commission for finding a suitable buyer for the exercise of the power because it entitles him to
seller’s property even though the seller himself compensation. When an agent’s interest is
consummated the sale with the buyer. 24 The confined to earning his agreed compensation,
Court held that it would be in the height of the agency is not one coupled with an interest,
injustice to permit the principal to terminate the since an agent’s interest in obtaining his
contract of agency to the prejudice of the compensation as such agent is an ordinary
broker when he had already reaped the incident of the agency relationship.26
benefits of the broker’s efforts.
Saban’s entitlement to his commission having
In Infante v. Cunanan, et al., the Court upheld been settled, the Court must now determine
the right of the brokers to their commissions whether Lim is the proper party against whom
although the seller revoked their authority to Saban should address his claim.
act in his behalf after they had found a buyer
for his properties and negotiated the sale Saban’s right to receive compensation for
directly with the buyer whom he met through negotiating as broker for Ybañez arises from
the brokers’ efforts. The Court ruled that the the Agency Agreement between them. Lim is
seller’s withdrawal in bad faith of the brokers’ not a party to the contract. However, the record
authority cannot unjustly deprive the brokers of reveals that she had knowledge of the fact that
their commissions as the seller’s duly Ybañez set the price of the lot at P200,000.00
constituted agents. and that the P600,000.00—the price agreed
upon by her and Saban—was more than the
The pronouncements of the Court in the amount set by Ybañez because it included the
aforecited cases are applicable to the present amount for payment of taxes and for Saban’s
case, especially considering that Saban had commission as broker for Ybañez.
completely performed his obligations under his
contract of agency with Ybañez by finding a According to the trial court, Lim made the
suitable buyer to preparing the Deed of following payments for the lot: P113,257.00 for
Absolute Sale between Ybañez and Lim and taxes, P50,000.00 for her broker,

and P400.000.00 directly to Ybañez, or a total thereon for Thirty Thousand Pesos
of Five Hundred Sixty Three Thousand Two (P30,000.00) . She promised to pay them five
Hundred Fifty Seven Pesos percent (5%) of the purchase price plus
(P563,257.00).27 Lim, on the other hand, claims whatever overprice they may obtain for the
that on March 10, 1994, the date of execution property. Cunanan and Mijares offered the
of the Deed of Absolute Sale, she paid directly properties to Pio Noche who in turn expressed
to Ybañez the amount of One Hundred willingness to purchase the properties.
Thousand Pesos (P100,000.00) only, and gave Cunanan and Mijares thereafter introduced
to Saban P113,257.00 for payment of taxes Noche to Infante. However, the latter told
and P50,000.00 as his commission,28 and One Cunanan and Mijares that she was no longer
Hundred Thirty Thousand Pesos (P130,000.00) interested in selling the property and asked
on June 28, 1994,29 or a total of Three Hundred them to sign a document stating that their
Ninety Three Thousand Two Hundred Fifty written authority to act as her agents for the
Seven Pesos (P393,257.00). Ybañez, for his sale of the properties was already cancelled.
part, acknowledged that Lim and her co- Subsequently, Infante sold the properties
vendees paid him P400,000.00 which he said directly to Noche for Thirty One Thousand
was the full amount for the sale of the lot. 30 It Pesos (P31,000.00). The Court upheld the right
thus appears that he received P100,000.00 on of Cunanan and Mijares to their commission,
March 10, 1994, acknowledged receipt explaining that—
(through Saban) of the P113,257.00 earmarked
for taxes and P50,000.00 for commission, and …[Infante] had changed her mind even
received the balance of P130,000.00 on June if respondent had found a buyer who
28, 1994. Thus, a total of P230,000.00 went was willing to close the deal, is a matter
directly to Ybañez. Apparently, although the that would not give rise to a legal
amount actually paid by Lim was P393,257.00, consequence if [Cunanan and Mijares]
Ybañez rounded off the amount agreed to call off the transaction in
to P400,000.00 and waived the difference. deference to the request of [Infante]. But
the situation varies if one of the parties
Lim’s act of issuing the four checks amounting takes advantage of the benevolence of
to P236,743.00 in Saban’s favor belies her the other and acts in a manner that
claim that she and her co-vendees did not would promote his own selfish interest.
agree to purchase the lot at P600,000.00. If This act is unfair as would amount to
she did not agree thereto, there would be no bad faith. This act cannot be sanctioned
reason for her to issue those checks which is without according the party prejudiced
the balance of P600,000.00 less the amounts the reward which is due him. This is the
of P200,000.00 (due to Ybañez), P50,000.00 situation in which [Cunanan and Mijares]
(commission), and the P113,257.00 (taxes). were placed by [Infante]. [Infante] took
The only logical conclusion is that Lim changed advantage of the services rendered by
her mind about agreeing to purchase the lot [Cunanan and Mijares], but believing
at P600,000.00 after talking to Ybañez and that she could evade payment of their
ultimately realizing that Saban’s commission is commission, she made use of a ruse by
even more than what Ybañez received as his inducing them to sign the deed of
share of the purchase price as vendor. cancellation….This act of subversion
Obviously, this change of mind resulted to the cannot be sanctioned and cannot serve
prejudice of Saban whose efforts led to the as basis for [Infante] to escape payment
completion of the sale between the latter, and of the commission agreed upon.31
Lim and her co-vendees. This the Court cannot
countenance. The appellate court therefore had sufficient
basis for concluding that Ybañez and Lim
The ruling of the Court in Infante v. Cunanan, connived to deprive Saban of his commission
et al., cited earlier, is enlightening for the facts by dealing with each other directly and
therein are similar to the circumstances of the reducing the purchase price of the lot and
present case. In that case, Consejo Infante leaving nothing to compensate Saban for his
asked Jose Cunanan and Juan Mijares to find efforts.
a buyer for her two lots and the house built

Considering the circumstances surrounding the purchase price in consideration for the sale of
case, and the undisputed fact that Lim had not the lot to her and her co-vendees. In other
yet paid the balance of P200,000.00 of the words, the amounts covered by the checks
purchase price of P600,000.00, it is just and form part of the cause or consideration from
proper for her to pay Saban the balance Ybañez’s end, as vendor, while the lot
of P200,000.00. represented the cause or consideration on the
side of Lim, as vendee.35 Ergo, Lim received
Furthermore, since Ybañez received a total value for her signature on the checks.
of P230,000.00 from Lim, or an excess
of P30,000.00 from his asking price Neither is there any indication that Lim issued
of P200,000.00, Saban may claim such excess the checks for the purpose of enabling Ybañez,
from Ybañez’s estate, if that remedy is still or any other person for that matter, to obtain
available,32 in view of the trial court’s dismissal credit or to raise money, thereby totally
of Saban’s complaint as against Ybañez, with debunking the presence of the third requisite of
Saban’s express consent, due to the latter’s an accommodation party.
demise on November 11, 1994.33
WHEREFORE, in view of the foregoing, the
The appellate court however erred in ruling that petition is DISMISSED.
Lim is liable on the checks because she issued
them as an accommodation party. Section 29 SO ORDERED.
of the Negotiable Instruments Law defines an
accommodation party as a person "who has
signed the negotiable instrument as maker,
drawer, acceptor or indorser, without receiving
value therefor, for the purpose of lending his
name to some other person." The
accommodation party is liable on the
instrument to a holder for value even though
the holder at the time of taking the instrument
knew him or her to be merely an
accommodation party. The accommodation
party may of course seek reimbursement from
the party accommodated.34

As gleaned from the text of Section 29 of the

Negotiable Instruments Law, the
accommodation party is one who meets all
these three requisites, viz: (1) he signed the
instrument as maker, drawer, acceptor, or
indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of
lending his name to some other person. In the
case at bar, while Lim signed as drawer of the
checks she did not satisfy the two other
remaining requisites.

The absence of the second requisite becomes

pellucid when it is noted at the outset that Lim
issued the checks in question on account of
her transaction, along with the other
purchasers, with Ybañez which was a sale and,
therefore, a reciprocal contract. Specifically,
she drew the checks in payment of the balance
of the purchase price of the lot subject of the
transaction. And she had to pay the agreed

G.R. No. 151218 January 28, 2003 In July 1977, the National Sugar Trading
Corporation (NASUTRA) replaced
NATIONAL SUGAR TRADING and/or the PHILEXCHANGE as the marketing agent of
ADMINISTRATION, petitioners, sold and turned over all sugar quedans to
vs. NASUTRA. However, no physical inventory of
PHILIPPINE NATIONAL BANK, respondent. the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM
YNARES-SANTIAGO, J.: was required to immediately pay
PHILEXCHANGE. Notwithstanding this
This is a petition for review which seeks to set concession, NASUTRA and PHILSUCOM still
aside the decision of the Court of Appeals failed to pay the sugar stocks covered by
dated August 10, 2001 in CA-G.R. SP. No. quedans to PHILEXCHANGE which, as of
58102, 1 upholding the decision of the Office of June 30, 1984, amounted to P498,828,845.03.
the President dated September 17, 1999, 2 as As a consequence, PHILEXCHANGE was not
well as the resolution dated December 12, able to pay its obligations to PNB.
2001 denying petitioners' motion for
reconsideration. To finance its sugar trading operations,
NASUTRA applied for and was granted 9 a
The antecedent facts, as culled from the P408 Million Revolving Credit Line by PNB in
records, are as follows: 1981. Every time NASUTRA availed of the
credit line, 10 its Executive Vice-President, Jose
Sometime in February 1974, then President Unson, executed a promissory note in favor of
Ferdinand E. Marcos issued Presidential PNB.
Decree No. 388 3 constituting the Philippine
Sugar Commission (PHILSUCOM), as the sole In order to stabilize sugar liquidation prices at a
buying and selling agent of sugar on the minimum of P300.00 per picul, PHILSUCOM
quedan permit level. In November of the same issued on March 15, 1985 Circular Letter No.
year, PD 579 4 was issued, authorizing the EC-4-85, considering all sugar produced during
Philippine Exchange Company, Inc. crop year 1984–1985 as domestic sugar.
(PHILEXCHANGE), a wholly owned subsidiary Furthermore, PHILSUCOM's Chairman of
of Philippine National Bank (PNB) to serve as Executive Committee, Armando C. Gustillo
the marketing agent of PHILSUCOM. Pursuant proposed on May 14, 1985 the following
to PD 579, PHILEXCHANGE's purchases of liquidation scheme of the sugar
sugar shall be financed by PNB and the quedans 11 assigned to PNB by the sugar
proceeds of sugar trading operations of planters:
PHILEXCHANGE shall be used to pay its
liabilities with PNB. 5 Upon notice from NASUTRA, PNB shall credit
the individual producer and millers loan
Similarly, in February 1975, PD 659 was accounts for their sugar proceeds and shall
issued, constituting PHILEXCHANGE and/or treat the same as loans of NASUTRA.
PNB as the exclusive sugar trading agencies of
the government for buying sugar from planters Such loans shall be charged interest at the
or millers and selling or exporting them. 6 PNB prevailing rates and it shall commence five (5)
then extended loans to PHILEXCHANGE for days after receipt by PNB of quedans from
the latter's sugar trading operations. At first, NASUTRA. 12
PHILEXCHANGE religiously paid its
obligations to PNB by depositing the proceeds PNB, for its part, issued Resolution No. 353
of the sale of sugar with the bank. dated May 20, 1985 approving 13 the
Subsequently, however, with the fall of sugar PHILSUCOM/NASUTRA proposal for the
prices in the world market, PHILEXCHANGE payment of the sugar quedans assigned to it.
defaulted in the payments of its loans Pursuant to said resolution, NASUTRA would
amounting to P206,070,172.57. 7 assume the interest on the planter/mill loan

accounts. The pertinent portion of the

Resolution states: July 31, 1988

Five (5) days after receipt of the quedans,

NASUTRA shall absorb the accruing interest
on that portion of the planter/mill loan with PNB
commensurate to the net liquidation value of
the sugar delivered, or in other words,
NASUTRA proposes to assume interest that Date Remitting Bank Amount
will run on the planter/mill loan equivalent to
the net proceeds of the sugar quedans,
reckoned five (5) days after quedan delivery to 11-19-85 Bankers Trust-New York P259,253,573.46
PNB. 14

Despite such liquidation scheme,

NASUTRA/PHILSUCOM still failed to remit the 11-26-85 Bankers Trust-New York 144,459,242.84
interest payments to PNB and its branches,
which interests amounted to P65,412,245.84 in
1986. 15 As a result thereof, then President 03-06-86 Credit Lyonnais-Manila 209,880,477.07
Marcos issued PD 2005 dissolving NASUTRA
effective January 31, 1986. NASUTRA's
records of its sugar trading operations, 04-22-86 Societé Generalé-Manila 82,151,953.10
however, were destroyed during the Edsa
Revolution in February 1986.

On May 28, 1986, then President Corazon C. 06-09-86 Credit Lyonnais-Manila 536,158.62
Aquino issued Executive Order (EO) No. 18
creating the Sugar Regulatory Administration
(SRA) and abolishing PHILSUCOM. All the Total P696,281,405.09
assets and records of PHILSUCOM 16including
its beneficial interests over the assets of
NASUTRA were transferred to SRA. 17 On APPLICATIONS
January 24, 1989, before the completion of the
three-year winding up period, NASUTRA
established a trusteeship to liquidate and settle
its accounts. 18 This notwithstanding, Date Applied to Amount
NASUTRA still defaulted in the payment of its
loans amounting to P389,246,324.60 (principal
and accrued interest) to PNB. NASUTRA account with
1986 PNB P389,246,324.60
In the meantime, PNB received remittances
from foreign banks totaling US$36,564,558.90
or the equivalent of P696,281,405.09 Claims of various CAB
representing the proceeds of NASUTRA's 1986 planters 15,863,898.79
sugar exports. 19 Said remittances were then
applied by PNB to the unpaid accounts of
PHILEXCHANGE. The schedule of remittances Claims of various PNB
and applications are as follows: branches for interest or
the unpaid CY 1984–85
SCHEDULE OF REMITTANCES & 1987 sugar proceeds 65,412,245.84

Account of NASUTRA 1987& Philsucom account 206,070,172.57

carried in the books of

Or a total of Four Hundred Fifty Four

1988 Philexchange P676,592,641.80 Million Six Hundred Fifty Eight
Thousand Five Hundred Seventy and
44/100 Pesos (P454,658,570.44).
Unapplied Remittance P19,688,763.29" 20
2. Ordering respondent PNB to pay
petitioners —
Subsequently, PNB applied the a) the amount of Two Hundred
P19,688,763.29 to PHILSUCOM's account with Six Million Seventy Thousand
PHILEXCHANGE which in turn was applied to One Hundred Seventy Two and
PHILEXCHANGE's account with PNB. 21 57/100 Pesos (P206,070,172.57)
representing the amount of
Accordingly, NASUTRA requested 22 PNB to remittance applied to
furnish it with the necessary documents and/or PHILSUCOM account carried in
explanation 23concerning the the books of Philexchange;
disposition/application, accounting and
restitution of the remittances in question. b) the amount of Fifteen Million
Dissatisfied, and believing that PNB failed to Eight Hundred Sixty Three
provide them with said documents, NASUTRA Thousand Eight Hundred Ninety
and SRA filed a petition for arbitration 24with the Eight and 79/100 Pesos
Department of Justice on August 13, 1991. (P15,863,898.79) representing
the amount applied to settle
After due proceedings, the Secretary of Justice Claims of Various CAB Planters;
rendered a decision, to wit: and to pay interest on both items,
at legal rate from date of filing of
WHEREFORE, judgment is hereby this case.
rendered —
Costs of suit will be shared equally by
1. Declaring that of the amount of Six the parties.
Hundred Ninety Six Million Two Hundred
Eighty One Thousand Four Hundred SO ORDERED. 25
Five and 09/100 Pesos
(P696,281,405.09) equivalent of Both parties appealed before the Office of the
US$36,564,558.90, foreign remittances President. On September 17, 1999, the Office
received by respondent PNB, for and in of the President modified the decision of the
behalf of petitioner NASUTRA— Secretary of Justice, to wit:
a) the amount of Three Hundred IN VIEW OF ALL THE FOREGOING,
Eighty Nine Million Two Hundred the decision of the Secretary of Justice
Forty Six Thousand Three is hereby AFFIRMED with the
Hundred Twenty Four and 60/100 MODIFICATION that the application by
Pesos (P389,246,324.60) was the Philippine National Bank of the
validly applied to outstanding amounts of P225,758,935.86 and
account of NASUTRA to PNB; P15,863,898.79 as payment of the
Philippine Sugar Commission's account
b) the amount of Sixty Five Billion carried in the books of Philippine
Four Hundred Twelve Thousand Exchange Co., Inc. and the claims of
Two Hundred Forty Five and various CAB planters, respectively, is
84/100 Pesos (P65,412,245.84) hereby declared legal and valid.
was validly applied to claims of
various PNB branches for interest SO ORDERED. 26
on the unpaid CY 1984–85 sugar
proceeds; Petitioners' subsequent Motion for
Reconsideration was denied by the Office of

the President. 27 Thereafter, petitioners filed a since PNB has not proven the existence of the
petition for review with the Court of Appeals, P408 million revolving credit line and the CAB
alleging, inter alia, that the Office of the Planters Account. Petitioners also assert that
President erred when it relied solely on the the CAB Planters Account is an unliquidated
documents submitted by PNB to determine the account considering that it still has to be
amount of the subject remittances and in not recomputed pursuant to the Sugar
ordering PNB to render an accounting of the Reconstitution Law.
said remittances; in declaring as valid and legal
PNB's application of the subject remittances to Respondent PNB counters that it can apply the
alleged NASUTRA's accounts with PNB and foreign remittances on the long-overdue
PHILEXCHANGE without NASUTRA's obligations of NASUTRA. They were entered
knowledge, consent and authority. into by NASUTRA with the blessing, if not with
express mandate, of the National Government
On August 10, 2001, Court of Appeals in the pursuit of national interest and policy.
rendered judgment dismissing the PNB invokes also the Letter of Intent submitted
petition. Petitioners filed a Motion for by the National Government to the
Reconsideration, which was denied on International Monetary Fund (IMF), wherein the
December 12, 2001. government made specific reference to the
immediate payment by NASUTRA and
Hence this petition, raising the lone issue: PHILSUCOM of their outstanding obligations
with PNB to buoy up the country's sagging
APPLICABLE DECISION OF THIS Petitioners' arguments are specious.
ABUSED ITS DISCRETION, WHEN IT Article 1306 of the New Civil Code provides:
VALIDITY OF THE OFFSETTING OR Contracting parties may establish such
COMPENSATION OF THE SUBJECT stipulations, clauses terms and conditions as
REMITTANCES TO ALLEGED they may deem convenient provided they are
ACCOUNTS OF NASUTRA WITH PNB not contrary to law, morals, good customs,
AND PHILEX DESPITE THE FACT public order or public policy.
RELATIONSHIP EXISTED BETWEEN In the instant case, NASUTRA applied for a
PNB AND NASUTRA WITH RESPECT P408 million credit line with PNB in order to
TO THE SAID REMITTANCES. finance its trading operations. PNB, on the
other hand, approved said credit line in its
In essence, NASUTRA and SRA aver that no Resolution No. 68. Thereafter, NASUTRA
compensation involving the subject remittances availed of the credit and in fact drew
can take effect by operation of law since the P389,246,324.60, in principal and accrued
relationship created between PNB and interest, from the approved credit line.
NASUTRA was one of trustee-beneficiary and Evidence shows that every time NASUTRA
not one of creditor and debtor. They also claim availed of the credit, its Executive Vice
that no legal compensation can take place in President, Jose Unson, executed a promissory
favor of PHILEXCHANGE since the subject note 31 in favor of PNB with the following
remittances were received by PNB and not proviso:
PHILEXCHANGE, a corporation clothed with a
separate and distinct corporate personality In the event that this note is not paid at
from PNB. They added that PHILEXCHANGE's maturity or when the same becomes due under
account had already prescribed. any of the provisions hereof, I/We hereby
authorize the Bank, at its option and without
Moreover, NASUTRA and SRA contend that, notice, to apply to the payment of this note, any
assuming arguendo that creditor-debtor and all moneys, securities and things of values
relationship existed between PNB and which may be in the hands on deposit or
NASUTRA, compensation was still illegal, otherwise belonging to me/us and for this

purpose, I/We hereby, jointly and severally, by NASUTRA/SRA and PNB must be
irrevocably constitute and appoint the Bank to respected and have the force of law between
be my/our true Attorney-in-Fact with full power them.
and authority for me/us and in my/our name
and behalf and without prior notice to With respect to the application of the sum of
negotiate, sell and transfer any moneys, P65,412,245.84, 34 the record shows that
securities and things of value which it may NASUTRA failed to remit the interest payments
hold, by public or private sale and apply the to PNB despite its obligation under the
proceeds thereof to the payment of this note. liquidation scheme proposed by the Chairman
(Italics ours) of its Executive Committee, Armando C.
Gustillo, to stabilize sugar liquidation prices.
While we agree with petitioners that the Certainly, the authority granted by NASUTRA
application of subject remittances cannot be to Armando Gustillo to propose such liquidation
justified under Article 1278 in relation to Article scheme was an authority to represent
1279 of the Civil Code, considering that some NASUTRA. Undisputedly, any obligation or
elements of legal compensation were lacking, liability arising from such agreement shall be
application of the subject remittances to binding on the parties. NASUTRA, for its part,
NASUTRA's account with PNB and the claims cannot now renege on its duties, considering
of various PNB branches for interest on the that it took advantage of the loan.
unpaid CY 1984–1985 sugar proceeds is
authorized under the above-quoted stipulation. Having established that PNB validly applied the
PNB correctly treated the subject remittances subject remittances to the interest of
for the account of NASUTRA as moneys in its NASUTRA's loan in the amount of
hands which may be applied for the payment of P65,412,245.84, the application of the
the note. remainder of the remittance amounting to
P15,863,898.79 to the principal is proper.
Also, the relationship between NASUTRA/SRA
and PNB when the former constituted the latter With respect to the Central Azucarera de Bais
as its attorney-in-fact is not a simple agency. (CAB) Planters account, petitioners maintained
NASUTRA/SRA has assigned and practically that the subject remittances cannot be applied
surrendered its rights in favor of PNB for a to payment thereof, considering that it is
substantial consideration. 32 To reiterate, unliquidated and needs recomputation,
NASUTRA/SRA executed promissory notes in pursuant to Section 3 of Republic Act No. 7202
favor of PNB every time it availed of the credit or the Sugar Reconstitution Law, which
line. The agency established between the provides:
parties is one coupled with interest which
cannot be revoked or cancelled at will by any The Philippine National Bank of the Philippines
of the parties. 33 and other government-owned and controlled
financial institutions which have granted loans
Notwithstanding its availment of the approved to the sugar producers shall extend to
credit, NASUTRA, for reasons only known to accounts of said sugar producers incurred from
itself, insisted in claiming for refund of the Crop Year 1974–1975 up to and including Crop
remittances. NASUTRA's posture is untenable. Year 1984–1985 the following:
NASUTRA's actuation runs counter to the good
faith covenant in contractual relations, required (a) Condonation of interest charged by
under Article 1159 of the Civil Code, to wit: the banks in excess of twelve percent
(12%) per annum and all penalties and
Obligations arising from contract have the force surcharges:
of law between the contracting parties and
should be complied with in good faith. (b) The recomputed loans shall be
amortized for a period of thirteen (13)
Verily, parties may freely stipulate their duties years inclusive of a three-year grace
and obligations which perforce would be period on principal portion of the loan
binding on them. Not being repugnant to any will carry an interest rate of twelve
legal proscription, the agreement entered into (12%) and on the outstanding balance

effective when the original promissory Petitioners' contention is not well-taken.

notes were signed and funds released
to the producer. There exist clear indications that insofar as
sugar trading was concerned,
Section 6 of Rules and Regulations PHILEXCHANGE and PNB were treated as
implementing RA No. 7202 also provides: one entity. Purchases of sugar of
PHILEXCHANGE as the exclusive sugar
SECTION 2. In cases, however, where trading arm of PHILSUCOM were financed by
sugar producers have no outstanding PNB pursuant to PD 579. More importantly,
loan balance with said financial PNB, a wholly owned bank of the government
institutions as of the date of effectivity of at that time, in turn wholly owned and
RA No. 7202 (i.e. sugar producers who controlled PHILEXCHANGE. Also, Section 2
have fully paid their loans either through (a), PD 659 declared as illegal the sale,
actual payment or foreclosure of transfer and assignment of sugar by any
collateral, or who have partially paid planter, producer, miller, central, or refinery to
their loans and after the computation of any person or entity other than Philippine
the interest charges, they end up with Exchange, Inc. and/or the PNB. To reiterate,
excess payment to said financial PHILEXCHANGE failed to pay its loans with
institutions), said producers shall be PNB because of the fall of the sugar prices in
entitled to the benefits of recomputation the world market. When NASUTRA substituted
in accordance with Sections 3 and 4 of PHILEXCHANGE as marketing agent of
RA No. 7202, but the said financial PHILSUCOM, 1,485,532.47 metric tons 36 of
institutions, instead of refunding the export sugar were turned over by
interest in excess of twelve (12%) PHILEXCHANGE to NASUTRA. To reiterate,
percent per annum, interests, penalties the foreign remittances constituted proceeds of
and surcharges apply the excess the sale of the sugar covered by quedans
payment as an offset and/or as payment transferred by PHILEXCHANGE to NASUTRA.
for the producers' outstanding loan
obligations. Applications of restructuring WHEREFORE, in view of the foregoing, the
banks under Section 6 of RA No. 7202 instant petition for review is DENIED. The
shall be filed with the Central Monetary decision of the Court of Appeals dated August
Authority of the Philippines within one 10, 2001 is AFFIRMED.
(1) year from application of excess
payment. SO ORDERED.

Although it appears from said provision that

PNB was directed to condone interest,
penalties and surcharges charged in excess of
12% per annum, the passage of said law did
not forestall legal compensation that had taken
place before its effectivity. The loan had been
definitely ascertained, assessed and
determined by PNB. Pursuant to Section 4 35 of
RA 7202, there would be condonation of
interest whether the accounts were fully or
partially paid.

With regard to the application of the amount of

P206,070,172.57 to the PHILSUCOM account
carried in the books of PHILEXCHANGE,
petitioners maintain that there could be no
application of the subject remittance,
considering that the remittances were received
by PNB and not PHILEXCHANGE which has a
personality separate and distinct from PNB.

A.C. No. 5182 August 12, 2004 Herein complainant Lising and her sister,
Rosita de Guzman (mother of herein
SUSANA DE GUZMAN BUADO and NENA complainant Susana de Guzman Buado), were
LISING, complainants, the plaintiffs in Civil Case No. C-14265,
vs. entitled Rosita de Guzman, et al., v. Inland
ATTY. EUFRACIO T. LAYAG, respondent. Trailways, Inc.,which was decided by the RTC
of Caloocan City, Branch 121, in favor of the
RESOLUTION plaintiffs on May 16, 1991. Both Lising and de
PER CURIAM: Guzman were represented in said case by
herein respondent, Atty. Layag. The losing
The instant case arose from a verified Letter- party, Inland Trailways, Inc., appealed the trial
Complaint1 for malpractice filed with this Court court's judgment to the Court of Appeals, said
on December 9, 1999, against respondent Atty. appeal being docketed as CA-G.R. CV No.
Eufracio T. Layag by Susana de Guzman 34012.
Buado and Nena Lising. The complaint stated
that de Guzman Buado and Lising had In its decision dated January 5, 1995, the
instituted a criminal action for estafa 2 against appellate court affirmed the judgment of the
Atty. Layag with the Office of the City trial court. However, on July 3, 1993, or while
Prosecutor of Caloocan City and that the City CA-G.R. CV No. 34012 was pending before
Prosecutor had resolved that there was prima the appellate court, de Guzman died.
facie evidence to justify the filing in court of
informations for two (2) counts of estafa Pursuant to the judgment against it, Inland
against Atty. Layag.3 Accordingly, two cases for Trailways, Inc., issued the following checks: (1)
estafa, docketed as Criminal Cases Nos. C- Traders Royal Bank Check No. 0000790549
58087 and C-58088 were filed with the dated February 15, 1996 for P15,000 payable
Regional Trial Court (RTC) of Caloocan City, to Atty. Layag; (2) Traders Royal Bank Check
Branch 124.4 No. 0000790548 dated March 8, 1996 in the
amount of P30,180 payable to Lising; and (3)
In our Resolution of January 31, 2000, we Traders Royal Bank Check No. 0000790547
directed that Atty. Layag be furnished a copy of dated March 8, 1996 for the sum of P49,000
the complaint for his comment. payable to de Guzman who had by then
already passed away. The aforementioned
In his Comment dated April 11, 2000, Atty. checks were received by respondent lawyer
Layag denied committing any malpractice, from Pablo Gernale, Jr., the deputy sheriff of
saying that he merely complied with the wishes the RTC in February 1996. Atty. Layag did not
of his client, the late Rosita de Guzman, to inform Lising and the heirs of de Guzman
deliver any money judgment in Civil Case No. about the checks. Instead he gave the checks
C-14265 before the RTC of Caloocan City, to one Marie Paz Gonzales for encashment on
Branch 121, to her attorney-in-fact, one Marie the strength of a Special Power of Attorney,
Paz P. Gonzales. Respondent prayed that the purportedly executed by de Guzman
complaint be dismissed for want of merit. constituting Gonzales as her attorney-in-fact.
The Special Power of Attorney supposedly
Thereafter, this Court resolved on July 10, authorized Gonzales, among others, to
2000 to refer the matter to the Integrated Bar of encash, indorse, and/or deposit any check or
the Philippines (IBP) for investigation, report, bill of exchange received in settlement of Civil
and recommendation.5 Case No. C-14265.

As culled from the report and It was only in February 1998 that Lising and de
recommendation dated September 25, 2003 of Guzman Buado, while checking the status of
the IBP Investigating Commissioner, Atty. Civil Case No. C-14265, found that judgment
Milagros V. San Juan, the facts in this case are had been rendered in the said case and that
as follows: the losing party had paid the damages
awarded by issuing checks which were
received by their counsel, Atty. Layag, two

years earlier. De Guzman Buado and Lising affirming with modification the recommendation
then made demands upon Atty. Layag to give by the Investigating Commissioner, thus:
them the proceeds of the checks, but to no
avail. Marie Paz Gonzales eventually gave RESOLVED to ADOPT and APPROVE,
Lising P10,000. No further amounts were as it is hereby ADOPTED and
remitted to either Lising or de Guzman Buado APPROVED, the Report and
despite demands by them. Recommendation of the Investigating
Commissioner of the above-entitled
After the parties presented their oral and case, herein made part of this
documentary evidence before the IBP Resolution/Decision as Annex "A"; and,
Commissioner, the matter was deemed finding the recommendation fully
submitted for resolution. On September 25, supported by the evidence on record
2003, the IBP Investigating Commissioner and the applicable laws and rules, with
made the following recommendations: modification, and considering that
Respondent has betrayed the trust of
It is submitted that respondent has her (sic) clients in violation of Canon 15,
betrayed the trust of her (sic) clients. It 16 and 17 of the Code of Professional
is recommended that respondent be Responsibility, Atty. Eufracio T. Layag is
suspended from the practice of law for hereby DISBARRED and Ordered to
the maximum period allowed under the turn over immediately to the
law and that he be ordered to turn over Complainants the amounts received in
to the Complainants the amounts he their behalf.12
received in behalf of the complainants
Susana de Guzman Buado and Nena Respondent then moved for reconsideration of
Lising. the foregoing resolution before this Court. In
view of the recommended penalty of
Respectfully submitted.7 disbarment, the Court En Banc accepted the
respondent's motion for our consideration.
The IBP Investigating Commissioner, in her
recommendation, found that in giving the Placed in issue are: (1) the sufficiency of the
checks to a party not entitled to them, Atty. evidence to prove the respondent's liability for
Layag disregarded the rights and interests of violation of the Code of Professional
his clients in violation of Canons 15,8 16,9 and Responsibility; and (2) the propriety of the
1710 of the Code of Professional Responsibility. recommended penalty.

On the Special Power of After careful scrutiny of the proceedings

Attorney purportedly executed by Rosita de conducted by the IBP Investigating
Guzman in favor of Marie Paz Gonzales, the Commissioner, we find that the factual findings
Investigating Commissioner held that even made in her report and recommendation are
assuming arguendo that there was indeed a well supported by the evidence on record.
Special Power of Attorney, it nonetheless had Respondent Atty. Layag does not deny
no force and effect after the death of Rosita de receiving the checks in question, but he
Guzman. Hence, any authority she had claimed he turned over said checks to Marie
conferred upon Gonzales was already Paz Gonzales, pursuant to the alleged Special
extinguished. According to the IBP Power of Attorney executed by Rosita de
Investigating Commissioner, since respondent Guzman in favor of Gonzales, authorizing the
represented de Guzman in Civil Case No. C- latter to encash, indorse, or deposit any check
14265, upon her death, respondent had the received as a result of the judgment in Civil
obligation to preserve whatever benefits Case No. C-14265. Respondent contended
accrued to the decedent on behalf of and for that in so doing, he was being true to the
the benefit of her lawful heirs. wishes and desires of his client, the late Rosita
de Guzman.
On October 25, 2003, the IBP Board of
Governors passed its resolution on the case, The respondent's arguments fail to persuade
us. As a lawyer, with more than thirty (30)

years in practice, respondent is charged with would only make things worse for him, for it
knowledge of the law. He should know that it would show that he misappropriated the
was error for him to rely on a Special Power of monetary award of a party whom he did not
Attorney after the death of the principal, Rosita represent. In our view, respondent's insistence
de Guzman. As pointed out by the IBP that Lising was not his client is more damaging
Investigating Commissioner, even assuming to his cause.
there was a Special Power of Attorney,
although respondent could not produce a copy In the course of his professional relationship
nor prove its existence, when de Guzman died with his client, a lawyer may receive money or
that document ceased to be operative. This is property for or from the client. He shall hold
clear from Article 191913 of the Civil Code. such property in trust, and he is under
While there are instances, as provided in obligation to make an accounting thereof as
Article 1930, 14 where the agency is not required by Rule 16.0115 of the Code of
extinguished by the death of the principal, the Professional Responsibility. This obligation to
instant case does not fall under the exceptions. hold property in trust includes money received
Clearly, at the time Atty. Layag received and by a lawyer as a result of a judgment favorable
turned over the checks corresponding to the to his client.16 In the present case, Atty. Layag
award of damages in Civil Case No. C-14265 did not make an accounting of the judgment
in February 1996, there was no longer any awards he received and the checks he
valid Special Power of Attorney. Again, as allegedly turned over to Marie Paz Gonzales.
pointed out by the IBP Investigating Further, when complainants demanded that he
Commissioner, respondent's duty when the deliver to them the checks pertaining to de
award of damages was made, was to preserve Guzman Buado and Lising for the judgment in
and deliver the amount received to the heirs of Civil Case No. C-14265, Atty. Layag did not do
his client, de Guzman, and not to any other so, in violation of Rule 16.03.17
The inescapable conclusion we can make,
With respect to the check from Inland given the circumstances in this case, is that by
Trailways, Inc., and made payable to Lising, his actions, respondent failed to observe the
respondent should have delivered it directly to utmost good faith, loyalty, candor and fidelity
Lising. The Special Power of Attorney, which required of an attorney in his dealings with his
he keeps on harping on, did not cover Lising's clients. His acts of misappropriating the money
case. Its coverage -- assuming again that the of his clients are grossly immoral and
document existed -- pertained only to de unprofessional. There is no doubt in our mind
Guzman. Respondent certainly could not take that he deserves severe punishment.
refuge in any provision of said Special Power
of Attorney insofar as Lising's check is But is disbarment the proper penalty for Atty.
concerned. Layag?

Respondent now denies any attorney-client Disbarment is the most severe form of
relationship with Lising because, as he insists, disciplinary sanction. The power to disbar must
he was only engaged by de Guzman. But in always be exercised with great caution, for only
his Comment to the Complaint, respondent the most imperative reasons,18 and in clear
admits that he included Lising when they filed cases of misconduct affecting the standing and
suit against Inland Trailways, Inc., before the moral character of the lawyer as an officer of
RTC of Caloocan City, upon the request of de the court and a member of the
Guzman. Absent any showing on record that bar.19 Accordingly, disbarment should not be
Lising was represented by another counsel in decreed where any punishment less severe –
Civil Case No. C-14265 and the subsequent such as a reprimand, suspension, or fine -
appeal, CA-G.R. CV No. 34012, the only would accomplish the end desired. 20 In the
conclusion we could reach is that she was also instant case, what we seek to exact from the
represented by Atty. Layag. But even if granted respondent is strict compliance and fidelity with
the opposite conclusion that he was not his duties to his clients. Accordingly, we agree
Lising's lawyer, it cannot exonerate the with the recommendation of the IBP
respondent with respect to Lising's check. It Investigating Commissioner that suspension,

rather than disbarment, of respondent would

suffice. In our view, however, such suspension
should be indefinite, subject to further orders
by this Court.

WHEREFORE, the IBP Board of Governors

Resolution No. XVI-2003-230 in Administrative
Case No. 5182 finding respondent LIABLE for
violation of the Canons 15, 16, and 17 of the
Code of Professional Responsibility is hereby
instead of the recommended penalty of
disbarment, respondent Atty. Eufracio T. Layag
the practice of law. Respondent is further
DIRECTED to immediately turn over to
complainants Susana de Guzman Buado and
Nena Lising the amounts of P49,000.00
and P30,180.00, respectively, as well as all
other amounts if any, he might have received
for and on their behalf. Respondent is also
ORDERED to REPORT to the Office of the Bar
Confidant his compliance within fifteen (15)
days from receipt hereof. Let a copy of this
Resolution be attached to the personal record
of Atty. Eufracio T. Layag and copies be
furnished the Integrated Bar of the Philippines
and the Office of the Court Administrator for
dissemination to all lower courts. This
Resolution is immediately executory.