G.R. No. 76931 May 29, 1991 ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, vs.

COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents. G.R. No. 76933 May 29, 1991 AMERICAN AIRLINES, INCORPORATED, petitioner, vs. COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,respondents. Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc. Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:p This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for agent's overriding commission and damages. The antecedent facts are as follows: On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced, to wit: WITNESSETH In consideration of the mutual convenants herein contained, the parties hereto agree as follows: 1. Representation of American by Orient Air Services Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines, including any United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing staff competent and sufficient to do so; (b) providing and maintaining a suitable area in its place of business to be used exclusively for the transaction of the business of American; (c) arranging for distribution of American's timetables, tariffs and promotional material to sales agents and the general public in the assigned territory; (d) servicing and supervising of sales agents (including such subagents as may be appointed by Orient Air Services with the prior written consent of American) in the assigned territory including if required by American the control of remittances and commissions retained; and (e) holding out a passenger reservation facility to sales agents and the general public in the assigned territory. In connection with scheduled or non-scheduled air passenger transportation within the United States, neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be performed hereunder for American without the prior written consent of American. Subject to periodic instructions and continued consent from American, Orient Air Services may sell air passenger transportation to be performed within the United States by other scheduled air carriers provided American does not provide substantially equivalent schedules between the points involved. xxx xxx xxx 4. Remittances Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the 15th and last days of each month for sales made during the preceding half month. All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to American. 5. Commissions American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its sub-agents as follows: (a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air Services or its sub-agents over American's services and any connecting through air transportation, when made on American's ticket stock, equal to the following percentages of the tariff fares and charges: (i) For transportation solely between points within the United States and between such points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America. (ii) For transportation included in a through ticket covering transportation between points other than those described above: 8% or such other rate(s) as may be prescribed by the International Air Transport Association. (b) Overriding commission In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or its sub-agents. xxx xxx xxx 10. Default If Orient Air Services shall at any time default in observing or performing any of the provisions of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and American may, without prejudice to any of its rights under this Agreement, take possession of any ticket forms, exchange orders, traffic material or other property or funds belonging to American. 11. IATA and ATC Rules The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control in the event of any conflict with the provisions hereof. xxx xxx xxx 13. Termination American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to transfer to the United States the funds payable by Orient Air Services to American under this Agreement. Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable.
xxx xxx xxx 3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle past outstanding refunds of which there were available funds in the possession of the defendant, . . . to the damage and prejudice of plaintiff." 5 In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its business interests. Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads: WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding commission on total flown revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission per month commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of payment plus legal interest to commence from the filing of the counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986, affirmed the findings of the court a quo on their material points but with some modifications with respect to the monetary awards granted. The dispositive portion of the appellate court's decision is as follows: WHEREFORE, with the following modifications 1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso equivalent in accordance with the official

rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed; 2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed 3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with counterclaim was filed, until full payment; 4) American is ordered to pay Orient exemplary damages of P200,000.00; 5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees. the rest of the appealed decision is affirmed.
Costs against American. 8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on the date of actual payment. 9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar. The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is the stand of American Air that such commission is based only on sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows: 5. Commissions a) . . . b) Overriding Commission In addition to the above commission, American will pay Orient Air Services an overriding commission of 3% of the tariff fees and charges for all sales of

transportation over American's services by Orient Air Services or its subagents. (Emphasis supplied) Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks. On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are necessarily by Orient Air." 11 It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract must be read together to give effect to all. 13 After a careful examination of the records, the Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown revenue." As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air services. It is immediately observed that the precondition attached to the first type of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2) types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement. An additional point before finally disposing of this issue. It is clear from the records that American Air was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 14 To put it differently, when several interpretations of a provision are otherwise equally proper, that interpretation or construction is to be adopted which is most favorable to the party in whose favor the provision was made and who did not cause the ambiguity. 15 We therefore agree with the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against the party who drafted it. 16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on this issue, ruled thus: It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of the Agreement did not exist. . . ." We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued commissions before remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air. On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the same. It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement." By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds himself to render some service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the parties states that "either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air. WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American Air. SO ORDERED. Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one of the counsel. Sarmiento, J., is on leave.

Footnotes 1 Penned by Justice Serafin B. Camilon and concurred in by Justices Jose C. Campos, Jr. and Desiderio P. Jurado. 2 Penned by Judge Herminio C. Mariano. 3 Rollo, pp. 110-118. 4 Rollo, p. 102. 5 Ibid., p. 104. 6 Ibid., p. 121. 7 Rollo, p. 162. 8 Rollo, pp. 173-174. 9 Ibid., p. 210. 10 Rollo, p. 212. 11 Rollo, p. 291. 12 NAESS Shipping Philippines, Inc. vs. NLRC, G.R. No. 73441, 4 September 1987, 153 SCRA 657. 13 North Negros Sugar Co. vs. Compania General de Tabacos, No. L-9277, 29 March 1957; Article 1374, Civil Code of the Philippines. 14 Equitable Banking Corporation vs. Intermediate Appellate Court, G.R. No. 74451, 25 May 1988, 161 SCRA 518. 15 Government of the Philippine Islands vs. Derham Brothers and the International Banking Corporation, 36 Phil. 960.

G.R. No. 179446

January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner, vs. GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION, Respondents. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the amount of P1,896,789.62 representing the insurance indemnity which R&B Insurance Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable Corporation (Columbia). THE FACTS: On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date. Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbias warehouses/plants in Bulacan and Valenzuela City. The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered in Columbias warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo. Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount ofP1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount ofP1,896,789.62 as insurance indemnity. R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated "to the right of the consignee to recover from the party/parties who may be held legally liable for the loss."2

On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for the loss of the subject cargo and dismissing Loadmasters counterclaim for damages and attorneys fees against R&B Insurance. The dispositive portion of the decision reads: WHEREFORE, all premises considered, the plaintiff having established by preponderance of evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby rendered ordering the latter: 1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as actual and compensatory damages, with interest from the date of complaint until fully paid; 2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the principal amount recovered as and for attorneys fees plus P1,500.00 per appearance in Court; 3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation expenses. WHEREAS, the defendant Loadmasters Customs Services, Inc.s counterclaim for damages and attorneys fees against plaintiff are hereby dismissed. With costs against defendant Glodel Brokerage Corporation. SO ORDERED.4 Both R&B Insurance and Glodel appealed the RTC decision to the CA. On August 24, 2007, the CA rendered the assailed decision which reads in part: Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by appellee Loadmasters. WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee Loadmasters is likewise held liable to appellant Glodel in the amount of P1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable to appellant R&B Insurance Corporation. Appellant Glodels appeal to absolve it from any liability is herein DISMISSED. SO ORDERED.5 Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the following ISSUES 1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the latter respondent Glodel did not file a cross-claim against it (Loadmasters)? 2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters be legally considered as an Agent of respondent Glodel?6

To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be considered an agent of Glodel because it never represented the latter in its dealings with the consignee. At any rate, it further contends that Glodel has no recourse against it for its (Glodels) failure to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure. Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because the latter was grossly negligent in the transportation of the subject cargo. With respect to Loadmasters claim that it is already estopped from filing a cross-claim, Glodel insists that it can still do so even for the first time on appeal because there is no rule that provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of Charter wherein the transporter (Loadmasters) is only hired for the specific job of delivering the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that of a good father of the family, not the extraordinary diligence required of common carriers. R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against Loadmasters because it was not prevented from presenting evidence to prove its position even without amending its Answer. As to the relationship between Loadmasters and Glodel, it contends that a contract of agency existed between the two corporations.8 Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.9 Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads: ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort. The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount of the indemnity it paid Columbia. At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business of transporting goods by land, through its trucking service. It is a common carrier as distinguished from a private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.10 The distinction is significant in the sense that "the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers."11

In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered services to Glodel. In fact, Loadmasters admitted that it is a common carrier.12 In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing under the laws of the Republic of the Philippines and is engaged in the business of customs brokering." It cannot be considered otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,14 a customs broker is also regarded as a common carrier, the transportation of goods being an integral part of its business. Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights.15 This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment.16 Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently.17This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods. With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.18 Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, "the responsibility of two or more persons who are liable for a quasi-delict is solidary." Loadmasters claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts which expressly provide: ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc.19 where this Court held that a tort may arise despite the absence of a contractual relationship, to wit: We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only

been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the Courts consistent ruling that the act that breaks the contract may be also a tort.In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-delict. [Emphases supplied] In connection therewith, Article 2180 provides: ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse. Whenever an employees negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.20 To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.21 In this regard, Loadmasters failed. Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the designated destination. It should have been more prudent in entrusting the goods to Loadmasters by taking precautionary measures, such as providing escorts to accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is unavailing. At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: "By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." The elements of a contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.22 Accordingly, there can be no contract of agency between the parties. Loadmasters never represented Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis for agency is representation, that is, the agent acts for and on behalf of the principal

on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it.23 Such mutual intent is not obtaining in this case. What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are several causes for the resulting damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a party is an efficient cause without which the damage would not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would not have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of Appeals,24 X x x. Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury. There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 of the Civil Code. [Emphasis supplied] The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed to file a cross-claim against the latter.
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Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service as the latter is primarily liable for the loss of the subject cargo. In this case, however, it cannot succeed in seeking judicial sanction against Loadmasters because the records disclose that it did not properly interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be barred.25 Thus, a cross-claim cannot be set up for the first time on appeal. For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable grounds. "Equity, which has been aptly described as a justice outside legality, is applied only in the absence of, and never against, statutory law or judicial rules of procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been at fault or negligent. WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court of Appeals isMODIFIED to read as follows: WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and

ordering both parties to pay, jointly and severally, R&B Insurance Corporation a] the amount of P1,896,789.62 representing the insurance indemnity; b] the amount equivalent to ten (10%) percent thereof for attorneys fees; and c] the amount ofP22,427.18 for litigation expenses. The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against petitioner Loadmasters Customs Services, Inc. is DENIED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson ANTONIO EDUARDO B. NACHURA Associate Justice DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Rollo, pp. 33-48. Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justice Vicente Q. Roxas and Associate Justice Ramon R. Garcia, concurring.

Petition for review on certiorari, p. 4; id. at 26. Id. Id. at 26-27. Annex A, Petition, id. at 47. Id. at 28. Id. at 96. Id. at 71-74.

Lorenzo Shipping Corporation v. Chubb and Sons, Inc., G.R. No. 147724, June 8, 2004, 431 SCRA 266, 275, citing Blacks Law Dictionary (6th ed. 1990).
10

National Steel Corporation v. Court of Appeals, 347 Phil. 345, 361 (1997).

11

Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., 508 Phil. 656, 663 (2005), citing National Steel Corporation v. Court of Appeals, 347 Phil. 345, 362 (1997).
12

Pre-Trial Order dated September 5, 2002, records, p. 136. Dated June 19, 2009, rollo, p. 178.

13

14

496 Phil. 437, 450 (2005), citing Calvo v. UCPB General Insurance Co., Inc., 429 Phil. 244 (2002).
15

National Trucking and Forwarding Corporation v. Lorenzo Shipping Corporation, 491 Phil. 151, 156 (2005), citing Blacks Law Dictionary (5th ed. 1979) 411.
16

Id. Civil Code, Art. 1735. Civil Code, Art. 1736.

17

18

19

G.R. No. 162467, May 8, 2009, 587 SCRA 429, 434, citing Air France v. Carrascoso, 124 Phil.722, 739 (1966); Singson v. Bank of the Philippine Islands, 132 Phil. 597, 600 (1968); Mr. & Mrs. Fabre, Jr. v. Court of Appeals, 328 Phil. 775, 785 (1996); PSBA v. Court of Appeals, G.R. No. 84698, February 4, 1992, 205 SCRA 729, 734.
20

Tan v. Jam Transit, Inc., G.R. No. 183198, November 25, 2009, 605 SCRA 659, 675, citing Delsan Transport Lines, Inc. v. C & A Construction, Inc., 459 Phil. 156 (2003).
21

Id., citing Light Rail Transit Authority v. Navidad, 445 Phil. 31 (2003); Metro Manila Transit Corp. v. Court of Appeals, 435 Phil. 129 (2002).

22

Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No. 167552, April 23, 2007, 521 SCRA 584, 593, citing Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).
23

Yun Kwan Byung v. Philippine Amusement and Gaming Corporation, G.R. No. 163553, December 11, 2009, 608 SCRA 107, 130-131, citing Burdador v. Luz, 347 Phi. 654, 662 (1997); Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No. 167552, April 23, 2007, 521 SCRA 584, 593; Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184, 196 (2000).
24

357 Phil 703, 751-752 (1998). Section 2, Rule 9 of the 1997 Rules of Civil Procedure. Causapin v. Court of Appeals, G.R. No. 107432, July 4, 1994, 233 SCRA 615, 625.

25

26

G.R. No. 194128

December 7, 2011

WESTMONT INVESTMENT CORPORATION, Petitioner, vs. AMOS P. FRANCIA, JR., CECILIA ZAMORA, BENJAMIN FRANCIA, and PEARLBANK SECURITIES, INC.,Respondents. DECISION MENDOZA, J.: At bench is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the (1) July 27, 2010 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 84725, which affirmed with modification the September 27, 2004 Decision2 of the Regional Trial Court, Branch 56, Makati City (RTC) in Civil Case No. 01-507; and (2) its October 14, 2010 Resolution,3 which denied the motion for the reconsideration thereof. THE FACTS: On March 27, 2001, respondents Amos P. Francia, Jr., Cecilia Zamora and Benjamin Francia (the Francias) filed a Complaint for Collection of Sum of Money and Damages4 arising from their investments against petitioner Westmont Investment Corporation (Wincorp) and respondent Pearlbank Securities Inc. (Pearlbank) before the RTC. Wincorp and Pearlbank filed their separate motions to dismiss.5 Both motions were anchored on the ground that the complaint of the Francias failed to state a cause of action. On July 16, 2001, after several exchanges of pleadings, the RTC issued an order6 dismissing the motions to dismiss of Wincorp and Pearlbank for lack of merit. Wincorp then filed its Answer,7 while Pearlbank filed its Answer with Counterclaim and Crossclaim (against Wincorp).8 The case was set for pre-trial but before pre-trial conference could be held, Wincorp filed its Motion to Dismiss Crossclaim9 of Pearlbank to which the latter filed an opposition.10 The RTC denied Wincorps motion to dismiss crossclaim.11 The pre-trial conference was later conducted after the parties had filed their respective pre-trial briefs. The parties agreed on the following stipulation of facts, as contained in the Pre-Trial Order12 issued by the RTC on April 17, 2002: 1. The personal and juridical circumstances of the parties meaning, the plaintiffs and both corporate defendants; 2. That plaintiffs caused the service of a demand letter on Pearl Bank on February 13, 2001 marked as Exhibit E; 3. Plaintiffs do not have personal knowledge as to whether or not Pearl Bank indeed borrowed the funds allegedly invested by the plaintiff from Wincorp; and

4. That the alleged confirmation advices which indicate Pearl Bank as alleged borrower of the funds allegedly invested by the plaintiffs in Wincorp do not bear the signature or acknowledgment of Pearl Bank. (Emphases supplied) After several postponements requested by Wincorp, trial on the merits finally ensued. The gist of the testimony of Amos Francia, Jr. (Amos) is as follows: 1. Sometime in 1999, he was enticed by Ms. Lalaine Alcaraz, the bank manager of Westmont Bank, Meycauayan, Bulacan Branch, to make an investment with Wincorp, the banks financial investment arm, as it was offering interest rates that were 3% to 5% higher than regular bank interest rates. Due to the promise of a good return of investment, he was convinced to invest. He even invited his sister, Cecilia Zamora and his brother, Benjamin Francia, to join him. Eventually, they placed their investment in the amounts of P1,420,352.72 and P 2,522,745.34 with Wincorp in consideration of a net interest rate of 11% over a 43-day spread. Thereafter, Wincorp, through Westmont Bank, issued Official Receipt Nos. 47084413 and 470845,14 both dated January 27, 2000, evidencing the said transactions.15 2. When the 43-day placement matured, the Francias wanted to retire their investments but they were told that Wincorp had no funds. Instead, Wincorp "rolled-over" their placements and issued Confirmation Advices16 extending their placements for another 34 days. The said confirmation advices indicated the name of the borrower as Pearlbank. The maturity values were P 1,435,108.61 and P 2,548,953.86 with a due date of April 13, 2000. 3. On April 13, 2000, they again tried to get back the principal amount they invested plus interest but, again, they were frustrated.17 4. Constrained, they demanded from Pearlbank18 their investments. There were several attempts to settle the case, but all proved futile. After the testimony of Amos Francia, Jr., the Francias filed their Formal Offer of Evidence.19 Pearlbank filed its Comment/Objection,20 while Wincorp did not file any comment or objection. After all the exhibits of the Francias were admitted for the purposes they were offered, the Francias rested their case. Thereafter, the case was set for the presentation of the defense evidence of Wincorp. On March 7, 2003, three (3) days before the scheduled hearing, Wincorp filed a written motion to postpone the hearing on even date, as its witness, Antonio T. Ong, was unavailable because he had to attend a congressional hearing. Wincorps substitute witness, Atty. Nemesio Briones, was likewise unavailable due to a previous commitment in the Securities and Exchange Commission. The RTC denied Wincorps Motion to Postpone and considered it to have waived its right to present evidence.21The Motion for Reconsideration of Wincorp was likewise denied.22 On August 14, 2003, Pearlbank filed its Demurrer to Evidence.23 The RTC granted the same in its Order24 dated January 12, 2004. Hence, the complaint against Pearlbank was dismissed, while the case was considered submitted for decision insofar as Wincorp was concerned. On September 27, 2004, the RTC rendered a decision25 in favor of the Francias and held Wincorp solely liable to them. The dispositive portion thereof reads:

WHEREFORE, judgment is rendered ordering defendant Westmont Investment Corporation to pay the plaintiffs, the following amounts: 1. P 3,984,062.47 representing the aggregate amount of investment placements made by plaintiffs, plus 11% per annum by way of stipulated interest, to be counted from 10 March 2000 until fully paid; and 2. 10% of the above-mentioned amount as and for attorneys fees and costs of suit. SO ORDERED. Wincorp then filed a motion for reconsideration, but it was denied by the RTC in its Order26 dated November 10, 2004. Not in conformity with the pronouncement of the RTC, Wincorp interposed an appeal with the CA, alleging the following arguments: I. THE REGIONAL TRIAL COURT ERRED WHEN IT HELD THAT WINCORP AS AGENT OF PLAINTIFFS-APPELLEES WAS LIABLE TO THE LATTER NOTWITHSTANDING THE CLEAR WRITTEN AGREEMENT TO THE CONTRARY; II. THE REGIONAL TRIAL COURT ALSO ERRED WHEN IT HELD THAT PEARLBANK, THE ACTUAL BORROWER AND RECIPIENT OF THE MONEY INVOLVED IS NOT LIABLE TO THE PLAINTIFFS-APPELLEES; and III. THE REGIONAL TRIAL COURT ERRED IN DISMISSING ALL TOGETHER THE CROSS-CLAIM OF WINCORP AGAINST PEARLBANK.27 The CA affirmed with modification the ruling of the RTC in its July 27, 2010 Decision, the decretal portion of which reads: WHEREFORE, premises considered, the present Appeal is DENIED. The Decision dated 27 September 2004 of the Regional Trial Court, Branch 56, Makati City in Civil Case No. 01-507 is hereby AFFIRMED WITH MODIFICATION of the awards. Defendant-appellant Wincorp is hereby ordered to pay plaintiffs-appellees the amounts of P 3,984,062.47 plus 11% per annum by way of stipulated interest to be computed from 13 April 2000 until fully paid and P 100,000.00 as attorneys fees and cost of suit." SO ORDERED. The CA explained: After a careful and judicious scrutiny of the records of the present case, together with the applicable laws and jurisprudence, this Court finds defendant-appellant Wincorp solely liable to pay the amount of P 3,984,062.47 plus 11% interest per annum computed from 10 March 2000 to plaintiffsappellees. Preliminarily, the Court will rule on the procedural issues raised to know what pieces of evidence will be considered in this appeal. Section 34, Rule 132 of the Rules on Evidence states that:

"The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified." A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not previously scrutinized by the trial court. Evidence not formally offered during the trial can not be used for or against a party litigant. Neither may it be taken into account on appeal. The rule on formal offer of evidence is not a trivial matter. Failure to make a formal offer within a considerable period of time shall be deemed a waiver to submit it. Consequently, any evidence that has not been offered shall be excluded and rejected. Prescinding therefrom, the very glaring conclusion is that all the documents attached in the motion for reconsideration of the decision of the trial court and all the documents attached in the defendantappellants brief filed by defendant-appellant Wincorp cannot be given any probative weight or credit for the sole reason that the said documents were not formally offered as evidence in the trial court because to consider them at this stage will deny the other parties the right to rebut them. The arguments of defendant-appellant Wincorp that the plaintiffs-appellees made an erroneous offer of evidence as the documents were offered to prove what is contrary to its content and that they made a violation of the parol evidence rule do not hold water. It is basic in the rule of evidence that objection to evidence must be made after the evidence is formally offered. In case of documentary evidence, offer is made after all the witnesses of the party making the offer have testified, specifying the purpose for which the evidence is being offered. It is only at this time, and not at any other, that objection to the documentary evidence may be made. As to oral evidence, objection thereto must likewise be raised at the earliest possible time, that is, after the objectionable question is asked or after the answer is given if the objectionable issue becomes apparent only after the answer was given. xxx In the case at bench, a perusal of the records shows that the plaintiffs-appellees have sufficiently established their cause of action by preponderance of evidence. The fact that on 27 January 2000, plaintiffs-appellees placed their investment in the amounts of P 1,420,352.72 and P 2,522,754.34 with defendant-appellant Wincorp to earn a net interest at the rate of 11% over a 43-day period was distinctly proved by the testimony of plaintiff-appellee Amos Francia, Jr. and supported by Official Receipt Nos. 470844 and 470845 issued by defendant-appellant Wincorp through Westmont Bank. The facts that plaintiffs-appellees failed to get back their investment after 43 days and that their investment was rolled over for another 34 days were also established by their oral evidence and confirmed by the Confirmation Advices issued by defendant-appellant Wincorp, which indicate that their investment already amounted to P 1,435,108.61 and P 2,548,953.86 upon its maturity on 13 April 2000. Likewise, the fact that plaintiffs-appellees investment was not returned to them until this date by defendant-appellant Wincorp was proved by their evidence. To top it all, defendant-appellant Wincorp never negated these established facts because defendant-appellant Wincorps claim is that it received the money of plaintiffs-appellees but it merely acted as an agent of plaintiffs-appellees and that the actual borrower of plaintiffs-appellees money is defendant-appellee PearlBank. Hence,

defendant-appellant Wincorp alleges that it should be the latter who must be held liable to the plaintiffs-appellees. However, the contract of agency and the fact that defendant-appellee PearlBank actually received their money were never proven. The records are bereft of any showing that defendant-appellee PearlBank is the actual borrower of the money invested by plaintiffs-appellees as defendantappellant Wincorp never presented any evidence to prove the same. Moreover, the trial court did not err in dismissing defendant-appellant Wincorps crossclaim as nothing in the records supports its claim. And such was solely due to defendant-appellant Wincorp because it failed to present any scintilla of evidence that would implicate defendant-appellee PearlBank to the transactions involved in this case. The fact that the name of defendant-appellee PearlBank was printed in the Confirmation Advices as the actual borrower does not automatically makes defendant-appellee PearlBank liable to the plaintiffs-appellees as nothing therein shows that defendant-appellee PearlBank adhered or acknowledged that it is the actual borrower of the amount specified therein. Clearly, the plaintiffs-appellees were able to establish their cause of action against defendantappellant Wincorp, while the latter failed to establish its cause of action against defendant-appellee PearlBank. Hence, in view of all the foregoing, the Court finds defendant-appellant Wincorp solely liable to pay the amount ofP 3,984,062.47 representing the matured value of the plaintiffs-appellees investment as of 13 April 2000 plus 11% interest per annum by way of stipulated interest counted from maturity date (13 April 2000). As to the award of attorneys fees, this Court finds that the undeniable source of the present controversy is the failure of defendant-appellant Wincorp to return the principal amount and the interest of the investment money of plaintiffs-appellees, thus, the latter was forced to engage the services of their counsel to protect their right. It is elementary that when attorneys fees is awarded, they are so adjudicated, because it is in the nature of actual damages suffered by the party to whom it is awarded, as he was constrained to engage the services of a counsel to represent him for the protection of his interest. Thus, although the award of attorneys fees to plaintiffs-appellees was warranted by the circumstances obtained in this case, this Court finds it equitable to reduce the same from 10% of the total award to a fixed amount of P 100,000.00.28 Wincorps Motion for Reconsideration was likewise denied by the CA in its October 14, 2010 Resolution.29 Not in conformity, Wincorp seeks relief with this Court via this petition for review alleging that PLAINTIFFS-RESPONDENTS HAVE NO CAUSE OF ACTION AGAINST WINCORP AS THE EVIDENCE ON RECORD SHOWS THAT THE ACTUAL BENEFICIARY OF THE PROCEEDS OF THE LOAN TRANSACTIONS WAS PEARLBANK SUBSTANTIAL JUSTICE DICTATES THAT THE EVIDENCE PROFERRED BY WINCORP SHOULD BE CONSIDERED TO DETERMINE WHO, AMONG THE PARTIES, ARE LIABLE TO PLAINTIFFS-RESPONDENTS30 ISSUE

The core issue in this case is whether or not the CA is correct in finding Wincorp solely liable to pay the Francias the amount of P 3,984,062.47 plus interest of 11% per annum. Quite clearly, the case at bench presents a factual issue. As a rule, a petition for review under Rule 45 of the Rules of Court covers only questions of law. Questions of fact are not reviewable and cannot be passed upon by this Court in the exercise of its power to review. The distinction between questions of law and questions of fact is established. A question of law exists when the doubt or difference centers on what the law is on a certain state of facts. A question of fact, on the other hand, exists if the doubt centers on the truth or falsity of the alleged facts.31 This being so, the findings of fact of the CA are final and conclusive and this Court will not review them on appeal. While it goes without saying that only questions of law can be raised in a petition for review on certiorari under Rule 45, the same admits of exceptions, namely: (1) when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.32 The Court finds that no cogent reason exists in this case to deviate from the general rule. Wincorp insists that the CA should have based its decision on the express terms, stipulations, and agreements provided for in the documents offered by the Francias as the legal relationship of the parties was clearly spelled out in the very documents introduced by them which indicated that it merely brokered the loan transaction between the Francias and Pearlbank.33 Wincorp would want the Court to rule that there was a contract of agency between it and the Francias with the latter authorizing the former as their agent to lend money to Pearlbank. According to Wincorp, the two Confirmation Advices presented as evidence by the Francias and admitted by the court, were competent proof that the recipient of the loan proceeds was Pearlbank.34 The Court is not persuaded. In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent.35 It is said that the underlying principle of the contract of agency is to accomplish results by using the services of others to do a great variety of things. Its aim is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act. Its basis is representation.36 Significantly, the elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.37 In this case, the principal-agent relationship between the Francias and Wincorp was not duly established by evidence. The records are bereft of any showing that Wincorp merely brokered the

loan transactions between the Francias and Pearlbank and the latter was the actual recipient of the money invested by the former. Pearlbank did not authorize Wincorp to borrow money for it. Neither was there a ratification, expressly or impliedly, that it had authorized or consented to said transaction. As to Pearlbank, records bear out that the Francias anchor their cause of action against it merely on the strength of the subject Confirmation Advices bearing the name "PearlBank" as the supposed borrower of their investments. Apparently, the Francias ran after Pearlbank only after learning that Wincorp was reportedly bankrupt.38 The Francias were consistent in saying that they only dealt with Wincorp and not with Pearlbank. It bears noting that even in their Complaint and during the pre-trial conference, the Francias alleged that they did not have any personal knowledge if Pearlbank was indeed the recipient/beneficiary of their investments. Although the subject Confirmation Advices indicate the name of Pearlbank as the purported borrower of the said investments, said documents do not bear the signature or acknowledgment of Pearlbank or any of its officers. This cannot prove the position of Wincorp that it was Pearlbank which received and benefited from the investments made by the Francias. There was not even a promissory note validly and duly executed by Pearlbank which would in any way serve as evidence of the said borrowing. Another significant point which would support the stand of Pearlbank that it was not the borrower of whatever funds supposedly invested by the Francias was the fact that it initiated, filed and pursued several cases against Wincorp, questioning, among others, the latters acts of naming it as borrower of funds from investors.39
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It bears stressing too that all the documents attached by Wincorp to its pleadings before the CA cannot be given any weight or evidentiary value for the sole reason that, as correctly observed by the CA, these documents werenot formally offered as evidence in the trial court. To consider them now would deny the other parties the right to examine and rebut them. Section 34, Rule 132 of the Rules of Court provides: Section 34. Offer of evidence The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified. "The offer of evidence is necessary because it is the duty of the court to rest its findings of fact and its judgment only and strictly upon the evidence offered by the parties. Unless and until admitted by the court in evidence for the purpose or purposes for which such document is offered, the same is merely a scrap of paper barren of probative weight."40 The Court cannot, likewise, disturb the findings of the RTC and the CA as to the evidence presented by the Francias. It is elementary that objection to evidence must be made after evidence is formally offered.41 It appears that Wincorp was given ample opportunity to file its Comment/Objection to the formal offer of evidence of the Francias but it chose not to file any. All told, the CA committed no reversible error in rendering the assailed July 27, 2010 Decision and in issuing the challenged October 14, 2010 Resolution. WHEREFORE, the petition is DENIED. SO ORDERED.

JOSE CATRAL MENDOZA Associate Justice WE CONCUR: DIOSDADO M. PERALTA* Associate Justice Acting Chairperson ROBERTO A. ABAD Associate Justice MARIA LOURDES P. A. SERENO** Associate Justice

ESTELA M. PERLAS-BERNABE Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. DIOSDADO M. PERALTA Associate Justice Acting Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated as Acting Chairperson per Special Order No. 1166 dated November 28, 2011. Designated as additional member per Special Order No. 1167 dated November 28, 2011.

**

Rollo, pp. 10-20. Penned by Associate Justice Florito S. Macalino, with Associate Justice Juan Q. Enriquez, Jr. and Associate Justice Ramon S. Bato, Jr., concurring.
2

Records, pp. 381-384. Rollo, p. 50. Records, pp. 1-13.

Id. at 23-33; 34-39. Id. at 99-100. Id. at 106-115. Id. at 116-127. Id. at 144-151. Id. at 154-157. Id. at 167. Id. at 185-187. Id. at 236. Id. at 237. TSN, June 26, 2002, pp. 5-14. Records, pp. 16-17, 383; rollo, pp. 12-13. TSN, June 26, 2002, pp. 15-18. Records, pp. 18-19. Id. at 219-235. Id. at 274-276. Id. at 298. Id. at 325-326. Id. at 332-337. Id. at 371-373. Id. at 381-384. Id. at 550. Rollo, pp. 14-15. Id. at 16-20. Id. at 8-9.

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

Id. at 33, 35. Microsoft Corporation v. Maxicorp, Inc., 481 Phil. 550, 561 (2004).

31

32

Macasero v. Southern Industrial Gases Philippines, G.R. No. 178524, January 30, 2009, 577 SCRA 500, 504.
33

Rollo, p. 33. Id. at 34. Article 1868 of the Civil Code.

34

35

36

Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No. 167552, April 23, 2007, 521 SCRA 584, 592-593.
37

Id. at 593. TSN, June 26, 2002, pp. 17-20. Rollo, pp. 212-213.

38

39

40

Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc., G.R. No. 146428, January 19, 2009, 576 SCRA 137, 145. Sec. 36. Objection. Objection to evidence offered orally must be made immediately after the offer is made.
41

Objection to a question propounded in the course of the oral examination of a witness shall be made as soon as the grounds therefore shall become reasonable apparent. An offer of evidence in writing shall be objected to within three (3) days after notice of the offer unless a different period is allowed by the court. In any case, the grounds for the objections must be specified. (Revised Rules on Evidence); See also the case of Macasiray v. People, 353 Phil. 353 (1998).

G.R. No. 174610

July 14, 2009

SORIAMONT STEAMSHIP AGENCIES, INC., and PATRICK RONAS, Petitioners, vs. SPRINT TRANSPORT SERVICES, INC., RICARDO CRUZ PAPA, doing business under the style PAPA TRANSPORT SERVICES, Respondents. DECISION CHICO-NAZARIO, J.: Assailed in this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, is the Decision1dated 22 June 2006 and Resolution2 dated 7 September 2006 of the Court of Appeals in CA-G.R. CV No. 74987. The appellate court affirmed with modification the Decision3 dated 22 April 2002 of the Regional Trial Court (RTC), Branch 46, of Manila, in Civil Case No. 98-89047, granting the Complaint for Sum of Money of herein respondent Sprint Transport Services, Inc. (Sprint) after the alleged failure of herein petitioner Soriamont Steamship Agencies, Inc. (Soriamont) to return the chassis units it leased from Sprint and pay the accumulated rentals for the same. The following are the factual and procedural antecedents: Soriamont is a domestic corporation providing services as a receiving agent for line load contractor vessels. Patrick Ronas (Ronas) is its general manager. On the other hand, Sprint is a domestic corporation engaged in transport services. Its co-respondent Ricardo Cruz Papa (Papa) is engaged in the trucking business under the business name "Papa Transport Services" (PTS). Sprint filed with the RTC on 2 June 1998 a Complaint4 for Sum of Money against Soriamont and Ronas, docketed as Civil Case No. 98-89047. Sprint alleged in its Complaint that: (a) on 17 December 1993, it entered into a lease agreement, denominated as Equipment Lease Agreement (ELA) with Soriamont, wherein the former agreed to lease a number of chassis units to the latter for the transport of container vans; (b) with authorization letters dated 19 June 1996 issued by Ronas on behalf of Soriamont, PTS and another trucker, Rebson Trucking, were able to withdraw on 22 and 25 June 1996, from the container yard of Sprint, two chassis units (subject equipment),5evidenced by Equipment Interchange Receipts No. 14215 and No. 14222; (c) Soriamont and Ronas failed to pay rental fees for the subject equipment since 15 January 1997; (d) Sprint was subsequently informed by Ronas, through a letter dated 17 June 1997, of the purported loss of the subject equipment sometime in June 1997; and (e) despite demands, Soriamont and Ronas failed to pay the rental fees for the subject equipment, and to replace or return the same to Sprint. Sprint, thus, prayed for the RTC to render judgment: 1. Ordering [Soriamont and Ronas] to pay [Sprint], jointly and severally, actual damages, in the amount of Five Hundred Thirty-Seven Thousand Eight Hundred Pesos (P537,800.00) representing unpaid rentals and the replacement cost for the lost chassis units. 2. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the amount of FiftyThree Thousand Five Hundred Four Pesos and Forty-Two centavos (P53,504.42) as interest and penalties accrued as of March 31, 1998 and until full satisfaction thereof.

3. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the amount equivalent to twenty-five percent (25%) of the total amount claimed for and as attorneys fees plus Two Thousand Pesos (P2,000.00) per court appearance. 4. Ordering [Soriamont and Ronas] to pay the cost of the suit.6 Soriamont and Ronas filed with the RTC their Answer with Compulsory Counterclaim.7 Soriamont admitted therein to having a lease agreement with Sprint, but only for the period 21 October 1993 to 21 January 1994. It denied entering into an ELA with respondent Sprint on 17 December 1993 as alleged in the Complaint. Soriamont further argued that it was not a party-in-interest in Civil Case No. 98-89047, since it was PTS and Rebson Trucking that withdrew the subject equipment from the container yard of Sprint. Ronas was likewise not a party-in-interest in the case since his actions, assailed in the Complaint, were executed as part of his regular functions as an officer of Soriamont. Consistent with their stance, Soriamont and Ronas filed a Third-Party Complaint8 against Papa, who was doing business under the name PTS. Soriamont and Ronas averred in their Third-Party Complaint that it was PTS and Rebson Trucking that withdrew the subject equipments from the container yard of Sprint, and failed to return the same. Since Papa failed to file an answer to the Third-Party Complaint, he was declared by the RTC to be in default.9 After trial, the RTC rendered its Decision in Civil Case No. 98-89047 on 22 April 2002, finding Soriamont liable for the claim of Sprint, while absolving Ronas and Papa from any liability. According to the RTC, Soriamont authorized PTS to withdraw the subject equipment. The dispositive portion of the RTC Decision reads: WHEREFORE, judgment is hereby rendered in favor of [herein respondent] Sprint Transport Services, Inc. and against [herein petitioner] Soriamont Steamship Agencies, Inc., ordering the latter to pay the former the following:

Three hundred twenty thousand pesos (P320,000) representing the value of the two chassis units with interest at the legal rate from the filing of the complaint; Two hundred seventy thousand one hundred twenty four & 42/100 pesos (P270,124.42) representing unpaid rentals with interest at the legal rate from the filing of the complaint; P20,000.00 as attorneys fees.

The rate of interest shall be increased to 12% per annum once this decision becomes final and executory. Defendant Patrick Ronas and [herein respondent] Ricardo Cruz Papa are absolved from liability.10 Soriamont filed an appeal of the foregoing RTC Decision to the Court of Appeals, docketed as CAG.R. CV No. 74987. The Court of Appeals, in its Decision dated 22 June 2006, found the following facts to be borne out by the records: (1) Sprint and Soriamont entered into an ELA whereby the former leased chassis units to the latter for the specified daily rates. The ELA covered the period 21 October 1993 to 21 January 1994, but it contained an "automatic" renewal clause; (2) on 22 and 25 June 1996, Soriamont, through PTS and Rebson Trucking, withdrew Sprint Chassis 2-07 with Plate No. NUP261 Serial No. ICAZ-165118, and Sprint Chassis 2-55 with Plate No. NUP-533 Serial MOTZ-160080, from the container yard of Sprint; (3) Soriamont authorized the withdrawal by PTS and Rebson Trucking of the subject equipment from the container yard of Sprint; and (4) the subject pieces of equipment were never returned to Sprint. In a letter to Sprint dated 19 June 1997, Soriamont relayed

that it was still trying to locate the subject equipment, and requested the former to refrain from releasing more equipment to respondent PTS and Rebson Trucking. Hence, the Court of Appeals decreed: WHEREFORE, the appealed Decision dated April 22, 2002 of the trial court is affirmed, subject to the modification that the specific rate of legal interest per annum on both the P320,000.00 representing the value of the two chassis units, and on the P270,124.42 representing the unpaid rentals, is six percent (6%), to be increased to twelve percent (12%) from the finality of this Decision until its full satisfaction.11 In a Resolution dated 7 September 2006, the Court of Appeals denied the Motion for Reconsideration of Soriamont for failing to present any cogent and substantial matter that would warrant a reversal or modification of its earlier Decision. Aggrieved, Soriamont12 filed the present Petition for Review with the following assignment of errors: I. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN LIMITING AS SOLE ISSUE FOR RESOLUTION OF WHETHER OR NOT AN AGENCY RELATIONSHIP EXISTED BETWEEN PRIVATE RESPONDENT SPRINT TRANSPORT AND HEREIN PETITIONERS SORIAMONT STEAMSHIP AGENCIES AND PRIVATE RESPONDENT PAPA TRUCKING BUT TOTALLY DISREGARDING AND FAILING TO RULE ON THE LIABILITY OF PRIVATE RESPONDENT PAPA TRUCKING TO HEREIN PETITIONERS. THE LIABILITY OF PRIVATE RESPONDENT PAPA TRUCKING TO HEREIN PETITIONERS SUBJECT OF THE THIRD-PARTY COMPLAINT WAS TOTALLY IGNORED; II. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING HEREIN PETITIONERS STEAMSHIP AGENCIES SOLELY LIABLE. EVIDENCE ON RECORD SHOW THAT IT WAS PRIVATE RESPONDENT PAPA TRUCKING WHICH WITHDREW THE SUBJECT CHASSIS. PRIVATE RESPONDENT PAPA TRUCKING WAS THE LAST IN POSSESSION OF THE SAID SUBJECT CHASSIS AND IT SHOULD BE HELD SOLELY LIABLE FOR THE LOSS THEREOF; III. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT IGNORED A MATERIAL INCONSISTENCY IN THE TESTIMONY OF PRIVATE RESPONDENT SPRINT TRANSPORTS WITNESS, MR. ENRICO G. VALENCIA. THE TESTIMONY OF MR. VALENCIA WAS ERRONEOUSLY MADE THE BASIS FOR HOLDING HEREIN PETITIONERS LIABLE FOR THE LOSS OF THE SUBJECT CHASSIS. We find the Petition to be without merit. The Court of Appeals and the RTC sustained the contention of Sprint that PTS was authorized by Soriamont to secure possession of the subject equipment from Sprint, pursuant to the existing ELA between Soriamont and Sprint. The authorization issued by Soriamont to PTS established an agency relationship, with Soriamont as the principal and PTS as an agent. Resultantly, the actions

taken by PTS as regards the subject equipment were binding on Soriamont, making the latter liable to Sprint for the unpaid rentals for the use, and damages for the subsequent loss, of the subject equipment. Soriamont anchors its defense on its denial that it issued an authorization to PTS to withdraw the subject equipment from the container yard of Sprint. Although Soriamont admits that the authorization letter dated 19 June 1996 was under its letterhead, said letter was actually meant for and sent to Harman Foods as shipper. It was then Harman Foods that tasked PTS to withdraw the subject equipment from Sprint. Soriamont insists that the Court of Appeals merely presumed that an agency relationship existed between Soriamont and PTS, since there was nothing in the records to evidence the same. Meanwhile, there is undisputed evidence that it was PTS that withdrew and was last in possession of the subject equipment. Soriamont further calls attention to the testimony of Enrico Valencia (Valencia), a witness for Sprint, actually supporting the position of Soriamont that PTS did not present any authorization from Soriamont when it withdrew the subject equipment from the container yard of Sprint. Assuming, for the sake of argument that an agency relationship did exist between Soriamont and PTS, the latter should not have been exonerated from any liability. The acts of PTS that resulted in the loss of the subject equipment were beyond the scope of its authority as supposed agent of Soriamont. Soriamont never ratified, expressly or impliedly, such acts of PTS. Soriamont is essentially challenging the sufficiency of the evidence on which the Court of Appeals based its conclusion that PTS withdrew the subject equipment from the container yard of Sprint as an agent of Soriamont. In effect, Soriamont is raising questions of fact, the resolution of which requires us to re-examine and re-evaluate the evidence presented by the parties below. Basic is the rule in this jurisdiction that only questions of law may be raised in a petition for review under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing errors of law, the findings of fact of the appellate court being conclusive. We have emphatically declared that it is not the function of this Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that may have been committed by the lower court.13 These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear the parties conflicting claims and to carefully weigh their respective sets of evidence. The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the same are binding on this Court. We stress that, subject to some exceptional instances, only questions of law not questions of fact may be raised before this Court in a petition for review under Rule 45 of the Revised Rules of Court.14 Given that Soriamont is precisely asserting in the instant Petition that the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record,15 we accommodate Soriamont by going over the same evidence considered by the Court of Appeals and the RTC. In Republic v. Court of Appeals,16 we explained that: In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. Stated differently, the general rule in civil cases is that a party having the burden of proof of an essential fact must produce a preponderance of evidence thereon (I Moore on Facts, 4, cited in Vicente J. Francisco, The Revised Rules of Court in the Philippines, Vol. VII, Part II, p. 542, 1973 Edition). By preponderance of evidence is meant simply evidence which is of greater weight, or more convincing than that which is offered in opposition to it (32 C.J.S., 1051), The term 'preponderance

of evidence' means the weight, credit and value of the aggregate evidence on either side and is usually considered to be synonymous with the terms `greater weight of evidence' or 'greater weight, of the credible evidence.' Preponderance of the evidence is a phrase which, in the last analysis, means probability of the truth. Preponderance of the evidence means evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. x x x." (20 Am. Jur., 1100-1101) After a review of the evidence on record, we rule that the preponderance of evidence indeed supports the existence of an agency relationship between Soriamont and PTS. It is true that a person dealing with an agent is not authorized, under any circumstances, to trust blindly the agents statements as to the extent of his powers. Such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that persons dealing with an assumed agent are bound at their peril; and if they would hold the principal liable, they must ascertain not only the fact of agency, but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it. Sprint has successfully discharged this burden. The ELA executed on 17 December 1993 between Sprint, as lessor, and Soriamont, as lessee, of chassis units, explicitly authorized the latter to appoint a representative who shall withdraw and return the leased chassis units to Sprint, to wit: EQUIPMENT LEASE AGREEMENT between SPRINT TRANSPORT SERVICES, INC. (LESSOR) And SORIAMONT STEAMSHIP AGENCIES, INC. (LESSEE) TERMS and CONDITIONS xxxx 4. Equipment Interchange Receipt (EIR) as mentioned herein is a document accomplished every time a chassis is withdrawn and returned to a designated depot. The EIR relates the condition of the chassis at the point of on-hire/off-hire duly acknowledged by the LESSOR, Property Custodian and the LESSEES authorized representative. xxxx 5. Chassis Withdrawal/Return Slip as mentioned herein is that document where the LESSEE authorizes his representative to withdraw/return the chassis on his behalf. Only persons with a duly accomplished and signed authorization slip shall be entertained by the LESSOR for purposes of withdrawal/return of the chassis. The signatory in the Withdrawal/Return Slip has to be the signatory of the corresponding Lease Agreement or the LESSEEs duly authorized representative(s).17(Emphases ours.) Soriamont, though, avers that the aforequoted ELA was only for 21 October 1993 to 21 January 1994, and no longer in effect at the time the subject pieces of equipment were reportedly withdrawn and lost by PTS. This contention of Soriamont is without merit, given that the same ELA expressly provides for the "automatic" renewal thereof in paragraph 24, which reads:

There shall be an automatic renewal of the contract subject to the same terms and conditions as stipulated in the original contract unless terminated by either party in accordance with paragraph no. 23 hereof. However, in this case, termination will take effect immediately.18 There being no showing that the ELA was terminated by either party, then it was being automatically renewed in accordance with the afore-quoted paragraph 24. It was, therefore, totally regular and in conformity with the ELA that PTS and Rebson Trucking should appear before Sprint in June 1996 with authorization letters, issued by Soriamont, for the withdrawal of the subject equipment.19 On the witness stand, Valencia testified, as the operations manager of Sprint, as follows: Atty. Porciuncula: Q. Mr. Witness, as operation manager, are you aware of any transactions between Sprint Transport Services, Inc. and the defendant Soriamont Steamship Agencies, Inc.? A. Yes, Sir. Q. What transactions are these, Mr. Witness? A. They got from us chassis, Sir. Court: Q. Who among the two, who withdrew? A. The representative of Soriamont Steamship Agencies, Inc., Your Honor. Atty. Porciuncula: Q. And when were these chassis withdrawn, Mr. Witness? A. June 1996, Sir. Q. Will you kindly tell this Honorable Court what do you mean by withdrawing the chassis units from your container yard? Witness: Before they can withdraw the chassis they have to present withdrawal authority, Sir. Atty. Porciuncula: And what is this withdrawal authority? A. This is to prove that they are authorizing their representative to get from us a chassis unit. Q. And who is this authorization send to you, Mr. Witness?

A. Sometime a representative bring to our office the letter or the authorization or sometime thru fax, Sir. Q. In this particular incident, Mr. Witness, how was it sent? A. By fax, Sir. Q. Is this standard operating procedure of Sprint Transport Services, Inc.? A. Yes, Sir, if the trucking could not bring to our office the original copy of the authorization they have to send us thru fax, but the original copy of the authorization will be followed. Atty. Porciuncula: Q. Mr. Witness, I am showing to you two documents of Soriamont Steamship Agencies, Inc. letter head with the headings Authorization, are these the same withdrawal authority that you mentioned awhile ago? A. Yes, Sir. Atty. Porciuncula: Your Honor, at this point may we request that these documents identified by the witness be marked as Exhibits JJ and KK, Your Honor. Court: Mark them. xxxx Q. Way back Mr. Witness, who withdrew the chassis units 2-07 and 2-55? A. The representative of Soriamont Steamship Agencies, Inc., the Papa Trucking, Sir. Q. And are these trucking companies authorized to withdraw these chassis units? A. Yes, Sir, it was stated in the withdrawal authority. Atty. Porciuncula: Q. Showing you again Mr. Witness, this authorization previously marked as Exhibits JJ and KK, could you please go over the same and tell this Honorable Court where states there that the trucking companies which you mentioned awhile ago authorized to withdraw? A. Yes, Sir, it is stated in this withdrawal authority. Atty. Porciuncula:

At this juncture, Your Honor, may we request that the Papa trucking and Rebson trucking identified by the witness be bracketed and mark as our Exhibits JJ-1 and KK-1, Your Honor. Court: Mark them. Are these documents have dates? Atty. Porciuncula: Yes, Your Honor, both documents are dated June 19, 1996. Q. Mr. Witness, after this what happened next? A. After they presented to us the withdrawal authority, we called up Soriamont Steamship Agencies, Inc. to verify whether the one sent to us through truck and the one sent to us through fax are one and the same. Q. Then what happened next, Mr. Witness? A. Then after the verification whether it is true, then we asked them to choose the chassis units then my checker would see to it whether the chassis units are in good condition, then after that we prepared the outgoing Equipment Interchange Receipt, Sir. Q. Mr. Witness, could you tell this Honorable Court what an outgoing Equipment Interchange Receipt means? A. This is a document proving that the representative of Soriamont Steamship Agencies, Inc. really withdraw (sic) the chassis units, Sir. xxxx Atty. Porciuncula: Q. Going back Mr. Witness, you mentioned awhile ago that your company issued outgoing Equipment Interchange Receipt? A. Yes, Sir. Q. Are there incoming Equipment Interchange Receipt Mr. Witness? A. We have not made Incoming Equipment Interchange Receipt with respect to Soriamont Steamship Agencies, Inc., Sir. Q. And why not, Mr. Witness? A. Because they have not returned to us the two chassis units.20 In his candid and straightforward testimony, Valencia was able to clearly describe the standard operating procedure followed in the withdrawal by Soriamont or its authorized representative of the leased chassis units from the container yard of Sprint. In the transaction involved herein,

authorization letters dated 19 June 1996 in favor of PTS and Rebson Trucking were faxed by Sprint to Soriamont, and were further verified by Sprint through a telephone call to Soriamont. Valencias testimony established that Sprint exercised due diligence in its dealings with PTS, as the agent of Soriamont. Soriamont cannot rely on the outgoing Equipment Interchange Receipts as proof that the withdrawal of the subject equipment was not authorized by it, but by the shipper/consignee, Harman Foods, which actually designated PTS and Rebson Trucking as truckers. However, a scrutiny of the Equipment Interchange Receipts will show that these documents merely identified Harman Foods as the shipper/consignee, and the location of said shipping line. It bears to stress that it was Soriamont that had an existing ELA with Sprint, not Harman Foods, for the lease of the subject equipment. Moreover, as stated in the ELA, the outgoing Equipment Interchange Receipts shall be signed, upon the withdrawal of the leased chassis units, by the lessee, Soriamont, or its authorized representative. In this case, we can only hold that the driver of PTS signed the receipts for the subject equipment as the authorized representative of Soriamont, and no other. Finally, the letter21 dated 17 June 1997, sent to Sprint by Ronas, on behalf of Soriamont, which stated: As we are currently having a problem with regards to the whereabouts of the subject trailers, may we request your kind assistance in refraining from issuing any equipment to the above trucking companies. reveals that PTS did have previous authority from Soriamont to withdraw the leased chassis units from Sprint, hence, necessitating an express request from Soriamont for Sprint to discontinue recognizing said authority.
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Alternatively, if PTS is found to be its agent, Soriamont argues that PTS is liable for the loss of the subject equipment, since PTS acted beyond its authority as agent. Soriamont cites Article 1897 of the Civil Code, which provides: Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. The burden falls upon Soriamont to prove its affirmative allegation that PTS acted in any manner in excess of its authority as agent, thus, resulting in the loss of the subject equipment. To recall, the subject equipment was withdrawn and used by PTS with the authority of Soriamont. And for PTS to be personally liable, as agent, it is vital that Soriamont be able to prove that PTS damaged or lost the said equipment because it acted contrary to or in excess of the authority granted to it by Soriamont. As the Court of Appeals and the RTC found, however, Soriamont did not adduce any evidence at all to prove said allegation. Given the lack of evidence that PTS was in any way responsible for the loss of the subject equipment, then, it cannot be held liable to Sprint, or even to Soriamont as its agent. In the absence of evidence showing that PTS acted contrary to or in excess of the authority granted to it by its principal, Soriamont, this Court cannot merely presume PTS liable to Soriamont as its agent. The only thing proven was that Soriamont, through PTS, withdrew the two chassis units from Sprint, and that these have never been returned to Sprint. Considering our preceding discussion, there is no reason for us to depart from the general rule that the findings of fact of the Court of Appeals and the RTC are already conclusive and binding upon us.

Finally, the adjustment by the Court of Appeals with respect to the applicable rate of legal interest on theP320,000.00, representing the value of the subject equipment, and on the P270,124.42, representing the unpaid rentals awarded in favor of Sprint, is proper and with legal basis. Under Article 2209 of the Civil Code, when an obligation not constituting a loan or forbearance of money is breached, then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. Clearly, the monetary judgment in favor of Sprint does not involve a loan or forbearance of money; hence, the proper imposable rate of interest is six (6%) percent. Further, as declared in Eastern Shipping Lines, Inc. v. Court of Appeals,22 the interim period from the finality of the judgment awarding a monetary claim until payment thereof is deemed to be equivalent to a forbearance of credit. Eastern Shipping Lines, Inc. v. Court of Appeals23 explained, to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Consistent with the foregoing jurisprudence, and later on affirmed in more recent cases,24 when the judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent of a forbearance of credit. Thus, from the time the judgment becomes final until its full satisfaction, the applicable rate of legal interest shall be twelve percent (12%).

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. The Decision dated 22 June 2006 and Resolution dated 7 September 2006 of the Court of Appeals in CA-G.R. CV No. 74987 are hereby AFFIRMED. Costs against petitioner Soriamont Steamship Agencies, Inc. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson CONCHITA CARPIO MORALES* Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

Associate Justice Conchita Carpio Morales was designated to sit as additional member replacing Associate Justice Diosdado M. Peralta per raffle dated 25 May 2009.
1

Penned by Associate Justice Fernanda Lampas-Peralta with Associate Justices Eliezer R. delos Santos and Myrna Dimaranan-Vidal, concurring; rollo, pp. 60-75.

Rollo, p. 91. Issued by Judge Artemio S. Tipon; rollo, pp. 130-135. Records, pp. 1-6.

Sprint Chassis 2-07 with Plate No. NUP-261 Serial No. ICAZ-165118 and Sprint Chassis 255 with Plate No. NUP-533 Serial No. MOTZ-160080.
6

Records, p. 5. Id. at 30-34. Id. at 50-53. Order dated 15 January 1999; Records, p. 84. Rollo, p. 134. Id. at 74-75.

10

11

12

Patrick Ronas was named as a petitioner in the title, but he did not actually join Soriamont in the instant Petition considering that he was already absolved from any liability by the RTC.
13

Cristobal v. Court of Appeals, 353 Phil. 318, 326 (1998). National Steel Corporation v. Court of Appeals, 347 Phil. 345, 365-366 (1997).

14

15

Generally, factual findings of the trial court, affirmed by the Court of Appeals, are final and conclusive and may not be reviewed on appeal. The established exceptions are: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of fact are conclusions without citation of specific evidence on which they are based; (8) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (9) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. (Child Learning Center, Inc. v. Tagorio, G.R. No. 150920, 25 November 2005, 476 SCRA 236, 241-242.)
16

G.R. No. 84966, 21 November 1991, 204 SCRA 160, 168-169. Records, p. 9. Id. at p. 13. Id. at 213-214.

17

18

19

20

TSN, 4 August 2000, pp. 5-16. Records, p. 178.

21

22

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.
23

Id. at 95-96.

24

National Power Corporation v. Alonzo-Legasto, G.R. No. 148318, 22 November 2004, 443 SCRA 342, 376; Equitable Banking Corporation v. Sadac, G.R. No. 164772, 8 June 2006, 490 SCRA 380, 423; Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc., G.R. Nos. 151890/151991, 20 June 2006, 491 SCRA 411, 450.

G.R. No. 175366

August 11, 2008

J-PHIL MARINE, INC. and/or JESUS CANDAVA and NORMAN SHIPPING SERVICES, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and WARLITO E. DUMALAOG, respondents. DECISION CARPIO MORALES, J.: Warlito E. Dumalaog (respondent), who served as cook aboard vessels plying overseas, filed on March 4, 2002 before the National Labor Relations Commission (NLRC) a pro-forma complaint1 against petitioners manning agency J-Phil Marine, Inc. (J-Phil), its then president Jesus Candava, and its foreign principal Norman Shipping Services for unpaid money claims, moral and exemplary damages, and attorneys fees. Respondent thereafter filed two amended pro forma complaints2 praying for the award of overtime pay, vacation leave pay, sick leave pay, and disability/medical benefits, he having, by his claim, contracted enlargement of the heart and severe thyroid enlargement in the discharge of his duties as cook which rendered him disabled. Respondents total claim against petitioners was P864,343.30 plus P117,557.60 representing interest and P195,928.66 representing attorneys fees.3 By Decision4 of August 29, 2003, Labor Arbiter Fe Superiaso-Cellan dismissed respondents complaint for lack of merit. On appeal,5 the NLRC, by Decision of September 27, 2004, reversed the Labor Arbiters decision and awarded US$50,000.00 disability benefit to respondent. It dismissed respondents other claims, however, for lack of b asis or jurisdiction.6 Petitioners Motion for Reconsideration7 having been denied by the NLRC,8 they filed a petition for certiorari9 before the Court of Appeals. By Resolution10 of September 22, 2005, the Court of Appeals dismissed petitioners petition for, inter alia, failure to attach to the petition all material documents, and for defective verification and certification. Petitioners Motion

for Reconsideration of the appellate courts Resolution was denied;11 hence, they filed the present Petition for Review on Certiorari. During the pendency of the case before this Court, respondent, against the advice of his counsel, entered into a compromise agreement with petitioners. He thereupon signed a Quitclaim and Release subscribed and sworn to before the Labor Arbiter.12 On May 8, 2007, petitioners filed before this Court a Manifestation13 dated May 7, 2007 informing that, inter alia, they and respondent had forged an amicable settlement. On July 2, 2007, respondents counsel filed before this Court a Comment and Opposition (to Petitioners Manifestation of May 7, 2007)14 interposing no objection to the dismissal of the petition but objecting to "the absolution" of petitioners from paying respondent the total amount of Fifty Thousand US Dollars (US$50,000.00) or approximately P2,300,000.00, the amount awarded by the NLRC, he adding that: There being already a payment of P450,000.00, and invoking the doctrine of parens patriae, we pray then [to] this Honorable Supreme Court that the said amount be deducted from the [NLRC] judgment award of US$50,000.00, or approximately P2,300,000.00, and petitioners be furthermore ordered to pay in favor of herein respondent [the] remaining balance thereof. x x x x15 (Emphasis in the original; underscoring supplied) Respondents counsel also filed before this Court, purportedly on behalf of respondent, a Comment16on the present petition. The parties having forged a compromise agreement as respondent in fact has executed a Quitclaim and Release, the Court dismisses the petition. Article 227 of the Labor Code provides: Any compromise settlement, including those involving labor standard laws, voluntarily agreed upon by the parties with the assistance of the Department of Labor, shall be final and binding upon the parties. The National Labor Relations Commission or any court shall not assume jurisdiction over issues involved therein except in case of noncompliance thereof or if there is prima facieevidence that the settlement

was obtained through fraud, misrepresentation, or coercion. (Emphasis and underscoring supplied) In Olaybar v. NLRC,17 the Court, recognizing the conclusiveness of compromise settlements as a means to end labor disputes, held that Article 2037 of the Civil Code, which provides that "[a] compromise has upon the parties the effect and authority of res judicata," applies suppletorily to labor cases even if the compromise is not judicially approved.18 That respondent was not assisted by his counsel when he entered into the compromise does not render it null and void. Eurotech Hair Systems, Inc. v. Go19 so enlightens: A compromise agreement is valid as long as the consideration is reasonable and the employee signed the waiver voluntarily, with a full understanding of what he was entering into. All that is required for the compromise to be deemed voluntarily entered into is personal and specific individual consent. Thus, contrary to respondents contention, the employees counsel need not be present at the time of the signing of the compromise agreement.20 (Underscoring supplied) It bears noting that, as reflected earlier, the Quitclaim and Waiver was subscribed and sworn to before the Labor Arbiter. Respondents counsel nevertheless argues that "[t]he amount of Four Hundred Fifty Thousand Pesos (P450,000.00) given to respondent on April 4, 2007, as full and final settlement of judgment award, is unconscionably low, and un-[C]hristian, to say the least."21 Only respondent, however, can impugn the consideration of the compromise as being unconscionable. The relation of attorney and client is in many respects one of agency, and the general rules of agency apply to such relation.22 The acts of an agent are deemed the acts of the principal only if the agent acts within the scope of his authority.23 The circumstances of this case indicate that respondents counsel is acting beyond the scope of his authority in questioning the compromise agreement. That a client has undoubtedly the right to compromise a suit without the intervention of his lawyer24 cannot be gainsaid, the only qualification being that if such compromise is entered into with the intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to the said fees.25 In the case at bar, there is no showing that respondent intended to

defraud his counsel of his fees. In fact, the Quitclaim and Release, the execution of which was witnessed by petitioner J-Phils president Eulalio C. Candava and one Antonio C. Casim, notes that the 20% attorneys fees would be "paid 12 April 2007 P90,000." WHEREFORE, the petition is, in light of all the foregoing discussion, DISMISSED. Let a copy of this Decision be furnished respondent, Warlito E. Dumalaog, at his given address at No. 5-B Illinois Street, Cubao, Quezon City. SO ORDERED. CONCHITA CARPIO MORALES Associate Justice

WE CONCUR:
LEONARDO A. QUISUMBING Associate Justice Chairperson
*

RENATO C. CORONA Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice ARTURO D. BRION Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. LEONARDO A. QUISUMBING Associate Justice Chairperson

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

Additional member in lieu of Justice Dante O. Tinga per Special Order No. 512 dated July 16, 2008.
1 2 3 4 5 6

NLRC records, p. 2. Id. at 8, 50. Dumalaogs POSITION PAPER, NLRC records, pp. 18-21. Id. at 115-125. Id. at 132-156.

Decision of September 27, 2004, penned by NLRC Commissioner Romeo L. Go, with the concurrence of Commissioner Ernesto S. Dinopol and the dissent of Commissioner Roy V. Seeres. NLRC records (unnumbered pages).
7 8 9

NLRC records, unnumbered pages. Ibid. CA rollo, pp. 2-19.

10

Penned by Court of Appeals Associate Justice Danilo B. Pine, with the concurrences of Associate Justices Rosmari D. Carandang and Arcangelita Romilla-Lontok. Id. at 48-50.
11

Penned by Court of Appeals Associate Justice Arcangelita M. Romilla-Lontok, with the concurrence of Associate Justices Regalado E. Maambong and Rosmari D. Carandang, Id. at 215-216.
12

"Quitclaim and Release" dated April 4, 2007, NLRC records, unnumbered pages.
13 14 15 16 17 18 19 20 21 22

Rollo, pp. 226-228. Id. at 241-243. Id. at 242. Id. at 234-240. G.R. No. 108713, October 28, 1994, 237 SCRA 819. Id. at 823-824 (citations omitted). G.R. No. 160913, August 31, 2006, 500 SCRA 611. Id. at 618-619. Rollo, p. 241.

Uytengsu III v. Baduel, Adm. Case No. 5134, December 14, 2005, 477 SCRA 621, 629 (citation omitted).
23

Vide Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 589 (2002).
24

Vide Rustia v. Judge of First Instance of Batangas, 44 Phil. 62, 65 (1922).

25

Vide Aro v. Naawa etc., et al., 137 Phil. 745, 761 (1969).

G.R. No. 159489

February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner, vs. CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-Fact PONCIANO C. MARQUEZ, respondents. DECISION QUISUMBING, J.: This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the Decision3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly and severally liable to the plaintiffs, now herein respondents. The antecedent facts are as follows: Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January 1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977 for P10,000.4 In return, Valle issued Pedroso his personal check forP800 for the 8%5 prepaid interest and a Filipinas Life "Agents Receipt" No. 807838.6 Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the promotional investment and Apetrior confirmed that there was such a promotion. She was even told she could "push through with the check" she issued. From the records, the check, with the endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch. Relying on the representations made by the petitioners duly authorized representatives Apetrior and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of her initial investment. A month after, her investment of P10,000 was returned to her after she made a written request for its refund. The formal written request, dated February 3, 1977, was written on an inter-office memorandum form of Filipinas Life prepared by Alcantara.7 To collect the amount, Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a second investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments, Valle would take back from Pedroso the corresponding yellow-colored agents receipt he issued to the latter. Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest. However, when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return her money. With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect

their respective investments, and to inquire why they had not seen Valle for quite some time. But their attempts were futile. Hence, respondents filed an action for the recovery of a sum of money. After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and Alcantara jointly and solidarily liable to the respondents. On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion for reconsideration. Petitioner now comes before us raising a single issue: WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.10 Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally liable to the herein respondents? Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance company and was not engaged in the business of collecting investment money. It contends that the investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.11 On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from them. In fact, Filipinas Lifes official documents and facilities were used in consummating the transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents act within the scope of their authority. Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering the assailed decision and resolution. It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550, respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was also established by the parties. When respondents sought confirmation, Alcantara, holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority, in this case, respondents did exercise due diligence in removing all doubts and in confirming the validity of the representations made by Valle. Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.12 The general rule is that the principal is responsible for the acts of its agent done within the scope of its authority, and should bear the damage caused to third persons.13 When the agent exceeds his authority, the agent becomes personally liable for the damage.14 But even when the agent exceeds his authority, the principal is still solidarily liable together with the agent if the principal allowed the agent to act as though the

agent had full powers.15 In other words, the acts of an agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them, expressly or impliedly.16 Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority.17 Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much more so if the principal ratified his agents acts beyond the latters authority. The act of the agent is considered that of the principal itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself."18 WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568 are AFFIRMED. Costs against the petitioner. SO ORDERED. LEONARDO A. QUISUMBING Associate Justice

WE CONCUR: ANTONIO T. CARPIO Associate Justice CONCHITA CARPIO MORALES Associate Justice DANTE O. TINGA Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. LEONARDO A. QUISUMBING Associate Justice Chairperson

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao, with Associate Justices Eugenio S. Labitoria and Danilo B. Pine concurring.
2

Id. at 56. Id. at 57-63. Penned by Judge Clemente M. Soriano. Records, p. 246. TSN, October 7, 1983, pp. 9-10. Records, p. 248. Id. at 247. Supra note 5. Records, pp. 253-264. Rollo, p. 108. Id. at 109. CIVIL CODE, Art. 1868. Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 1431-1432 (1964).

10

11

12

13

14

BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 118.
15

CIVIL CODE, Art. 1911.

16

Id., Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.
17

Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319, November 22, 2004, 443 SCRA 377, 394.
18

Prudential Bank v. Court of Appeals, G.R. No. 108957, June 14, 1993, 223 SCRA 350, 357.

G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs. EDWIN CUIZON and ERWIN CUIZON, Respondents. DECISION CHICO-NAZARIO, J.: Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672. The generative facts of the case are as follows: Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity. From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states: 1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump; 2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient; 3.) That the ASSIGNEE does hereby accept this assignment.7 Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.8 Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August

1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys fees.11 Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12 On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary attachment.13 On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995.15 He, however, disputed the total amount of Impact Systems indebtedness to petitioner which, according to him, amounted to only P220,000.00.16 By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating 1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court. 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17 On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20 After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative defenses and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further

show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later. In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23 Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states: WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24 Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25 To support its argument, petitioner points to Article 1897 of the New Civil Code which states: Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26 Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner.27 In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of

Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction. We do not find merit in the petition. In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent.29 The underlying principle of the contract of agency is to accomplish results by using the services of others to do a great variety of things like selling, buying, manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence qui facit per alium facit per se.33 The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.34 In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code. We disagree. Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision. The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus: The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.35 Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since

after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal. We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent.40 As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court a quo. WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED. Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent Erwin Cuizon. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ROMEO J. CALLEJO, SR. Asscociate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Penned by Associate Justice Vicente L. Yap with Associate Justices Arsenio J. Magpale and Ramon M. Bato , Jr., concurring; rollo, pp. 33-36.
2

Id. at 37-39. Id. at 83-84. Annex "H" of the Complaint; records, p. 18. Referring to Impact Systems Sales. Referring to petitioner Eurotech Industrial Technologies, Inc. Annex "G" of the Complaint; records, p. 17. Annex "H" of the Complaint; id. at 18. Annex "I" of the Complaint; id. at 19. Annex "J" of the Complaint; id. at 20. Annex "L" of the Complaint; id. at 22. The case was raffled off to Branch 8 of the RTC Cebu City.

10

11

12

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Records, p. 27. Id. at 38-41. Id. at 38. Ibid. Id. at 1. Id. at 50. Id. at 61.

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15

16

17

18

19

Edwin Cuizons counsel requested that the Special and Affirmative Defenses in his Answer be treated as his Motion to Dismiss; Order dated 16 October 2001; id. at 78.
20 21

Id. at 82-86. Memorandum dated 16 November 2001; id. at 87-91. Id. at 95-96. Rollo, p. 35. Id. at 17. Id. at 21-22. Id. at 25-26. Id. at 98-114. Article 1868 of the Civil Code. Reuschlein and Gregory, Agency and Partnership (1979 edition), p. 1. 3 Am Jur 2d, 1. Padilla, Agency Text and Cases, (1986 edition), p. 2. He who acts through another acts by or for himself; id. at 2. Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000). 3 Am Jur 2d, 91, p. 602. Records, p. 2.

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

Annex "H" of the Complaint; records, p. 18. Annex "G" of the Complaint; id. at 17.

38

39

Philippine Products Company v. Primateria Societe Anonyme Pour Le Commerce Exterieur, 122 Phil. 698, 702 (1965).
40

De Leon and De Leon, Jr., Comments and Cases on Partnership, Agency, and Trusts (1999 edition), p. 512.
41

Rule 3, 1 of the Revised Rules of Court.

G.R. No. 153057 August 7, 2006 MR. & MRS. GEORGE R. TAN, Petitioners, vs. G.V.T. ENGINEERING SERVICES, Acting through its Owner/ Manager GERINO V. TACTAQUIN, Respondent. DECISION AUSTRIA-MARTINEZ, J.: Assailed in the present petition for review on certiorari under Rule 45 of the Rules of Court is the June 29, 2001 Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 59699 affirming with modification the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 81 in Civil Case No. Q-90-7405; and its Resolution 2promulgated on April 10, 2002 denying petitioners Motion for Partial Reconsideration. The facts are as follows: On October 18, 1989, the spouses George and Susan Tan (spouses Tan) entered into a contract with G.V.T. Engineering Services (G.V.T.), through its owner/manager Gerino Tactaquin (Tactaquin) for the construction of their residential house at Ifugao St., La Vista, Quezon City. The contract price was P1,700,000.00. Since the spouses Tan have no knowledge about building construction, they hired the services of Engineer Rudy Cadag (Cadag) to supervise the said construction. In the course of the construction, the spouses Tan caused several changes in the plans and specifications and ordered the deletion of some items in G.V.T.s scope of work. This brought about differences between the spouses Tan and Cadag, on one hand, and Tactaquin, on the other. Subsequently, the latter stopped the construction of the subject house. On December 4, 1990, G.V.T., through Tactaquin, filed a Complaint for specific performance and damages against the spouses Tan and Cadag with the RTC of Quezon City contending that by reason of the changes in the plans and specifications of the construction project ordered by Cadag and the spouses Tan, it was forced to borrow money from third persons at exorbitant interest; that several portions of their contract were deleted but only to be awarded later to other contractors; that it suffered tremendous delay in the completion of the project brought about by the spouses Tans delay in the delivery of construction materials on the jobsite; that all the aforementioned acts caused undue prejudice and damage to it. In their Answer with Counterclaims, the spouses Tan and Cadag alleged, among others, that G.V.T. performed several defective works; that to avert further losses, the spouses Tan deleted some portions of the project covered by G.V.T.s contract and awarded other portions to another contractor; that the changes ordered by the spouses Tan were agreed upon by the parties; that G.V.T., being a mere single proprietorship has no legal personality and cannot be a party in a civil action. Trial ensued and the court a quo made the following factual findings: To begin with, it is not disputed that there was delay in the delivery of the needed construction materials which in turn caused tremendous delay in project completion. The documentary evidence on record shows that plaintiff, practically during the entire period that he was working on the project, complained to defendants about the non-delivery on time of the materials on the project site (Exhs.

D, G, H, H-1, H-2, H-3, H-4, and H-5). Plaintiffs request for prompt delivery of materials fell on deaf ears. xxxx Plaintiffs losses as a result of the delay were aggravated by cancellation by defendants of major portions of the project such as skylight roofing, installation of cement tiles, soil poisoning and finishing among others, which were all included in the construction agreement but were assigned to other contractors (TSN, 9/6/91); Exh. I). In his testimony, defendant Cadag declared that thirteen (13) items in the construction agreement were deleted mainly due to the lack of technical know-how of the plaintiff, coupled with lack of qualified personnel; that he immediately notified the plaintiff upon discovering the defective workmanship (TSN, 5/26/93); and that he became aware of the imperfection in plaintiffs work as early as during the plastering of the walls (TSN, 10/12/97). The evidence is clear however that plaintiffs attention about the alleged faulty work was called for the first time only on November 16, 1990 when plaintiff was furnished with defendants letter bearing date of November 10, 1990 (Exh. 20) as their reply to plaintiffs letter of even date. xxxx It bears pointing out that defendant Cadag testified that during the construction of the house of defendant spouses he was at the job site everyday to see to it that the construction was being done according to the plans and specifications (TSN, 9/31/94). He was assisted in the project by the other supervising representatives of defendants spouses, namely, Engr. Rogelio Menguito, Engr. Armando Menguito and Arch. Hans Palma who went to the project site to attend the weekly meetings. It thus appears that there was a close monitoring by the defendant of the construction by the plaintiff. 3 On the basis of the foregoing findings, the trial court concluded thus: It is therefore the finding of this Court that defendants conclusions as to the workmanship and competence of plaintiff are unsupported and without basis and that their act of deleting several major items from plaintiffs scope of work was uncalled for, if not done in bad faith. Defendantss [sic] acts forced plaintiff to withdraw from the project. 4 Accordingly, the RTC rendered a Decision 5 with the following dispositive portion: WHEREFORE, judgment is hereby rendered as follows: 1. Ordering defendants Rodovaldo Cadag and spouses George and Susan Tan to pay plaintiff, jointly and severally: a) the sum of P366,340.00 representing the balance of the contract price; b) the amount of P49,578.56 representing the 5% retention fee; c) the amount of P45,000.00 as moral damages; d) the amount of P100,000.00 for and as attorneys fees; and

e) the amount of P17,000.00 as litigation expenses. 2. Dismissing defendants counterclaims. Costs against defendants. IT IS ORDERED. 6 Aggrieved by the trial courts decision, the spouses Tan filed an appeal with the CA contending that the trial court erred in not dismissing the complaint on the ground that G.V.T. has no legal capacity to sue; in not finding that it was G.V.T. which caused the delay in the construction of the subject residential house; in awarding amounts in favor of G.V.T. representing the balance of the contract price, retention fee, moral damages and attorneys fees; and in finding Cadag jointly and severally liable with the spouses Tan. In its Decision of June 29, 2001, the CA affirmed with modification the judgment of the trial court, to wit: IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby MODIFIED by deleting the awards for moral damages, attorneys fees and litigation expenses and dismissing the case against appellant Rodovaldo Cadag. In all other respect, the challenged judgment is AFFIRMED. Costs against the appellant-spouses George and Susan Tan. SO ORDERED. 7 Both parties filed their respective Motions for Partial Reconsideration but these were denied by the CA in its Resolution of April 10, 2002. 8 Hence, herein petition by the spouses Tan based on the following assignments of errors: 1. RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONERS DID NOT VIOLATE THEIR CONSTRUCTION AGREEMENT WITH THE PRIVATE RESPONDENT; HENCE, THEY CANNOT BE REQUIRED TO PAY THE AMOUNTS OF P366,340.00 REPRESENTING THE BALANCE OF THE CONTRACT PRICE OFP1,700,000.00 AND P49,578.56 REPRESENTING 5 PERCENT RETENTION FEE. xxxx 2. RESPONDENT COURT OF APPEALS LIKEWISE ERRED IN NOT ABSOLVING THE PETITIONERS FROM LIABILITY TO PRIVATE RESPONDENT. xxxx 3. RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE DISMISSAL OF CIVIL CASE NO. Q-90-7405 FOR LACK OF JURISDICTION ON THE PART OF THE LOWER COURT. 9 Petitioners contend that since Tactaquin consented and acquiesced to the changes and alterations made in the plan of the subject house he cannot complain and discontinue the construction of the said house. Petitioners assert that it would be highly unfair and unjust for them to be required to pay the amount representing the cost of the remaining unfinished portion of the house after it was

abandoned by Tactaquin, for to do so would enable the latter to unjustly enrich himself at their expense. With respect to the retention fee, petitioners argue that this amount is payable only after the house is completed and turned over to them. Since respondent never completed the construction of the subject house, petitioners claim that they should not be required to pay the retention fee. Petitioners also contend that respondent failed to prove that it is entitled to actual damages. As to the second assigned error, petitioners contend that since the CA dismissed the complaint against Cadag it follows that they should not also be held liable because they merely relied upon and followed the advice and instructions of Cadag whom they hired to supervise the construction of their house. Anent the last assigned error, petitioners argue that G.V.T., being a sole proprietorship, is not a juridical person and, hence, has no legal personality to institute the complaint with the trial court. Consequently, the trial court did not acquire jurisdiction over the case and all proceedings conducted by it are null and void. Petitioners contend that they raised this issue in their Answer to the Complaint and in their appeal to the CA. In their Supplemental Petition, petitioners contend that under their contract with G.V.T., the latter agreed to employ only labor in the construction of the subject house and that petitioners shall supply the materials; that it was error on the part of the CA and the trial court to award the remaining balance of the contract price in favor of respondent despite the fact that some items from the latters scope of work were deleted with its consent. Petitioners argue that since the above-mentioned items were deleted, it follows that respondent should not be compensated for the work which it has not accomplished. Petitioners went further to claim that the value of the deleted items should, in fact, be deducted from the original contract price. As to the delay in the construction of the subject house, petitioners assert that said delay was attributable to respondent which failed to pay the wages of its workers who, in turn, refused to continue working; that petitioners were even forced to pay the workers wages for the construction to continue. In its Comment, respondent contends that the CA and the trial court are one in finding that petitioners are the ones responsible for breach of contract, for unjustifiably deleting items agreed upon and delaying delivery of construction materials, and that these findings were never rebutted by contrary evidence. Respondent asserts that findings of fact of the trial court especially when affirmed by the CA are conclusive on the Supreme Court when supported by the evidence on record and that the Supreme Courts jurisdiction in cases brought before it from the CA via Rule 45 of the Rules of Court is limited to reviewing errors of law. As to the second assigned error, respondent asserts that petitioners argument is fallacious because the courts ruling absolving Cadag from liability is based on the fact that the there is no privity of contract between him and respondent. This, respondent argues, cannot be said with respect to it and petitioners. As to the last assigned error, respondent quoted portions of this Courts ruling in the case of Yao Ka Sin Trading v. Court of Appeals [10], as cited by the CA in its challenged Decision. In the said case, the Court basically held that no one has been misled by the error in the name of the party plaintiff and to send the case back to the trial court for amendment and new trial for the simple purpose of changing the name of the plaintiff is not justified considering that there would be, on re-trial, the same complaint, answer, defense, interests, witnesses and evidence. The Court finds the petition without merit. The Court finds it proper to discuss first the issue regarding G.V.T.s lack of legal personality to sue.

Petitioners raised the issue of G.V.T.s lack of legal personality to be a party in a civil action as a defense in their Answer with Counterclaims and, thus, are not estopped from raising this issue before the CA or this Court. 11 It is true that G.V.T. Engineering Services, being a sole proprietorship, is not vested with a legal personality to bring suit or defend an action in court. A perusal of the records of the present case shows that respondents complaint filed with the trial court as well as its Appellees Brief submitted to the CA and its Comment filed before this Court are all captioned as "G.V.T. Engineering Services acting through its owner/manager Gerino V. Tactaquin". In fact, the first paragraph of the complaint refers to G.V.T. as the plaintiff. On this basis, it can be inferred that G.V.T. was the one which filed the complaint and that it is only acting through its proprietor. However, subsequent allegations in the complaint show that the suit is actually brought by Tactaquin. Averments therein refer to the plaintiff as a natural person. In fact, one of the prayers in the complaint is for the recovery of moral damages by reason of "his sufferings, mental anguish, moral shock, sleepless nights, serious anxiety and besmirch[ed] reputation as an Engineer and Contractor." It is settled that, as a rule, juridical persons are not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. 12 From these, it can be inferred that it was actually Tactaquin who is the complainant. As such, the proper caption should have been "Gerino Tactaquin doing business under the name and style of G.V.T. Engineering Services", as is usually done in cases filed involving sole proprietorships. Nonetheless, these are matters of form and the Court finds the defect merely technical, which does not, in any way, affect its jurisdiction. This Court has held time and again that rules of procedure should be viewed as mere tools designed to aid the courts in the speedy, just and inexpensive determination of the cases before them. 13 Liberal construction of the rules and the pleadings is the controlling principle to effect substantial justice. 14 In fact, this Court is not impervious to instances when rules of procedure must yield to the loftier demands of substantial justice and equity.15 Citing Aguam v. Court of Appeals [16], this Court held in Barnes v. Quijano [17] that: The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts." Litigations must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice. 18 More importantly, there is no showing that respondents failure to place the correct caption in the complaint or to amend the same later resulted in any prejudice on the part of petitioners. Thus, this Court held as early as the case of Alonso v. Villamor, 19 that: No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same interests, the same witnesses, and the same evidence. The name of the plaintiff would constitute the only difference between the old trial and the new. In our judgment there is not enough in a name to justify such action. 20

In the same manner, it would be an unjustifiable abandonment of the principles laid down in the above-mentioned cases if the Court would nullify the proceedings had in the present case by the lower and appellate courts on the simple ground that the complaint filed with the trial court was not properly captioned. Coming to the merits of the case, the Court finds for the respondent. As to the first assigned error, respondent did not refute petitioners contention that he gave his consent and acquiesced to the decision of petitioners to change or alter the construction plan of the subject house. However, respondent contends that he did not agree to the deletions made by petitioners of some of the items of work covered by their contract. Both the trial and appellate courts gave credence to respondents contention when they ruled that petitioners were guilty of "deleting several major items from plaintiffs (herein respondents) scope of work" 21 or "of unjustifiably deleting items agreed upon in the construction agreement and delaying the delivery of construction materials" 22 thereby forcing respondent to withdraw from the project. From these acts of petitioners, both the trial and appellate courts made categorical findings that petitioners are the ones guilty of breach of contract. The Court upholds the factual findings of the trial and appellate courts with respect to petitioners liability for breach of their contract with respondent. Questions of facts are beyond the pale of Rule 45 of the Rules of Court as a petition for review may only raise questions of law. 23 Moreover, factual findings of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on this Court. 24 More so, as in this case, where petitioners have failed to show that the courts below overlooked or disregarded certain facts or circumstances of such import as would have altered the outcome of the case. 25 The Court, thus, finds no reason to set aside the lower courts factual findings. An examination of the records shows that respondent, indeed, refused to give his consent to the abovementioned deletions as evidenced by his letters dated November 10, 1990 26 and November 23, 1990 27 addressed to the spouses Tan. Moreover, petitioners delay in the delivery of construction materials is also evidenced by the minutes of the meeting held among the representatives of petitioners and respondent on May 5, 1990 28 as well as the letter of respondent to petitioners dated June 15, 1990. 29 Having resolved that petitioners are guilty of breach of contract, the next question is whether they are liable to pay the amounts of P366,340.00 and P49,578.56, which supposedly represent the balance of the price of their contract with respondent and 5% retention fee, respectively. There is no question that petitioners are liable for damages for having breached their contract with respondent. Article 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof are liable for damages. Moreover, the Court agrees with the trial court that under Article 1234 of the Civil Code, if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment less damages suffered by the obligee. In the present case, it is not disputed that respondent withdrew from the project on November 23, 1990. Prior to such withdrawal, respondents gave to petitioners its 22nd Billing, dated October 29, 1990, where the approximated percentage of work completed as of that date was 74% and the portion of the contract paid by petitioners so far was P1,265,660.60. 30 This was not disputed by petitioners. Hence, respondent was able to establish that he has substantially performed his obligation in good faith.

It is also established that a substantial part of the remaining items of work which were supposed to be done by respondent were deleted by petitioners from his scope of work and awarded to other contractors, thus, forcing him to withdraw from the contract. These works include the following: 1) soil poisoning; 2) T & G ceiling and flooring; 3) wood parquet; 4) vitrified floor tiles; 5) glazed and unglazed tiles; 6) washout; 7) marble flooring; 8) vinyl flooring; 9) plywood sheeting; 10) plain GI sheets; 11) cement tiles; 12) skylights; 13) Fixtures electrical works; and, 14) Fixtures and accessories and plumbing works. 31 The Court finds no cogent reason to depart from the ruling of the trial court, as affirmed by the CA, that since petitioners are guilty of breach of contract by deleting the above-mentioned items from respondents scope of work, the value of the said items should be credited in respondents favor. It is established that if the above-mentioned deleted items would have been performed by respondent, as it should have been pursuant to their contract, the construction is already 96% completed. 32 Hence, respondent should be paid 96% of the total contract price of P1,700,000, or P1,632,000.00. The Court agrees with the trial court that since petitioners already paid respondent the total amount of P1,265,660.00, the former should be held liable to pay the balance ofP366,340.00. As to the 5% retention fee which respondent seeks to recover, petitioners do not deny that they have retained the same in their custody. The only contention petitioners advance is that respondent is not entitled to recover this fee because it is stipulated under their contract that petitioners shall only give them to respondent upon completion of the project and the same is turned over to them. In the present case, respondent was not able to complete the project. However, his failure to complete his obligation under the contract was not due to his fault but because he was forced to withdraw therefrom by reason of the breach committed by petitioners. Nonetheless, as earlier discussed, at the time that respondent withdrew from the contract, he has already performed in good faith a substantial portion of his obligation. Considering that he was not at fault, the law provides that he is entitled to recover as though there has been a strict and complete fulfillment of his obligation. 33 On this basis, the Court finds no error in the ruling of the trial and appellate courts that respondent is entitled to the recovery of 5% retention fee. The Court finds that respondent was only able to establish the amount of P20,772.05, which is the sum of all the retention fees appearing in the bills presented by respondent in evidence. 34 Settled is the rule that actual or compensatory damages cannot be presumed but must be proved with reasonable degree of certainty. 35 A court cannot rely on speculations, conjectures or guesswork as to the fact of damage but must depend upon competent proof that they have indeed been suffered by the injured party and on the basis of the best evidence obtainable as to the actual amount thereof. 36 It must point out specific facts that could provide the gauge for measuring whatever compensatory or actual damages were borne. 37 Considering that the documentary evidence presented by respondent to prove the sum of retention fees sought to be recovered totals an amount which is less than that granted by the trial court, it is only proper to reduce such award in accordance with the evidence presented. As to the second assigned error, it is wrong for petitioners to argue that since Cadag, whom they hired to supervise the construction of their house, was absolved by the court from liability, they should not also be held liable. The Court finds no error on the part of the CA in ruling that it is a basic principle in civil law, on relativity of contracts, that contracts can only bind the parties who had entered into it and it cannot favor or prejudice third persons. Contracts take effect only between the parties, their successors in interest, heirs and assigns. 38Moreover, every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. 39 In the present case, the complaint for specific

performance filed by herein respondent with the trial court was based on the failure of the spouses Tan to faithfully comply with the provisions of their contract. In other words, respondents cause of action was the breach of contract committed by the spouses Tan. Cadag is not a party to this contract. Neither did he enter into any contract with respondent regarding the construction of the subject house. Hence, considering that respondents cause of action was breach of contract and since there is no privity of contract between him and Cadag, there is no obligation or liability to speak about and thus no cause of action arises. Clearly, Cadag, not being privy to the transaction between respondent and the spouses Tan, should not be made to answer for the latters default. Furthermore, Cadag was employed by the spouses Tan to supervise the construction of their house. Acting as such, his role is merely that of an agent. The essence of agency being the representation of another, it is evident that the obligations contracted are for and on behalf of the principal. 40 A consequence of this representation is the liability of the principal for the acts of his agent performed within the limits of his authority that is equivalent to the performance by the principal himself who should answer therefor. 41 In the present case, since there is neither allegation nor evidence that Cadag exceeded his authority, all his acts are considered as those of his principal, the spouses Tan, who are, therefore, the ones answerable for such acts. WHEREFORE, the petition is partly GRANTED. The appealed Decision and Resolution of the Court of Appeals areAFFIRMED with MODIFICATION whereby the amount of retention fee which petitioners are ordered to pay is reduced from P49,578.56 to P20,772.05. No costs. SO ORDERED. MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice ROMEO J. CALLEJO, SR. Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Penned by Justice Conrado M. Vasquez, Jr. and concurred in by Justices Martin S. Villarama, Jr. and Sergio L. Pestao.
2

Id. RTC Decision, original records, pp. 470-472. Id. at 472. Penned by then Judge Wenceslao I. Agnir, Jr., now retired Justice of the Court of Appeals. RTC Decision, supra, pp. 475-476. CA records, p. 170. Id. at 214. Rollo, pp. 14-18. G.R. No. 53820, June 15, 1992, 209 SCRA 763. Records, pp. 77, 82.

10

11

12

Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine, (AMEC-BCCM), G.R. No. 141994, January 17, 2005, 448 SCRA 413, 435.
13

Sanchez v. Court of Appeals, 452 Phil. 665, 673 (2003). Id. Remulla v. Manlongat, G.R. No. 148189, November 11, 2004, 442 SCRA 226, 233. 388 Phil. 587 (2000). G.R. No. 160753, June 28, 2005, 461 SCRA 533. Id. at 540. 16 Phil. 315 (1910). Id. at 321. RTC Decision, records, p. 472.

14

15

16

17

18

19

20

21

22

CA Decision, CA rollo, p. 168.

23

National Power Corporation v. Court of Appeals, G.R. No. 106804, August 12, 2004, 436 SCRA 195, 208.
24

Id. Metro Manila Transit Corporation v. Court of Appeals, 435 Phil. 129, 138 (2002). Exhibit "B," Plaintiffs Exhibits (separate folder), p. 31. Exhibit "B-1," Plaintiffs Exhibits, p. 32. Exhibit "H-5," Plaintiffs Exhibits, p. 65. Exhibit "D," Plaintiffs Exhibits, p. 38. Exhibit "F," Plaintiffs Exhibits, p. 52. Exhibit "I," Plaintiffs Exhibits, p. 68. Id. Civil Code, Article 1234, supra.

25

26

27

28

29

30

31

32

33

Exhibits "L" to "L-24" which corresponds to item IV(a) of Defendants Exhibits "22-I," "22-J," "22-O," "22-P," "22-S," "22-U," "22-Z," "22-BB," "22-FF," "22-JJ," "22-MM," "22-PP," "22-TT," "22-ZZ," "22-FFF," "22-III," "22-LLL," "22-PPP," "22-CCCC," "22-RRRR," "22-SSSS," "22TTTTT," "22-YYYYY" and "22-DDDDDD," Defendants Additional Exhibits, separate folder, pp. 26, 27, 32, 33, 36, 38, 43, 45, 49, 53, 56, 59, 63, 69, 75, 78, 81, 85, 98, 113, 114, 141, 146 and 151.
34 35

Saguid v. Security Finance, Inc., G.R. 159467, December 9, 2005, 477 SCRA 256, 275. Lagon v. Hooven Comalco Industries, Inc., 402 Phil. 404, 424-425 (2001). Id. at 425. Civil Code, Article 1311. Smith Bell and Company v. Court of Appeals, 335 Phil. 194, 202 (1997). Siredy Enterprises Inc. v. Court of Appeals, 437 Phil. 580, 592 (2002). Id.

36

37

38

39

40

41

G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner, vs. MA. AURA TINA ANGELES, Respondent. DECISION AUSTRIA-MARTINEZ, J.: This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration. The antecedents of the case follow: On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 9782716. Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result and was forced to litigate. Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks

and for which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result. The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages. On July 29, 1998, the RTC rendered a decision the dispositive portion of which states: WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence. With costs against plaintiff. SO ORDERED. The RTC held that the sale was void for lack of cause or consideration:5 Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus: "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed before the notary public, etc." The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code). Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6 On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads: WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs. SO ORDERED.

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and interest. The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondents bank account;8 that petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10 Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is considered just or legal if made to enforce ones claim through competent authority under Article 133511of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13 On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioners father, who co-owned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property. On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present Petition and raised the following issues: I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT. II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. III. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14 Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptions, at least three of which are present in

the instant case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of the case. The Petition is meritorious. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. 1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicated on that pre-existing debt, is void for lack of consideration. Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same is without cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the sale. To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;18 second; the money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21 On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination:22 Atty. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. Yes, sir. Atty. Diza: q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends? witness: a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred. Atty. Diza:

q. And you have transact[ed] with the plaintiff? witness: a. Yes, sir. Atty. Diza: q. What is that transaction? witness: a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza: q. Did the plaintiff personally see the transactions with your friends? witness: a. No, sir. Atty. Diza: q. Your friends and the plaintiff did not meet personally? witness: a. Yes, sir. Atty. Diza: q. You are intermediaries? witness: a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of Arsenio Pua because the money came from Arsenio Pua. xxxx Atty. Diza: q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a] while ago? witness: a. Yes, she knows the money will go to those persons.

Atty. Diza: q. You are re-lending the money? witness: a. Yes, sir. Atty. Diza: q. What profit do you have, do you have commission? witness: a. Yes, sir. Atty. Diza: q. How much? witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross examination:23 Atty. Villacorta: q. Who is this Arsenio Pua? witness: a. Principal financier, sir. Atty. Villacorta: q. So the money came from Arsenio Pua? witness: a. Yes, because I am only representing him, sir. Other portions of the testimony of respondent must likewise be considered:24 Atty. Villacorta:

q. So it is not actually your money but the money of Arsenio Pua? witness: a. Yes, sir. Court: q. It is not your money? witness: a. Yes, Your Honor. Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you aware of that? witness: a. I am aware of that. Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant? witness: a. Yes, sir, I am aware of that. xxxx Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. They go direct to Jocelyn because I dont know them. xxxx Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends who [are] in need of money issued check[s] to you? There were checks issued to you?

witness: a. Yes, there were checks issued. Atty. Villacorta: q. By the friends of the defendant, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness: a. Yes, sir. Atty. Villacorta: q. So that occasion lasted for more than a year? witness: a. Yes, sir. Atty. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounced, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of that Arsenio Pua got mad with you? witness: a. Yes, sir. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends whom she (petitioner) referred.

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention.26Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one professes to act as agent for another, she may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.28 In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner. The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where the principal need not personally know or meet the third person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.29 In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or not.31 That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were made through the bank accounts of petitioner and respondent, suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the contrary.32

In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration. 2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale.34 Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged coowner. Rather, it states that the property is registered in the name of "Household Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on the record, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled."40 In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place, endowed with any ownership rights to validly mortgage and convey the property. As the complainant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale. Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED andSET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED. SO ORDERED. MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR:

ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice ROMEO J. CALLEJO, SR. Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Penned by Associate Justice Fermin A. Martin (now retired), with Associate Justices Portia Alio-Hormachuelos and Mercedes Gozo-Dadole, concurring.
2

Penned by Associate Justice Mercedes Gozo-Dadole (vice retired Justice Fermin A. Martin, Jr.), with Associate Justices Portia Alio-Hormachuelos and Marina L. Buzon (new Third Member).
3

Exhibit "B", records, p. 9. Exhibit "A"; records, p 7. RTC Decision, at 7-8. CA records, p. 19. CA Decision, rollo, pp. 52-54. Id. at 54-55. Id. at 9. Id. at 9-10. Article 1335 of the Civil Code provides:

10

11

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. xxxx A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (emphasis supplied).
12

CA Decision, at 10-12. Id. at 12. Rollo, p. 81.

13

14

15

See Rivera v. Roman, G.R. No. 142402, September 20, 2005, 470 SCRA 276; The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No. 122249, January 29, 2004, 421 SCRA 310, 319; C & S Fishfarm Corporation v. Court of Appeals, 442 Phil. 279 (2002).
16

The fourth paragraph of the Deed of Absolute Sale reads: "NOW THEREFORE, for and in consideration of the sum of FOUR HUNDRED FIVE THOUSAND FOUR HUNDRED THIRTY PESOS ONLY (P 405,430.00) Philippine Currency, the Seller hereby SELLS, TRANSFERS and CONVEYS to the Buyer, his heirs, successors or assigns, the above-described parcel of land together with all the improvements thereon." Exhibit "B".
17

See Zulueta v. Wong, G.R. No. 153514, June 8, 2005, 459 SCRA 671; Buenaventura v. Court of Appeals, G.R. No. 126376, November 20, 2003, 416 SCRA 263; Montecillo v. Reynes, 434 Phil. 456 (2002);Cruz v. Bancom Finance Co., 429 Phil. 224 (2002); Rongavilla v. Court of Appeals, 355 Phil. 720 (1998);Bagnas v. Court of Appeals, G.R. No. 38498, August 10, 1989, 176 SCRA 159; Civil Code (1950) Arts. 1352, 1458 & 1471.
18

CA Decision, at 5-7; rollo, p. 48. Id. at 7-8. Id. at 9. Id. at 9-10. TSN, March 23, 1998, pp. 15-18, 20-21. TSN, January 29, 1998, p. 18. Id. at 19-23.

19

20

21

22

23

24

25

See Amon Trading Co. v. Court of Appeals, G.R. No. 158585, December 13, 2005; Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184 (2000); Civil Code (1950), Art. 1868.
26

See Victorias Milling Co., Inc. v. Court of Appeals, id. citing Connell v. McLoughlin, 28 Or. 230, 42 P. 218;Halladay v. Underwood, 90 Ill. App. 130; Internal Trust Co. v. Bridges, 57 F. 753; Hector M. De Leon & Hector M. De Leon, Jr. Comments and Cases on Partnership, Agency, and Trusts, 356-57 (1999).
27

Civil Code (1950), Arts. 1869-72. De Leon & De Leon, Jr., supra note 24, at 409.

28

29

Id. at 349, citing Orient Air Services & Hotel Representatives v. Court of Appeals, 274 Phil. 926 (1991).
30

Id. at 356, citing Cia v. Phil. Refining Co., 45 Phil. 556, December 20, 1923; 5 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 398 (1991).
31

See Cia v. Phil. Refining Co., id. citing 3 Am. Jur. 2d., 430-31. Civil Code (1950), Arts. 1892-93. Paragraph 6 of respondents complaint reads: 6. On October 5. 1996 after defendant continuously failed to settle her personal obligation to plaintiff, defendant offered to pay plaintiff by way of ceding the abovedescribed property on condition that plaintiff would assume the balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years to which the latter agreed; x x x Annex "D" of the Petition, Rollo, p. 39. Respondent testified as follows: Q. At the time of the sale, can you tell to this Court whether the defendant [is] still indebted to the [NHMFC]? A. I am aware that she is indebted. Q. Is there any agreement with respect to the obligation of the defendant to the NHMFC? A. We have a verbal agreement that I will be the one to assume the balance. Q. When you speak of balance what are you talking to? [sic] A. Undue [sic] balance, sir. TSN, January 13, 1998, at 14 (emphasis supplied).

32

33

34

See Bravo-Guerrero v. Bravo, G.R. No. 152658, July 29, 2005, 465 SCRA 244.

35

TSN, February 26, 1998, pp. 5-6. Exhibit "A"; Rollo, p. 17. Id. Exhibit "A-1"; Rollo, p. 72. Civil Code (1950), Art. 2085(3).

36

37

38

39

See Gonzales v. Toledo, G.R. No. 149465, December 8, 2003, 417 SCRA 260; Tsai v. Court of Appeals, 418 Phil. 606 (2001); Philippine Bank of Communications v. Court of Appeals, et al., 418 Phil. 606 (2001);Noel v. Court of Appeals, 310 Phil. 89 (1995); Segura v. Segura, 165 SCRA 368, 375 (1988).
40

Exhibit "A"; Rollo, p. 71.

G.R. No. 152613 & No. 152628

June 23, 2006

APEX MINING CO., INC., petitioner, vs. SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTINGBATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes management mining corporation, Respondents. x--------------------------------------x G.R. No. 152619-20 June 23, 2006

BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner, vs. SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO., INC., the mines adjudication board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes management mining corporation, Respondents. x--------------------------------------x G.R. No. 152870-71 June 23, 2006

THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR HORACIO RAMOS (Member),petitioners, vs. SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent. DECISION CHICO-NAZARIO, J.: On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369, establishing the Agusan-Davao-Surigao Forest Reserve consisting of approximately 1,927,400 hectares.1 The disputed area, a rich tract of mineral land, is inside the forest reserve located at Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759 hectares.2 This mineral land is encompassed by Mt. Diwata, which is situated in the municipalities of Monkayo and Cateel. It later became known as the "Diwalwal Gold Rush Area." It has since the early 1980s been stormed by

conflicts brought about by the numerous mining claimants scrambling for gold that lies beneath its bosom. On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL) for six mining claims in the area. Camilo Banad and some other natives pooled their skills and resources and organized the Balite Communal Portal Mining Cooperative (Balite).3 On 12 December 1983, Apex Mining Corporation (Apex) entered into operating agreements with Banad and his group. From November 1983 to February 1984, several individual applications for mining locations over mineral land covering certain parts of the Diwalwal gold rush area were filed with the Bureau of Mines and Geo-Sciences (BMG). On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims for areas adjacent to the area covered by the DOL of Banad and his group. After realizing that the area encompassed by its mining claims is a forest reserve within the coverage of Proclamation No. 369 issued by Governor General Davis, MMC abandoned the same and instead applied for a prospecting permit with the Bureau of Forest Development (BFD). On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an area within the forest reserve under Proclamation No. 369. The permit embraced the areas claimed by Apex and the other individual mining claimants. On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP 133). Discovering the existence of several mining claims and the proliferation of small-scale miners in the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged that the areas covered by its EP 133 and the mining claims of Apex were within an established and existing forest reservation (Agusan-DavaoSurigao Forest Reserve) under Proclamation No. 369 and that pursuant to Presidential Decree No. 463,4 acquisition of mining rights within a forest reserve is through the application for a permit to prospect with the BFD and not through registration of a DOL with the BMG. On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging that its mining claims are not within any established or proclaimed forest reserve, and as such, the acquisition of mining rights thereto must be undertaken via registration of DOL with the BMG and not through the filing of application for permit to prospect with the BFD. On 9 December 1986, BMG dismissed MMCs petition on the ground that the area covered by the Apex mining claims and MMCs permit to explore was not a forest reservation. It further declared null and void MMCs EP 133 and sustained the validity of Apex mining claims over the disputed area. MMC appealed the adverse order of BMG to the Department of Environment and Natural Resources (DENR).

On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of BMG and declared MMCs EP 133 valid and subsisting. Apex filed a Motion for Reconsideration with the DENR which was subsequently denied. Apex then filed an appeal before the Office of the President. On 27 July 1989, the Office of the President, through Assistant Executive Secretary for Legal Affairs, Cancio C. Garcia,5 dismissed Apexs appeal and affirmed the DENR ruling. Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991, this Court rendered a Decision against Apex holding that the disputed area is a forest reserve; hence, the proper procedure in acquiring mining rights therein is by initially applying for a permit to prospect with the BFD and not through a registration of DOL with the BMG. On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale mining purposes. As DAO No. 66 declared a portion of the contested area open to small scale miners, several mining entities filed applications for Mineral Production Sharing Agreement (MPSA). On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed an MPSA application which was denied by the BMG on the grounds that the area applied for is within the area covered by MMC EP 133 and that the MISSMA was not qualified to apply for an MPSA under DAO No. 82,7 Series of 1990. On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for Cancellation of EP 133 and for the admission of their MPSA Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative (DUMC) and Balite intervened and likewise sought the cancellation of EP 133. On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned subsidiary of MMC. On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area that was later on rejected. On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares under EP 133, which was also denied by reason of the pendency of RED Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA application. On 20 October 1995, BMG accepted and registered SEMs MPSA application and the Deed of Assignment over EP 133 executed in its favor by MMC. SEMs application was designated MPSA Application No. 128 (MPSAA 128). After publication of SEMs application, the following filed before the BMG their adverse claims or oppositions: a) MAC Case No. 004 (XI) JB Management Mining Corporation; b) MAC Case No. 005(XI) Davao United Miners Cooperative;

c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative; d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association, Inc. (MISSMA); e) MAC Case No. 008(XI) Paper Industries Corporation of the Philippines; f) MAC Case No. 009(XI) Rosendo Villafor, et al.; g) MAC Case No. 010(XI) Antonio Dacudao; h) MAC Case No. 011(XI) Atty. Jose T. Amacio; i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative; j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative; k) MAC Case No. 97-01(XI) Romeo Altamera, et al.8 To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the following: (a) The adverse claims on MPSAA No. 128; and (b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case No. 8-894.9 On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the Petition for Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and subsisting. It also declared that the BMG Director, under Section 99 of the Consolidated Mines Administrative Order implementing Presidential Decree No. 463, was authorized to issue exploration permits and to renew the same without limit. With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that adverse claimants petitions were not filed in accordance with the existing rules and regulations governing adverse claims because the adverse claimants failed to submit the sketch plan containing the technical description of their respective claims, which was a mandatory requirement for an adverse claim that would allow the PA to determine if indeed there is an overlapping of the area occupied by them and the area applied for by SEM. It added that the adverse claimants were not claim owners but mere occupants conducting illegal mining activities at the contested area since only MMC or its assignee SEM had valid mining claims over the area as enunciated in Apex Mining Co., Inc. v. Garcia.11 Also, it maintained that the adverse claimants were not qualified as small-scale miners under DENR Department Administrative Order No. 34 (DAO No. 34),12 or the Implementing Rules and Regulation of Republic Act No. 7076 (otherwise known as the "Peoples Small-Scale Mining Act of 1991"), as they were not duly licensed by the DENR to engage in the extraction or removal of minerals from the ground, and that they were large-scale miners. The decretal portion of the PA resolution pronounces: VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133 is hereby reiterated and all the adverse claims against MPSAA No. 128 are DISMISSED.13

Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication Board (MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the dismissal by the PA of the adverse claims filed against MMC and SEM over a mere technicality of failure to submit a sketch plan. It argued that the rules of procedure are not meant to defeat substantial justice as the former are merely secondary in importance to the latter. Dealing with the question on EP 133s validity, the MAB opined that said issue was not crucial and was irrelevant in adjudicating the appealed case because EP 133 has long expired due to its non-renewal and that the holder of the same, MMC, was no longer a claimant of the Agusan-Davao-Surigao Forest Reserve having relinquished its right to SEM. After it brushed aside the issue of the validity of EP 133 for being irrelevant, the MAB proceeded to treat SEMs MPSA application over the disputed area as an entirely new and distinct application. It approved the MPSA application, excluding the area segregated by DAO No. 66, which declared 729 hectares within the Diwalwal area as non-forest lands open for small-scale mining. The MAB resolved: WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators dated 13 June 1997 is hereby VACATED and a new one entered in the records of the case as follows: 1. SEMs MPSA application is hereby given due course subject to the full and strict compliance of the provisions of the Mining Act and its Implementing Rules and Regulations; 2. The area covered by DAO 66, series of 1991, actually occupied and actively mined by the small-scale miners on or before August 1, 1987 as determined by the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the area applied for by SEM; 3. A moratorium on all mining and mining-related activities, is hereby imposed until such time that all necessary procedures, licenses, permits, and other requisites as provided for by RA 7076, the Mining Act and its Implementing Rules and Regulations and all other pertinent laws, rules and regulations are complied with, and the appropriate environmental protection measures and safeguards have been effectively put in place; 4. Consistent with the spirit of RA 7076, the Board encourages SEM and all small-scale miners to continue to negotiate in good faith and arrive at an agreement beneficial to all. In the event of SEMs strict and full compliance with all the requirements of the Mining Act and its Implementing Rules and Regulations, and the concurrence of the small-scale miners actually occupying and actively mining the area, SEM may apply for the inclusion of portions of the areas segregated under paragraph 2 hereof, to its MPSA application. In this light, subject to the preceding paragraph, the contract between JB [JB Management Mining Corporation] and SEM is hereby recognized.14 Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM, aggrieved by the exclusion of 729 hectares from its MPSA application, likewise appealed. Apex filed a Motion for Leave to Admit Petition for Intervention predicated on its right to stake its claim over the Diwalwal gold rush which was granted by the Court. These cases, however, were remanded to the Court of Appeals for proper disposition pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court of Appeals consolidated the remanded cases as CA-G.R. SP No. 61215 and No. 61216. In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the decision of the PA and declared null and void the MAB decision. The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue of its assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that since SEM is an agent of MMC, the

assignment of EP 133 did not violate the condition therein prohibiting its transfer except to MMCs duly designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant to declare EP 133 as valid since MMCs mining rights were validly transferred to SEM prior to its expiration. The Court of Appeals also ruled that MMCs right to explore under EP 133 is a property right which the 1987 Constitution protects and which cannot be divested without the holders consent. It stressed that MMCs failure to proceed with the extraction and utilization of minerals did not diminish its vested right to explore because its failure was not attributable to it. Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7, and 8 of Presidential Decree No. 463, the Court of Appeals concluded that the issuance of DAO No. 66 was done by the DENR Secretary beyond his power for it is the President who has the sole power to withdraw from the forest reserve established under Proclamation No. 369 as non-forest land for mining purposes. Accordingly, the segregation of 729 hectares of mining areas from the coverage of EP 133 by the MAB was unfounded. The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when he awarded the 729 hectares segregated from the coverage area of EP 133 to other corporations who were not qualified as small-scale miners under Republic Act No. 7076. As to the petitions of Villaflor and company, the Court of Appeals argued that their failure to submit the sketch plan to the PA, which is a jurisdictional requirement, was fatal to their appeal. It likewise stated the Villaflor and companys mining claims, which were based on their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of the Decision decreed: WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto and the assailed MAB Decision is hereby SET ASIDE and declared as NULL and VOID.16 Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court filed by Apex, Balite and MAB. During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued Proclamation No. 297 dated 25 November 2002. This proclamation excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as mineral reservation and as environmentally critical area. Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an emergency situation in the Diwalwal gold rush area and ordering the stoppage of all mining operations therein. Thereafter, Executive Order No. 217 dated 17 June 2003 was issued by the President creating the National Task Force Diwalwal which is tasked to address the situation in the Diwalwal Gold Rush Area. In G.R. No. 152613 and No. 152628, Apex raises the following issues: I WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE TERMS AND CONDITIONS PRESCRIBED IN EP 133.

II WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE ITS CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT."17 In G.R. No. 152619-20, Balite anchors its petition on the following grounds: I WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE (JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE. II WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITES ADVERSE CLAIM. III WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.18 In G.R. No. 152870-71, the MAB submits two issues, to wit: I WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING. II WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE DIWALWAL GOLD RUSH AREA.19 The common issues raised by petitioners may be summarized as follows: I. Whether or not the Court of Appeals erred in upholding the validity and continuous existence of EP 133 as well as its transfer to SEM; II. Whether or not the Court of Appeals erred in declaring that the DENR Secretary has no authority to issue DAO No. 66; and

III. Whether or not the subsequent acts of the executive department such as the issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and Balites claims over the Diwalwal Gold Rush Area. On the first issue, Apex takes exception to the Court of Appeals ruling upholding the validity of MMCs EP 133 and its subsequent transfer to SEM asserting that MMC failed to comply with the terms and conditions in its exploration permit, thus, MMC and its successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex pointed out that MMC violated four conditions in its permit. First, MMC failed to comply with the mandatory work program, to complete exploration work, and to declare a mining feasibility. Second, it reneged on its duty to submit an Environmental Compliance Certificate. Third, it failed to comply with the reportorial requirements. Fourth, it violated the terms of EP 133 when it assigned said permit to SEM despite the explicit proscription against its transfer. Apex likewise emphasizes that MMC failed to file its MPSA application required under DAO No. 8220 which caused its exploration permit to lapse because DAO No. 82 mandates holders of exploration permits to file a Letter of Intent and a MPSA application not later than 17 July 1991. It said that because EP 133 expired prior to its assignment to SEM, SEMs MPSA application should have been evaluated on its own merit. As regards the Court of Appeals recognition of SEMs vested right over the disputed area, Apex bewails the same to be lacking in statutory bases. According to Apex, Presidential Decree No. 463 and Republic Act No. 7942 impose upon the claimant the obligation of actually undertaking exploration work within the reserved lands in order to acquire priority right over the area. MMC, Apex claims, failed to conduct the necessary exploration work, thus, MMC and its successor-in-interest SEM lost any right over the area. In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is an expired and void permit which cannot be made the basis of SEMs MPSA application. Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of the transfer of EP 133 because the transfer directly violates the express condition of the exploration permit stating that "it shall be for the exclusive use and benefit of the permittee or his duly authorized agents." It added that while MMC is the permittee, SEM cannot be considered as MMCs duly designated agent as there is no proof on record authorizing SEM to represent MMC in its business dealings or undertakings, and neither did SEM pursue its interest in the permit as an agent of MMC. According to the MAB, the assignment by MMC of EP 133 in favor of SEM did not make the latter the duly authorized agent of MMC since the concept of an agent under EP 133 is not equivalent to the concept of assignee. It finds fault in the assignment of EP 133 which lacked the approval of the DENR Secretary in contravention of Section 25 of Republic Act No. 794221 requiring his approval for a valid assignment or transfer of exploration permit to be valid. SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the MAB relate to factual and evidentiary matters which this Court cannot inquire into in an appeal by certiorari. The established rule is that in the exercise of the Supreme Courts power of review, the Court not being a trier of facts, does not normally embark on a re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the Court of Appeals are conclusive and binding on the Court.22 This rule, however, admits of exceptions as recognized by jurisprudence, to wit:

(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.23 Also, in the case of Manila Electric Company v. Benamira,24 the Court in a Petition for Review on Certiorari, deemed it proper to look deeper into the factual circumstances of the case since the Court of Appeals findings are at odds to those of the National Labor Relations Commission (NLRC). Just like in the foregoing case, it is this Courts considered view that a re-evaluation of the attendant facts surrounding the present case is appropriate considering that the findings of the MAB are in conflict with that of the Court of Appeals. I At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP 133 pursuant to a Deed of Assignment dated 16 February 1994.25 EP 133 is subject to the following terms and conditions26 : 1. That the permittee shall abide by the work program submitted with the application or statements made later in support thereof, and which shall be considered as conditions and essential parts of this permit; 2. That permittee shall maintain a complete record of all activities and accounting of all expenditures incurred therein subject to periodic inspection and verification at reasonable intervals by the Bureau of Mines at the expense of the applicant; 3. That the permittee shall submit to the Director of Mines within 15 days after the end of each calendar quarter a report under oath of a full and complete statement of the work done in the area covered by the permit; 4. That the term of this permit shall be for two (2) years to be effective from this date, renewable for the same period at the discretion of the Director of Mines and upon request of the applicant; 5. That the Director of Mines may at any time cancel this permit for violation of its provision or in case of trouble or breach of peace arising in the area subject hereof by reason of conflicting interests without any responsibility on the part of the government as to expenditures for exploration that might have been incurred, or as to other damages that might have been suffered by the permittee; and 6. That this permit shall be for the exclusive use and benefit of the permittee or his duly authorized agents and shall be used for mineral exploration purposes only and for no other purpose.

Under Section 9027 of Presidential Decree No. 463, the applicable statute during the issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with carrying out the said law. Also, under Commonwealth Act No. 136, also known as "An Act Creating The Bureau of Mines," which was approved on 7 November 1936, the Director of Mines has the direct charge of the administration of the mineral lands and minerals, and of the survey, classification, lease or any other form of concession or disposition thereof under the Mining Act.28 This power of administration includes the power to prescribe terms and conditions in granting exploration permits to qualified entities. Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within his power in laying down the terms and conditions attendant thereto. Condition number 6 categorically states that the permit shall be for the exclusive use and benefit of MMC or its duly authorized agents. While it may be true that SEM, the assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any evidence showing that the former is the duly authorized agent of the latter. For a contract of agency to exist, it is essential that the principal consents that the other party, the agent, shall act on its behalf, and the agent consents so as to act.29 In the case of Yu Eng Cho v. Pan American World Airways, Inc.,30 this Court had the occasion to set forth the elements of agency, viz: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority. The existence of the elements of agency is a factual matter that needs to be established or proven by evidence. The burden of proving that agency is extant in a certain case rests in the party who sets forth such allegation. This is based on the principle that he who alleges a fact has the burden of proving it.31 It must likewise be emphasized that the evidence to prove this fact must be clear, positive and convincing.32 In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of agency actually exists between them so as to allow SEM to use and benefit from EP 133 as the agent of MMC. SEM did not claim nor submit proof that it is the designated agent of MMC to represent the latter in its business dealings or undertakings. SEM cannot, therefore, be considered as an agent of MMC which can use EP 133 and benefit from it. Since SEM is not an authorized agent of MMC, it goes without saying that the assignment or transfer of the permit in favor of SEM is null and void as it directly contravenes the terms and conditions of the grant of EP 133. Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not on his own behalf but on behalf of his principal.33 While in assignment, there is total transfer or relinquishment of right by the assignor to the assignee.34 The assignee takes the place of the assignor and is no longer bound to the latter. The deed of assignment clearly stipulates: 1. That for ONE PESO (P1.00) and other valuable consideration received by the ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in the area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan, Agusan del Sur respectively.35

Bearing in mind the just articulated distinctions and the language of the Deed of Assignment, it is readily obvious that the assignment by MMC of EP 133 in favor of SEM did not make the latter the formers agent. Such assignment involved actual transfer of all rights and obligations MMC have under the permit in favor of SEM, thus, making SEM the permittee. It is not a mere grant of authority to SEM, as an agent of MMC, to use the permit. It is a total abdication of MMCs rights over the permit. Hence, the assignment in question did not make SEM the authorized agent of MMC to make use and benefit from EP 133. The condition stipulating that the permit is for the exclusive use of the permittee or its duly authorized agent is not without any reason. Exploration permits are strictly granted to entities or individuals possessing the resources and capability to undertake mining operations. Without such a condition, non-qualified entities or individuals could circumvent the strict requirements under the law by the simple expediency acquiring the permit from the original permittee. We cannot lend recognition to the Court of Appeals theory that SEM, being a 100% subsidiary of MMC, is automatically an agent of MMC. A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.36 It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.37 Resultantly, absent any clear proof to the contrary, SEM is a separate and distinct entity from MMC. The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to legitimize the prohibited transfer or assignment of EP 133. It stresses that SEM is just a business conduit of MMC, hence, the distinct legal personalities of the two entities should not be recognized. True, the corporate mask may be removed when the corporation is just an alter ego or a mere conduit of a person or of another corporation.38 For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against a third person.39 However, this Court has made a caveat in the application of the doctrine of piercing the corporate veil. Courts should be mindful of the milieu where it is to be applied. Only in cases where the corporate fiction was misused to such an extent that injustice, fraud or crime was committed against another, in disregard of its rights may the veil be pierced and removed. Thus, a subsidiary corporation may be made to answer for the liabilities and/or illegalities done by the parent corporation if the former was organized for the purpose of evading obligations that the latter may have entered into. In other words, this doctrine is in place in order to expose and hold liable a corporation which commits illegal acts and use the corporate fiction to avoid liability from the said acts. The doctrine of piercing the corporate veil cannot therefore be used as a vehicle to commit prohibited acts because these acts are the ones which the doctrine seeks to prevent. To our mind, the application of the foregoing doctrine is unwarranted. The assignment of the permit in favor of SEM is utilized to circumvent the condition of non-transferability of the exploration permit. To allow SEM to avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine precisely seeks to forestall. Quite apart from the above, a cursory consideration of the mining law pertinent to the case, will, indeed, demonstrate the infraction committed by MMC in its assignment of EP 133 to SEM. Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral Resources Development Decree, which governed the old system of exploration, development, and utilization of mineral resources through "license, concession or lease" prescribed:

SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest therein shall not be transferred, assigned, or subleased without the prior approval of the Secretary: Provided, That such transfer, assignment or sublease may be made only to a qualified person possessing the resources and capability to continue the mining operations of the lessee and that the assignor has complied with all the obligations of the lease: Provided, further, That such transfer or assignment shall be duly registered with the office of the mining recorder concerned. (Emphasis supplied.) The same provision is reflected in Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995, which is the new law governing the exploration, development and utilization of the natural resources, which provides: SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned to a qualified person subject to the approval of the Secretary upon the recommendation of the Director. The records are bereft of any indication that the assignment bears the imprimatur of the Secretary of the DENR. Presidential Decree No. 463, which is the governing law when the assignment was executed, explicitly requires that the transfer or assignment of mining rights, including the right to explore a mining area, must be with the prior approval of the Secretary of DENR. Quite conspicuously, SEM did not dispute the allegation that the Deed of Assignment was made without the prior approval of the Secretary of DENR. Absent the prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore, without legal effect for violating the mandatory provision of Presidential Decree No. 463. An added significant omission proved fatal to MMC/SEMs cause. While it is true that the case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which between Apex and MMC validly acquired mining rights over the disputed area, such rights, though, had been extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133 was extended for 12 months or until 6 July 1994.41 MMC never renewed its permit prior and after its expiration. Thus, EP 133 expired by nonrenewal. With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold Rush Area. SEM, on the other hand, has not acquired any right to the said area because the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have not acquired any vested right over the 4,941.6759 hectares which used to be covered by EP 133. II The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the DENR Secretary since the power to withdraw lands from forest reserves and to declare the same as an area open for mining operation resides in the President. Under Proclamation No. 369 dated 27 February 1931, the power to convert forest reserves as nonforest reserves is vested with the DENR Secretary. Proclamation No. 369 partly states: From this reserve shall be considered automatically excluded all areas which had already been certified and which in the future may be proclaimed as classified and certified lands and approved by the Secretary of Agriculture and Natural Resources.42 However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining Act" which was approved on 7 November 1936 provides:

Sec. 14. Lands within reservations for purposes other than mining, which, after such reservation is made, are found to be more valuable for their mineral contents than for the purpose for which the reservation was made, may be withdrawn from such reservations by the President with the concurrence of the National Assembly, and thereupon such lands shall revert to the public domain and be subject to disposition under the provisions of this Act. Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President, with the concurrence of the National Assembly, the power to withdraw forest reserves found to be more valuable for their mineral contents than for the purpose for which the reservation was made and convert the same into non-forest reserves. A similar provision can also be found in Presidential Decree No. 463 dated 17 May 1974, with the modifications that (1) the declaration by the President no longer requires the concurrence of the National Assembly and (2) the DENR Secretary merely exercises the power to recommend to the President which forest reservations are to be withdrawn from the coverage thereof. Section 8 of Presidential Decree No. 463 reads: SEC. 8. Exploration and Exploitation of Reserved Lands. When lands within reservations, which have been established for purposes other than mining, are found to be more valuable for their mineral contents, they may, upon recommendation of the Secretary be withdrawn from such reservation by the President and established as a mineral reservation. Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66, this Court is constrained to rule that said administrative order was issued not in accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas covered by the Agusan-DavaoSurigao Forest Reserve as non-forest land open to small-scale mining operations, is null and void as, verily, the DENR Secretary has no power to convert forest reserves into non-forest reserves. III It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that of MMC or that of SEM because it was the first one to occupy and take possession of the area and the first to record its mining claims over the area. For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the contested area, particularly in the 729 hectares small-scale mining area, has entitled it to file its MPSA. Balite claims that its MPSA application should have been given preference over that of SEM because it was filed ahead. The MAB, on the other hand, insists that the issue on who has superior right over the disputed area has become moot and academic by the supervening events. By virtue of Proclamation No. 297 dated 25 November 2002, the disputed area was declared a mineral reservation. Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as mineral reservation and as environmentally critical area, viz: WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land situated in the then provinces of Davao, Agusan and Surigao, with an area of approximately 1,927,400 hectares, were withdrawn from settlement and disposition, excluding, however, those portions which had been certified and/or shall be classified and certified as non-forest lands; WHEREAS, gold deposits have been found within the area covered by Proclamation No. 369, in the Municipality of Monkayo, Compostela Valley Province, and unregulated small to medium-scale

mining operations have, since 1983, been undertaken therein, causing in the process serious environmental, health, and peace and order problems in the area; WHEREAS, it is in the national interest to prevent the further degradation of the environment and to resolve the health and peace and order problems spawned by the unregulated mining operations in the said area; WHEREAS, these problems may be effectively addressed by rationalizing mining operations in the area through the establishment of a mineral reservation; WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted public hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and communities to air their views regarding the establishment of a mineral reservation in the place in question; WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may, upon the recommendation of the Director of Mines and Geosciences, through the Secretary of Environment and Natural Resources, and when the national interest so requires, establish mineral reservations where mining operations shall be undertaken by the Department directly or thru a contractor; WHEREAS, as a measure to attain and maintain a rational and orderly balance between socioeconomic growth and environmental protection, the President may, pursuant to Presidential Decree No. 1586, as amended, proclaim and declare certain areas in the country as environmentally critical; NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, upon recommendation of the Secretary of the Department of Environment and Natural Resources (DENR), and by virtue of the powers vested in me by law, do hereby exclude certain parcel of land located in Monkayo, Compostela Valley, and proclaim the same as mineral reservation and as environmentally critical area, with metes and bound as defined by the following geographical coordinates; xxxx with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining operations in the area may be undertaken either by the DENR directly, subject to payment of just compensation that may be due to legitimate and existing claimants, or thru a qualified contractor, subject to existing rights, if any. The DENR shall formulate and issue the appropriate guidelines, including the establishment of an environmental and social fund, to implement the intent and provisions of this Proclamation. Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the exploration, development and utilization of the natural resources of the country.43 With this policy, the State may pursue full control and supervision of the exploration, development and utilization of the countrys natural mineral resources. The options open to the State are through direct undertaking or by entering into co-production, joint venture, or production-sharing agreements, or by entering into agreement with foreign-owned corporations for large-scale exploration, development and utilization.44 Thus, Article XII, Section 2, of the 1987 Constitution, specifically states: SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural

resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. x x x xxxx The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. x x x (Underscoring supplied.) Recognizing the importance of the countrys natural resources, not only for national economic development, but also for its security and national defense, Section 5 of Republic Act No. 7942 empowers the President, when the national interest so requires, to establish mineral reservations where mining operations shall be undertaken directly by the State or through a contractor. To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein. The issue on who has priority right over the disputed area is deemed overtaken by the above subsequent developments particularly with the issuance of Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch. Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the full control of the State through the executive branch. Pursuant to Section 5 of Republic Act No. 7942, the State can either directly undertake the exploration, development and utilization of the area or it can enter into agreements with qualified entities, viz: SEC 5. Mineral Reservations. When the national interest so requires, such as when there is a need to preserve strategic raw materials for industries critical to national development, or certain minerals for scientific, cultural or ecological value, the President may establish mineral reservations upon the recommendation of the Director through the Secretary. Mining operations in existing mineral reservations and such other reservations as may thereafter be established, shall be undertaken by the Department or through a contractor x x x . It is now up to the Executive Department whether to take the first option, i.e., to undertake directly the mining operations of the Diwalwal Gold Rush Area. As already ruled, the State may not be precluded from considering a direct takeover of the mines, if it is the only plausible remedy in sight to the gnawing complexities generated by the gold rush. The State need be guided only by the demands of public interest in settling on this option, as well as its material and logistic feasibility.45 The State can also opt to award mining operations in the mineral reservation to private entities including petitioners Apex and Balite, if it wishes. The exercise of this prerogative lies with the Executive Department over which courts will not interfere. WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are PARTIALLY GRANTED, thus:

1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals, dated 13 March 2002, and hereby declare that EP 133 of MMC has EXPIRED on 7 July 1994 and that its subsequent transfer to SEM on 16 February 1994 is VOID. 2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring DAO No. 66 illegal for having been issued in excess of the DENR Secretarys authority. Consequently, the State, should it so desire, may now award mining operations in the disputed area to any qualified entity it may determine. No costs. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

ROMEO J. CALLEJO, SR. Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Records, Vol. 2, pp. 7-11. Id., Vol.1, p. 90. Rollo of G.R. No. 152619-20, p. 68.

Sec. 13. Areas Closed to Mining Location. - No prospecting and exploration shall be allowed:

a) In military, or other Government reservations except when authorized by the proper Government agency concerned; x x x. (Apex Mining Co., Inc. v. Garcia, G.R. No. 92605, 16 July 1991, 199 SCRA 278, 284.)
5

Now Associate Justice of the Supreme Court. Supra note 4.

It provides for the procedural guidelines on the award of MPSA through negotiation. It further sets forth the requirements that applicants for MPSA applications shall comply and submit before the proper authority.
8

Rollo of G.R. No. 152870-71, pp. 144-146. Id. at 76. Supra note 4. Id.

10

11

12

DAO No. 34 defines small-scale miners as "Filipino citizens who individually or in the company of other Filipino citizens, voluntarily form a cooperative duly licensed by the DENR to engage, under the terms and conditions of a contract/license in the extraction or removal of minerals or ore-bearing materials from the ground."
13

Rollo of G.R. No. 152870-71, p. 161. Rollo of G.R. No. 152870-71, pp. 141-142.

14

15

Penned by Associate Justice Alicia L. Santos with Associate Justices Cancio C. Garcia and Marina L. Buzon, concurring.
16

Rollo of G.R. No. 152619-20, p. 55. Rollo of G.R. No. 152613 and No. 152628, p. 731. Id. at 703-704. Rollo of G.R. No. 152870-71, p. 916.

17

18

19

20

Otherwise known as the Procedural Guidelines On the Award Of Mineral Production Sharing Agreement (MPSA) Through Negotiation provides: Section 3. Submission of Letter of Intent (LOIs) and MPSAs. The following shall submit their LOIs and MPSAs within two (2) years from the effectivity of DENR A.O. 57 or until July 17, 1991. 1. Declaration of Location (DOL) holders, mining lease applicants, exploration permitees, quarry applicants and other mining applicants whose

mining/quarry applications have not been perfected prior to the effectivity of DENR Administrative Order No. 57. 2. All holders of DOL acquired after the effectivity of DENR A.O. No. 57. xxxx Failure to submit letters of intent and MPSA applications/proposals within the prescribed period shall cause the abandonment of mining, quarry and sand and gravel claims.
21

Republic Act No. 7942 is also known as the "Philippine Mining Act of 1995."

22

New City Builders, Inc. v. National Labor Relations Commission, G.R. No. 149281, 15 June 2005, 460 SCRA 220, 227.
23

The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, 28 April 2004, 428 SCRA 79, 86; Manila Electric Company v. Benamira, G.R. No. 145271, 14 July 2005, 463 SCRA 331, 347-348; Aguirre v. Court of Appeals, G.R. No. 122249, 29 January 2004, 421 SCRA 310, 319.
24

Manila Electric Company v. Benamira, id. Records, Vol. 2, pp. 351-353. Id. at 84-85.

25

26

27

Executive Officer.- The Secretary, through the Director, shall be the Executive Officer charged with carrying out the provisions of this Decree. x x x.
28

Commonwealth Act No. 136, Section 3. People v. Yabut, G.R. No. L-42902, 29 April 1977, 76 SCRA 624, 630. G.R. No. 123560, 27 March 2000, 328 SCRA717, 728.

29

30

31

Asia Traders Insurance Corporation v. Court of Appeals, G.R. No. 152537, 16 February 2004, 423 SCRA 114, 120.
32

Id. Yu Eng Cho v. Pan American World Airways, Inc., supra note 30. Philippine National Bank v. Court of Appeals, 338 Phil. 795, 817-818 (1997). Records, Vol. 2, p. 352. Corporation Code, Section 2. Yu v. National Labor Relations Commission, 315 Phil. 107, 123 (1995).

33

34

35

36

37

38

Lim v. Court of Appeals, 380 Phil. 60, 76 (2000).

39

Philippine National Bank v. Andrada Electric & Engineering Company, 430 Phil. 882, 894 (2002).
40

Supra note 4. Records, Vol. 2, p. 255. Id. at 7.

41

42

43

Miners Association of the Philippines, Inc. v. Hon. Factoran, Jr., 310 Phil. 113, 130-131 (1995).
44

Id.; Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining Cooperative, 429 Phil. 668, 683 (2002).
45

Id.

G.R. No. 144805 June 8, 2006 EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents. DECISION CALLEJO, SR., J.: On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CAG.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof. The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium. In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez. Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4 Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5 Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after

execution and preparation of all documents of sale, together with the necessary governmental clearances.6 The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7 Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9 Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10 Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land, to wit: May 22, 1987 Mr. L.G. Marquez L.G. Marquez, Inc. 334 Makati Stock Exchange Bldg. 6767 Ayala Avenue Makati, Metro Manila Philippines Dear Sir: Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation. We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would consult you again. xxx Yours sincerely,

(Sgd.) C.F. DELSAUX cc. To: J. GLANVILLE (Eternit Corp.)11 When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had suffered on account of the aborted sale. EC, however, rejected their demand. The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC. In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC. On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint.12The fallo of the decision reads: WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13 The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.14 The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the corporations assets, it would necessarily need the authority from the stockholders. On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court. The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from ECs board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties. In the instant petition for review, petitioners aver that I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE. II THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17 Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez. Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent ECs counteroffer, resulting in a perfected contract of sale. Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such evidence, thus: 1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove discussed, need not be in writing. 2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from 1986 to 1987; 3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners; 4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by the Petitioners ACCEPTANCE of the counter-offer; 5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties; 6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL"; 7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18 Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit: Dear Sir, Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would consult you again. In the meantime, I remain Yours sincerely, C.F. DELSAUX19 Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties. By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in toto. Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux. The petition has no merit. Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the case.22 It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23 We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law. It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.24 Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides: SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights, obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26 Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows: SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity: xxxx 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as

the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution. The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29 While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31 By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them.33 An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a specific form.35 However, to create or convey real rights over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37 In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been authorized by respondent EC to sell the parcels of land. Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners

offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance. While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated as one corporation.43 It bears stressing that 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.44 The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC. It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47 Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be established: (1) the principal manifested a representation of the agents authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment.48 An agency by estoppel, which is similar to the

doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC. Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED. ROMEO J. CALLEJO, SR. Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson (On leave) CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Fermin A. Martin, Jr. and Salvador J. Valdez, Jr. (retired), concurring; rollo, pp. 40-53.
2

Rollo, pp. 54-55.

Id. at 11, 61. Id. at 394-395. Id. at 396. Id. at 397-398. Id. at 240. Id. at 241. Id. Id. at 399. Id. at 349-400. Id. at 163-175. Id. at 174-175. Id. at 173-174. Id. at 47-48. Id. at 40-53. Id. at 15. Id. at 29-30. Id. at 30-31. Weathersby v. Gore, 556 F.2d 1247 (1977). Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879 (1983).

10

11

12

13

14

15

16

17

18

19

20

21

22

Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004, 427 SCRA 721, 729; Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489.
23

Nokom v. National Labor Relations Commission, 390 Phil. 1228, 1242-1243 (2000). (citations omitted)
24

Blair v. Sheridan, 10 S.E. 414 (1889).

26

San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 357 Phil. 631, 644 (1998).

27

Traders Royal Bank v. Court of Appeals, G.R. No. 78412, September 26, 1989, 177 SCRA 788, 792.
28

BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624, November 18, 2003, 416 SCRA 4, 11.
29

AF Realty & Development, Inc. v. Dieselman Freight Services, Co., 424 Phil. 446, 454 (2002).
30

De Liano v. Court of Appeals, 421 Phil. 1033, 1052 (2001). Litonjua v. Fernandez, supra note 22, at 493. Article 1868, new civil code.

31

32

33

Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion Insurance Corporation v. Court of Appeals, 426 Phil. 620, 626 (2002).
34

civil code, Art. 1870. civil code, Art. 1869, paragraph 2. civil code, Art. 1878(12). civil code, Art. 1874. Exhibits "H" and "H-1," rollo, p. 166. Exhibits "G" and "G-1," id. Exhibits "C" and "C-1," id. at 165. Rollo, p. 396. Exhibits "C" and "C-1," rollo, p. 165. Philippine National Bank v. Ritratto Group, Inc., supra note 25, at 503.

35

36

37

38

39

40

41

42

43

44

Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil. 927, 939 (1991).
45

Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.

46

Litonjua v. Fernandez, supra note 22, at 494; Culaba v. Court of Appeals, supra note 22, at 730; BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 116.
47

Donnan v. Adams, 71 S.W. 580. Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni, 370 So. 2d 450 (1979).

48

G.R. No. 158585 December 13, 2005 Amon trading corporation and juliana marketing, Petitioners, vs. HON. COURT OF APPEALS and TRI-REALTY DEVELOPMENT AND CONSTRUCTION CORPORATION,Respondents. DECISION CHICO-NAZARIO, J.: This is an appeal by certiorari from the Decision1 dated 28 November 2002 of the Court of Appeals in CA-G.R. CV No. 60031, reversing the Decision of the Regional Trial Court of Quezon City, Branch 104, and holding petitioners Amon Trading Corporation and Juliana Marketing to be solidarily liable with Lines & Spaces Interiors Center (Lines & Spaces) in refunding private respondent Tri-Realty Development and Construction Corporation (Tri-Realty) the amount corresponding to the value of undelivered bags of cement. The undisputed facts: Private respondent Tri-Realty is a developer and contractor with projects in Bulacan and Quezon City. Sometime in February 1992, private respondent had difficulty in purchasing cement needed for its projects. Lines & Spaces, represented by Eleanor Bahia Sanchez, informed private respondent that it could obtain cement to its satisfaction from petitioners, Amon Trading Corporation and its sister company, Juliana Marketing. On the strength of such representation, private respondent proceeded to order from Sanchez Six Thousand Fifty (6,050) bags of cement from petitioner Amon Trading Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at P98.00/bag. Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in advance the amount of P592,900.00 through Solidbank Managers Check No. 0011565 payable to Amon Trading Corporation, and the amount of P588,000.00 payable to Juliana Marketing, through Solidbank Managers Check No. 0011566. A certain "Weng Chua" signed the check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts for the two managers checks. Private respondent likewise paid to Lines & Spaces an advance fee for the 12,050 cement bags at the rate of P7.00/bag, or a total of P84,350.00, in consideration of the facilitation of the orders and certainty of delivery of the same to the private respondent. Solidbank Managers Check Nos. 0011565 and 0011566 were paid by Sanchez to petitioners. There were deliveries to private respondent from Amon Trading Corporation and Juliana Marketing of 3,850 bags and 3,000 bags, respectively, during the period from April to June 1992. However, the balance of 2,200 bags from Amon Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was not delivered. Private respondent, thus, sent petitioners written demands but in reply, petitioners stated that they have already refunded the amount of undelivered bags of cement to Lines and Spaces per written instructions of Eleanor Sanchez. Left high and dry, with news reaching it that Eleanor Sanchez had already fled abroad, private respondent filed this case for sum of money against petitioners and Lines & Spaces. Petitioners plead in defense lack of right or cause of action, alleging that private respondent had no privity of contract with them as it was Lines & Spaces/Tri-Realty, through Mrs. Sanchez, that ordered or purchased several bags of cement and paid the price thereof without informing them of any special arrangement nor disclosing to them that Lines & Spaces and respondent corporation are

distinct and separate entities. They added that there were purchases or orders made by Lines & Spaces/Tri-Realty which they were about to deliver, but were cancelled by Mrs. Sanchez and the consideration of the cancelled purchases or orders was later reimbursed to Lines & Spaces. The refund was in the form of a check payable to Lines & Spaces. Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez and pleads in defense lack of cause of action and in the alternative, it raised the defense that it was only an intermediary between the private respondent and petitioners.2 Soon after, though, counsel for Lines & Spaces moved to withdraw from the case for the reason that its client was beyond contact. On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found Lines & Spaces solely liable to private respondent and absolved petitioners of any liability. The dispositive portion of the trial courts Decision reads: Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces Interiors Center as follows: to pay plaintiff on the complaint the amount of P47,950.00 as refund of the fee for the undelivered 5,200 bags of cement at the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the price of the 5,200 undelivered bags of cement at P98.00 per bag; the amount of P2,000,000.00 for compensatory damages; as well as the amount of P639,387.50 as attorneys fees; and to pay Amon Trading and Juliana Marketing, Inc. on the crossclaim the sum of P200,000.00 as attorneys fees.3 Private Respondent Tri-Realty partially appealed from the trial courts decision absolving Amon Trading Corporation and Juliana Marketing of any liability to Tri-Realty. In the presently assailed Decision, the Court of Appeals reversed the decision of the trial court and held petitioners Amon Trading Corporation and Juliana Marketing to be jointly and severally liable with Lines & Spaces for the undelivered bags of cement. The Court of Appeals disposedWHEREFORE, premises considered, the decision of the court a quo is hereby REVERSED AND SET ASIDE, and another one is entered ordering the following: Defendant-appellee Amon Trading Corporation is held liable jointly and severally with defendantappellee Lines and Spaces Interiors Center in the amount of P215,600.00 for the refund of the price of 2,200 undelivered bags of cement. Defendant-appellee Juliana Marketing is held liable jointly and severally with defendant-appellee Lines and Spaces Interiors Center in the amount of P294,000.00 for the refund of the price of 3,000 undelivered bags of cement. The defendant-appellee Lines and Spaces Interiors Center is held solely in the amount of P47,950.00 as refund of the fee for the 5,200 undelivered bags of cement to the plaintiff-appellant Tri-Realty Development and Construction Corporation. The awards of compensatory damages and attorneys fees are DELETED. The cross claim of defendants-appellees Amon Trading Corporation and Juliana Marketing is DISMISSED for lack of merit. No pronouncement as to costs.4

Pained by the ruling, petitioners elevated the case to this Court via the present petition for review to challenge the Decision and Resolution of the Court of Appeals on the following issues: I. WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY BETWEEN LINES AND SPACES INTERIOR CENTER AND RESPONDENT; II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF CONTRACT.5 At the focus of scrutiny is the issue of whether or not the Court of Appeals committed reversible error in ruling that petitioners are solidarily liable with Lines & Spaces. The key to unlocking this issue is to determine whether or not Lines & Spaces is the private respondents agent and whether or not there is privity of contract between petitioners and private respondent. We shall consider these issues concurrently as they are interrelated. Petitioners, in their brief, zealously make a case that there was no contract of agency between Lines & Spaces and private respondent.6 Petitioners strongly assert that they did not have a hint that Lines & Spaces and Tri-Realty are two different and distinct entities inasmuch as Eleanor Sanchez whom they have dealt with just represented herself to be from Lines & Spaces/Tri-Realty when she placed her order for the delivery of the bags of cement. Hence, no privity of contract can be said to exist between petitioners and private respondent.7 Private respondent, on the other hand, goes over the top in arguing that contrary to their claim of innocence, petitioners had knowledge that Lines & Spaces, as represented by Eleanor Sanchez, was a separate and distinct entity from tri-realty.8 Then, too, private respondent stirs up support for its contention that contrary to petitioners' claim, there was privity of contract between private respondent and petitioners.9 Primarily, there was no written contract entered into between petitioners and private respondent for the delivery of the bags of cement. As gleaned from the records, and as private respondent itself admitted in its Complaint, private respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to source the cement needs of the former in consideration of P7.00 per bag of cement. It is worthy to note that the payment in managers checks was made to Eleanor Sanchez of Lines & Spaces and was not directly paid to petitioners. While the managers check issued by respondent company was eventually paid to petitioners for the delivery of the bags of cement, there is obviously nothing from the face of said managers check to hint that private respondent was the one making the payments. There was likewise no intimation from Sanchez that the purchase order placed by her was for private respondents benefit. The meeting of minds, therefore, was between private respondent and Eleanor Sanchez of Lines & Spaces. This contract is distinct and separate from the contract of sale between petitioners and Eleanor Sanchez who represented herself to be from Lines & Spaces/Tri-Realty, which, per her representation, was a single account or entity. The records bear out, too, Annex "A" showing a check voucher payable to Amon Trading Corporation for the 6,050 bags of cement received by a certain "Weng Chua" for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex "B" which is a check voucher bearing the name of Juliana Marketing as payee, but was received again by said "Weng Chua." Nowhere from the face of the check vouchers is it shown that petitioners or any of their authorized representatives received the payments from respondent company. Also on record are the receipts issued by Lines & Spaces, signed by Eleanor Bahia Sanchez, covering the said managers checks. As Engr. Guido Ganhinhin of respondent Tri-Realty testified, it

was Lines & Spaces, not petitioners, which issued to them a receipt for the two (2) managers checks. ThusQ: And what is your proof that Amon and Juliana were paid of the purchases through managers checks? A: Lines & Spaces who represented Amon Trading and Juliana Marketing issued us receipts for the two (2) managers checks we paid to Amon Trading and Juliana Marketing Corporation. Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors Center, what relation has this check to that check you mentioned earlier? A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for the P592,900.00 we paid to Amon Trading Corporation for 6,050 bags of cement. Q: Now there appears a signature in that receipt above the printed words authorized signature, whose signature is that? A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines and Spaces. Q: Why do you know that that is her signature? A: She is quite familiar with me and I saw her affix her signature upon issuance of the receipt.10 (Emphasis supplied.) Without doubt, no vinculum could be said to exist between petitioners and private respondent. There is likewise nothing meaty about the assertion of private respondent that inasmuch as the delivery receipts as well as the purchase order were for the account of Lines & Spaces/Tri-Realty, then petitioners should have been placed on guard that it was private respondent which is the principal of Sanchez. In China Banking Corp. v. Members of the Board of Trustees, Home Development Mutual Fund11 and the later case of Romulo, Mabanta, Buenaventura, Sayoc and De los Angeles v. Home Development Mutual Fund,12 the term "and/or" was held to mean that effect shall be given to both the conjunctive "and" and the disjunctive "or"; or that one word or the other may be taken accordingly as one or the other will best effectuate the intended purpose. It was accordingly ordinarily held that in using the term "and/or" the word "and" and the word "or" are to be used interchangeably. By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be given to both Lines & Spaces and Tri-Realty or that Lines & Spaces and Tri-Realty may be used interchangeably. Hence, petitioners were not remiss when they believed Eleanor Sanchezs representation that "Lines & Spaces/Tri-Realty" refers to just one entity. There was, therefore, no error attributable to petitioners when they refunded the value of the undelivered bags of cement to Lines & Spaces only. There is likewise a dearth of evidence to show that the case at bar is an open-and-shut case of agency between private respondent and Lines & Spaces. Neither Eleanor Sanchez nor Lines & Spaces was an agent for private respondent, but rather a supplier for the latters cement needs. The Civil Code defines a contract of agency as follows:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v. Court of Appeals,13 the Court decreed from Article 1868 that the basis of agency is representation. . . . On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions and on the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. Here, the intention of private respondent, as the Executive Officer of respondent corporation testified on, was merely for Lines & Spaces, through Eleanor Sanchez, to supply them with the needed bags of cement. Q: Do you know the defendant Lines & Spaces in this case? A: Yes, sir. Q: How come you know this defendant? A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us cement when there was scarcity of cement experienced in our projects.14 (Emphasis supplied) We cannot go along the Court of Appeals disquisition that Amon Trading Corporation and Juliana Marketing should have required a special power of attorney form when they refunded Eleanor B. Sanchez the cost of the undelivered bags of cement. All the quibbling about whether Lines & Spaces acted as agent of private respondent is inane because as illustrated earlier, petitioners took orders from Eleanor Sanchez who, after all, was the one who paid them the managers checks for the purchase of cement. Sanchez represented herself to be from Lines & Spaces/Tri-Realty, purportedly a single entity. Inasmuch as they have never directly dealt with private respondent and there is no paper trail on record to guide them that the private respondent, in fact, is the beneficiary, petitioners had no reason to doubt the request of Eleanor Sanchez later on to refund the value of the undelivered bags of cement to Lines & Spaces. Moreover, the check refund was payable to Lines & Spaces, not to Sanchez, so there was indeed no cause to suspect the scheme. The fact that the deliveries were made at the construction sites of private respondent does not by itself raise suspicion that petitioners were delivering for private respondent. There was no sufficient showing that petitioners knew that the delivery sites were that of private respondent and for another thing, the deliveries were made by petitioners men who have no business nosing around their clients affairs. Parenthetically, Eleanor Sanchez has absconded to the United States of America and the story of what happened to the check refund may be forever locked with her. Lines & Spaces, in its Answer to the Complaint, washed its hands of the apparent ruse perpetuated by Sanchez, but argues that if at all, it was merely an intermediary between petitioners and private respondent. With no other way out, Lines & Spaces was a no-show at the trial proceedings so that eventually, its counsel had to withdraw his appearance because of his clients vanishing act. Left with an empty bag, so to speak, private respondent now puts the blame on petitioners. But this Court finds plausible the stance of

petitioners that they had no inkling of the deception that was forthcoming. Indeed, without any contract or any hard evidence to show any privity of contract between it and petitioners, private respondents claim against petitioners lacks legal foothold. Considering the vagaries of the case, private respondent brought the wrong upon itself. As adeptly surmised by the trial court, between petitioners and private respondent, it is the latter who had made possible the wrong that was perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in this sense that we must apply the equitable maxim that "as between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss."15 First, private respondent was the one who had reposed too much trust on Eleanor Sanchez for the latter to source its cement needs. Second, it failed to employ safety nets to steer clear of the rip-off. For such huge sums of money involved in this case, it is surprising that a corporation such as private respondent would pay its construction materials in advance instead of in credit thus opening a window of opportunity for Eleanor Sanchez or Lines & Spaces to pocket the remaining balance of the amount paid corresponding to the undelivered materials. Private respondent likewise paid in advance the commission of Eleanor Sanchez for the materials that have yet to be delivered so it really had no means of control over her.Finally, there is no paper trail linking private respondent to petitioners thereby leaving the latter clueless that private respondent was their true client. Private respondent should have, at the very least, required petitioners to sign the check vouchers or to issue receipts for the advance payments so that it could have a hold on petitioners. In this case, it was the representative of Lines & Spaces who signed the check vouchers. For its failure to establish any of these deterrent measures, private respondent incurred the risk of not being able to recoup the value of the materials it had paid good money for. WHEREFORE, the present petition is hereby GRANTED. Accordingly, the Decision and the Resolution dated 28 November 2002 and 10 June 2003, of the Court of Appeals in CA-G.R CV No. 60031, are hereby REVERSED andSET ASIDE. The Decision dated 29 January 1998 of the Regional Trial Court of Quezon City, Branch 104, in Civil Case Q-92-14235 is hereby REINSTATED. No costs. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR: REYNATO S. PUNO Associate Justice Chairman MA. ALICIA AUSTRIA-MARTINEZ Associate Justice DANTE O. TINGA Associate Justice ROMEO J. CALLEJO, SR. Associate Justice

ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairman, Second Division CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

Footnotes
1

Penned by Associate Justice Amelita G. Tolentino with Associate Justices Eubulo G. Verzola and Candido V. Rivera, concurring. Rollo, pp. 24-30.
2

CA Rollo, p. 41. CA Rollo, p. 45. Rollo, pp. 29-30. Rollo, p. 13. Rollo, p. 15. Rollo, p. 13. Rollo, p. 125. Rollo, p. 125. TSN, 08 February 1995, pp. 9-10. G.R. No. 131787, 19 May 1999, 307 SCRA 443. G.R. No. 131082, 19 June 2000, 333 SCRA 777.

10

11

12

13

G.R. No. 117356, 19 June 2000, 333 SCRA 663, 675-676. TSN, 08 February 1995, pp. 9-11. Legarda v. Court of Appeals, G.R. No. 94457, 16 October 1997, 280 SCRA 642.

14

15

G.R. No. 123560

March 27, 2000

SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners, vs. PAN AMERICAN WORLD AIRWAYS, INC., TOURIST WORLD SERVICES, INC., JULIETA CANILAO and CLAUDIA TAGUNICAR, respondents. PUNO, J.: This petition for review seeks a reversal of the 31 August 1995 Decision 1 and 11 January 1998 Resolution 2 of the Court of Appeals holding private respondent Claudia Tagunicar solely liable for moral and exemplary damages and attorney's fees, and deleting the trial court's award for actual damages. The facts as found by the trial court are as follows: Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In connection with [this] business, he travels from time to time to Malaysia, Taipei and Hongkong. On July 10, 1976, plaintiffs bought plane tickets (Exhs. A & B) from defendant Claudia Tagunicar who represented herself to be an agent of defendant Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San Francisco, U.S.A., for the amount of P25,000.00 per computation of said defendant Claudia Tagunicar (Exhs. C & C-1). The purpose of this trip is to go to Fairfield, New Jersey, U.S.A. to buy to two (2) lines of infrared heating system processing textured plastic article (Exh. K). On said date, only the passage from Manila to Hongkong, then to Tokyo, were confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status, meaning "on request". Per instruction of defendant Claudia Tagunicar, plaintiffs returned after a few days for the confirmation of the Tokyo-San Francisco segment of the trip. After calling up Canilao of TWSI, defendant Tagunicar told plaintiffs that their flight is now confirmed all the way. Thereafter, she attached the confirmation stickers on the plane tickets (Exhs. A & B). A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the Pan Am office to verify the status of the flight. According to said Adrian Yu, a personnel of defendant Pan Am told him over the phone that plaintiffs' booking[s] are confirmed. On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days. They left Hongkong for Tokyo on July 28, 1978. Upon their arrival in Tokyo, they called up Pan-Am office for reconfirmation of their flight to San Francisco. Said office, however, informed them that their names are not in the manifest. Since plaintiffs were supposed to leave on the 29th of July, 1978, and could not remain in Japan for more than 72 hours, they were constrained to agree to accept airline tickets for Taipei instead, per advise of JAL officials. This is the only option left to them because Northwest Airlines was then on strike, hence, there was no chance for the plaintiffs to obtain airline seats to the United States within 72 hours. Plaintiffs paid for these tickets. Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were forced to return back to Manila on August 3, 1978, instead of proceeding to the United States. [Japan] Air Lines (JAL) refunded the plaintiffs the difference of the price for Tokyo-Taipei [and] Tokyo-San Francisco (Exhs. I & J) in the total amount of P2,602.00.

In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc. cancelled Yu Eng Cho's option to buy the two lines of infra-red heating system (Exh. K). The agreement was for him to inspect the equipment and make final arrangement[s] with the said company not later than August 7, 1978. From this business transaction, plaintiff Yu Eng Cho expected to realize a profit of P300,000.00 to P400,000.00. [A] scrutiny of defendants' respective evidence reveals the following: Plaintiffs, who were intending to go to the United States, were referred to defendant Claudia Tagunicar, an independent travel solicitor, for the purchase of their plane tickets. As such travel solicitor, she helps in the processing of travel papers like passport, plane tickets, booking of passengers and some assistance at the airport. She is known to defendants PanAm, TWSI/Julieta Canilao, because she has been dealing with them in the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am because Northwest Airlines was then on strike and plaintiffs are passing Hongkong, Tokyo, then San Francisco and Pan-Am has a flight from Tokyo to San Francisco. After verifying from defendant TWSI, thru Julieta Canilao, she informed plaintiffs that the fare would be P25,093.93 giving them a discount of P738.95 (Exhs. C, C-1). Plaintiffs, however, gave her a check in the amount of P25,000.00 only for the two round trip tickets. Out of this transaction, Tagunicar received a 7% commission and 1% commission for defendant TWSI. Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from defendant Julieta Canilao with the following schedules: Origin Destination Airline Date Time/Travel Manila Hongkong CX900 7-23-78 1135/1325hrs Hongkong Tokyo CS500 7-28-78 1615/2115hrs Tokyo San Francisco PA002 7-29-78 1930/1640hrs The use of another airline, like in this case it is Cathay Pacific out of Manila, is allowed, although the tickets issued are Pan-Am tickets, as long as it is in connection with a Pan-Am flight. When the two (2) tickets (Exhs. A & B) were issued to plaintiffs, the letter "RQ" appears below the printed word "status" for the flights from Tokyo to San Francisco which means "under request," (Exh. 3-A, 4-A Pan-Am). Before the date of the scheduled departure, defendant Tagunicar received several calls from the plaintiffs inquiring about the status of their bookings. Tagunicar in turn called up TWSI/Canilao to verify; and if Canilao would answer that the bookings are not yet confirmed, she would relate that to the plaintiffs. Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled flight, plaintiff Yu Eng Cho personally went to her office, pressing her about their flight. She called up defendant Julieta Canilao, and the latter told her "o sige Claudia, confirm na." She even noted this in her index card (Exh. L), that it was Julieta who confirmed the booking (Exh. L1). It was then that she allegedly attached the confirmation stickers (Exhs. 2, 2-B TWSI) to the tickets. These stickers came from TWSI. Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she learned from Adrian Yu, son of plaintiffs, that the latter were not able to take the flight from Tokyo to San Francisco, U.S.A. After a few days, said Adrian Yu came over with a gentleman and a lady, who turned out to be a lawyer and his secretary. Defendant Tagunicar

claims that plaintiffs were asking for her help so that they could file an action against PanAm. Because of plaintiffs' promise she will not be involved, she agreed to sign the affidavit (Exh. M) prepared by the lawyer. Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco segment of plaintiffs' flight because flights then were really tight because of the on-going strike at Northwest Airlines. Defendant Claudia Tagunicar is very much aware that [said] particular segment was not confirmed, because on the very day of plaintiffs' departure, Tagunicar called up TWSI from the airport; defendant Canilao asked her why she attached stickers on the tickets when in fact that portion of the flight was not yet confirmed. Neither TWSI nor Pan-Am confirmed the flight and never authorized defendant Tagunicar to attach the confirmation stickers. In fact, the confirmation stickers used by defendant Tagunicar are stickers exclusively for use of Pan-Am only. Furthermore, if it is the travel agency that confirms the booking, the IATA number of said agency should appear on the validation or confirmation stickers. The IATA number that appears on the stickers attached to plaintiffs' tickets (Exhs. A & B) is 2-82-0770 (Exhs. 1, 1-A TWSI), when in fact TWSI's IATA number is 2-83-0770 (Exhs. 5, 5-A TWSI). 3 A complaint for damages was filed by petitioners against private respondents Pan American World Airways, Inc. (Pan Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for expenses allegedly incurred such as costs of tickets and hotel accommodations when petitioners were compelled to stay in Hongkong and then in Tokyo by reason of the non-confirmation of their booking with Pan-Am. In a Decision dated November 14, 1991, the Regional Trial Court of Manila, Branch 3, held the defendants jointly and severally liable, except defendant Julieta Canilao, thus: WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering defendants Pan American World Airways, Inc., Tourist World Services, Inc. and Claudia Tagunicar, jointly and severally, to pay plaintiffs the sum of P200,000.00 as actual damages, minus P2,602.00 already refunded to the plaintiffs; P200,000.00 as moral damages; P100,000.00 as exemplary damages; an amount equivalent to 20% of the award for and as attorney's fees, plus the sum of P30,000.00 as litigation expenses. Defendants' counterclaims are hereby dismissed for lack of merit. SO ORDERED. Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the appellate court rendered judgment modifying the amount of damages awarded, holding private respondent Tagunicar solely liable therefor, and absolving respondents Pan Am and TWSI from any and all liability, thus: PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET ASIDE and a new one entered declaring appellant Tagunicar solely liable for: 1) Moral damages in the amount of P50,000.00; 2) Exemplary damages in the amount of P25,000.00; and 3) Attorney's fees in the amount of P10,000.00 plus costs of suit.

The award of actual damages is hereby DELETED. SO ORDERED. In so ruling, respondent court found that Tagunicar is an independent travel solicitor and is not a duly authorized agent or representative of either Pan Am or TWSI. It held that their business transactions are not sufficient to consider Pan Am as the principal, and Tagunicar and TWSI as its agent and sub-agent, respectively. It further held that Tagunicar was not authorized to confirm the bookings of, nor issue validation stickers to, herein petitioners and hence, Pan Am and TWSI cannot be held responsible for her actions. Finally, it deleted the award for actual damages for lack of proof. Hence this petition based on the following assignment of errors: 1. the Court of Appeals, in reversing the decision of the trial court, misapplied the ruling in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127]; and 2. the findings of the Court of Appeals that petitioners' ticket reservations in question were not confirmed and that there is no agency relationship among PAN-AM, TWSI and Tagunicar are contrary to the judicial admissions of PAN-AM, TWSI and Tagunicar and likewise contrary to the findings of fact of the trial court. We affirm. I. The first issue deserves scant consideration. Petitioners contend that contrary to the ruling of the Court of Appeals, the decision of the trial court conforms to the standards of an ideal decision set in Nicos Industrial Corporation, et. al. vs. Court of Appeals, et. al., 4 as "that which, with welcome economy of words, arrives at the factual findings, reaches the legal conclusions, renders its ruling and, having done so, ends." It is averred that the trial court's decision contains a detailed statement of the relevant facts and evidence adduced by the parties which thereafter became the bases for the court's conclusions. A careful scrutiny of the decision rendered by the trial court will show that after narrating the evidence of the parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit: On the basis of the foregoing facts, the Court is constrained to conclude that defendant PanAm is the principal, and defendants TWSI and Tagunicar, its authorized agent and subagent, respectively. Consequently, defendants Pan-Am, TWSI and Claudia Tagunicar should be held jointly and severally liable to plaintiffs for damages. Defendant Julieta Canilao, who acted in her official capacity as Office Manager of defendant TWSI should not be held personally liable. 5 The trial court's finding of facts is but a summary of the testimonies of the witnesses and the documentary evidence presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual and legal bases for holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo vs. CA, et al. 6 where the trial court, after summarizing the conflicting asseverations of the parties, disposed of the kernel issue in just two (2) paragraphs, we held: It is understandable that courts, with their heavy dockets and time constraints, often find themselves with little to spare in the preparation of decisions to the extent most desirable.

We have thus pointed out that judges might learn to synthesize and to simplify their pronouncements. Nevertheless, concisely written such as they may be, decisions must still distinctly and clearly express, at least in minimum essence, its factual and legal bases. For failing to explain clearly and well the factual and legal bases of its award of moral damages, we set it aside in said case. Once more, we stress that nothing less than Section 14 of Article VIII of the Constitution requires that "no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based." This is demanded by the due process clause of the Constitution. In the case at bar, the decision of the trial court leaves much to be desired both in form and substance. Even while said decision infringes the Constitution, we will not belabor this infirmity and rather examine the sufficiency of the evidence submitted by the petitioners. II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly authorized ticketing agent of Pan Am. Proceeding from this premise, they contend that TWSI and Pan Am should be held liable as principals for the acts of Tagunicar. Petitioners stubbornly insist that the existence of the agency relationship has been established by the judicial admissions allegedly made by respondents herein, to wit: (1) the admission made by Pan Am in its Answer that TWSI is its authorized ticket agent; (2) the affidavit executed by Tagunicar where she admitted that she is a duly authorized agent of TWSI; and (3) the admission made by Canilao that TWSI received commissions from ticket sales made by Tagunicar. We do not agree. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. 7 The elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority. 8 It is a settled rule that persons dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. 9 In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is an authorized agent of TWSI. This affidavit, however, has weak probative value in light of respondent Tagunicar's testimony in court to the contrary. Affidavits, being taken ex parte, are almost always incomplete and often inaccurate, sometimes from partial suggestion, or for want of suggestion and inquiries. Their infirmity as a species of evidence is a matter of judicial experience and are thus considered inferior to the testimony given in court. 10Further, affidavits are not complete reproductions of what the declarant has in mind because they are generally prepared by the administering officer and the affiant simply signs them after the same have been read to her. 11Respondent Tagunicar testified that her affidavit was prepared and typewritten by the secretary of petitioners' lawyer, Atty. Acebedo, who both came with Adrian Yu, son of petitioners, when the latter went to see her at her office. This was confirmed by Adrian Yu who testified that Atty. Acebedo brought his notarial seal and notarized the affidavit of the same day. 12 The circumstances under which said affidavit was prepared put in doubt petitioners' claim that it was executed voluntarily by respondent Tagunicar. It appears that the affidavit was prepared and was based on the answers which respondent Tagunicar gave to the questions propounded to her by Atty. Acebedo. 13They never told her that the affidavit would be used in a case to be filed against her. 14 They even assured her that she would not be included as defendant if she agreed to execute the affidavit. 15 Respondent Tagunicar was prevailed upon by petitioners' son and their lawyer to sign the affidavit despite her objection to the statement therein that she was an agent of TWSI. They assured her that "it is immaterial"16 and that "if we file a suit against you we cannot get anything from you." 17 This purported admission of respondent Tagunicar cannot be used by petitioners to prove their agency relationship. At any rate, even if such affidavit is to be given any probative value, the

existence of the agency relationship cannot be established on its sole basis. The declarations of the agent alone are generally insufficient to establish the fact or extent of his authority. 18 In addition, as between the negative allegation of respondents Canilao and Tagunicar that neither is an agent nor principal of the other, and the affirmative allegation of petitioners that an agency relationship exists, it is the latter who have the burden of evidence to prove their allegation, 19 failing in which, their claim must necessarily fail. We stress that respondent Tagunicar categorically denied in open court that she is a duly authorized agent of TWSI, and declared that she is an independent travel agent. 20 We have consistently ruled that in case of conflict between statements in the affidavit and testimonial declarations, the latter command greater weight. 21 As further proofs of agency, petitioners call our attention to TWSI's Exhibits "7", "7-A", and "8" which show that Tagunicar and TWSI received sales commissions from Pan Am. Exhibit "7" 22 is the Ticket Sales Report submitted by TWSI to Pan Am reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit "7-A" 23 is a listing of the routes taken by passengers who were audited to TWSI's sales report. Exhibit "8" 24 is a receipt issued by TWSI covering the payment made by Tagunicar for the tickets she bought from TWSI. These documents cannot justify the decision that Tagunicar was paid a commission either by TWSI or Pan Am. On the contrary, Tagunicar testified that when she pays TWSI, she already deducts in advance her commission and merely gives the net amount to TWSI. 25 From all sides of the legal prism, the transaction is simply a contract of sale wherein Tagunicar buys airline tickets from TWSI and then sells it at a premium to her clients. III. Petitioners included respondent Pan Am in the complainant on the supposition that since TWSI is its duly authorized agent, and respondent Tagunicar is an agent of TWSI, then Pan Am should also be held responsible for the acts of respondent Tagunicar. Our disquisitions above show that this contention lacks factual and legal bases. Indeed, there is nothing in the records to show that respondent Tagunicar has been employed by Pan Am as its agent, except the bare allegation of petitioners. The real motive of petitioners in suing Pan Am appears in its Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be financially capable of paying plaintiffs the amounts herein sought to be recovered, and in such event, defendant Pan Am, being their ultimate principal, is primarily and/or subsidiary liable to pay the said amounts to plaintiffs." 26 This lends credence to respondent Tagunicar's testimony that she was persuaded to execute an affidavit implicating respondents because petitioners knew they would not be able to get anything of value from her. In the past, we have warned that this Court will not tolerate an abuse of judicial process by passengers in order to pry on international airlines for damage awards, like "trophies in a safari." 27 This meritless suit against Pan Am becomes more glaring with petitioner' inaction after they were bumped off in Tokyo. If petitioners were of the honest belief that Pan Am was responsible for the misfortune which beset them, there is no evidence to show that they lodged a protest with Pan Am's Tokyo office immediately after they were refused passage for the flight to San Francisco, or even upon their arrival in Manila. The testimony of petitioner Yu Eng Cho in this regard is of title value, viz: Atty. Jalandoni: . . . q Upon arrival at the Tokyo airport, what did you do if any in connection with your schedule[d] trip? a I went to the Hotel, Holiday Inn and from there I immediately called up Pan Am office in Tokyo to reconfirm my flight, but they told me that our names were not listed in the manifest, so next morning, very early in the morning I went to the airport, Pan Am office in the airport to verify and they told me the same and we were not allowed to leave.

q You were scheduled to be in Tokyo for how long Mr. Yu? a We have to leave the next day 29th. q In other words, what was your status as a passenger? a Transient passengers. We cannot stay for more than 72 hours. xxx xxx xxx

q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told you that your names were not in the manifest, what did you do, if any? a I ask[ed] them if I can go anywhere in the State? They told me I can go to LA via Japan Airlines and I accepted it. q Do you have the tickets with you that they issued for Los Angels? a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei. xxx xxx xxx

q Were you able to take the trip to Los Angeles via Pan Am tickets that was issued to you in lieu of the tickets to San Francisco? a No, sir. q Why not? a The Japanese Airlines said that there were no more available seats. q And as a consequence of that, what did you do, if any? a I am so much scared and worried, so the Japanese Airlines advised us to go to Taipei and I accepted it. xxx xxx xxx

q Why did you accept the Japan Airlines offer for you to go to Taipei? a Because there is no chance for us to go to the United States within 72 hours because during that time Northwest Airlines [was] on strike so the seats are very scarce. So they advised me better left (sic) before the 72 hours otherwise you will have trouble with the Japanese immigration. q As a consequence of that you were force[d] to take the trip to Taipei? a Yes, sir. 28 (emphasis supplied)

It grinds against the grain of human experience that petitioners did not insist that they be allowed to board, considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines strike. It is also perplexing that petitioners readily accepted whatever the Tokyo office had to offer as an alternative. Inexplicably too, no demand letter was sent to respondents TWSI and Canilao. 29 Nor was a demand letter sent to respondent Pan Am. To say the least, the motive of petitioners in suing Pan Am is suspect. We hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners to board to justify petitioners' claim for damages. Mere refusal to accede to the passenger's wishes does not necessarily translate into damages in the absence of bad faith. 30 The settled rule is that the law presumes good faith such that any person who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill motive. 31 In the case at bar, we find the evidence presented by petitioners insufficient to overcome the presumption of good faith. They have failed to show any wanton, malevolent or reckless misconduct imputable to respondent Pan Am in its refusal to accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted in bad faith because petitioners did not have confirmed tickets and more importantly, they were not in the passenger manifest. In not a few cases, this Court did not hesitable to hold an airline liable for damages for having acted in bad faith in refusing to accommodate a passenger who had a confirmed ticket and whose name appeared in the passenger manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc., 32 we ruled that there was a valid and binding contract between the airline and its passenger after finding that validating sticker on the passenger's ticket had the letters "O.K." appearing in the "Res. Status" box which means "space confirmed" and that the ticket is confirmed or validated. In Pan American World Airways Inc. v. IAC, et al. 33 where a would-be-passenger had the necessary ticket, baggage claim and clearance from immigration all clearly showing that she was a confirmed passenger and included in the passenger manifest and yet was denied accommodation in said flight, we awarded damages. InArmovit, et al. v. CA, et al., 34 we upheld the award of damages made against an airline for gross negligence committed in the issuance of tickets with erroneous entries as to the time of flight. In Alitalia Airways v. CA, et al., 35we held that when airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. And finally, an award of damages was held proper in the case of Zalamea, et al. v. CA, et al., 36 where a confirmed passenger included in the manifest was denied accommodation in such flight. On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd., 37 was held not liable for damages where the passenger was not allowed to board the plane because his ticket had not been confirmed. We ruled that "[t]he stub that the lady employee put on the petitioner's ticket showed among other coded items, under the column "status" the letters "RQ" which was understood to mean "Request." Clearly, this does not mean a confirmation but only a request. JAL Traffic Supervisor explained that it would have been different if what was written in the stub were the letter "ok" in which case the petitioner would have been assured of a seat on said flight. But in this case, the petitioner was more of a wait-listed passenger than a regularly booked passenger." In the case at bar, petitioners' ticket were on "RQ" status. They were not confirmed passengers and their names were not listed in the passenger manifest. In other words, this is not a case where Pan Am bound itself to transport petitioners and thereafter reneged on its obligation. Hence, respondent airline cannot be held liable for damages. IV. We hold that respondent Court of Appeals correctly rules that the tickets were never confirmed for good reasons: (1) The persistent calls made by respondent Tagunicar to Canilao, and those

made by petitioners at the Manila, Hongkong and Tokyo offices in Pan Am, are eloquent indications that petitioners knew that their tickets have not been confirmed. For, as correctly observed by Pan Am, why would one continually try to have one's ticket confirmed if it had already been confirmed? (2) The validation stickers which respondent Tagunicar attached to petitioners' tickets were those intended for the exclusive use of airline companies. She had no authority to use them. Hence, said validation stickers, wherein the word "OK" appears in the status box, are not valid and binding. (3) The names of petitioners do not appear in the passengers manifest. (4) Respondent Tagunicar's "Exhibit 1" 38shows that the status of the San Francisco-New York segment was "Ok", meaning it was confirmed, but that the status of the Tokyo-San Francisco segment was still "on request". (5) Respondent Canilao testified that on the day that petitioners were to depart for Hongkong, respondent Tagunicar called her from the airport asking for confirmation of the Tokyo-San Francisco flight, and that when she told respondent Tagunicar that she should not have allowed petitioners to leave because their tickets have not been confirmed, respondent Tagunicar merely said "Bahala na." 39 This was never controverted nor refuted by respondent Tagunicar. (6) To prove that it really did not confirm the bookings of petitioners, respondent Canilao pointed out that the validation stickers which respondent Tagunicar attached to the tickets of petitioners had IATA No. 2-82-0770 stamped on it, whereas the IATA number of TWSI is 28-30770. 40 Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in misrepresenting to petitioners that their tickets have been confirmed. Her culpability, however, was properly mitigated. Petitioner Yu Eng Cho testified that he repeatedly tried to follow up on the confirmation of their tickets with Pan Am because he doubted the confirmation made by respondent Tagunicar. 41 This is clear proof that petitioners knew that they might be bumped off at Tokyo when they decided to proceed with the trip. Aware of this risk, petitioners exerted efforts to confirm their tickets in Manila, then in Hongkong, and finally in Tokyo. Resultantly, we find the modification as to the amount of damages awarded just and equitable under the circumstances. WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against petitioners. SO ORDERED. Davide, Jr., C.J., Kapunan and Pardo, JJ., concur. Ynares-Santiago, J., took no part.
1wphi1.nt

Footnotes
1

Penned by Associate Justice Antonio M. Martinez, with Consuelo Ynares-Santiago and Ruben T. Reyes, JJ., concurring; Rollo, 35-49.
2

Ibid., 51. Original Records, 647-650. 206 SCRA 127 (1992). Original Record, 650.

240 SCRA 348 (1995). New Civil Code, Article 1868. Tolentino, Civil Code of the Phils., Vol. V, 1992 ed., p. 396. BA Finance v. CA, et al., 211 SCRA 112 (1992). People v. Diaz, 262 SCRA 723 (1996). People v. Gondora, 265 SCRA 408 (1996). TSN, December 16, 1982, pp. 17-19. TSN, September 29, 1983, pp. 12-13. TSN, December 16, 1982, p. 17. TSN, September 29, 1983, pp. 16-17. TSN, July 22, 1983, p. 43. Ibid., p, 38.

10

11

12

13

14

15

16

17

18

Reuschlein & Gregory, The Law of Agency and Partnership, 1990, Second ed., p. 28; BA Finance v. CA,et al., 211 SCRA 112 (1992).
19

Martinez v. NLRC, et al., 272 SCRA 793 (1997). TSN, July 22, 1983, p. 44; August 12, 1983, pp. 6-7. People v. Aliposa, 263 SCRA 471 (1996). Original Records, p. 448. Ibid., 449. Ibid., 450. TSN, July 22, 1983, p. 50. Original Records, p. 46. Alitalia Airways vs. CA, et al., 187 SCRA 763 (1990). TSN, August 20, 1981, pp. 18-28. TSN, November 23, 1983, p. 35.

20

21

22

23

24

25

26

27

28

29

30

Air France v. CA, et al., 171 SCRA 399 (1989). Ford Phils., Inc. v. CA, et al., 267 SCRA 320 (1997). 64 SCRA 610 (1975). 153 SCRA 521 (1987). 184 SCRA 476 (1990). 187 SCRA 763 (1990). 228 SCRA 23 (1993). 207 SCRA 359 (1992). Original Records, p. 292. TSN, November 23, 1983, pp. 29-31. Ibid., p. 14. TSN, August 27, 1981, p. 42.

31

32

65

34

35

36

37

38

39

40

41

G.R. No. L-24332 January 31, 1978 RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents. Seno, Mendoza & Associates for petitioner. Ramon Duterte for private respondent.

MUOZ PALMA, J.: This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint. Hence, this Petition for Review on certiorari. The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee. On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the respective administrators of their estates. After trial the court a quo rendered judgment with the following dispositive portion: A. On Plaintiffs Complaint

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the property in question, Lot 5983 of the Cadastral Survey of Cebu is concerned; (2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso; (3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff; (4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and (5) Ordering both defendants to pay the costs jointly and severally. B. On GO CHANTS Cross-Claim: (1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983; (2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00. C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos: (1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the thirdparty complaint, at bar. (pp. 98-100, Record on Appeal) Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2 What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case, We have the query. is the sale of the undivided share of

Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect of an act performed after such death? Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration. 1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code also provides: ART. 1403. The following contracts are unenforceable, unless they are justified: (1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ... Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5 Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6 2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides: ART. 1919. Agency is extinguished. xxx xxx xxx 3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied) By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8 Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical basis of agency which is representation Them being an in. integration of the personality of the principal integration that of the agent it is not possible for the representation to continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie

between the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the fact to notify the agent of the fact of death of the former. 9 The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding on the heirs or representatives of the deceased. 11 3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned. ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good. faith. Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest. Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable. In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14 On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough

that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated: ... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412) 4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have contracted with him in good faith and without knowledge of the death of the principal. 16 We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function. 5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17 To support such argument reference is made to a portion in Manresa's Commentaries which We quote: If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made known to them. But if the agency is general iii nature, without reference to particular person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known. In case of a general power which does not specify the persons to whom represents' on should be made, it is the general opinion that all acts, executed with third persons who contracted in good faith, Without knowledge of the revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo) The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power

of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will. 19With death, the principal's will ceases or is the of authority is extinguished. The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal 6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered land from one who acquired it in bad faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against such innocent purchaser for value but only against the forger. 20 To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief: In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held: But there is a narrower ground on which the defenses of the defendant- appellee must be overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record, he found them in due form including the power of attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of the transfer is authorized to deal with the land. As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly was an agent of his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides: xxx xxx xxx The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instruments, and the new certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended) 7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote from that decision the following: ... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from it. ... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal, which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied) To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said. There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such

payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549) So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J. said: The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject, than as the adjudication of the Court upon the point in question. But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone among common law authorities and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549) Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal. IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances. So Ordered. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

Footnotes 1 p. 40, rollo 2 p, 42, Ibid. 3 Art. 1317, Civil Code of the Philippines

4 Ibid 5 Art. 1868, Civil Code. By the contract of the agency of a person blinds himself to render some service or to do something in representation or on behalf of another, with the consent of the authority of the latter. Art. 1881, Civil Code. The Agent must act within the scope of his authority. He may do acts as may be conductive to the accomplishment of the purpose of the agency. 11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola, 243, 262; Tolentino, Comments, Civil Code of the Philippines, p.340, vol. 5, 1959 Ed. See also Columbia University Club v. Higgins, D.CN.Y., 23 f. Supp. 572, 574; Valentine Oil Co. v. Young 109 P. 2d 180, 185. 6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87; Purnell v. City of Florence, 175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v. Brown, 243 P. 133, 126 Ok. 36 7 See Art. 1919 of the Civil Code 8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v. Abad, et al., 1958, 104 Phil. 648, 652 9 11 Manresa 572-573; Tolentino, supra, 369-370 10 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2, p. 288 11 See Notes on Acts of agent after principal's death, 39 Am. Dec. 81,83, citing Ewell's Evans on Agency, 116; Dunlap's Paley on Agency, 186; Story on Agency, see. 488; Harper v. Little. 11 Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v. Tappan 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boones Executor v. Clarke 3 Cranch C.C. 389; Hank of 'Washington v. Person, 2 'Rash. C.C. 6.85; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff v. Porter, 5 Fla. 373; Lincoln v. Emerson, 108 Mass 87; 'Wilson v. Edmonds, 24 N.H 517; Easton v. Ellis, 1 Handy (Ohio), 70; McDonald v. Black's Administrators, 20 Ohio, 185; Michigan Ins. Co. v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136; Campanari v. 'Woodburn, 15 Com B 400 See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289 12 see p. 15, 30-31 64 68-69, Record on Appeal 13 pp. 71-72, Ibid. 14 p. 7 of the Decision at page 14, rollo 15 105 Phil. 79:i, 798 16 p. 6 of Decision, at page 13, rollo

17 pp. 6-7 of Decision at pp, 13-14, Ibid. 18 See Articles 1921 & 1922 of the Civil Code 19 2 C.J.S. 1 174 citing American Jurisprudence in different States from Alabama to Washington; emphasis supplied. 20 p. 8, decision at Page 15, rollo

G.R. No. 175409

September 7, 2011

PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner, vs. EXPLORER MARITIME CO., LTD., OWNER OF THE VESSEL M/V "EXPLORER", WALLEM PHILS. SHIPPING, INC., ASIAN TERMINALS, INC. AND FOREMOST INTERNATIONAL PORT SERVICES, INC., Respondents. DECISION LEONARDO-DE CASTRO, J.: This is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals dated July 20, 2006 in CA-G.R. CV No. 78834, which affirmed the Order2 of Branch 37, Regional Trial Court (RTC) of Manila dated February 14, 2001 dismissing the Complaint for failure of the plaintiff to prosecute the same for an unreasonable length of time. On March 22, 1995, petitioner Philippine Charter Insurance Corporation (PCIC), as insurersubrogee, filed with the RTC of Manila a Complaint against respondents, to wit: the unknown owner of the vessel M/V "Explorer" (common carrier), Wallem Philippines Shipping, Inc. (ship agent), Asian Terminals, Inc. (arrastre), and Foremost International Port Services, Inc. (broker). PCIC sought to recover from the respondents the sum of P342,605.50, allegedly representing the value of lost or damaged shipment paid to the insured, interest and attorneys fees. The case was docketed as Civil Case No. 95-73340 and was raffled to Branch 37. On the same date, PCIC filed a similar case against respondents Wallem Philippines Shipping, Inc., Asian Terminals, Inc., and Foremost International Port Services, Inc., but, this time, the fourth defendant is "the unknown owner of the vessel M/V "Taygetus." This second case was docketed as Civil Case No. 95-73341 and was raffled to Branch 38. Respondents filed their respective answers with counterclaims in Civil Case No. 95-73340, pending before Branch 37. PCIC later filed its answer to the counterclaims. On September 18, 1995, PCIC filed an ex parte motion to set the case for pre-trial conference, which was granted by the trial court in its Order dated September 26, 1995. However, before the scheduled date of the pre-trial conference, PCIC filed on September 19, 1996 its Amended Complaint. The "Unknown Owner" of the vessel M/V "Explorer" and Asian Terminals, Inc. filed anew their respective answers with counterclaims. Foremost International Port Services, Inc. filed a Motion to Dismiss, which was later denied by the trial court in an Order dated December 4, 1996. On December 5, 2000, respondent common carrier, "the Unknown Owner" of the vessel M/V "Explorer," and Wallem Philippines Shipping, Inc. filed a Motion to Dismiss on the ground that PCIC failed to prosecute its action for an unreasonable length of time. PCIC allegedly filed its Opposition, claiming that the trial court has not yet acted on its Motion to Disclose which it purportedly filed on November 19, 1997. In said motion, PCIC supposedly prayed for the trial court to order respondent Wallem Philippines Shipping, Inc. to disclose the true identity and whereabouts of defendant "Unknown Owner of the Vessel M/V Explorer." On February 14, 2001, the trial court issued an Order dismissing Civil Case No. 95-73340 for failure of petitioner to prosecute for an unreasonable length of time. Upon receipt of the order of dismissal on March 20, 2001, PCIC allegedly realized that its Motion to Disclose was inadvertently filed with Branch 38 of the RTC of Manila, where the similar case involving the vessel M/V "Taygetus" (Civil

Case No. 95-73341) was raffled to, and not with Branch 37, where the present case (Civil Case No. 95-73340) was pending. Thus, PCIC filed a Motion for Reconsideration of the February 14, 2001 Order, explaining that its Motion to Disclose was erroneously filed with Branch 38. PCIC claimed that the mistake stemmed from the confusion created by an error of the docket section of the RTC of Manila in stamping the same docket number to the simultaneously filed cases. According to PCIC, it believed that it was still premature to move for the setting of the pre-trial conference with the Motion to Disclose still pending resolution. On May 6, 2003, the trial court issued the Order denying PCICs Motion for Reconsideration. On May 21, 2003, PCIC, through new counsel, appealed to the Court of Appeals. On July 20, 2006, the Court of Appeals rendered the assailed Decision affirming the February 14, 2001 Order of the RTC. On November 6, 2006, the Court of Appeals issued its Resolution3 denying PCICs Motion for Reconsideration. Hence, this Petition for Review on Certiorari. On June 27, 2007, this Court required the counsel of the "Unknown Owner" of the vessel M/V Explorer and Wallem Philippines Shipping, Inc. to submit proof of identification of the owner of said vessel.4 On September 17, 2007, this Court, pursuant to the information provided by Wallem Philippines Shipping, Inc., directed its Division Clerk of Court to change "Unknown Owner" to "Explorer Maritime Co., Ltd." in the title of this case.5 In affirming the dismissal of Civil Case No. 95-73340, the Court of Appeals held that PCIC should have filed a motion to resolve the Motion to Disclose after a reasonable time from its alleged erroneous filing. PCIC could have also followed up the status of the case by making inquiries on the courts action on their motion, instead of just waiting for any resolution from the court for more than three years. The appellate court likewise noted that the Motion to Disclose was not the only erroneous filing done by PCICs former counsel, the Linsangan Law Office. The records of the case at bar show that on November 16, 1997, said law office filed with Branch 37 a Pre-trial Brief for the case captioned as "Philippine Charter Insurance Corporation v. Unknown Owners of the Vessel MV Taygetus, et al., Civil Case No. 95-73340." The firm later filed a Manifestation and Motion stating that the same was intended for Civil Case No. 95-73341 which was pending before Branch 38. All these considered, the Court of Appeals ruled that PCIC must bear the consequences of its counsels inaction and negligence, as well as its own. 6 PCIC claims that the merits of its case warrant that it not be decided on technicalities. Furthermore, PCIC claims that its former counsel merely committed excusable negligence when it erroneously filed the Motion to Disclose with the wrong branch of the court where the case is pending. The basis for the dismissal by the trial court of Civil Case No. 95-73340 is Section 3, Rule 17 and Section 1, Rule 18 of the Rules of Court, which respectively provide: Section 3. Dismissal due to the fault of the plaintiff. If, for no justifiable cause, the plaintiff fails to appear on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action for an unreasonable length of time, or to comply with these Rules or any order of the court, the complaint may be dismissed upon motion of the defendant or upon the courts own motion, without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate action. This dismissal shall have the effect of adjudication upon the merits, unless otherwise declared by the court. xxxx

Section 1. When conducted. After the last pleading has been served and filed, it shall be the duty of the plaintiff to promptly move ex parte that the case be set for pre-trial. In the fairly recent case of Espiritu v. Lazaro,7 this Court, in affirming the dismissal of a case for failure to prosecute on account of the omission of the plaintiff therein to move to set the case for pretrial for almost one year from their receipt of the Answer, issued several guidelines in effecting such dismissal: Respondents Lazaro filed the Cautionary Answer with Manifestation and Motion to File a Supplemental/Amended Answer on July 19, 2002, a copy of which was received by petitioners on August 5, 2002. Believing that the pending motion had to be resolved first, petitioners waited for the court to act on the motion to file a supplemental answer. Despite the lapse of almost one year,8 petitioners kept on waiting, without doing anything to stir the court into action. In any case, petitioners should not have waited for the court to act on the motion to file a supplemental answer or for the defendants to file a supplemental answer. As previously stated, the rule clearly states that the case must be set for pre-trial after the last pleading is served and filed. Since respondents already filed a cautionary answer and [petitioners did not file any reply to it] the case was already ripe for pre-trial. It bears stressing that the sanction of dismissal may be imposed even absent any allegation and proof of the plaintiff's lack of interest to prosecute the action, or of any prejudice to the defendant resulting from the failure of the plaintiff to comply with the rules. The failure of the plaintiff to prosecute the action without any justifiable cause within a reasonable period of time will give rise to the presumption that he is no longer interested in obtaining the relief prayed for. In this case, there was no justifiable reason for petitioners' failure to file a motion to set the case for pre-trial. Petitioners' stubborn insistence that the case was not yet ripe for pre-trial is erroneous. Although petitioners state that there are strong and compelling reasons justifying a liberal application of the rule, the Court finds none in this case. The burden to show that there are compelling reasons that would make a dismissal of the case unjustified is on petitioners, and they have not adduced any such compelling reason.9 (Emphases supplied.) In the case at bar, the alleged Motion to Disclose was filed on November 19, 1997. Respondents filed the Motion to Dismiss on December 5, 2000. By that time, PCICs inaction was thus already almost three years. There is therefore no question that the failure to prosecute in the case at bar was for an unreasonable length of time. Consequently, the Complaint may be dismissed even absent any allegation and proof of the plaintiff's lack of interest to prosecute the action, or of any prejudice to the defendant resulting from the failure of the plaintiff to comply with the rules. The burden is now on PCIC to show that there are compelling reasons that would render the dismissal of the case unjustified. The only explanation that the PCIC can offer for its omission is that it was waiting for the resolution of its Motion to Disclose, which it allegedly filed with another branch of the court. According to PCIC, it was premature for it to move for the setting of the pre-trial conference before the resolution of the Motion to Disclose. We disagree. Respondent Explorer Maritime Co., Ltd., which was then referred to as the "Unknown Owner of the vessel M/V Explorer," had already been properly impleaded pursuant to Section 14, Rule 3 of the Rules of Court, which provides:

Section 14. Unknown identity or name of defendant Whenever the identity or name of a defendant is unknown, he may be sued as the unknown owner, heir, devisee, or by such other designation as the case may require; when his identity or true name is discovered, the pleading must be amended accordingly. In the Amended Complaint, PCIC alleged that defendant "Unknown Owner of the vessel M/V Explorer" is a foreign corporation whose identity or name or office address are unknown to PCIC but is doing business in the Philippines through its local agent, co-defendant Wallem Philippines Shipping, Inc., a domestic corporation.10 PCIC then added that both defendants may be served with summons and other court processes in the address of Wallem Philippines Shipping, Inc.,11 which was correctly done12 pursuant to Section 12, Rule 14 of the Rules of Court, which provides: Sec. 12. Service upon foreign private juridical entity. When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. As all the parties have been properly impleaded, the resolution of the Motion to Disclose was unnecessary for the purpose of setting the case for pre-trial.
1avvphi1

Furthermore, Section 3, Rule 3 of the Rules of Court likewise provides that an agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal. Since Civil Case No. 95-73340 was an action for damages, the agent may be properly sued without impleading the principal. Thus, even assuming that petitioner had filed its Motion to Disclose with the proper court, its pendency did not bar PCIC from moving for the setting of the case for pre-trial as required under Rule 18, Section 1 of the Rules of Court.13 Indeed, we find no error on the part of the lower courts in not giving credit to the purportedly erroneously filed Motion to Disclose. The only document presented by PCIC to prove the same, a photocopy thereof attached to their Motion for Reconsideration with the RTC, is highly suspicious. Said photocopy14 of the Motion to Disclose contains an explanation why the same was filed through registered mail. However, it was also stamped as "RECEIVED" by the RTC on November 19, 1997,15 indicating that said attachment was a receiving copy. The receiving copy was not signed by any court personnel16 and does not contain any proof of service on the parties. The Motion sets the hearing thereon on the same date of its filing, November 19, 1997.17
1wphi1

Likewise, PCICs attempt to shift the blame to the docket section of the RTC of Manila, which allegedly stamped the same docket number to Civil Case No. 95-73340 (involving M/V Explorer) and Civil Case No. 95-73341 (involving M/V Taygetus), is completely unfounded. A perusal of the Complaint in the case at bar shows that it was correctly stamped Civil Case No. "95-73340," and the branch number was correctly written as 37.18 PCIC did not bother to attach the alleged complaint filed in Branch 38 involving M/V Taygetus. However, it does not escape our attention that PCIC in its own pleadings repeatedly refer to the case pending in Branch 38 as Civil Case No. 95-73341, contrary to its claim that the two cases were docketed with the same number. In all, PCIC failed to adequately account how its counsel could have mistakenly filed the Motion intended for Branch 37 in Branch 38. Worse, said counsel also allegedly only discovered the error after three years from the filing of the Motion to Disclose. Such a circumstance could have only occurred if both PCIC and its counsel had indeed been uninterested and lax in prosecuting the case.

We therefore hold that the RTC was correct in dismissing Civil Case No. 95-73340 for failure of the plaintiff to prosecute the same for an unreasonable length of time. As discussed by the Court of Appeals, PCIC could have filed a motion for the early resolution of their Motion to Disclose after the apparent failure of the court to do so. If PCIC had done so, it would possibly have discovered the error in the filing of said motion much earlier. Finally, it is worth noting that the defendants also have the right to the speedy disposition of the case; the delay of the pre-trial and the trial might cause the impairment of their defenses.19 WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals dated July 20, 2006 in CA-G.R. CV No. 78834 is hereby AFFIRMED. Costs against petitioner Philippine Charter Insurance Corporation. SO ORDERED. TERESITA J. LEONARDO-DE CASTRO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson LUCAS P. BERSAMIN Associate Justice MARIANO C. DEL CASTILLO Associate Justice

MARTIN S. VILLARAMA, JR. Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Rollo, pp. 33-40; penned by Associate Justice Jose Catral Mendoza (now a member of this Court) with Associate Justices Elvi John S. Asuncion and Arturo G. Tayag, concurring.
2

CA rollo, p. 36.

Rollo, p. 43. Id. at 90. Id. at 110a. Id. at 38-39. G.R. No. 181020, November 25, 2009, 605 SCRA 566.

The trial court in the cited case dismissed the complaint on July 24, 2003, slightly less than one year from the plaintiffs receipt of the Cautionary Answer on August 5, 2002. (Id. at 570.)
9

Id. at 572-573. Records, p. 75. Id. Id. at 37.

10

11

12

13

Rule 18, Section 1 provides that "[a]fter the last pleading has been served and filed, it shall be the duty of the plaintiff to promptly move ex parte that the case be set for pretrial."
14

Records, pp. 141-144. Id. at 141. Id. Id. Id. at 1. See Olave v. Mistas, G.R. No. 155193, November 26, 2004, 444 SCRA 479, 493.

15

16

17

18

19

G.R. No. 77638 July 12, 1990 MARITIME AGENCIES & SERVICES, INC., petitioner, vs. COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents. G.R. No. 77674 July 12, 1990 UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner, vs. COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC., and/or VIVA CUSTOMS BROKERAGE, respondents. Del Rosario & Del Rosario for petitioner in G.R. No. 77638. Zapa Aguillardo & Associates for petitioner in G.R. No. 77674. Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.

CRUZ, J.: Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping Company of Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35 MT (gross) bagged urea from Novorossisk, Odessa, USSR to the Philippines, the parties signing for this purpose a Uniform General Charter dated August 9, 1979. 1 Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The goods were insured by the consignee with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3 Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray Company, Inc. as the owner's agent. 4 The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods, then proceeded to Cebu on October 19, 1979, to discharge the rest of the cargo. On October 31, 1979, the consignee filed a formal claim against Maritime, copy furnished Macondray, for the amount of P87,163.54, representing C & F value of the 1,383 shortlanded bags. 5 On January 12, 1980, the consignee filed another formal claim, this time against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net unrecovered spillage. 6 These claims having been rejected, the consignee then went to Union, which on demand paid the total indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union then filed on September 19, 1980, a complaint for reimbursement of this amount, with legal interest and attorney's fees, against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. 7 On April 20, 1981, the complaint was amended to drop Viva and implead Macondray Company, Inc. as a new defendant. 8

On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as follows: (a) defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay the plaintiff the sum of P87,163.54 plus 12% interest from April 20, 1981 until the whole amount is fully paid, P1,000.00 as attorney's fees and to pay one-half (1/2) of the costs; and
(b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of P36,030.23, plus 12% interest from April 20, 1981 until the whole amount is fully paid, P600.00 as attorney's fees and to pay one-half (1/2) of the costs. 9

Petitioner appealed the decision to the Court of Appeals, which rendered a decision on November 28, 1986, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is modified, finding the charterer Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the amount of P87,163.54 plus interest at 12% plus attorney's fees of P1,000.00. Defendant Hongkong Island Co., Ltd. represented by Macondray Co., Inc. are accordingly exempted from any liability. 10

Maritime and Union filed separate motions for reconsideration which were both denied. The movants are now before us to question the decision of the respondent court. In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's agent and should not answer for whatever responsibility might have attached to the principal. It also argues that the respondent court erred in applying Articles 1734 and 1735 of the Civil Code in determining the charterer's liability. In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as to make Maritime solidarily and solely liable, its principal not having been impleaded and so not subject to the jurisdiction of our courts. These two cases were consolidated and given due course, the parties being required to submit simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc., although they pointed out that they were not involved in the petitions. There are three general categories of charters, to wit, the demise or "bareboat charter," the time charter and the voyage charter. A demise involves the transfer of full possession and control of the vessel for the period covered by the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while manning and supplying the ship as well. 11 A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right to direct the movements of the vessel during the chartering period, although the owner retains possession and control. 12 A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the purpose of transporting goods for the charterer. The voyage charter is a contract of affreightment and is considered a private carriage. 13

Tested by those definitions, the agreement entered into in the cases at bar should be considered. This brings us to the basic question of who, in this kind of charter, shall be liable for the cargo. A voyage charter being a private carriage, the parties may freely contract respecting liability for damage to the goods and other matters. The basic principle is that "the responsibility for cargo loss falls on the one who agreed to perform the duty involved" in accordance with the terms of most voyage charters. 14 This is true in the present cases where the charterer was responsible for loading, stowage and discharging at the ports visited, while the owner was responsible for the care of the cargo during the voyage. Thus, Par. 2 of the Uniform General Charter read: 2. Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by the improper or negligent stowage of the goods or by personal want of due diligence on the part of the Owners or their Manager to make the vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied or by the personal act or default of the Owners or their Manager. And the Owners are responsible for no loss or damage or delay arising from any other cause whatsoever, even from the neglect or default of the Captain or crew or some other person employed by the Owners onboard or ashore for whose acts they would, but for this clause, be responsible, or from unseaworthiness of the vessel on loading or commencement of the voyage or at any time whatsoever. Damage caused by contact with or leakage, smell or evaporation from other goods or by the inflammable or explosive nature or insufficient package of other goods not to be considered as caused by improper or negligent stowage, even if in fact so caused. while Clause 17 of Additional Clauses to Charter party provided: The cargo shall be loaded, stowed and discharged free of expense to the vessel under the Master's supervision. However, if required at loading and discharging ports the vessel is to give free use of winches and power to drive them gear, runners and ropes. Also slings, as on board. Shore winchmen are to be employed and they are to be for Charterers' or Shippers' or Receivers' account as the case may be. Vessel is also to give free use of sufficient light, as on board, if required for night work. Time lost through breakdown of winches or derricks is not to count as laytime. In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected similar stipulations as contrary to public policy and, applying the provisions of the Civil Code on common carriers and of the Code of Commerce on the duties of the ship captain, held the vessel liable in damages for loss of part of the cargo it was carrying. This Court reversed, declaring as follows: The provisions of our Civil Code on common carriers were taken from AngloAmerican law. Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and is deemed valid.

Such doctrine we find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally chartered for the use of a single party. Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case that the vessel was at fault. In the cases at bar, the trial court found that 1,383 bags were shortlanded, which could only mean that they were damaged or lost on board the vessel before unloading of the shipment. It is not denied that the entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. 16 As the bags were in good order when received in the vessel, the presumption is that they were damaged or lost during the voyage as a result of their negligent improper stowage. For this the ship owner should be held liable. But we do agree that the period for filing the claim is one year, in accordance with the Carriage of Goods by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special law, prevails over the general provisions of the Civil Code on prescription of actions. Section 3(6) of that Act provides as follows: In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered; Provided, that if a notice of loss for damage; either apparent or concealed, is not given as provided for in this section, that fact shall not effect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad Co., 17where it was held: Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was barred by the statute of limitations. The one-year period in the cases at bar should commence on October 20, 1979, when the last item was delivered to the consignee. 18 Union's complaint was filed against Hongkong on September 19, 1980, but tardily against Macondray on April 20, 1981. The consequence is that the action is considered prescribed as far as Macondray is concerned but not against its principal, which is what matters anyway. As regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed this activity under the charter party "free of expense to the vessel." The difficulty is that Transcontinental has not been impleaded in these cases and so is beyond our jurisdiction. The liability imposable upon it cannot be borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal. It is a well-settled principle that the agent shall be liable for the act or omission of the principal only if the latter is undisclosed. 19

Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the case of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable. In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner and the charterer did not stipulate in the Charter party on their separate respective liabilities for the cargo. The loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As the charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for the cargo while under the custody of the vessel. As for the charterer's agent, the evidence showed that it represented the vessel when it took charge of the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the vessel for the losses/damages sustained by that cargo were also received and processed by it. As a result, the charterer's agent was also considered a ship agent and so was held to be solidarily liable with its principal. The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed assumed responsibility ability only for the unloading of the cargo, i.e, after the goods were already outside the custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations Report and Statement of Facts indicating and describing the day-to-day discharge of the cargo, Maritime acted in representation of the charterer and not of the vessel. It thus cannot be considered a ship agent. As a mere charterer's agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer's principal and there is no question that Maritime acted within the scope of its authority. Hongkong and Macondray point out in their memorandum that the appealed decision is not assailed insofar as it favors them and so has become final as to them. We do not think so. First of all, we note that they were formally impleaded as respondents in G.R No. 77674 and submitted their comment and later their memorandum, where they discussed at length their position vis-a-vis the claims of the other parties. Secondly, we reiterate the rule that even if issues are not formally and specifically raised on appeal, they may nevertheless be considered in the interest of justice for a proper decision of the case. Thus, we have held that:
itc-asl

Besides, an unassigned error closely related to the error properly assigned, or upon which the determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error.
At any rate, the Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. 21

xxx xxx xxx

Issues, though not specifically raised in the pleadings in the appellate court, may, in the interest of justice, be properly considered by said court in deciding a case, if they are questions raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or the lower court ignore(d). 22

xxx xxx xxx

While an assignment of error which is required by law or rule of court has been held essential to appellate review, and only those assigned will be considered, there are a number of cases which appear to accord to the appellate court a broad discretionary power to waive this lack of proper assignment of errors and consider errors not assigned. 23

In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of Manila held: The Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were "discharged ex-vessel" and there were "shortlanded" "1,383 bags", valued at P87,163.54. This sum should be the principal and primary liability and responsibility of the carrying vessel. Under the contract for the transportation of goods, the vessel's responsibility commence upon the actual delivery to, and receipt by the carrier or its authorized agent, until its final discharge at the port of Manila. Defendant Hongkong Island Co., Ltd., as "shipowner" and represented by the defendant Macondray & Co., Inc., as its local agent in the Philippines, should be responsible for the value of the bags of urea fertilizer which were shortlanded. The remainder of the claim in the amount of P36,030.23, representing the value of the 574 bags of unrecovered spillages having occurred after the shipment was discharged from the vessel unto the ex-lighters as well as during the discharge from the lighters to the truck which transported the shipment to the consignee's warehouses should be for the account of the defendant Maritime Agencies & Services, Inc. We affirm the factual findings but must modify the legal conclusions. As previously discussed, the liability of Macondray can no longer be enforced because the claim against it has prescribed; and as for Maritime, it cannot be held liable for the acts of its known principal resulting in injury to Union. The interest must also be reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil Code, and should commence, not on April 20, 1981, but on September 19, 1980, date of the filing of the original complaint. WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is REINSTATED as above modified. The parties shall bear their respective costs. SO ORDERED. Narvasa, C.J., Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Footnotes 1 Original Records, pp. 24-31. 2 Ibid., pp. 65-66. 3 Id., pp. 67-68.

4 id., p. 33. 5 id., p. 75. 6 Id., p. 76. 7 Rollo, G.R. No. 77638, p. 114. 8 Original Records, pp. 3-6. 9 Ibid., pp. 156-163. Decided by Judge Artemon D. Luna. 10 Rollo, G.R. No. 77638, pp. 27-33. Penned by Coquia, J., with Luciano and Cui, JJ., concurring. 11 Schoenbaum, Thomas, J., Admiralty and Maritime Law, 1987, Student Edition, p. 382. 12 Ibid. 13 Id., p. 383. 14 Id., p. 403. 15 23 SCRA 24. 16 Original Records, p. 64. 17 77 SCRA 359. 18 Schoenbaum, Admiralty and Maritime Law, p. 379. 19 2 Am. Jur., pp. 247-249; 3 CJS, pp. 119, 135. 20 96 SCRA 297. 21 Vda. de Javellana v. CA, 123 SCRA 799. 22 Baquiran v. CA, 2 SCRA 873. 23 Hernandez v. Andal, 78 Phil. 196. 24 139 SCRA 260.

G.R. No. L-25301

October 26, 1968

GOLD STAR MINING CO., INC., petitioner, vs. MARTA LIM-JIMENA, CARLOS JIMENA, GLORIA JIMENA, AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA, JOYCE JIMENA, as legal heirs of the deceased VICTOR JIMENA, and JOSE HIDALGO, respondents. Emiliano S. Samson and R. Balderrama-Samson for petitioner. Leandro Sevilla and Ramon C. Aquino for respondents. REYES, J.B.L., J.: From an affirmance in toto by the Court of Appeals1 of a decision of the Court of First Instance of Manila,2specifically the portion thereof condemning Gold Star Mining Co., Inc. to pay Marta Lim Vda. de Jimena, et al., the sum of P30,691.92 solidarily with Ananias Isaac Lincallo for violation of an injunction this appeal is taken. It is of record that in 1937, Ananias Isaac Lincallo bound himself in writing to turn to Victor Jimena one-half (1/2) of the proceeds from all mining claims that he would purchase with the money to be advanced by the latter. This agreement was later on modified (in a 1939 notarial instrument duly registered with the Register of Deeds of Marinduque in his capacity as mining recorder) so as to include in the equal sharing arrangement not only the proceeds from several mining claims, which by that time had already been purchased by Lincallo with various sums totalling P5,800.00 supplied by Jimena, but also the lands constituting the same, and so as to bind thereby their "heirs, assigns, or legal representatives." Apparently, the mining rights over part of the claims were assigned by Lincallo to Gold Star Mining Co., Inc., sometime before World War Il because in 1950 the corporation paid him P5,000 in consideration of, and as a quitclaim for, pre-war royalties. On several occasions thereafter, the mining claims in question were made subject-matter of contracts entered into by Lincallo in his own name and for his benefit alone without the slightest intimation of Jimena's interests over the same. Thus, on 19 September 1951, Lincallo and one Alejandro Marquez, as separate owners of particular mining claims, entered into an agreement with Gold Star Mining Co., Inc., the assignee thereof, regarding allotment to Lincallo of 45% of the royalties due from the corporation. Four months later, Lincallo, Marquez and Congressman Panfilo Manguerra, again as owners, leased certain mining claims to Jacob Cabarrus, who, in turn, transferred to Marinduque Iron Mines Agents, Inc., his rights under the lease contract. By virtue of still another contract executed by these lessors on 29 February 1952, 43% of the royalties due from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo. As early as August, 1939 and down to September, 1952, Jimena repeatedly apprised Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., of his interests over the mining claims so assigned and/or leased by Lincallo and, accordingly, demanded recognition and payment of his onehalf share in all the royalties, allocated and paid and, thereafter, to be paid to the latter. Both corporations, however, ignored Jimena's demands. Payment of the P5,800 advanced for the purchase of the mining claims, as well as the one-half share in the royalties paid by the two corporations, were also repeatedly demanded by Jimena from Lincallo. Acknowledging Jimena's contractual claim, Lincallo off and on promised to settle his obligations. And on 14 July 1952, Lincallo promised for the last time, to settle everything on or before the 30th day of the same month.

Lincallo, however, did not only fail to settle his accounts with Jimena but transferred on 16 August 1952, a month after he promised to pay Jimena, 35 of his 45% share in the royalties due from Gold Star Mining Co., Inc., to one Gregorio Tolentino, a salaried employee, for an alleged consideration of P10,000.00. On 2 September 1954, Jimena commenced a suit against Lincallo for recovery of his advances and his one-half share in the royalties. Gold Star Mining Co., Inc., and Marinduque Iron Mines, Inc., together with Tolentino, were later joined as defendants. On 17 September 1954, the trial court issued, upon petition of Jimena, a writ of preliminary injunction restraining Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., from paying royalties during the pendency of the case to Lincallo, his assigns or legal representatives. Despite the injunction, however, Gold Star Mining Co., Inc., was found out to have paid P30, 691.92 to Lincallo and Tolentino. Said corporation claimed later on (on appeal) that the injunction had been superseded and/or dissolved on 25 May 1955 by the trial court's grant of Jimena's petition for a writ of preliminary attachment "to supersede the writ of preliminary injunction previously issued." But as the grant was conditioned upon filing of a bond to be approved by the trial court, no writ of attachment was issued because the bond offered by Jimena was disapproved.3 Jimena and Tolentino died successively during the pendency of the case in the trial court and were, accordingly, substituted by their respective widows and children. After a protracted trial, the lower court rendered a decision, the dispositive portion of which reads as follows: IN VIEW WHEREOF, judgment is rendered: 1. Declaring the plaintiffs (a) as successors in interest of Victor Jimena to be entitled to 1/2 of the 45% share of the royalties of defendant Lincallo under the latter's contract with Gold Star, Exh. D or Exh. D-l, dated September 19, 1951; (b) to 1/2 of the 43% shares of the rental of defendant Lincallo under his contract with Jesus (Jacob) Cabarrus assigned to Marinduque Iron Mines, and his contract with Alejandro Marquez, dated December 5, 1951, and February 29, 1952, Exhs. J and J1; . (c) and condemning defendants Gold Star and Marinduque Iron Mines to pay direct to plaintiffs said 1/2 shares of the royalties until said contracts are terminated; 2. Condemning defendant Lincallo to pay unto plaintiffs, as successors in interest of Victor Jimena (a) the sum of P5,800 with legal interest from the date of the filing of the complaint; (b) the sum of P40,167.52 which is the 1/2 share of the royalties paid by Gold Star unto Lincallo as of the September 14, 1957;

(c) the sum of P3,235.64 which is the 1/2 share of Jimena on the rentals amounting to P6,471.27 corresponding to Lincallo's share paid by Marinduque Iron Mines unto Lincallo from December, 1951 to August 25, 1954; under Exhibit N; (d) P1,000.00 as attorneys fees; 3. Declaring that the deed of sale, Exh. H, dated August 16, 1952, between defendant Lincallo and Gregorio Tolentino was effective and transferred only 1/2 of the 45% (43%) share of Lincallo, and ordering Gold Star Mining Company to make payment hereafter unto plaintiffs, pursuant to this decision on the royalties due unto Lincallo, notwithstanding the cession unto Tolentino, so that of the royalties due unto Lincallo 1/2 should always be paid by Gold Star unto plaintiffs notwithstanding said session, Exh. H, unto Tolentino by Lincallo; 4. Judgment is also rendered condemning the estate of Gregorio Tolentino but not the heirs personally, to pay unto plaintiffs the sum of P24,386.51 with legal interest from the date of the filing of the complaint against Gregorio Tolentino. 5. Judgment is rendered condemning defendant Gold Star Mining Company to pay to plaintiffs solidarily with Lincallo and to be imputed to Lincallo's liability under this judgment unto Jimena, the sum of P30,691.92; 6. Judgment is rendered condemning defendant Marinduque Iron Mines to pay unto plaintiffs the sum of P7,330.36; 7. The counterclaims of defendants are dismissed; 8. Costs against defendant Lincallo. SO ORDERED. (Emphasis supplied.) From this judgment, all four defendants, namely, Lincallo, the widow and children of Tolentino, and the two corporations, appealed to the Court of Appeals. The appeal interposed by Marinduque Iron Mines Agents, Inc., was, however, withdrawn, while that of Lincallo was dismissed for the failure to file brief. Pending outcome of the appeal, the royalties due from Gold Star Mining Co., Inc., were required to be deposited with the trial court, as per order of 17 June 1958 issued by the same court. In compliance therewith, Gold Star Mining Co., Inc., made a judicial deposit in the amount of P30,691.92. On 8 October 1965, the Court of Appeals handed down a decision sustaining in its entirety that of the trial court. Gold Star Mining Co., Inc., moved for reconsideration of said decision insofar as its adjudged solidary liability with Lincallo to pay to the Jimenas the sum of P30,691.92 "for flagrant violation of the injunction" was concerned. The motion was denied. Hence, the present appeal. Petitioner Gold Star Mining Co., Inc., argues that the Court of Appeals' decision finding that respondents Jimenas have a cause of action against it, and condemning it to pay the sum of P30,691.92 for violation of an allegedly non-existent injunction, are reversible errors. Reasons: As to respondents Jimena's cause of action, the same does not allegedly appear in the complaint filed against petitioner corporation. And as to the P30,691.92 penalty for violation of the injunction, the same can not allegedly be imposed because (1) the sum of P30,691.92 was not prayed for, (2) the injunction in question had already been superseded and/or dissolved by the trial court's grant of Jimena's petition for writ of preliminary attachment; and (3) the corporation was never charged,

heard, nor found guilty in accordance with, and pursuant to, the provisions, of Rule 64 of the (Old) Rules of Court. We are of the same opinion with the Court of Appeals that respondents Jimenas have a cause of action against petitioner corporation and that the latter's joinder as one of the defendants before the trial court is fitting and proper. Said the Court of Appeals, and we adopt the same: There first assigned error is the Trial Court erred in not dismissing this instant action as "there is no privity of contract between Gold Star and Jimena." This contention is without merit. The situation at bar is similar to the status of the first and second mortgagees of a duly registered real estate mortgage. While there exists no privity of contract between them, yet the common subject-matter supplies the juridical link. Here the evidence overwhelmingly established that Jimena made prewar and postwar demands upon Gold Star for the payment of his 1/2 share of the royalties but all in vain so he (Jimena) was constrained to implead Gold Star because it refused to recognize his right. Jimena now seeks for accounting of the royalties paid by Gold Star to Lincallo, and for direct payment to himself of his share of the royalties. This relief cannot be granted without joining the Gold Star specially in the face of the attitude it had displayed towards Jimena. Borrowing the Spanish maxim cited by Jimena's counsel, "el deudor de mi deudor es deudor mio," this legal maxim finds sanction in Article 1177, new Civil Code which provides that "creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter (debtor) for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them (1111)." From another standpoint, equally valid and acceptable, it can be said that Lincallo, in transferring the mining claims to Gold Star (without disclosing that Jimena was a co-owner although Gold Star had knowledge of the fact as shown by the proofs heretofore mentioned) acted as Jimena's agent with respect to Jimena's share of the claims. Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883, New Civil Code, which provides that the principal may sue the person with whom the agent dealt with in his (agent's) own name, when the transaction "involves things belonging to the principal." As counsel for Jimena has correctly contended, "the remedy of garnishment suggested by Gold Star is utterly inadequate for the enforcement of Jimena's right against Lincallo because Jimena wanted an accounting and wanted to receive directly his share of the royalties from Gold Star. That recourse is not open to Jimena unless Gold Star is made a party in this action." Coming now to the violation of the injunction, we observe that the facts speak for themselves. Considering that no writ of preliminary attachment was issued by the trial court, the condition for its issuance not having been met by Jimena, nothing can be said to have superseded the writ of preliminary injunction in question. The preliminary injunction was, therefore, subsisting and evidently violated by petitioner corporation when it paid the sum of P30,691.92 to Lincallo and Tolentino.

Gold Star Mining Co., Inc., insists that it may not be penalized for breach of the injunction, issued by the court of origin, without prior written charge for indirect contempt, and due hearing, citing section 3 of Rule 64 of the old Rules of Court, now Rule 71 of the Revised Rules. We fail to see any merit in this contention, as it misses the true nature and intent of the award of P30,691.92 to Jimena, payable by Gold Star and Lincallo's estate. Said award is not so much a penalty against petitioner as a decree of restitution, in order to make the violated injunction effective, as it should be, by placing the parties in the same condition as if the injunction had been fully obeyed. If Gold Star Mining Co., Inc., had only heeded the injunction and had not paid to Lincallo the royalties of P30,691.92, such amount would now be available for the satisfaction of the claims of Jimena and his heirs against Lincallo. By sentencing Gold Star Mining Co., Inc., to pay, for the account of Lincallo, the sum aforesaid, the court merely endeavoured to prevent its award from being rendered pro tanto nugatory and ineffective, and thus make it conformable to law and justice. That the questioned award was not intended to be a penalty against appellant Gold Star Mining Co., Inc., is shown by the provision in the judgment that the P30,691.92 to be paid by it to Jimena is "to be imputed to Lincallo's liability under this judgment." The court thus left the way open for Gold Star Mining Co., Inc., to recover later the whole amount from Lincallo, whether by direct action against him or by deducting it from the royalties that may fall due under his 1951 contract with appellant. That the recovery of this particular amount was not specifically sought in the complaint is of no moment, since the complaint prayed in general for "other equitable relief." WHEREFORE, finding no reversible error in the decision appealed from, the same is affirmed, with costs against petitioner-appellant, Gold Star Mining Co., Inc. Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur. Zaldivar, J., is on leave.

Footnotes
1

CA-G.R. No. 23598-R. Civil Case No. 23893.

Jimena's "Ex-Parte Petition for Approval of Bond for Issuance of Attachment" was denied by the trial court as per the latter's order of 14 October 1955 (Records on Appeal, pages 116-117).

G.R. No. L-10919

February 28, 1958

LORETO LORCA, plaintiff-appellant, vs. JOSE S. DINEROS, defendant-appellee. Pedro B. Puya for appellant. Manuel F. Zamora for appellee. BENGZON, J.: This action for damages against Deputy Sheriff Jose S. Dineros was dismissed by Hon. Pantaleon Pelayo, Judge of Iloilo, on the ground that it is the Sheriff who is responsible, if at all not this deputy. Such decision resulted from a motion for judgment on the pleadings. The facts are short and simple: Pursuant to a writ of execution issued in Civil Case No. 1062 entitled "Rosario Suero vs. Jose Morata" Jose S. Dineros as Deputy Sheriff and in the name of the Sheriff sold at public auction to Jose Bermejo and Rosario Suero the property attached therein, disregarding the third-party claim of Loreto Lorca (herein Plaintiff) who asserted ownership over said property. This suit for damages is the result of said auction sale. Defendant, in his answer, denied liability, pointing out, that he had merely acted for and on behalf of Provincial Sheriff, Cipriano Cabaluna. The appellant insists here that Dineros was responsible in view of sec. 334 of the Revised Administrative Code and sec. 15, Rule 39, Rules of Court, which provides as follows: SEC. 334 Right of Bonded Officer to require Bond from Deputy or assistant. A sheriff or other accountable official may require any of his deputies or assistants, not bonded in the fidelity fund, to give an adequate personal bond as security against loss by reason of any wrong doing on the part of such deputy or assistant. The taking of such security shall in no wise impair the independent civil liability of any of the parties. . . . and in case the sheriff or attaching officer is sued for damages as a result of the attachment. . . . In the light of section 330 of the Administrative Code we think the above provisions apply where the deputy acts in his own name or is guilty of active malfeasance1 or possibly where he exceeds the limits of his agency. In this case it is clear from the certificate of sale attached to the complaint as Annex C that Dineros acted all the time in the name of the Ex-Officio Provincial Sheriff of Iloilo; and no allegations of misfeasance are made. The Sheriff is liable to third persons on the acts of his deputy,2 in the same manner that the principal is responsible for the acts of his agent, that is why he is required to post a bond for "the benefit of whom it may concern," (Section 330, Revised Administrative Code) for instance the owners of property unlawfully sold by him on execution.3 The complaint should not have been dismissed, appellant argues, since the court could have included the Sheriff as party defendant, in line with Rule 3, section 11 of the Rules of Court. However, what should have been done was not "inclusion" as plaintiff asked, nor "exclusion" under said section 11. It was "substitution" of the deputy by the Sheriff. Anyway, the word "may" in said see. 11 implies direction of the court; and we are shown no reasons indicating abuse thereof.

This is not the first time an action is dismissed for the reason that the agent instead of his principal was made the party defendant. (See Macias & Co. vs. Warner Barnes, 43 Phil., 155; Banque Generate Belge vs.Walter Bull & Co., 84 Phil., 164, 47 Off. Gaz., 138.) Judgment affirmed, with costs against appellant. Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

Footnotes
1

Cf. Singh Sulce, 49 Phil., 563. Basco vs. Gonzales, 59 Phil., 1, 6; Singh vs. Sulce, supra.

Walker vs. McMicking, 14 Phil, 668; Osorio vs. Cortes, 24 Phil., 653; Basco vs. Gonzales supra.

G.R. No. 130423

November 18, 2002

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents. DECISION YNARES-SANTIAGO, J.: During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from receipt of the items. Upon petitioners failure to pay on September 24, 1992, Quilatan required her to execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit: Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw. Las Pinas, September 24, 1992.1 The receipt was signed by petitioner and a witness, Rufina G. Navarette. Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter to sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused her to likewise fail to pay her obligation to Quilatan. Subsequently, Quilatan, through counsel, sent a formal letter of demand2 to petitioner for failure to settle her obligation. Quilatan executed a complaint affidavit3 against petitioner before the Office of the Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph 1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the Regional Trial Court of Las Pinas. The information alleged: That on or about and sometime during the period from July 1992 up to September 1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and abuse of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously misappropriate and convert the same for her own personal use and benefit and despite oral and written demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of P567,750.00. CONTRARY TO LAW.5

Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued. Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the payments were remitted late;8that petitioner still owed her in the amount of P424,750.00.9 On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the same, thereby causing her to default in paying Quilatan.10 She presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to Quilatan prior to the filing of the criminal case. Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis; however, due to her outstanding account with the latter, she got jewelry from petitioner instead.13 On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the maximum period plus one (1) year for every additional P10,000.00. Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs. SO ORDERED.14 Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the penalty as follows: WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION: Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal. SO ORDERED.15 Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45, alleging that:

I RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS. II RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17 Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which it was originally entrusted to her. It was established that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the same. We find merit in the petition. The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other personal property is received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2) that there be misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended party on the offender.18 While the first, third and fourth elements are concededly present, we find the second element of misappropriation or conversion to be lacking in the case at bar. Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the lower courts conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."19 It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a substitute or sub-agent in the absence of an express agreement to the contrary between the agent and the principal.20 In the case at bar, the appointment of Labrador as petitioners sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus, it cannot be said that petitioners act of entrusting the jewelry to Labrador is characterized by abuse of confidence because such an act was not proscribed and is, in fact, legally sanctioned. The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words "convert" and "misappropriated" connote an act of using or disposing of anothers property as if it were ones own, or of devoting it to a

purpose or use different from that agreed upon. To misappropriate for ones own use includes not only conversion to ones personal advantage, but also every attempt to dispose of the property of another without right.21 In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve the very same end for which they were delivered to her in the first place. Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon. Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador "without right." Aside from the fact that no condition or limitation was imposed on the mode or manner by which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily part with the valuables in order to find a buyer and allow inspection of the items for sale. In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on commission basis, with the obligation to return the same in a few days if not sold. However, by reason of the fact that the rings were delivered also for sale on commission to subagents who failed to account for the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to the complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime charged, we held: Where, as in the present case, the agents to whom personal property was entrusted for sale, conclusively proves the inability to return the same is solely due to malfeasance of a subagent to whom the first agent had actually entrusted the property in good faith, and for the same purpose for which it was received; there being no prohibition to do so and the chattel being delivered to the subagent before the owner demands its return or before such return becomes due, we hold that the first agent can not be held guilty of estafa by either misappropriation or conversion. The abuse of confidence that is characteristic of this offense is missing under the circumstances.23 Accordingly, petitioner herein must be acquitted. The lower courts reliance on People v. Flores24 and U.S. v. Panes25 to justify petitioners conviction is misplaced, considering that the factual background of the cited cases differ from those which obtain in the case at bar. In Flores, the accused received a ring to sell under the condition that she would return it the following day if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to return the jewelry he received upon demand, but passed on the same to a sub-agent even after demand for its return had already been made. In the foregoing cases, it was held that there was conversion or misappropriation. Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v. Trinidad,27held that: In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be answerable for the acts

of his co-conspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the accused herself was the innocent victim of her sub-agents faithlessness, her acquittal is in order.28 (Italics copied) Labrador admitted that she received the jewelry from petitioner and sold the same to a third person. She further acknowledged that she owed petitioner P441,035.00, thereby negating any criminal intent on the part of petitioner. There is no showing that petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there is no estafa within contemplation of the law. Notwithstanding the above, however, petitioner is not entirely free from any liability towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant. Then too, an agent who is not prohibited from appointing a sub-agent but does so without express authority is responsible for the acts of the subagent.29 Considering that the civil action for the recovery of civil liability arising from the offense is deemed instituted with the criminal action,30 petitioner is liable to pay complainant Quilatan the value of the unpaid pieces of jewelry. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997 are REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus legal interest, without subsidiary imprisonment in case of insolvency. SO ORDERED. Davide, Jr., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

Footnotes

Rollo, p. 42. RTC Records, p. 8. Ibid., at 6.

ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by:
4

xxxxxxxxx 1. With unfaithfulness or abuse of confidence, namely: xxxxxxxxx

(b) By misappropriating or converting to the prejudice of another, money, goods or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods or other property; x x x x x x x x x.
5

Op. cit., note 1 at 46. Op. cit., note 2 at 25. TSN, July 26, 1993, pp. 15-16. TSN, September 13, 1993, p. 8. Op. cit., note 7 at 17. TSN, November 8, 1993, p. 19. Op. cit., note 2 at 49-50. Ibid., at 51. TSN, January 27, 1994, pp. 5-9 & 16-18. Op. cit., note 1 at 51-52. Ibid., at 40. Id., at 41. Op. cit., note 1 at 13-14.

10

11

12

13

14

15

16

17

18

Barrameda v. Court of Appeals, 313 SCRA 477, 484 (1999), citing Fontanilla v. People, 258 SCRA 460 (1996) and Manahan, Jr. v. Court of Appeals, 255 SCRA 202 (1996).
19

Op. cit., note 1 at 51.

20

Civil Code of the Philippines, Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; x x x x x x x x x.
21

Amorsolo v. People, 154 SCRA 556, 563 (1987), citing U.S. v. Ramirez, 9 Phil. 67 and U.S. v. Panes, 37 Phil. 116 (1917).

22

CA 46 O. G. 6128 (1949). Ibid., at 6135. 47 O.G. 6210 (1949). 37 Phil. 116 (1917). 271 SCRA 12 (1997). CA 53 O.G. 731 (1956). Op. cit., note 26 at 20. Op. cit., note 20. Revised Rules of Criminal Procedure, Rule 111, Section 1(a).

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24

25

26

27

28

29

30

G.R. No. L-20136

June 23, 1965

IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE. JOSE A. SANTOS Y Diaz, petitioner-appellant, vs. ANATOLIO BUENCONSEJO, ET AL., respondents-appellees. Segundo C. Mastrili for petitioner-appellant. Manuel Calleja Rafael S. Lucila and Jose T. Rubio for respondents-appellees. CONCEPCION, J.: Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the Court of First Instance of Albay, denying his petition, filed in Cadastral Case No. M-2197, LRC Cad. Rec. No. 1035, for the cancellation of original certificate of title No. RO-3848 (25322), issued in the name of Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon, and covering Lot No. 1917 of the Cadastral Survey of Tabaco, Albay, and the issuance in lieu thereof, of a separate transfer certificate of title in his name, covering part of said Lot No. 1917, namely Lot No. 1917-A of Subdivision Plan PSD-63379. The main facts are not disputed. They are set forth in the order appealed from, from which we quote: It appears that the aforementioned Lot No. 1917 covered by Original Certificate of Title No. RO-3848 (25322) was originally owned in common by Anatolio Buenconsejo to the extent of undivided portion and Lorenzo Bon and Santiago Bon to the extent of the other (Exh. B); that Anatolio Buenconsejo's rights, interests and participation over the portion abovementioned were on January 3, 1961 and by a Certificate of Sale executed by the Provincial Sheriff of Albay, transferred and conveyed to Atty. Tecla San Andres Ziga, awardee in the corresponding auction sale conducted by said Sheriff in connection with the execution of the decision of the Juvenile Delinquency and Domestic Relations Court in Civil Case No. 25267, entitled "Yolanda Buenconsejo, et al. vs. Anatolio Buenconsejo"; that on December 26, 1961 and by a certificate of redemption issued by the Provincial Sheriff of Albay, the rights, interest, claim and/or or participation which Atty. Tecla San Andres Ziga may have acquired over the property in question by reason of the aforementioned auction sale award, were transferred and conveyed to the herein petitioner in his capacity as Attorney-in-fact of the children of Anatolio Buenconsejo, namely, Anastacio Buenconsejo, Elena Buenconsejo and Azucena Buenconsejo (Exh. C). It would appear, also, that petitioner Santos had redeemed the aforementioned share of Anatolio Buenconsejo, upon the authority of a special power of attorney executed in his favor by the children of Anatolio Buenconsejo; that relying upon this power of attorney and redemption made by him, Santos now claims to have acquired the share of Anatolio Buenconsejo in the aforementioned Lot No. 1917; that as the alleged present owner of said share, Santos caused a subdivision plan of said Lot No. 1917 to be made, in which the portion he claims as his share thereof has been marked as Lot No. 1917-A; and that he wants said subdivision at No. 1917-A to be segregated from Lot No. 1917 and a certificate of title issued in his name exclusively for said subdivision Lot No. 1917-A. As correctly held by the lower court, petitioner's claim is clearly untenable, for: (1) said special power of attorney authorized him to act on behalf of the children of Anatolio Buenconsejo, and, hence, it could not have possibly vested in him any property right in his own name; (2) the children of Anatolio Buenconsejo had no authority to execute said power of attorney, because their father is still alive and, in fact, he and his wife opposed the petition of Santos; (3) in consequence of said power of attorney (if valid) and redemption, Santos could have acquired no more than the share pro

indiviso of Anatolio Buenconsejo in Lot No. 1917, so that petitioner cannot without the conformity of the other co-owners (Lorenzo and Santiago Bon), or a judicial decree of partition issued pursuant to the provisions of Rule 69 of the new Rules of Court (Rule 71 of the old Rules of Court) which have not been followed By Santos adjudicate to himself in fee simple a determinate portion of said Lot No. 1917, as his share therein, to the exclusion of the other co-owners. Inasmuch as the appeal is patently devoid of merit, the order appealed from is hereby affirmed, with treble cost against petitioner-appellant Jose A. Santos y Diaz. It is so ordered. Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Bautista Angelo, Barrera and Paredes, JJ., took no part.